UMB Financial Corporation Reports Third Quarter Net Income of $96.6 Million

  Third Quarter 2023 Financial Highlights

• GAAP net income of $96.6 million, or $1.98 per diluted share.
• Net operating income(i) of $98.4 million, or $2.02 per diluted share.
• Average loans increased 10.1% on a linked-quarter, annualized basis, to $22.8 billion, or an 18.0% increase as compared to the third quarter of 2022.
• Deposit balances at September 30, 2023 totaled $33.4 billion, up from $31.8 billion at September 30, 2022, and consistent with June 30, 2023 balances.
• Average deposit balances of $31.3 billion, increased 5.1% as compared to the third quarter of 2022.
• Net interest margin of 2.43%, consistent with the linked quarter.
• Credit quality remained strong, with net charge-offs of just 0.08% of total loans and non-performing loans representing 0.07% of total loans, compared to 0.09% as of June 30, 2023.

KANSAS CITY, Mo.–(BUSINESS WIRE)–UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced net income for the third quarter of 2023 of $96.6 million, or $1.98 per diluted share, compared to $90.1 million, or $1.85 per diluted share, in the second quarter of 2023 (linked quarter) and $88.0 million, or $1.81 per diluted share, in the third quarter of 2022.

Net operating income, a non-GAAP financial measure reconciled later in this release to net income, the nearest comparable GAAP measure, was $98.4 million, or $2.02 per diluted share, for the third quarter of 2023, compared to $93.8 million, or $1.93 per diluted share, for the linked quarter and $88.3 million, or $1.82 per diluted share, for the third quarter of 2022. 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 $126.6 million, or $2.60 per diluted share, for the third quarter of 2023, compared to $127.9 million, or $2.63 per diluted share, for the linked quarter, and $131.2 million, or $2.70 per diluted share, for the third quarter of 2022. These operating PTPP results represent decreases of 1.0% on a linked-quarter basis and 3.5%, compared to the third quarter of 2022.

“Our third quarter results demonstrated strong loan growth, stable deposits, continued momentum in many of our fee generating businesses, and solid asset quality,” said Mariner Kemper, chairman, president and chief executive officer. “Average loan balances increased more than 10% on a linked-quarter, annualized basis, driven primarily by construction draws and commercial & industrial loan growth. While net interest income for the industry continues to be impacted by higher interest costs paid to deposit clients, our net interest margin in the third quarter was essentially flat on a linked-quarter basis. Our loan portfolio, predominantly indexed to short-term interest rates, continues to reprice in the current interest rate environment as evidenced by the 21 basis points increase in loan yields as compared to the second quarter. Client sentiment remains cautiously optimistic amidst an uncertain geopolitical and interest rate environment. At UMB, our overall portfolio health remains solid as evidenced by a low loan loss ratio of just 0.08% of average loans and nonperforming loans comprising just 0.07% of total loans.”

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

Third Quarter 2023 earnings discussion

(i) See reconciliation of Non-GAAP measures to their nearest comparable GAAP measures later in this release.

(i) See reconciliation of Non-GAAP measures to their nearest comparable GAAP measures later in this release.

