UMB Financial Corporation (UMBF) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Shareholders of UMB Financial Corporation. Please note that today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mariner Kemper, chairman and CEO of UMB. Mr. Kemper, the floor is yours.

Thank you. Good morning. Thank you all for joining us today for our Annual Meeting of Shareholders. Once again, we have a meeting virtually. I know we're all looking forward to being able to gather in person in the future. The past year has challenged at all, how we live, work and connect, and the realization of our actions have a broader impact on the world we live in. We've also been inspired with the countless stories of selflessness, hard work and the communities pulling together to confront the impacts of COVID-19. Integrity, stability and consistency are cornerstones that anchor us during times of upheaval and uncertainty. While we've grown considerably from our beginnings in 1913, our values have not changed. Our customers, along with our shareholders and communities, are always at the center of our attention, and that focus resonated throughout 2020. UMB associates worked tirelessly to help our clients navigate the pandemic's financial effects, and I'm incredibly proud of the resiliency of our team. As we get started, I need to remind you to refer to the forward-looking statements discussion on Slide 27 for details about our comments we're making today. After the business portion of our meeting, I'll share details about our 2020 performance and an update on our first quarter of 2021. At the end of my remarks today, there will be time for questions. [Operator Instructions] Now let's get moving to the business meeting. The rules of the meeting are available for review through the meeting portal. [Operator Instructions] I will now call the meeting to order. As Chairman of the Board of UMB Financial Corporation, I will be presiding at this annual meeting of shareholders, held pursuant to the bylaws of the company and the written notice to all shareholders. Mr. John Pauls will act as Secretary of the meeting. The Secretary has delivered an affidavit of mailing from our transfer agent, affirming that notice of the meeting was duly given, and a copy will be included in the meeting minutes. Shareholders of record at the close of business on March 1, 2021, are entitled to vote at this meeting. First, I'd like to introduce our directors and advisory directors who are in attendance today. You'll see their pictures on Slide 4 of our presentation. Our directors are: Robin Beery; Janine Davidson, K. C. Gallagher, Greg Graves, Sandy Kemper, Gordon Lansford, Tim Murphy, Tammy Peterman, Kris Robbins, Josh Sosland and Leroy Williams. Our advisory directors include Tom Wood and Jim Ryan, CEO of UMB Bank. Details about each director, their backgrounds and what makes them so valuable to UMB can be found in the proxy statement. And I'd like to take a moment to recognize Paul Uhlmann. Who's retiring from the Board after 21 years of service. Paul, thank you for all you've done for UMB, and we wish you the best in your future endeavors. Also attending the meeting are Jeff Bierman and Mike Ruth of KPMG, our independent auditors. Although KPMG has indicated that it doesn't plan to make a statement, Mr. Bierman is available to respond to appropriate questions at the end of the presentation. In addition, our Lead Director, Greg Graves; and our Chief Financial Officer, Ram Shankar, will be available during the Q&A session. As Chairman, I appoint John Pauls and Megan Mercer from UMB and Ruth Brunette from our transfer agent as inspectors to receive and canvas the votes and certify the results. I request that the inspectors file their oath of office with the Secretary to be included in the minutes of the meeting. The Secretary has the list of holders of record of common stock of the company at the close of business on March 1, 2021. This list has been open for examination for the purposes of the relevance of this meeting during ordinary business hours for the past 10 days. This list is available for inspection by any shareholder during this meeting on the meeting website. The Secretary will please file a copy of this list to the shareholders with the records of the company. Mr. Pauls, will you please present a report of attendance at this meeting so that we may determine whether there is a quorum.

Mr. Chairman, on March 1, 2021, the record date of this annual meeting, there were outstanding and entitled to vote a total of 48,228,657 shares of common stock. I have been informed that there are 41,298,341 shares of stock represented by proxy or approximately 85.63% of the shares entitled to vote at this meeting. The shares represented exceed 50% of the total shares entitled to vote at this meeting and thus, constitute a quorum.

