UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced results for the fourth quarter and year ended December 31, 2018.

“Results for the fourth quarter 2018 included 8.5 percent annualized average loan growth, 9.9 percent deposit growth and margin expansion of six basis points on a linked-quarter basis,” said Mariner Kemper, chairman and chief executive officer. “However, our results for the quarter were significantly impacted by the charge off of a single $48.1 million factoring relationship. Strong asset quality has long been a hallmark of UMB and this event is certainly not typical for us. After a thorough review, we believe that the issues specific to this credit were isolated and that this charge-off does not point to deterioration in any particular sector. We will continue to evaluate our internal controls.”

Income from continuing operations for the fourth quarter 2018 was $25.5 million, or $0.52 per diluted share, compared to $57.8 million, or $1.16 per diluted share, in the third quarter 2018 (linked quarter) and $47.4 million, or $0.95 per diluted share, in the fourth quarter 2017. The reported GAAP income from continuing operations represents decreases of 56.0 percent on a linked-quarter basis and 46.3 percent compared to the fourth quarter 2017. For the year ended December 31, 2018, income from continuing operations was $196.3 million, or $3.94 per diluted share, which is an increase of 7.3 percent compared to $183.0 million, or $3.67 per diluted share, for the year ended December 31, 2017.

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 $27.6 million, or $0.56 per diluted share, for the fourth quarter 2018, compared to $58.0 million, or $1.16 per diluted share, for the linked quarter and $47.5 million, or $0.95 per diluted share, for the fourth quarter 2017. These results represent decreases of 52.5 percent on a linked-quarter basis and 42.0 percent compared to the fourth quarter 2017. For the year ended December 31, 2018, net operating income from continuing operations was $200.7 million, or $4.03 per diluted share, compared to $183.7 million, or $3.69 per diluted share, for the year ended December 31, 2017.

 
Summary of quarterly financial results     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)
    Q4     Q3     Q4
2018 2018 2017
Income from continuing operations $ 25,454 $ 57,849 $ 47,357
Income from discontinued operations   —     —     64,604  
Net income 25,454 57,849 111,961
 
Earnings per share from continuing operations (diluted) 0.52 1.16 0.95
Earnings per share from discontinued operations (diluted)   —     —     1.30  
Earnings per share (diluted) 0.52 1.16 2.25
 
Net operating income from continuing operations 27,578 58,024 47,533
Operating earnings per share from continuing operations (diluted) 0.56 1.16 0.95
 

GAAP - continuing operations

Return on average assets 0.46 % 1.11 % 0.91 %
Return on average equity 4.57 10.32 8.72
Efficiency ratio 71.26 71.27 71.70
 

Non-GAAP - continuing operations

Operating return on average assets 0.50 % 1.11 % 0.91 %
Operating return on average equity 4.95 10.35 8.75
Operating efficiency ratio 70.19 71.18 71.59
 
Summary of year-to-date financial results         UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)         December     December
YTD YTD
2018 2017
Income from continuing operations $ 196,260 $ 182,976
(Loss) income from discontinued operations   (747 )   64,129  
Net income 195,513 247,105
 
Earnings per share from continuing operations (diluted) 3.94 3.67
(Losses) earnings per share from discontinued operations (diluted)   (0.01 )   1.29  
Earnings per share (diluted) 3.93 4.96
 
Net operating income from continuing operations 200,743 183,688
Operating earnings per share from continuing operations (diluted) 4.03 3.69
 

GAAP - continuing operations

Return on average assets 0.93 % 0.90 %
Return on average equity 8.94 8.79
Efficiency ratio 70.39 71.33
 

Non-GAAP - continuing operations

Operating return on average assets 0.96 % 0.90 %
Operating return on average equity 9.15 8.83
Operating efficiency ratio 69.82 71.22
 

Discussion of results from continuing operations

Summary of revenue     UMB Financial Corporation
(unaudited, dollars in thousands)
    Q4     Q3     Q4     CQ vs.     CQ vs.
2018 2018 2017 LQ PY
Net interest income $ 161,808 $ 150,490 $ 146,346 $ 11,318 $ 15,462
Noninterest income:
Trust and securities processing 41,891 43,425 44,234 (1,534 ) (2,343 )
Trading and investment banking 3,119 3,711 5,015 (592 ) (1,896 )
Service charges on deposit accounts 20,733 20,927 21,364 (194 ) (631 )
Insurance fees and commissions 312 339 388 (27 ) (76 )
Brokerage fees 6,761 6,402 6,127 359 634
Bankcard fees 16,375 16,838 17,617 (463 ) (1,242 )
Gains on sales of securities available for sale, net — 211 54 (211 ) (54 )
Other   5,808     9,032     11,234     (3,224 )   (5,426 )
Total noninterest income $ 94,999   $ 100,885   $ 106,033   $ (5,886 ) $ (11,034 )
Total revenue $ 256,807   $ 251,375   $ 252,379   $ 5,432   $ 4,428  
Net interest margin 3.24 % 3.18 % 3.21 %
Total noninterest income as a % of total revenue 36.99 40.13 42.01

Following the enactment of the Tax Cuts and Jobs Act, beginning in the first quarter of 2018, net interest margin is computed using net interest income adjusted to a fully taxable equivalent (FTE) basis assuming a statutory federal income tax rate of 21 percent and, where applicable, state income taxes; prior period net interest margins are computed using the then-statutory federal income tax rate of 35 percent and, where applicable, state income taxes.