Net interest income

• Third quarter 2023 net interest income totaled $222.3 million, a decrease of $3.3 million, or 1.5%, from the linked quarter, driven by higher interest expense due primarily to unfavorable mix shift in the composition of liabilities, combined with the impact of higher short-term interest rates. This decrease was partially offset by continued growth in average loans, coupled with increased loan yields.
• Average earning assets decreased $866.4 million, or 2.3%, from the linked quarter, largely driven by decreases of $1.2 billion in interest-bearing due from banks and $299.6 million in average securities, partially offset by an increase of $559.9 million in average loans.
• Average interest-bearing liabilities decreased $464.8 million, or 1.8%, from the linked quarter, primarily driven by decreases of $531.4 million in borrowed funds, mostly short-term borrowings, and $309.5 million in federal funds and repurchase agreements. These decreases were partially offset by an increase of $376.1 million in interest-bearing deposits. Average noninterest-bearing deposits decreased $520.6 million, or 4.9%, as compared to the linked quarter.
• Net interest margin for the third quarter was 2.43%, a decrease of one basis point from the linked quarter, driven by increased cost and mix of interest-bearing liabilities, partially offset by improved loan yields, the benefit of free funds, and earning asset mix changes. The cost of interest-bearing liabilities increased 24 basis points to 3.82%. Total cost of funds increased 19 basis points from the linked quarter to 2.75%. Average loan yields increased 21 basis points while earning asset yields increased 17 basis points from the linked quarter.
• On a year-over-year basis, net interest income decreased $11.2 million, or 4.8%, driven by higher interest expense primarily due to unfavorable mix shift in the composition of liabilities, as well as the impact of higher short-term interest rates. This decrease was partially offset by a $3.5 billion, or 18.0%, increase in average loans.
• Compared to the third quarter of 2022, average earning assets increased $2.9 billion, or 8.5%, largely driven by the increase in average loans noted above, partially offset by a decrease of $933.2 million in average securities.
• Average deposits increased 5.1% compared to the third quarter of 2022. Average noninterest-bearing demand deposit balances decreased 19.2% compared to the third quarter of 2022, driven by migration to rate-bearing deposit categories, as expected in a higher interest rate environment. Average demand deposit balances comprised 32.0% of total deposits, compared to 33.5% in the linked quarter and 41.6% in the third quarter of 2022.
• Average borrowed funds decreased $531.4 million as compared to the linked quarter and increased $2.3 billion as compared to the third quarter of 2022, driven by short-term borrowings with the Federal Home Loan Bank and the Federal Reserve Discount Window.

Noninterest income

• Third quarter 2023 noninterest income decreased $4.8 million, or 3.5%, on a linked-quarter basis, largely due to:
  • A decrease of $8.4 million in other income, primarily related to a $4.0 million gain on sale of other assets recorded in the second quarter, coupled with decreases of $3.5 million in company-owned life insurance income and $0.9 million in derivative income. The decrease in company-owned life insurance was offset by a proportionate decrease in deferred compensation expense as noted below.
  • A decrease of $1.0 million in trading and investment banking due to decreased trading volume.
  • These decreases were partially offset by increases of $3.2 million in fund services income, $1.3 million in corporate trust income, and $0.6 million in trust servicing income, all recorded in trust and securities processing.
• Compared to the prior year, noninterest income in the third quarter of 2023 increased $4.6 million, or 3.6%, primarily driven by:
  • Increases of $4.1 million in fund services income, $2.4 million in corporate trust income, and $0.6 million in trust servicing income, all recorded in trust and securities processing.
  • An increase of $1.6 million in investment securities gains, primarily driven by increased valuations in the company’s marketable securities.
  • An increase of $0.5 million in bank-owned life insurance income, recorded in other income.
  • These increases were partially offset by decreases of $2.7 million in company-owned life insurance income and $1.3 million in derivative income, both recorded in other income. The decrease in company-owned life insurance was offset by a proportionate decrease in deferred compensation expense as noted below.

Noninterest expense

• Noninterest expense for the third quarter of 2023 was $231.4 million, a decrease of $9.2 million, or 3.8%, from the linked quarter and an increase of $0.1 million from the third quarter of 2022. Operating noninterest expense, a non-GAAP financial measure reconciled later in this release to noninterest expense, the nearest comparable GAAP measure, was $229.0 million for the third quarter of 2023, a decrease of $6.8 million, or 2.9%, from the linked quarter and a decrease of $2.0 million, or 0.9%, from the third quarter of 2022.
• The linked-quarter decrease in GAAP noninterest expense was driven by:
  • A decrease of $9.9 million in salaries and employee benefits expense driven by decreases of $5.3 million in employee benefits expense and $4.6 million in salaries and bonus expense. The decrease in employee benefits was driven by a decrease in deferred compensation expense of $2.8 million and a decrease of $1.3 million in other employee benefits. The decrease in salaries and bonus expense was due to a decrease of $2.5 million in severance expense and a decrease of $1.6 million in salary and wage expense. The decrease in deferred compensation expense was offset by the decrease in company-owned life insurance income noted above.
  • These decreases were partially offset by an increase of $1.3 million in operational losses as compared to the linked quarter.
• The year-over-year increase in GAAP noninterest expense was driven by:
  • An increase of $5.1 million in processing fees expense due to the ongoing modernization of the company’s core systems and the timing of multiple software projects.
  • This increase was partially offset by the following decreases:
    • A decrease of $3.1 million in salaries and employee benefits expense, driven primarily by decreases of $1.6 million in salaries and bonus expense and $1.5 million in employee benefits expense. The decrease in salaries and wage expense is primarily due to a decrease in bonus and commission expense. The decrease in employee benefits expense is due to a decrease of $1.9 million in deferred compensation plan expense. The decrease in deferred compensation expense was offset by the decrease in company-owned life insurance income noted above.
    • A decrease of $3.0 million in legal and consulting expense due to the timing of multiple projects.

