U.S. markets open in 4 hours 38 minutes

UMB Financial Corporation Reports Second Quarter 2020 Net Income of $60.5 Million

Second Quarter 2020 Highlights  

  • GAAP net income of $60.5 million, or $1.26 per diluted share; operating net income of $63.8 million, or $1.33 per diluted share.
  • Pre-tax, pre-provision (PTPP) income of $90.2 million, an increase of 7.6% from the linked quarter.
  • Total revenue increased 9.7% to $298.7 million, compared to the linked quarter.
  • Average loans, excluding Paycheck Protection Program (PPP) balances, increased 8.2% on a linked-quarter annualized basis.
  • Loans recorded under the PPP totaled $1.5 billion as of June 30, 2020.
  • Average deposits grew $2.0 billion to $22.8 billion compared to the first quarter of 2020.
  • GAAP book value per share of $57.84, a 14.5% increase, and tangible book value per share of $53.57, a 15.1% increase compared to a year ago.
  • Credit quality remained strong, with net charge-offs of just 0.15% of average loans, consistent with the companys historical performance.

UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced net income for the second quarter of 2020 of $60.5 million, or $1.26 per diluted share, compared to a net loss of $3.4 million in the first quarter of 2020 (linked quarter) and net income of $57.0 million, or $1.16 per diluted share, in the second quarter of 2019.

Net operating income, a non-GAAP financial measure reconciled to net income, the nearest comparable GAAP measure, later in this release, was $63.8 million, or $1.33 per diluted share, for the second quarter of 2020, compared to a net operating loss of $1.9 million for the linked quarter and net operating income of $57.2 million, or $1.17 per diluted share, for the second quarter of 2019. Pre-tax, pre-provision income (PTPP), a non-GAAP measure reconciled to net income before taxes, the nearest comparable GAAP measure, later in this release, was $90.2 million, or $1.88 per diluted share, for the second quarter of 2020, compared to $83.7 million, or $1.72 per diluted share, for the linked quarter, and $78.4 million, or $1.60 per diluted share, for the second quarter of 2019. These PTPP results represent increases of 7.6% on a linked-quarter basis and 15.0% compared to the second quarter of 2019.

Summary of quarterly financial results

 

UMB Financial Corporation

 

(unaudited, dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2

 

 

Q1

 

 

Q2

 

 

 

2020

 

 

2020

 

 

2019

 

Net income (loss)

 

$

60,529

 

 

$

(3,439

)

 

$

56,959

 

Earnings (losses) per share (diluted)

 

 

1.26

 

 

 

(0.07

)

 

 

1.16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provision income

 

 

90,152

 

 

 

83,746

 

 

 

78,425

 

Pre-tax, pre-provision earnings per share (diluted)

 

 

1.88

 

 

 

1.72

 

 

 

1.60

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income (loss)

 

 

63,835

 

 

 

(1,881

)

 

 

57,245

 

Operating earnings (losses) per share (diluted)

 

 

1.33

 

 

 

(0.04

)

 

 

1.17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.87

%

 

 

(0.05

)%

 

 

0.98

%

Return on average equity

 

 

8.95

 

 

 

(0.51

)

 

 

9.46

 

Efficiency ratio

 

 

70.20

 

 

 

68.93

 

 

 

70.32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

 

Operating return on average assets

 

 

0.91

%

 

 

(0.03

)%

 

 

0.99

%

Operating return on average equity

 

 

9.44

 

 

 

(0.28

)

 

 

9.51

 

Operating efficiency ratio

 

 

68.76

 

 

 

68.19

 

 

 

70.19

 

Summary of year-to-date financial results

 

UMB Financial Corporation

 

(unaudited, dollars in thousands, except per share data)

 

June

 

 

June

 

 

 

YTD

 

 

YTD

 

 

 

2020

 

 

2019

 

Net income

 

$

57,090

 

 

$

114,703

 

Earnings per share (diluted)

 

 

1.18

 

 

 

2.34

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provision income

 

 

173,898

 

 

 

159,049

 

Pre-tax, pre-provision earnings per share (diluted)

 

 

3.59

 

 

 

3.24

 

 

 

 

 

 

 

 

 

 

Net operating income

 

 

61,954

 

 

 

115,453

 

Operating earnings per share (diluted)

 

 

1.28

 

 

 

2.36

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.42

%

 

 

1.00

%

Return on average equity

 

 

4.22

 

 

 

9.95

 

Efficiency ratio

 

 

69.59

 

 

 

70.16

 

 

 

 

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

 

 

 

Operating return on average assets

 

 

0.46

%

 

 

1.01

%

Operating return on average equity

 

 

4.58

 