Net interest income

  • Net interest income totaled $161.8 million, an increase of $11.3 million, or 7.5 percent, from linked quarter levels, impacted by a $249.4 million, or 2.1 percent, increase in average loans, as well as a six-basis-point improvement in net interest margin.
  • Earning asset yields improved 14 basis points from the linked quarter, primarily due to improved loan yields of 24 basis points to 5.11 percent, in part driven by favorable re-pricing from recent increases in short-term interest rates. The cost of interest-bearing liabilities increased 14 basis points to 1.21 percent, driven by a 19-basis point increase in cost of interest-bearing deposits. Total cost of deposits, including noninterest-bearing deposits, was 75 basis points, an increase of 13 basis points from the linked quarter.
  • On a year-over-year basis, the increase in net interest income was driven by an 8.0 percent, or $883.2 million, increase in average loans, as well as higher average loan yields, which increased 71 basis points from 2017, primarily driven by higher short-term interest rates, volume, and asset mix changes.
  • For the fourth quarter 2018, average earning assets stood at $20.5 billion, an increase of 5.8 percent over the fourth quarter 2017.

Noninterest income

  • Fourth quarter 2018 noninterest income decreased $5.9 million, or 5.8 percent, on a linked quarter basis, largely due to:
    • Decreases of $5.7 million and $1.3 million in company-owned life insurance income and derivative income, respectively, both of which are recorded in other income. These decreases were partially offset by $2.9 million in gains on sales of assets and $0.9 million in loss recoveries.
    • A decrease in trust and securities processing due to a $1.5 million decline in alternative investment revenue.
    • A $0.6 million decrease in trading and investment banking due to decreased bond trading income.
  • Compared to prior year, noninterest income in the fourth quarter of 2018 decreased $11.0 million, or 10.4 percent, primarily driven by:
    • Decreases of $6.6 million and $0.9 million in company-owned life insurance and derivative income, respectively, both of which are recorded in other income. These decreases were partially offset by $2.9 million in gains on sales of assets.
    • A $3.5 million decline in fund servicing revenue due to customer repricing and losses, which was partially offset by an increase of $1.4 million in corporate trust income, both recorded in trust and securities processing.
    • A $1.9 million decrease in trading and investment banking income due to decreased trading volume.
    • A $1.7 million increase in rewards and rebates expense recorded as an offset to bankcard fees driven by increased purchase volume, partially offset by a $0.4 million increase in interchange income.
    • A $0.6 million decrease in service charges on deposits primarily due to customer repricing.

Noninterest expense

Summary of noninterest expense

     UMB Financial Corporation
(unaudited, dollars in thousands)
    Q4     Q3     Q4     CQ vs.     CQ vs.
2018 2018 2017 LQ PY
Salaries and employee benefits $ 103,992 $ 102,956 $ 107,656 $ 1,036 $ (3,664 )
Occupancy, net 11,845 11,628 11,148 217 697
Equipment 18,983 18,533 18,690 450 293
Supplies and services 3,669 4,528 4,211 (859 ) (542 )
Marketing and business development 6,483 6,671 6,540 (188 ) (57 )
Processing fees 11,948 12,331 11,238 (383 ) 710
Legal and consulting 11,085 8,470 6,045 2,615 5,040
Bankcard 4,316 4,407 4,405 (91 ) (89 )
Amortization of other intangible assets 1,332 1,385 1,641 (53 ) (309 )
Regulatory fees 2,681 3,337 3,825 (656 ) (1,144 )
Other   7,987   6,139   7,160   1,848     827  
Total noninterest expense $ 184,321 $ 180,385 $ 182,559 $ 3,936   $ 1,762  
  • GAAP noninterest expense for the fourth quarter of 2018 was $184.3 million, an increase of $3.9 million, or 2.2 percent, from the linked quarter and an increase of $1.8 million, or 1.0 percent, from the fourth quarter of 2017.
  • On a non-GAAP basis, operating noninterest expense (as reconciled later in this release) was $181.6 million for the fourth quarter 2018, an increase of $1.4 million, or 0.8 percent, compared to the linked quarter, and a decrease of $0.7 million, or 0.4 percent, compared to the fourth quarter 2017.
  • The linked quarter increase in noninterest expense was driven by:
    • A $1.8 million increase in other noninterest expense, largely driven by a $0.9 million contribution made to the UMB Financial Corporation Charitable Foundation and an increase of $0.7 million in derivative expense.
    • A $1.7 million increase in consulting expense incurred in conjunction with the company’s ongoing investments in digital channel and integrated platform solutions to support business growth and the continued modernization of its core systems.
    • A $1.0 million increase in salaries and employee benefits, largely due to increased severance during the fourth quarter of 2018 and increased salary and wage expense driven by one additional business day in the fourth quarter compared to the third quarter. These increases were offset by a decrease in deferred compensation expense.
  • The year-over-year increase in noninterest expense was driven by:
    • A $5.0 million increase in legal and consulting expense due to investments in digital channel and integrated platform solutions to support business growth and the continued ongoing modernization of the company’s core systems.
    • An increase of $0.7 million in derivative expense recorded in other noninterest expense.
    • These increases were partially offset by a decrease of $3.7 million in salaries and employee benefits, largely due to decreased deferred compensation expense and bonus expense.

