Legacy firm looks to deploy capital in M&A market

Mariner Kemper

UMB Financial Corp., based in Kansas City, Mo., has drawn new attention from Wall Street, with Merrill Lynch rating it a “Buy,” due in part to its efforts to create long-term value by gaining market share across geographies and its various business lines.

According to Merrill Lynch, UMB has a strong legacy footprint, which leads “to sticky customer relationships on both sides of the balance sheet.” It has a conservative approach to capital and balance sheet management – which should help in the event of a downturn. It also is a strong generator of fee income, which accounts for 42 percent of total revenue, versus 18 percent for its peers.

Mariner Kemper is chair and CEO of the $20 billion UMB. He shared his thoughts on the company’s operations and business outlook.

 

Q: You’ve publicly stated a desire to grow via M&A. Is there any urgency, or just as the opportunity presents itself? Any particular geography, or likewise, just where the opportunity presents itself?

Mariner Kemper: We’re very transparent about our M&A strategy in that we’re always looking for the right fit financially, culturally and strategically. We have an active M&A team. We are interested in whole bank acquisitions, but also would look at opportunities in asset servicing, our healthcare services business, institutional banking or credit card portfolios.

In June 2015, we completed our largest acquisition to date — Marquette Financial Companies, a $1.4 billion financial services company. This allowed UMB to increase its banking profile in key growth markets of Phoenix/Scottsdale and Dallas/Fort Worth, and we also added two attractive specialty finance businesses. The acquisitions have been very successful and have created solid growth.

Q: Securities analysts seem to think you have excess cash that could be deployed by way of an acquisition or some other opportunity. Are there other spaces you could explore aside from acquisitions, such as maybe expansion of your fund management business?

M.K.: While merger and aquisition is a priority for using our excess capital, if we don’t find the right opportunity, we have other options to return value to shareholders. Those would include using capital to support organic loan growth, opportunistically buying back our stock and continuing to look at regular dividend increases.

Q: You appear to have carved out a nice space in fund services. Is there room to expand, either in this category or to mutual funds in general?

M.K.: We are always looking for opportunities to expand our business offerings to provide our clients the most up-to-date technology and tools to support their business goals. The recent move to align our asset servicing business with our other institutional banking functions has brought a renewed growth focus. We’ve realigned territories, added sales professionals, updated our incentive structure and launched a new targeted marketing campaign.

Q: The 2017 shareholders’ report noted that national lending platforms accounted for 13.7 percent of loan growth during the year. It highlighted asset-based lending and factoring as standouts. Do you see national lending as a vehicle for further growth?

M.K.: These national lending platforms came to us as part of the Marquette acquisition, and they are beginning to come into their own, working together with our traditional commercial banking teams. We have benefitted from cross-referrals and marketing efforts, and we look forward to further growth.

In our factoring business, both the commercial finance and transportation finance portfolios have benefited from the turnaround in the general economy. Asset-based lending is a good complement to our commercial and industrial business and allows us to serve clients that were outside of our traditional customer profile.

Q: On the deposit side, you’ve diversified your geography. Any areas standing out as especially strong? Conversely, any weaker areas that could benefit by added attention?

M.K.: We see strong growth across our footprint, especially in St. Louis, Colorado, Texas and Arizona. While our bread and butter has been commercial and industrial lending, we are seeing growth in several other verticals, including commercial real estate and construction lending, agribusiness, private wealth management, commercial cards, treasury management, business banking, corporate trust and institutional banking.

Additionally, we’ve expanded our bond trading and underwriting capabilities to include corporate bonds and other non-bank-qualified issues. Similar to our peers, we’ve seen a decline in these businesses, particularly in the municipal bond arena, related to tax reform and other market dynamics. As infrastructure spending returns and the bond market stabilizes, we are positioned to grow in areas like bond underwriting and sales and escrow work. We see latent earnings power there.