UMB Financial Corporation Reports Third Quarter 2020 Net Income of $73.1 Million and Announces 3.2% Dividend Increase

·13 min read

Third Quarter 2020 Highlights

  • GAAP net income of $73.1 million, or $1.52 per diluted share; net operating income of $76.4 million, or $1.59 per diluted share.

  • Pre-tax, pre-provision (PTPP) income of $99.4 million, an increase of 10.2% from the linked quarter.

  • Average loans increased 16.8% on a linked-quarter, annualized basis.

  • Average deposits grew $1.3 billion to $24.1 billion compared to the second quarter of 2020.

  • GAAP book value per share increased 13.8% to $59.43, and tangible book value per share increased 14.5% to $55.19, compared to a year ago.

  • Credit quality remained strong, with net charge-offs of just 0.13% of average loans.

UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced net income for the third quarter of 2020 of $73.1 million, or $1.52 per diluted share, compared to $60.5 million, or $1.26 per diluted share, in the second quarter of 2020 (linked quarter) and $62.4 million, or $1.27 per diluted share, in the third 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 $76.4 million, or $1.59 per diluted share, for the third quarter of 2020, compared to $63.8 million, or $1.33 per diluted share, for the linked quarter and $62.5 million, or $1.27 per diluted share, for the third 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 $99.4 million, or $2.07 per diluted share, for the third quarter of 2020, compared to $90.2 million, or $1.88 per diluted share, for the linked quarter, and $80.5 million, or $1.64 per diluted share, for the third quarter of 2019. These PTPP results represent increases of 10.2% on a linked-quarter basis and 23.5% compared to the third quarter of 2019.

Summary of quarterly financial results

 

UMB Financial Corporation

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3

 

 

Q2

 

 

Q3

 

 

 

2020

 

 

2020

 

 

2019

 

Net income

 

$

73,092

 

 

$

60,529

 

 

$

62,382

 

Earnings per share (diluted)

 

 

1.52

 

 

 

1.26

 

 

 

1.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provision income

 

 

99,385

 

 

 

90,152

 

 

 

80,498

 

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

 

 

2.07

 

 

 

1.88

 

 

 

1.64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating income

 

 

76,434

 

 

 

63,835

 

 

 

62,525

 

Operating earnings per share (diluted)

 

 

1.59

 

 

 

1.33

 

 

 

1.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.99

%

 

 

0.87

%

 

 

1.03

%

Return on average equity

 

 

10.23

 

 

 

8.95

 

 

 

9.69

 

Efficiency ratio

 

 

66.14

 

 

 

70.20

 

 

 

70.70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

 

 

 

 

 

 

 

Operating return on average assets

 

 

1.03

%

 

 

0.91

%

 

 

1.04

%

Operating return on average equity

 

 

10.70

 

 

 

9.44

 

 

 

9.72

 

Operating efficiency ratio

 

 

64.69

 

 

 

68.76

 

 

 

70.63

 

Summary of year-to-date financial results

 

UMB Financial Corporation

 

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

 

September

 

 

September

 

 

 

YTD

 

 

YTD

 

 

 

2020

 

 

2019

 

Net income

 

$

130,182

 

 

$

177,085

 

Earnings per share (diluted)

 

 

2.69

 

 

 

3.61

 

 

 

 

 

 

 

 

 

 

Pre-tax, pre-provision income

 

 

273,283

 

 

 

239,547

 

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

 

 

5.65

 

 

 

4.88

 

 

 

 

 

 

 

 

 

 

Net operating income

 

 

138,388

 

 

 

177,978

 

Operating earnings per share (diluted)

 

 

2.86

 

 

 

3.63

 

 

 

 

 

 

 

 

 

 

GAAP

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.62

%

 

 

1.01

%

Return on average equity

 

 

6.30

 

 

 

9.86

 

Efficiency ratio

 

 

68.40

 

 

 

70.34

 

 

 

 

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

 

 

 

Operating return on average assets

 

 

0.66

%

 

 

1.02

%

Operating return on average equity

 

 

6.69

 

 

 

9.91

 

Operating efficiency ratio

 

 

67.18

 

 

 

70.20

 

"Our strong third quarter results were driven by several factors. Despite unprecedented circumstances, average loans, excluding Paycheck Protection Program (PPP) balances, increased 9.7% on a linked-quarter annualized basis and we saw a 47.2% decrease in modified loan balances from the prior quarter. These were modifications designed during the height of the crisis to assist our customers and provide financial relief," said Mariner Kemper, chairman, president and chief executive officer. "In addition, we saw a 23.5% year-over-year increase in pre-tax, pre-provision income. We had year-over-year double-digit growth on both sides of our balance sheet and launched a successful inaugural subordinated debt issuance at an attractive yield, which further bolsters our capital position. And finally, as disclosed in our SEC filing on October 19, our fourth quarter is off to a great start with expected gains from our investment in Tattooed Chef, Inc."

