UMB Financial Corporation Reports Second Quarter Net Income of $101.3 Million and Net Operating Income(i) of $105.9 Million.

Second Quarter 2024 Financial Highlights

• GAAP net income of $101.3 million, or $2.07 per diluted share.
• Net operating income⁽ⁱ⁾ of $105.9 million, or $2.16 per diluted share.
• Average loans increased 7.7% on a linked-quarter, annualized basis, to $23.8 billion.
• Average loans increased $1.6 billion, or 7.3%, as compared to the second quarter of 2023.
• Average deposits increased 9.7% on a linked-quarter, annualized basis, to $34.3 billion.
• Net interest margin was 2.51%, an increase of three basis points from the linked quarter.
• Credit quality remained strong, with net charge-offs of just 0.05% of average loans in both the second quarter and the six months ended June 30, 2024.

UMB Financial Corporation (NASDAQ:UMBF), a financial services company, announced net income for the second quarter of 2024 of $101.3 million, or $2.07 per diluted share, compared to $110.3 million, or $2.25 per diluted share, in the first quarter (linked quarter) and $90.1 million, or $1.85 per diluted share, in the second quarter of 2023.

Net operating income, a non-GAAP financial measure reconciled later in this release to net income, the nearest comparable GAAP measure, was $105.9 million, or $2.16 per diluted share, for the second quarter of 2024, compared to $120.7 million, or $2.47 per diluted share, for the linked quarter and $93.8 million, or $1.93 per diluted share, for the second quarter of 2023. 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 $146.8 million, or $3.00 per diluted share, for the second quarter of 2024, compared to $157.5 million, or $3.22 per diluted share, for the linked quarter, and $127.9 million, or $2.63 per diluted share, for the second quarter of 2023. These operating PTPP results represent a decrease of 6.7% on a linked-quarter basis and an increase of 14.8% compared to the second quarter of 2023.

"We are pleased with our second quarter financial results, including continued net interest income growth driven by balance sheet growth and net interest margin expansion, and solid credit metrics," said Mariner Kemper, UMB Financial Corporation chairman and chief executive officer.

"In the second quarter, average loans increased 7.3% to $23.8 billion, and average deposits increased $2.9 billion or 9.1% from one year ago. Our borrowers remain cautiously optimistic, with some continuing concerns around the geopolitical environment, inflation, and the timing of potential rate cuts. Competition for good deals remains robust, however, our focus on relationships and service are our differentiators, allowing us to continue to take market share.

"Credit quality remains very strong, with net charge-offs just 0.05% of average loans for both the second quarter and year-to-date. Net charge-offs have averaged a mere four basis points over the past eight quarters. Non-performing loans fell to just 0.06% of loans for the second quarter.

"Our teams excel at building and maintaining strong relationships across our footprint, and we're focused on continuing our long track record of growth. We remain excited about the future, including our pending acquisition of Heartland Financial and the opportunity we see as a combined company."

(i) A non-GAAP financial measure reconciled later in this release to net income, the nearest comparable GAAP measure.

