UMB Financial Corporation Reports Fourth Quarter Net Income of $42.9 Million or $0.87 Per Diluted Share and Record Full-Year 2016 Net Income of $158.8 Million

UMB Financial Corporation (Nasdaq: UMBF), a diversified financial holding company, announced GAAP earnings for the fourth quarter 2016 of $42.9 million or $0.87 per diluted share, compared to $41.9 million or $0.85 per diluted share in the third quarter 2016 (linked quarter) and $29.6 million or $0.60 per diluted share in the fourth quarter 2015. These results represent an increase of 2.4 percent on a linked-quarter basis and 44.8 percent compared to the fourth quarter 2015. For the year ended Dec. 31, 2016, GAAP earnings were $158.8 million or $3.22 per diluted share, an increase of 36.8 percent compared to $116.1 million or $2.44 per diluted share for the year-ended Dec. 31, 2015.

Net operating income, a non-GAAP financial measure which is reconciled to the nearest comparable GAAP measure later in this release, was $45.3 million or $0.91 per diluted share for the fourth quarter 2016, compared to $43.0 million or $0.87 per diluted share for the linked quarter and $34.2 million or $0.70 per diluted share for the fourth quarter 2015. These results represent an increase of 5.4 percent on a linked-quarter basis and 32.3 percent compared to the fourth quarter 2015. Full year 2016 net operating income was $166.5 million or $3.38 per diluted share, an increase of 34.9 percent compared to $123.4 million or $2.59 per diluted share for the full year 2015.

“Fourth quarter 2016 net income improved 2.4 percent, or $1.0 million, over the third quarter 2016,” said Mariner Kemper, chairman and chief executive officer. “These results were driven in part by a $164 million increase in average loans, which helped drive a 5.4 percent increase in net interest income. For the full year, we earned a record $158.8 million. 2016 was a year of unprecedented market activity. UMB’s stock posted a 66 percent improvement, outperforming the 26 percent return for the KBW Nasdaq Bank index. During the year, we fully integrated our acquisition of Marquette Financial Companies, executed on our expense initiative, and continued our history of solid loan growth. We are looking forward to 2017 and continuing to improve operating leverage and invest in our business for the future.”

Net interest income

• On a linked quarter basis, the increase in net interest income was driven by a 13 basis point improvement in net interest margin, coupled with a 6.5 percent annualized, or $164.2 million, increase in average loans.
• Earning asset yields improved 14 basis points from the linked quarter while the cost of interest-bearing liabilities increased one basis point to 0.26 percent. Average loan yields improved 10 basis points from the linked quarter to 3.96 percent, in part driven by favorable re-pricing and mix changes within the loan portfolio.
• On a year-over-year basis, the increase in net interest income was driven by a 12.5 percent or $1.1 billion increase in average loans as well as higher average loan yields, which increased 16 basis points from a year ago.
• For the fourth quarter 2016, average earning assets stood at $18.6 billion, an increase of 1.0 percent over the linked quarter and 6.8 percent over the fourth quarter 2015.

Noninterest income

• Fourth quarter 2016 noninterest income decreased $5.6 million, or 4.6 percent, on a linked quarter basis largely due to lower gains on available-for-sale securities and equity earnings on alternative investments, which decreased $3.0 million and $1.1 million, respectively.
• Noninterest income improved $3.7 million, or 3.3 percent, compared to the same quarter in 2015 driven by:
  • a $5.7 million increase in equity earnings on alternative investments from improvements in the valuation of the underlying Prairie Capital Management (PCM) fund investments;
  • a $1.5 million increase in 12b-1 income recorded in brokerage fees;
  • a $1.1 million increase in the fair value of company-owned life insurance, a $0.9 million increase in derivative income, and a $0.6 million gain on the sale of property recorded in other noninterest income;
  • a $1.5 million increase in trust and securities processing income related to the company’s private wealth business; and
  • partially offset by a decrease of $3.1 million, in advisory fee income from the Scout Funds recorded in trust and securities processing income and a $1.2 million decrease in bankcard fees driven by higher retail and commercial card program rewards and rebates expense.

