UMB FINANCIAL CORPORATION
Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) of
Fitch has affirmed the Short-Term IDR at 'F1'. The Ratings Outlooks for both companies are Stable following the downgrades.
The ratings reflect an increased risk appetite reflected in growth levels that were above peer median in recent years that has contributed to less seasoned relationships within the loan portfolio. These attributes are partially offset by UMBF's ample liquidity and diverse sources of revenue. The Stable Outlook incorporates Fitch's expectations for deteriorating economic conditions and a more challenging operating environment, which may result in net interest margin (NIM) compression and deterioration in asset quality.
Key Rating Drivers
Established Business Model Underpins Ratings: UMBF's Long-Term IDR of 'A-' reflects its diverse revenue sources with relatively high non-interest income (37.12% at YE23) levels through its various business lines and subsidiaries. UMBF's business model is supported by an above-average mix of fee-generating businesses, including asset servicing, corporate trust, asset management and health savings account (HSA) administration. These ancillary business lines support its relatively high rating and continue to positively differentiate UMBF from its peers by protecting earnings from volatility through various rate environments. These attributes are partially offset by our assessment of UMBF's risk appetite, which is reflected in above-peer levels of growth in the past few years.
Risk Profile Constrained by Growth Levels: UMBF's risk profile is constrained by levels of growth that exceeded peer median levels in prior years. Fitch anticipates that the growth in the loan portfolio has created unseasoned relationships, which may contribute to potential deterioration within the Outlook horizon.
Asset Quality Normalizes: UMBF's above-peer asset quality score of 'a' is supported by the lowest impaired loans ratio (0.07% at YE23) among the peer group and a net charge-off (NCO) rate at YE23 that was at one of the lowest NCO rates among the peer group. While the credit card acquisition is expected to support UMBF's earnings, the growth in the credit card portfolio is expected to increase NCO rates within the Outlook horizon.
Noninterest Income Provides Stability: UMBF's four-year average operating profit to risk weighted assets (RWA) at YE23 of 1.64% is slightly below peer median. Despite noninterest income declining slightly at YE23, the company's noninterest income from the trust and securities processing line has grown YoY and is a source of earnings stability strength. Fitch expects noninterest income to improve driven by trust and securities processing and improvement in trading and investment banking in the event of rate cuts and bankcard fees as a result growth in the credit card portfolio.
Normalizing Capitalization: UMBF's CET1 ratio is consistent with its current rating and it has improved to 10.94% at YE23 from 10.62% at YE22. When marked for AOCI, UMBF's CET1 ratio is 9.2% at YE23, which is slightly below peer median. The rating incorporates Fitch's expectations that UMBF's CET1 ratio will continue to improve in the Outlook horizon.
Ample Funding and Liquidity: With the lowest loan-to-deposit (LTD) ratio (65% at YE23) among peers, UMBF's ratings benefit from a liquidity and funding profile that is appropriate for UMBF's business profile and risk appetite. Although the LTD has been increasing since 2021, the company consistently manages its LTD ratio below that of peers and the industry. UMBF's fee businesses including custody, treasury management, and healthcare services provide diverse sources of sticky deposits. They contribute to an above-average levels of non-interest-bearing deposits, representing about 34% of total deposits at YE23. Relative strength of UMBF's deposit franchise is evidenced by YoY increases in total deposits.
Holding Company Notching: The Viability Rating (VR) is equalized with the operating bank, reflecting its role as the bank holding company, which is mandated in the
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Fitch expects UMBF to maintain asset quality measures in line with similarly rated banks and above 'BBB' rated banks. Deteriorating asset quality that includes NCOs and NPAs at levels in line with lower-rated peers over the Outlook horizon could lead to a lower rating. Particular focus will continue to be on asset quality measures in loan segments that have experienced higher growth in recent years such as commercial real estate (CRE) and commercial & industrial (C&I).
UMB's ratings assume high levels of revenue diversity relative to peers. As such, its ratings are sensitive to levels of non-interest income sustained below 30% of total revenue. Given the importance of a diverse and stable revenue mix to UMBF's ratings, evidence of outsized earnings volatility relative to peers could pressure the ratings.
Fitch expects UMBF to maintain levels of regulatory CRE/risk-based capital under peer median of 175%.
UMBF's ratings would be sensitive to CET1 levels below 10% for several quarters in the absence of a credible plan for recovery to levels near or above 10%.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
As UMBs ratings are in-line with the implied rating, positive rating actions are not likely over the near-term. Longer-term, positive rating actions would be predicated on slower loan growth, especially in riskier areas like commercial real estate, greater revenue diversity characterized by larger proportions of fee-based sources above 40% of revenue. A higher rating would also assume that UMBF maintains liquidity and capital levels above peers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Long- and Short-Term Deposit Ratings: The uninsured deposit ratings of
Subordinated Debt: UMBF's subordinated debt rating of 'BBB+' is notched one level below UMBF's VR for loss severity. In accordance with the Bank Rating Criteria, this reflects alternate notching to the base case of two notches due to our view of
These ratings are in accordance with Fitch's criteria and assessment of the instruments' non-performance and loss severity profiles.
Government Support Rating: Government Support Rating (GSR) of 'ns' reflects Fitch's view that senior creditors cannot rely on receiving full extraordinary support from the sovereign in the event that UMBF and UMBNA becomes non-viable.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Long- and Short-Term Deposit Ratings: The long- and short-term deposit ratings are sensitive to any changes to UMBF's Long- and Short-Term IDRs.
Subordinated Debt: The ratings for UMBF's subordinated debt are sensitive to any negative change in either the VR or our view of loss severity under a resolution scenario.
Government Support Rating: The GSR would be sensitive to any change in
VR ADJUSTMENTS
UMBF's VR of 'a-' is in line with its implied VR of 'a-'.
The Business Profile score of 'a-' has been assigned above the 'bbb' category implied score and incorporates a positive adjustment for Business Model.
The Asset Quality score of 'a' has been assigned below the 'aa' category implied score and incorporates a negative adjustment for growth and historical and future metrics.
The Earnings and Profitability score of 'bbb+' has been assigned below the 'a' category implied score and incorporates a negative adjustment for historical and future metrics.
The Funding and Liquidity score of 'a' has been assigned below the 'aa' category implied score and incorporates a negative adjustment for contingent market access.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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