UMB Financial Corporation — Q3 2021 Form 10-Q
Business context and reporting period. UMB Financial Corporation is a financial holding company providing banking and other financial services through Commercial Banking, Institutional Banking and Personal Banking. This unaudited filing covers the quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods unless noted. Balance-sheet comparisons are primarily with December 31, 2020.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue (net interest income plus noninterest income) | $317.7 million | $297.4 million | $953.3 million | $868.4 million |
| Net interest income | $209.8 million | $184.4 million | $605.0 million | $536.6 million |
| Noninterest income | $107.9 million | $113.0 million | $348.4 million | $331.9 million |
| Provision for credit losses | $(5.0) million | $16.0 million | $11.5 million | $125.5 million |
| Noninterest expense | $208.9 million | $198.0 million | $611.2 million | $595.1 million |
| Net income | $94.5 million | $73.1 million | $274.5 million | $130.2 million |
| Diluted earnings per share | $1.94 | $1.52 | $5.64 | $2.69 |
| Tax-equivalent net interest margin | 2.52% | 2.73% | 2.55% | 2.82% |
- Q3 revenue increased 6.8%, while expense rose 5.5%; nine-month revenue increased 9.8% and expense rose 2.7%. Net income growth was substantially supported by lower credit-loss provision compared with pandemic-related provisioning in 2020.
- Q3 return on average assets was 1.04% and return on average equity was 11.89%, versus 0.99% and 10.23%, respectively, a year earlier. Nine-month figures were 1.07% and 11.95%, versus 0.62% and 6.30%.
- At September 30, total assets were $37.55 billion, loans were $16.47 billion, deposits were $31.24 billion, and shareholders’ equity was $3.11 billion. Since December 31, 2020, assets rose 13.4%, loans 2.3%, deposits 15.5%, and equity $95.9 million.
- Cash and cash equivalents were $6.13 billion at September 30, 2021, up from $3.50 billion at the start of the year. For the first nine months, operating cash flow was $362.4 million, investing cash outflow was $2.06 billion, and financing cash inflow was $4.33 billion.
- Long-term debt was $271.0 million; federal funds purchased and repurchase agreements were $2.50 billion. The company reported $3.1 billion of equity, a 14.17% total risk-based capital ratio and a 7.87% leverage ratio. It stated capital exceeded regulatory requirements.
- The quarterly dividend was $0.37 per share; the board declared the same amount payable January 3, 2022. The company repurchased 2,035 shares in Q3 at an average $88.76 per share.
Material changes and credit quality
- Net interest income rose 13.8% in Q3 and 12.7% year to date, reflecting larger average earning-asset balances and lower funding costs. Average earning assets increased 22.5% in Q3 and 24.3% year to date. The margin nevertheless contracted 21 basis points in Q3 and 27 basis points year to date, amid low rates, excess liquidity and asset repricing.
- Noninterest income fell 4.5% in Q3 but increased 5.0% year to date. Q3 trust and securities processing income grew 12.6%; weaker trading and investment banking, brokerage, investment-security results and other income offset some growth. Investment securities recorded a $3.5 million Q3 net loss, including losses primarily tied to Tattooed Chef, Inc. equity holdings.
- Credit provision was a $5.0 million release in Q3, compared with $16.0 million of expense in Q3 2020. Nine-month provision fell to $11.5 million from $125.5 million. The allowance for loan losses was $194.2 million, or 1.18% of loans, at September 30, versus 1.34% at year-end 2020.
- Net charge-offs increased to $36.8 million for the first nine months from $18.3 million a year earlier, including $31.9 million of specialty-lending charge-offs. Nonperforming loans were $96.5 million, or 0.59% of loans, up from $87.8 million at year-end. Nonaccrual loans without a related allowance were $91.9 million, versus $42.1 million at year-end.
- Deposits grew amid market liquidity and customer behavior changes related to the pandemic. Noninterest-bearing deposits rose $3.3 billion since year-end. Cash and balances due from banks increased substantially, while the securities portfolio expanded; management noted that elevated liquidity carries lower-yield costs.
- Accumulated other comprehensive income declined to $164.3 million from $318.3 million at year-end, largely reflecting an after-tax $154.0 million nine-month other comprehensive loss, primarily unrealized changes in debt-security values.
Outlook, commentary and risks
- The filing provides no specific earnings or financial guidance. Management said economic and market volatility and government responses to COVID-19 could affect results for the remainder of 2021. Fee income tied to asset values, interest rates and trading activity may fluctuate.
- Management described the company as slightly asset-sensitive: its simulations project higher net interest income in rising-rate scenarios and lower income in falling-rate scenarios. These estimates depend on assumptions, including the ability to price deposits consistently with historical experience.
- COVID-19 loan modifications remaining at September 30 totaled 21 loans with balances of $7.2 million, down from 136 loans and $67.6 million at year-end 2020. Approximately 99.5% of more than 1,400 modifications made since the pandemic began had resumed principal or interest payments; no charge-offs had occurred on modified loans. One modified loan with a $6.2 million balance was on nonaccrual.
- Material risks identified include economic and interest-rate changes, credit deterioration, liquidity and deposit management, competition, regulation, cybersecurity and operational disruptions, and effects of COVID-19. The company had $13.9 billion in total commercial commitments, including credit commitments and letters of credit; many may expire undrawn. Available FHLB borrowing capacity was $1.6 billion, with no advances outstanding.
- The company sold its Prairie Capital Management and UMB Merchant Banc interests on March 31, 2021, disposing of $6.3 million of goodwill and $1.9 million of net unamortized customer-relationship intangibles. Management said ordinary-course legal proceedings were not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether credit performance stabilizes: monitor specialty-lending charge-offs, nonperforming loans, unreserved nonaccrual balances and allowance coverage.
- Whether earnings growth persists as pandemic-related provision releases diminish, and whether net interest margin can withstand continued low rates and excess liquidity.
- How deposit growth, liquidity deployment and securities portfolio expansion affect funding costs, yields and accumulated other comprehensive income.
- Whether fee-income trends and expense growth align with management’s efficiency and revenue objectives, including the effects of market-sensitive trust, brokerage and trading activities.
- Whether the interest-rate sensitivity simulations’ assumptions, capital ratios and liquidity resources remain appropriate as market conditions change.