UMB Financial Corporation (
is a Missouri-based regional bank expanding in several directions.
One involves growing out its institutional investment service.
It had $17-billion in assets at the end of 2013, and $41.4-billion
in assets under management. That helped increase its income from
fees to just 60% of its total revenue. It also derives fee revenue
from payment solutions and asset services
With 23 acquisitions over the previous 10 years, UMBF also boasts
an expanding physical footprint for its banking division. It now
has a presence in eight states, with 112 locations and 3,500
employees (the preceding based on data from the UMBF 2013 Annual
It appears on the
Undervalued Predictable screener
at Gurufocus . It enjoys the highest level of predictability, at
Five-Stars, and the following chart shows its EBITDA (blue) and
share (green) price growth:
This is the fourth regional bank from the Undervalued Predictable
screen that I've analyzed. The others are
), German American Bancorp, Inc. (
), and Eagle Bancorp Inc (
UMB Financial: History
- 1913: City Center Bank chartered and opens in Kansas City,
- 1926: the bank establishes a trust department, a bond
department and correspondent banking services
- 1928: a "drive-up" window added, perhaps the first in the
- 1945: the bank adds an international department
- 1960: first regional bank to install computer processing
- 1971: changes its name to United Missouri Bancshares, Inc.
(one of several name changes in the company's history) when it
became a multi-bank holding company, and begins acquiring other
- 1982: begins offering its own no-load mutual funds
- 1987: federal banking regulations change and UMB begins
acquiring banks in adjacent states
- 1994: name changed to UMB Financial Corporation, reflecting
the company's entry into three states beyond Missouri (it had
changed its name several times before as it expanded)
- 2008: Sails through the financial crisis, "Despite the
tumultuous economic climate, UMB posted another record year with
earnings up 32 percent from 2007." (quote and history from the
- 2011: listed as number 27 on a Forbe's magazine list of the
best banks in America
In its 2013 Annual Report, the company describes itself as a "a
diversified financial services holding company aligned into four
strategic business segments". Those segments and their
Unlike most other banking organizations, UMB has its own investment
arm, "Scout Investments, a global asset manager, provides equity
and fixed income strategies to institutional and individual
"We're more than just a bank-we're a financial services company
that owns a good-sized regional bank, an institutional asset
management company, a fund services business, and a payments
platform. That diversification, with nearly 60 percent of revenue
coming from non-bank services, is key to UMB's success." CEO and
Chairman Mariner Kemper in the 2013 Annual Report.
Business Growth Strategy
In the 2013 Annual Report, Michael Hagedorn, the Vice Chairman and
Chief Financial Officer says, "The essential points in our
time-tested model are dedication to high-quality credit, growth of
diverse revenue streams, low-cost funding through deposits, and
commitment to a strong balance sheet."
Hagedorn also notes, "Strategically, these fee-based businesses are
especially important because the revenue streams they contribute
allow us to maintain high standards of credit quality on the
lending side without reaching for yields. We can also deploy cash
flows from our fee-based businesses into lending, generating higher
average yields and supporting UMB's ability to grow.
Not mentioned in the report is growth through acquisitions, yet
that has been a substantial source of growth throughout the
UMB Financial has an executive management team, comprised of:
- Chairman and Chief Executive Officer: Mariner Kemper, age 41,
has held these positions since 2004; he has been with the company
for more than 19 years
- President and Chief Operating Officer, Peter deSilva, age 52,
has held these positions since 2004; before 2004 he was employed
by Fidelity nvestments
- President and Chief Executive Officer, UMB Bank: Michael
Hagedorn, age 47, has also been CFO of the company and worked
previously for Wells Fargo
Board members: 13 board members, including Kemper and deSilva;
directors have backgrounds or experience in: construction,
consulting (engineering), CPA, financial services, grain
industries, investment management, energy, dining/drinking, and
grocery products (management and board information from the 2013
Annual Report and 2013 10-K Report).