Summary of revenue

 

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3

 

 

Q2

 

 

Q3

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Net interest income

 

$

184,384

 

 

$

178,229

 

 

$

168,260

 

 

$

6,155

 

 

$

16,124

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trust and securities processing

 

 

50,552

 

 

 

46,321

 

 

 

45,218

 

 

 

4,231

 

 

 

5,334

 

Trading and investment banking

 

 

8,678

 

 

 

12,851

 

 

 

5,712

 

 

 

(4,173

)

 

 

2,966

 

Service charges on deposit accounts

 

 

19,650

 

 

 

19,074

 

 

 

20,620

 

 

 

576

 

 

 

(970

)

Insurance fees and commissions

 

 

259

 

 

 

533

 

 

 

320

 

 

 

(274

)

 

 

(61

)

Brokerage fees

 

 

4,819

 

 

 

5,753

 

 

 

8,102

 

 

 

(934

)

 

 

(3,283

)

Bankcard fees

 

 

15,295

 

 

 

12,916

 

 

 

16,895

 

 

 

2,379

 

 

 

(1,600

)

Gains on sales of securities available for sale, net

 

 

311

 

 

 

4,006

 

 

 

3,057

 

 

 

(3,695

)

 

 

(2,746

)

Other

 

 

13,432

 

 

 

19,002

 

 

 

3,711

 

 

 

(5,570

)

 

 

9,721

 

Total noninterest income

 

$

112,996

 

 

$

120,456

 

 

$

103,635

 

 

$

(7,460

)

 

$

9,361

 

Total revenue

 

$

297,380

 

 

$

298,685

 

 

$

271,895

 

 

$

(1,305

)

 

$

25,485

 

Net interest income (FTE)

 

$

191,181

 

 

$

184,833

 

 

$

174,415

 

 

 

 

 

 

 

 

 

Net interest margin (FTE)

 

 

2.73

%

 

 

2.79

%

 

 

3.09

%

 

 

 

 

 

 

 

 

Total noninterest income as a % of total revenue

 

 

38.00

 

 

 

40.33

 

 

 

38.12

 

 

 

 

 

 

 

 

 

Net interest income

  • Net interest income totaled $184.4 million, an increase of $6.2 million, or 3.5%, from the linked quarter, driven by an increase of $1.2 billion, or 4.6%, in average earning assets. The increase in earning assets was driven by an increase of $638 million in securities and an increase of $633 million in loan balances.

  • Net interest margin for the third quarter was 2.73%, a decrease of six basis points from the linked quarter, due to loan repricing and mix changes, net changes to securities, and lower contribution of free funds. Earning asset yields declined 10 basis points from the linked quarter, driven by declining yields in the loan portfolio due to reductions in short-term interest rates and an unfavorable earning asset mix shift driven by excess liquidity. The cost of interest-bearing liabilities decreased six basis points to 0.28%, driven by a seven-basis-point decline in the cost of interest-bearing deposits and lower borrowing costs. Net interest spread decreased four basis points to 2.63% from the linked quarter and was one basis point lower than the third quarter of 2019.

  • On a year-over-year basis, net interest income increased $16.1 million, or 9.6%, driven by a $2.8 billion, or 22.0%, increase in average loans, and a $1.3 billion, or 15.8%, increase in securities. These increases were driven by organic loan growth and the companys participation in the PPP.

  • Average deposits increased 5.9% on a linked-quarter basis and 25.0% compared to the third quarter of 2019. Average noninterest-bearing demand deposit balances increased 7.8% on a linked-quarter basis and 35.8% compared to the third quarter of 2019.

  • During the third quarter, the company terminated a $750.0 million interest rate floor hedge for $34.1 million with a gain, net of unamortized premium, of $18.4 million to be amortized through September 2024.

Noninterest income

  • Third quarter 2020 noninterest income decreased $7.5 million, or 6.2%, on a linked-quarter basis, largely due to:

    • A decrease of $6.2 million in company-owned life insurance income, reflecting the impact of lower market valuations of the underlying investments, recorded in other income. The decrease in company-owned life insurance income is offset by a proportionate decrease in deferred compensation expense as noted below.

    • A decrease of $4.2 million in trading and investment banking, primarily due to moderation of trading volumes from strong linked quarter levels, as well as a decrease of $1.9 million in market valuation of investments in the companys trading portfolio.

    • A decrease of $3.7 million in gains on sales of available-for-sale securities.

    • These decreases were partially offset by increases of $4.2 million in trust and securities processing due to higher trust services and fund services income and $2.4 million in bankcard fees, primarily driven by increased interchange income.

  • Compared to the prior year, noninterest income in the third quarter of 2020 increased $9.4 million, or 9.0%, primarily driven by:

    • An increase of $5.3 million in trust and securities processing driven by increases of $3.7 million in fund services income and $1.6 million in corporate trust income.

