UMB Financial Corporation Reports Third Quarter Net Income of $88.0 Million and Announces 2.7% Cash Dividend Increase

Third Quarter 2022 Financial Highlights

• GAAP net income of $88.0 million, or $1.81 per diluted share.
• Average loan balances increased $2.5 billion, or 15.1%, compared to the third quarter of 2021.
• Average deposits grew 1.3% compared to the third quarter of 2021.
• Noninterest income increased 19.3% as compared to the third quarter of 2021, equal to 35.5% of total revenue.
• Excluding Paycheck Protection Program (PPP) balances, average loans increased 21.9% on a linked-quarter, annualized basis.
• Net interest margin expanded 16 basis points from the linked quarter.
• Credit quality remained strong, with net charge-offs of just 0.02% of average loans.

UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced net income for the third quarter of 2022 of $88.0 million, or $1.81 per diluted share, compared to $137.6 million, or $2.83 per diluted share, in the second quarter of 2022 (linked quarter) and $94.5 million, or $1.94 per diluted share, in the third quarter of 2021. The results for the second quarter of 2022 include a pre-tax gain of $66.2 million on the sale of the company’s entire investment in Visa Inc. Class B common shares, and a pre-tax $5.0 million contribution to the company’s charitable foundation.

Net operating income, a non-GAAP financial measure reconciled later in this release to net income, the nearest comparable GAAP measure, was $88.3 million, or $1.82 per diluted share, for the third quarter of 2022, compared to $137.6 million, or $2.83 per diluted share, for the linked quarter and $95.1 million, or $1.95 per diluted share, for the third quarter of 2021. Operating pre-tax, pre-provision income (Operating PTPP), a non-GAAP measure reconciled later in this release to the components of net income before taxes, the nearest comparable GAAP measure, was $131.2 million, or $2.70 per diluted share, for the third quarter of 2022, compared to $187.1 million, or $3.84 per diluted share, for the linked quarter, and $109.6 million, or $2.24 per diluted share, for the third quarter of 2021. These operating PTPP results represent a decrease of 29.9% on a linked-quarter basis and an increase of 19.6%, compared to the third quarter of 2021. The results in the linked quarter comparison were impacted by the benefit from the aforementioned gain on the sale of the company’s Visa Inc. Class B common shares net of the contribution to the company’s charitable foundation in the second quarter of 2022.

“On a linked-quarter basis, our strong third quarter 2022 results were facilitated again by robust loan growth, strong revenue growth which was driven by a 3.9% increase in net interest income, net interest margin expansion, and strong fee income growth, excluding the nonrecurring gain from the sale of Visa Class B shares,” said Mariner Kemper, chairman, president and chief executive officer. “Average loans excluding PPP balances increased 21.9% on a linked-quarter annualized basis with more than 53% of the increase driven by commercial & industrial loan growth. Our deposit costs increased in the third quarter, driven by repricing as short-term interest rates increased, and by our own efforts to attract new-to-bank customers through deposit initiatives. Our loan yields expanded 74 basis points from the second quarter and, coupled with a favorable shift in earning asset mix, drove a 16-basis-point expansion in our net interest margin. In September, we were successful in raising $110.0 million in growth capital through our subordinated notes offering that will facilitate our differentiated balance sheet growth for the remainder of this year and into 2023. Finally, our net charge-off ratio in the third quarter was just two basis points, while our nonaccrual loans comprised only ten basis points of loans.”

Net interest income

• Third quarter 2022 net interest income totaled $233.5 million, an increase of $8.7 million, or 3.9% from the linked quarter, driven by an increase of $966.3 million in average loans and the impact from increased short-term and long-term interest rates.
• Average earning assets decreased $1.2 billion, or 3.5%, largely driven by a decrease of $2.0 billion in interest-bearing due from banks, partially offset by the increase of $966.3 million in average loans noted above. The decrease in excess liquidity was commensurate with a decrease of $1.8 billion in average noninterest-bearing deposits. Average interest-bearing liabilities increased $442.8 million, or 2.2%, primarily driven by an increase of $396.9 million in federal funds purchased and repurchase agreements.
• Net interest margin for the third quarter was 2.76%, an increase of 16 basis points from the linked quarter, driven by benefits of higher short-term interest rates as well as favorable earning asset mix changes. Average loan yields increased 74 basis points while earning asset yields increased 67 basis points from the linked quarter. The cost of interest-bearing liabilities increased 81 basis points to 1.28%. Net interest spread decreased 14 basis points to 2.25% from the linked quarter and was 18 basis points lower than the third quarter of 2021.
• On a year-over-year basis, net interest income increased $23.7 million, or 11.3%, driven by a $2.5 billion, or 15.1% increase in average loans, coupled with a $1.8 billion, or 14.7% increase in average securities. These increases were driven by organic loan growth and excess liquidity.
• Average deposits decreased 5.7% on a linked-quarter basis and increased 1.3% compared to the third quarter of 2021. Average noninterest-bearing demand deposit balances decreased 12.8% on a linked-quarter basis and increased 8.7% compared to the third quarter of 2021. The linked-quarter decline in average deposits was primarily driven by decreases in rate-sensitive institutional segment balances in the current interest rate environment. Demand deposit balances comprised 41.6% of total deposits, compared to 45.0% in the linked quarter and 38.7% in the third quarter of 2021.

