UMB Financial Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. UMB Financial is a financial holding company offering banking and other financial services. Comparative income and cash-flow figures are for Q1 2020; balance-sheet comparisons are principally to December 31, 2020.
Financial results and position
| Metric | Q1 2021 / March 31, 2021 | Comparable period / change |
|---|---|---|
| Total revenue (net interest income plus noninterest income) | $303.0 million | Up 11.3% from Q1 2020 |
| Net interest income | $194.1 million | Up 11.6% from $173.9 million |
| Net interest margin, tax-equivalent | 2.59% | Down 38 basis points from 2.97% |
| Noninterest income | $108.9 million | Up 10.6% from $98.4 million |
| Noninterest expense | $200.9 million | Up 6.5% from $188.6 million |
| Provision for credit losses | $(7.5) million (a release) | $88.0 million expense in Q1 2020 |
| Net income; diluted EPS | $92.6 million; $1.91 | Net loss of $3.4 million; diluted loss per share of $0.07 |
| Operating cash flow | $115.9 million provided | $9.3 million provided in Q1 2020 |
| Total assets; loans | $34.67 billion; $16.50 billion | Assets up 4.7% and loans up 2.4% from year-end |
| Deposits; shareholders’ equity | $28.28 billion; $2.96 billion | Deposits up 4.5%; equity down $58.7 million from year-end |
| Cash and cash equivalents | $4.19 billion | Up from $3.50 billion at year-end |
| Long-term debt; federal funds purchased and repurchase agreements | $270.1 million; $2.76 billion | Long-term debt was $269.6 million at year-end; short-term funding was $2.32 billion |
Return on average assets was 1.14% and return on average equity was 12.56%, versus negative 0.05% and negative 0.51%, respectively, in Q1 2020. The total risk-based capital ratio was 14.28%, common equity tier 1 ratio 12.25%, and leverage ratio 8.08%; the filing states capital exceeded regulatory requirements. The quarterly dividend was $0.32 per share.
Material changes versus the prior comparable period
- Net income swung to profit from a loss, substantially reflecting the change from an $88.0 million credit-loss provision in Q1 2020 to a $7.5 million release in Q1 2021, alongside higher net interest income and noninterest income.
- Average earning assets rose 28.4% year over year, and average loans rose 19.3%; PPP loans contributed $1.3 billion to average loans and totaled $1.4 billion at quarter-end. Management attributed growth in part to PPP and pandemic-related excess liquidity.
- Net interest margin declined to 2.59%, as lower asset yields and excess liquidity outweighed lower funding costs. Average cost of interest-bearing liabilities fell to 0.24% from 0.92%.
- Noninterest income growth included higher trust and securities processing and trading and investment banking income. Brokerage fees and bankcard fees declined, while investment securities results moved to an $8.3 million net loss from a $3.5 million gain.
- Noninterest expense increased 6.5%, led by salaries and employee benefits, including higher deferred compensation expense.
- Accumulated other comprehensive income fell to $169.2 million from $318.3 million at year-end, primarily reflecting a $149.1 million after-tax other comprehensive loss, including unrealized changes in debt securities. Shareholders’ equity consequently declined from year-end despite quarterly net income.
Outlook, commentary, risks and unusual items
- Management reported continued monitoring of COVID-19 effects and expects ongoing market and economic volatility to affect the balance sheet and income statement. It anticipated sufficient capital to meet regulatory requirements as the economy recovered, but provided no specific earnings or revenue guidance.
- The company reported 73 remaining COVID-19-related loan modifications totaling $14.0 million at March 31, down from 136 loans totaling $67.6 million at year-end. Approximately 99% of more than 1,300 modifications since the pandemic began had resumed principal or interest payments; three modified loans totaling $462,000 were on nonaccrual.
- Nonperforming loans were $76.7 million, or 0.46% of loans, down from $87.8 million at year-end. The allowance for credit losses on loans was $202.8 million, or 1.23% of loans. Management’s CECL estimate uses economic forecasts, including a one-year reasonable-and-supportable forecast period; actual credit outcomes may differ.
- Q1 noninterest income included a $16.1 million mark-to-market loss on the company’s investment in Tattooed Chef, partly offset by other securities-related items. Other income included a $4.3 million gain on the sale of Prairie Capital Management (PCM). On March 31, the company sold its interests in PCM and UMB Merchant Banc, disposing of $6.3 million of goodwill and $1.9 million of net unamortized customer-relationship intangibles.
- Management cited interest-rate, credit, liquidity, market, operational, cybersecurity, regulatory, and pandemic-related risks. Interest-rate simulations indicated the company was slightly asset-sensitive: modeled net interest income increased in rising-rate scenarios and declined in falling-rate scenarios. Outcomes depend on assumptions, including deposit pricing.
- The filing reported no material changes to previously disclosed risk factors. Management stated pending legal proceedings were not expected to have a material adverse effect. Disclosure controls were reported effective, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How sustainable earnings are after separating the credit-loss release, PPP-related income, market-sensitive fees, deferred-compensation effects, and the PCM sale gain.
- Whether loan and deposit growth, PPP forgiveness, liquidity levels, and the lower net interest margin support future net interest income.
- Credit quality trends and allowance adequacy, including performance of remaining modified loans, commercial real estate exposures, and factoring loans.
- The sensitivity of equity and earnings to interest-rate changes and securities valuations, including the effect of unrealized losses and pledged securities on liquidity.
- Capital and funding developments, including repurchase activity, the $200 million subordinated notes issued in 2020, and available contingent borrowing capacity.