Second Quarter 2024 earnings discussion

Net interest income

• Second quarter 2024 net interest income totaled $245.1 million, an increase of $5.7 million, or 2.4%, from the linked quarter, driven primarily by continued growth in average loans and higher levels of liquidity, partially offset by higher interest expense.
• Average earning assets increased $359.7 million, or 0.9%, from the linked quarter, largely driven by an increase of $451.8 million in average loans and an increase of $182.8 million in interest-bearing due from banks, partially offset by a decrease of $314.6 million in average securities.
• Average interest-bearing liabilities increased $375.9 million, or 1.3%, from the linked quarter, primarily driven by an increase of $778.0 million in interest-bearing deposits, partially offset by a decrease of $439.0 million in borrowed funds. Average noninterest-bearing demand deposits increased $36.6 million, or 0.4%, as compared to the linked quarter.
• Net interest margin for the second quarter was 2.51%, an increase of three basis points from the linked quarter, driven by increased loan yields, the benefit of free funds, and earning asset mix changes, partially offset by the increased cost of interest-bearing liabilities. The cost of interest-bearing liabilities increased 12 basis points to 4.15%. Total cost of funds increased 10 basis points from the linked quarter to 3.06%. Both average loan yields and earning asset yields increased 13 basis points from the linked quarter.
• On a year-over-year basis, net interest income increased $19.5 million, or 8.6%, driven by a $1.6 billion, or 7.3%, increase in average loans, partially offset by higher interest costs due to unfavorable mix shift in the composition of liabilities as well as the impact of higher short-term interest rates.
• Compared to the second quarter of 2023, average earning assets increased $2.0 billion, or 5.2%, largely driven by the increase in average loans noted above and an increase of $779.2 million in interest-bearing due from banks, partially offset by a decrease of $360.3 million in average securities.
• Average deposits increased 9.1% compared to the second quarter of 2023. Average noninterest-bearing demand deposit balances decreased 4.1% compared to the second quarter of 2023, driven by migration to rate-bearing deposit categories, as expected in a higher interest rate environment. Average demand deposit balances comprised 29.4% of total deposits, compared to 30.0% in the linked quarter and 33.5% in the second quarter of 2023.
• Average borrowed funds decreased $439.0 million as compared to the linked quarter and $1.4 billion as compared to the second quarter of 2023, driven by short-term borrowings with the Federal Home Loan Bank and the Federal Reserve.

Noninterest income

• Second quarter 2024 noninterest income decreased $14.3 million, or 9.0%, on a linked-quarter basis, largely due to:
  • $11.2 million in lower investment securities gains, primarily driven by a net $8.6 million gain on disposition of two of the company's non-marketable securities recognized in the first quarter and a $2.6 million reduction in value of one of the company's non-marketable securities during the second quarter.
  • A decrease of $5.8 million in other miscellaneous income, recorded in other income, related to a $4.0 million legal settlement and a $1.8 million gain on sale of land, both recorded during the first quarter of 2024.
  • These decreases were partially offset by an increase of $1.6 million in derivative income, recorded in other income, and an increase of $1.5 million in service charges on deposit accounts primarily due to higher healthcare income related to customer transfer and conversion.
• Compared to the prior year, noninterest income in the second quarter of 2024 increased $6.8 million, or 5.0%, primarily driven by:
  • Increases of $5.6 million in fund services income, $1.5 million in corporate trust income, and $1.3 million in trust income, all recorded in trust and securities processing.
  • An increase of $3.8 million in bankcard income primarily driven by higher interchange revenue and lower rebates and rewards expense as compared to the prior year.
  • An increase of $1.0 million in healthcare income related to customer transfer and conversion, recorded in service charges on deposit accounts.
  • Increases of $0.5 million in bank-owned life insurance income and $0.5 million in derivative income, both recorded in other income.
  • These increases were partially offset by the following decreases:
    • A decrease of $4.3 million in other miscellaneous income driven by a $4.0 million gain on sale of other assets recorded in the second quarter of 2023.
    • $2.8 million in lower investment securities gains, primarily driven by a $2.6 million reduction in value of one of the company's non-marketable securities during the second quarter of 2024.

Noninterest expense

• GAAP noninterest expense for the second quarter of 2024 was $249.1 million, a decrease of $5.7 million, or 2.3%, from the linked quarter and an increase of $8.4 million, or 3.5% from the second quarter of 2023. Operating noninterest expense, a non-GAAP financial measure reconciled later in this release to noninterest expense, the nearest comparable GAAP measure, was $243.2 million for the second quarter of 2024, an increase of $2.0 million, or 0.8%, from the linked quarter and an increase of $7.4 million, or 3.1%, from the second quarter of 2023.
• The linked-quarter decrease in GAAP noninterest expense was driven by:
  • A decrease of $16.8 million in regulatory fees expense, driven by the lower industry-wide FDIC special assessment levied on banks to recoup the losses related to two of the bank failures in March 2023. The results for the second quarter of 2024 include a reduction of $3.8 million in pre-tax FDIC special assessment expense while the first quarter included pre-tax expense of $13.0 million, both related to changes made in the loss estimates by the FDIC.
  • This decrease was partially offset by the following increases:
    • An increase of $8.7 million in legal and consulting expense driven by expense related to the announced acquisition of Heartland Financial USA, Inc.
    • An increase of $1.8 million in processing fees expense due to increased software subscription costs.
    • An increase of $1.3 million in bankcard expense driven by higher administrative expense.
• The year-over-year increase in GAAP noninterest expense was driven by:
  • An increase of $9.5 million in legal and consulting expense, primarily driven by expense related to the announced acquisition of Heartland Financial USA, Inc.
  • An increase of $3.5 million in bankcard expense driven by higher administrative expense.
  • These increases were partially offset by a decrease of $3.6 million in regulatory fees expense driven by the aforementioned reduction of $3.8 million in FDIC special assessment expense recorded in the second quarter of 2024.

