UMBF - Earnings call transcript Q1 2019 | UMB Financial Corporation

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Operator

Good morning and welcome to the UMB Financial First Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kay Gregory, Investor Relations. Please go ahead.

Kay Gregory

Welcome, and thank you for joining us.

are President today Ram CEO; call CFO. Shankar, the Mariner and Kemper, and On and UMB CEO available President Rine, Jim of question-and-answer for Bank, session. the be will

differ forward-looking you Before in assumptions, to any contained set SEC about aspirations uncertainties. is other Details today's me may begin, and and of factors remind forward-looking filings. results cause circumstances we presentation are statement. let risks them contains our that forth future statements, Actual subject differ all which those to that in may or from

Forward-looking statements as extent of except we and required to today the obligation update made speak to laws. only undertake no security by applicable them,

included are to share and on basis. on in non-GAAP available materials of a investorrelations.umb.com. at Slides financial XX earnings and share the Reconciliations supporting per GAAP measures comparable call earnings XX materials. All of this are diluted been the Our nearest the metrics release online have on discussed measures

Mariner Now, I'll turn the to call Kemper. over

Mariner Kemper

Thanks, to net a everyone, fourth by per $X.XX share I’d on or of $XX beginning little XX.X% charge-off quarter in factoring credit, sheet of X%.We annualized XX.X loan X.X% increasing you, quarter growing a UMB. million. a balances deposit growth a like with relationship. Thank linked more color balance earn the discuss with income on on average first million the for basis, on quarter include Kay. for average Highlights interest an your

long from we that credits. our factoring track and their record we industry. financial relied in-depth expertise the claims a recovery, leadership who on that in procedures working managing still of capabilities be trustee also companies, portfolio market When preclude We in against team pursuing with proceedings litigation sharing bringing for conducted individually. details, the business. We may bankruptcy can ongoing with and those from including a and factoring people the an liable we're While in the review certain I all in avenues acquired us acquired confirm business the

on since committee credit work some with leadership structure. factoring top brought proven extensive and a new of loan team and our will our within have We management leader risk senior who removed the closely with within that experience

controls credit is While with UMB. also we we of characteristics at none leadership, core outside our relationships changes by factoring are arrangements. year-end, to remaining procedures, the be identified the and Early of impaired. were and strive loans to mitigation risk traditional made who we At deemed these

months. decision these the During beginning the over first policy quarter, and in continuing a next made few relationships, to exit second quarter we the

million, balances at a these Lastly, led to are quarter represent $XX reflected credits one of of and first million charge-off results, this time. relationships performing and remaining $XX in the our four

full We those relationships. expect to on be paid in

on page. first This our chart of in quarter position preceding in recovery the of book and quarter XXXX fourth the detailed Asset was core performance. our XX down our more continues net in quality breaking commercial line with Slide to deck in a commercial in historical the view, charge-off net C&I the shows our XXXX. be a traditional portfolio of our both shows that in line

we very the to balances billion million quarter quarter, loan on, the XXXX. Moving in first $XXX growth of quarter $X compared more had strong adding a than and in first average

paydowns to first where this seeing quarterly the C&I million. loan seen represented growth Our CRE, the by payoffs we're growth, and $XXX quarter slightly than lower the loan, was top resulting line higher commitments, production funding to our we've averages. levels. at in our for quarter X.X% continued construction contributor date among highest Total followed longer-term in was biggest

pipeline expect them and of closer level around we’d is predict the the always seen topline to the can't several possibly we the averages we’ve the we while quarter. in to production activity of timing loans. verticals over quarters and the we be all first higher saw paydowns, X% not And ahead, Looking see although continue strong, to our exact payouts past of at

making on trends fee like With briefly and loss the seeing in traction of are talked business been specifically our in one momentum we've our we’re Servicing and the seeing building quarters institutional several Turning Asset highlight investment customer the positive statement, past in income large investments impact our get along group. our institutional we also differentiate selective fee of has some lines banking, trading changes where trading economic to investments our from offerings, been things and by revenue streams with part of teams challenged product In significant is periods, signs early to making income. a been In business. income about banking I’d from to and us, behind to those some across and the in to we've others we our public fund trading beginning fee business, and capabilities environment. pricing we’re among strategy

