UMB Financial Corporation Reports First Quarter 2014 Earnings of $23.4 million, or $0.52 per Diluted Share

UMB Financial Corporation (Nasdaq: UMBF), a diversified financial holding company, announced earnings for the three months ended March 31, 2014 of $23.4 million or $0.52 per share ($0.52 diluted). This is a decrease of $11.5 million, or 33.0 percent, compared to first quarter 2013 earnings of $34.9 million or $0.88 per share ($0.87 diluted).

“There are four key items to understanding first quarter net income,” said Mariner Kemper, Chairman and Chief Executive Officer. “These four items, two of which were expenses directly related to acquisitions, are worth examining to explain the difference. First, we established a $15 million contingency reserve based on the probability we will resolve objections to our calculation of an earn-out amount owed to the sellers of Prairie Capital Management, and a related incentive bonus calculation. Second, we recognized a contingent consideration liability adjustment for acquisitions of $4.5 million in expense compared to $3.3 million in expense for the first quarter a year ago. Third, we recognized $1.5 million in gains on the sale of securities available for sale this quarter compared to $5.9 million in the first quarter 2013. And finally, we had an unrealized gain of $2.5 million on Prairie Capital Management investments in the first quarter 2014. Since we acquired it in 2010, Prairie Capital has been a high performing business unit, one that is important to our long term strategies as a diversified financial holding company.”

“Notwithstanding the volatility in earnings related to acquisitions, our ongoing operations are performing well,” Kemper continued. “End of period net loans increased 14.8 percent on a linked quarter annualized basis, driven by increases in the commercial and industrial and commercial real estate portfolios. Average loans increased 14.9 percent to $6.7 billion for the first quarter of 2014 and marked the sixteenth consecutive quarter of year-over-year loan growth for the company. I am also pleased with the performance of our asset management and asset servicing businesses. Their contribution to the 14.8 percent increase in trust and securities processing revenue helped lift noninterest income 1.6 percent compared to the first quarter 2013.”

Net Interest Income and Margin

Net interest income for the first quarter of 2014 increased $6.0 million, or 7.5 percent, compared to the same period in 2013. Average earning assets increased by $1.7 billion, or 12.4 percent, compared to the first quarter of 2013. This increase was due to an $864.1 million, or 14.9 percent, increase in average loans and a $723.5 million increase in average interest bearing due from banks. Net interest margin decreased 12 basis points to 2.39 percent for the three months ended March 31, 2014, compared to the same quarter in 2013.

Noninterest Income and Expense

Noninterest income increased $1.9 million, or 1.6 percent, for the three months ended March 31, 2014, compared to the same period in 2013. Trust and securities processing income increased $9.3 million, or 14.8 percent, for the three months ended March 31, 2014, compared to the same period in 2013. The increase in trust and securities processing income was due to a $4.3 million, or 20.4 percent, increase in advisory fee income from the Scout Funds, a $3.0 million, or 15.4 percent, increase in fees related to institutional and personal investment management services, and a $1.4 million, or 6.9 percent, increase in fund administration and custody services. Equity earnings on alternative investments increased $2.5 million due to unrealized gains on Prairie Capital Management (PCM) equity method investments for the three months ended March 31, 2014, compared to the same period in 2013. These increases were offset by a decrease of $2.8 million, or 39.2 percent, in trading and investment banking income and a decrease in gains on securities available for sale of $4.4 million during the first quarter of 2014, compared to the same period in 2013.

Noninterest expense increased $21.9 million, or 14.5 percent, for the three months ended March 31, 2014, compared to the same period in 2013. A $15.0 million contingency reserve was recorded in the first quarter of 2014. On March 28, 2014, the company received objections to its calculation of an earn-out amount owed to the sellers of PCM, and a related incentive bonus calculation. The company disputes this claim, but based on the probability of a future resolution, a contingency reserve was recorded. The increase in noninterest expense is also driven by higher salary and benefits expense of $5.2 million, or 6.2 percent. This increase is due to increases in salaries and wages of $2.7 million, or 5.3 percent, a $1.2 million, or 7.6 percent, increase in commissions and bonuses, and a $1.3 million, or 7.4 percent, increase in employee benefits expense. Other expense increased $1.9 million, or 22.8 percent, primarily due to fair value adjustments to the contingent consideration liabilities on acquisitions. In the first quarter of 2014, these adjustments totaled $4.5 million compared to $3.3 million for the same period in 2013.

