Second Quarter 2023 Financial Highlights

• GAAP net income of $90.1 million, or $1.85 per diluted share.
• Net operating income of $93.8 million, or $1.93 per diluted share.
• Average loans increased 17.3% on a linked-quarter, annualized basis.
• Deposit balances at June 30, 2023 totaled $33.5 billion, up from $31.9 billion at March 31, 2023.
• At June 30, 2023, total estimated uninsured deposits represented approximately 65.5% of total deposits. When adjusted to exclude affiliate (company-owned) and collateralized deposits, estimated uninsured deposits were approximately 40.9% of total deposits.
• Noninterest income increased 6.1% as compared to the linked quarter, equal to 38.0% of total revenue.
• Credit quality remained strong, with net recoveries of $0.1 million and nonperforming loans of 0.09% of total loans.

UMB Financial Corporation (Nasdaq: UMBF), a financial services company, announced net income for the second quarter of 2023 of $90.1 million, or $1.85 per diluted share, compared to $92.4 million, or $1.90 per diluted share, in the first quarter of 2023 (linked quarter) and $137.6 million, or $2.83 per diluted share, in the second quarter of 2022. The results for the second quarter of 2022 include a pre-tax gain of $66.2 million on the sale of the company's entire investment in Visa Inc. Class B common shares, and a pre-tax $5.0 million contribution to the company's charitable foundation.

Net operating income, a non-GAAP financial measure reconciled later in this release to net income, the nearest comparable GAAP measure, was $93.8 million, or $1.93 per diluted share, for the second quarter of 2023, compared to $92.8 million, or $1.91 per diluted share, for the linked quarter and $137.6 million, or $2.83 per diluted share, for the second 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 $127.9 million, or $2.63 per diluted share, for the second quarter of 2023, compared to $135.4 million, or $2.78 per diluted share, for the linked quarter, and $187.1 million, or $3.84 per diluted share, for the second quarter of 2022. These operating PTPP results represent decreases of 5.5% on a linked-quarter basis and 31.6%, compared to the second quarter of 2022.

“In the second quarter of 2023, the positive impacts of fee income trends, a double-digit annualized increase in average loan balances, excellent asset quality metrics and expense management were masked by higher interest expense driven by the Federal Reserve’s monetary tightening actions as well as expected increases in funding costs in this high interest rate environment,” said Mariner Kemper, chairman, president and chief executive officer. “Average loans increased 17.3% on a linked-quarter annualized basis with nearly half of the increase driven by commercial & industrial loan balances. Credit metrics remain strong as evidenced by net recoveries this quarter and nine basis points of non-performing loans to total loans. Noninterest income was $138.1 million for the quarter. It's important to note that noninterest income for the same quarter in 2022 included a pre-tax gain of $66.2 million on the sale of our Visa Inc. Class B common shares. Finally, period-end deposit balances at quarter end were $33.5 billion, an increase of $1.6 billion, or 5.0%, as compared to March 31, 2023.”

Second Quarter 2023 earnings discussion

Net interest income

• Second quarter 2023 net interest income totaled $225.6 million, a decrease of $16.1 million, or 6.7% from the linked quarter, driven by higher interest expense primarily due to unfavorable mix shift in the composition of liabilities, combined with higher interest rates. This decrease was partially offset by continued growth in average loans and higher liquidity balances, coupled with increased yields.
• Average earning assets increased $1.8 billion, or 4.9% from the linked quarter, largely driven by an increase of $1.2 billion in interest-bearing due from banks and an increase of $920.0 million in average loans, partially offset by decreases of $174.7 million in federal funds sold and resell agreements and $143.4 million in average securities.
• Average interest-bearing liabilities increased $3.1 billion, or 13.3% from the linked quarter, primarily driven by increases of $1.9 billion in borrowed funds, primarily short-term borrowings, and $1.3 billion in interest-bearing deposits. Average noninterest-bearing deposits decreased $1.4 billion, or 11.6% as compared to the linked quarter.
• Net interest margin for the second quarter was 2.44%, a decrease of 32 basis points 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 67 basis points to 3.58%. Total cost of funds increased 64 basis points from the linked quarter to 2.56%. Average loan yields increased 32 basis points while earning asset yields increased 29 basis points from the linked quarter.
• On a year-over-year basis, net interest income increased $0.8 million, or 0.4%, driven by a $3.9 billion, or 21.1%, 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 2022, average earning assets increased $2.5 billion, or 7.1%, largely driven by the increase in average loans noted above, partially offset by a decrease of $824.5 million in federal funds sold and resell agreements and a decrease of $589.2 million in average securities.
• Average deposits decreased 0.4% compared to the second quarter of 2022. Average noninterest-bearing demand deposit balances decreased 25.9% compared to the second quarter of 2022, driven by expected migration to rate-bearing deposit categories in a higher interest rate environment. Demand deposit balances comprised 33.5% of total deposits, compared to 37.8% in the linked quarter and 45.0% in the second quarter of 2022.
• Average borrowed funds increased $1.9 billion as compared to the linked quarter and $2.9 billion as compared to the second quarter of 2022, driven by short-term borrowings with the Federal Home Loan Bank and the Federal Reserve Discount Window.

