UMB Financial Corporation — Q1 2013 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2013. UMB is a bank financial holding company with four reportable segments: Bank, Payment Solutions, Institutional Investment Management, and Asset Servicing.
Financial and operating metrics
| Metric | Q1 2013 / March 31, 2013 | Comparable period / prior date |
|---|---|---|
| Net interest income | $79.5 million | $79.1 million in Q1 2012 |
| Noninterest income | $121.0 million | $132.3 million in Q1 2012 |
| Net income; diluted EPS | $34.9 million; $0.87 | $46.4 million; $1.15 in Q1 2012 |
| Net interest margin, tax-equivalent | 2.51% | 2.75% in Q1 2012 |
| Operating cash flow | $35.3 million | $10.2 million in Q1 2012 |
| Total assets | $15.7 billion | $14.9 billion at December 31, 2012 |
| Loans; allowance for loan losses | $6.0 billion; $69.9 million | Loans $5.7 billion; allowance $71.4 million at December 31, 2012 |
| Deposits | $12.6 billion | $11.7 billion at December 31, 2012 |
| Shareholders’ equity | $1.29 billion | $1.28 billion at December 31, 2012 |
| Capital ratios | Tier 1 risk-based 10.92%; total risk-based 11.74%; leverage 6.60% | Total risk-based 12.32% in Q1 2012 |
Cash and cash equivalents were $1.93 billion at quarter-end. Cash increased $561.4 million during the quarter; investing activities used $237.2 million and financing activities provided $763.3 million. Total borrowed funds were $1.66 billion, principally federal funds purchased and repurchase agreements ($1.66 billion); long-term debt was $4.4 million.
Material changes versus comparable periods
- Net income declined 24.6% year over year, and diluted EPS fell from $1.15 to $0.87. Net interest income was nearly flat, while net interest margin contracted 24 basis points as asset yields repriced down faster than funding costs.
- Noninterest income fell 8.5%, mainly reflecting lower securities gains ($5.9 million versus $16.5 million) and lower other income. Trust and securities processing income rose 13.9% to $62.3 million, including higher Scout Funds advisory fees.
- Noninterest expense increased 6.0% to $150.4 million, led by salaries and benefits and fair-value adjustments to acquisition contingent consideration.
- Loans grew 5.7% from year-end and 16.8% year over year; deposits rose 7.8% from year-end. Management attributed deposit growth principally to public funds, mutual fund processing, and treasury management.
- The loan-loss provision decreased to $2.0 million from $4.5 million a year earlier, but net charge-offs increased to $3.5 million from $3.0 million. The allowance-to-loans ratio was 1.16%, versus 1.43% a year earlier.
- Other comprehensive loss was $22.0 million, largely reflecting changes in unrealized securities gains; shareholders’ equity increased modestly from year-end.
Outlook, commentary, risks, and unusual items
- No specific earnings or financial guidance was provided. Management emphasized credit quality, sustainable growth, fee-based businesses, diversified revenue, and capital management.
- Management’s interest-rate simulation projected higher net interest income under rising-rate scenarios: an increase of $9.2 million for +100 basis points and $27.3 million for +300 basis points over 12 months. A falling-rate case was not included because rates were already low.
- Key risks cited include economic and political conditions, interest-rate changes, securities-market performance and fund flows, customer repayment capacity, loan demand and liquidity, competition, regulation, technology, employee costs, and acquisition integration.
- Unrealized losses on available-for-sale securities totaled $10.2 million; management attributed them primarily to interest-rate changes and said it did not intend, and did not expect to be required, to sell the securities before recovery.
- Off-balance-sheet commitments totaled approximately $5.1 billion, including loan commitments and letters of credit; many may expire undrawn. A $25 million revolving credit line had no advances outstanding. Routine litigation was not expected by management to materially affect the company.
- The company repurchased 35,967 shares at an average $46.03 per share and declared a $0.215 dividend payable July 1, 2013. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether loan growth and deposit growth continue without deterioration in credit quality, particularly given increased past-due loans and net charge-offs.
- Whether fee-income growth can offset margin pressure and the lower contribution from securities gains and contingent-consideration adjustments.
- How rising or falling interest rates, securities-market movements, and asset-based trust fees affect future earnings and accumulated other comprehensive income.
- The composition and potential drawdown of the $5.1 billion in commitments, and the availability of liquidity after pledged securities and funding needs are considered.
- Capital and allowance adequacy as assets grow; the filing reports capital ratios above regulatory minimums but does not provide a full forward-looking capital or earnings forecast.