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UMBF: Regional Banking with an Institutional Investment Edge

UMB Financial Corporation ( UMBF ) is a Missouri-based regional bank expanding in several directions. One involves growing out its institutional investment service.

UMBF logo

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 Report).

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 First Busey Corporation ( BUSE ), German American Bancorp, Inc. ( GABC ), and Eagle Bancorp Inc ( EGBN ).

UMB Financial: History

  • 1913: City Center Bank chartered and opens in Kansas City, Mo.
  • 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 country
  • 1945: the bank adds an international department
  • 1960: first regional bank to install computer processing equipment
  • 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 banks
  • 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 company website)
  • 2011: listed as number 27 on a Forbe's magazine list of the best banks in America

Business Model

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 contributions are:

UMBF income sources

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 investors."

"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 company's history.


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 Board Practices.


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 pre-2008:


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:


Financial Strength

UMB Financial posts only modest numbers on the GuruFocus summaries of Financial Strength (6/10) and Profitability & Growth (7/10).

UMBF Financial Strength

Looking at some key specifics on the balance sheet (as of December 31, 2014), we see:

  • Cash, cash equivalents, and money market funds: $2,701,500,000
  • Long-term debt ($5,100,000) and other liabilities: $1,611,500,000
  • 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 kept pace:


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 more expensive.

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 for 2013.


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.

About GuruFocus: tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .

This article first appeared on GuruFocus .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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