We’re spending well grow to and stabilize. markets positioned infrastructure the returns bond an

FinTech Our wins partnerships Group some had Solutions with who Investor providing companies. services banking has in

our to across product opportunities lines. trust healthy a pipeline and teams company attractive aviation businesses, and we're see services, where our all at sales institutional are prospects seeing the in fund about growth participants corporate institutional in excited specifically Our activity group the continues

in brokerage deposit income. and saw income customer from service fees charges, swaps, a linked increases we Additionally, bankcard quarter derivative

our accounts is card the monthly number billion. account posted first the yield picking Our the enjoyed business than $X as spend income curve exceeded up This serve we've percentage team card in momentum at higher our higher than our payment peers. been space, hedge and origination and In natural our a driving products during five for ahead we XXX% more will largest a us historically the the card quarterly of as across our for consumer of years environment. flat first quarter quarter, a has strength fee revenue a look Diversity of XXXX. than time

fourth in moment. other and the compared increased Finally Ram to will the and of X.X% some quarter expenses a for drivers cover the seasonality quarter

focused long-term often, that we're over leverage expect the repeat us. we you operating on continue and should to As from

remain growth sure balance pursuing on are and while we're We diligent expenses, will future. investing sheet fee making the and in opportunities income

have our from revenue resiliency lines experience spend and efficiencies improving business. various generate and overall to business across We while our maintenance pivoted customer of largely that those the investment projects

Now the call a to I’ll of discussion our over turn Ram for Ram? results. more detailed

Ram Shankar

Thanks, Mariner.

deposit our were earning in X.X% favorably X% total of first NII AFS as of $XXX.X enrollment fourth funds quarter much our in basis increased slightly as both changes cash and largest pricing XX% improvedX in liabilities growth lesser deposits in occurs growth the in quarter, typical to for bearing and but quarter following interest to Slide for improved in asset higher points agreements various increased on and days our For and total driven of excess X.X% quarter the the Average from to beta. XX linked of growth strong when cost composition in short-term fewer to our X.X% to loan quarter net an businesses. seasonal benefits respectively, offset the assets, increase XX.Healthcaredeposits yields two related by rates. impacted and these of the the the interest-bearing our trust XX income basis deposits build-up by XXX cumulative million, we accounts mix. repurchase the higher X.XX% a from linked extent points interest-bearing and a average is deposits yield a short-term representing total the portion asset are driven basis. points of increased X of XX% rates. a due at was loan and DDA saw cost on investment well on increase quarter linked increase first average of shown favorable client basis Non- interest yields represented Portfolio points The and cost by balances of primarily represented Cycle date increased Earning first by was cyclical Average year-end. liquidity liabilities deposits. a partially balances basis from expanded decreased basis asset quarter. as the funded in balances by quarter the interest-bearing fourth corporate These quarter earning borrowing has deposits open

of was including end related the year benefited which points credit public at of loan point from to margin approximately to on Margin Net for additional our reinvestment rose X.XX fees. was basis $XX the X.XX% by XX% points. beta. at basis AFS excess well negatively added period, portfolio accretive same cost impact count, funds, Yields spreads and impacted X.XX%, interest down points charged-off X liquidity, flows X the cash as of prior both funds X from basis basis from quarter X quarter. from basis the loss from as four from the day million During XX for basis cumulative the approximately the total points points seasonal lower

internal to economic now additional the include rate hikes Our forecasts in XXXX. Bloomberg contribute we and outlook no