Full year 2018 financial discussion

  • The 9.2 percent year-over-year increase in net interest income was driven by benefits from higher short-term interest rates, favorable pricing and increased loan balances. In 2018, average loan balances increased $762.9 million and average loan yields increased 57 basis points. Average interest-bearing liabilities increased $620.4 million, while the cost of interest-bearing liabilities increased 47 basis points.
  • Full-year noninterest income decreased $21.9 million, or 5.2 percent, due to:
    • An $8.1 million increase in rewards and rebates expense recorded as an offset to bankcard fees driven by increased purchase volume, partially offset by a $4.8 million increase in interchange income.
    • A $7.6 million decrease in trading and investment banking due to decreased bond trading income and due to market adjustments from the company’s seed investments in certain Scout funds following the liquidation of such investments in 2017.
    • A $7.5 million decrease in fund servicing revenue and a $1.0 million decrease in wealth management revenue, partially offset by a $4.0 million increase in corporate trust revenue, all recorded in trust and securities processing.
    • A $3.6 million decrease in gains on sales of available-for-sale securities.
    • A $3.4 million decrease in service charges on deposits, primarily due to repricing.
    • These decreases were partially offset by an increase of $2.6 million in brokerage fees, primarily driven by higher 12b-1 income.
  • Full-year noninterest expense increased $12.7 million, or 1.8 percent, primarily due to:
    • A $5.3 million increase in salary and employee benefit expense driven by increased bonus and sales commission expense and one additional business day in 2018 as compared to 2017, partially offset by a decrease in deferred compensation expense.
    • A $6.5 million increase in legal and consulting expense and a $4.6 million increase in processing fees expense due to investments in digital channel and integrated platform solutions to support business growth and the continued ongoing modernization of the company’s core systems.
    • These increases were partially offset by a decrease of $3.1 million in other noninterest expense due to lower operational losses during 2018 as compared to 2017.
  • 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 $712.0 million for full-year 2018, an increase of $8.0 million, or 1.1 percent, compared to the full-year 2017.

Income taxes

  • The company’s effective tax rate was 12.2 percent for the year ended December 31, 2018, compared to 22.6 percent for the same period in 2017. The decrease is primarily a result of the Tax Cuts and Jobs Act, which lowered the federal corporate income tax rate to 21 percent from 35 percent, effective January 1, 2018. The decrease is also attributable to a discrete tax benefit of $5.1 million related to provision-to-return adjustments.

Balance sheet

  • Average total assets for the fourth quarter 2018 were $21.9 billion compared to $20.7 billion for both the linked quarter and the same period in 2017.

Summary of average loans and leases - QTD Average

UMB Financial Corporation

(unaudited, dollars in thousands)  
    Q4     Q3   Q4     CQ vs.     CQ vs.
2018 2018 2017 LQ PY
Commercial $ 4,977,907 $ 4,717,530 $ 4,438,241 $ 260,377 $ 539,666
Asset-based loans 381,477 382,672 326,845 (1,195 ) 54,632
Factoring loans 300,265 264,414 212,123 35,851 88,142
Commercial credit card 178,772 199,730 172,193 (20,958 ) 6,579
Real estate - construction 826,310 814,053 835,715 12,257 (9,405 )
Real estate - commercial 3,663,610 3,701,072 3,394,232 (37,462 ) 269,378
Real estate - residential 697,927 688,097 619,985 9,830 77,942
Real estate - HELOC 555,161 566,460 649,268 (11,299 ) (94,107 )
Consumer credit card 248,309 222,223 247,284 26,086 1,025
Consumer other 132,812 152,894 164,667 (20,082 ) (31,855 )
Leases   5,386   9,407   24,163   (4,021 )   (18,777 )
Total loans $ 11,967,936 $ 11,718,552 $ 11,084,716 $ 249,384   $ 883,220  
  • Average loans for the fourth quarter 2018 increased 2.1 percent on a linked-quarter basis and 8.0 percent compared to fourth quarter 2017.
Summary of average securities - QTD Average     UMB Financial Corporation
(unaudited, dollars in thousands)
    Q4     Q3     Q4     CQ vs.     CQ vs.
2018 2018 2017 LQ PY
Securities available for sale:
U.S. Treasury $ 105,509 $ 38,044 $ 38,776 $ 67,465 $ 66,733
U.S. Agencies 198 198 14,753 - (14,555 )
Mortgage-backed 3,703,212 3,590,703 3,484,304 112,509 218,908
State and political subdivisions 2,353,816 2,290,906 2,555,462 62,910 (201,646 )
Corporates   —   718   15,880   (718 )   (15,880 )
Total securities available for sale $ 6,162,735 $ 5,920,569 $ 6,109,175 $ 242,166   $ 53,560  
Securities held to maturity:
State and political subdivisions 1,180,061 1,205,007 1,269,058 (24,946 ) (88,997 )
Trading securities 61,629 45,476 43,388 16,153 18,241
Other securities   66,760   65,962   63,543   798     3,217  
Total securities $ 7,471,185 $ 7,237,014 $ 7,485,164 $ 234,171   $ (13,979 )
  • Average securities available for sale increased 4.1 percent on a linked-quarter basis and remained flat compared to the fourth quarter of 2017.
Summary of average deposits - QTD Average UMB Financial Corporation
(unaudited, dollars in thousands)    
    Q4 Q3     Q4     CQ vs.     CQ vs.
2018 2018 2017 LQ PY
Deposits:
Noninterest-bearing demand $ 6,052,011 $ 5,547,880 $ 6,180,293 $ 504,131 $ (128,282 )
Interest-bearing demand and savings 11,057,273 9,954,008 9,439,202 1,103,265 1,618,071
Time deposits   1,060,838     1,030,411     1,230,303     30,427   (169,465 )
Total deposits $ 18,170,122   $ 16,532,299   $ 16,849,798   $ 1,637,823 $ 1,320,324  
Noninterest bearing deposits as % of total 33.31 % 33.56 % 36.68 %
  • Average deposits increased 9.9 percent on a linked-quarter basis and 7.8 percent as compared to the fourth quarter of 2017, primarily driven by the seasonal influx of public fund deposits as well as recent deposit campaigns.

