UMB Financial Corporation Reports First Quarter 2016 Earnings of $36.2 Million, or $0.74 Per Diluted Share

KANSAS CITY, Mo.--(BUSINESS WIRE)--UMB Financial Corporation (Nasdaq: UMBF), a diversified financial holding company, announced earnings for the first quarter 2016 of $36.2 million or $0.74 per diluted share, compared to $29.6 million or $0.60 per diluted share in the fourth quarter 2015 (linked quarter) and $33.8 million or $0.74 per diluted share during the first quarter 2015.

On a non-GAAP operating basis, which is reconciled to comparable GAAP financial measures later in this release, net operating income for the first quarter 2016 was $38.6 million or $0.79 per diluted share, compared to $34.2 million or $0.70 per diluted share on a linked quarter basis and $33.0 million or $0.73 per diluted share for the first quarter 2015.

“UMB began the year by posting another quarter of double-digit year-over-year loan growth and making good progress against our expense initiatives implemented in 2015,” said Mariner Kemper, chairman and chief executive officer. “Total loan balances increased 29.4 percent from March 31, 2015 to March 31, 2016. Loans produced by legacy UMB lenders increased 16.0 percent during that period, once again outpacing industry averages. In addition, we recognized savings of $4.9 million in the first quarter related to our efficiency initiative. I am pleased with the results we’ve posted and look forward to our continued growth.”

Net interest income

• The improved net interest income in the first quarter 2016, compared to the same quarter in 2015, was driven by an increase in average loans of $2.1 billion and higher average loan yields, which increased 32 basis points to 3.81 percent.
• For the first quarter 2016, average earning assets stood at $18.0 billion, an increase of 3.6 percent over the linked quarter and 14.2 percent over the first quarter 2015. The acquisition of Marquette Financial Companies (Marquette) added earning assets with an acquired value of $1.2 billion on May 31, 2015.
• Net interest margin for the first quarter 2016, which increased 33 basis points on a year-over-year basis, was driven by the addition of Marquette’s higher-yielding loans in addition to changes in the company’s earning asset mix.

Noninterest income

• The improvement in noninterest income over the linked quarter was driven by a change in equity losses on alternative investments of $4.8 million. This increase was partially offset by a decrease in trust and securities processing income due primarily to a $2.5 million, or 22.3 percent decrease in advisory fee income from the Scout Funds.
• Noninterest income decreased in the first quarter 2016, compared to the first quarter 2015, primarily due to a decrease in trust and securities processing income driven by a $7.6 million, or 47.1 percent, decrease in advisory fee income from the Scout Funds.

Noninterest expense

• On a linked quarter basis, the decrease in noninterest expense was primarily due to decreases in marketing and business development and legal and consulting. These decreases were offset, in part, by an increase in employee benefits expense.
• The increase in noninterest expense compared to the first quarter 2015 was primarily driven by:
  • increased salaries and employee benefits, which included $8.3 million in Marquette salaries and benefits, $0.8 million in Marquette-related severance and $0.5 million of non-Marquette related severance for the first quarter 2016;
  • higher equipment expense, which increased 14.9 percent year-over-year for computer and hardware costs related to investments for regulatory requirements, cyber security and the ongoing modernization of our core systems; and
  • an increase in other noninterest expense, driven by $2.3 million in positive fair value adjustments on contingent consideration liabilities in the first quarter 2015 compared to a $0.1 million charge in the first quarter 2016.
• Acquisition expenses recognized during the first quarter 2016 totaled $3.0 million, comprised of $1.0 million of human resource costs, $1.1 million of technology integration, and $0.9 million of professional fees and other integration costs. For comparison, acquisition expenses were $3.4 million for the fourth quarter 2015 and $0.8 million for the first quarter 2015.
• 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 $177.1 million for the first quarter 2016, an increase of $2.2 million, or 1.3 percent, compared to the linked quarter, and $11.6 million, or 7.0 percent, compared to the first quarter 2015. The year-over-year increase is primarily due to $9.1 million in Marquette salaries and benefits present in the first quarter 2016.

• Average total assets for the first quarter 2016 were $19.3 billion compared to $16.8 billion for the same period in 2015, an increase of $2.5 billion, or 14.9 percent.
• Actual loans stood at $9.7 billion at March 31, 2016, an increase of $268.9 million, or 2.9 percent, on a linked quarter basis, and $2.2 billion, or 29.4 percent, compared to first quarter 2015.
• Actual loans originated through legacy UMB channels increased $1.2 billion, or 16.0 percent year-over-year primarily driven by a $485.7 million increase in commercial real estate loans and a $436.5 million increase in commercial loans.
• At March 31, 2016, loans acquired and originated through legacy Marquette channels totaled $997.9 million, comprised of $338.5 million in commercial real estate loans, $212.7 million in asset-based loans, $121.1 million in construction real estate loans, $95.7 million in residential real estate loans, $88.5 million in factoring loans, and $102.0 million in commercial loans.

• 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.

• At March 31, 2016, noninterest-bearing demand deposits were 40.2 percent of total deposits.
• Deposit balances from the legacy Marquette channels totaled $744.1 million at March 31, 2016.

• The year-over-year increase in total equity is primarily attributable to the common stock issuance associated with the acquisition of Marquette of $179.7 million at May 31, 2015.

• Nonperforming loans, defined as nonaccrual and restructured loans, decreased $6.2 million from the linked quarter and increased $25.7 million from the same quarter in 2015.

Efficiency Initiatives

In 2015, the company announced efficiency initiatives with cost savings expected to be recognized as follows: $6.8 million in 2015, $22.6 million in 2016, and annualized savings of $32.9 million in 2017 and beyond. As an update, the company recognized $9.5 million of these cost savings in 2015, and $4.9 million in the first quarter 2016, and expects to recognize an additional $15.9 million in the remainder of 2016 and annualized savings of $32.9 million beginning in 2017.

Conference Call

The company plans to host a conference call to discuss its first quarter 2016 earnings results on April 27, 2016 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 1Q 2016 Conference Call

A replay of the conference call may be heard through May 12, 2016, by calling (toll-free) 877-344-7529 or (U.S.) 412-317-0088. The replay pass code required for playback is 10083904. 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 using net operating income, operating earnings per share (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 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- 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 after-tax impact of excluding the following: (i) fair value adjustments to contingent consideration for the acquisitions of Prairie Capital Management, LLC and Reams Asset Management Company, (ii) expenses related to the acquisition of Marquette, and (iii) non-acquisition severance expense. Operating EPS (basic and diluted) is calculated as net operating income, divided by the company’s average number of shares outstanding (basic and diluted) 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-iii above. Operating efficiency ratio is calculated as the company’s operating noninterest expense, less amortization of other intangibles, divided by the company’s tax equivalent net interest income plus noninterest income less gains on sales of securities available for sale.

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 asset sensitivity. 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 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, 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.