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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to ___

Commission file number: 001-38481

 

UMB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Missouri

43-0903811

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

1010 Grand Boulevard, Kansas City, Missouri

64106

(Address of principal executive offices)

(Zip Code)

 

(Registrant's telephone number, including area code): (816) 860-7000

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 Par Value

UMBF

The NASDAQ Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issues its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☒ No

As of June 30, 2023, the aggregate market value of common stock outstanding held by nonaffiliates of the registrant was approximately $2,675,077,467 based on the closing price of the registrant’s common stock on the NASDAQ Global Select Market on that date.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.

 

Class

Outstanding at February 16, 2024

Common Stock, $1.00 Par Value

48,741,902

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's Definitive Proxy Statement on Schedule 14A (the “Proxy Statement”) to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on April 30, 2024, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 


 

INDEX

 

PART I

4

 

 

ITEM 1. BUSINESS

4

 

 

ITEM 1A. RISK FACTORS

11

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

20

 

 

ITEM 1C. CYBERSECURITY

20

 

 

ITEM 2. PROPERTIES

22

 

 

ITEM 3. LEGAL PROCEEDINGS

23

 

 

ITEM 4. MINE SAFETY DISCLOSURES

23

 

 

PART II

24

 

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

24

 

 

ITEM 6. [RESERVED]

25

 

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

26

 

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

51

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

58

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

123

 

 

ITEM 9A. CONTROLS AND PROCEDURES

123

 

 

ITEM 9B. OTHER INFORMATION

125

 

 

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

125

 

 

PART III

126

 

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

126

 

 

ITEM 11. EXECUTIVE COMPENSATION

126

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

126

 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

127

 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

127

 

 

PART IV

128

 

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

128

 

 

ITEM 16. FORM 10-K SUMMARY

129

 

 

SIGNATURES

130

 

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

 

 

 

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

 

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

 

 


 

 

 


 

PART I

ITEM 1. BUSINESS

General

UMB Financial Corporation (together with its consolidated subsidiaries, unless the context requires otherwise, the Company) is a financial holding company that is headquartered in Kansas City, Missouri. The Company provides banking services and asset servicing to its customers in the United States and around the globe.

The Company was organized as a corporation under Missouri law in 1967 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the BHCA) and a financial holding company under the Gramm-Leach-Bliley Act of 1999, as amended (the GLBA). The Company currently owns all of the outstanding stock of one national bank and several nonbank subsidiaries.

The Company’s national bank, UMB Bank, National Association (the Bank), has its principal office in Missouri and also has branches in Arizona, Colorado, Illinois, Kansas, Nebraska, Oklahoma, and Texas. The Bank offers a full complement of banking products and other services to commercial, retail, government, and correspondent-bank customers, including a wide range of asset-management, trust, bankcard, and cash-management services.

The Company also owns UMB Fund Services, Inc. (UMBFS), which is a significant nonbank subsidiary that has offices in Milwaukee, Wisconsin, Chadds Ford, Pennsylvania, and Ogden, Utah. UMBFS provides fund accounting, transfer agency, and other services to mutual fund and alternative-investment groups.

Prior to March 31, 2021, the Company also owned Prairie Capital Management, LLC (PCM), which provided investment management services and alternative investments in hedge funds and private equity funds. The Company sold its membership interests in PCM during the first quarter of 2021.

Business Segments

The Company’s products and services are grouped into three segments: Commercial Banking, Institutional Banking, and Personal Banking.

These segments and their financial results are described in detail in (i) the section of Management’s Discussion and Analysis of Financial Condition and Results of Operations entitled Business Segments, which can be found in Part II, Item 7 of this report and (ii) Note 12, “Business Segment Reporting,” in the Notes to the Consolidated Financial Statements, which can be found in Part II, Item 8 of this report.

Competition

The Company faces intense competition in each of its business segments and in all of the markets and geographic regions that the Company serves. Competition comes from both traditional and non-traditional financial-services providers, including banks, savings associations, finance companies, investment advisors, asset managers, mutual funds, private-equity firms, hedge funds, brokerage firms, mortgage-banking companies, credit-card companies, insurance companies, trust companies, securities processing companies, and credit unions. Increasingly, financial-technology (fintech) companies are partnering with financial-services providers to compete with the Company for lending, payments, and other business. Many of the Company’s competitors are not subject to the same kind or degree of supervision and regulation as the Company.

Competition is based on a number of factors. Banking customers are generally influenced by convenience, interest rates and pricing, personal experience, quality and availability of products and other services, lending limits, transaction execution, and reputation. Investment advisory services compete primarily on returns, expenses, third-party ratings, and the reputation and performance of managers. Asset servicing competes primarily on price, quality of services, and reputation. The Company and its competitors are all impacted to varying degrees by the overall economy and health of the financial markets.

The Company’s ability to successfully compete in its chosen markets and regions also depends on its ability to attract, retain, and motivate talented employees, to invest in technology and infrastructure, and to innovate, all while effectively managing its expenses. The Company expects that competition will likely intensify in the future.

4


 

Human Capital

The Company is dedicated to creating the Unparalleled Customer Experience, and its associates are critical to achieving this mission. As part of the Company’s efforts to recruit and retain top talent, it strives to offer competitive compensation and benefits programs, while fostering a culture rooted in inclusion of a diverse mix of associates who are empowered to be part of something more. The Company believes its associates, customers, and communities mutually benefit by its focus on providing opportunities for its associates to make an impact at work and in their respective communities. On a full-time equivalent basis at December 31, 2023, the Company and its subsidiaries employed 3,599 associates across the country.

Compensation and Benefits Program. The Company’s compensation program is designed to allow it to attract, reward, and retain talented individuals who contribute significant value to the organization. The Company’s compensation programs reward performance, reserving the highest rewards for the highest performers. The Company’s incentive plans are intended to promote the interests of the Company and its shareholders by providing associates with incentives and rewards to encourage them to continue in service of the Company. The Company provides employees with compensation packages that include base salary, annual short-term incentive bonuses, and long-term equity awards tied to management, growth, and protection of the business of the Company. In addition to cash and equity compensation, the Company offers a robust benefits program that includes medical, dental, and vision insurance, health savings accounts and a variety of insurance options, including pet, life, and long-term care. Additionally, the Company also offers associates benefits including paid time off, paid volunteer time off, paid parental leave, adoption assistance, a 401(k) plan, as well as profit sharing and an employee stock ownership plan. The Company strives to engage and encourage associates to act and take personal responsibility for improving their health and well-being, as well as the health and well-being of their families. To assist associates with their goals, the Company offers wellness resources and incentives to support wellness strategies.

Diversity and Inclusion. The Company believes that an equitable and inclusive environment with diverse teams produces more creative solutions, results in better products and services, and is crucial to its efforts to attract and retain key talent. The Company’s talent acquisition team focuses on building recruitment marketing strategies that are designed to identify and attract diverse candidates. The Company’s business resource groups (BRGs) also play a vital role in deepening the recruitment pipeline of diverse talent and refer candidates to the Company on a regular basis. BRGs are structured to engage associates who share common interests, including associates from traditionally underrepresented groups. Nearly 20% of the Company’s associates participate in one or more BRGs.

Community Involvement. For more than a century, the Company has maintained a commitment to the prosperity of each community it serves. In addition to providing financial products built for the needs of its customers, the Company builds strong community partnerships through associate volunteerism, associate financial giving, and corporate philanthropy. The Company encourages associates to give back to their local communities through various programs and initiatives, including paid volunteer time off and matching charitable gift programs.

For more information on the Company’s diversity and inclusion and community involvement initiatives, please see its Corporate Citizenship Report available at www.umb.com/corporatecitizenship. Information on the Company’s website is not incorporated by reference into this report and should not be considered part of this document.

Government Monetary and Fiscal Policies

In addition to the impact of general economic conditions, the Company’s business, results of operations, financial condition, capital, liquidity, and prospects are significantly affected by government monetary and fiscal policies that are announced or implemented in the United States and abroad.

A sizeable influence is exerted, in particular, by the policies of the Board of Governors of the Federal Reserve System (the FRB), which influences monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates. Among the FRB’s policy tools are (1) open market operations (that is, purchases or sales of securities in the open market to adjust the supply of reserve balances in order to achieve targeted federal funds rates or to put pressure on longer-term interest rates in order to achieve more desirable levels of economic activity and job creation), (2) the discount rate charged on loans by the Federal Reserve Banks, (3) the level of reserves required to be held by depository institutions against specified deposit liabilities, (4) the interest paid or charged on balances maintained with the Federal Reserve Banks by depository institutions, including balances used to satisfy their reserve requirements, and (5) other deposit and loan facilities.

5


 

The FRB and its policies have a substantial impact on the availability and demand for loans and deposits, the rates, and other aspects of pricing for loans and deposits, and the conditions in equity, fixed income, currency, and other markets in which the Company operates. Policies announced or implemented by other central banks around the world have a meaningful effect as well and sometimes may be coordinated with those of the FRB.

Tax and other fiscal policies, moreover, impact not only general economic conditions but also give rise to incentives or disincentives that affect how the Company and its customers prioritize objectives, operate businesses, and deploy resources.

Regulation and Supervision

The Company is subject to regulatory frameworks in the United States at federal, State, and local levels. In addition, the Company is subject to the direct supervision of various government authorities charged with overseeing the kinds of financial activities conducted by its business segments.

This section summarizes certain provisions of the principal laws and regulations that apply to the Company. The descriptions, however, are not complete and are qualified in their entirety by the full text and judicial or administrative interpretations of those laws and regulations and other laws and regulations that affect the Company.

Overview

The Company is a bank holding company under the BHCA and a financial holding company under the GLBA. As a result, the Company—including all of its businesses and operations—is subject to the regulation, supervision, and examination of the FRB and to restrictions on permissible activities. This framework of regulation, supervision, and examination is intended primarily for the protection and benefit of depositors and other customers of the Bank, the Deposit Insurance Fund (the DIF) of the Federal Deposit Insurance Corporation (the FDIC), the banking and financial systems as a whole, and the broader economy, not for the protection or benefit of the Company’s shareholders or its non-deposit creditors.

Many of the Company’s subsidiaries are also subject to separate or related forms of regulation, supervision, and examination, including: (1) the Bank, by the Office of the Comptroller of the Currency (the OCC) under the National Banking Acts, the FDIC under the Federal Deposit Insurance Act (the FDIA), and the Consumer Financial Protection Bureau (the CFPB) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act); (2) UMBFS, UMB Distribution Services, LLC, and UMB Financial Services, Inc., by the Securities and Exchange Commission (the SEC) and State regulatory authorities under federal and State securities laws, and UMB Distribution Services, LLC and UMB Financial Services, Inc., by the Financial Industry Regulatory Authority (FINRA); and (3) UMB Insurance, Inc., by State regulatory authorities under applicable State insurance laws. These regulatory schemes, like those overseen by the FRB, are designed to protect public or private interests that often are not aligned with those of the Company’s shareholders or non-deposit creditors.

The FRB possesses extensive authorities and powers to regulate the conduct of the Company’s businesses and operations. If the FRB were to take the position that the Company or any of its subsidiaries have violated any law or commitment or engaged in any unsafe or unsound practice, formal or informal corrective or enforcement actions could be taken by the FRB against the Company, its subsidiaries, and institution-affiliated parties (such as directors, officers, and agents). These enforcement actions could include an imposition of civil monetary penalties and could directly affect not only the Company, its subsidiaries, and institution-affiliated parties but also the Company’s counterparties, shareholders, and creditors and its commitments, arrangements, or other dealings with them. The OCC has similarly expansive authorities and powers over the Bank and its subsidiaries, as does the CFPB over matters involving consumer financial laws. The SEC, FINRA, and other domestic or foreign government authorities also have an array of means at their disposal to regulate and enforce matters within their jurisdiction that could impact the Company’s businesses and operations.

Restrictions on Permissible Activities and Corporate Matters

Under the BHCA, bank holding companies and their subsidiaries are generally limited to the business of banking and to closely related activities that are incidental to banking.