 

 

10.01

 

Operating efficiency ratio

 

 

68.49

 

 

 

69.98

 

"As the country continues to navigate its way through an uncertain economic environment, our second quarter results highlight the strength of our fortress balance sheet and the quality of our underwriting practices, as evidenced by just 15 basis points of net charge-offs. Additionally, we added $1.5 billion in loans under the Paycheck Protection Program (PPP) during the quarter," said Mariner Kemper, chairman, president and chief executive officer. "Despite the unprecedented times, average loans, excluding PPP balances, increased 8.2% on a linked-quarter annualized basis. Finally, we launched our corporate citizenship report outlining some of our 2019 environmental, social and governance efforts, which has been a collaborative effort of listening to, and engaging with, our associates, customers, and communities."

Summary of revenue

 

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2

 

 

Q1

 

 

Q2

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Net interest income

 

$

178,229

 

 

$

173,941

 

 

$

166,414

 

 

$

4,288

 

 

$

11,815

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust and securities processing

 

 

46,321

 

 

 

47,000

 

 

 

42,903

 

 

 

(679

)

 

 

3,418

 

Trading and investment banking

 

 

12,851

 

 

 

1,723

 

 

 

5,453

 

 

 

11,128

 

 

 

7,398

 

Service charges on deposit accounts

 

 

19,074

 

 

 

25,081

 

 

 

20,747

 

 

 

(6,007

)

 

 

(1,673

)

Insurance fees and commissions

 

 

533

 

 

 

259

 

 

 

465

 

 

 

274

 

 

 

68

 

Brokerage fees

 

 

5,753

 

 

 

9,860

 

 

 

7,077

 

 

 

(4,107

)

 

 

(1,324

)

Bankcard fees

 

 

12,916

 

 

 

16,545

 

 

 

16,439

 

 

 

(3,629

)

 

 

(3,523

)

Gains (losses) on sales of securities available for sale, net

 

 

4,006

 

 

 

1,227

 

 

 

(1,403

)

 

 

2,779

 

 

 

5,409

 

Other

 

 

19,002

 

 

 

(3,271

)

 

 

13,717

 

 

 

22,273

 

 

 

5,285

 

Total noninterest income

 

$

120,456

 

 

$

98,424

 

 

$

105,398

 

 

$

22,032

 

 

$

15,058

 

Total revenue

 

$

298,685

 

 

$

272,365

 

 

$

271,812

 

 

$

26,320

 

 

$

26,873

 

Net interest margin

 

 

2.79

%

 

 

2.97

%

 

 

3.19

%

 

 

 

 

 

 

 

 

Total noninterest income as a % of total revenue

 

 

40.33

 

 

 

36.14

 

 

 

38.78

 

 

 

 

 

 

 

 

 

Net interest income

  • Net interest income totaled $178.2 million, an increase of $4.3 million, or 2.5%, from the linked quarter, driven by a $1.5 billion, or 10.9%, increase in average loans, and an 8.7% increase in average earning assets. The increase in loan balances was primarily driven by the companys participation in the PPP, which contributed $1.5 billion in balances. While new loan production during the quarter remained strong, this growth was negated by normalization of line utilization activity which spiked in the first quarter following the initial impact of the COVID-19 pandemic.
  • Net interest margin for the second quarter was 2.79%, a decrease of 18 basis points from the linked quarter, in large part due to lower short-term interest rates and a build-up of excess liquidity. Earning asset yields declined 57 basis points from the linked quarter, driven by declining yields in the loan portfolio due to recent reductions in short-term interest rates and an unfavorable earning asset mix shift driven by excess liquidity and, to a lesser extent, the impact of lower-yielding PPP loans. Federal funds and resell agreements, interest-bearing due from banks, and trading securities averaged $2.3 billion, an 11.4% increase from $2.1 billion in the linked quarter. The cost of interest-bearing liabilities decreased 58 basis points to 0.34%, driven by a 53-basis-point decline in the cost of interest-bearing deposits and lower borrowing costs. Net interest spread increased one basis point to 2.67 from the linked quarter and was five basis points lower than the second quarter of 2019.
  • On a year-over-year basis, net interest income increased $11.8 million, or 7.1%, driven by a $2.5 billion, or 19.6%, increase in average loans, and a $4.9 billion, or 22.7%, increase in earning assets.
  • Average deposits increased 9.4% on a linked-quarter basis and 21.3% compared to the second quarter of 2019. Average noninterest-bearing demand deposit balances increased 18.0% on a linked-quarter basis and 26.1% compared to the second quarter of 2019.

