UMB Financial Corporation (UMBF), SVB Financial Group (SIVB), Prosperity Bancshares, Inc. (PB): Yields Are Up, and These Banks Will Benefit the Most

As a matter of fact, a number of bank management teams have indicated that they are keeping excess liquidity in low-yielding cash and equivalents. I believe that the increase in rates since the start of May has been significant enough to make most banking institutions start investing some of their excess liquidity in securities with longer maturities, benefiting their net interest margins. Here I shall review the three American banks with the highest cash to total asset ratios since they are the ones that should benefit the most.

The cash king

UMB Financial Corporation (NASDAQ:UMBF) has a cash to total asset ratio of 57%, the highest in the US financial industry. Headquartered in Missouri and with banking centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona, UMB is a small bank with a lot to gain from higher interest rates. The bank  is poised to increase its return-on-assets from its current 0.79% to well over 1% as rates continue their upward trend.

UMB Financial Corporation (NASDAQ:UMBF), which is up by 36% year-to-date, trades at 190% its book value and 19 times its price-to-earnings ratio. Even if the bank looks a bit expensive relative to bigger banks such as Citigroup Inc (NYSE:C) (which trades at 80% of its book value), it is really not that expensive when we take into account UMB Financial Corporation (NASDAQ:UMBF)’s high 8.7% return on equity and its huge potential give the size of its cash pile.

Growing at Silicon Valley rates

SVB Financial Group (NASDAQ:SIVB) is the second bank on my cash to total assets ratio list. The bank has 55% of its total assets invested into short term cash equivalent securities. Serving the California area, this small financial institution has been the performance king. The bank has been adding deposits at a 15.5% year-over-year rate and increasing loans at a 24.2% year-over-year rate. As a result, net interest income is growing at a yoy rate of 8.1%.

Even when Mr. Market has recognized the bank’s growth (the stock is up by 61% year-to-date), I think there is still more space for continued out-performance. SVB Financial Group (NASDAQ:SIVB) trades at 23 times its price-to-earnings ratio and 152% its book value, but the current interest rate trends are going to contribute immensely to ameliorate the bank’s 7% return on equity and 0.82% return on assets.