UMB Financial Corporation Reports Second Quarter Net Income of $137.6 Million

Second Quarter 2022 Financial Highlights

• GAAP net income of $137.6 million, or $2.83 per diluted share.
• Operating pre-tax, pre-provision income (Operating PTPP, a non-GAAP financial measure) of $187.1 million, an increase of 56.7% compared to the first quarter of 2022.
• Average loan balances increased $1.5 billion, or 8.9% compared to the second quarter of 2021.
• Excluding Paycheck Protection Program (PPP) balances, average loans increased 23.3% on a linked-quarter, annualized basis.
• Average deposits grew 13.7% compared to the second quarter of 2021.
• Net interest margin expanded 25 basis points from the linked quarter.
• Noninterest income increased 34.0% as compared to the second quarter of 2021, equal to 44.0% of total revenue.

UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced net income for the second quarter of 2022 of $137.6 million, or $2.83 per diluted share, compared to $106.0 million, or $2.17 per diluted share, in the first quarter of 2022 (linked quarter) and $87.4 million, or $1.79 per diluted share, in the second 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 $137.6 million, or $2.83 per diluted share, for the second quarter of 2022, compared to $106.1 million, or $2.17 per diluted share, for the linked quarter and $87.6 million, or $1.80 per diluted share, for the second quarter of 2021. 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 $187.1 million, or $3.84 per diluted share, for the second quarter of 2022, compared to $119.4 million, or $2.44 per diluted share, for the linked quarter, and $131.6 million, or $2.71 per diluted share, for the second quarter of 2021. These operating PTPP results represent increases of 56.7% on a linked-quarter basis and 42.1%, compared to the second quarter of 2021, and include 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.

“Our strong financial results for the second quarter of 2022 were driven by a 23.3% linked-quarter annualized increase in average loans excluding PPP, strong net interest margin expansion, and continued momentum in our fee income businesses,” said Mariner Kemper, chairman, president and chief executive officer. “Our strong loan growth, coupled with the benefits from higher short and long-term interest rates drove a 6.9% linked-quarter increase in net interest income. Our net charge-offs were elevated this quarter driven entirely by a $27.7 million write-down related to one commercial relationship. Nonperforming loans declined 83.6% from the prior quarter as the portfolio continues to perform well. During the quarter, we made a $5.0 million contribution to the UMB Financial Corporation Charitable Foundation to continue our support of diverse and impactful philanthropic organizations within the communities we serve.”

Net interest income

• Net interest income totaled $224.8 million, an increase of $14.4 million, or 6.9% from the linked quarter, driven by an increase of $956.9 million in average loans and the impact from increased short-term and long-term interest rates.
• Average earning assets decreased $1.8 billion, or 4.7%, largely driven by a decrease of $2.7 billion in interest-bearing due from banks, partially offset by the increase of $956.9 million in average loans noted above. Average interest-bearing liabilities declined $1.5 billion, or 6.8%, primarily driven by a decrease of $1.2 billion in interest-bearing deposits.
• Net interest margin for the second quarter was 2.60%, an increase of 25 basis points from the linked quarter, driven by an increase in loan yields of 23 basis points. Earning asset yields increased 39 basis points from the linked quarter, driven by the recent increases in short-term and long-term interest rates, mix changes, and the benefit of free funds. The cost of interest-bearing liabilities increased 26 basis points to 0.47%. Net interest spread increased 13 basis points to 2.39% from the linked quarter but was eight basis points lower than the second quarter of 2021.
• On a year-over-year basis, net interest income increased $23.7 million, or 11.8%, driven by a $2.3 billion, or 20.7% increase in average securities, coupled with a $1.5 billion, or 8.9%, increase in average loans. These increases were driven by organic loan growth and excess liquidity.
• Average deposits decreased 3.0% on a linked-quarter basis and increased 13.7% compared to the second quarter of 2021. Average noninterest-bearing demand deposit balances increased 1.3% on a linked-quarter basis and 32.8% compared to the second quarter of 2021.

Noninterest income

• Second quarter 2022 noninterest income increased $52.7 million on a linked-quarter basis, largely due to:
  • A gain of $66.2 million realized on the sale of the company’s Visa Inc. Class B common shares, partially offset by a decline of $3.7 million in mark-to-market gains on marketable securities, both recorded in investment securities gains, net.
  • An increase of $8.9 million in brokerage income, largely driven by increases in 12b-1 fees and money market income.
  • These increases were partially offset by decreases of $10.5 million in company-owned life insurance income and $4.2 million in derivative income, both recorded in other income, and a decrease of $3.8 million in service charges on deposits. The decrease in company-owned life insurance is offset by a proportionate decrease in deferred compensation expense as noted below. The decrease in service charges on deposits was primarily due to lower healthcare income related to customer transfer and conversion fees.
• Compared to the prior year, noninterest income in the second quarter of 2022 increased $44.7 million, or 34.0%, primarily driven by:
  • An increase of $45.3 million in investment securities gains, primarily due to the $66.2 million gain realized on the sale of the company’s Visa Inc. Class B common shares, partially offset by declines of $14.1 million and $5.5 million in mark-to-market gains on marketable securities and non-marketable securities, respectively.
  • An increase of $9.8 million in brokerage income, largely driven by increases in 12b-1 fees and money market income.
  • Increases of $3.7 million and $1.7 million in fund services income and corporate trust income, respectively, both recorded in trust and securities processing.
  • These increases were partially offset by decreases of $11.6 million in company-owned life insurance income and $2.6 million in derivative income, both recorded in other income, and a decrease of $1.8 million in service charges on deposits. The decrease in company-owned life insurance is offset by a proportionate decrease in deferred compensation expense as noted below. The decrease in service charges on deposits was primarily due to lower healthcare income related to customer transfer and conversion fees.