As a bank holding company that has elected to become a financial holding company under the GLBA, the Company is also able—directly or indirectly through its subsidiaries—to engage in activities that are financial in nature, that are incidental to a financial activity, or that are complementary to a financial activity and do not pose a

6


 

substantial risk to the safety or soundness of depository institutions or the financial system generally. Activities that are financial in nature include: (1) underwriting, dealing in, or making a market in securities, (2) providing financial, investment, or economic advisory services, (3) underwriting insurance, and (4) merchant banking.

The Company’s ability to directly or indirectly engage in these banking and financial activities, however, is subject to conditions and other limits imposed by law or the FRB and, in some cases, requires the approval of the FRB or other government authorities. These conditions or other limits may arise due to the particular type of activity or, in other cases, may apply to the Company’s business more generally. Examples of the former are the substantial restrictions on the timing, amount, form, substance, interconnectedness, and management of the Company’s merchant banking investments. An example of the latter is a condition that, in order for the Company to engage in broader financial activities, its depository institutions must remain “well capitalized” and “well managed” under applicable banking laws and must receive at least a “satisfactory” rating under the Community Reinvestment Act (CRA).

Under amendments to the BHCA promulgated by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 and the Dodd-Frank Act, the Company may acquire banks outside of its home State of Missouri, subject to specified limits and may establish new branches in other States to the same extent as banks chartered in those States. Under the BHCA, however, the Company must procure the prior approval of the FRB and possibly other government authorities to directly or indirectly acquire ownership or control of five percent or more of any class of voting securities of, or substantially all of the assets of, an unaffiliated bank, savings association, or bank holding company. In deciding whether to approve any acquisition or branch, the FRB, the OCC, and other government authorities will consider public or private interests that may not be aligned with those of the Company’s shareholders or non-deposit creditors. The FRB also has the power to require the Company to divest any depository institution that cannot maintain its “well capitalized” or “well managed” status.

The FRB maintains a targeted policy that requires a bank holding company to inform and consult with the staff of the FRB sufficiently in advance of (1) declaring and paying a dividend that could raise safety and soundness concerns (for example, a dividend that exceeds earnings in the period for which the dividend is being paid), (2) redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses, or (3) redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of the quarter in the amount of those equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred.

Requirements Affecting the Relationships among the Company, Its Subsidiaries, and Other Affiliates

The Company is a legal entity separate and distinct from the Bank, UMBFS, and its other subsidiaries but receives the vast majority of its revenue in the form of dividends from those subsidiaries. Without the approval of the OCC, however, dividends payable by the Bank in any calendar year may not exceed the lesser of (1) the current year’s net income combined with the retained net income of the two preceding years and (2) undivided profits. In addition, under the Basel III capital-adequacy standards described below under the heading “Capital-Adequacy Standards,” the Bank is currently required to maintain a capital conservation buffer in excess of its minimum risk-based capital ratios and will be restricted in declaring and paying dividends whenever the buffer is breached. The authorities and powers of the FRB, the OCC, and other government authorities to prevent any unsafe or unsound practice also could be employed to further limit the dividends that the Bank or the Company’s other subsidiaries may declare and pay to the Company.

The Dodd-Frank Act requires a bank holding company like the Company to serve as a source of financial strength for its depository-institution subsidiaries and to commit resources to support those subsidiaries in circumstances when the Company might not otherwise elect to do so. The functional regulator of any nonbank subsidiary of the Company, however, may prevent that subsidiary from directly or indirectly contributing its financial support, and if that were to preclude the Company from serving as an adequate source of financial strength, the FRB may instead require the divestiture of depository-institution subsidiaries and impose operating restrictions pending such a divestiture.

A number of laws, principally Sections 23A and 23B of the Federal Reserve Act (the FRA), and the FRB’s Regulation W, also exist to prevent the Company and its nonbank subsidiaries from taking improper advantage of the benefits afforded to the Bank as a depository institution, including its access to federal deposit insurance and the discount window. These laws generally require the Bank and its subsidiaries to deal with the Company and its nonbank subsidiaries only on market terms and, in addition, impose restrictions on the Bank and its subsidiaries in

7


 

directly or indirectly extending credit to or engaging in other covered transactions with the Company or its nonbank subsidiaries. The Dodd-Frank Act extended the restrictions to derivatives and securities lending transactions and expanded the restrictions for transactions involving hedge funds or private-equity funds that are owned or sponsored by the Company or its nonbank subsidiaries.

In addition, under the Volcker Rule, the Company is subject to extensive limits on proprietary trading and on owning or sponsoring hedge funds and private-equity funds. The limits on proprietary trading are largely directed toward purchases or sales of financial instruments by a banking entity as principal primarily for the purpose of short-term resale, a benefit from actual or expected short-term price movements, or the realization of short-term arbitrage profits. The limits on owning or sponsoring hedge funds and private-equity funds are designed to ensure that banking entities generally maintain only small positions in managed or advised funds and are not exposed to significant losses arising directly or indirectly from them. The Volcker Rule also provides for increased capital charges, quantitative limits, rigorous compliance programs, and other restrictions on permitted proprietary trading and fund activities, including a prohibition on transactions with a covered fund that would constitute a covered transaction under Sections 23A and 23B of the FRA.

Stress Testing and Enhanced Prudential Standards

The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) was enacted in May 2018, amending requirements previously established in the Dodd-Frank Act, including stress testing and enhanced prudential standards. Bank holding companies with assets of less than $100 billion, including the Company, are no longer subject to the requirement to conduct forward-looking, company-run stress testing, including publishing a summary of results. The Company continues to run internal stress tests as a component of its comprehensive risk management and capital planning process. In addition, the EGRRCPA increased the statutory asset threshold above which the Federal Reserve is required to apply enhanced prudential standards from $50 billion to $250 billion (subject to certain discretion by the Federal Reserve to apply any enhanced prudential standard requirement to any bank holding company with between $100 billion and $250 billion in total consolidated assets that would otherwise be exempt under EGRRCPA). The Company remains exempt from applying the enhanced prudential standards.

Capital-Adequacy Standards

The FRB and the OCC have adopted risk-based capital and leverage guidelines that require the capital-to-assets ratios of bank holding companies and national banks, respectively, to meet specified minimum standards.

The risk-based capital ratios are based on a banking organization’s risk-weighted asset amounts (RWAs), which are generally determined under the standardized approach applicable to the Company and the Bank by (1) assigning on-balance-sheet exposures to broad risk-weight categories according to the counterparty or, if relevant, the guarantor or collateral (with higher risk weights assigned to categories of exposures perceived as representing greater risk) and (2) multiplying off-balance-sheet exposures by specified credit conversion factors to calculate credit equivalent amounts and assigning those credit equivalent amounts to the relevant risk-weight categories. The leverage ratio, in contrast, is based on an institution’s average on-balance-sheet exposures alone.

The capital ratios for the Company and the Bank as of December 31, 2023, are set forth below:

 

 

 

Tier 1
Leverage Ratio

 

 

Tier 1
Risk-Based
Capital Ratio

 

 

Common Equity Tier 1
Capital Ratio

 

 

Total
Risk-Based Capital Ratio

 

UMB Financial Corporation

 

 

8.49

 

 

 

10.94

 

 

 

10.94

 

 

 

12.85

 

UMB Bank, n.a.

 

 

8.52

 

 

 

11.21

 

 

 

11.21

 

 

 

11.90

 

 

These capital-to-assets ratios also play a central role in prompt corrective action (PCA), which is an enforcement framework used by the federal banking agencies to constrain the activities of banking organizations based on their levels of regulatory capital. Five categories have been established using thresholds for the total risk-based capital ratio, the tier 1 risk-based capital ratio, the common-equity tier 1 risk-based capital ratio, and the leverage ratio: (1) well capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly undercapitalized, and (5) critically undercapitalized. While bank holding companies are not subject to the PCA framework, the FRB is empowered to compel a holding company to take measures—such as the execution of financial or performance guarantees—when prompt corrective action is required in connection with one of its depository-institution subsidiaries. At December 31, 2023, the Bank was categorized as well capitalized under the PCA framework.

8


 

Basel III, including revisions to the global Basel III capital framework (commonly known as Basel IV), includes a number of more rigorous provisions applicable only to banking organizations that are larger or more internationally active than the Company and the Bank. These include, for example, a supplementary leverage ratio incorporating off-balance-sheet exposures, a liquidity coverage ratio, and a net stable funding ratio. These standards may be informally applied or considered by the FRB and the OCC in their regulation, supervision, and examination of the Company and the Bank.

Deposit Insurance and Related Matters

The deposits of the Bank are insured by the FDIC in the standard insurance amount of $250 thousand per depositor for each account ownership category. This insurance is funded through assessments on the Bank and other insured depository institutions. Under the Dodd-Frank Act, each institution’s assessment base is determined based on its average consolidated total assets less average tangible equity, and there is a scorecard method for calculating assessments that combines CAMELS (an acronym that refers to the five components of a bank’s condition that are addressed: capital adequacy, asset quality, management, earnings, and liquidity) ratings and specified forward-looking financial measures to determine each institution’s risk to the DIF. The Dodd-Frank Act also requires the FDIC, in setting assessments, to offset the effect of increasing its reserve for the DIF on institutions with consolidated assets of less than $10 billion. The result of this revised approach to deposit-insurance assessments is generally an increase in costs, on an absolute or relative basis, for institutions with consolidated assets of $10 billion or more.

If an insured depository institution such as the Bank were to become insolvent or if other specified events were to occur relating to its financial condition or the propriety of its actions, the FDIC may be appointed as conservator or receiver for the institution. In that capacity, the FDIC would have the power to (1) transfer assets and liabilities of the institution to another person or entity without the approval of the institution’s creditors, (2) require that its claims process be followed and to enforce statutory or other limits on damages claimed by the institution’s creditors, (3) enforce the institution’s contracts or leases according to their terms, (4) repudiate or disaffirm the institution’s contracts or leases, (5) seek to reclaim, recover, or recharacterize transfers of the institution’s assets or to exercise control over assets in which the institution may claim an interest, (6) enforce statutory or other injunctions, and (7) exercise a wide range of other rights, powers, and authorities, including those that could impair the rights and interests of all or some of the institution’s creditors. In addition, the administrative expenses of the conservator or receiver could be afforded priority over all or some of the claims of the institution’s creditors, and under the FDIA, the claims of depositors (including the FDIC as subrogee of depositors) would enjoy priority over the claims of the institution’s unsecured creditors.

The FDIA also provides that an insured depository institution can be held liable for any loss incurred or expected to be incurred by the FDIC in connection with another commonly controlled insured depository institution that is in default or in danger of default. This cross-guarantee liability is generally superior in right of payment to claims of the institution’s holding company and its affiliates.

Other Regulatory and Supervisory Matters

As a public company, the Company is subject to the Securities Act of 1933, as amended (the Securities Act), the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act of 2002, and other federal and State securities laws. In addition, because the Company’s common stock is listed with The NASDAQ Stock Market LLC (NASDAQ), the Company is subject to the listing rules of that exchange.

The Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the Bank Secrecy Act), the USA PATRIOT Act of 2001, and related laws require all financial institutions, including banks and broker-dealers, to establish a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. These laws include a variety of recordkeeping and reporting requirements (such as currency and suspicious activity reporting) as well as know-your-customer and due-diligence rules.

Under the CRA, the Bank has a continuing and affirmative obligation to help meet the credit needs of its local communities—including low- and moderate-income neighborhoods—consistent with safe and sound banking practices. The CRA does not create specific lending programs but does establish the framework and criteria by which the OCC regularly assesses the Bank’s record in meeting these credit needs. The Bank’s ratings under the CRA are taken into account by the FRB and the OCC when considering merger or other specified applications that the Company or the Bank may submit from time to time.