As we with and risk. rate previously our into with have dated recent discussed we bonds reinvested mitigate in longer interest quarters, protections flows cash call to pre-bought maturities

remains the of particularly interest continued the balance of cash net we On our buy as modestly but in in relatively these a side, the modest XXXX, pressure will but XX long-tenor we deposit XXXX rate abate the fourth by deposit yields down net on given likely observed betas, averages loan the our through trickle expect Similarly changes to While portfolio increases we're Based roll-offs, flat mix accretive XXXX about have deposits, shape quarter, betas margin driven of increases up curve. on favoring interest absence remainder be expect in our investing corporate the to the yields debt and institutional sheet still should factors. cycle rate weeks term assumptions, the continue to additional on growth. indexed flows income to cycle, down to at through come basis competitive relative since points fixed

categories. drivers seeing already quarter mark-to-market the both of weaknesses the linked on income the $X.X trends specific driven changes and are the for in $XX detail X.X% valuations contains Slide and increased XX.If COLI comp quarter, benefits non-interest expense, expense income, in Moving I despite exclude Salary to COLI from million in increased noise certain increased quarter. the by quarterly the quarters, to fee XX in $XXX.X back typical deferred more increased of first positive on largely income seasonal related XX the statement, X% linked offsets you to expenses, we’re a the compared discussed the slides Mariner drivers income the shown was fee quarter, some fourth mentioned. of million detailed million for which

development business the first decreases of the by quarter, typical $X.X quarter. projects. due $X.X marketing $X.X increased and medical reset multiple its expense, These and together the FICO from in partially several items million million as million offset consulting in which fourth and Additionally, and expense, of were to for timing including increases legal

effective quarter. Finally the tax for rate was our XX.X% first

For to the full XX%. year remarks, rate XX% turn portion I’ll over and XXXX, concludes back the Q&A of be we between operator tax begin now to to the it our our the expect prepared call. That and

Operator

Chris ahead. first The McGratty Instructions] KBW. question [Operator go Please with comes from

Chris McGratty

back, seasonally the QX - HSA strength, deposits, sheet is growth temporary guess, guys, NII in the important public growth to kind the balance I think I with but on of you and pretty for for expectations the funds of in kind up, of starting was quarter size typically is just should and were because of we Ram, much the you margin? tough the Thanks of looking first EOP and about how terms related a deposit quarter deposits talked really for

Ram Shankar

in aspects and business. would public the half first million exit I the was seasonality quarter to first of say quarter funds, you during fourth line related latter about the and $XXX $XXX early of each quarter the Different to million in quarter. part build-up first of saw to of the of what then

going do outlook, of not seasonality components into that. But different businesses. those don't in deposit get growth again, specifics We’re different lines to that typically drive on we

Mariner Kemper

or anything expect don't on We deposit growth our businesses. unusual going forward

Chris McGratty

or fees on maybe one-to-one question tick-up the offset, $X little offset you expenses tick-up elaborate is it the my was a more? the COLI in bit comment expense and can million the a just on that The in and

Jim Rine

much pretty it’s Yes, one-to-one.

life So insurance XX%, hit it’s we - income we a in million fee market on it’s S&P expenses when quarter, fund so haven't we expenses in the the our and deferred comp the the company-owned million up had quarter was activity hedge down market build just fourth based side, our favorable or to program on to $X the negative million then way. first other the and in was $X $X had XX% both

fee income that about. you when in noise Mariner a fee from why that's X% up reasons fee and all was So so positive the exclude swing income talked income, that for

Chris McGratty

of million credit, quarter. on a XX elaborate the last approving incremental quarter in kind you've what And a with then that on yeah? what bit the factoring, loss was message you maybe the was in think more similar $XX discussion on past the the done but the charge-off, more felt maybe you that, that months principal the Mariner rate Thanks. is was lead little more the And isolated and just you’re of a three little about over I bit one that

