UMB Financial Corporation — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010; comparisons are primarily with 2009. UMB is a diversified financial-services holding company operating four banks and businesses including asset management, fund servicing, payments, and wealth management.
Financial performance and position
| Metric | 2010 | 2009 |
|---|---|---|
| Net interest income | $310.6 million | $303.0 million |
| Noninterest income | $360.4 million | $310.2 million |
| Provision for loan losses | $31.5 million | $32.1 million |
| Noninterest expense | $512.6 million | $460.6 million |
| Net income | $91.0 million | $89.5 million |
| Diluted earnings per share | $2.26 | $2.20 |
| Net interest margin, tax-equivalent | 3.21% | 3.43% |
| Return on average assets | 0.82% | 0.89% |
| Return on average equity | 8.53% | 8.89% |
- Year-end assets were $12.40 billion, up from $11.66 billion; loans were $4.58 billion, up 6.2%, and deposits were $9.03 billion, up from $8.53 billion.
- Shareholders’ equity was $1.06 billion. The filing’s primary MD&A presentation reports total risk-based capital of 12.45%, Tier 1 risk-based capital of 11.30%, and leverage of 6.56%.
- Cash and due from banks at year-end was $1.03 billion. 2010 cash flow was $180.0 million from operating activities, negative $979.2 million from investing activities, and positive $603.2 million from financing activities; cash and due from banks declined $196.0 million during the year.
- Long-term debt was $8.9 million. Federal funds purchased and repurchase agreements totaled $2.08 billion; deposits were the principal funding source.
- The allowance for loan losses was $74.0 million, or 1.61% of loans, versus $64.1 million, or 1.49%, in 2009. Net charge-offs rose to $21.7 million from $20.3 million.
Material changes versus 2009
- Net income rose 1.7%. Net interest income increased 2.5%, as balance growth and lower funding costs more than offset declining asset yields; tax-equivalent net interest margin fell 22 basis points.
- Noninterest income increased 16.2%, led by trust and securities processing income, up 33.0% to $160.4 million, and bankcard fees, up 20.9% to $54.8 million. Deposit service charges declined 6.9%, which management attributed in part to overdraft regulations.
- Noninterest expense rose 11.3%, including higher salaries and benefits, processing fees, and acquisition-related amortization. The expense increase exceeded the growth in net interest and noninterest income combined.
- Nonperforming loans increased to $25.1 million from $23.3 million; nonperforming assets were $29.5 million versus $28.5 million. Loans past due 90 days or more declined to $5.5 million from $8.3 million.
- UMB acquired Prairie Capital Management and Reams Asset Management in 2010, adding investment-management and servicing assets. Acquisition activity contributed to higher goodwill, intangibles, and amortization expense.
- Quarterly net income declined through 2010, from $26.2 million in Q1 to $19.0 million in Q4; Q4 2009 net income was $23.9 million.
Outlook, risks, and unusual items
- No specific earnings or revenue guidance is provided. Management emphasized fee-business growth, loan and deposit growth, operating efficiency, capital management, and customer service. It noted that low interest rates and Federal Reserve policy could weigh on interest income; about $1.8 billion of securities were expected to repay and be reinvested during 2011.
- Key disclosed risks include economic weakness and borrower repayment, interest-rate changes, securities-market and asset-management fluctuations, funding access, competition, operational and technology failures, regulation, litigation, and estimates used in loan-loss reserves and asset valuations.
- The Dodd-Frank Act and related rulemaking were expected to change regulatory and compliance requirements, but management said their overall financial impact could not yet be predicted.
- Two customer lawsuits filed in Missouri in 2010 allege improper checking-account posting practices and excessive overdraft fees and seek class-action status. Management could not determine the likelihood or amount of any material loss at this early stage.
- The 2010 acquisitions involved contingent earn-out consideration. At acquisition, estimated earn-out liabilities were $26.0 million for Prairie Capital and $32.5 million for Reams.
- Auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Reconcile the filing’s regulatory capital disclosures: MD&A reports total risk-based capital of 12.45% and Tier 1 of 11.30%, while Note 10 reports 12.60% and 11.45%, respectively, and leverage of 6.64% rather than 6.56%.
- Review loan-level credit trends, especially commercial real estate, credit-card charge-offs, nonaccrual loans, and the adequacy of the rising allowance.
- Assess whether fee-income gains and acquired businesses can offset expense growth and margin pressure, including amortization and earn-out costs.
- Monitor liquidity and funding: year-end securities available for sale were $5.61 billion, but approximately 82.4% were pledged or used as collateral; also consider the $2.08 billion in repurchase agreements.
- Track the overdraft-fee litigation, regulatory developments, and the effects of reinvestment of maturing securities in a low-rate environment.