9


 

The Bank is subject as well to a vast array of consumer-protection laws, such as qualified-mortgage and other mortgage-related rules under the jurisdiction of the CFPB. Lending limits, restrictions on tying arrangements, limits on permissible interest-rate charges, and other laws governing the conduct of banking or fiduciary activities are also applicable to the Bank. In addition, the GLBA imposes on the Company and its subsidiaries a number of obligations relating to financial privacy.

Executive Officers of the Registrant. The following are the executive officers of the Company, each of whom is appointed annually, and there are no arrangements or understandings between any of the executive officers and any other person pursuant to which such person was elected as an executive officer.

 

Name

Age

Position with Registrant

 

 

 

R. Brian Beaird

50

Mr. Beaird has served as Executive Vice President, Chief Human Resources Officer since October 2019. Prior to this time, he served as Senior Vice President/Director of Associate Experience and Rewards, Director Compensation and Systems, Manager Bank Strategy and Administration, and Manager Commercial Strategy and Administration. Mr. Beaird held these positions from July 2018 until October 2019, August 2017 until July 2018, September 2015 until August 2017, and December 2011 until September 2015, respectively.

Amy Harris

38

Ms. Harris has served as Executive Vice President and Chief Legal Officer since January 2021. Ms. Harris served the Company as Senior Vice President, Deputy General Counsel and Manager of Legal Operations from January 2020 to January 2021. She also served as Corporate Legal Counsel for the Company from October 2014 to January 2020. Prior to joining the Company, Ms. Harris worked in private practice focusing on commercial, corporate and employment cases.

Shannon A. Johnson

44

Ms. Johnson has served as Executive Vice President and Chief Administrative Officer since October 2019. Ms. Johnson’s previous positions with the Company include Executive Vice President, Chief Human Resources Officer; Senior Vice President, Executive Director of Talent Management and Development; and Senior Vice President, Director of Talent Management. Ms. Johnson held these positions from April 2015 to October 2019, May 2011 to April 2015, and December 2009 to May 2011, respectively.

J. Mariner Kemper

51

Mr. Kemper has served as the Chairman and Chief Executive Officer of the Company since May 2004. From November 2015 until January 2024, he served as President of the Company. He served as the Chairman and Chief Executive Officer of the Bank between December 2012 and January 2014, and as the Chairman of UMB Bank Colorado, n.a. (a prior subsidiary of the Company) between 2000 and 2012. He was President of UMB Bank Colorado from 1997 to 2000. Mr. Kemper is the brother of Mr. Alexander C. Kemper, who served on the Company's Board of Directors during 2023 until his resignation in August, 2023.

Stacy King

48

Ms. King has served as Executive Vice President, Chief Risk Officer of the Company since March 2020. From May 2019 until March 2020, she served as Senior Director, Operations Management – Benefit Accounts for Willis Towers Watson. Prior to that time, she served as Senior Vice President, Director Healthcare Operations & Compliance; Senior Vice President/Vice President, Director Healthcare Services Risk & Compliance for the Bank; Vice President, Compliance Manager – Bank Operations & Healthcare Services; and Compliance Analyst-Corporate Risk for the Company. Ms. King held these positions from September 2018 until May 2019, October 2015 until September 2018, August 2014 until October 2015, and September 2013 until August 2014, respectively.

Phil Mason

41

Mr. Mason has served as President of Institutional Banking for the Bank since April 2023. He served as Director of Healthcare Services and Chief Operating Officer Institutional Banking for the Bank from November 2019 until March 2023 and as Chief Operating Officer Institutional Banking for the Bank from June 2015 to October 2019. Prior to this time, Mr. Mason served as Director of Relationship Management and Support Institutional Asset Management for the Bank beginning in April 2013. Mr. Mason first joined the Company in June of 2005, working in the corporate finance department in a variety of roles.

10


 

Nikki Newton

52

Mr. Newton has served as the President of Private Wealth Management of the Bank since May 2019. From January 1998 until May 2018, Mr. Newton served in various capacities with Waddell & Reed Financial, Inc. or its subsidiary, Ivy Distributors, Inc, including most recently, serving as President of Ivy Distributors, Inc. and Ivy Global from August 2017 to May 2018, and Head of Global Distribution and President of Ivy Global from January 2014 to August 2017.

David C. Odgers

54

Mr. Odgers has served as Senior Vice President, Chief Accounting Officer of the Company since January 2020, and as the Company’s Controller since January 2014. Mr. Odgers was previously the Company’s Assistant Controller from January 2005 to January 2014.

John C. Pauls

59

Mr. Pauls has served as Executive Vice President, General Counsel and Corporate Secretary of the Company and the Bank since June 2016. Mr. Pauls served as interim General Counsel from April 2016 until his full appointment in June of 2016. He has been with UMB for over 25 years, having served as a top legal advisor for the Company and the Bank for over 20 years.

James D. Rine

53

Mr. Rine has served as President of the Company since January 2024, and Vice Chairman of the Company since November 2020. He has additionally served as President and Chief Executive Officer of the Bank since October 2018. He served as President of Commercial Banking from December 2017 until October 2018 and as President of Commercial Banking/Western Region from October 2016 to December 2017. Prior to this time, Mr. Rine served as the President of the Kansas City Region since October 2011. Overall, Mr. Rine has over 20 years of commercial banking experience with the Bank.

Ram Shankar

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Mr. Shankar was named as Executive Vice President and Chief Financial Officer of the Company effective August 2016. From September 2011 until his employment with the Company commenced, he worked at First Niagara Financial Group, most recently serving as managing director where he headed financial planning and analysis and investor relations. Prior to that, Mr. Shankar spent time at FBR Capital Markets as a senior research analyst and at M&T Bank Corporation in the financial planning measurement and corporate finance/mergers & acquisitions group.

Thomas S. Terry

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Mr. Terry has served as Executive Vice President and Chief Credit Officer since October 2019. From January 2011 until October 2019, Mr. Terry served as Executive Vice President and Chief Lending Officer of the Company, and prior to this time, Mr. Terry served as Executive Vice President. Mr. Terry first joined UMB in 1986, and subsequently joined the Commercial Lending department in 1987 where he worked as a loan officer until 2011.

Abigail Wendel

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Ms. Wendel was named President of Consumer Banking of the Bank in September 2018. She has also served as Chief Strategy Officer for the Company from June 2015 until September 2018, and as the Director of Investor and Government Relations for the Company from February 2013 through June 2015.

Uma Wilson

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Ms. Wilson was named Executive Vice President, Chief Information and Product Officer in September 2021. Previously she served as Executive Vice President, Director of Bank Product, Treasury Management/Card Sales and Implementation and Executive Vice President, Director of Bank Product Group. Ms. Wilson held these positions from January 2020 to September 2021 and May 2015 to January 2020, respectively.

 

The Company makes available free of charge on its website at www.umb.com/investor, its annual report on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K and amendments to such reports, as soon as reasonably practicable after it electronically files or furnishes such material with or to the SEC. Information on the Company’s website is not incorporated by reference into this report and should not be considered part of this document. These reports can also be found on the SEC website at www.sec.gov.

ITEM 1A. RISK FACTORS

Financial-services companies routinely encounter and address risks and uncertainties. In the following paragraphs, the Company describes some of the principal risks and uncertainties that could adversely affect its business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or return on an investment in the Company. These risks and uncertainties, however, are not the only ones faced by the

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Company. Other risks and uncertainties that are not presently known to the Company that it has failed to identify, or that it currently considers immaterial may adversely affect the Company as well. Except where otherwise noted, the risk factors address risks and uncertainties that may affect the Company as well as its subsidiaries. These risk factors should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations (which can be found in Part II, Item 7 of this report) and the Notes to the Consolidated Financial Statements (which can be found in Part II, Item 8 of this report).

 

The levels of, or changes in, interest rates could affect the Company’s business or performance. The Company’s business, results of operations, and financial condition are highly dependent on net interest income, which is the difference between interest income on earning assets (such as loans and investments) and interest expense on deposits and borrowings. Net interest income is significantly affected by market interest rates, which in turn are influenced by monetary and fiscal policies, general economic conditions, the regulatory environment, competitive pressures, and expectations about future changes in interest rates. The policies and regulations of the federal government, in general, and the FRB, in particular, have a substantial impact on market interest rates. See “Government Monetary and Fiscal Policies” in Part I, Item 1 of this report, which is incorporated by reference herein. Additionally, the Company has a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on the London Interbank Offered Rate (LIBOR). In 2017, the U.K. Financial Conduct Authority announced that LIBOR is to be transitioned to alternative rates. The Alternative Reference Rates Committee (ARRC) has proposed that the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York represents the best alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. The Company discontinued entering into new LIBOR-indexed financial instruments effective December 31, 2021. The majority of existing LIBOR-indexed contracts will revert to SOFR. The remainder will be individually negotiated to a mutual preferred replacement index. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. Although the Company is currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on its business, financial condition and results of operations.

 

The impact of interest rate changes on the Company’s funding costs may differ from some peers given the Company’s concentration of funding from commercial and institutional sources. These deposits, which often include the benefit of other ancillary revenues, are generally more price-sensitive than consumer funding sources. In a rising rate environment, the Company may experience a sharper decline in low-cost funding sources or an increase in cost of deposits due to its customer profile. However, the expectation of higher earning asset growth and the benefit of higher interest rates on our earning assets may help mitigate any impact.

 

The Company may be adversely affected by policies, regulations, or events that have the effect of altering the difference between long-term and short-term interest rates (commonly known as the yield curve), depressing the interest rates associated with its earning assets to levels near the rates associated with its interest expense, or changing the spreads among different interest-rate indices. In addition, a rapid change in interest rates could result in interest expense increasing faster than interest income because of differences in the maturities of the Company’s assets and liabilities. Further, if laws impacting taxation and interest rates materially change, or if new laws are enacted, certain of the Company’s services and products, including municipal bonds, may be subject to less favorable tax treatment or otherwise adversely impacted. The level of and changes in market interest rates—and, as a result, these risks and uncertainties—are beyond the Company’s control. The dynamics among these risks and uncertainties are also challenging to assess and manage. For example, while the highly accommodative monetary policy currently adopted by the FRB may benefit the Company to some degree by spurring economic activity among its customers, such a policy may ultimately cause the Company more harm by inhibiting its ability to grow or sustain net interest income.

 

The Company’s customers and counterparties also may be negatively impacted by the levels of, or changes in, interest rates, which could increase the risk of delinquency or default on obligations to the Company. The levels of, or changes in, interest rates, moreover, may have an adverse effect on the value of the Company’s investment portfolio, which includes long-term municipal bonds with fixed interest rates, and other financial instruments, the return on or demand for loans, the prepayment speed of loans (including, without limitation, the pace of pay-downs expected or forecasted for commercial real estate and construction loans), the cost or availability of deposits or other funding sources, or the purchase or sale of investment securities.

 

See “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” in Part II, Item 7A of this report for a discussion of how the Company monitors and manages interest-rate risk.

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Weak or deteriorating economic conditions, geopolitical events, more liberal origination or underwriting standards, or financial or systemic shocks could increase the Company’s credit risk and adversely affect its lending or other banking businesses and the value of its loans or investment securities. The Company’s business and results of operations depend significantly on general economic conditions. When those conditions are weak or deteriorating in any of the markets or regions where the Company operates, or there are impacts stemming from geopolitical events, its business or performance could be adversely affected. The Company’s lending and other banking businesses, in particular, are susceptible to weak or deteriorating economic conditions, which could result in reduced loan demand or utilization rates and at the same time increased delinquencies or defaults. These kinds of conditions also could dampen the demand for products and other services in the Company’s investment-management, asset-servicing, insurance, brokerage, or related businesses. Financial markets and global supply chains may be adversely affected by the impact of military conflict, including the current conflicts in Ukraine and Israel, terrorism or other geopolitical events. Increased delinquencies or defaults could result as well from the Company adopting—for strategic, competitive, or other reasons—more liberal origination or underwriting standards for extensions of credit or other dealings with its customers or counterparties. If delinquencies or defaults on the Company’s loans or investment securities increase, their value and the income derived from them could be adversely affected, and the Company could incur administrative and other costs in seeking a recovery on its claims and any collateral. Weak or deteriorating economic conditions also may negatively impact the market value and liquidity of the Company’s investment securities, and the Company may be required to record additional impairment charges if investment securities suffer a decline in value that is determined to have resulted from a credit loss. In addition, to the extent that loan charge-offs exceed estimates, an increase to the amount of provision expense related to the allowance for credit losses would reduce the Company’s income. See “Quantitative and Qualitative Disclosures About Market Risk—Credit Risk Management” in Part II, Item 7A of this report for a discussion of how the Company monitors and manages credit risk. A financial or systemic shock and a failure of a significant counterparty or a significant group of counterparties could negatively impact the Company, possibly to a severe degree, due to its role as a financial intermediary and the interconnectedness of the financial system.