Thank you, Mr. Pauls. Based on the Secretary's report, I find that proper notice has been given and a quorum is present. Accordingly, this meeting has been properly convened. The polls for the voting are now open. All UMB shareholders entitled to vote at this meeting and who have not previously voted, may do so now online. If you have not yet voted or if you want to change your previously cast vote, please click on the link provided on the meeting center screen. Please remember that if you have already voted by proxy, it is not necessary to vote again. After voting has been completed on all matters of the agenda, we will close the polls, and the inspector of election will provide his preliminary report. We'll now move to review the proposals. First proposal to come before the meeting is the election of directors at this meeting. We will be electing each of the 12 directors for a 1-year term expiring at the 2022 Annual Shareholder Meeting. These nominees are: Robin Beery; Janine Davidson; K. C. Gallagher; Greg Graves; myself, Mariner Kemper; Sandy Kemper; Gordon Lansford; Tim Murphy; Tammy Peterman; Kris Robbins; Josh Sosland; and Leroy Williams. Information about each nominee, including professional experience, skills and qualifications, is contained in the proxy statement. No other nominations were received prior to the deadline established in the company's bylaws, therefore, no additional nominations may be made at this meeting, and I declare the nominations to be closed. Proposal 2 asks shareholders to approve an advisory resolution on the fiscal year 2020 compensation of the named executive officers, all as described in our proxy statement. This proposal is advisory, although nonbinding, the vote will provide information to our Compensation Committee and our Board of Directors regarding investor sentiment about our executive compensation philosophy, policies and practices, which can be considered when making future executive compensation decisions. The final matter to come before the meeting is the ratification of the appointment of KPMG as the company's independent registered public accounting firm. The Board of Directors recommends the ratification of the appointment of KPMG to serve as the company's accounting firm and to audit the financial statements for the fiscal year ending December 31, 2021. [Voting]

We now appear to have the proxies and the ballots, and I declare the polls are now closed. The inspectors of election will now maintain the proxies and the ballots and will count the votes. Mr. Secretary, will you please report on the results?

Mr. Chairman, based on the inspectors' preliminary report, each of the nominees for director received more than 95% of the votes cast in favor of his or her election, and has been elected as a director of the company to serve for a term of 1 year that will expire in 2022. Resolution on the advisory basis for the compensation of our named executive officers for fiscal 2020 received more than 97% of the votes cast in favor of the proposal and has been approved. And the ratification of the appointment of KPMG as the company's independent registered public accounting firm received more than 99% of the votes in favor, and the appointment has been ratified. We will file the final report of the inspector of election with the records of this meeting. We expect to report the results of the voting on a Form 8-K to be filed with the SEC within 4 business days of this meeting.

