UMB, Kansas City’s largest bank, sees stock plunge following Silicon Valley collapse

The stock price of UMB Bank tanked on Monday after the collapse of Silicon Valley Bank sent shock waves through the financial system.

Measured by the total amount of deposits, Kansas City-based UMB touts the largest local market share of any regional or national bank in the metro. It was among a group of regional banks around the country that saw sharp declines in stock prices, even as the federal government sought to bolster public confidence in the U.S. banking system.

The government has opened an emergency lending program and guaranteed deposits at troubled banks following last week’s collapse of Silicon Valley Bank. The California institution, which catered to tech investors, became the largest bank failure since the financial crisis of 2008.

UMB’s stock price fell nearly 30% Monday morning, though the stock price bounced back in afternoon trading. By the time the market closed, UMB’s stock was trading for $62.16 — a nearly 15% decline from the morning open of $72.66. That was the biggest drop among local bank stocks and the lowest price for a share of UMB since 2020.

UMB officials acknowledged the stock market tumult, but said the business remains financially strong.

“It’s also important to remember that a stock price is not an indicator of the strength of a bank,” the company said in a statement. “UMB’s strengths are strong liquidity, diversified deposit base, excellent capital ratios and strong credit metrics. We remain steadfast in our commitment to our customers to be a strong partner and service provider at all times.”

With more than $31 billion in deposits in October, UMB had a market share of more than 25%, according to a list maintained by the Kansas City Business Journal. That’s double the market share of its biggest competitor, Commerce Bank, and far outpaces the penetration of national banks like Bank of America.

Recent challenges in the technology industry led depositors to withdraw funds at Silicon Valley Bank last week. So many customers pulled their funds that the bank had to sell off bond holdings at a substantial loss — leading to a full-blown run on the bank.

The federal government took extraordinary steps over the weekend to ensure customers were able to access funds in their account — even for those whose deposits exceeded the $250,000 limit for insurance through the Federal Deposit Insurance Corporation. In an effort to stave off other bank runs, the Federal Reserve also made billions of dollars available to ensure deposits at other troubled banks across the country.

New York-based Signature Bank, which had more than $110 billion in assets, also failed and was taken over by the New York Department of Financial Services.

“While this is a significant event, based on current information, we believe the issues pertaining to Silicon Valley Bank and Signature Bank are idiosyncratic to its business model and client base and not systemic to the banking industry,” Mariner Kemper, chairman, president and chief executive of UMB Financial Corporation, said in a statement to The Star.

Kemper noted that the entire banking sector saw stock prices drop Monday, though his statement acknowledged UMB “is getting hit harder than the industry.”

That’s because the bank has a higher percentage of uninsured deposits and unrealized losses, a term for assets that have declined in value but have yet to be sold.

Kemper said the bank’s higher share of commercial and institutional customers separates it from other banks. He noted many deposits from those customers are backed by collateral, which decreases risk associated with uninsured deposits.

So why did the stock price plummet?

UMKC associate professor Nathan Mauck said investors are likely looking for banks with high rates of deposits that exceed the FDIC’s $250,000 threshold and those that are heavily invested in long-term bonds. Those securities have lost value as interest rates have soared.

With so many businesses and wealthy customers, about 75% of UMB’s deposits are uninsured, according to federal filings. That figure is only about 50% for Commerce Bank and 57% for Bank of America.

But it’s not cause for panic, said Mauck, who teaches finance at the Henry W. Bloch School of Management at the University of Missouri-Kansas City.

Especially for the vast majority of customers with deposits under $250,000.

“One of the great things about FDIC insurance is we don’t need any special effort to have our deposits under $250,000 protected. That’s already baked into the system,” he said. “And the reason they did that is to prevent exactly whats’ happening: a good old fashioned bank run.”

Even the wealthiest individuals and businesses have some level of assurance now that the federal government is backing deposits above $250,000 at the failed banks.

And Mauck said UMB’s fundamentals still look solid.

The bank reported profits exceeding $431 million last year — a 22.3% increase over 2021 profits.

“As we enter the 110th year of business, our strong balance sheet and differentiated business mix position us well to deliver solid returns across all economic cycles, driven by our basic tenet of providing the Unparalleled Customer Experience to all our key constituents,” Kemper said in a January 24 earnings release.

The bank’s website on Monday featured a reassurance to customers, noting that the bank has liquidity, strong asset quality and “significantly more capital than is required by government regulations.”

Commerce Bank also sought to reassure its customers that its fundamentals were solid.

In an online message, the bank said it was “among the safest banks in the country,” pointing to an industry leading credit rating from Moody’s.

“Commerce is a highly diversified, main street bank with the experience and knowledge that comes with serving customers for nearly 160 years through all economic cycles,” wrote John Kemper, the bank’s president and CEO. “We are well-capitalized, have a stable deposit base and have historically performed well in challenging times. Our long history of sound asset quality, prudent expense management, and strong levels of capital and liquidity, position us well for times of economic stress.”