Capital

Capital information     UMB Financial Corporation
(unaudited, dollars in thousands, except per share data)
   

December 31,
2018

    

September 30,
2018

    

December 31,
2017

Total equity $ 2,228,470 $ 2,203,464 $ 2,181,531
Book value per common share 45.37 44.20 43.72
 
Regulatory capital:
Common equity Tier 1 capital $ 2,142,469 $ 2,175,700 $ 2,041,504
Tier 1 capital 2,142,469 2,175,700 2,041,504
Total capital 2,318,145 2,348,731 2,213,050
 
Regulatory capital ratios:
Common equity Tier 1 capital ratio 12.89 % 13.47 % 12.95 %
Tier 1 risk-based capital ratio 12.89 13.47 12.95
Total risk-based capital ratio 13.95 14.54 14.04
Tier 1 leverage ratio 9.87 10.58 9.94
  • On December 17, 2018, the company completed its previously announced accelerated share repurchase (ASR) program with Bank of America Merrill Lynch.
  • Under the ASR, the company repurchased a total of 780,321 shares of its common stock (or approximately 1.6 percent of its outstanding common stock on October 23, 2018, the date the agreement governing the ASR was entered into) for an aggregate purchase price of $50.0 million.
  • At December 31, 2018, the regulatory capital ratios presented in the foregoing table reflect the impact of this ASR, and exceeded all “well-capitalized” regulatory thresholds.

Asset Quality

Credit quality     UMB Financial Corporation
(unaudited, dollars in thousands)
    Q4     Q3     Q2     Q1     Q4
2018 2018 2018 2018 2017
Net charge-offs - Commercial loans $ 44,010 $ 624 $ 6,137 $ 6,847 $ 2,248
Net charge-offs (recoveries) - Real estate loans 28 408 1,035 1,512 (242 )
Net charge-offs - Consumer credit card loans 1,606 1,632 1,786 1,849 1,612
Net charge-offs - Consumer other loans 23 82 46 94 167
Net charge-offs - Total loans 45,667 2,746 9,004 10,302 3,785
Net loan charge-offs as a % of total average loans 1.51 % 0.09 % 0.32 % 0.37 % 0.14 %
Loans over 90 days past due $ 6,009 $ 1,927 $ 2,883 $ 5,650 $ 3,091
Loans over 90 days past due as a % of total loans 0.05 % 0.02 % 0.02 % 0.05 % 0.03 %
Nonaccrual and restructured loans $ 43,018 $ 50,568 $ 56,030 $ 67,604 $ 59,142
Nonaccrual and restructured loans as a % of total loans 0.35 % 0.42 % 0.48 % 0.59 % 0.52 %
Provision for loan losses $ 48,000 $ 5,750 $ 7,000 $ 10,000 $ 6,000
  • Nonperforming loans, defined as restructured loans on nonaccrual and all other nonaccrual loans, decreased $7.6 million from the linked quarter and $16.1 million from the prior year.
  • Net charge-offs were $45.7 million, or 1.51 percent, of average loans, compared to $2.7 million, or 0.09 percent, of average loans in the linked quarter, and $3.8 million, or 0.14 percent, of average loans in the fourth quarter of 2017. Charge-offs in the fourth quarter of 2018 included a $48.1 million loss recognized on a single factoring credit relationship, which has since entered into bankruptcy. The company intends to pursue its rights both in and outside the bankruptcy proceedings.
  • Provision for loan losses increased $42.3 million from the linked quarter, and $42.0 million from the fourth quarter of 2017. This increase was driven by higher provision to cover the loss related to the single factoring credit relationship noted above, as well as other qualitative factors, such as macroeconomic conditions, loan growth, loan impairment changes, loan risk grading changes, and net charge-off levels.

Dividend Declaration

At the company’s quarterly board meeting, the board of directors declared a $0.30 per share quarterly cash dividend, payable on April 1, 2019, to shareholders of record at the close of business on March 11, 2019.