Noninterest income

• Third quarter 2022 noninterest income totaled $128.7 million, compared to $176.3 million in the linked quarter. The linked quarter results included the $66.2 million realized gain on the sale of the company’s Visa Inc. Class B common shares recorded in investment securities gains, net. The remainder of the change in noninterest income is largely due to:
  • Increases of $13.0 million in company-owned life insurance income and $1.2 million in derivative income, both recorded in other income. The increase in company-owned life insurance is offset by a proportionate increase in deferred compensation expense as noted below.
  • Increases of $1.5 million and $1.4 million in bankcard income and brokerage income, respectively. These increases were driven by higher interchange income and increased 12b-1 fee income, respectively.
  • These increases were partially offset by a decrease of $1.7 million in trading and investment banking due to lower trading volume.
• Compared to the prior year, noninterest income in the third quarter of 2022 increased $20.8 million, or 19.3%, primarily driven by:
  • An increase of $10.9 million in brokerage income, largely driven by increases in 12b-1 fees and money market income.
  • Increases of $2.1 million and $1.7 million in derivative income and company-owned life insurance income, respectively, both recorded in other income. The increase in company-owned life insurance is offset by a proportionate increase in deferred compensation expense as noted below.
  • An increase of $2.7 million in trust and securities processing income, largely driven by increased fund services income and corporate trust income.
  • Increases of $2.2 million in both bankcard income and investment securities gains, net, driven by increased interchange, and mark-to-market gains on marketable securities, respectively.

Noninterest expense

• Noninterest expense for the third quarter of 2022 was $231.4 million, an increase of $17.3 million, or 8.1%, from the linked quarter and an increase of $22.5 million, or 10.8%, from the third quarter of 2021.
• The linked-quarter increase in noninterest expense was driven by:
  • An increase of $15.1 million in salaries and employee benefits expense, primarily driven by an increase of $11.5 million in deferred compensation expense and an increase of $4.5 million in salaries and wage expense. The increase in deferred compensation expense was offset by the increase in company-owned life insurance income noted above.
  • An increase of $3.7 million in operational losses, recorded in other expense.
  • Increases of $1.6 million and $1.4 million in processing fees and marketing and business development expense, respectively, due to the timing of multiple projects.
  • These increases were offset by a decrease of $4.8 million in charitable contributions expense, recorded in other expense.
• The year-over-year increase in noninterest expense was driven by:
  • An increase of $11.5 million in salaries and employee benefits expense, driven primarily by an increase of $7.0 million in salaries and wage expense and $4.1 million in employee benefits expense, primarily due to an increase of $1.7 million in payroll taxes, insurance, and 401(k) expense, and an increase of $1.3 million in deferred compensation expense.
  • Increases of $4.3 million, $2.6 million, and $1.8 million in processing fees, legal and consulting expense, and marketing and business development expense, respectively, due to the timing of multiple projects.
  • Increases of $1.5 million in operational losses, recorded in other expense, and $1.0 million in regulatory fees.

Income taxes

• The company’s effective tax rate was 18.8% for the nine months ended September 30, 2022, compared to 17.0% for the same period in 2021. The increase in the effective rate in 2022 is primarily attributable to a smaller portion of income being earned from tax-exempt municipal securities.

Balance sheet

• Average total assets for the third quarter of 2022 were $36.3 billion compared to $37.6 billion for the linked quarter and $35.9 billion for the same period in 2021.

• Average loans for the third quarter of 2022 increased 5.3% on a linked-quarter basis and 15.1% compared to the third quarter of 2021. Excluding PPP balances, average loans increased 5.5% on a linked-quarter basis and 18.6% as compared to the third quarter of 2021.

• Average total securities increased 0.3% on a linked-quarter basis and 14.7% compared to the third quarter of 2021. During the third quarter, cash flows from the securities portfolio were not reinvested and were redeployed to fund loan growth.

• Average deposits decreased 5.7% on a linked-quarter basis and increased 1.3% compared to the third quarter of 2021. The decrease in noninterest-bearing demand deposit balances was driven by the impact of higher short-term interest rates including higher earnings credit rates earned on such balances, as well as an overall decrease in customer balances consistent with typical trends observed during an economic tightening cycle.