Noninterest expense

• Noninterest expense for the second quarter of 2022 was $214.1 million, a decrease of $0.7 million, or 0.3%, from the linked quarter and an increase of $12.8 million, or 6.4%, from the second quarter of 2021.
• The linked-quarter decrease in noninterest expense was driven by:
  • A decrease of $16.4 million in employee benefits expense, recorded in salaries and employee benefits, driven primarily by a decrease of $10.7 million in deferred compensation expense and a seasonal decrease of $6.2 million in payroll taxes, insurance, and 401(k) expense recognized in the second quarter. The decrease in deferred compensation expense was offset by the decrease in company-owned life insurance income noted above.
  • These decreases were offset by an increase of $7.2 million in bonus and salary expense, recorded in salaries and employee benefits, driven by increased company performance, an increase of $4.4 million in legal and consulting expense due to the timing of multiple projects, and an increase of $4.4 million in charitable contributions expense, recorded in other expense.
• The year-over-year increase in noninterest expense was driven by:
  • An increase of $9.8 million in salaries and bonus expense, recorded in salaries and employee benefits, driven by increased company performance.
  • An increase of $4.4 million in charitable contributions expense, recorded in other expense.
  • Increases of $3.1 million in legal and consulting expense and $2.8 million in processing fees due to the timing of multiple projects.
  • An increase of $1.4 million in bankcard expense primarily due to higher processing expense.
  • These increases were partially offset by a decrease of $8.8 million in employee benefits expense, recorded in salaries and employee benefits, primarily due to a decrease of $10.4 million in deferred compensation expense. The decrease in deferred compensation expense was offset by the decrease in company-owned life insurance income noted above.

Income taxes

• The company’s effective tax rate was 18.7% for the six months ended June 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 second quarter of 2022 were $37.6 billion compared to $39.2 billion for the linked quarter and $34.3 billion for the same period in 2021.

• Average loans for the second quarter of 2022 increased 5.5% on a linked-quarter basis and 8.9% compared to the second quarter of 2021. Excluding PPP balances, average loans increased 5.8% on a linked-quarter basis and 16.8% as compared to the second quarter of 2021.

• Average total securities increased 0.9% on a linked-quarter basis and 20.7% compared to the second quarter of 2021.

• Average deposits decreased 3.0% on a linked-quarter basis and increased 13.7% compared to the second quarter of 2021.
• Average noninterest-bearing demand deposits increased 1.3% on a linked-quarter basis to $14.2 billion.

Capital

• At June 30, 2022, the regulatory capital ratios presented in the foregoing table exceeded all “well-capitalized” regulatory thresholds.

Asset Quality

• Provision for credit losses for the second quarter increased $19.9 million from the linked quarter and decreased $10.6 million from the second quarter of 2021. Provision expense in the first quarter of 2022 represented a release of the Allowance for Credit Losses (ACL) based on positive macro-economic data and portfolio credit metrics.
• Net charge-offs for the second quarter totaled $28.1 million, or 0.62%, of average loans, compared to $8.4 million, or 0.20%, of average loans in the linked quarter, and $28.4 million, or 0.68%, of average loans for the second quarter of 2021.
• The increase in net charge-offs in the second quarter of 2022 is due to a $27.7 million write-down on a single commercial relationship.
• Nonaccrual loans decreased 83.6% from the linked quarter to 0.10% of total loans.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.37 per share quarterly cash dividend, payable on October 3, 2022, to shareholders of record at the close of business on September 12, 2022.

Conference Call

The company plans to host a conference call to discuss its second quarter 2022 earnings results on Wednesday, July 27, 2022, at 9:30 a.m. (CT).

Interested parties may access the call by dialing (toll-free) 844-200-6205 or (international) 929-526-1599 and requesting to join the UMB Financial call with access code 636921. The live call may also be accessed by visiting investorrelations.umb.com or by using the following link:

UMB Financial 2Q 2022 Conference Call

A replay of the conference call may be heard through August 10, 2022 by calling (toll-free) 866-813-9403 or (international) 929-458-6194. The replay access code required for playback is 826164. 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; 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.