Conference Call

The company plans to host a conference call to discuss its fourth quarter and full year 2018 earnings results on Wednesday, January 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 the investor relations area of umbfinancial.com or by using the following the link:

UMB Financial 4Q 2018 Conference Call

A replay of the conference call may be heard through February 13, 2019 by calling (toll-free) 877-344-7529 or (international) 412-317-0088. The replay access code required for playback is 10127436. The call replay may also be accessed at umbfinancial.com by visiting the investor relations area.

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, 2017, 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. 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, Mo. UMB offers personal banking, commercial banking, healthcare services and institutional banking, which includes services to mutual funds and alternative-investment entities and registered investment advisors. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas. For more information, visit UMB.com, UMB Financial.com, UMB Blog or follow us on Twitter at @UMBBank, UMB Facebook and UMB LinkedIn.

 
Consolidated Balance Sheets         UMB Financial Corporation
(dollars in thousands)
        December 31,
2018     2017
(unaudited) (audited)
ASSETS
Loans $ 12,178,150 $ 11,280,513
Allowance for loan losses   (103,635 )   (100,604 )
Net loans 12,074,515 11,179,909
Loans held for sale 3,192 1,460
Investment Securities:
Available for sale 6,542,800 6,258,577
Held to maturity 1,170,646 1,261,014
Trading securities 61,011 54,055
Other securities   73,692     65,897  
Total investment securities 7,848,149 7,639,543
Federal funds sold and resell agreements 627,001 191,601
Interest-bearing due from banks 1,047,830 1,351,760
Cash and due from banks 645,123 392,723
Premises and equipment, net 283,879 275,942
Accrued income 110,168 98,863
Goodwill 180,867 180,867
Other intangibles, net 15,003 20,257
Other assets   515,392     438,658  
Total assets $ 23,351,119   $ 21,771,583  
 
LIABILITIES
Deposits:
Noninterest-bearing demand $ 6,680,070 $ 6,839,171
Interest-bearing demand and savings 11,454,442 9,903,565
Time deposits under $250,000 593,904 547,990
Time deposits of $250,000 or more   552,844     732,274  
Total deposits 19,281,260 18,023,000
Federal funds purchased and repurchase agreements 1,518,920 1,260,704
Long-term debt 82,671 79,281
Accrued expenses and taxes 177,731 191,464
Other liabilities   62,067     35,603  
Total liabilities   21,122,649     19,590,052  
 
SHAREHOLDERS' EQUITY
Common stock 55,057 55,057
Capital surplus 1,054,601 1,046,095
Retained earnings 1,488,421 1,338,110
Accumulated other comprehensive loss, net (95,782 ) (45,525 )
Treasury stock   (273,827 )   (212,206 )
Total shareholders' equity   2,228,470     2,181,531  
Total liabilities and shareholders' equity $ 23,351,119   $ 21,771,583  
 
 
Consolidated Statements of Income     UMB Financial Corporation
(dollars in thousands except share and per share data)
    Three Months Ended     Year Ended
December 31, December 31,
2018   2017 2018   2017
(unaudited) (unaudited) (unaudited) (audited)
INTEREST INCOME
Loans $ 154,120 $ 122,885 $ 559,351 $ 461,301
Securities:
Taxable interest 22,767 17,774 83,333 73,125
Tax-exempt interest   19,137     19,047   74,411     73,419
Total securities income 41,904 36,821 157,744 146,544
Federal funds and resell agreements 2,353 1,062 4,808 3,700
Interest-bearing due from banks 3,761 1,987 7,910 3,871
Trading securities   581     361   2,148     1,496
Total interest income   202,719     163,116   731,961     616,912
INTEREST EXPENSE
Deposits 34,140 12,372 92,101 36,354
Federal funds and repurchase agreements 5,815 3,632 24,737 17,906
Other   956     766   4,677     3,739
Total interest expense   40,911     16,770   121,515     57,999
Net interest income 161,808 146,346 610,446 558,913
Provision for loan losses   48,000     6,000   70,750     41,000
Net interest income after provision for loan losses   113,808     140,346   539,696     517,913
NONINTEREST INCOME
Trust and securities processing 41,891 44,234 172,163 176,646
Trading and investment banking 3,119 5,015 15,584 23,183
Service charges on deposit accounts 20,733 21,364 84,287 87,680
Insurance fees and commissions 312 388 1,292 1,972
Brokerage fees 6,761 6,127 25,807 23,208
Bankcard fees 16,375 17,617 68,520 73,030
Gains on sales of securities available for sale, net — 54 578 4,192
Other   5,808     11,234   33,467     33,651
Total noninterest income   94,999     106,033   401,698     423,562
NONINTEREST EXPENSE
Salaries and employee benefits 103,992 107,656 419,091 413,830
Occupancy, net 11,845 11,148 45,239 44,462
Equipment 18,983 18,690 75,184 72,008
Supplies and services 3,669 4,211 16,103 17,173
Marketing and business development 6,483 6,540 24,372 21,469
Processing fees 11,948 11,238 46,977 42,331
Legal and consulting 11,085 6,045 29,859 23,406
Bankcard 4,316 4,405 17,514 19,471
Amortization of other intangible assets 1,332 1,641 5,764 7,326
Regulatory fees 2,681 3,825 12,695 15,527
Other   7,987     7,160   25,002     28,126
Total noninterest expense   184,321     182,559   717,800     705,129
Income before income taxes 24,486 63,820 223,594 236,346
Income tax (benefit) expense   (968 )   16,463   27,334     53,370
Income from continuing operations   25,454     47,357   196,260     182,976
Discontinued Operations
Loss from discontinued operations before income taxes — 101,948 (917 ) 101,226
Income tax expense (benefit)   —     37,344   (170 )   37,097
Income (loss) from discontinued operations   —     64,604   (747 )   64,129
NET INCOME $ 25,454   $ 111,961 $ 195,513   $ 247,105
 