ISS Governance QuickScore: 2/10, a very good score ("A decile score
of 1 indicates lower governance risk, while a 10 indicates higher
governance risk."). The company receives two red flags, for Voting
Issues and Voting Formalities; it receives one green star, for
Gurus: Looking at the gurus followed by GuruFocus, we see four of
them hold UMBF stock: Ken Fisher (Trades, Portfolio) (603,215
shares), RS Investment Management (Trades, Portfolio) (74,891
shares), Third Avenue Management (Trades, Portfolio) (503,860
shares), and John Keeley (Trades, Portfolio) (976,976 shares).
Institutional Investors: 70%; many institutional investors bailed
out around the time of the 2008 financial crisis, but they've since
been returning, and are now back to around the levels that existed
Insiders: 2% of the outstanding shares. According to Yahoo!
Finance, CEO Mariner Kemper owns 111,635 shares while President and
COO Peter deSilva owns 106,781 shares.
Shorts: currently about 5.5% as shown on the following chart:
UMB Financial posts only modest numbers on the GuruFocus summaries
of Financial Strength (6/10) and Profitability & Growth (7/10).
Looking at some key specifics on the balance sheet (as of December
31, 2014), we see:
- Cash, cash equivalents, and money market funds:
- Long-term debt ($5,100,000) and other liabilities:
- Total assets: $16,911,900,000
- Total liabilities: $15,405,800,000
With a 5-Star predictability rating, UMB Financial is among a
small, select group of companies. GuruFocus backtesting found that
these 5-Star stocks enjoy an average return of 12.1% per year,
which is higher than any other predictability group. In addition,
it found only 3% of 5-Star stocks are still in a loss position if
held for 10 years.
Turning to the Discount Cash Flow (as distinct from Discounted Cash
Flow), GuruFocus values UMBF at $86 per share (compared to $56.59
at the close of trading on August 8, 2014). Discount cash flow uses
different earnings metrics than the DCF Fair Value Calculator,
found elsewhere on the GuruFocus site. The regular DCF comes in at
$58.17, a bit above the closing price on August 8th.
Outlook & Risks
Over the past 10 years, including the 2008-2009 period, UMB
Financial grew its top line, and the price per share increased
alongside revenue, as the following chart shows:
The next chart shows us how net income and earnings per share have
And, as we ask about UMB's prospects for the coming years, we ask
if it can maintain the curve, keep its revenues and earnings rising
as they have over the past decade.
Overall, we would expect they will, regardless of the banking
climate. Almost 60% of its income came from fees in 2013, and we
expect fee income to be less volatile than interest income. Still,
if interest rates do rise over the next couple of years, that
should generate some additional earnings power.
Some of the issues that might confound such a thesis can be found
in Risks section of UMBF's 10-K report for 2013:
Net interest rates (also referred to as margin or spread): the
difference between what the company pays for capital and what it
earns when it lends it out. The Economist magazine explains it this
way, "Banks usually make most of their money on the spread, or
difference, between the rate of interest they pay savers and the
one they charge borrowers. This spread has narrowed as policy rates
in rich countries have fallen, because loans have become cheaper
but rates on deposits can go no lower than zero."
While there's something of a consensus the economy is improving,
it's quite possible it could also take a turn for the worse. For
banks, including UMB, that means borrowers may have trouble paying
off their loans; for UMB specifically, there's also the danger of
less demand for its non-banking services.
Every company in the financial industry has concerns about the
regulatory environment, whether they had trouble or not during the
financial crisis (UMB did not). Everything from Dodd-Frank to local
government rules make the management of a bank more complex and
Bank robbers continue to be a problem, both in the physical and
virtual realms. Those in the virtual realm, hackers, can cost banks
an enormous amount of money - without even taking a cent. Loss of
data through cyber theft is a serious and ongoing risk.
For more on the risks facing UMB Financial, see the 10-K statement
UMB Financial Corporation made it to the ranks of Undervalued
Predictable with fairly consistent earnings and growth, despite the
financial crisis of the last decade.
Led by instititutional investment services, UMBF generates some 60%
of its income from fees, and is insulating itself somewhat from the
perils of interest income alone.
Given its low dividend and low level of share repurchases, we would
expect more acquisitions in the future, and presumably accretive
acquisitions, whether in banking, non-banking, or both. In
addition, it should be able to grow organically.
Investors looking for a growing, diversified regional bank play
should take a close look at UMB Financial.
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