More loans, higher interest rates and a growing economy helped boost earnings at UMB Financial Corp. but could limit its choices in another area — acquisitions.
One day after reporting its quarterly earnings, CEO Mariner Kemper said Wednesday that the improving outlook for the economy and for the banking industry likely means potential sellers will be reluctant to agree on a price right now.
“Targets will want to benefit from any improvements before they take their chips off the table,” Kemper said Wednesday.
The idea is that waiting would improve the target bank’s profits and allow its owners to ask for a higher price.
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Kemper said UMB continues to consider possible acquisitions and will be willing to pay a premium for a quality operation when the time comes.
“We’re always kicking tires,” Kemper said. “Getting a deal done in this environment is probably not likely for us.”
On Tuesday, UMB had reported a 44.8 percent jump in its fourth-quarter earnings, and that helped propel profits for the year higher. The company has 3,685 employees, including 2,190 in the Kansas City area.
The improvement came partly from efforts to control costs but also from the banking company’s growing loan portfolio. Kemper said loan growth at UMB, which has locations in eight states including Arizona and Texas, is twice the industry’s pace.
Mike Hagedorn, CEO of UMB Bank, said UMB also has grown its deposit base, which is how banks traditionally finance lending operations. Loans had been as high as 74 percent of deposits before the recession, Hagedorn said, and are currently 65 percent.
“We’ve got a lot of room. If we’re growing both sides of the balance sheet, this will take care of itself,” he said.
Rising interest rates help lenders like UMB, where two-thirds of its loans will reprice within 12 months as rates climb. UMB also has a large portfolio of investment securities that benefits by using proceeds from maturing investments to buy new ones that earn higher rates as interest rates increase.