UMB says deal gives it access to wealth fleeing California
- Key insight: UMB Financial plans to buy El Dorado Savings Bank in a deal valued at $506 million. The transaction offers a boost in low-cost deposits and allows UMB to establish a presence in Nevada.
- What’s at stake: UMB, which completed its largest-ever acquisition nearly two years ago, plans to use the low-cost deposits to fund its loan growth. Its loans rose by 12.4% in the third quarter.
UMB Financial in Kansas City, Missouri, plans to grow its West Coast presence by acquiring a community bank in northern California that offers two appealing benefits — a low-cost deposit base and access to wealthy individuals fleeing higher taxes.
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The $70.8 billion-asset UMB agreed to buy El Dorado Savings Bank in Placerville, California, in a cash-and-stock deal valued at roughly $506 million. The transaction, which is expected to close in the first quarter of next year, would place $2.1 billion of core consumer deposits onto UMB’s balance sheet, providing a cheap source of funding for UMB’s double-digit loan growth.
The pending transaction, which requires regulatory approval and a thumbs-up from El Dorado shareholders, comes nearly two years after
UMB CEO Mariner Kemper told analysts Wednesday that the regional bank remains largely focused on investing in organic growth. At the same time, potential “tuck-in” deals that meet certain criteria, such as a low-cost deposit base, a low loan-to-deposit ratio, high-quality credit metrics and the ability to retain full control of the boardroom, are an option, Kemper added.
El Dorado, a $2.4 billion-asset bank that serves the greater Sacramento area, fit the bill, and offers a chance to take advantage of the wealth flight from higher-tax California to lower-tax Nevada, he said.
“We think that there’s a really nice early-days benefit that could have a longer-term, really big upside surprise,” given the migration of wealthy people from California to Nevada, specifically the Lake Tahoe area in Nevada, Kemper said during UMB’s third-quarter earnings call. “There’s quite a bit happening with movement from one state to another into better tax environments.”
This isn’t the first time that El Dorado sought to sell itself. In 2019, its shareholders voted down
Four years later, Los Angeles-based PacWest was
The tie-up with UMB includes $500 million in loans, mostly consumer mortgages. El Dorado CEO David Cook will become vice chairman of UMB Bank California, the two banks said in a press release.
Under the terms of the agreement, El Dorado shareholders will receive a fixed exchange ratio of 13.553 shares of UMB’s common stock and $1.958.88 in cash for each outstanding share of El Dorado stock. Post-acquisition, El Dorado shareholders will own 2% of the combined bank.
Analysts seemed to be largely supportive of the deal. Brendan Nosal, an analyst at Hovde Group, wrote in a research note that the acquisition is “best viewed as a funding mechanism for the company’s organic loan growth engine, with deeper [California] retail merits.” He also called it an “easily digestible” transaction since El Dorado is just 3% of UMB’s total size.
UMB’s stock was down about 1.6% as of mid-afternoon Wednesday. The KBW Nasdaq regional bank index, meanwhile, was up about half of a percentage point.
El Dorado’s bounty of stable, low-cost deposits were attractive to UMB, given the latter’s strong loan growth. In the third quarter, UMB’s average loans rose 12.4% year over year, driven largely by a large uptick in commercial-and-industrial loans, which grew 24.9% from the year-ago period.
UMB Chief Financial Officer Ram Shankar, during Wednesday’s call, attributed the increase in C&I lending to “strong activity across the footprint, led by St. Louis, Texas and Utah.”
El Dorado maintains a highly liquid balance sheet with cash and securities comprising 78% of total assets, with loans accounting for only 22%. The bank has leveraged its branch network and an effective relationship-banking strategy to keep funding costs well below the industry average of 2.03%. Its cost of funds was just 0.86%, according to data from the Federal Deposit Insurance Corp.
One analyst wondered what would happen if UMB’s loan growth outpaced its deposit growth, and, if it did play out, whether the bank would pull back on lending or increase deposit pricing. Average deposits increased 2.6% in the third quarter compared with the year-ago period.
Kemper firmly pushed back on the scenario that the analyst laid out.
“We have zero expectation that what you just described is even remotely a scenario for us to encounter,” Kemper said. “So fourth quarter deposits will grow. We have a really nice line of sight,” including into “some really great” corporate institutional deposit growth in the first quarter of 2027, he said.
Net income for the third quarter was $272.3 million, up 51% year over year. Earnings per share of $3.56 topped the estimate of $3.24 that analysts polled by S&P Capital IQ had predicted.
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Net interest income of $540 million rose 13.7% year over year, while fee income of $232.4 million rose 14.3% from the prior-year period. Expenses declined 4.7% to $399.5 million, due in part to a decrease in legal and consulting costs as well as a decrease in termination-related fees tied to the acquisition of Heartland Financial.
UMB’s assets grew more than 3% year over year. The bank is inching closer toward the $100 billion-asset threshold, at which time it would be subject to stricter regulations.
Kemper said UMB has no plans to cross that marker anytime soon.
“While we have a plan, we’re not ready today,” he said. “We would not do a deal that would put us on top of that number.”
John Reosti contributed to this story.
