UMB Financial Corporation — 2022 Form 10-K
Business context and reporting period. UMB Financial Corporation is a Kansas City-based financial holding company providing banking and asset-servicing services in the U.S. Its three reporting segments are Commercial Banking, Institutional Banking and Personal Banking. This annual report covers the fiscal year ended December 31, 2022; comparisons below are primarily with 2021.
Financial performance and position
| Metric | 2022 | 2021 / change |
|---|---|---|
| Total revenue (net interest income plus noninterest income) | $1.468 billion | Up 14.4% |
| Net income | $431.7 million | $353.0 million; up 22.3% |
| Basic / diluted EPS | $8.93 / $8.86 | $7.31 / $7.24 |
| Net interest income | $913.8 million | $815.5 million; up 12.1% |
| Net interest margin (tax-equivalent) | 2.63% | 2.50% |
| Noninterest income / expense | $554.2 million / $898.1 million | Income up 18.6%; expense up 7.7% |
| Provision for credit losses | $37.9 million | $20.0 million |
| Operating cash flow | $769.6 million | $534.1 million |
| Total assets / loans | $38.5 billion / $21.0 billion | Assets down from $42.7 billion; loans up 22.5% |
| Total deposits | $32.6 billion | $35.6 billion; down 8.3% |
| Shareholders’ equity | $2.67 billion | $3.15 billion; down 15.2% |
| Long-term debt | $381.3 million | $271.5 million |
- Net interest income benefited from higher earning-asset volume, loan growth and rising rates. Average earning assets grew 6.2%; average loans increased $2.2 billion. Higher deposit costs and lower PPP income partly offset the benefit. Net interest spread narrowed 22 basis points.
- Noninterest income rose primarily due to a $66.2 million gain on the sale of Visa Class B shares, higher brokerage fees and trust and securities processing income. Investment securities gains, net, were $58.4 million, compared with $5.1 million in 2021.
- Noninterest expense increased to $898.1 million, with growth in processing fees, salaries and benefits, bankcard costs, consulting and marketing. Management cited technology modernization and cloud-computing investments among the drivers.
- Return on average assets was 1.15% (1.00% in 2021); return on average common equity was 15.83% (11.43%). The effective tax rate increased to 18.9% from 17.7%.
- Year-end cash and cash equivalents were $1.56 billion, versus $9.21 billion a year earlier. The decline reflected cash movements including a $3.6 billion net decrease in demand and savings deposits and loan growth; operating cash flow remained positive.
Material changes, liquidity and capital
- Loans held for investment grew $3.9 billion, or 22.5%; commercial and industrial and commercial real estate loans were the largest segments. Real estate-secured loans represented about 49% of the portfolio.
- Deposits fell $3.0 billion year over year, although average deposits increased. Uninsured deposits were $24.7 billion at year-end. Noninterest-bearing deposits were 40.6% of ending deposits, down from 45.9% in 2021.
- Investment securities totaled $13.2 billion. UMB transferred securities with $4.1 billion amortized cost from available-for-sale (AFS) to held-to-maturity (HTM) during 2022. AFS securities had a $771.6 million net unrealized loss at year-end, principally attributed by management to higher interest rates rather than credit deterioration; the after-tax AOCI loss on securities was $514.6 million. The transfer limits the future accounting recognition of fair-value changes for those HTM securities, subject to applicable accounting treatment.
- Regulatory capital ratios remained above minimums: company CET1 10.62%, total risk-based capital 12.50% and leverage 8.43%. The Bank was categorized as well capitalized under prompt corrective action rules.
- UMB issued $110 million of 6.25% subordinated notes due 2032; proceeds were used for general corporate purposes, including capital contributions to the Bank. Year-end borrowing capacity at the FHLB was $1.9 billion, with no advances outstanding; the $30 million revolving credit line was also undrawn.
- Operating cash flow was $769.6 million, while investing and financing activities used $3.85 billion and $4.58 billion, respectively. These cash-flow categories reflect significant balance-sheet activity, including loan growth, deposit outflows and securities transactions.
- The company declared $72.6 million of dividends in 2022, up 7.9% from 2021. It repurchased 333,185 shares during the year; it reported no repurchases in progress at year-end.
Outlook, commentary and risks
- The filing does not provide specific earnings or financial guidance for 2023. Management said economic conditions and government responses to inflation, geopolitical tensions, supply-chain constraints and COVID-19 could affect the 2023 balance sheet and income statement. It also expects continued market volatility.
- Management’s stated priorities include operating efficiency, profitable loan and deposit growth, expanding fee-based revenue and capital management. It described technology investment and automation as supporting future efficiency.
- Interest-rate risk remains consequential: commercial and institutional funding can be more price-sensitive, and deposit costs may rise as rates change. The company’s simulations show a relatively neutral near-term position, but results depend on assumptions, including deposit repricing. LIBOR transition risk also remains for legacy contracts, most of which are expected to move to SOFR or another replacement rate.
- Key risks include credit deterioration in a weaker economy, real-estate exposure, deposit and funding pressure, securities valuation and liquidity, cyber and operational incidents, competition, regulatory change and execution of technology or strategic initiatives. About 80.3% of securities were pledged or used as collateral at year-end, constraining their availability for other purposes.
- Off-balance-sheet commitments totaled approximately $17.5 billion, including $13.0 billion of loan commitments excluding credit cards and $4.0 billion of credit-card commitments. Management said many commitments may expire undrawn and did not anticipate material losses from these arrangements.
- Management reported no legal proceedings expected to have a material effect on financial position, results or cash flows. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; the audit identified the collective allowance for credit losses as a critical audit matter.
Most important facts for investors to verify
- Whether deposit outflows continued after year-end, particularly given the $24.7 billion of uninsured deposits, and how deposits are distributed among customer types.
- How the AFS/HTM securities portfolio, unrealized losses, pledged collateral and future liquidity needs evolve as interest rates and funding conditions change.
- Whether rapid loan growth—especially in commercial and real estate lending—leads to higher delinquencies, charge-offs or allowance needs; the filing reports $39.9 million of net charge-offs and a 0.91% loan allowance ratio for 2022.
- How much 2022 earnings growth depended on the $66.2 million Visa share-sale gain and other market-sensitive or nonrecurring items, versus recurring net interest and fee income.
- Whether deposit repricing, technology-related expenses and other operating costs affect margins and operating leverage in 2023.
- The filing’s narrative contains a share-repurchase reference rendered as “333,185 thousand shares”; the share-count tables indicate 333,185 shares, which investors should confirm against the underlying filing data.