Noninterest expense

• 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 $182.6 million for the fourth quarter 2016, an increase of $4.5 million, or 2.5 percent, compared to the linked quarter, and $7.7 million, or 4.4 percent, compared to the fourth quarter 2015.
• On a linked quarter GAAP basis, the $6.5 million, or 3.6 percent, increase in noninterest expense was driven by:
  • a $2.7 million non-recurring fee paid for marketing agent termination costs within the company’s institutional investment management business and $0.7 million in operational losses within the bank segment, both of which were recorded in other noninterest expense;
  • higher legal and consulting expenses driven by technology-related consulting services and year-end billings from professional services firms;
  • higher 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;
  • an increase in $0.9 million of bonus and commission expense driven, in part, by higher one- and three-year performance-related incentives in the company’s institutional management business; and
  • partially offset by a $2.7 million decrease in salaries and employee benefits expense due to lower employee headcount and decreased benefits expense.
• The increase in noninterest expense of $4.2 million, or 2.3 percent, compared to the fourth quarter 2015 was primarily driven by:
  • a $2.7 million non-recurring fee paid for marketing agent termination costs within the company’s institutional investment management business recorded in other noninterest expense;
  • increased bonus and commission expense due to improved company performance;
  • higher 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; and
  • partially offset by decreased processing fees paid to distributors of the Scout Funds.

Income Taxes

• The company’s full year effective tax rate as of Dec. 31, 2016 decreased to 23.3 percent, as compared to 27.1 percent for full year Dec. 31, 2015. The decrease is primarily attributable to an increase in federal tax credits and a larger portion of income earned from excludable life insurance policy gains.

Balance Sheet

• Average total assets for the fourth quarter 2016 were $19.9 billion compared to $18.8 billion for the same period in 2015, an increase of $1.2 billion, or 6.2 percent.

• Average loans for the fourth quarter 2016, increased 1.6 percent, on a linked-quarter basis, and 12.5 percent, compared to fourth quarter 2015.

• The growth in the company’s held to maturity securities portfolio is attributed to increased activity in private placement bonds, primarily used to refinance existing revenue bonds in the healthcare and education sectors.

• The cost of interest-bearing liabilities for the fourth quarter 2016 was 26 basis points, and total cost of funds including noninterest-bearing deposits was 13 basis points.

• The 20.2 percent year-over-year increase in net interest income was driven by a volume variance of $63.0 million and a rate variance of $20.2 million. In 2016, average loan balances increased $1.6 billion and average loan yields increased 21 basis points.
• Full year noninterest income increased $9.6 million, or 2.1 percent, due to:
  • a $14.9 million increase in equity earnings on alternative investments from improvements in the valuation of the underlying PCM fund investments;
  • a $7.8 million increase in bank-owned and company-owned life insurance income recorded in other noninterest income;
  • a $5.3 million increase in 12b-1 income recorded in brokerage fees; and
  • partially offset by a decrease in trust and securities processing income primarily due to a $22.9 million, or 40.9 percent, decrease in advisory fee income from the Scout Funds.
• Full year noninterest expense increased 28.2 million, or 4.0 percent, primarily due to increases in bonus and commission expense of $11.4 million, salary expense of $9.1 million, and deferred compensation plan fair-value adjustments of $5.1 million.
• On a non-GAAP basis, operating noninterest expense, which excludes the impact of acquisition expenses and other items as reconciled later in this release, was $719.9 million for full-year 2016, an increase of $27.6 million, or 4.0 percent, compared to the full-year 2015.

• Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, decreased $9.4 million from the linked quarter driven primarily due to the sale of one large commercial credit that migrated to nonperforming status last quarter.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.255 per share quarterly cash dividend, payable on April 3, 2017, to shareholders of record at the close of business on March 10, 2017.

Conference Call

The company plans to host a conference call to discuss its fourth quarter and year-end 2016 earnings results on Wednesday, Jan. 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 4Q & Year-End 2016 Conference Call

A replay of the conference call may be heard through Feb. 8, 2017, by calling (toll-free) 877-344-7529 or (U.S.) 412-317-0088. The replay pass code required for playback is 10098797. 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, 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 (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 fair value adjustments, acquisition- and severance-related items and one-time marketing agent termination 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 Prairie Capital Management, LLC (PCM) and Reams Asset Management Company (Reams), (ii) expenses related to acquisitions (iii) non-acquisition related severance expense (iv) expenses related to the buy-out and termination of certain marketing and referral agreements in the company’s institutional investment management business, and (v) the 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)-(iv) 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 (tax equivalent 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—such as our statements about expected cost savings and other results of efficiency initiatives and our statements about reduced regulation, tax reform and our ability to capitalize on changes. 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, 2015, 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.