    • Increases of $5.1 million in company-owned life insurance, $3.3 million in derivative income, and $1.2 million in equity earnings on alternative investments, all 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.

    • These increases were partially offset by decreases of $3.3 million in brokerage fees due to decreased 12b-1 income, and $2.7 million in gains on sales of available-for-sale securities.

Noninterest expense

Summary of noninterest expense

 

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3

 

 

Q2

 

 

Q3

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Salaries and employee benefits

 

$

124,194

 

 

$

130,938

 

 

$

110,153

 

 

$

(6,744

)

 

$

14,041

 

Occupancy, net

 

 

12,027

 

 

 

11,411

 

 

 

12,240

 

 

 

616

 

 

 

(213

)

Equipment

 

 

20,968

 

 

 

21,502

 

 

 

19,775

 

 

 

(534

)

 

 

1,193

 

Supplies and services

 

 

3,442

 

 

 

3,785

 

 

 

4,261

 

 

 

(343

)

 

 

(819

)

Marketing and business development

 

 

3,038

 

 

 

3,284

 

 

 

5,655

 

 

 

(246

)

 

 

(2,617

)

Processing fees

 

 

12,812

 

 

 

13,603

 

 

 

13,619

 

 

 

(791

)

 

 

(807

)

Legal and consulting

 

 

7,244

 

 

 

6,220

 

 

 

8,374

 

 

 

1,024

 

 

 

(1,130

)

Bankcard

 

 

4,834

 

 

 

4,549

 

 

 

4,643

 

 

 

285

 

 

 

191

 

Amortization of other intangible assets

 

 

1,524

 

 

 

1,658

 

 

 

1,335

 

 

 

(134

)

 

 

189

 

Regulatory fees

 

 

2,309

 

 

 

3,211

 

 

 

2,749

 

 

 

(902

)

 

 

(440

)

Other

 

 

5,603

 

 

 

8,372

 

 

 

8,593

 

 

 

(2,769

)

 

 

(2,990

)

Total noninterest expense

 

$

197,995

 

 

$

208,533

 

 

$

191,397

 

 

$

(10,538

)

 

$

6,598

 

  • GAAP noninterest expense for the third quarter of 2020 was $198.0 million, a decrease of $10.5 million, or 5.1%, from the linked quarter and an increase of $6.6 million, or 3.4%, from the third quarter of 2019.

  • The linked quarter decrease in noninterest expense was driven by:

    • A decrease of $6.7 million in salaries and employee benefits, largely driven by an $8.0 million decrease in deferred compensation expense, and a decrease of $1.9 million in bonus and commission expense. These decreases were partially offset by an increase of $2.7 million in severance expense. The decrease in deferred compensation expense is offset by the decrease in company-owned life insurance income noted above.

    • A $3.0 million decrease in operational losses, recorded in other noninterest expense.

    • A $0.9 million decrease in regulatory fees due to decreased federal deposit insurance expense.

  • The year-over-year increase in noninterest expense was driven by:

    • A $14.0 million increase in salaries and employee benefits, primarily due to increases of $7.3 million in bonus and commission expense, including an increase of $2.7 million in severance expense. Additional increases include $4.2 million in employee benefits expense, including an increase of $3.4 million in deferred compensation expense, and an increase of $2.5 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.

    • These increases were partially offset by the following decreases:

      • A decrease of $2.6 million in marketing and development expense primarily due to a decline in travel and entertainment expense due to the pandemic.

      • Decreases of $1.3 million in operational losses and $1.1 million in derivative expense, both recorded in other noninterest expense.

      • A decrease of $1.8 million in consulting expense, recorded in legal and professional expense, due to timing of multiple technology initiatives.

Income taxes

  • The companys effective tax rate was 11.9% for the nine months ended September 30, 2020, compared to 15.1% for the same period in 2019. The decrease in the effective tax rate for 2020 is primarily attributable to a larger portion of pre-tax income being earned from tax-exempt municipal securities.

Balance sheet

  • Average total assets for the third quarter of 2020 were $29.5 billion compared to $28.1 billion for the linked quarter and $23.9 billion for the same period in 2019.

  • During the third quarter, the company completed its inaugural public offering of $200 million in subordinated notes. These notes carry a rate of 3.7%, mature in September 2030, and are callable in September 2025.