Mariner Kemper

color I of to prepared it. just so guess what a my I had to most is little in say remarks, adding

it risk as we quarter, we we we changing and a the credit the company. as our have basically leadership, to we we in the with Marquette, the in have accomplished accompanied in together company. been wrap spent order fourth myself we line management including of out in and manage And XX back the together. way up for changing do team processes, subsidiary the way company line for And as some acquired feel when come this things goals a we changing all days Our century last with procedures first quarter doing quarter, like problems a recognized brought acquired so

Chris McGratty

will also growth future million of - the of just Thanks. let down the is on that rate run be new so you it a And kind growth. with XX or will management, the then portfolio And source a helpful? loss be it will

Mariner Kemper

would first put a prepared in my that love business. new the you question remember remarks leader. put will in absolutely I Yes, the said would so I that say on we credit I

need the one factoring be banks absolutely most think of you as to important in and business. we’re so And biggest the footprint in commercial our that

need commercial provide ABL full-service be to mezzanine to a to You financing in be business, to the be able you bank. need

quarter. to expect as proceedings So credit the additives continue the much fully in We to to fourth the you say that the I we that it are quarter grow there in think one business. just of the love first our the know and part situation. remedy like would company, on amount the around

much of into can’t So lot I around detail rate a there. get of loss a how

Operator

Race from question next with Please Nathan The Jaffray. comes Piper ahead. go

Nathan Race

function within you to your it guys the in cost and is the to margin X.XX the from deposit maybe to balance back circle think speaking to flat were around sheet from context here, just weighted not that comes to loan I down that just on abating the just from curious average Ram that what here as the maybe you portfolio grow a relative outlook of to increases and new continue rate yield quarter? production is comments

Ram Shankar

multiple is a right. it combination So of factors,

in though buys out I Fed the it's being the First even the as portfolio, is securities the don't just on flattened said curve made forward. than what it’s was have is betas points I is basis XX now pause. Again at some fact on have your will on on going is we because and the are margin. you're deposit XXX thing the other point but stop on lower some use and quarter were buying that when margin And new still that impact accretive that yields XXX margin will buy fourth impact our accretive to buy

yields. the appreciable no terms comments. comments loan in on of change new production my prepared side, some made loan I Just in

of in so term are loan on, say that our positive tenure debt, the extending roll yields are would the off. roll to the extent. to off rolling Again We what's book I still modestly, portfolio,

Nathan Race

get. just probably charge-offs appreciate on and provision changing factoring within loss gears all about won’t the credit of repeat thinking it trajectory what forward. going maybe got the And you I and and

we trends going group about And you you’re how about so that sequential New just forward, Chris should higher that curious so thinking from provision how as trajectory just context just thoughts did that within on provision any quarter, by well the leadership the think take has the know going the here. I notice did in forward? within passed

Ram Shankar

on it same historical the And always expect then be that expense So bump we underwriting generally the should that increase expect to say they our our to as will levels, to should at speaking and so ranks goes expense of that provision would been, you I because normalize. practices say, you you normalize credit, kind would that see to if along. as longer chart, relates down, the look in term tenure I is, up it of that provision

unnatural look bottom at what really there’s So doubtful the line really nothing, the to. that’s unique you there, unusual if or that should you pay attention no or at

migration We migration to and very forward. low going expect have a have low historically

Operator

Please The David James. go with next question Raymond ahead. from comes Long

David Long

total income, quarter move fourth interest even trough but there excluding some Do you parts, noise. been moving for income nice have the are net the like nonetheless non-interest of in the obviously upwards, feel the In UMB? some a may guys