Income taxes

• The company’s effective tax rate was 18.1% for the nine months ended September 30, 2023, compared to 18.8% for the same period in 2022. The decrease in the effective tax rate in 2023 is primarily attributable to a larger portion of income being earned from tax-exempt municipal securities.

Balance sheet

• Average total assets for the third quarter of 2023 were $39.5 billion compared to $40.4 billion for the linked quarter and $36.3 billion for the same period in 2022.

• Average loans for the third quarter of 2023 increased $559.9 million, or 2.5%, on a linked-quarter basis and $3.5 billion, or 18.0%, compared to the third quarter of 2022.

• Average total securities decreased 2.3% on a linked-quarter basis and decreased 6.7% compared to the third quarter of 2022.
• At September 30, 2023, the unrealized pre-tax net loss on the available-for-sale securities portfolio was $917.8 million, or 12.7% of the $7.2 billion amortized cost value. At September 30, 2023, the unrealized pre-tax net loss on the securities designated as held to maturity was $876.1 million, or 15.3% of the $5.7 billion amortized cost value.
• During 2022, the company transferred securities with an amortized cost balance of $4.1 billion and a fair value of $3.8 billion from the available-for-sale category to the held-to-maturity category. The remaining balance of unrealized pre-tax net losses related to transferred securities was $216.5 million as of September 30, 2023 and was included in the amortized cost balance of held-to-maturity securities.
• At September 30, 2023, an after-tax gain of $55.9 million was included in accumulated other comprehensive income (AOCI) related to the company’s fair value hedges of municipal securities. During 2021, the company entered into ten of these hedge transactions, all of which have since been terminated. The gain on the terminated hedges is being amortized over the remaining life of the underlying bonds.

• Average deposits decreased 0.5% on a linked-quarter basis and increased 5.1% compared to the third quarter of 2022.
• As of September 30, 2023, the total estimated uninsured deposits were $20.7 billion, or approximately 62.0% of total deposits. Estimated uninsured deposits, when adjusted to exclude affiliate (company-owned) and collateralized deposits, were $14.2 billion, and represented approximately 42.6% of total deposits.

Capital

(i) See reconciliation of Non-GAAP measures to their nearest comparable GAAP measures later in this release.

• At September 30, 2023, the regulatory capital ratios presented in the foregoing table exceeded all “well-capitalized” regulatory thresholds.

Asset Quality

• Provision for credit losses for the third quarter totaled $5.0 million, a decrease of $8.0 million from the linked quarter and a decrease of $17.0 million from the third quarter of 2022. These changes are driven largely by changes in macro-economic variables in the current period as compared to the prior periods.
• Net charge-offs for the third quarter totaled $4.6 million, or 0.08% of average loans, compared to net recoveries of $0.1 million in the linked quarter, and net charge-offs of $1.2 million, or 0.02% of average loans, for the third quarter of 2022. On a year-to-date basis, net charge-offs totaled $9.1 million, or 0.06% of average loans, compared to $37.7 million, or 0.27% of average loans, for the same period in 2022.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors approved a 2.6% increase in the quarterly cash dividend to $0.39 per share. The cash dividend will be payable on January 2, 2024, to shareholders of record at the close of business on December 11, 2023.

Conference Call

The company plans to host a conference call to discuss its third quarter 2023 earnings results on Wednesday, October 25, 2023, at 8:30 a.

Contacts

Media Contact: Stephanie Hague: 816.860.5088

Investor Relations Contact: Kay Gregory: 816.860.7106

Read full story here