UMB Financial Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report; the filing’s headline results are for the full year. UMB is a U.S. financial holding company providing commercial, institutional and personal banking, fund services, trust, card and related services.
Financial performance and condition
| Metric | FY2021 / year-end | Comparison |
|---|---|---|
| Total revenue (net interest income plus noninterest income) | $1.283 billion | Down 0.7% from 2020 |
| Net income | $353.0 million | Up 23.2% from $286.5 million |
| Basic / diluted EPS | $7.31 / $7.24 | Basic EPS up 22.9% from $5.95 |
| Net interest income | $815.5 million | Up $84.3 million, or 11.5% |
| Net interest margin, tax-equivalent | 2.50% | Down 31 basis points from 2.81% |
| Provision for credit losses | $20.0 million | Down $110.5 million from 2020 |
| Noninterest income | $467.2 million | Down 16.6%; 2020 included a large investment gain |
| Noninterest expense | $833.6 million | Up 1.4% |
| Return on average assets / common equity | 1.00% / 11.43% | ROAA unchanged; ROE was 10.21% in 2020 |
| Operating / investing / financing cash flow | $534.1 million / $(4.235) billion / $9.418 billion | Cash and cash equivalents ended at $9.215 billion, up from $3.498 billion |
| Total assets / shareholders’ equity | $42.693 billion / $3.145 billion | Assets were $33.128 billion and equity $3.017 billion in 2020 |
| Deposits | $35.600 billion | Up 31.6% from $27.051 billion |
| Long-term debt | $271.5 million | Compared with $269.6 million in 2020 |
Capital remained above regulatory minimums: UMB Financial Corporation reported a 13.88% total risk-based capital ratio and a 7.61% Tier 1 leverage ratio. The Bank was categorized as well capitalized. Year-end loans were $17.171 billion; the allowance for loan losses was $194.8 million, or 1.13% of loans.
Material changes versus 2020
- Earnings rose as net interest income increased and credit-loss provision expense fell substantially. Average earning assets grew 24.7%, while the tax-equivalent net interest margin compressed from 2.81% to 2.50% amid the low-rate environment.
- Noninterest income declined largely because 2020 included a $108.8 million gain on UMB’s Tattooed Chef investment; UMB recorded a $15.4 million loss on that investment in 2021. Fund services and corporate trust income increased.
- Net charge-offs increased to $44.9 million from $20.1 million, mainly due to a $31.9 million charge-off in specialty lending. Nonperforming loans rose to $92.3 million from $87.8 million, while nonperforming loans as a share of loans edged down to 0.54% from 0.55%.
- Deposits and cash balances expanded significantly. AFS securities increased to $11.977 billion, but their net unrealized gain fell to $153.9 million from $412.0 million; accumulated other comprehensive income declined by $192.0 million during 2021.
- UMB sold its interests in Prairie Capital Management and UMB Merchant Banc in March 2021. The sale reduced Personal Banking income and removed $6.3 million of goodwill.
Outlook, risks and unusual items
- The filing gives no specific numerical earnings or revenue guidance for 2022. Management noted that economic conditions, COVID-19 developments and government responses could affect the balance sheet and income statement. It expected approximately $1.6 billion of AFS securities principal repayments during 2022, including about $453 million in the first quarter.
- Interest-rate exposure is material. Modeling indicated that a gradual 100-basis-point rate decline would reduce modeled net interest income by 3.0% in year one and 9.7% in year two; a gradual 300-basis-point increase would raise it by 5.9% and 22.1%, respectively. Results depend on assumptions, including deposit pricing.
- Credit risks include real-estate concentration: commercial real estate was 36.5% of loans, consumer real estate 13.5%, and management reported 50.0% of loans primarily secured by real estate. Management said the allowance was adequate, but forecasts and borrower performance remain uncertain.
- Liquidity and funding considerations include $27.4 billion of uninsured deposits and $10.2 billion of pledged AFS securities. UMB also had $3.238 billion of federal funds purchased and repurchase agreements, and $14.2 billion of off-balance-sheet commitments and contingencies; management did not anticipate material losses from these arrangements.
- Other disclosed risks include COVID-19 impacts, cybersecurity and operational disruptions, regulation, competition, climate-related effects, and the transition away from LIBOR. UMB stopped originating new LIBOR-indexed instruments after December 31, 2021; most existing contracts were expected to transition to SOFR, but the ultimate impact was not yet clear.
- The TTCF valuation swing was an unusual contributor to year-over-year revenue comparisons. KPMG issued unqualified opinions on the financial statements and internal controls; its critical audit matter was the collective allowance for credit losses. Management reported no legal proceedings expected to have a material effect.
Most important facts for investors to verify
- Whether margin compression stabilizes and loan growth can generate returns on the enlarged earning-asset base.
- Whether the specialty-lending charge-off was isolated and how nonperforming loans, net charge-offs and the allowance develop.
- How much of 2021 earnings growth reflects recurring operations versus lower credit provisions and the prior-year TTCF gain.
- The effect of changing interest rates on net interest income, deposit pricing and the AFS portfolio’s fair value and reported equity.
- The stability and cost of the rapidly growing deposit base, including uninsured deposits, and the availability of unpledged liquidity.
- Progress and any remaining exposure in the LIBOR-to-SOFR transition, and the realization of expected 2022 securities repayments.