Mariner Kemper

love - fourth about question, that in quarter something that were to again. our we see that said that building excited non-interest I momentum I income the I said in the

back fourth of business And talked past in If getting performing. client really to was related the the getting quarter scout. that of how events, we consolidation unrelated global couple a large is in you business selling to I around loss as the a to the about in talked services a fund our the past look passed as

first so quarter, numbers. the things minutes getting past we as ago, as Ram look mentioned two those the into COLI of of And are we end the outside a just seeing

non-interest all across seeing again. board. It’s income are from coming growth the We really

on corporate Our institutional trust a seeing we consolidate businesses strides, to continue really basis. are national

business, not national consolidate because and continue efforts any they're we banks the of against their marginalize trust corporate banks the big one in Our to that. as

is up, up. credit our business institutional card lines. really aviation within across Fee, all momentum, and corporate charge income income is our seeing and that that our our service nice is about We’re excited of business trust

on I card production nice ask. seeing business, the We’re might which

Jim Rine

This Jim Rine. is

seeing business, well in are card business, we’re as business in card in in as card seen been seeing card growth we We that growth commercial steady our also as card again, growth double-digit commercial reinvesting business we’ve our consumer our our product. growth, finally

feeling about So our good very as said, Mariner we’re fee income.

Mariner Kemper

so we new and from Yes, a about growth think there momentum. excited that again baseline I right definitely and very we trough, seeing the term we’re you we’re use got

David Long

to then the to act Do as or is inclined be you what had on or related a night. that what the intend you follow-up, second to in aggressively then from act question on would And situation guys cause repurchase would authorization you I last that?

Mariner Kemper

been some have for on we an to the really Well, basis approving is designed now us that annual and time give it flexibility.

one And so options capital we from of to growth at we look possibilities. I in then in all of there, top if our the we monitor growth. of find of of which to buyback just And opportunities is which would use is that of a of other capital those invest at say invest uses can't

Operator

comes The next with from question go Gordon Please Stephens ahead. Inc. McGuire

Gordon McGuire

start quarter just loan on Texas to pretty the about pretty there? call best bank. the talk across was Maybe then to C&I. the the noticed impressive that growth, production you quarter, the drivers accelerated Can And particularly is saw segments what was anything there the in the through specifically in out this this I production ramp maybe

Jim Rine

for board you are existing penetration. the we City dominant we’re that but we or either really across folks been but the the growth acquiring a Well, selling where Rine. that’s acquisition question. market this only the in Kansas were customers is market have We’ve really set are larger Thank market seen several have done companies is new is one C&I our loans of penetration and growth new seeing our of company been share. particular purchase in it we’re just industry, loans, not Jim the have

seeing investment for we growth. our we’re and And as market and prime Texas, Texas come is one potential economy future being so Texas as each is And it investment, the the upside we've on major board. in efforts of being bankers with other in a that position. made team the as in fruits example strong we it of have made metro our

Gordon McGuire

of out specific you're hiring in segments Texas? Any

Jim Rine

that handle team built mighty. small made then more but have been out estate that we investments construction, - our in energy out bankers but which have C&I we upper but is real invested we've have our market have middle middle traditional small capital in traditionally market the traditional bread-and-butter. very manufacturing are that to We distributing built working our And team clients

Gordon McGuire

to I that was this that points back have yields, mentioned think going you Ram up what anything accretive muted then loan think basis the repricing was past would to you seven four quarters still And portfolio, the had about. that the in new see to the below the production there but quarter

Ram Shankar

XX look I Yes, LIBOR yields. points what the look quarter elevated at margin. quarter basis at Last Yes, last it our some difference if that LIBOR pickup versus moved explains fees what quarter this about talked do. between was you also rates in so in largely loan the pre-XX

the true clarification just the So but still of first a It's comments part yields are the earlier. on my from just portfolio. accretive versus roll-offs clarified to I both relative your comment ways

Gordon McGuire

last the could then to on efficiency this from you efficiency the watermark color and do be And expect high comp time? for elevated me, any trends you year the thing deferred just over give quarter with the

Mariner Kemper

on quarter we trends, consistent here. against do aside efficiency happen guidance one putting ratio there haul. about Well, might improve quarter is we targets long-term can not able giving saying the been based be been to are And what we what our quarter better should have next exactly we the from next the are from long one what to that have on over

