Each quarter following UMB’s earnings results, Ram Shankar, UMB chief financial officer, provides an overview of the earnings highlights. For more information, please review the full investor presentation given on January 24, 2023.
Fourth quarter 2022 earnings summary
Our strong fourth quarter results closed out another year of record earnings, driven by continued balance sheet growth, solid credit metrics and contributions from our differentiated fee income sources. Revenue increased 14.4% over the prior year to $1.5 billion, driven by a 13.2% increase in average loans, 8.3% increase in average deposits, and an 18.6% increase in noninterest income.
Financial highlights:
- GAAP net income of $100.2 million, or $2.06 per diluted share.
- Average loan balances increased $3.6 billion, or 21.6%, compared to the fourth quarter of 2021.
- Average loans increased 21.0% on a linked-quarter, annualized basis.
- Average deposits grew 21.2% on a linked-quarter, annualized basis.
- Net interest income increased 5.0% from the linked quarter.
- Noninterest income increased 5.7% as compared to the fourth quarter of 2021, equal to 33.9% of total revenue.
- Net interest margin expanded seven basis points from the linked quarter.
- Credit quality remained strong, with net charge-offs of just 0.04% of average loans.
“As we enter the 110th year of business, our strong balance sheet and differentiated business mix position us well to deliver solid returns across all economic cycles, driven by our basic tenet of providing the unparalleled customer experience to all our key constituents.”
-Mariner Kemper, chairman, president and chief executive officer, UMB Financial Corporation
Balance sheet highlights
In 2022, we generated actual loan growth of nearly $4 billion, or more than three times the $1.1 billion we added in the prior calendar year. Our asset quality metrics remained solid as reflected in net loan charge-off rate of 21 basis points for the year. Nonperforming assets comprised a modest five basis points of total assets.
Net income for the fourth quarter was $100.2 million, or $2.06 per share. This represents an increase of 13.8% compared to third quarter. For the full-year 2022, net income was $431.7 million, or $8.86 per share, an increase of 22.3% compared to 2021.
The main drivers behind our increased bottom line earnings for 2022 were:
- Net interest income growth, driven by very strong loan growth. This helped offset the increased interest we paid out on deposits and other funds due to rising interest rates.
- Positive contributions from our lines of business that provide sources of noninterest income. The growth in 2022 was driven largely by increased money market revenue and 12b-1 income, along with strong performance from fund services and corporate trust within our Institutional Banking segment.
- Increased expenses, which partially offset our strong revenue. We continue to invest in our core systems, advertise to bring in needed deposits to support growth, provide incentives to our associates for their performance, and donate generously to support our communities.
One of our primary goals has long been generating positive operating leverage, which means that our combined revenue from net interest income and non-interest income grows faster than our expense levels. For the full-year 2022, we generated positive operating leverage of 6.7%, reflecting growing revenue, along with prudent investments in our people and our businesses.
Assets, deposits and loan growth
Managing our assets (which are largely loans and investment securities) and liabilities (largely deposits) on our balance sheet is key to our performance.
Average loan balances increased by a very impressive 21.1% compared to the third quarter on an annualized basis. For the full year, our lending teams originated a record $5 billion in loans. This resulted in net loan growth of nearly $4 billion, with approximately $1.15 billion of that coming in during the fourth quarter.
And, the credit quality of our loan portfolio remains strong, with net charge-offs for the quarter of just 0.04% of average loans. And for the full year, charge offs were 0.21% of loans, or less than one-quarter of one percent. Our strong underwriting standards don’t change and are vitally important in uncertain economic environments.
On the other side of the balance sheet, deposits provide a much-needed source of funding to support our loan growth. And in the current rising rate environment, the cost of those deposits is rising. These costs are among the most-discussed metrics in the banking industry.
During the fourth quarter, average deposit balances increased by 21% compared to the third quarter on an annualized basis, and they kept pace with our loan growth. This stood out among our peer banks this quarter, as many have reported a decline in deposit levels as customers used their excess cash or sought out higher-rate accounts at other institutions.
As our deposit balances grew, so did the interest we paid on those deposits. Our lending teams are focused on disciplined pricing for new and existing borrowers to manage our net interest margin, which is the difference between what we pay out for funds and what we earn in loan interest.
Conclusion
If I had to narrow it down, I’d say the big takeaways for the quarter would be:
- UMB continues to outperform on loan growth while maintaining excellent credit quality.
- Deposits are vitally important in this environment.
- We need to remain diligent in controlling our costs, while still supporting our business goals.
While the unpredictability of the current rate environment is challenging, our time-tested business model and relationship-based culture continue to perform well. Our associates are the driving force behind our success.
UMB had a solid 2022. We’re really excited for the opportunities we see ahead and I look forward to updating you again in April with our first quarter 2023 results.
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