Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- UMB Financial Corp (UMBF, Financial) reported strong net interest income growth driven by a growing balance sheet and net interest margin expansion.
- The company achieved GAAP earnings of $101.3 million or $2.07 per share, with operating earnings at $105.9 million or $2.16 per share.
- Credit quality remains excellent with net charge-offs at just 5 basis points of average loans and non-performing loans at 6 basis points of total loans.
- Average total deposits grew by $815 million or 9.7% on a linked-quarter annualized basis, showcasing a strong diversified funding profile.
- The pending acquisition of Heartland Financial is expected to accelerate UMB's growth strategy, further diversifying and derisking the business model.
Negative Points
- Noninterest income saw a linked-quarter reduction of 9% due to non-recurring items in the prior quarter.
- The company faced a provision of $14.1 million reflecting continued loan growth and model recalibration impacts.
- Noninterest expense increased by $2 million linked quarter, driven by higher processing fees and increased bank card expenses.
- The effective tax rate increased to 20.1% for the quarter compared to 18.1% in the second quarter of 2023.
- The integration of Heartland Financial involves complexities, including managing multiple smaller institutions, which could pose near-term risks.
Q & A Highlights
Q: Regarding the pending acquisition of Heartland Financial, are there any anticipated changes in brokered deposits or securities restructuring as we approach closing?
A: Ram Shankar, CFO, stated that they do not expect any asset-side restructuring on their investment portfolio. They will evaluate brokered CDs and FHLB advances as they come up for renewal, likely letting them run off based on their loan-to-deposit ratio and liquidity levels.
Q: Can you provide insights into the trajectory of DDA balances for the rest of the year?
A: J. Mariner Kemper, CEO, mentioned that they feel they are at the bottom of the rotation cycle, with most of the rotation having taken place early in the cycle. Ram Shankar added that end-of-period DDA balances can be volatile and should not be heavily relied upon for predictions.
Q: What happened with criticized and classified loans this quarter, and what drove the CECL model change?
A: Thomas Terry, Chief Credit Officer, noted that criticized and classified loans were flat quarter-over-quarter. Ram Shankar explained that the CECL model change was due to a recalibration of macroeconomic variables, not underlying portfolio trends, resulting in a higher provision.
Q: How do you view the potential impact of the Heartland acquisition on your net interest margin (NIM)?
A: Ram Shankar indicated that it is difficult to predict the pro forma margin due to purchase accounting adjustments. However, J. Mariner Kemper highlighted that Heartland's higher margin, due to a smaller business book of loans and a more granular deposit base, is a strategic reason for the acquisition.
Q: What are the expectations for loan growth in the upcoming quarters?
A: J. Mariner Kemper stated that they expect a strong third quarter with growth across all segments, driven by existing commitments in commercial real estate and new business in multifamily and industrial sectors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