Operator

The FIG next ahead. Partners. go with question comes from John Please Rodis

John Rodis

I know just X you minus? or level billion selling Ram about here quarter billion be but or and and runoff portfolio, to stuff is X.X the you at there expect going buying securities the keep sit the would and on sort over next plus of two. that so around

Ram Shankar

the Yes generally, right. conversations me bifurcate two let

on manages, policy X.X would team be closer big minus the term bonds yes perspective. are to that that the for AFS the just treasury maturity have movements we be see So expect I we any near then plus there at to billion right We that to here X.X held a don't the now. from both at to And average or billion. are

John Rodis

- say up rate to the A did follow tax XX%? you XX%

Ram Shankar

For the full that’s correct. year

John Rodis

the swing was the comp just year, other $X sounds right? expense a that one million okay. so in first is full For for it on And like it question the deferred then quarter Ram

Ram Shankar

Correct.

John Rodis

Okay.

Mariner Kemper

Compared to - negative almost on for on basically every completely the a and it's the the other just and last each quarter it’s based happening income what's out it’s quarter neutralized expenses watch market in thing same a quarterly basis.

John Rodis

it, sort X what forward? No, that core XXX I I XXX at right going Mariner. million sort thanks trying looking to just that and I so million get a sort out rate expenses of to No is about that get guess it guess of the I back look of million. going is we was think at way growth reported expenses to of if

Ram Shankar

generally Yes there right. are minuses pluses and

expenses us first one all and $X up for said of comments is So the medical of that’s FICA typically the to I quarter spike million. other

third second some thinking about Mariner into of while will expenses, through talked the come generally right you recede So but that it will that the and quarters, about spend John. investments

John Rodis

from And like you obviously positive are said then payoff. trends your to on investments fee starting one final just and some income question me,

on function else in within or specifically quarter was a the stronger going specific brokerage of more Just anything that first there? market

Ram Shankar

Mostly market-based.

Mariner Kemper

we it's small Yes, well new added business market-based. but as growth it relatively have was but

Operator

with Chris McGratty from ahead. Please The go a Instructions] follow-up [Operator KBW. question is next

Chris McGratty

kind of transactions transactions to levels, for seeing may deals? given bank prospects Just the appetites ask - capital what and for wanted and of M&A kind about you're

Mariner Kemper

that actively seem most opportunities within environment some likely meaning Yes, given they've come fee the would speaking bolt-on to so is environment to the based themes things able of we that together generally where our as I the be we are Those banks sit the been would trading. today businesses. here say be pursuing exist to same and which given

backwards us of as market. put sort had out the us Looking - of put

might and Now Fed changing our more expectation might boardroom given nine expectations robust months and we've GDP sellers. we And give us environment forward able the conversations then might is that coming slowing and have. opportunity for change rates moderate been a that for as to conversations into look more XX the next

over to turnover would would be bit still that months find XX bank like conversations to So yet, expectation next seen X the rocks quite able really those be have that transaction given the not my and we would to do environmental we conversations change those and a but changes. a boardroom it little

Chris McGratty

expectation billion size of parameters few a in maybe And kind the and markets?

Mariner Kemper

have give specific that, that like deal felt digest don’t X the billion We couple any last we is easily. something on that but to felt something was can guidance and great that did of we

So that's helpful.

Operator

This concludes I closing our any session. remarks. over for to question-and-answer would management like conference to turn back the

Kay Gregory

interest any our Thank This you, we and and access at thanks website, you. Thank and XXX-XXX-XXXX replay for your you can UMB questions. as Again, joining be with today. appreciate us follow-up time. call via always, can contact Investor at Relations

Operator

concluded. now Thank has you today's attending conference The for presentation.

disconnect. now may You

UMB Financial (UMBF) 24 Apr 192019 Q1 Earnings call transcript