A meaningful part of the Company’s loan portfolio is secured by real estate and, as a result, could be negatively impacted by deteriorating or volatile real estate markets, the economic environment or associated environmental liabilities. At December 31, 2023, 51.2% of the Company’s aggregate loan portfolio—comprised of commercial real estate loans (representing 38.4% of the aggregate loan portfolio) and consumer real estate loans (representing 12.8% of the aggregate loan portfolio)—was primarily secured by interests in real estate located in the States where the Company operates. Other credit extended by the Company may be secured in part by real estate as well. Real estate values in the markets where this collateral is located may be different from, and in some instances worse than, real estate values in other markets or in the United States as a whole and may be affected by general economic conditions and a variety of other factors outside of the control of the Company or its customers. Any deterioration or volatility in these real estate markets could result in increased delinquencies or defaults, could adversely affect the value of the loans and the income to be derived from them, could give rise to unreimbursed recovery costs, and could reduce the demand for new or additional credit and related banking products and other services, all to the detriment of the Company’s business and performance. In recent years, commercial real estate markets have been particularly impacted by the economic and other disruptions resulting from the COVID-19 pandemic. Repayment of commercial real estate, which typically involves higher loan principal amounts as compared to consumer real estate lending, is often dependent on the successful operation of the business conducted on the property securing the loans. Negative shifts in economic conditions can impact the borrower’s ability to pay. Failures in the Company’s risk management policies, procedures and controls could adversely affect its ability to manage this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio, which could negatively impact the Company’s operating and financial performance. In addition, if hazardous or toxic substances were found on any real estate that the Company acquires in foreclosure or otherwise, the Company may incur substantial liability for compliance and remediation costs, personal injury, or property damage.

Challenging business, economic, or market conditions could adversely affect the Company’s fee-based banking, investment-management, asset-servicing, or other businesses. The Company’s fee-based banking, investment-management, asset-servicing, and other businesses are driven by wealth creation in the economy, robust market activity, monetary and fiscal stability, and positive investor, business, and consumer sentiment. Economic downturns, market disruptions, high unemployment or underemployment, unsustainable debt levels, depressed real estate markets, industry consolidations, or other challenging business, economic, or market conditions could adversely affect these businesses and their results. If the funds or other groups that are clients of UMBFS were to encounter similar difficulties, UMBFS’s revenue could suffer. The Company’s bank-card revenue is driven

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primarily by transaction volumes in business, healthcare, and consumer spending that generate interchange fees, and any of these conditions could dampen those volumes. Other fee-based banking businesses that could be adversely affected include trading, asset management, custody, trust, and cash and treasury management.

Liquidity is essential to the Company and its business or performance could be adversely affected by constraints in, or increased costs for, funding. The Company defines liquidity as the ability to fund increases in assets and meet obligations as they come due, all without incurring unacceptable losses. Banks are especially vulnerable to liquidity risk because of their role in the maturity transformation of demand or short-term deposits into longer-term loans or other extensions of credit. The Company, like other financial-services companies, relies to a significant extent on external sources of funding (such as deposits and borrowings) for the liquidity needed to conduct its business. A number of factors beyond the Company’s control, however, could have a detrimental impact on the availability or cost of that funding and thus on its liquidity. These factors include market disruptions, changes in its credit ratings or the sentiment of its investors, the state of the regulatory environment and monetary and fiscal policies, declines in the value of its investment securities, the loss of substantial deposits or customer relationships, financial or systemic shocks, significant counterparty failures, and reputational damage. Unexpected declines or limits on the dividends declared and paid by the Company’s subsidiaries also could adversely affect its liquidity position. While the Company’s policies and controls are designed to ensure that it maintains adequate liquidity to conduct its business in the ordinary course even in a stressed environment, there can be no assurance that its liquidity position will never become compromised. In such an event, the Company may be required to sell assets at a loss in order to continue its operations. This could damage the performance and value of its business, prompt regulatory intervention, and harm its reputation, and if the condition were to persist for any appreciable period of time, its viability as a going concern could be threatened. See “Quantitative and Qualitative Disclosures About Market Risk—Liquidity Risk” in Part II, Item 7A of this report for a discussion of how the Company monitors and manages liquidity risk.

The Company’s investment-management and asset-servicing businesses could be negatively impacted by declines in assets under management or administration or by shifts in the mix of assets under management or administration. The revenues of the Company’s investment-management businesses are highly dependent on advisory fee income. These businesses generally earn higher fees on equity-based or alternative investments and strategies and lower fees on fixed income investments and strategies. Advisory-fee income may be negatively impacted by an absolute decline in assets under management or by a shift in the mix of assets under management from equities or alternatives to fixed income. Such a decline or shift could be caused or influenced by any number of factors, such as underperformance in absolute or relative terms, loss of key advisers or other talent, changes in investing preferences or trends, market downturns or volatility, drops in investor confidence, reputational damage, increased competition, or general economic conditions. Any of these factors also could affect clients of UMBFS, and if this were to cause a decline in assets under administration at UMBFS or an adverse shift in the mix of those assets, the performance of UMBFS could suffer.

To the extent that the Company continues to maintain a sizeable portfolio of investment securities, its income may be adversely affected and its reported equity more volatile. As of December 31, 2023, the Company’s securities portfolio totaled approximately $13.3 billion, which represented approximately 30.1% of its total assets. Regulatory restrictions and the Company’s investment policies generally result in the acquisition of securities with lower yields than loans. For the year-ended December 31, 2023, the weighted average yield of the Company’s securities portfolio was 2.66% as compared to 6.27% for its loan portfolio. Accordingly, to the extent that the Company is unable to effectively deploy its funds to originate or acquire loans or other assets with higher yields than those of its investment securities, the Company’s income may be negatively impacted. Additionally, approximately $7.1 billion, or 53.3%, of the Company’s investment securities are classified as available for sale and reported at fair value. Unrealized gains or losses on these securities are excluded from earnings and reported in other comprehensive income, which in turn affects the Company’s reported equity. As a result, to the extent that the Company continues to maintain a significant portfolio of available-for-sale securities, its reported equity may experience greater volatility.

Cyber incidents and other security breaches at the Company, at the Company’s service providers or counterparties, or in the business community or markets may negatively impact the Company’s business or performance. In the ordinary course of its business, the Company collects, stores, and transmits sensitive, confidential, or proprietary data and other information, including intellectual property, business information, funds-transfer instructions, and the personally identifiable information of its customers and employees. The secure processing, storage, maintenance, and transmission of this information is critical to the Company’s operations and reputation, and if any of this information were mishandled, misused, improperly accessed, lost, held hostage or

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stolen or if the Company’s operations were disrupted, the Company could suffer significant financial, business, reputational, regulatory, or other damage. For example, despite security measures, the Company’s information technology and infrastructure may be breached or rendered inaccessible through cyber-attacks, ransomware and other computer viruses or malware, pretext calls, electronic phishing, or other means. These risks and uncertainties are rapidly evolving and increasing in complexity, and the Company’s failure to effectively mitigate them could negatively impact its business and operations.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats and the expanding use of technology-based products and services by the Company and its customers. The Company can provide no assurances that the safeguards it has in place or may implement in the future will prevent all unauthorized infiltrations or breaches and that the Company will not suffer losses related to a security breach in the future, which losses may be material.

Service providers and counterparties also present a source of risk to the Company if their own security measures or other systems or infrastructure were to be breached, rendered inaccessible, or otherwise fail. Likewise, a cyber-attack or other security breach affecting the business community, the markets, or parts of them may cycle or cascade through the financial system and adversely affect the Company or its service providers or counterparties. Many of these risks and uncertainties are beyond the Company’s control.

Even when an attempted cyber incident or other security breach is successfully avoided or thwarted, the Company may need to expend substantial resources in doing so, may be required to take actions that could adversely affect customer satisfaction or behavior, and may be exposed to reputational damage. If a breach were to occur, moreover, the Company could be exposed to contractual claims, regulatory actions, and litigation by private plaintiffs, and would additionally suffer reputational harm. Despite the Company’s efforts to safeguard the integrity of systems and controls and to manage third-party risk, the Company may not be able to anticipate or implement effective measures to prevent all security breaches or all risks to the sensitive, confidential, or proprietary information that it or its service providers or counterparties collect, store, or transmit.

The trading volume in the Company’s common stock at times may be low, which could adversely affect liquidity and stock price. Although the Company’s common stock is listed for trading on the NASDAQ Global Select Market, the trading volume in the stock may at times be low and, in relative terms, less than that of other financial-services companies. A public trading market that is deep, liquid, and orderly depends on the presence in the marketplace of a large number of willing buyers and sellers and narrow bid-ask spreads. These market features, in turn, depend on a number of factors, such as the individual decisions of investors and general economic and market conditions, over which the Company has no control. During any period of lower trading volume in the Company’s common stock, the stock price could be more volatile, and the liquidity of the stock could suffer.

The Company operates in a highly regulated industry, and its business or performance could be adversely affected by the legal, regulatory and supervisory frameworks applicable to it, changes in those frameworks, and other legal and regulatory risks and uncertainties. The Company is subject to expansive legal and regulatory frameworks in the United States—at the federal, State, and local levels—and in the foreign jurisdictions where its business segments operate. In addition, the Company is subject to the direct supervision of government authorities charged with overseeing the taxation of domestic companies and the kinds of financial activities conducted by the Company in its business segments. These legal, regulatory, and supervisory frameworks are often designed to protect public or private interests that differ from the interests of the Company’s shareholders or non-deposit creditors. See “Government Monetary and Fiscal Policies” and “Regulation and Supervision” in Part I, Item 1 of this report, which is incorporated by reference herein. The Company believes that government scrutiny of all financial-services companies has increased, fundamental changes have been made to the banking, securities, and other laws that govern financial services (with the Dodd-Frank Act and Basel III being two of the more prominent examples), and a host of related business practices have been reexamined and reshaped. As a result, the Company expects to continue devoting increased time and resources to risk management, compliance, and regulatory change management. Risks also exist that government authorities could judge the Company’s business or other practices as unsafe, unsound, or otherwise unadvisable and bring formal or informal corrective or enforcement actions against it, including fines or other penalties and directives to change its products or other services. For practical or other reasons, the Company may not be able to effectively defend itself against these actions, and they in turn could give rise to litigation by private plaintiffs. Further, if the laws, rules, and regulations materially adversely affect the Company, including any changes that would negatively impact the tax treatment of the Company, the Company’s products and services or the Company’s shareholders, the Company may be adversely impacted. All of

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these and other regulatory risks and uncertainties could adversely affect the Company’s reputation, business, results of operations, financial condition, or prospects.