PER SHARE DATA
Basic:
Income from continuing operations $ 0.52 $ 0.96 $ 3.98 $ 3.72
Income (loss) from discontinued operations   —     1.31   (0.01 )   1.30
Net income – basic 0.52 2.27 3.97 5.02
Diluted:
Income from continuing operations 0.52 0.95 3.94 3.67
Income (loss) from discontinued operations   —     1.30   (0.01 )   1.29
Net income - diluted 0.52 2.25 3.93 4.96
Dividends 0.300 0.275 1.170 1.040
Weighted average shares outstanding - basic 48,898,286 49,229,693 49,334,937 49,223,661
Weighted average shares outstanding - diluted 49,230,321 49,840,529 49,770,737 49,839,290
 
 
Consolidated Statements of Comprehensive Income     UMB Financial Corporation
(dollars in thousands)
    Three Months Ended     Year Ended
December 31, December 31,
2018   2017 2018   2017
(unaudited) (unaudited) (unaudited) (audited)
Net income $ 25,454 $ 111,961 $ 195,513 $ 247,105
Other comprehensive income (loss), net of tax:
Unrealized gains and losses on debt securities:
Change in unrealized holding gains and losses, net 81,742 (41,507 ) (51,271 ) 21,139
Less: Reclassification adjustment for gains included in net income   —     (54 )   (578 )   (4,192 )
Change in unrealized gains and losses on debt securities during the period 81,742 (41,561 ) (51,849 ) 16,947
Change in unrealized gains and losses on derivative hedges (2,368 ) 30 1,906 (1,050 )
Income tax (expense) benefit   (19,515 )   18,674     12,735     (3,880 )
Other comprehensive income (loss) before reclassifications 59,859 (22,857 ) (37,208 ) 12,017
Amounts reclassified from accumulated other comprehensive income   —     —     (13,049 )   —  
Net current-period other comprehensive income (loss)   59,859     (22,857 )   (50,257 )   12,017  
Comprehensive income $ 85,313   $ 89,104   $ 145,256   $ 259,122  
 
 
Consolidated Statements of Shareholders' Equity UMB Financial Corporation
(dollars in thousands except per share data)
(audited)    

Common
Stock

  

Capital
Surplus

    

Retained
Earnings

    

Accumulated
Other
Comprehensive
Loss

    

Treasury
Stock

     Total
Balance - January 1, 2017 $ 55,057 $ 1,033,419 $ 1,142,887 $ (57,542 ) $ (211,437 ) $ 1,962,384
Total comprehensive income — — 247,105 12,017 — 259,122
Cash dividends ($1.04 per share) — — (51,882 ) — — (51,882 )
Purchase of treasury stock — — — — (15,276 ) (15,276 )
Issuance of equity awards — (2,871 ) — — 3,343 472
Recognition of equity-based compensation — 12,844 — — — 12,844
Sale of treasury stock — 608 — — 512 1,120
Exercise of stock options   —   2,095     —     —     10,652     12,747  
Balance - December 31, 2017 $ 55,057 $ 1,046,095   $ 1,338,110   $ (45,525 ) $ (212,206 ) $ 2,181,531  
(unaudited)
Balance - January 1, 2018 $ 55,057 $ 1,046,095 $ 1,338,110 $ (45,525 ) $ (212,206 ) $ 2,181,531
Total comprehensive income (loss) — — 195,513 (50,257 ) — 145,256
Reclassification of certain tax effects — — 12,917 — — 12,917
Cash dividends ($1.17 per share) — — (58,264 ) — — (58,264 )
Purchase of treasury stock — (2,807 ) — — (73,700 ) (76,507 )
Issuance of equity awards — (2,004 ) — — 2,499 495
Recognition of equity-based compensation — 10,579 — — — 10,579
Sale of treasury stock — 524 — — 538 1,062
Exercise of stock options — 2,214 — — 9,042 11,256
Cumulative effect adjustments   —   —     145     —     —     145  
Balance - December 31, 2018 $ 55,057 $ 1,054,601   $ 1,488,421   $ (95,782 ) $ (273,827 ) $ 2,228,470  
 