Noninterest income

• Second quarter 2023 noninterest income increased $7.9 million, or 6.1%, on a linked-quarter basis, largely due to:
  • An increase of $6.2 million in investment securities gains, largely driven by an impairment loss on an available-for-sale subordinated debt security recorded in the first quarter and increased valuation of the company's equity investments in the second quarter.
  • An increase of $2.4 million in other income, primarily related to a $4.0 million gain on sale of other assets recorded in the second quarter, partially offset by a decrease of $1.3 million in derivative income.
  • These increases were partially offset by a decrease of $0.9 million in corporate trust income, recorded in trust and securities processing.
• Compared to the prior year, noninterest income in the second quarter of 2023 decreased $38.3 million, or 21.7%, primarily driven by:
  • A decrease of $59.8 million in investment securities gains, primarily driven by the $66.2 million gain on sale of the company's investment in Visa Inc. Class B common shares in the second quarter of 2022. This was partially offset by an increase of $5.3 million in the valuation of the company's marketable securities.
  • A decrease of $2.3 million in trading and investment banking due to decreased trading volume.
  • These decreases were partially offset by the following increases:
    • An increase of $18.7 million in other income, driven by an increase of $13.8 million in company-owned life insurance income and a gain of $4.0 million on the sale of other assets recorded in the second quarter of 2023. The increase in company-owned life insurance is offset by a proportionate increase in deferred compensation expense as noted below.
    • Increases of $1.9 million and $1.1 million in fund services income and corporate trust income, both recorded in trust and securities processing.
    • An increase of $1.2 million in brokerage income, largely driven by increased 12b-1 fee income.

Noninterest expense

• Noninterest expense for the second quarter of 2023 was $240.7 million, an increase of $3.6 million, or 1.5%, from the linked quarter and an increase of $26.5 million, or 12.4%, from the second 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 $235.8 million for the second quarter of 2023, a decrease of $0.8 million, or 0.3%, from the linked quarter and an increase of $21.7 million, or 10.1%, from the second quarter of 2022.
• The linked-quarter increase in GAAP noninterest expense was driven by:
  • Increases of $3.3 million in processing fees and $1.8 million in marketing and business development expense due to the ongoing modernization of the company's core systems and timing of multiple projects, respectively. The increase in marketing and business development expense was also partially driven by an increase in advertising for various projects and an increase in travel and entertainment expense.
  • An increase of $0.8 million in salaries and employee benefits expense driven by an increase of $7.4 million in salary and bonus expense, partially offset by a decrease of $6.6 million in employee benefits. The increase in salary and bonus expense was due to an increase of $4.4 million in severance expense and higher salary expense related to annual merit increases beginning in the second quarter. The decrease in employee benefits was driven by the seasonal decrease of $8.0 million in payroll taxes, insurance, and 401(k) expense, offset by an increase in other employee benefits recorded in the second quarter.
  • These increases were partially offset by a decrease of $2.0 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 $21.9 million in salaries and employee benefits expense, driven primarily by increases of $14.5 in employee benefits expense and $7.4 million in salaries and bonus expense. The increase in employee benefits expense is due to increases of $12.5 million in deferred compensation plan expense and $1.3 million in payroll taxes, insurance, and 401(k) expense. The increase in deferred compensation expense was offset by the increase in company-owned life insurance income noted above. The increase in salaries and bonus expense is due to an increase of $4.8 million in severance expense and higher employee salaries as compared to the second quarter of 2022.
  • An increase of $7.2 million in processing fees expense due to the ongoing modernization of the company’s core systems and the timing of multiple software projects.
  • An increase of $2.7 million in regulatory fees expense driven by higher deposit insurance expense.
  • These increases were offset by a decrease of $5.4 million in other expense primarily due to the $5.0 million charitable contribution recorded in the second quarter of 2022 mentioned above.

