UMB Financial's (UMBF) Q2 Earnings Miss on Revenues Decline
UMB Financial’s UMBF second-quarter 2023 operating earnings per share of $1.93 missed the Zacks Consensus Estimate of $1.99. Also, the bottom line declined 31.8% from the prior-year quarter’s $2.83.
Results were affected by a decline in revenues, contraction of net interest margin (NIM) and a rise in expenses. Nonetheless, increasing loan balances offered some support.
UMBF reported GAAP net income of $90.1 million or $1.85 per share in the second quarter, down from $137.6 million or $2.83 per share recorded a year ago.
Revenues Decline, Costs Up
Total revenues were $370.3 million, down 9.1% year over year. Further, the top line missed the Zacks Consensus Estimate of $374.6 million.
Net interest income (NII) on an FTE basis was $232.2 million, reflecting a marginal increase from the prior-year quarter. Growth in average loans and higher interest rates mainly led to this upside. On an FTE basis, NIM contracted to 2.44% from the prior-year quarter’s 2.60%.
Non-interest income was $138.1 million, down 21.7%. The fall was driven by lower trading and investment banking income and a decline in net investment securities gains. These were partially offset by an increase in trust and securities processing, and brokerage fees.
Non-interest expenses were $240.7 million, up 12.4%. Increased salaries and employee benefits outlays, processing fees, supplies and services costs, bankcard expenditures, amortization of other intangible assets and regulatory expenses primarily resulted in this upside.
The efficiency ratio increased to 65.59% from the prior-year quarter’s 53.08%. An increase in efficiency ratio indicates a decrease in profitability.
As of Jun 30, 2023, average loans and leases were $22.26 billion, up 4.3% from the sequential quarter’s level. However, average deposits declined marginally to $31.47 billion as of Jun 30, 2023.
Credit Quality: Mixed Bag
The ratio of net charge-offs to average loans was nil in the reported quarter, down 62 basis points from the year-ago quarter. Moreover, provision for credit losses was $13 million compared with $13.4 million in the prior-year quarter.
However, total non-accrual and restructured loans were $19.3 million, rising 6.8%.
Capital & Profitability Ratios Decline
As of Jun 30, 2023, the Tier 1 risk-based capital ratio was 10.65% compared with 11.44% as of Jun 30, 2022. The Tier 1 leverage ratio was 8.16% compared with 8.17% as of Jun 30, 2022. The total risk-based capital ratio was 12.59% compared with 13% in the year-ago quarter.
Return on average assets at the quarter’s end was 0.90% compared with the year-ago quarter’s 1.47%. Additionally, operating return on average equity was 13.08% compared with 20.84% witnessed in the prior-year quarter.
Share Repurchase Update
The company also approved the repurchase of up to 1,000,000 shares of its common stock. These can take place at any point of time until the meeting of the Board immediately followed by the 2024 annual meeting of UMBF’s shareholders.
Our Take
UMBF’s efforts to diversify its non-interest income sources to reduce exposure to interest rates are likely to support revenues in the quarters ahead. However, mounting expenses are major near-term concern.
UMB Financial Corporation Price, Consensus and EPS Surprise
UMB Financial Corporation price-consensus-eps-surprise-chart | UMB Financial Corporation Quote
UMB Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Texas Capital Bancshares, Inc. TCBI reported second-quarter 2023 earnings per share of $1.33, up from 59 cents in the prior-year quarter. Also, the bottom line surpassed the Zacks Consensus Estimate of 94 cents.
TCBI’s results were aided by rising revenues and improving capital ratios. However, its performance was affected by increased expenses and deteriorating credit quality.
Huntington Bancshares Incorporated HBAN reported second-quarter 2023 earnings per share of 35 cents, surpassing the Zacks Consensus Estimate of 34 cents. The metric remained flat from the prior-year figure.
HBAN’s results were benefited from increases in NII and non-interest income. However, a rise in expenses and higher provision for credit losses were headwinds.
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