Summary of average loans and leases - QTD Average

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3

 

 

Q2

 

 

Q3

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Commercial and industrial

 

$

7,043,780

 

 

$

6,970,223

 

 

$

5,303,309

 

 

$

73,557

 

 

$

1,740,471

 

Specialty lending

 

 

456,847

 

 

 

471,571

 

 

 

630,768

 

 

 

(14,724

)

 

 

(173,921

)

Commercial real estate

 

 

5,744,344

 

 

 

5,435,428

 

 

 

4,957,810

 

 

 

308,916

 

 

 

786,534

 

Consumer real estate

 

 

1,755,249

 

 

 

1,528,501

 

 

 

1,286,776

 

 

 

226,748

 

 

 

468,473

 

Consumer

 

 

150,814

 

 

 

146,120

 

 

 

136,117

 

 

 

4,694

 

 

 

14,697

 

Credit cards

 

 

371,444

 

 

 

353,424

 

 

 

425,268

 

 

 

18,020

 

 

 

(53,824

)

Leases and other

 

 

209,238

 

 

 

193,099

 

 

 

150,830

 

 

 

16,139

 

 

 

58,408

 

Total loans

 

$

15,731,716

 

 

$

15,098,366

 

 

$

12,890,878

 

 

$

633,350

 

 

$

2,840,838

 

  • Average loans for the third quarter of 2020 increased 4.2% on a linked-quarter basis and 22.0% compared to the third quarter of 2019 due to increased commercial real estate and consumer real estate loans and the companys participation in PPP, which had an average balance of $1.5 billion in the third quarter.

Summary of average securities - QTD Average

 

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3

 

 

Q2

 

 

Q3

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

30,881

 

 

$

31,150

 

 

$

250,552

 

 

$

(269

)

 

$

(219,671

)

U.S. Agencies

 

 

242,504

 

 

 

403,290

 

 

 

93,440

 

 

 

(160,786

)

 

 

149,064

 

Mortgage-backed

 

 

4,829,586

 

 

 

4,284,374

 

 

 

3,987,463

 

 

 

545,212

 

 

 

842,123

 

State and political subdivisions

 

 

3,407,508

 

 

 

3,108,661

 

 

 

2,795,210

 

 

 

298,847

 

 

 

612,298

 

Corporates

 

 

58,866

 

 

 

98,089

 

 

 

155,656

 

 

 

(39,223

)

 

 

(96,790

)

Commercial Paper

 

 

3,478

 

 

 

2,040

 

 

 

 

 

 

1,438

 

 

 

3,478

 

Total securities available for sale

 

$

8,572,823

 

 

$

7,927,604

 

 

$

7,282,321

 

 

$

645,219

 

 

$

1,290,502

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

1,085,297

 

 

$

1,100,843

 

 

$

1,105,397

 

 

$

(15,546

)

 

$

(20,100

)

Trading securities

 

 

32,894

 

 

 

37,816

 

 

 

44,571

 

 

 

(4,922

)

 

 

(11,677

)

Other securities

 

 

156,816

 

 

 

148,918

 

 

 

90,008

 

 

 

7,898

 

 

 

66,808

 

Total securities

 

$

9,847,830

 

 

$

9,215,181

 

 

$

8,522,297

 

 

$

632,649

 

 

$

1,325,533

 

  • Average securities available for sale increased 8.1% on a linked-quarter basis and 17.7% compared to the third quarter of 2019.

Summary of average deposits - QTD Average

UMB Financial Corporation

 

(unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Q3

 

 

Q2

 

 

Q3

 

 

CQ vs.

 

 

CQ vs.

 

 

 

2020

 

 

2020

 

 

2019

 

 

LQ

 

 

PY

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

8,260,170

 

 

$

7,662,836

 

 

$

6,082,498

 

 

$

597,334

 

 

$

2,177,672

 

Interest-bearing demand and savings

 

 

15,125,267

 

 

 

14,160,722

 

 

 

12,214,570

 

 

 

964,545

 

 

 

...

2,910,697

Time deposits

741,750

957,007

1,011,862

(215,257

)

(270,112

)

Total deposits

$

24,127,187

$

22,780,565

$

19,308,930

$

1,346,622

$

4,818,257

Noninterest bearing deposits as % of total

34.24

%

33.64

%

31.50

%

  • Average deposits increased 5.9% on a linked-quarter basis and 25.0% compared to the third quarter of 2019.

  • Average noninterest-bearing demand deposits increased 7.8% on a linked-quarter basis to $8.3 billion.

Capital

Capital information

UMB Financial Corporation

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

September 30,
2020

June 30,
2020

September 30,
2019

Total equity

$

2,854,180

$

2,777,395

$

2,563,866

Book value per common share

59.43

57.84

52.23

Tangible book value per common share

55.19

53.57

48.19

Regulatory capital:

Common equity Tier 1 capital

$

2,402,785

$

2,335,625

$

2,284,417

Tier 1 capital

2,402,785

2,335,625

2,284,417

Total capital

2,854,598

2,580,849

2,464,698

Regulatory capital ratios:

Common equity Tier 1 capital ratio

11.93

%

11.92

%

12.53

%

Tier 1 risk-based capital ratio

11.93

11.92

12.53

Total risk-based capital ratio

14.17

13.17

13.51

Tier 1 leverage ratio

8.19

8.35

9.62

  • At September 30, 2020, the regulatory capital ratios presented in the foregoing table exceeded all "well-capitalized" regulatory thresholds.