Income taxes

• The company’s effective tax rate was 17.6% for the six months ended June 30, 2023, compared to 18.7% 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 second quarter of 2023 were $40.4 billion compared to $38.5 billion for the linked quarter and $37.6 billion for the same period in 2022.

• Average loans for the second quarter of 2023 increased $920.0 million, or 4.3%, on a linked-quarter basis and $3.9 billion, or 21.1%, compared to the second quarter of 2022.

• Average total securities decreased 1.1% on a linked-quarter basis and decreased 4.3% compared to the second quarter of 2022.
• At June 30, 2023, the unrealized pre-tax net loss on the available-for-sale securities portfolio was $765.9 million, or 10.3% of the $7.4 billion amortized cost value. At June 30, 2023, the unrealized pre-tax net loss on the securities designated as held to maturity was $576.4 million, or 9.9% of the $5.8 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 $226.7 million as of June 30, 2023 and was included in the amortized cost balance of held-to-maturity securities.
• At June 30, 2023, an after-tax gain of $56.9 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, nine 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 0.3% on a linked-quarter basis and decreased 0.4% compared to the second quarter of 2022.
• As of June 30, 2023, the total estimated uninsured deposits were $22.0 billion or approximately 65.5% of total deposits. Estimated uninsured deposits, when adjusted to exclude affiliate (company-owned) and collateralized deposits, were $13.7 billion and represented approximately 40.9% of total deposits.

Capital

• At June 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 second quarter totaled $13.0 million, a decrease of $10.3 million from the linked quarter and a decrease of $0.4 million from the second quarter of 2022. These changes are driven largely by loan growth and changes in macro-economic variables in the current period as compared to the prior periods.
• Net recoveries for the second quarter totaled $0.1 million, compared to net charge-offs of $4.6 million, or 0.09%, of average loans in the linked quarter, and $28.1 million, or 0.62%, of average loans for the second quarter of 2022.

Dividend Declaration and Share Repurchase Authorization

At the company’s quarterly board meeting, the Board of Directors declared a $0.38 per share quarterly cash dividend, payable on October 2, 2023, to shareholders of record at the close of business on September 11, 2023.

The Board also approved the repurchase of up to 1,000,000 shares of the company's common stock. Share repurchases may occur from time to time at any point until the regular meeting of the Board that immediately follows the 2024 annual meeting of the company’s shareholders. Shares acquired under the repurchase program may be available for reissuance or resale, including in connection with the company's compensation plans and dividend reinvestment plan. Under the repurchase program, the company may acquire the shares from time to time in open market or privately negotiated transactions, at the discretion of management.

Conference Call

The company plans to host a conference call to discuss its second quarter 2023 earnings results on Wednesday, July 26, 2023, at 9:30 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 835446. The live call may also be accessed by visiting investorrelations.umb.com or by using the following link:

UMB Financial 2Q 2023 Conference Call

A replay of the conference call may be heard through August 9, 2023, by calling (toll-free) 866-813-9403 or (international) 929-458-6194. The replay access code required for playback is 506453. The call replay may also be accessed at investorrelations.umb.com.

Non-GAAP Financial Information

In this release, we may 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, tangible book value per share, and operating return on average tangible equity excluding AOCI, 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, tangible book value per share, and operating return on average tangible equity excluding AOCI – 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 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, 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 expense.

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 expense.

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.

Operating return on average tangible equity excluding AOCI is calculated as net operating income, divided by the company’s average tangible shareholders’ equity exclusive of AOCI for the relevant period.

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, 2022, 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 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.