UMB Financial Corporation (NASDAQ:UMBF) Q2 2019 Earnings Conference Call Transcript

Jul 31, 2019 • 09:30 am ET

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UMB Financial Corporation (NASDAQ:UMBF) Q2 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, and welcome to the UMB Financial Second Quarter 2019 Financial Results Conference call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Kay Gregory of Investor Relations. Please go ahead.

Executive
Kay Gregory

Welcome, and thank you for joining us. On the call today are Mariner Kemper, President and CEO; and Ram Shankar, CFO. Jim Rine, President and CEO of UMB Bank, will be available for the question-and-answer session. Before we begin, let me remind you that today's presentation contains forward-looking statements, all of which are subject to assumptions, risks and uncertainties. Actual results and other future circumstances may differ from those set forth in any forward-looking statement. Details about factors that may cause them to differ is contained in our SEC filings. Forward-looking statements made speak only as of today, and we undertake no obligation to update them except to the extent required by securities laws.

Our earnings materials are available online at investorrelations.umb.com. Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures have been included in the release and on Slides 37 through 39 of the supporting materials. All earnings per share metrics discussed on this call are on a diluted share basis.

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

Executive
Mariner Kemper

Thank you, Kay. And thanks, everyone, for your interest in UMB. For the second quarter, we earned $57 million or $1.16 per share. On an operating basis, we earned $1.17 per share. We had another strong quarter of balance sheet growth with average loan balances increasing 10.3% on a linked-quarter annualized basis. C&I was the biggest contributor to our growth, followed by construction loans. Our most active markets for construction year-to-date have been Arizona and Missouri. Top line loan production for the second quarter was again very strong at $844 million. Total payoffs and paydowns were $489 million this quarter and represented 3.8% of loans, in line with our longer-term quarterly averages. We continue to see activity in all our verticals. And the production pipeline remains strong, as we look into the third quarter.

Solid loan growth was the largest contributor to the increase in net interest income compared to the first quarter, while our net interest margin compressed 1 basis point. Although recent economic data has been relatively strong, the markets are anticipating a Fed rate cut this afternoon. While this may not be ideal for our industry, such actions may at least prevent the Fed from overextending its tightening cycle, as it has in previous instances. More than likely, it will also extend the economic recovery that we have been experiencing. Given the outlook for lower short-term and long-term rates, we'd expect some margin pressure.

As the likelihood of rate cuts increased over the past weeks, we've continued to extend the duration in our securities portfolio as well as add some longer tenure fixed-rate term debt in our loan portfolio. We will remain vigilant on deposit