Fitch Ratings has affirmed UMB Financial Corp.'s (UMBF) ratings at 'A+/F1'. The Rating Outlook remains Stable. A full list of rating actions follows at the end of this press release.
The rating action follows a periodic review of the mid-tier regional banking group, which includes BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp, Inc. (EWBC), First Horizon National Corp. (FHN), First National of Nebraska, Inc. (FNNI), First Republic Bank (FRC), Fulton Financial Corp (FULT), People's United Financial Inc. (PBCT), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Webster Financial Corp. (WBS), Wintrust Financial Corp (WTFC), and UMB Financial Corporation (UMB).
Company-specific rating rationales for the other banks are published separately.
KEY RATING DRIVERS - IDRS, VRs AND SENIOR DEBT
Today's affirmation of UMBF's rating reflects its strong operating performance and very strong credit quality over multiple business cycles, which Fitch expects to continue over the rating horizon. The expectation is supported by the company's very stable management team that has maintained a conservative risk appetite through frothy and down markets. Furthermore, Fitch observes that UMBF continues to invest in growing its suite of ancillary but core lines of businesses. These business lines, namely asset management and asset servicing provide the company with an above-average level of fee income, protecting earnings from significant volatility over the long-run.
Fitch continues to view UMBF's overall earnings as appropriate for its risk profile. Extremely low funding costs, driven by a strong, core deposit base, very low credit costs and significant contribution from fee-based segments have resulted in consistent returns over time. The company generates ROAs between 80bps and 90bps through various business cycles and in general, Fitch expects UMBF to generate higher earnings in down business cycles compared to peers given its lower risk profile.
As noted above, Fitch characterizes UMBF's risk appetite as more conservative than peers and provides uplift to the company's ratings. Fitch observes that the company typically keeps its operations and strategies bounded by what it has expertise in which leads to more consistent results over time.
Fitch views UMBF's underwriting standards as superior relative to peers and to the banking industry as a whole. This is evidenced by much lower and less volatile net charge-offs (NCOs) through the last business cycle. Non-performing assets (NPAs) as a percentage of gross loans plus other real estate owned impressively hovered under 50 bps throughout 2014 and have remained some of the lowest levels in Fitch's U.S. bank rated universe over the long-term. This has meant that the company's provision expense has remained low, which has further helped keep operating performance consistent.
UMBF's liquidity and funding profile remain strong. The company consistently manages its loan-to-deposit (LTD) ratio well below its peers and the industry. At 3Q'14, the company's LTD was below 60%. Fitch's expectation that the company's LTD will remain relatively low is reflected in its rating and Outlook.
RATING SENSITIVITIES - IDRS, VRs AND SENIOR DEBT
UMBF ratings are among the highest in Fitch's rating universe, thus upward ratings movement is very unlikely. Conversely, significant changes in the balance sheet profile, earnings quality and consistency or unforeseen changes in management could apply downward ratings pressure. Furthermore, evidence of systems or processes that need improvement would likely result in a review of UMBF's ratings.
In December 2014, UMBF announced the intention to acquire Marquette Financial Companies (MFC). MFC is a $1.3B privately, owned, two-bank holding company based on Dallas and Phoenix. While MFC primarily focuses on C&I and owner-occupied CRE (57% of loans), the company also has two specialized business lines unique to UMBF - asset based-lending and factoring.
While UMBF has little previous experience in these business lines and the transaction could be viewed as a deviation from its core competencies, Fitch doesn't believe the transaction will significantly alter UMBF's credit profile.
This belief is supported by the relatively small portion of loans within the specialized lending book ($300m total or under 2% of pro forma total assets) and Fitch's expectation that key management from those business lines will be retained and significantly involved at UMBF. Still, Fitch will be monitoring the performance of those books for signs of deterioration that might not be consistent with UMBF's typical asset quality metrics to determine if adverse pressure should be placed on its ratings.
Given UMBF's particularly large securities portfolio, UMBF is more vulnerable to a rapid and unexpected increase in interest rates which could adversely impact its tangible capital position through an increase in unrealized losses in its securities book. Ratings could be negatively affected to the extent it affects UMBF's ability to address any capital erosion. UMBF's ratings would also be vulnerable to a large and unforeseen operational loss.
KEY RATING DRIVERS - HOLDING COMPANY
The IDR and VR of UMBF is equalized with its operating company, UMB Bank, NA, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.
RATING SENSITIVITIES - HOLDING COMPANY
Should UMBF's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely though for UMBF given the strength of the holding company liquidity profile.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
UMBF has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, UMBF is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.
RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
UMBF's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.
KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS
UMBF's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.
KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS
The ratings of long- and short-term deposits issued by UMBF and its subsidiaries are primarily sensitive to any change in UMBF's long- and short-term IDRs.
Fitch has affirmed the following ratings with a Stable Outlook:
UMB Financial Corp.
--Long-Term IDR at 'A+';
--Short-Term IDR at 'F1';
--Viability Rating at 'a+';
--Support Floor 'NF'
--Support '5'.
UMB Bank, National Association
--Long-Term IDR at 'A+';
--Long-Term Deposit at 'AA-';
--Short-Term IDR at 'F1';
--Short-Term Deposits at 'F1+';
--Viability Rating at 'a+';
--Support Floor at 'NF';
--Support at '5'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'U.S. Banking Quarterly comment: 4Q14' (Jan. 28, 2015);
--'U.S. Banks: The Risks with Energy Slide' (Jan. 16, 2015);
--'U.S. Basel III and Dodd Frank Act Regulatory Guide' (Nov. 21, 2014);
--'2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)' (Nov. 12, 2014);
--'U.S. Banks: Implications of an Interest Rate Shock Scenario' (Oct. 30, 2014);
--'U.S. Banks: Liquidity and Deposit Funding (Aug. 8, 2013);
--U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (June 18, 2013);
--'U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (July 11, 2013);
--'Index Trend Analysis - 4Q14 (Fitch Fundamentals Index Remains Neutral)' (Jan. 15, 2015);
--'Risk Radar Global 3Q14' (Sept. 15, 2014);
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);
--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 27, 2014);
--'Rating Considerations for U.S. Bank Holdco & Opcos' (Update on Position Outlined in 1Q14) (Dec. 1, 2014).
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978964
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