Noninterest income

  • Second quarter 2020 noninterest income increased $22.0 million, or 22.4%, on a linked-quarter basis, largely due to:
    • An increase of $24.8 million in company-owned life insurance income, reflecting the impact of higher market valuations of the underlying investments, recorded in other income. The increase in company-owned life insurance income is offset by a proportionate increase in deferred compensation expense as noted below.
    • An increase of $11.1 million in trading and investment banking, primarily driven by higher trading volumes, as well as an increase of $4.9 million in market valuation of investments in the companys trading portfolio.
    • These increases were partially offset by the following decreases:
      • A decrease of $5.5 million in healthcare income, recorded in service charges on deposits, related to non-recurring customer transfer and conversion fees recorded in the first quarter.
      • A decrease of $4.1 million in brokerage fees, primarily driven by decreased 12b-1 income.
      • A decrease of $3.6 million in bankcard fees, primarily due to decreased interchange income.
  • Compared to the prior year, noninterest income in the second quarter of 2020 increased $15.1 million, or 14.3%, primarily driven by:
    • An increase of $8.9 million in company-owned life insurance, recorded in other income. The increase in company-owned life insurance income is offset by a proportionate increase in deferred compensation expense as noted below.
    • An increase of $7.4 million in trading and investment banking, primarily driven by higher trading volumes, as well as an increase of $1.1 million in market valuation of investments in the companys trading portfolio.
    • An increase of $5.4 million in gains on sales of available-for-sale securities.
    • These increases were partially offset by the following decreases:
      • A decrease of $3.5 million in bankcard fees, primarily due to decreased interchange income.
      • A decrease of $1.3 million in brokerage fees, primarily due to decreased 12b-1 income.
      • A decrease of $1.0 million in equity earnings on alternative investments, recorded in other income.

Noninterest expense

Summary of noninterest expense

 

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2

 

 

Q1

 

 

Q2

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Salaries and employee benefits

 

$

130,938

 

 

$

111,060

 

 

$

114,454

 

 

$

19,878

 

 

$

16,484

 

Occupancy, net

 

 

11,411

 

 

 

12,180

 

 

 

11,539

 

 

 

(769

)

 

 

(128

)

Equipment

 

 

21,502

 

 

 

21,241

 

 

 

18,824

 

 

 

261

 

 

 

2,678

 

Supplies and services

 

 

3,785

 

 

 

4,185

 

 

 

4,285

 

 

 

(400

)

 

 

(500

)

Marketing and business development

 

 

3,284

 

 

 

4,640

 

 

 

7,304

 

 

 

(1,356

)

 

 

(4,020

)

Processing fees

 

 

13,603

 

 

 

13,390

 

 

 

13,096

 

 

 

213

 

 

 

507

 

Legal and consulting

 

 

6,220

 

 

 

6,110

 

 

 

7,496

 

 

 

110

 

 

 

(1,276

)

Bankcard

 

 

4,549

 

 

 

4,860

 

 

 

4,701

 

 

 

(311

)

 

 

(152

)

Amortization of other intangible assets

 

 

1,658

 

 

 

1,734

 

 

 

1,251

 

 

 

(76

)

 

 

407

 

Regulatory fees

 

 

3,211

 

 

 

2,366

 

 

 

2,910

 

 

 

845

 

 

 

301

 

Other

 

 

8,372

 

 

 

6,853

 

 

 

7,527

 

 

 

1,519

 

 

 

845

 

Total noninterest expense

 

$

208,533

 

 

$

188,619

 

 

$

193,387

 

 

$

19,914

 

 

$

15,146

 

  • GAAP noninterest expense for the second quarter of 2020 was $208.5 million, an increase of $19.9 million, or 10.6%, from the linked quarter and an increase of $15.1 million, or 7.8%, from the second quarter of 2019. Expenses for the quarter included $4.0 million in non-recurring compensation and other costs tied to the companys COVID-19 response.
  • The linked quarter increase in noninterest expense was driven by:
    • An increase of $19.9 million in salaries and employee benefits, largely driven by a $24.6 million increase in deferred compensation expense, which was offset by the increase in company-owned life insurance income noted above. This increase was partially offset by a decrease of $5.5 million in payroll taxes and profit sharing and 401(k) expense.
    • An increase of $1.5 million in other expense driven by operational losses in the second quarter.
    • These increases were partially offset by a decrease of $1.4 million in marketing and business development expense due to a decline in travel and entertainment expenses in the second quarter due to the pandemic.
  • The year-over-year increase in noninterest expense was driven by:
    • A $16.5 million increase in salaries and employee benefits, primarily due to increases of $9.8 million in deferred compensation expense, $3.5 million in bonus and commission expense, and $3.2 million in salary and wage expense, which included compensation expense tied to the companys COVID-19 response. The increase in deferred compensation expense was offset by the increase in company-owned life insurance income noted above.
    • An increase of $2.7 million in equipment expense, due to investments in digital channel and integrated platform solutions to support business growth and the ongoing modernization of the companys core systems.
    • These increases were partially offset by a decrease of $4.0 million in marketing and business development expense primarily due to a decline in travel and entertainment expense due to the pandemic.