Regulatory or supervisory requirements, future growth, operating results, or strategic plans may prompt the Company to raise additional capital, but that capital may not be available at all or on favorable terms and, if raised, may be dilutive. The Company is subject to safety-and-soundness and capital-adequacy standards under applicable law and to the direct supervision of government authorities. See “Regulation and Supervision” in Part I, Item 1 of this report. If the Company is not or is at risk of not satisfying these standards or applicable supervisory requirements—whether due to inadequate operating results that erode capital, future growth that outpaces the accumulation of capital through earnings, or otherwise—the Company may be required to raise capital, restrict dividends, or limit originations of certain types of commercial and mortgage loans. If the Company is required to limit originations of certain types of commercial and mortgage loans, it would thereby reduce the amount of credit available to borrowers and limit opportunities to earn interest income from the loan portfolio. The Company also may be compelled to raise capital if regulatory or supervisory requirements change. In addition, the Company may elect to raise capital for strategic reasons even when it is not required to do so. The Company’s ability to raise capital on favorable terms or at all will depend on general economic and market conditions, which are outside of its control, and on the Company’s operating and financial performance. Accordingly, the Company cannot be assured of its ability to raise capital when needed or on favorable terms. An inability to raise capital when needed or on favorable terms could damage the performance and value of its business, prompt regulatory intervention, and harm its reputation, and if the condition were to persist for any appreciable period of time, its viability as a going concern could be threatened. If the Company is able to raise capital and does so by issuing common stock or convertible securities, the ownership interest of its existing stockholders could be diluted, and the market price of its common stock could decline.

The market price of the Company’s common stock could be adversely impacted by banking, antitrust, or corporate laws that have or are perceived as having an anti-takeover effect. Banking and antitrust laws, including associated regulatory-approval requirements, impose significant restrictions on the acquisition of direct or indirect control over any bank holding company, including the Company. Acquisition of ten percent or more of any class of voting stock of a bank holding company or depository institution, including shares of its common stock, generally creates a rebuttable presumption that the acquirer “controls” the bank holding company or depository institution. Also, a bank holding company must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any bank, including the Bank.

In addition, a non-negotiated acquisition of control over the Company may be inhibited by provisions of the Company’s restated articles of incorporation and bylaws that have been adopted in conformance with applicable corporate law, such as the ability to issue shares of preferred stock and to determine the rights, terms, conditions and privileges of such preferred stock without stockholder approval. If any of these restrictions were to operate or be perceived as operating to hinder or deter a potential acquirer for the Company, the market price of the Company’s common stock could suffer.

The Company’s business relies on systems, employees, service providers, and counterparties, and failures or errors by any of them, intellectual property disputes, or other operational risks could adversely affect the Company. The Company engages in a variety of businesses in diverse markets and relies on hosted and on-premises systems, employees, service providers, and counterparties to properly oversee, administer, and process a high volume of transactions and otherwise support our day-to-day operations. This gives rise to meaningful operational risk—including the risk of fraud by employees or outside parties, unauthorized access to its premises or systems, errors in processing, failures of technology, breaches of internal controls or compliance safeguards, inadequate integration of acquisitions, human error, unavailability of systems and services, and other breakdowns in business continuity plans. In addition, service providers utilizing technology or other intellectual property in connection with our services may make allegations of patent infringement or other intellectual property rights violations. Depending on the scope of the claim, the Company may have to engage in protracted litigation, which is often time-consuming, expensive and can be disruptive to the Company’s operations. If the Company were found to have infringed an intellectual property right, it may be required to pay substantial damages or royalties to a third-party, not all of which may be covered by insurance policies or subject to indemnification by the Company’s service provider. These amounts could have a material adverse effect on the Company’s business, financial condition and results of operations.

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Significant financial, business, reputational, regulatory, or other harm could come to the Company as a result of these or related risks and uncertainties. For example, the Company could be negatively impacted if financial, accounting, data-processing, or other systems were to fail or not fully perform their functions. The Company also could be adversely affected if key personnel or a significant number of employees were to become unavailable due to a pandemic, such as the COVID-19 pandemic, natural disaster, geopolitical events, war, act of terrorism, accident, or other reason. These same risks arise as well in connection with the systems and employees of the service providers and counterparties on whom the Company depends as well as their own third-party service providers and counterparties. See “Quantitative and Qualitative Disclosures About Market Risk—Operational Risk” in Part II, Item 7A of this report for a discussion of how the Company monitors and manages operational risk.

 

The soundness of other financial institutions could adversely affect us. The soundness of other financial institutions could adversely affect the Company. Financial services institutions are interrelated because of trading, clearing, counterparty and other relationships. The Company routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, payment processors, and other institutional clients, which may result in payment obligations to the Company or to its clients due to products it has arranged. Many of these transactions expose the Company to credit and market risk that may cause its counterparty or client to default. In addition, the Company is exposed to market risk when the collateral it holds cannot be realized or is liquidated at prices not sufficient to recover the full amount of the secured obligation. Any losses arising from such occurrences could materially and adversely affect the Company’s business, results of operations or financial condition.

The Company is heavily reliant on technology, and a failure or delay in effectively implementing technology initiatives or anticipating future technology needs or demands could adversely affect the Company’s business or performance. Like most financial-services companies, the Company significantly depends on technology to deliver its products and other services and to otherwise conduct business. To remain technologically competitive and operationally efficient, the Company invests in system upgrades, new solutions, and other technology initiatives, including for both internally and externally hosted solutions. Many of these initiatives are of significant duration, are tied to critical systems, and require substantial internal and external resources. Furthermore, to the extent these initiatives may implicate new technologies or solutions such as those related to artificial intelligence or automation, additional risk may be present. Although the Company takes steps to mitigate the risks and uncertainties associated with these initiatives, there is no guarantee that they will be implemented on time, within budget, or without negative operational or customer impact. The Company also may not succeed in anticipating its future technology needs, the technology demands of its customers, or the competitive landscape for technology. In addition, the Company relies upon the expertise and support of service providers to help implement, maintain and/or service certain of its core technology solutions. If the Company cannot effectively manage these service providers, the service parties fail to materially perform, or the Company was to falter in any of the other noted areas, its business or performance could be negatively impacted.

Negative publicity outside of the Company’s control, or its failure to successfully manage issues arising from its conduct or in connection with the financial-services industry generally, could damage the Company’s reputation and adversely affect its business or performance. The performance and value of the Company’s business could be negatively impacted by any reputational harm that it may suffer. This harm could arise from negative publicity outside of its control or its failure to adequately address issues arising from its own conduct or in connection with the financial-services industry generally. Risks to the Company’s reputation could arise in any number of contexts—for example, cyber incidents and other security breaches, mergers and acquisitions, lending or investment-management practices, actual or potential conflicts of interest, failures to prevent money laundering, corporate governance, and unethical behavior and practices committed by Company employees or competitors in the financial services industry.

The Company faces intense competition from other financial-services and financial-services technology companies, and competitive pressures could adversely affect the Company’s business or performance. The Company faces intense competition in each of its business segments and in all of its markets and geographic regions, and the Company expects competitive pressures to intensify in the future—especially in light of recent legislative and regulatory initiatives, technological innovations that alter the barriers to entry, current economic and market conditions, and government monetary and fiscal policies. Competition with financial-services technology companies, or technology companies partnering with financial-services companies, may be particularly intense, due to, among other things, differing regulatory environments. See “Competition” in Part I, Item 1 of this report. Competitive pressures may drive the Company to take actions that the Company might otherwise eschew, such as

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lowering the interest rates or fees on loans or raising the interest rates on deposits in order to keep or attract high-quality customers. These pressures also may accelerate actions that the Company might otherwise elect to defer, such as substantial investments in technology or infrastructure. The Company has certain businesses that utilize wholesale models which can lead to customer concentrations for those businesses that, if negatively impacted by new entrants, competitive pressures, or consolidations, could affect the Company’s fee income. Whatever the reason, actions that the Company takes in response to competition may adversely affect its results of operations and financial condition. These consequences could be exacerbated if the Company is not successful in introducing new products and other services, achieving market acceptance of its products and other services, developing and maintaining a strong customer base, or prudently managing expenses.

The Company’s internal controls, risk-management and compliance programs or functions may not be effective in identifying and mitigating risk and loss. The Company maintains standards on internal controls (including over financial reporting), and related disclosures which are regularly reviewed by management, as well as an enterprise risk-management program that is designed to identify, quantify, monitor, report, and control the risks that it faces. These include interest-rate risk, credit risk, liquidity risk, market risk, operational risk, reputational risk, and compliance risk. The Company also maintains a compliance program to identify, measure, assess, and report on its adherence to applicable law, policies, and procedures. While the Company assesses and strives to improve these controls and programs on an ongoing basis, there can be no assurance that its frameworks or models for risk management, compliance, and related controls will effectively mitigate risk and limit losses in its business. If conditions or circumstances arise that expose flaws or gaps in the Company’s risk-management or compliance programs or if its controls break down, the performance and value of the Company’s business could be adversely affected. The Company could be negatively impacted as well if, despite programs being in place, its risk-management or compliance personnel are ineffective in executing them and mitigating risk and loss.

If the Company’s subsidiaries are unable to make dividend payments or distributions to the Company, it may be unable to satisfy its obligations to counterparties or creditors or make dividend payments to its stockholders. The Company is a legal entity separate and distinct from its bank and nonbank subsidiaries and depends on dividend payments and distributions from those subsidiaries to fund its obligations to counterparties and creditors and its dividend payments to stockholders. See “Regulation and Supervision—Requirements Affecting the Relationships among the Company, Its Subsidiaries, and Other Affiliates” in Part I, Item 1 of this report. Any of the Company’s subsidiaries, however, may be unable to make dividend payments or distributions to the Company, including as a result of a deterioration in the subsidiary’s performance, investments in the subsidiary’s own future growth, or regulatory or supervisory requirements. If any subsidiary were unable to remain viable as a going concern, moreover, the Company’s right to participate in a distribution of assets would be subject to the prior claims of the subsidiary’s creditors (including, in the case of the Bank, its depositors and the FDIC).

An inability to attract, retain, or motivate qualified employees could adversely affect the Company’s business or performance. Skilled employees are the Company’s most important resource, and competition for talented people is intense. Even though compensation is among the Company’s highest expenses, it may not be able to locate and hire the best people, keep them with the Company, or properly motivate them to perform at a high level. Recent scrutiny of compensation practices, especially in the financial-services industry, has made this only more difficult. In addition, some parts of the Company’s business are particularly dependent on key personnel, including investment management, asset servicing, and commercial lending. If the Company were to lose and find itself unable to replace these personnel or other skilled employees or if the competition for talent drove its compensation costs to unsustainable levels, the Company’s business, results of operations, and financial condition could be negatively impacted.

The Company is subject to a variety of litigation and other proceedings, which could adversely affect its business or performance. The Company is involved from time to time in a variety of judicial, alternative-dispute, and other proceedings arising out of its business or operations. The Company establishes reserves for claims when appropriate under generally accepted accounting principles, but costs often can be incurred in connection with a matter before any reserve has been created. The Company also maintains insurance policies to mitigate the cost of litigation and other proceedings, but these policies have deductibles, limits, and exclusions that may diminish their value or efficacy. Despite the Company’s efforts to appropriately reserve for claims and insure its business and operations, the actual costs associated with resolving a claim may be substantially higher than amounts reserved or covered. Substantial legal claims, even if not meritorious, could have a detrimental impact on the Company’s business, results of operations, and financial condition and could cause reputational harm.

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Changes in accounting standards could impact the Company’s financial statements and reported earnings. Accounting standard-setting bodies, such as the Financial Accounting Standards Board, periodically change the financial accounting and reporting standards that affect the preparation of the Company’s Consolidated Financial Statements. These changes are beyond the Company’s control and could have a meaningful impact on its Consolidated Financial Statements.

The Company’s selection of accounting methods, assumptions, and estimates could impact its financial statements and reported earnings. To comply with generally accepted accounting principles, management must sometimes exercise judgment in selecting, determining, and applying accounting methods, assumptions, and estimates. This can arise, for example, in the determination of the allowance for credit losses. Furthermore, accounting methods, assumptions and estimates are part of acquisition purchase accounting and the calculation of the fair value of assets and liabilities that have been purchased, including credit-impaired loans. The judgments required of management can involve difficult, subjective, or complex matters with a high degree of uncertainty, and several different judgments could be reasonable under the circumstances and yet result in significantly different results being reported. See “Critical Accounting Policies and Estimates” in Part II, Item 7 of this report. If management’s judgments are later determined to have been inaccurate, the Company may experience unexpected losses that could be substantial.

