UMBF

UMB Financial Corporation (UMBF)

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UMB Financial Corporation (UMBF)

Q2 2013 Earnings Conference Call

July 24, 2013 09:30 ET

Executives

Kay McMillan - Investor Relations

Mariner Kemper - Chairman and Chief Executive Officer

Peter deSilva - President and Chief Operating Officer

Mike Hagedorn - Chief Financial Officer

Analysts

Chris McGratty - KBW

Peyton Green - Sterne Agee

Presentation

Operator

Good morning, ladies and gentlemen and thank you for standing by. And welcome to the UMB Financial Second Quarter 2013 Financial Results Conference Call. During today’s presentation, all parties will be in a listen-only mode, and following the presentation, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions) And as a reminder, this call is being recorded today, July 24, 2013.

I would now like to turn the call over to Kay McMillan. Please go ahead, ma’am.

Kay McMillan - Investor Relations

Good morning, everyone, and thank you for joining us for our conference call and webcast regarding our second quarter 2013 results. Before we begin, let me remind you that our comments in this conference call contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements rely on a number of assumptions concerning future events and are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated in our statements made during this call.

While the management of UMB believes our assumptions are reasonable, UMB cautions that material changes in interest rates, the equity markets, general economic conditions as they relate to the company’s loan and fee-based customers, competition in the financial services industry, the ability to integrate acquisitions and other risks and uncertainties, which are detailed in our filings with the SEC may cause actual results to differ materially from those discussed in this call. UMB has no duty to update such statements and undertakes no obligation to update or supplement forward-looking statements that become untrue because of new information, future events or otherwise. By now, we hope most of you on the call who are listening via webcast have had a chance to review our earnings release, which was issued yesterday afternoon. If not, you will find it on our website at umb.com.

On the call today are Mariner Kemper, Chairman and Chief Executive Officer; Peter deSilva, President and Chief Operating Officer; and Mike Hagedorn, our Chief Financial Officer. The agenda for today’s call is as as follows: Mariner will provide high level commentary on our results and Mike will review the details of our financials. Then Peter will review key fee income business drivers. And following that, we’ll be happy to answer your questions.

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

Mariner Kemper - Chairman and Chief Executive Officer

Thank you, Kay. Good morning everyone and thank you for joining us today. Our second quarter results continued to reflect the strong performance by our business units. Net income was $29.9 million, or $0.74 per diluted share, earned on total quarterly revenue of $195.9 million and return on average equity of 9.31%.

Net interest income for the second quarter grew modestly increasing 2.4% compared to the same quarter last year. Mike will discuss this in detail later in the call, but I am pleased that growth in our earning assets and improved deposit pricing helped drive this increase. Non-interest income increased 3.1% to $113.6 million driven primarily by a nearly 14% increase in trust and securities processing revenue, which reflects solid performance from our fee businesses. The impact from the change in gain on sale of securities compared to the second quarter of last year partially overshadowed these results.

Non-interest income was 58% of total revenue for the quarter. Non-interest expense for the quarter was $150.3 million, an increase of less than 4% compared to the same period a year ago, which combined with our revenue results drove an efficiency ratio of 73.5%. On a linked quarter basis, expenses remained flat. Once again this quarter, I am happy to report continued strong loan growth. Average net loans at June 30, 2013 were 18.1% higher than a year ago. On a linked quarter basis, this is an increase of 5.9%. This is our 13th consecutive quarter of loan growth and sixth consecutive quarter of year-over-year double-digit loan growth.

Utilization moved up slightly this quarter coming in at 31% for the quarter compared to a 29% a year ago. Compared to the industry, more than 1,500 regulated financial institutions that had announced results as of July 22, 2013 reported an increase in loan balances of just 1.4%. Our reputation in the markets we serve as well as the experience in tenure of our relationship-based lenders continues to drive our performance. Loan growth continues to come primarily from an increase in market share. We saw growth in all of our markets led by Kansas City in terms of actual balance, followed by Denver and St. Louis, in regions where we have smaller market share, we also are seeing strong results. All of our regions reported double-digit year-over-year loan growth.

In terms of loan types, C&I lending was the primary driver of this growth for the quarter. The June 30 loans balances of $3.3 million, a $696 million, or 26.4% increase. Commercial real estate also had a strong second quarter with ending balances of $1.6 billion, or a 16% increase over the same period a year ago. For the second quarter, our average loan and deposit ratio improved 53.2%. As we discussed last quarter, our goal is to replace securities that roll off our investment portfolio with high-quality higher yielding loans. As we grow and diversify our loan portfolio, our underwriting standards remain the same. Overall, non-performing loans as a percent of total loans were just 0.40% and net charge-offs for the quarter improved to 0.21% compared to 0.41% a year ago.

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