Income taxes

  • The companys effective tax rate was 11.3% for the six months ended June 30, 2020, compared to 15.5% for the same period in 2019. The decrease in the effective rate for 2020 is primarily attributable to a larger portion of income being earned from tax-exempt municipal securities.

Balance sheet

  • Average total assets for the second quarter of 2020 were $28.1 billion compared to $26.0 billion for the linked quarter and $23.3 billion for the same period in 2019.

Summary of average loans and leases - QTD Average

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2

 

 

Q1

 

 

Q2

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Commercial and industrial

 

$

6,970,223

 

 

$

5,786,545

 

 

$

5,278,626

 

 

$

1,183,678

 

 

$

1,691,597

 

Specialty lending

 

 

471,571

 

 

 

510,316

 

 

 

682,306

 

 

 

(38,745

)

 

 

(210,735

)

Commercial real estate

 

 

5,435,428

 

 

 

5,181,036

 

 

 

4,696,665

 

 

 

254,392

 

 

 

738,763

 

Consumer real estate

 

 

1,528,501

 

 

 

1,414,025

 

 

 

1,241,078

 

 

 

114,476

 

 

 

287,423

 

Consumer

 

 

146,120

 

 

 

141,972

 

 

 

132,662

 

 

 

4,148

 

 

 

13,458

 

Credit cards

 

 

353,424

 

 

 

418,485

 

 

 

427,176

 

 

 

(65,061

)

 

 

(73,752

)

Leases and other

 

 

193,099

 

 

 

164,187

 

 

 

162,468

 

 

 

28,912

 

 

 

30,631

 

Total loans

 

$

15,098,366

 

 

$

13,616,566

 

 

$

12,620,981

 

 

$

1,481,800

 

 

$

2,477,385

 

  • Average loans for the second quarter of 2020 increased 10.9% on a linked-quarter basis and 19.6% compared to the second quarter of 2019, primarily due to the companys participation in PPP, which had an average balance of $1.2 billion in the second quarter.

Summary of average securities - QTD Average

 

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2

 

 

Q1

 

 

Q2

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

31,150

 

 

$

49,638

 

 

$

256,949

 

 

$

(18,488

)

 

$

(225,799

)

U.S. Agencies

 

 

403,290

 

 

 

94,342

 

 

 

91,822

 

 

 

308,948

 

 

 

311,468

 

Mortgage-backed

 

 

4,284,374

 

 

 

4,133,118

 

 

 

3,926,164

 

 

 

151,256

 

 

 

358,210

 

State and political subdivisions

 

 

3,108,661

 

 

 

3,058,594

 

 

 

2,659,397

 

 

 

50,067

 

 

 

449,264

 

Corporates

 

 

98,089

 

 

 

188,257

 

 

 

84,910

 

 

 

(90,168

)

 

 

13,179

 

Commercial Paper

 

 

2,040

 

 

 


 

 

 


 

 

 

2,040

 

 

 

2,040

 

Total securities available for sale

 

$

7,927,604

 

 

$

7,523,949

 

 

$

7,019,242

 

 

$

403,655

 

 

$

908,362

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

1,100,843

 

 

$

1,108,716

 

 

$

1,128,526

 

 

$

(7,873

)

 

$

(27,683

)

Trading securities

 

 

37,816

 

 

 

48,102

 

 

 

61,565

 

 

 

(10,286

)

 

 

(23,749

)

Other securities

 

 

148,918

 

 

 

124,795

 

 

 

80,097

 

 

 

24,123

 

 

 

68,821

 

Total securities

 

$

9,215,181

 

 

$

8,805,562

 

 

$

8,289,430

 

 

$

409,619

 

 

$

925,751

 

  • Average securities available for sale increased 5.4% on a linked-quarter basis and 12.9% compared to the second quarter of 2019.

Summary of average deposits - QTD Average

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q2

 

 

Q1

 

 

Q2

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

7,662,836

 

 

$

6,495,611

 

 

$

6,078,520

 

 

$

1,167,225

 

 

$

1,584,316

 

Interest-bearing demand and savings

 

 

14,160,722

 

 

 

13,232,370

 

 

 

11,740,634

 

 

 

928,352

 

 

 

2,420,088

 

Time deposits

 

 

...