 
Average Balances / Yields and Rates     UMB Financial Corporation
(tax - equivalent basis)
(unaudited, dollars in thousands)
    Three Months Ended December 31,
2018     2017
Average     Average Average     Average
Balance Yield/Rate Balance Yield/Rate
Assets
Loans, net of unearned interest $ 11,967,936 5.11 % $ 11,084,716 4.40 %
Securities:
Taxable 3,943,891 2.29 3,688,202 1.91
Tax-exempt   3,465,665   2.77     3,753,574   3.08  
Total securities 7,409,556 2.51 7,441,776 2.50
Federal funds and resell agreements 344,502 2.71 181,933 2.32
Interest bearing due from banks 672,916 2.22 587,181 1.34
Trading securities   61,629   4.44     43,388   4.21  
Total earning assets 20,456,539 4.03 19,338,994 3.56
Allowance for loan losses (101,221 ) (100,344 )
Other assets   1,523,434     1,485,075  
Total assets $ 21,878,752   $ 20,723,725  
 
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 12,118,111 1.12 % $ 10,669,505 0.46 %
Federal funds and repurchase agreements 1,206,152 1.91 1,424,380 1.01
Borrowed funds   80,442   4.71     76,626   3.97  
Total interest-bearing liabilities 13,404,705 1.21 12,170,511 0.55
Noninterest-bearing demand deposits 6,052,011 6,180,293
Other liabilities 213,107 217,721
Shareholders' equity   2,208,929     2,155,200  
Total liabilities and shareholders' equity $ 21,878,752   $ 20,723,725  
Net interest spread 2.82 % 3.01 %
Net interest margin 3.24 3.21
 
 
Average Balances / Yields and Rates UMB Financial Corporation
(tax - equivalent basis)
(unaudited, dollars in thousands)
  Year Ended December 31,
2018     2017
Average     Average Average     Average
Balance Yield/Rate Balance Yield/Rate
Assets
Loans, net of unearned interest $ 11,606,544 4.82 % $ 10,843,642 4.25 %
Securities:
Taxable 3,858,829 2.16 3,918,001 1.87
Tax-exempt   3,505,602   2.68     3,657,951   3.08  
Total securities 7,364,431 2.41 7,575,952 2.45
Federal funds and resell agreements 178,801 2.69 190,074 1.95
Interest bearing due from banks 419,768 1.88 351,293 1.10
Trading securities   49,345   4.97     57,013   3.28  
Total earning assets 19,618,889 3.83 19,017,974 3.45
Allowance for loan losses (100,948 ) (97,231 )
Other assets   1,481,936     1,475,685  
Total assets $ 20,999,877   $ 20,396,428  
 
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 11,156,002 0.83 % $ 10,002,497 0.36 %
Federal funds and repurchase agreements 1,559,149 1.59 2,095,111 0.85
Borrowed funds   79,191   5.91     76,301   4.90  
Total interest-bearing liabilities 12,794,342 0.95 12,173,909 0.48
Noninterest-bearing demand deposits 5,828,545 5,936,172
Other liabilities 182,202 205,500
Shareholders' equity   2,194,788     2,080,847  
Total liabilities and shareholders' equity $ 20,999,877   $ 20,396,428  
Net interest spread 2.88 % 2.97 %
Net interest margin 3.21 3.15
 
 
Business Segment Information     UMB Financial Corporation
(unaudited, dollars in thousands)
    Three Months Ended December 31, 2018

Commercial
Banking

  

Institutional
Banking

  

Personal
Banking

  

Healthcare
Services

   Total
Net interest income $ 100,423 $ 19,361 $ 31,988 $ 10,036 $ 161,808
Provision for loan losses 46,662 308 1,030 — 48,000
Noninterest income 14,689 41,569 30,310 8,431 94,999
Noninterest expense   65,037     48,175     59,112     11,997     184,321  
Income before taxes 3,413 12,447 2,156 6,470 24,486
Income tax benefit   (135 )   (492 )   (85 )   (256 )   (968 )
Income from continuing operations $ 3,548   $ 12,939   $ 2,241   $ 6,726   $ 25,454  
Average assets $ 10,061,000 $ 4,291,000 $ 5,272,000 $ 2,255,000 $ 21,879,000
 
Three Months Ended December 31, 2017

Commercial
Banking

Institutional
Banking

Personal
Banking

Healthcare
Services

Total
Net interest income $ 92,130 $ 15,245 $ 30,821 $ 8,150 $ 146,346
Provision for loan losses 4,437 360 1,203 — 6,000
Noninterest income 20,921 46,771 30,250 8,091 106,033
Noninterest expense   65,196     48,532     57,162     11,669     182,559  
Income before taxes 43,418 13,124 2,706 4,572 63,820
Income tax expense   11,199     3,385     699     1,180     16,463  
Income from continuing operations $ 32,219   $ 9,739   $ 2,007   $ 3,392   $ 47,357  
Average assets $ 9,710,000 $ 4,101,000 $ 4,953,000 $ 1,960,000 $ 20,724,000
 
Year Ended December 31, 2018

Commercial
Banking

Institutional
Banking

Personal
Banking

Healthcare
Services

Total
Net interest income $ 380,266 $ 66,585 $ 125,045 $ 38,550 $ 610,446
Provision for loan losses 63,841 1,335 5,574 — 70,750
Noninterest income 74,931 173,591 118,344 34,832 401,698
Noninterest expense   253,740     189,708     225,406     48,946     717,800  
Income before taxes 137,616 49,133 12,409 24,436 223,594
Income tax expense   16,824     6,007     1,517     2,986     27,334  
Income from continuing operations $ 120,792   $ 43,126   $ 10,892   $ 21,450   $ 196,260  
Average assets $ 9,856,000 $ 3,995,000 $ 4,959,000 $ 2,190,000 $ 21,000,000
 