Income taxes

• The company's effective tax rate was 18.9% for the six months ended June 30, 2024, compared to 17.6% for the same period in 2023. The increase in the effective tax rate in 2024 is primarily attributable to a smaller portion of income being earned from tax-exempt municipal securities and a decrease in excess tax benefits associated with stock compensation recorded in 2024 as compared to the prior year.

Balance sheet

• Average total assets for the second quarter of 2024 were $42.5 billion compared to $42.0 billion for the linked quarter and $40.4 billion for the same period in 2023.

• Average loans for the second quarter of 2024 increased $451.8 million, or 1.9%, on a linked-quarter basis and $1.6 billion, or 7.3%, compared to the second quarter of 2023.

• Average total securities decreased 2.4% on a linked-quarter basis and 2.8% compared to the second quarter of 2023.
• At June 30, 2024, the unrealized pre-tax net loss on the available-for-sale securities portfolio was $678.7 million, or 8.7% of the $7.8 billion amortized cost balance. At June 30, 2024, the unrealized pre-tax net loss on the securities designated as held to maturity was $636.2 million, or 11.5% of the $5.5 billion amortized cost value.

• Average deposits increased 2.4% on a linked-quarter basis and 9.1% compared to the second quarter of 2023.

Capital

• At June 30, 2024, 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 $4.1 million from the linked quarter and $1.1 million from the second quarter of 2023. These changes are driven largely by ongoing re-calibrations of econometric loss models and underlying macro-economic drivers for certain loan portfolios and $0.6 billion increase in end-of-period loans from March 31, 2024, as well as general portfolio trends in the current period as compared to the prior periods.
• Net charge-offs for the second quarter totaled $2.9 million, or 0.05% of average loans, compared to $3.0 million, or 0.05% of average loans in the linked quarter, and net recoveries of $0.1 million for the second quarter of 2023.

Dividend Declaration

At the company's quarterly board meeting, the Board of Directors declared a $0.39 per share quarterly cash dividend, payable on October 1, 2024, to shareholders of record at the close of business on September 10, 2024.

Conference Call

The company will host a conference call to discuss its second quarter 2024 earnings results on Wednesday, July 31, 2024, at 8:30 a.m. (CT).

Interested parties may access the call by dialing (toll-free) 833-470-1428 or (international) 404-975-4839 and requesting to join the UMB Financial call with access code 944750. The live call may also be accessed by visiting investorrelations.umb.com or by using the following link:

UMB Financial 2Q 2024 Conference Call

A replay of the conference call may be heard through August 14, 2024, by calling (toll-free) 866-813-9403 or (international) 929-458-6194. The replay access code required for playback is 435652. The call replay may also be accessed at investorrelations.umb.com.

Non-GAAP Financial Information

In this release, we provide information about net operating income, operating earnings per share – diluted (operating EPS), operating return on average equity (operating ROE), operating return on average assets (operating ROA), operating noninterest expense, 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- and severance-related items, and the FDIC special assessment 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, severance expense, the FDIC special assessment, 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 and severance, and the FDIC special assessment.

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 and severance, and the FDIC special assessment.

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, 2023, 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 adverse developments and uncertainties related to the collateral effects of the collapse of, and challenges for, domestic and international banks, including 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 instability in the Middle East and 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.