Capital

• At September 30, 2022, the regulatory capital ratios presented in the foregoing table exceeded all “well-capitalized” regulatory thresholds.
• Total risk-based capital was favorably impacted by the $110.0 million subordinated note issuance during the third quarter.

Asset Quality

• Provision for credit losses for the third quarter increased $8.6 million from the linked quarter and $27.0 million from the third quarter of 2021. These increases are driven by loan growth, portfolio credit metric changes, and changes in macro-economic metrics in the current period as compared to the prior periods.
• Net charge-offs for the third quarter totaled $1.2 million, or 0.02%, of average loans, compared to $28.1 million, or 0.62%, of average loans in the linked quarter, and $3.1 million, or 0.07%, of average loans for the third quarter of 2021. On a year-to-date basis, net charge-offs totaled $37.7 million, or 0.27%, of average loans, compared to $36.8 million, or 0.30%, of average loans, for the same period in 2021.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors approved a 2.7% increase in the company’s quarterly cash dividend to shareholders, to $0.38 per share. This dividend will be payable on January 3, 2023, to shareholders of record at the close of business on December 12, 2022.

Conference Call

The company plans to host a conference call to discuss its third quarter 2022 earnings results on Wednesday, October 26, 2022, at 8:30 a.m. (CT).

Interested parties may access the call by dialing (toll-free) 844-200-6205 or (international) 646-904-5544 and requesting to join the UMB Financial call with access code 644175. The live call may also be accessed by visiting investorrelations.umb.com or by using the following link:

UMB Financial 3Q 2022 Conference Call

A replay of the conference call may be heard through November 9, 2022 by calling (toll-free) 866-813-9403 or (international) 929-458-6194. The replay access code required for playback is 298424. The call replay may also be accessed at investorrelations.umb.com.

Non-GAAP Financial Information

In this release, we may 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, operating pre-tax, pre-provision income (operating PTPP), operating pre-tax, pre-provision earnings per share – diluted (operating PTPP EPS), operating pre-tax, pre-provision income on a fully tax equivalent basis (operating PTPP-FTE), operating pre-tax, pre-provision FTE earnings per share – diluted (operating PTPP-FTE EPS), tangible shareholders’ equity, and tangible book value per share, 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, operating PTPP, operating PTPP EPS, operating PTPP-FTE, operating PTPP-FTE EPS, tangible shareholders’ equity, and tangible book value per share – 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-, severance-, and COVID-19 related items that management does not believe reflect the company’s fundamental operating performance. COVID-19 related expense includes hazard pay for branch associates, computer hardware expense to support associates working remotely, and additional equipment, cleaning, and janitorial supplies to protect the well-being of our associates and customers while on the company’s premises.

Net operating income for the relevant period is defined as GAAP net income, adjusted to reflect the impact of excluding expenses related to acquisitions, severance expense, COVID-19 related 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, 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 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).

Operating PTPP income for the relevant period is defined as GAAP net interest income plus GAAP noninterest income, less noninterest expense, adjusted to reflect the impact of excluding expenses related to acquisitions, severance expense, and COVID-19 related expense.

Operating PTPP-FTE for the relevant period is defined as GAAP net interest income on a fully tax equivalent basis plus GAAP noninterest income, less noninterest expense, adjusted to reflect the impact of excluding expenses related to acquisitions, severance expense and COVID-19 related expense.

Tangible shareholders’ equity for the relevant period is defined as GAAP shareholders’ equity, net of intangible assets. Tangible book value per share is defined as tangible shareholders’ equity divided by the Company’s total shares outstanding.

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, 2021, 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). In addition to such factors that have been disclosed previously: macroeconomic and other challenges and uncertainties related to the COVID-19 pandemic, such as the impacts to the U.S. and global economies; sustained levels of high inflation and the potential for an economic recession on the heels of aggressive quantitative tightening by the Federal Reserve, and impacts related to or resulting from Russia’s military action in Ukraine, such as the broader impacts to financial markets and the global macroeconomic and geopolitical environments, may also cause actual results or other future events, circumstances, or aspirations to differ from our forward-looking statements. 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, Missouri. UMB offers commercial banking, which includes comprehensive deposit, lending and investment services, personal banking, which includes wealth management and financial planning services, and institutional banking, which includes asset servicing, corporate trust solutions, investment banking, and healthcare services. UMB operates branches throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas. As the company’s reach continues to grow, it also serves business clients nationwide and institutional clients in several countries. For more information, visit UMB.com, UMB Blog, UMB Facebook and UMB LinkedIn, or follow us on Twitter at @UMBBank.