UMB Financial Corporation — 2023 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2023, compared primarily with 2022. UMB Financial is a Missouri-based financial holding company operating through UMB Bank and nonbank subsidiaries, including UMB Fund Services. Its three reportable segments are Commercial Banking, Institutional Banking, and Personal Banking.
Financial results and key metrics
| Metric | 2023 | 2022 / change |
|---|---|---|
| Total assets at year-end | $44.0 billion | $38.5 billion |
| Net interest income | $920.1 million | $913.8 million; up 0.7% |
| Net interest margin, FTE | 2.52% | 2.63% |
| Noninterest income | $541.9 million | $554.2 million; down 2.2% |
| Noninterest expense | $999.1 million | $898.1 million; up 11.2% |
| Net income | $350.0 million | $431.7 million; down 18.9% |
| Basic / diluted EPS | $7.22 / $7.18 | $8.93 / $8.86 basic / diluted |
| Return on average assets / common equity | 0.88% / 12.23% | 1.15% / 15.83% |
| Operating cash flow | $472.6 million | $769.6 million |
Interest income rose sharply with rates and loan growth, but interest expense also increased substantially: total interest expense was $918.6 million versus $223.7 million in 2022. Average earning assets grew 5.3%; average loans increased $3.5 billion. Average interest-bearing liabilities rose to $25.6 billion from $21.1 billion, while average noninterest-bearing deposits fell.
At year-end, loans were $23.2 billion, up 10.2%; deposits were $35.8 billion, up 9.7%. Commercial and industrial loans were 42.8% of loans and commercial real estate (CRE) loans 38.4%; CRE balances increased 16.8%. Total shareholders’ equity was $3.1 billion, up 16.2%. Regulatory capital ratios were 10.94% CET1 and Tier 1, 12.85% total risk-based capital, and 8.49% leverage; the Bank was categorized as well capitalized.
Credit metrics improved year over year: loan allowance for credit losses was $219.7 million, or 0.95% of loans, versus $191.8 million, or 0.91%. Nonperforming loans declined to $13.2 million from $19.3 million; net charge-offs were $10.5 million, or 0.05% of average loans, versus $39.9 million, or 0.21%.
Cash and cash equivalents ended the year at $5.5 billion, compared with $1.6 billion. Financing activities provided $4.8 billion, while investing activities used $1.3 billion. Short-term debt was $1.8 billion, comprising a $1.0 billion FHLB advance and $800 million under the Federal Reserve Bank Term Funding Program; long-term debt was $383.2 million. The filing reports $975.3 million of remaining FHLB borrowing capacity, $10.5 billion at the Federal Reserve discount window, and $7.9 billion of additional liquidity from cash, unpledged collateral, federal funds markets, and IntraFi.
Material changes versus the prior year
- Net income fell 18.9%, despite modest net interest income growth, as expenses increased and noninterest income declined.
- Noninterest expense included a $52.8 million FDIC special assessment recorded in Q4 2023. The assessment followed bank failures and the FDIC’s special assessment to replenish the Deposit Insurance Fund.
- 2022 noninterest income included a $66.2 million gain from selling Visa Class B shares. Excluding the effect of that prior-year item, 2023 trust and securities processing income rose 8.4% and brokerage fees rose 25.8%.
- Net interest margin contracted 11 basis points to 2.52% FTE, as funding costs rose faster than earning-asset yields; net interest spread contracted 83 basis points.
- The AFS securities portfolio’s net unrealized loss narrowed to $624.2 million from $771.6 million, contributing to a reduction in accumulated other comprehensive loss. Management attributed the valuation losses primarily to interest rates, not credit deterioration.
- Segment net income was $248.5 million in Commercial Banking, down 13.0%; $129.7 million in Institutional Banking, down 0.3%; and a $28.2 million loss in Personal Banking, versus $15.8 million income in 2022. Personal Banking’s net interest income declined 18.4%, largely due to higher deposit costs.
Outlook, commentary, risks, and unusual items
The filing provides no formal earnings or revenue guidance. Management expects continued volatility from economic conditions and governmental responses to inflation, geopolitical tensions, and supply-chain constraints, which could affect 2024 results. It expects approximately $2.1 billion of AFS securities principal repayments in 2024, including $1.1 billion in Q1.
Management describes operating efficiency, profitable loan and deposit growth, noninterest revenue growth, and effective capital management as core objectives. It continues investments in technology, automation, digital channels, and core-system modernization, which are contributing to higher processing costs.
Key disclosed risks include interest-rate and deposit-pricing sensitivity; commercial and institutional deposit price sensitivity; CRE and other real-estate exposure; liquidity and uninsured-deposit movements; unrealized securities losses; credit deterioration in a weaker economy; cybersecurity and third-party operational risk; regulatory changes; and competition. Estimated uninsured deposits were $24.4 billion, or 68.2% of deposits; excluding affiliate and collateralized deposits, the adjusted estimate was $16.2 billion, or 45.3%.
Other notable items: the Company recorded a $4.9 million impairment on one AFS corporate security. Management stated that pending legal proceedings are not expected to materially affect financial position, results, or cash flows. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; the allowance for credit losses on certain collectively evaluated commercial loans was the critical audit matter.
In December 2023, four foundations and trusts related to CEO J. Mariner Kemper adopted a Rule 10b5-1 plan that may sell up to 399,000 shares during 2024, subject to specified price thresholds. The Company reported no repurchases under its public repurchase authorization during 2023.
Important facts for investors to verify
- How deposit costs, deposit mix, and loan pricing are affecting net interest margin and earnings as rates change.
- CRE portfolio composition, borrower performance, maturities, collateral values, and any subsequent changes to credit provisions or charge-offs.
- Liquidity trends and reliance on uninsured deposits, wholesale funding, FHLB advances, and Federal Reserve facilities; confirm borrowing capacity and facility availability after year-end.
- Whether AFS/HTM securities losses, pledged collateral, or securities repayments materially affect liquidity, tangible equity, or capital.
- How recurring operating costs develop after the $52.8 million FDIC assessment and amid technology investments and higher processing fees.
- Subsequent developments in the related-party share-sale plan, legal matters, and any 2024 guidance or material events not covered by this annual report.