Thank you, John, and thank you all for your support. That concludes the business portion, and the meeting is now adjourned. Once again, although this meeting and the events of the past year are anything but typical, there is a familiar tone and theme in our conversations. Our continuity and consistency during the past 108 years have shaped who we are today. We've built our company to withstand the test of time. The annual meeting slide deck this year highlights scenes from our larger markets across our footprint, providing a visual reminder of how we've built and expanded over time. I'm honored to be at the helm of this company and proud of our results. We've worked together to overcome many challenges recently. 2020 was a great year for the company, marked by solid asset growth, which helped drive higher net interest income even as the industry data showed weaker trends in most categories. And our strategy to strengthen and build out our varied sources of fee income is paying off. Beginning on Slide 8, 2020 net income increased 17.6% to $286.5 million, an incredible testament to the hard work and adaptability of our associates. They didn't miss a beat when faced with the new remote environment and continue to bring in business and serve our customers. A highlight for the year was a successful investment by our small business investment company in Tattooed Chef, which went public in October. We were able to partner with a client, as they grew, investing in their future, and the investment added nearly $109 million to our fee income for 2020. This valuation will fluctuate over time with the TTCF stock price for as long as we hold the shares. The strong asset growth I mentioned, along with the strategic management of our balance sheet and the lower rate environment, drove a $60.3 million increase in net interest income. Offsetting our revenue growth was the impact of a new accounting standard adopted in 2020 to change how banks are required to account for potential future credit losses. This drove an increase of $98 million in our provision expense. While this new methodology had been in the works for years, the final timing coincided with the pandemic, creating a perfect storm for banks. But strong performance throughout the year drove record earnings despite these headwinds. You'll see some additional metrics behind our results on Slide 8 and 9. Moving to the balance sheet on Slide 10. Total loans, excluding Paycheck Protection Program loans, grew more than 10% compared to 2019, bucking industry trends of flat to shrinking loan demand. In fact, median loan growth for the 15 peers was just 2% for the year. And I'm proud to say our credit quality has remained steady, with net charge-offs of just 0.13% of average loans for 2020. And for just the fourth quarter, net charge-offs were very low at 0.04% of loans. When the PPP program rolled out last April, we were able to mobilize quickly to help our clients and the clients of other banks managed through the pandemic by originating more than $1.5 billion to businesses who needed it to most. On this slide, you'll see that we had deposit growth of more than 20%, double the rate of our loan growth. The banking industry overall is flushed with liquidity now due to the unprecedented levels of stimulus and the government has injected into our economy. However, we tend to see flight to quality during uncertain times like these, and our deposit base has always been an advantage for us. Our low lower than peer loan-to-deposit ratio provides us lending flexibility. In all, we ended the year in a great position and are looking forward to 2021. We just announced our first quarter results this morning, and the year is off to a good start. We had strong balance sheet growth supported by stable diverse funding sources continued fee income momentum and solid asset quality metrics. You'll see on Slide 12 that we earned $92.6 million or $1.91 per share for the quarter. Our results were impacted by fluctuations in market valuations, especially our investment in Tattooed Chef. Outside of those fluctuations, we had continued success in growing our fee income businesses, and our strong asset growth helped us support net interest income in this challenging rate environment. Average loans, excluding PPP balances, increased by $1.3 billion or 9.7% compared to the first quarter of last year. I'm pleased with our results for the quarter, and I'm excited to build on those results in the coming quarters. Now I'd like to touch base on what makes UMB a good partner for the long term. It starts with who we are and how we do business. For 108 years, we've weathered all types of economic and business cycles. We've been through 2 World Wars, the Great Depression, the Great Recession and now 2 pandemics. Each time we've learned lessons to make us better, stronger and more capable to serve our customers' needs. We often say, we're at our best when our customers need us most. That's why on Slide 15, you'll see that our vision is to provide the unparalleled customer experience, something we call [indiscernible] for short. It's the underlying belief that we can all make a difference every day with personal connections and commitment to find solutions. We've built a diversified business model, which is our foundation for growth and is a key to our investment thesis, which is outlined on Slide 17. We have a track record of relative outperformance in loan growth, and opportunities remain to take market share across our footprint and within several different loan verticals. We have recently expanded our footprint, opening offices in the Twin Cities and Salt Lake City. We have institutional banking operations in those areas for some time, and it made sense to build on that presence. We have solid capital and liquidity positions to support our growth, fueled by our attractive deposit base and diverse funding sources. As we experienced in 2020, our asset growth drivers drive higher levels of net interest income, balanced by fee income. We consistently maintained peer-leading levels of fee income as a percentage of total revenue. This mix provides a natural hedge against the lower interest rate environments. And the point I'm as proud of, we've achieved all of this growth without wavering our credit standards or changing our time-tested underwriting philosophy. On Slide 18, you'll see that long-term results maintaining those high standards with consistency and with low nonperforming charge and charge-off metrics over time. We have a long-tenured credit team with an average of 22 years at UMB. We are risk managers first and do what's right for our business and for others. All these things work together to create value for our customers and shareholders. We remain focused on long-term strategies, which will allow us to provide risk-adjusted returns by growing earnings, growing book value and consistently paying and increasing our quarterly dividend. Slide 21 depicts total return trends of UMBF stock compared to the bank indices and the market in general over the 1-year and 15-year period. We're reviewing 2020 performance today, so it makes sense to look at how our stock performed in the past year. As you can see, if you had reinvested your dividends, UMBF shares had a return of 112%, easily beating both our bank peers and the S&P 500 Index, which represents the market as a whole. But we're built for the long term. So we've also included a 15-year chart as well. Here, we see that UMB shares tracked ahead of the bank peers over that period and held steady with the market. Our 15-year total return was 259% compared to just under 95% for the bank stocks. The S&P 500 came out on top, benefiting from diversification and the varying performance of multiple industries, especially through the pandemic. I firmly believe that sustainable shareholder value comes from the commitment to long-term versus short-term results and sticking to our principles. Our associates also tend to have a long-term commitment. And truth be told, they are the lifeblood of this company. The average tenure of a UMB associate is just under 10 years, almost double that of the average tenure in the U.S. I'm honored to work alongside the 3,600 team members who deliver the unparalleled customer experience day in and day out to each other and to our customers. Finally, on Slide 23 and 24, we've included a few highlights about our long-standing commitment to doing what's right for all of our stakeholders. Our latest corporate citizenship report has just been published and is available on our website. It highlights our continued efforts and actions related to environmental, social and corporate governance issues. We continually adapt to find the right balance of implementing sustainable business practices, building diverse teams, meeting obligations and using our resources to do good. This balance has helped us guide through our response to the COVID-19 crisis. We've been in business for more than 108 years, which isn't unusual in and by itself. What makes us different is that we've been able to do that with consistent management style for the entire time. We stick to what works and what we know and to what is right, which isn't always what is popular. Earlier this spring, we marked the 50th year of our stock being publicly traded on the NASDAQ. Whether you've been invested with us for many years or a more recent shareholder, I thank you for your trust you've placed in us. Now I'd be happy to answer any questions. As a reminder, if you're logged in as a shareholder, you may submit a question by clicking on the Dialogue button in the upper right-hand corner of the meeting center screen. Thanks again. We're thrilled to have you with us and very excited about what we've been able to do as a company.