  • Total risk-based capital was favorably impacted by the $200 million subordinated note issuance during the third quarter. Additionally, the company contributed $100 million of capital to UMB Bank, n.a. during the third quarter.

Asset Quality

Credit quality

UMB Financial Corporation

(unaudited, dollars in thousands)

Q3

Q2

Q1

Q4

Q3

2020

2020

2020

2019

2019

Net charge-offs - Total loans

$

5,111

$

5,541

$

7,672

$

7,618

$

2,186

Net loan charge-offs as a % of total average loans

0.13

%

0.15

%

0.23

%

0.23

%

0.07

%

Loans over 90 days past due

$

1,372

$

4,588

$

2,211

$

2,069

$

2,466

Loans over 90 days past due as a % of total loans

0.01

%

0.03

%

0.02

%

0.02

%

0.02

%

Nonaccrual and restructured loans

$

93,695

$

82,245

$

97,029

$

56,347

$

71,838

Nonaccrual and restructured loans as a % of total loans

0.59

%

0.54

%

0.70

%

0.42

%

0.55

%

Provision for credit losses

$

16,000

$

21,500

$

88,000

$

2,000

$

7,500

  • Provision for credit losses for the third quarter totaled $16.0 million, a decrease of $5.5 million from the linked quarter, and an increase of $8.5 million from the third quarter of 2019.

  • Net charge-offs totaled $5.1 million, or 0.13%, of average loans, compared to $5.5 million, or 0.15%, of average loans in the linked quarter.

Dividend Declaration

At the company’s quarterly board meeting, the Board of Directors declared a $0.32 per share quarterly cash dividend, an increase of 3.2% or $0.01 per share. The cash dividend will be payable on January 4, 2021, to shareholders of record at the close of business on December 10, 2020.

Conference Call

The company plans to host a conference call to discuss its third quarter 2020 earnings results on Wednesday, October 28, 2020, 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 investorrelations.umb.com or by using the following link:

UMB Financial 3Q 2020 Conference Call

A replay of the conference call may be heard through November 11, 2020 by calling (toll-free) 877-344-7529 or (international) 412-317-0088. The replay access code required for playback is 10148456. 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, pre-tax, pre-provision income, pre-tax, pre-provision earnings per share – diluted (PTPP 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, PTPP, PTPP 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-, severance-, and COVID-19 related items that management does not believe reflect the company’s fundamental operating performance. COVID-19 related expense includes hazard pay for branch associates, computer hardware expense to support associates working remotely, and additional equipment, cleaning, and janitorial supplies to protect the well-being of our associates and customers while on the company’s premises.

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, COVID-19 related 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).

Pre-tax, pre-provision income for the relevant period is defined as GAAP net income, adjusted to reflect the impact of excluding income tax and provision expenses.

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, 2019, 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, the COVID-19 pandemic (the pandemic) may also cause actual results or other future events, circumstances, or aspirations to differ from our forward-looking statements. The pandemic has created a global public-health crisis that has resulted in widespread volatility and deteriorations in household, business, economic, and market conditions. It is currently adversely affecting the company and its customers, counterparties, employees, and third-party service providers, and the continued adverse impacts on our business, financial position, results of operations, and prospects could be significant. We are not able to accurately predict the extent of the impact of the pandemic on our capital, liquidity, and other financial positions and on our business, results of operations, and prospects at this time, and we believe it will depend on a number of evolving factors, including: (i) the duration, extent and severity of the pandemic; (ii) the response of governmental and non-governmental authorities to the pandemic, which is rapidly changing and not always coordinated or consistent across jurisdictions; (iii) the effect of the pandemic on our customers, counterparties, employees and third-party service providers, which may vary widely, and which is generally expected to increase our credit, counterparty, operational, and other risks; and (iv) the effect of the pandemic on economies and markets, which in turn could adversely affect, among other things, the origination of new loans and the performance of our existing loans. The pandemic is also expected to have a significant impact on our CECL calculation and related provision under a new accounting standard that we were required to adopt in January 2020. The CECL calculation includes periodic estimates of the net amount expected to be collected over the contractual term of certain financial assets, and requires us to take into account, among other things, economic conditions forecasted over the life of the financial asset, including the current and anticipated effects of the pandemic. Any forward-looking statement should be evaluated in light of these considerations. 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, and serves business and institutional clients nationwide. For more information, visit UMB.com, UMB Blog, UMB Facebook and UMB LinkedIn, or follow us on Twitter at @UMBBank. For information about UMB’s operations, approach and relief measures during the COVID-19 pandemic, please visit umb.com/COVID-19.

