UMB Financial Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. UMB Financial Corporation is a financial holding company providing banking and other financial services through Commercial Banking, Institutional Banking, and Personal Banking. Unless noted, amounts below are in U.S. dollars.
Financial results and condition
| Metric | Q1 2022 | Comparable period / change |
|---|---|---|
| Total revenue (net interest income plus noninterest income) | $334.0 million | Up 10.2% year over year |
| Net interest income | $210.4 million | $194.1 million; up 8.4% |
| Net interest margin, tax-equivalent | 2.35% | 2.59%; down 24 basis points |
| Noninterest income | $123.7 million | $108.9 million; up 13.6% |
| Noninterest expense | $214.8 million | $200.9 million; up 6.9% |
| Net income | $106.0 million | $92.6 million; up 14.4% |
| Diluted earnings per share | $2.17 | $1.91 |
| Net cash from operating activities | $196.1 million | $115.9 million |
- Loans and deposits: Loans were $17.7 billion at March 31, up 3.3% from year-end 2021 and 7.5% year over year. Deposits were $34.4 billion, down 3.5% from year-end but up 21.5% year over year.
- Assets and liquidity: Total assets were $40.6 billion, down 4.9% from December 31, 2021, primarily reflecting a $2.5 billion reduction in interest-bearing balances at banks. Cash and cash equivalents ended the quarter at $6.7 billion, down $2.5 billion during the quarter. The company reported $8.6 billion of available-for-sale securities and $1.6 billion of FHLB borrowing capacity, with no FHLB advances outstanding.
- Credit and allowance: The loan allowance was $179.3 million, or 1.01% of loans, versus 1.23% at March 31, 2021. The company recorded a $6.5 million provision release; net charge-offs were $8.4 million versus $5.3 million a year earlier. Nonperforming loans were $110.4 million, or 0.62% of loans, compared with $76.7 million, or 0.46%, a year earlier.
- Debt and capital: Long-term debt was $272.0 million. Total risk-based capital was 13.55%, compared with 14.28% a year earlier; common equity tier 1 was 11.81%, compared with 12.25%. Shareholders’ equity was $2.75 billion, down $397 million from year-end, primarily reflecting a $469.4 million after-tax other comprehensive loss.
- Cash flows: Investing activities used $814.4 million and financing activities used $1.91 billion, including deposit and repurchase-agreement outflows and $22.5 million of treasury-stock purchases. Cash and cash equivalents fell from $9.21 billion to $6.69 billion.
Material changes and unusual items
- Net interest income increased with loan growth and higher average earning assets, but margin contracted as earning-asset yields fell and excess liquidity remained elevated. Lower PPP balances reduced PPP loan interest income by $11.5 million year over year.
- Noninterest income benefited from trust and securities processing fees, deposit service charges, bankcard fees, and a $13.9 million increase in the valuation of the company’s Tattooed Chef investment. Trading and investment banking income declined 41.9% on lower trading volume.
- Noninterest expense rose 6.9%, with increases including processing fees, marketing, bankcard costs, and other expense; management cited higher technology costs, operational losses, and derivative-related expense.
- Interest-rate-driven securities valuation changes produced a $469.4 million after-tax other comprehensive loss. During the quarter, UMB transferred securities with $3.0 billion amortized cost and $2.9 billion fair value from available-for-sale to held-to-maturity; the unrealized loss at transfer remains in accumulated other comprehensive income and is amortized over the securities’ remaining lives. Management attributed unrealized securities losses to interest rates rather than underlying credit deterioration.
- UMB sold its factoring loan portfolio, including $82.6 million of loans, for a $2.4 million gain. It also acquired a bank branch, adding $42.9 million of loans and $234.5 million of deposits and recording $7.7 million of goodwill.
Outlook, risks, and contingencies
- The filing provides no quantified full-year earnings or revenue guidance. Management cited continued potential volatility in markets and economic conditions and noted that asset-based trust and securities processing fees may be affected by market values.
- UMB described itself as slightly asset-sensitive. Its simulations forecast higher net interest income under rising-rate scenarios and lower income under falling-rate scenarios; results depend on assumptions, including the ability to reprice deposits.
- Key disclosed risks include economic and political conditions, interest rates and market volatility, credit quality, liquidity and deposit trends, competition, regulatory change, operational and cyber risks, third-party service disruption, COVID-19 effects, and impacts related to Russia’s military action in Ukraine.
- Off-balance-sheet commitments included $10.2 billion of loan commitments excluding credit cards, $3.8 billion of credit-card commitments, and $414.0 million of standby letters of credit. Many commitments may expire undrawn. Management did not expect pending legal proceedings to have a material adverse effect; no material risk-factor changes were reported.
- The board declared a $0.37 per-share quarterly dividend payable July 1, 2022. UMB repurchased 226,706 shares at an average $99.19 during the quarter. The filing says the company was not then engaging in repurchases.
Important facts for investors to verify
- Whether loan growth and net interest income remain durable as interest rates and deposit costs change, and how actual results compare with the filing’s asset-sensitivity scenarios.
- Whether nonperforming loans and net charge-offs continue to rise, particularly the commercial and industrial and specialty-lending exposures cited by management.
- How the large securities portfolio’s unrealized losses, the AFS-to-HTM transfer, and pledged securities affect reported equity and available liquidity.
- Whether fee income tied to market values and trading activity, and recent investment valuation gains, are sustainable.
- How deposit balances, cash levels, and reliance on repurchase agreements evolve; confirm capital ratios and share-repurchase and dividend decisions in subsequent filings.