The Company’s ability to engage in opportunistic mergers and acquisitions is subject to significant risks, including the risk that government authorities will not provide the requisite approvals, the risk that integrating acquisitions may be more difficult, costly, or time consuming than expected, and the risk that the value of acquisitions may be less than anticipated. The Company may make opportunistic acquisitions of other financial-services companies or businesses from time to time. These acquisitions may be subject to regulatory approval, and there can be no assurance that the Company will be able to obtain that approval in a timely manner or at all. Even when the Company is able to obtain regulatory approval, the failure of other closing conditions to be satisfied or waived could delay the completion of an acquisition for a significant period of time or prevent it from occurring altogether. Any failure or delay in closing an acquisition could adversely affect the Company’s reputation, business, results of operations, financial condition, or prospects.

Additionally, acquisitions involve numerous risks and uncertainties, including lower-than-expected performance or higher-than-expected costs, difficulties related to integration, diversion of management’s attention from other business activities, changes in relationships with customers or counterparties, and the potential loss of key employees. An acquisition also could be dilutive to the Company’s current stockholders if preferred stock, common stock, or securities convertible into preferred stock or common stock were issued to fully or partially pay or fund the purchase price. The Company, moreover, may not be successful in identifying acquisition candidates, integrating acquired companies or businesses, or realizing the expected value from acquisitions. There is significant competition for valuable acquisition targets, and the Company may not be able to acquire other companies or businesses on attractive terms or at all. There can be no assurance that the Company will pursue future acquisitions, and the Company’s ability to grow and successfully compete in its markets and regions may be impaired if it chooses not to pursue, or is unable to successfully complete, acquisitions.

 

The Company faces risks in connection with its strategic undertakings and new business initiatives. The Company is engaged, and may in the future engage, in strategic activities including acquisitions, joint ventures, partnerships, investments or other business growth initiatives or undertakings. There can be no assurance that the Company will successfully identify appropriate opportunities, that it will be able to negotiate or finance such activities or that such activities, if undertaken, will be successful. The Company is focused on its long-term growth and has undertaken various strategic activities and business initiatives, some of which may involve activities that are new to it. For example, in the future the Company may engage in or focus on new lines of business, financial technologies, and other activities that are outside of its current product offerings. These new initiatives may subject the Company to, among other risks, increased business, reputational and operational risk, as well as more complex legal, regulatory and compliance costs and risks. Its ability to execute strategic activities and new business initiatives successfully will depend on a variety of factors. These factors likely will vary based on the nature of the activity but may include the Company’s success in integrating an acquired company or a new internally-developed growth initiative into its business, operations, services, products, personnel and systems, operating effectively with any partner with whom it elects to do business, meeting applicable regulatory requirements and obtaining applicable regulatory licenses or other approvals, hiring or retaining key employees, achieving anticipated synergies, meeting management's expectations, actually realizing the anticipated benefits of the activities, and overall general market conditions. The Company’s ability to address these matters successfully cannot be assured. In addition, its strategic efforts may divert resources or management's attention from ongoing business operations and may subject the

19


 

Company to additional regulatory scrutiny and potential liability. If the Company does not successfully execute a strategic undertaking, it could adversely affect its business, financial condition, results of operations, reputation, or growth prospects.

 

Expectations around Environmental, Social and Governance practices, as well as climate change, and related legislative and regulatory initiatives may result in additional risk and operational changes and expenditures that could significantly impact the Company’s business. Companies are facing increased scrutiny from customers, regulators and other stakeholders with respect to their environmental, social and governance (ESG) practices and disclosures. Institutional investors, and investor advocacy groups, in particular, are increasingly focused on these matters, and expectations in many of these areas can vary widely. In addition, increased ESG related compliance costs could result in increases to the Company’s overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards, and fluctuations in these standards, could negatively impact the Company’s reputation, ability to do business with certain partners, and its stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

 

In addition to regulatory and investor expectations on environmental matters in general, the current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased. In recent years, governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by limiting greenhouse gas emissions. The United States Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes, each of which may require the Company to expend significant capital and incur compliance, operating, maintenance and remediation costs. Given the lack of empirical data on the credit and other financial risks posed by climate change, it is impossible to predict how climate change may impact the Company’s financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks to the Company. For example, weather disasters, shifts in local climates and other disruptions related to climate change may adversely affect the value of real properties securing the Company’s loans, which could diminish the value of the Company’s loan portfolio. Such events may also cause reductions in regional and local economic activity that may have an adverse effect on the Company’s customers, which could limit the Company’s ability to raise and invest capital in these areas and communities, each of which could have a material adverse effect on the Company’s financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

There are no unresolved comments from the staff of the SEC required to be disclosed herein as of the date of this report.

ITEM 1C. CYBERSECURITY

Information security and privacy are an important part of the Company’s culture and foundational to its goal of delivering safe, secure and quality products and services. This philosophy is emphasized throughout the organization by its board of directors, senior leaders, officers, managers and associates to help promote a Company-wide culture of cybersecurity risk management.

Further, the Company operates within the highly regulated financial services industry, which is focused on the security, confidentiality, integrity, availability and privacy of information and information systems. The standards of the SEC, the GLBA, the General Data Protection Regulation (GDPR), and the Federal Financial Institution Examination Council (FFIEC) outline specific requirements regarding cybersecurity and data privacy for publicly traded and financial services companies. The Company has established information security and privacy policies focused on protecting the security, confidentiality, integrity, availability and privacy of information, which policies are designed to be compliant with SEC, GLBA, GDPR, state privacy regulations and FFIEC guidance, as applicable, and incorporate principles from the National Institute of Standards and Technology (NIST) and other industry best-practices where appropriate. The Company’s security and privacy practices are also subject to ongoing independent oversight by multiple regulatory bodies including the OCC and the Federal Reserve, independent audits such as SOC I and SOC II, independent penetration testing of internal and external systems, independent security attestations of compliance with the requirements of the Society of Worldwide Interbank Financial

20


 

Telecommunications (SWIFT) and the Federal Reserve (FedLine), and independent assessments in connection with the Company’s Payment Card Industry Data Security Standard (PCI DSS) obligations, as applicable.

As a financial institution, the Company collects, stores, and transmits sensitive, confidential, and proprietary data and other information, including intellectual property, business information, funds-transfer instructions, payment card data, and the personally identifiable information of its customers and employees (Sensitive Information). Sensitive Information can be of significant value to criminal actors, and, as described in the Company’s Risk Factors, cyber incidents and other security breaches involving this information at the Company, at the Company’s service providers or counterparties, or in the business community or markets, may negatively impact the Company’s business or performance.

The board of directors of the Company has oversight responsibility for the risk management policies of the Company’s global operations and the operation of the Company’s global risk management framework. The Board Risk Committee, comprised entirely of independent directors, assists the board of directors with this responsibility by, among other things, approving and periodically reviewing the risk management policies of the Company’s global operations, including statements of risk appetite, and adapting the Enterprise Risk Management Policy, when and as appropriate, to changes in the Company’s structure, risk profile, complexity, activities, or size. The combined Chief Information Security Officer and Chief Privacy Officer (CISO/CPO) supplies the Board, directly or through the Board Risk Committee, with regular reports on the operation of the information security and privacy components of this program, the related evolving risks to the Company’s businesses, and the controls and other mitigants utilized to manage those risks. Membership in the Board Risk Committee includes directors experienced at managing risk in various environments, including cybersecurity. Their expertise helps inform the Company’s cybersecurity and privacy program.

Management is responsible for the daily assessment and management of cybersecurity risks. This is accomplished through a variety of tools and mechanisms. The Company has strategically integrated cybersecurity and privacy risk management into its broader risk management framework. This integration ensures that cybersecurity and privacy considerations are an integral part of the Company's decision-making processes at multiple levels. The Company has appointed a qualified CISO/CPO, who reports to the Chief Risk Officer (CRO) as part of independent risk management, who is responsible for establishing strategy and overseeing implementation of an effective, integrated, and proactive information security and privacy program. The CISO/CPO is also responsible for advising and partnering with the board of directors, management team, and lines of business to guide the management of cybersecurity, business continuity and resilience, physical information security, data privacy, third party and information governance risks. The CISO/CPO has more than two decades of global experience within the information security and privacy fields, a relevant bachelor’s degree from an accredited institution, and holds the National Association of Corporate Directors Directorship Certification (NACD.DC), Certified Information Systems Security Professional (CISSP) and Certified Information Privacy Professional (CIPP/US) designations. The CISO/CPO manages a team of qualified professionals with relevant cybersecurity and privacy experience and expertise. The Company has also established a Security, Technology, and Privacy Committee (STP) to oversee security, technology, and privacy capabilities and risks of the Company and its business. The STP includes the CRO, CISO/CPO, leadership across the lines of business, and a cross-functional team of risk, technology, privacy and legal experts to ensure an appropriate focus on information security, technology and privacy matters. The STP serves as a sub-committee of the Company’s Enterprise Risk Committee (ERC), which is a sub-committee of the Board Risk Committee. The ERC is chaired by the CRO, and includes members of executive management and a cross-functional team of leaders experienced in managing risk. The STP and ERC receive quarterly briefings from the CISO/CPO on a variety of topics, including material changes in information security or privacy laws, the Company’s ongoing information security posture and compliance, and emerging risks. Company management and its committees may also engage with the CISO/CPO to discuss and receive additional reports regarding cybersecurity and privacy risks on a more frequent basis as appropriate.

Key Program Components

The Company has a vulnerability management program designed to assess and manage risk associated with vulnerabilities in its information systems from multiple perspectives, including: (i) an adversarial cyber risk assessment that aims to identify threats, vulnerabilities and controls and (ii) the scanning of external and internal information systems to identify software vulnerabilities. The vulnerability management program also assesses emerging and potential threats through dedicated threat intelligence capabilities that monitor attacks and breaches associated with financial institutions and key third-party service providers. The CISO/CPO utilizes the data to understand potential exposure to the Company and to take preventative action where appropriate.

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The Company has an Incident Response Program (IRP) to support management of cybersecurity or privacy incidents, impact assessment (i.e., type and quantity of data impacted, materiality, etc.), and response coordination including with law enforcement and government agencies, and impacted parties. Notification procedures are aligned with applicable laws, regulatory and contractual requirements, including rules promulgated by the SEC, the GLBA, the GDPR and state privacy regulations. The Company’s IRP, led by the CISO/CPO, includes a cross-functional group of risk, technology, privacy and legal experts supplemented by third-party service providers, where necessary, to support the Company’s response to potential cybersecurity or privacy incidents. The IRP sets forth the framework to elevate cybersecurity or privacy issues to the CISO/CPO and when and how incidents are escalated and reported beyond the CISO/CPO, including to executive management and the Board Risk Committee. Depending on the incident, escalation to the full board of directors may also occur.

The Company has also implemented a third-party risk program to oversee and manage information security and privacy risks associated with third-party relationships. The program includes the assessment of third parties that provide key services or will access, store, process, or transmit Sensitive Information during initial onboarding and throughout the lifecycle of the relationship, and management of applicable contractual provisions relating to confidentiality, integrity, availability and privacy obligations, including notification of incidents. The Company also leverages third-party services for advice, assessments, auditing, testing and support related to cybersecurity and information technology processes and services, where appropriate, that are also subject to the third-party risk program.

Notwithstanding the breadth of the Company’s information security and privacy program, it may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse impact. For a discussion of whether and how any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations or financial condition, see Item 1A “Risk Factors”, which is incorporated by reference into this Item 1C.

ITEM 2. PROPERTIES

The Company's headquarters building is located at 1010 Grand Boulevard in downtown Kansas City, Missouri. The building opened in July 1986 and all 250,000 square feet are occupied by departments and customer service functions of the Bank, as well as administrative offices for the Company.