Consolidated Balance Sheets

UMB Financial Corporation

(unaudited, dollars in thousands)

September 30,

2020

2019

ASSETS

Loans

$

15,950,177

$

13,043,840

Allowance for credit losses on loans

(211,688

)

(107,406

)

Net loans

15,738,489

12,936,434

Loans held for sale

10,978

11,025

Securities:

Available for sale

8,719,246

7,411,908

Held to maturity, net of allowance for credit losses

1,067,501

1,102,005

Trading securities

49,154

86,074

Other securities

159,994

88,176

Total securities

9,995,895

8,688,163

Federal funds sold and resell agreements

1,101,313

463,392

Interest-bearing due from banks

1,613,675

158,339

Cash and due from banks

440,659

658,198

Premises and equipment, net

295,090

290,273

Accrued income

132,574

119,024

Goodwill

180,867

180,867

Other intangibles, net

22,657

17,190

Other assets

718,775

620,187

Total assets

$

30,250,972

$

24,143,092

LIABILITIES

Deposits:

Noninterest-bearing demand

$

8,752,882

$

6,652,887

Interest-bearing demand and savings

15,298,562

11,689,871

Time deposits under $250,000

491,378

618,301

Time deposits of $250,000 or more

195,085

348,286

Total deposits

24,737,907

19,309,345

Federal funds purchased and repurchase agreements

1,929,004

1,791,000

Short-term debt

15,000

Long-term debt

269,044

70,091

Accrued expenses and taxes

255,720

223,210

Other liabilities

190,117

185,580

Total liabilities

27,396,792

21,579,226

SHAREHOLDERS' EQUITY

Common stock

55,057

55,057

Capital surplus

1,085,375

1,069,510

Retained earnings

1,750,389

1,621,198

Accumulated other comprehensive income, net

299,103

96,021

Treasury stock

(335,744

)

(277,920

)

Total shareholders' equity

2,854,180

2,563,866

Total liabilities and shareholders' equity

$

30,250,972

$

24,143,092

Consolidated Statements of Income

UMB Financial Corporation

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

INTEREST INCOME

Loans

$

142,441

$

162,243

$

433,471

$

481,342

Securities:

Taxable interest

26,393

26,966

79,475

79,057

Tax-exempt interest

25,377

23,202

74,393

65,887

Total securities income

51,770

50,168

153,868

144,944

Federal funds and resell agreements

2,248

2,817

9,273

8,968

Interest-bearing due from banks

299

3,450

3,360

10,117

Trading securities

259

425

1,225

1,701

Total interest income

197,017

219,103

601,197

647,072

INTEREST EXPENSE

Deposits

9,284

41,144

50,259

118,494

Federal funds and repurchase agreements

1,730

8,313

10,061

25,924

Other

1,619

1,386

4,323

4,112

Total interest expense

12,633

50,843

64,643

148,530

Net interest income

184,384

168,260

536,554

498,542

Provision for credit losses

16,000

7,500

125,500

30,850

Net interest income after provision for credit losses

168,384

160,760

411,054

467,692

NONINTEREST INCOME

Trust and securities processing

50,552

45,218

143,873

130,078

Trading and investment banking

8,678

5,712

23,252

16,746

Service charges on deposit accounts

19,650

20,620

63,805

62,648

Insurance fees and commissions

259

320

1,051

1,123

Brokerage fees

4,819

8,102

20,432

22,422

Bankcard fees

15,295

16,895

44,756

50,401

Gains on sales of securities available for sale, net

311

3,057

5,544

2,463

Other

13,432

3,711

29,163

30,534

Total noninterest income

112,996

103,635

331,876

316,415

NONINTEREST EXPENSE

Salaries and employee benefits

124,194

110,153

366,192

340,639

Occupancy, net

12,027

12,240

35,618

35,522

Equipment

20,968

19,775

63,711

58,283

Supplies and services

3,442

4,261

11,412

12,419

Marketing and business development

3,038

5,655

10,962

17,872

Processing fees

12,812

13,619

39,805

38,847

Legal and consulting

7,244

8,374

19,574

21,503

Bankcard

4,834

4,643

14,243

13,689

Amortization of other intangible assets

1,524

1,335

4,916

3,913

Regulatory fees

2,309

2,749

7,886

8,549

Other

5,603

8,593

20,828

24,174

Total noninterest expense

197,995

191,397

595,147

575,410

Income before income taxes

83,385

72,998

147,783

208,697

Income tax expense

10,293

10,616

17,601

31,612

NET INCOME

$

73,092

$

62,382

$

130,182

$

177,085

PER SHARE DATA

Net income – basic

$

1.52

$

1.28

$

2.70

$

3.63

Net income – diluted

1.52

1.27

2.69

3.61

Dividends

0.31

0.30

0.93

0.90

Weighted average shares outstanding – basic

47,947,056

48,797,182

48,208,447

48,762,667

Weighted average shares outstanding – diluted

48,068,438

49,096,196

48,352,145

49,052,329

Consolidated Statements of Comprehensive Income

UMB Financial Corporation

(unaudited, dollars in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Net income