“With 59 percent of our revenue coming from noninterest income this quarter, our fee businesses continue to set us apart from the competition,” said Peter deSilva, President and Chief Operating Officer. “Scout Investments, which comprises our Institutional Investment Management segment, recorded net inflows of $699.5 million for the quarter, bringing total assets under management in this segment to $32.2 billion. Healthcare Services within our Payment Solutions segment continues to be a strategic source of deposits and account transaction fees. Healthcare deposits in the first quarter increased 31.3 percent to $751.0 million, compared to the first quarter of 2013, and total accounts topped four million at March 31, 2014, a 29.7 percent increase compared to total healthcare accounts at March 31, 2013. In our Asset Servicing segment, the pretax profit margin improved to 24.1 percent for the first quarter 2014 compared to 5.1 percent in the same period a year ago. We remain enthusiastic about all of our fee-based segments, including the businesses acquired in the past few years.”

Balance Sheet

Average total assets for the three months ended March 31, 2014 were $16.5 billion compared to $14.8 billion for the same period in 2013, an increase of $1.7 billion, or 11.6 percent. Average earning assets increased by $1.7 billion for the period, or 12.4 percent.

Average loan balances for the three months ended March 31, 2014 increased $864.1 million, or 14.9 percent, to $6.7 billion compared to the same period in 2013. Actual loan balances on March 31, 2014 were $6.8 billion, an increase of $748.4 million, or 12.5 percent, compared to March 31, 2013. This increase was driven by an increase in commercial and industrial loans of $303.5 million, or 9.5 percent, an increase in construction real estate loans of $101.1 million, or 119.1 percent, and an increase in commercial real estate loans of $267.6 million, or 18.5 percent.

Nonperforming loans increased to $30.2 million on March 31, 2014 from $27.6 million on March 31, 2013. As a percentage of loans, nonperforming loans decreased to 0.45 percent as of March 31, 2014, compared to 0.46 percent on March 31, 2013. Nonperforming loans are defined as nonaccrual loans and restructured loans on nonaccrual. The company’s allowance for loan losses totaled $75.5 million, or 1.12 percent of loans, as of March 31, 2014, compared to $69.9 million, or 1.16 percent of loans, as of March 31, 2013.

For the three months ended March 31, 2014, average securities, including trading securities, totaled $7.0 billion. This is an increase of $111.5 million, or 1.6 percent, from the same period in 2013.

Average total deposits increased $1.5 billion, or 12.8 percent, to $13.1 billion for the three months ended March 31, 2014, compared to the same period in 2013. Average noninterest-bearing demand deposits increased $541.0 million, or 11.7 percent, compared to 2013. Average interest-bearing deposits increased by $949.9 million, or 13.5 percent, in 2014 as compared to 2013. Total deposits as of March 31, 2014 were $12.3 billion, compared to $12.6 billion as of March 31, 2013, a 2.3 percent decrease. Also, as of March 31, 2014, noninterest-bearing demand deposits were 43.2 percent of total deposits.

“With net interest income up 7.5 percent for the quarter compared to the first quarter of 2013, execution of our strategies to grow earning assets and reinvest maturing investment balances into loans, which carry higher yields, is clearly paying off,” said Brian Walker, Chief Financial Officer. “Also, yield on the investment portfolio was flat from the first quarter 2013 to the first quarter 2014, slowing margin compression on earning assets.”

As of March 31, 2014, UMB had total shareholders’ equity of $1.5 billion, an increase of 20.0 percent as compared to the same period in 2013. This increase is primarily attributable to the common stock issuance the company completed in September 2013.

Conference Call

The company plans to host a conference call to discuss its 2014 first quarter earnings results on April 23, 2014, at 8:30 a.m. (CT).

Interested parties may access the call by dialing (toll-free) 877-941-8609 or (U.S.) 480-629-9692. The live call can also be accessed by visiting the investor relations area of umbfinancial.com or by using the following the link:

http://event.on24.com/r.htm?e=778291&s=1&k=0AB8AFBF09FE19C5BD923E2AAA4A960B

A replay of the conference call may be heard until May 9, 2014, by calling (toll-free) 800-406-7325 or (U.S.) 303-590-3030. The replay pass code required for playback is conference identification number 4678180. The call replay may also be accessed via the company's website umbfinancial.com by visiting the investor relations area.

Forward-Looking Statements:

This 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. 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, 2013, 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 SEC. 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. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that we may make in any subsequent 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 diversified financial holding company headquartered in Kansas City, Mo., offering complete banking services, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska, Arizona and Texas. Subsidiaries of the holding company include companies that offer services to mutual funds and alternative-investment entities and registered investment advisors that offer equity and fixed income strategies to institutions and individual investors. For more information, visit umbfinancial.com, umb.com, blog.umb.com or follow us on Twitter at @UMBBank, Facebook at facebook.com/UMBBank and LinkedIn at linkedin.com/company/umb-bank.