Other main facilities of the Bank in downtown Kansas City, Missouri are located at 928 Grand Boulevard (215,000 square feet) and 1008 Oak Street (200,000 square feet). The 928 Grand building houses administrative support functions for the Bank. The 1008 Oak building, which opened during 1999, houses the Company’s operations and data processing functions.

The Bank leases 48,771 square feet in the Hertz Building located at 2 South Broadway in the heart of the commercial sector of downtown St. Louis, Missouri. This location has a full-service banking center and is home to administrative support functions for the Bank.

The Bank also leases 34,681 square feet on the first, second, and fifth floors of the 1670 Broadway building located in the financial district of downtown Denver, Colorado. The location has a full-service banking center and is home to operational and administrative support functions for the Bank.

As of December 31, 2023, the Bank operated a total of 88 banking centers.

UMBFS leases 85,164 square feet at 235 West Galena Street in Milwaukee, Wisconsin, for its fund services operations. Additionally, UMBFS leases 18,655 square feet at 2225 Washington Boulevard in Ogden, Utah, and 8,339 square feet at 223 Wilmington West Chester Pike in Chadds Ford, Pennsylvania.

Additional information with respect to properties, premises and equipment is presented in Note 1, “Summary of Significant Accounting Policies,” and Note 8, “Premises, Equipment, and Leases,” in the Notes to the Consolidated Financial Statements in Item 8 of this report, and is hereby incorporated by reference herein.

22


 

In the normal course of business, the Company and its subsidiaries are named defendants in various legal proceedings. In the opinion of management, after consultation with legal counsel, none of these proceedings are expected to have a material effect on the financial position, results of operations, or cash flows of the Company.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

23


 

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company's common stock is traded on the NASDAQ Global Select Stock Market under the symbol "UMBF." As of February 16, 2024, the Company had 1,268 shareholders of record.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table provides information about common stock repurchase activity by the Company during the quarter ended December 31, 2023:

ISSUER PURCHASES OF EQUITY SECURITIES

 

Period

 

Total Number of Shares (or Units) Purchased (1)

 

 

Average Price Paid per Share (or Unit)

 

 

Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (2)

 

 

Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs

 

October 1 - October 31, 2023

 

 

 

 

$

 

 

 

 

 

 

1,000,000

 

November 1 - November 30, 2023

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

December 1 - December 31, 2023

 

 

2,940

 

 

 

91.93

 

 

 

 

 

 

1,000,000

 

Total

 

 

2,940

 

 

$

91.93

 

 

 

 

 

 

 

(1) Includes shares acquired pursuant to the Company's share-based incentive programs. Under the terms of the Company's share-based incentive programs, the Company accepts previously owned shares of common stock surrendered to satisfy tax withholding obligations associated with equity compensation. These purchases do not count against the maximum value of shares remaining available for purchase under Repurchase Authorizations.

(2) Includes shares acquired under the Board of Directors approved Repurchase Authorization(s).

On July 25, 2023, the Company’s Board of Directors (the Board) authorized the repurchase of up to one million shares of the Company’s common stock, which will terminate on April 30, 2024 (a Repurchase Authorization). The Company has not made any repurchases other than through this Repurchase Authorization. The Company is not currently engaging in repurchases. In the future, it may determine to resume repurchases. All share purchases pursuant to a Repurchase Authorization are intended to be within the scope of Rule 10b-18 promulgated under the Exchange Act. Rule 10b-18 provides a safe harbor for purchases in a given day if the Company satisfies the manner, timing and volume conditions of the rule when purchasing its own shares of common stock. For discussion of management's intentions regarding dividends, see “Results of Operations” in Part II, Item 7 of this report.

 

Performance Graph

 

The performance graph below compares the cumulative total shareholder return on UMB Financial Corporation Common Stock with the cumulative total return on the equity securities of companies included in the Standard & Poor’s 500 Stock Index and the S&P US BMI Banks Index, measured at the last trading day of each year shown. The graph assumes an investment of $100 on December 31, 2018 and reinvestment of dividends. The performance graph represents past performance and should not be considered to be an indication of future performance.

 

 

 

 

 

24


 

img179981199_0.jpg 

 

 

 

Index

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

UMB Financial Corporation

 

$

100.00

 

 

$

114.71

 

 

$

117.74

 

 

$

183.72

 

 

$

147.04

 

 

$

150.29

 

S&P US BMI Banks Index

 

 

100.00

 

 

 

137.36

 

 

 

119.83

 

 

 

162.92

 

 

 

135.13

 

 

 

147.41

 

S&P 500 Index

 

 

100.00

 

 

 

131.49

 

 

 

155.68

 

 

 

200.37

 

 

 

164.08

 

 

 

207.21

 

 

ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis

This Management’s Discussion and Analysis highlights the material changes in the results of operations and changes in financial condition for each of the three years in the period ended December 31, 2023. It should be read in conjunction with the accompanying Consolidated Financial Statements, Notes to Consolidated Financial Statements, and other financial statistics appearing elsewhere in this Annual Report on Form 10-K. Results of operations for the periods included in this review are not necessarily indicative of results to be attained during any future period.

CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS

From time to time the Company has made, and in the future will make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast,” “target,” “trend,” “plan,” “goal,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey the Company’s expectations, intentions, or forecasts about future events, circumstances, results, or aspirations.

This report, including any information incorporated by reference in this report, contains forward-looking statements. The Company also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, the Company may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.

All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond the Company’s control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual results or other future events, circumstances, or aspirations to differ from those in forward-looking statements include:

local, regional, national, or international business, economic, or political conditions or events;
changes in laws or the regulatory environment, including as a result of financial-services legislation or regulation;
changes in monetary, fiscal, or trade laws or policies, including as a result of actions by central banks or supranational authorities;
the pace and magnitude of interest rate movements;
changes in accounting standards or policies;
shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including changes in market liquidity or volatility or changes in interest or currency rates;
changes in spending, borrowing, or saving by businesses or households;
the Company’s ability to effectively manage capital or liquidity or to effectively attract or deploy deposits;
changes in any credit rating assigned to the Company or its affiliates;
adverse publicity or other reputational harm to the Company;
changes in the Company’s corporate strategies, the composition of its assets, or the way in which it funds those assets;
the Company’s ability to develop, maintain, or market products or services or to absorb unanticipated costs or liabilities associated with those products or services;

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the Company’s ability to innovate to anticipate the needs of current or future customers, to successfully compete in its chosen business lines, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;
changes in the credit, liquidity, or other condition of the Company’s customers, counterparties, or competitors;
the Company’s ability to effectively deal with economic, business, or market slowdowns or disruptions;
judicial, regulatory, or administrative investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to, the Company or the financial-services industry;
the Company’s ability to address changing or stricter regulatory or other governmental supervision or requirements;
the Company’s ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or facilities, including its capacity to withstand cyber-attacks;
the adequacy of the Company’s corporate governance, risk-management framework, compliance programs, or internal controls, including its ability to control lapses or deficiencies in financial reporting or to effectively mitigate or manage operational risk;
the efficacy of the Company’s methods or models in assessing business strategies or opportunities or in valuing, measuring, monitoring, or managing positions or risk;
the Company’s ability to keep pace with changes in technology that affect the Company or its customers, counterparties, or competitors;
mergers, acquisitions, or dispositions, including the Company’s ability to integrate acquisitions and divest assets;
the adequacy of the Company’s succession planning for key executives or other personnel;
the Company’s ability to grow revenue, control expenses, or attract and retain qualified employees;
natural disasters, war, terrorist activities, including instability in the Middle East and Russia's military action in Ukraine, pandemics, and their effects on economic and business environment in which the Company operates;
macroeconomic and adverse developments and uncertainties related to the collateral effects of the collapse of, and challenges for, domestic and international banks, including the impacts to the U.S. and global economies and reputational harm to the U.S. banking system; or
other assumptions, risks, or uncertainties described in the Risk Factors (Item 1A), Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7), or the Notes to the Consolidated Financial Statements (Item 8) in this Annual Report on Form 10-K or described in any of the Company’s annual, quarterly or current reports.

Any forward-looking statement made by the Company or on its behalf speaks only as of the date that it was made. The Company does not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that the Company may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

Results of Operations

Overview

 

The rapid rise in interest rates during 2022 and 2023, the resulting industry-wide reduction in the fair value of securities portfolios, and the recent bank runs that led to the failures of some financial institutions in March of 2023, among other events, have resulted in significant volatility in the U.S. banking sector and heightened focus on liquidity, uninsured deposits, deposit composition, unrecognized investment losses, and capital.

27


 

During November 2023, the FDIC approved a final rule to implement a special assessment to recover the losses to the DIF associated with protecting uninsured depositors following the closures of certain financial institutions in early 2023. The assessment base for the special assessment is equal to an insured depository institution’s uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion, and will be collected at an annual rate of 13.4 basis points for eight quarterly assessment periods. The Company’s portion of this special assessment was $52.8 million and was recognized in noninterest expense during the fourth quarter of 2023 and its impacts are discussed below.

The Company focuses on the following four core financial objectives. Management believes these objectives will guide its efforts to achieve its vision, to deliver the Unparalleled Customer Experience, all while seeking to improve net income and strengthen the balance sheet while undertaking prudent risk management.

The first financial objective is to continuously improve operating efficiencies. The Company has focused on identifying efficiencies that simplify its organizational and reporting structures, streamline back-office functions and take advantage of synergies and newer technologies among various platforms and distribution networks. The Company has identified and expects to continue identifying ongoing efficiencies through the normal course of business that, when combined with increased revenue, will contribute to improved operating leverage. For 2023, total revenue decreased 0.4%, and noninterest expense increased 11.2%, as compared to the previous year. Revenue for 2022 included a $66.2 million gain realized on the sale of the Company’s Visa Inc. Class B common shares. Noninterest expense for 2023 included the special FDIC assessment of $52.8 million as discussed above. The Company continues to invest in technological advances that it believes will help management drive operating leverage in the future through improved data analysis and automation. The Company also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies.

The second financial objective is to increase net interest income through profitable loan and deposit growth and the optimization of the balance sheet. For 2023, net interest income increased $6.3 million, or 0.7%, as compared to the previous year. The Company has shown increased net interest income through the effects of increased volume and mix of average earning assets, coupled with higher interest rates. This increase was partially offset by higher interest-bearing deposit rates and increased borrowed funds. Average earning assets increased $1.9 billion, or 5.3%, compared to 2022. Average loan balances increased $3.5 billion, partially offset by a decrease in average federal funds and resell agreements of $649.8 million, a decrease in average securities of $613.8 million, and a decrease in average interest-bearing due from banks of $362.1 million from the prior year. The funding for these assets was driven primarily by a 16.9% increase in average interest-bearing deposits, and a 647.5% increase in average borrowed funds, partially offset by a decrease of 19.8% in noninterest-bearing deposits. Net interest margin, on a fully tax-equivalent (FTE) basis, decreased 11 basis points compared to the same period in 2022 in large part due to repricing and mix changes of interest-bearing liabilities with the increase in short-term interest rates, partially offset by an increase in the benefit of free funds and the repricing of earning assets. Net interest spread contracted by 83 basis points during the same period.

The third financial objective is to grow the Company’s revenue from noninterest sources. The Company seeks to grow noninterest revenues throughout all economic and interest rate cycles, while positioning itself to benefit in periods of economic growth. Noninterest income decreased $12.4 million, or 2.2%, to $541.9 million for the year ended December 31, 2023, compared to the same period in 2022. The decrease in 2023 was driven by a $66.2 million gain realized on the sale of the Company’s Visa Inc. Class B common shares in 2022. These changes are discussed in greater detail below under Noninterest income. For the year ended December 31, 2023, noninterest income represented 37.1% of total revenues, as compared to 37.8% for 2022.