$

73,092

$

62,382

$

130,182

$

177,085

Other comprehensive income, before tax:

Unrealized gains and losses on debt securities:

Change in unrealized holding gains and losses, net

20,975

54,182

269,976

268,100

Less: Reclassification adjustment for gains included in net income

(311

)

(3,057

)

(5,544

)

(2,463

)

Change in unrealized gains and losses on debt securities

20,664

51,125

264,432

265,637

Unrealized gains and losses on derivative hedges:

Change in unrealized gains and losses on derivative hedges, net

(122

)

(7,469

)

19,015

(12,618

)

Less: Reclassification adjustment for (gains) losses included in net income

(1,123

)

280

(869

)

295

Change in unrealized gains and losses on derivative hedges

(1,245

)

(7,189

)

18,146

(12,323

)

Other comprehensive income, before tax

19,419

43,936

282,578

253,314

Income tax expense

(4,578

)

(10,532

)

(66,655

)

(61,511

)

Other comprehensive income

14,841

33,404

215,923

191,803

Comprehensive income

$

87,933

$

95,786

$

346,105

$

368,888

Consolidated Statements of Shareholders' Equity

UMB Financial Corporation

(unaudited, dollars in thousands except per share data)

Common
Stock

Capital
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss) Income

Treasury
Stock

Total

Balance - January 1, 2019

$

55,057

$

1,054,601

$

1,488,421

$

(95,782

)

$

(273,827

)

$

2,228,470

Total comprehensive income

177,085

191,803

368,888

Dividends ($0.90 per share)

(44,308

)

(44,308

)

Purchase of treasury stock

(4,335

)

(4,335

)

Forfeitures of equity awards, net of issuances

3,113

(2,497

)

616

Recognition of equity-based compensation

10,918

10,918

Sale of treasury stock

265

380

645

Exercise of stock options

613

2,359

2,972

Balance - September 30, 2019

$

55,057

$

1,069,510

$

1,621,198

$

96,021

$

(277,920

)

$

2,563,866

Balance - January 1, 2020

$

55,057

$

1,073,764

$

1,672,438

$

83,180

$

(277,999

)

$

2,606,440

Total comprehensive income

130,182

215,923

346,105

Dividends ($0.93 per share)

(45,192

)

(45,192

)

Purchase of treasury stock

615

(60,180

)

(59,565

)

Forfeitures of equity awards, net of issuances

565

43

608

Recognition of equity-based compensation

9,834

9,834

Sale of treasury stock

158

311

469

Exercise of stock options

439

2,081

2,520

Cumulative effect adjustment

(7,039

)

(7,039

)

Balance - September 30, 2020

$

55,057

$

1,085,375

$

1,750,389

$

299,103

$

(335,744

)

$

2,854,180

Average Balances / Yields and Rates

UMB Financial Corporation

(tax - equivalent basis)

(unaudited, dollars in thousands)

Three Months Ended September 30,

2020

2019

Average

Average

Average

Average

Balance

Yield/Rate

Balance

Yield/Rate

Assets

Loans, net of unearned interest

$

15,731,716

3.60

%

$

12,890,878

4.99

%

Securities:

Taxable

5,478,397

1.92

4,636,243

2.31

Tax-exempt

4,336,539

2.95

3,841,483

3.03

Total securities

9,814,936

2.37

8,477,726

2.63

Federal funds and resell agreements

1,177,590

0.76

394,587

2.83

Interest bearing due from banks

1,087,838

0.11

582,116

2.35

Trading securities

32,894

3.54

44,571

4.32

Total earning assets

27,844,974

2.91

22,389,878

3.99

Allowance for credit losses

(211,221

)

(104,795

)

Other assets

1,846,919

1,652,033

Total assets

$

29,480,672

$

23,937,116

Liabilities and Shareholders' Equity

Interest-bearing deposits

$

15,867,017

0.23

%

$

13,226,432

1.23

%

Federal funds and repurchase agreements

1,964,161

0.35

1,683,072

1.96

Borrowed funds

115,943

5.56

69,927

7.86

Total interest-bearing liabilities

17,947,121

0.28

14,979,431

1.35

Noninterest-bearing demand deposits

8,260,170

6,082,498

Other liabilities

431,528

321,909

Shareholders' equity

2,841,853

2,553,278

Total liabilities and shareholders' equity

$

29,480,672

$

23,937,116

Net interest spread

2.63

%

2.64

%

Net interest margin

2.73

3.09

Average Balances / Yields and Rates

UMB Financial Corporation

(tax - equivalent basis)

(unaudited, dollars in thousands)

Nine Months Ended September 30,

2020

2019

Average

Average

Average

Average

Balance

Yield/Rate

Balance

Yield/Rate

Assets

Loans, net of unearned interest

$

14,818,893

3.91

%

$

12,607,157

5.10

%

Securities:

Taxable

5,082,153

2.09

4,481,242

2.36

Tax-exempt

4,169,829

3.02

3,730,744

2.98

Total securities

9,251,982

2.51

8,211,986

2.64

Federal funds and resell agreements

1,070,071

1.16

414,560

2.89

Interest bearing due from banks

1,140,965

0.39

563,810

2.40

Trading securities

39,580

4.55

50,841

5.05

Total earning assets

26,321,491

3.15

21,848,354

4.07

Allowance for credit losses

(173,254

)

(106,565

)

Other assets

1,742,652

1,607,087

Total assets

$

27,890,889

$

23,348,876

Liabilities and Shareholders' Equity

Interest-bearing deposits

$

15,107,688

0.44

%

$

12,897,172

1.23

%

Federal funds and repurchase agreements

2,043,942

0.66

1,655,934

2.09

Borrowed funds

90,849

6.36

69,669

7.89

Total interest-bearing liabilities

17,242,479

0.50

14,622,775

1.36

Noninterest-bearing demand deposits

7,475,746

6,040,019

Other liabilities

411,547

283,863

Shareholders' equity

2,761,117

2,402,219

Total liabilities and shareholders' equity

$

27,890,889

$

23,348,876

Net interest spread

2.65

%

2.71

%

Net interest margin

2.82

3.16

Business Segment Information

UMB Financial Corporation

(unaudited, dollars in thousands)

Three Months Ended September 30, 2020

Commercial
Banking

Institutional
Banking

Personal
Banking

Total

Net interest income

$

122,362

$

23,375

$

38,647

$

184,384

Provision for credit losses

14,032

193

1,775

16,000

Noninterest income

22,464

62,688

27,844

112,996

Noninterest expense

65,175

69,667

63,153

197,995

Income before taxes

65,619

16,203

1,563

83,385

Income tax expense

8,100

2,000

193

10,293

Net income

$

57,519

$

14,203

$

1,370

$

73,092

Three Months Ended September 30, 2019

Commercial
Banking

Institutional
Banking

Personal
Banking

Total

Net interest income

$

104,360

$

30,604

$

33,296

$

168,260

Provision for credit losses

5,966

256

1,278

7,500

Noninterest income

18,874

58,643

26,118

103,635

Noninterest expense

66,447

66,622

58,328

191,397

Income (loss) before taxes

50,821

22,369

(192

)

72,998

Income tax expense (benefit)

7,390

3,254

(28

)

10,616

Net income (loss)

$

43,431

$

19,115

$

(164

)

$

62,382

Nine Months Ended September 30, 2020

Commercial
Banking

Institutional
Banking

Personal
Banking

Total

Net interest income

$

342,406

$

84,534

$

109,614

$

536,554

Provision for credit losses

115,533

766

9,201

125,500

Noninterest income

57,782

191,128

82,966

331,876

Noninterest expense

186,341

215,073

193,733

595,147

Income (loss) before taxes

98,314

59,823

(10,354

)

147,783

Income tax expense (benefit)

11,709

7,125

(1,233

)

17,601

Net income (loss)

$

86,605

$

52,698

$

(9,121

)

$

130,182

Nine Months Ended September 30, 2019

Commercial
Banking

Institutional
Banking

Personal
Banking

Total

Net interest income

$

306,752

$

92,857

$

98,933

$

498,542

Provision for credit losses

25,602

723

4,525

30,850

Noninterest income

62,442

170,118

83,855

316,415

Noninterest expense

201,777

196,871

176,762

575,410

Income before taxes

141,815

65,381

1,501

208,697

Income tax expense

21,482

9,903

227

31,612

Net income

$

120,333

$

55,478

$

1,274

$

177,085

The company has strategically aligned its operations into the following three reportable segments: Commercial Banking, Institutional Banking, and Personal Banking. 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. Prior to 2020, the company had the following four business segments: Commercial Banking, Institutional Banking, Personal Banking, and Healthcare Services. 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 September 30, 2020.

Non-GAAP Financial Measures

Net operating income Non-GAAP reconciliations:

UMB Financial Corporation

(unaudited, dollars in thousands except per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Net income (GAAP)

$

73,092

$

62,382

$

130,182

$

177,085

Adjustments:

Acquisition expense

78

71

324

168

Severance expense

2,859

113

4,648

980

COVID-19 related expense

1,358

5,575

Tax-impact of adjustments (i)

(953

)

(41

)

(2,341

)

(255

)

Total Non-GAAP adjustments (net of tax)

3,342

143

8,206

893

Net operating income (Non-GAAP)

$

76,434

$

62,525

$

138,388

$

177,978

Earnings per share - diluted (GAAP)

$

1.52

$

1.27

$

2.69

$

3.61

Acquisition expense