Year Ended December 31, 2017

Commercial
Banking

Institutional
Banking

Personal
Banking

Healthcare
Services

Total
Net interest income $ 353,627 $ 51,977 $ 122,304 $ 31,005 $ 558,913
Provision for loan losses 32,937 1,461 6,602 — 41,000
Noninterest income 82,221 187,003 118,896 35,442 423,562
Noninterest expense   250,308     184,618     226,634     43,569     705,129  
Income before taxes 152,603 52,901 7,964 22,878 236,346
Income tax expense   34,460     11,946     1,798     5,166     53,370  
Income from continuing operations $ 118,143   $ 40,955   $ 6,166   $ 17,712   $ 182,976  
Average assets $ 9,717,000 $ 3,622,000 $ 5,160,000 $ 1,897,000 $ 20,396,000
 

The company has strategically aligned its operations into the following four reportable segments: Commercial Banking, Institutional Banking, Personal Banking, and Healthcare Services. Senior executive officers regularly evaluate business segment financial results produced by the company’s internal reporting system in deciding how to allocate resources and assess performance for individual business segments. Previously, the company had the following two business segments: Bank and Asset Servicing. The company’s reportable segments include certain corporate overhead, technology and service costs that are allocated based on methodologies that are applied consistently between periods. For comparability purposes, amounts in all periods are based on methodologies in effect at December 31, 2018.

Non-GAAP Financial Measures UMB Financial Corporation
Net operating income Non-GAAP reconciliations:
(unaudited, dollars in thousands except per share data)
 

Three Months Ended
December 31,

    

Year Ended
December 31,

2018     2017 2018     2017
Income from continuing operations (GAAP) $ 25,454 $ 47,357 $ 196,260 $ 182,976
Adjustments:
Acquisition and divestiture expense 5 52 2 74
Severance expense 2,725 224 5,760 1,039
Tax-impact of adjustments (i)   (606 )   (100 )   (1,279 )   (401 )
Total Non-GAAP adjustments (net of tax)   2,124     176     4,483     712  
Net operating income from continuing operations (Non-GAAP) $ 27,578   $ 47,533   $ 200,743   $ 183,688  
 
Earnings per share from continuing operations - diluted (GAAP) $ 0.52 $ 0.95 $ 3.94 $ 3.67
Acquisition and divestiture expense (income) — — — —
Severance expense 0.05 — 0.12 0.02
Tax-impact of adjustments (i)   (0.01 )   —     (0.03 )   —  
Operating earnings per share from continuing operations - diluted (Non-GAAP) $ 0.56   $ 0.95   $ 4.03   $ 3.69  
 
GAAP
Return on average assets 0.46 % 0.91 % 0.93 % 0.90 %
Return on average equity 4.57 8.72 8.94 8.79
 
Non-GAAP
Operating return on average assets 0.50 % 0.91 % 0.96 % 0.90 %
Operating return on average equity 4.95 8.75 9.15 8.83

(i) Calculated using the company’s marginal tax rate of 22.2 percent for periods beginning after December 31, 2017 as a result of the Tax Cuts and Jobs Act. The prior periods were calculated using the company’s marginal tax rate of 36.0 percent.

 
Operating noninterest expense and operating efficiency ratio Non-GAAP reconciliations:     UMB Financial Corporation
(unaudited, dollars in thousands)
   

Three Months Ended
December 31,

    

Year Ended
December 31,

2018     2017 2018     2017
Noninterest expense $ 184,321 $ 182,559 $ 717,800 $ 705,129
Adjustments to arrive at operating noninterest expense (pre-tax):
Acquisition and divestiture expense 5 52 2 74
Severance expense   2,725     224     5,760     1,039  
Total Non-GAAP adjustments (pre-tax)   2,730     276     5,762     1,113  
Operating noninterest expense (Non-GAAP) $ 181,591   $ 182,283   $ 712,038   $ 704,016  
 
Noninterest expense $ 184,321 $ 182,559 $ 717,800 $ 705,129
Less: Amortization of other intangibles   1,332     1,641     5,764     7,326  
Noninterest expense, net of amortization of other intangibles (Non-GAAP) (numerator A) $ 182,989   $ 180,918   $ 712,036   $ 697,803  
 
Operating noninterest expense $ 181,591 $ 182,283 $ 712,038 $ 704,016
Less: Amortization of other intangibles   1,332     1,641     5,764     7,326  
Operating expense, net of amortization of other intangibles (Non-GAAP) (numerator B) $ 180,259   $ 180,642   $ 706,274   $ 696,690  
 
Net interest income $ 161,808 $ 146,346 $ 610,446 $ 558,913
Noninterest income 94,999 106,033 401,698 423,562
Less: Gains on sales of securities available for sale, net   —     54     578     4,192  
Total Non-GAAP Revenue (denominator A) $ 256,807   $ 252,325   $ 1,011,566   $ 978,283  
 
Efficiency ratio (numerator A/denominator A) 71.26 % 71.70 % 70.39 % 71.33 %
Operating efficiency ratio (Non-GAAP) (numerator B/denominator A) 70.19 71.59 69.82 71.22