The fourth financial objective is effective capital management. The Company places a significant emphasis on maintaining a strong capital position, which management believes promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. The Company continues to maximize shareholder value through a mix of reinvesting in organic growth, evaluating acquisition opportunities that complement the Company’s strategies, increasing dividends over time, and appropriately utilizing a share repurchase program. At December 31, 2023, the Company had a total risk-based capital ratio of 12.85% and $3.1 billion in total shareholders’ equity, an increase of $433.3 million, or 16.2%, compared to total shareholders’ equity at December 31, 2022. The Company did not repurchase shares of common stock during 2023 except for shares acquired pursuant to the Company's share-based incentive programs. In 2023, the Company declared $75.3 million in dividends, which represents a 3.7% increase compared to dividends declared during 2022.

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Earnings Summary

The Company recorded consolidated net income of $350.0 million for the year ended December 31, 2023. This represents an 18.9% decrease over 2022. Net income for 2022 was $431.7 million, or an increase of 22.3% compared to 2021. Basic earnings per share for the year ended December 31, 2023, were $7.22 per share compared to $8.93 per share in 2022, a decrease of 19.1%. Basic earnings per share were $7.31 per share in 2021, or an increase of 22.2% from 2021 to 2022. Fully diluted earnings per share decreased 19.0% from 2022 to 2023 and increased 22.4% from 2021 to 2022. Return on average assets and return on average common shareholder’s equity for the year ended December 31, 2023 were 0.88% and 12.23%, respectively, compared to 1.15% and 15.83%, respectively, for the year ended December 31, 2022. Return on average assets and return on average common shareholder’s equity for the year ended December 31, 2021 were 1.00% and 11.43%, respectively.

The Company’s net interest income increased to $920.1 million in 2023 compared to $913.8 million in 2022 and $815.5 million in 2021. In total, net interest income increased $6.3 million, as compared to 2022, primarily driven by a favorable volume variance of $7.8 million, offset by a $1.5 million rate variance. See Table 2. The favorable volume variance on earning assets was predominantly driven by an increase of $1.9 billion, or 5.3%, in average earning assets. In 2023, average loan balances increased $3.5 billion, partially offset by a decrease in average federal funds and resell agreements of $649.8 million, a decrease in average securities balances of $613.8 million, and a decrease in interest-bearing due from banks of $362.1 million as compared to 2022. Net interest margin, on an FTE basis, decreased to 2.52% for 2023, compared to 2.63% for the same period in 2022, driven by repricing and mix changes of interest-bearing liabilities with the increase in short-term interest rates, partially offset by an increase in the benefit of free funds and the repricing of earning assets. Net interest spread contracted by 83 basis points during the same period. The Company has seen an increase in the benefit from interest-free funds as compared to 2022 driven by the increase in short-term interest rates. The impact of this benefit increased 72 basis points compared to 2022 and is illustrated on Table 3. The magnitude and duration of this impact will be largely dependent upon the FRB’s policy decisions and market movements. See Table 18 in Item 7A for an illustration of the impact of an interest rate increase or decrease on net interest income as of December 31, 2023.

The provision for credit losses totaled $41.2 million for the year ended December 31, 2023, which is an increase of $3.3 million, or 8.8%, compared to the same period in 2022. This change is the result of applying the CECL methodology for computing the allowance for credit losses, coupled with the impacts of loan growth, portfolio metric changes, and changes in macro-economic metrics in the current period as compared to the prior period. See further discussion in “Provision and Allowance for Credit Losses” in this report.

The Company had a decrease of $12.4 million, or 2.2%, in noninterest income in 2023, as compared to 2022, and an increase of $87.1 million, or 18.6%, in 2022, compared to 2021. The decrease in 2023 is primarily driven by decreased investment securities gains, net of $61.6 million, partially offset by an increase in trust and securities processing of $20.0 million and other income of $21.0 million. The increase in 2022 is primarily driven by increased investment securities gains, net of $53.4 million and brokerage fees of $30.8 million. The change in noninterest income in 2023 from 2022, and 2022 from 2021 is illustrated in Table 6.

Noninterest expense increased in 2023 by $101.0 million, or 11.2%, compared to 2022 and increased by $64.5 million, or 7.7%, in 2022 compared to 2021. The increase in 2023 is primarily driven by the FDIC special assessment of $52.8 million, and increases in salaries and employee benefits expense and processing fees. The increase in 2022 is primarily driven by increases in salaries and employee benefit expense, processing fees, other miscellaneous expense, bankcard expense, marketing and business development expense, and legal and consulting expense. The increase in noninterest expense in 2023 from 2022, and 2022 from 2021 is illustrated in Table 7 and below under Noninterest Expense.

Net Interest Income

Net interest income is a significant source of the Company’s earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest earning-assets and the related funding sources, the overall mix of these assets and liabilities, and the interest rates paid on each affect net interest income. Table 2 summarizes the change in net interest income resulting from changes in volume and rates for 2023, 2022 and 2021.

Net interest margin, presented in Table 1, is calculated as net interest income on a fully tax-equivalent basis as a percentage of average earning assets. Net interest income is presented on a tax-equivalent basis to adjust for the

29


 

tax-exempt status of earnings from certain loans and investments, which are primarily obligations of state and local governments. A critical component of net interest income and related net interest margin is the percentage of earning assets funded by interest-free sources. Table 3 analyzes net interest margin for the three years ended December 31, 2023, 2022 and 2021. Net interest income, average balance sheet amounts and the corresponding yields earned and rates paid for the years 2021 through 2023 are presented in Table 1 below.

The following table presents, for the periods indicated, the average earning assets and resulting yields, as well as the average interest-bearing liabilities and resulting yields, expressed in both dollars and rates.

Table 1

THREE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent basis)

(in millions)

 

 

 

2023

 

 

2022

 

 

 

Average Balance

 

 

Interest Income/ Expense (1)

 

 

Rate Earned/ Paid (1)

 

 

Average Balance

 

 

Interest Income/ Expense (1)

 

 

Rate Earned/ Paid (1)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and loans held for sale (FTE) (2) (3)

 

$

22,337.1

 

 

$

1,400.2

 

 

 

6.27

%

 

$

18,823.8

 

 

$

810.1

 

 

 

4.30

%

Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

 

9,097.1

 

 

 

215.0

 

 

 

2.36

 

 

 

9,616.7

 

 

 

192.1

 

 

 

2.00

 

Tax-exempt (FTE)

 

 

3,790.9

 

 

 

128.2

 

 

 

3.38

 

 

 

3,885.1

 

 

 

122.8

 

 

 

3.16

 

Total securities

 

 

12,888.0

 

 

 

343.2

 

 

 

2.66

 

 

 

13,501.8

 

 

 

314.9

 

 

 

2.33

 

Federal funds sold and resell agreements

 

 

316.1

 

 

 

17.7

 

 

 

5.58

 

 

 

965.9

 

 

 

19.1

 

 

 

1.98

 

Interest-bearing due from banks

 

 

2,046.4

 

 

 

103.2

 

 

 

5.04

 

 

 

2,408.5

 

 

 

18.6

 

 

 

0.77

 

Other earning assets (FTE)

 

 

14.0

 

 

 

0.8

 

 

 

5.65

 

 

 

12.1

 

 

 

0.6

 

 

 

4.96

 

Total earning assets (FTE)

 

 

37,601.6

 

 

 

1,865.1

 

 

 

4.96

 

 

 

35,712.1

 

 

 

1,163.3

 

 

 

3.26

 

Allowance for credit losses

 

 

(216.2

)

 

 

 

 

 

 

 

 

(184.1

)

 

 

 

 

 

 

Cash and due from banks

 

 

456.6

 

 

 

 

 

 

 

 

 

420.0

 

 

 

 

 

 

 

Other assets

 

 

1,888.3

 

 

 

 

 

 

 

 

 

1,631.0

 

 

 

 

 

 

 

Total assets

 

$

39,730.3

 

 

 

 

 

 

 

 

$

37,579.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing demand and savings deposits

 

$

18,374.9

 

 

$

588.3

 

 

 

3.20

%

 

$

17,333.0

 

 

$

162.2

 

 

 

0.94

%

Time deposits under $250,000

 

 

1,967.0

 

 

 

92.4

 

 

 

4.70

 

 

 

95.0

 

 

 

0.7

 

 

 

0.74

 

Time deposits of $250,000 or more

 

 

780.4

 

 

 

23.5

 

 

 

3.01

 

 

 

635.5

 

 

 

4.6

 

 

 

0.72

 

Total interest-bearing deposits

 

 

21,122.3

 

 

 

704.2

 

 

 

3.33

 

 

 

18,063.5

 

 

 

167.5

 

 

 

0.93

 

Short-term debt

 

 

1,929.0

 

 

 

96.4

 

 

 

5.00

 

 

 

8.6

 

 

 

0.3

 

 

 

3.49

 

Long-term debt

 

 

382.3

 

 

 

25.0

 

 

 

6.54

 

 

 

300.6

 

 

 

15.2

 

 

 

5.06

 

Federal funds purchased

 

 

170.0

 

 

 

8.4

 

 

 

4.97

 

 

 

249.7

 

 

 

5.2

 

 

 

2.10

 

Securities sold under agreements to repurchase

 

 

2,005.4

 

 

 

84.6

 

 

 

4.22

 

 

 

2,527.4

 

 

 

35.5

 

 

 

1.40

 

Total interest-bearing liabilities

 

 

25,609.0

 

 

 

918.6

 

 

 

3.59

 

 

 

21,149.8

 

 

 

223.7

 

 

 

1.06

 

Noninterest-bearing demand deposits

 

 

10,640.4

 

 

 

 

 

 

 

 

 

13,264.1

 

 

 

 

 

 

 

Other

 

 

618.2

 

 

 

 

 

 

 

 

 

438.8

 

 

 

 

 

 

 

Total

 

 

36,867.6

 

 

 

 

 

 

 

 

 

34,852.7

 

 

 

 

 

 

 

Total shareholders' equity

 

 

2,862.7

 

 

 

 

 

 

 

 

 

2,726.3

 

 

 

 

 

 

 

Total liabilities and shareholders' equity

 

$

39,730.3

 

 

 

 

 

 

 

 

$

37,579.0

 

 

 

 

 

 

 

Net interest income (FTE)

 

 

 

 

$

946.5

 

 

 

 

 

 

 

 

$

939.6

 

 

 

 

Net interest spread (FTE)

 

 

 

 

 

 

 

 

1.37

%

 

 

 

 

 

 

 

 

2.20

%

Net interest margin (FTE)

 

 

 

 

 

 

 

 

2.52

%

 

 

 

 

 

 

 

 

2.63

%

 

(1)
Interest income and yields are stated on an FTE basis, using a marginal tax rate of 21% for 2023, 2022, and 2021. The tax-equivalent interest income and yields give effect to tax-exempt interest income net of the disallowance of interest expense, for federal income tax purposes related to certain tax-free assets. Rates

30


 

earned/paid may not compute to the rates shown due to presentation in millions. The tax-equivalent interest income totaled $26.4 million, $25.8 million, and $26.3 million in 2023, 2022, and 2021, respectively.
(2)
Loan fees are included in interest income. Such fees totaled $17.7 million, $18.2 million, and $17.1 million in 2023, 2022, and 2021, respectively.
(3)
Loans on nonaccrual are included in the computation of average balances. Interest income on these loans is also included in loan income.

THREE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent basis)

(in millions)

 

 

 

2021

 

 

 

Average Balance

 

 

Interest Income/ Expense (1)

 

 

Rate Earned/ Paid (1)

 

ASSETS

 

 

 

 

 

 

 

 

 

Loans and loans held for sale (FTE) (2) (3)

 

$

16,629.9

 

 

$

619.3

 

 

 

3.72

%

Securities:

 

 

 

 

 

 

 

 

 

Taxable

 

 

7,422.4

 

 

 

127.6

 

 

 

1.72

 

Tax-exempt (FTE)

 

 

4,247.0

 

 

 

124.5

 

 

 

2.93

 

Total securities

 

 

11,669.4

 

 

 

252.1

 

 

 

2.16

 

Federal funds sold and resell agreements

 

 

1,234.5

 

 

 

10.1

 

 

 

0.81

 

Interest-bearing due from banks

 

 

4,063.1

 

 

 

5.4

 

 

 

0.13