Mr. Chairman, we have 2 questions today. The first comes from Mike -- both of the questions come from Mike [ Himes ], representing the Carpenter Union Pension Funds. The first question is, we support the Board and each of the Board nominees. However, we believe the cornerstone of strong governance program is a majority vote standard in uncontested director elections. The overwhelming majority of public companies have adopted a majority standard along with the director resignation policy. The majority vote standard provides shareholders a meaningful vote in the vast majority of director elections that are uncontested. Could you or the Chair of the Governance Committee address the board's position on the majority vote standard and indicate whether the Board would consider adopting a majority vote standard for director elections?

Thank you for that question. I think it's a thoughtful question. We continually assess this year in and year out, and I will commit to you that we will discuss it again as a Board. I will comment that the reason we're comfortable today with where we are, we do have a resignation policy in place, and our directors do stand for reelection annually. So we currently feel that we take care of most of that by having our directors stand for reelection and having a Board resignation policy. But I will commit to you that we will discuss it again.

Okay. And the second question, the business roundtable and many academics and governance observers have advanced the concept of stakeholder capitalism as an alternative to shareholder capitalism. As a long-term pension fund investors, the Carpenter Funds appreciate the sentiments embodied in the stakeholder capitalism perspective but feel that execution could be complicated. Could you discuss the Board's perspective on the concept of stakeholder capitalism? And what principles the board would use to balance the interest of varied stakeholders as it develops and implements the company's long-term business strategy.

Again, thank you for that question. You just really hits on some things that are very important to our management team and our Board, which is to do right by the communities that we serve, lifting all people up, all stakeholders up as we, as a bank, really are integral part of the community. So I will refer you back to my comments -- prepared comments where I share that we just recently published our latest corporate citizenship report, which does speak to all the activities that we're doing to lift up the communities that we serve and people of all races and gender and the things we do to support our communities. And we're very proud of the things that we're doing. I would say that we'll never be done. We're continually trying to improve and I would say that I think it is our duty to serve both the broader base of stakeholders as just as important as our shareholder base. We think about them both similarly. And we'll continue to find ways to do better. We're very committed to it. It's very important to us, very important to me personally to do what's right by those that we serve.

We have no more questions, Mr. Chairman.

Okay. At this time, we do not have any more questions. The slides we discuss this morning will be available on the website, and a replay of this meeting is available shortly. I hope you all and your families remain well. And we are all looking forward to connecting with you in person in the future. Thanks again for your support, and we'll be with you again soon.

This concludes the meeting. You may now disconnect.