UMB (UMBF) Up 3.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for UMB Financial (UMBF). Shares have added about 3.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is UMB due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

UMB Financial Q4 Earnings Miss Mark, Revenues Decrease

UMB Financial reported fourth-quarter 2021 net operating income of $1.62 per share, lagging the Zacks Consensus Estimate of $1.87. The bottom line also compares unfavorably with the prior-year quarter’s earnings of $3.26.

Results for the fourth quarter and full-year 2020 include a pre-tax gain of $108.8 million on UMB Financial’s investment in Tattooed Chef, Inc.

Lower non-interest income, and a fall in average loan and leases balance affected UMB Financial’s performance. Also, capital and profitability ratios witnessed a decline. Higher provisions and contraction of NIM were the other drags. Nonetheless, increased NII and lower expenses acted as tailwinds.

UMB Financial reported GAAP net income of $78.5 million or $1.61 per share in the fourth quarter, down from $156.3 million or $3.24 recorded a year ago.

In 2021, UMB Financial reported a net income of $354.4 million or $7.27 per share compared with $286.5 million or $5.93 in 2020.

Revenues and Costs Down, Deposit Balance Rises

Fourth quarter 2021 total revenues were $329.3 million, down 22% year over year. The top line missed the Zacks Consensus Estimate of $330.3 million.

Revenues for the full year came in at $1.27 billion, lagging the Zacks Consensus Estimate of $1.32 billion. The top line also decreased marginally year over year.

NII on a quarterly basis was $210.6 million, reflecting an increase of 8% from the year-ago quarter’s figure. Growth in average securities and increased average loans mainly led to this upside. These increases were driven by organic loan growth, excess liquidity and UMB Financial’s Paycheck Protection Program (PPP) participation. The NIM contracted to 2.37% from the prior-year quarter’s 2.78%.

Non-interest income totaled $118.8 million, decreasing 48% year over year. The decline mainly resulted from lower trading and investment banking income, and the company-owned life insurance. Also, the reported quarter witnessed a substantial fall in net investment securities gains as the prior-year period included a gain on the sale of investments in Tattooed Chef, Inc.

Non-interest expenses were $222.5 million, down 1.9% from the year-ago quarter’s level, mainly due to decreased operational losses and deferred compensation expense.

The efficiency ratio increased to 67.78% from the prior-year quarter’s 53.44%. A rise in the efficiency ratio indicates a fall in profitability.

As of Dec 31, 2021, average loans and leases were $16.7 billion, down marginally from the sequential quarter’s level. This included PPP loan balances.

Average deposits climbed 7.5% from the prior quarter’s level to $31.6 billion as of Dec 31, 2021.

Credit Quality Deteriorates

The ratio of net charge-offs to average loans was 0.19% in the reported quarter, up 15 basis points from the year-ago quarter’s level. The provision for credit losses was $8.5 million compared with $5 million seen in the prior-year quarter.

Moreover, total non-accrual and restructured loans were $92.3 million, up 5% year over year.

Capital and Profitability Ratios Decline

As of Dec 31, 2021, the Tier 1 risk-based capital ratio was 12.05% compared with 12.10% as of Dec 31, 2020. The total risk-based capital ratio was 13.88% compared with 14.26% in the year-ago quarter. The Tier 1 leverage ratio was 7.61% at 2021 end compared with 8.37% as of Dec 31, 2020.

Adjusted return on average assets at the quarter’s end was 0.82% compared with the year-ago quarter’s 2.03%. Additionally, operating return on average equity was 9.91% compared with 21.18% witnessed in the prior-year quarter.

2022 Outlook

Positive operating leverage (excluding the impact of PPP with or without the benefit of the higher interest rates) is expected.

Tax rate is expected between 17% and 19%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, UMB has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise UMB has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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