It has been about a month since the last earnings report for UMB Financial (UMBF). Shares have lost about 0.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is UMB due for a breakout? 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 drivers.
UMB Financial Q1 Earnings Beat Estimates On Higher Revenues
UMB Financial’s net operating income of $1.91 per share outpaced the Zacks Consensus Estimate of $1.47. The bottom line also compares favorably with the prior-year quarter’s loss of 4cents.
The first-quarter results include a $16.1-million pre-tax mark-to-market loss on the company’s investment in Tattooed Chef, Inc.
Higher revenues, aided by rise in interest and fee income, supported the company’s performance. Also, capital position and profitability ratios were strong. However, elevated expenses and low interest rates were major drags.
Including certain non-recurring items, the company reported net income of $92.6 million or $1.91 per share in the first quarter, as against the net loss of $3.4 million or 7 cents per share recorded in the prior year.
Revenues, Loans & Deposits Balance Rise, Costs Up
Total revenues (fully tax-equivalent) in the March-ended quarter came in at $303 million, up 11.3% year over year. The revenue figure, however, lagged the Zacks Consensus Estimate of $307.5 million.
Net interest income came in at $194.1 million, reflecting an increase of 11.6% from the year-ago quarter. Growth in organic loans and decline in interest expenses, on lower costs of deposits, mainly led to this upside. Net interest margin contracted 38 basis points (bps) to 2.59% from the prior-year quarter.
Non-interest income totaled $108.9 million, rising 10.6% year over year. This upsurge mainly resulted from rise in trading and investment banking, trust and securities processing, insurance fees and commissions and other income.
Non-interest expenses came in at $200.9 million, up 6.5% from the year-ago quarter, mainly due to higher salaries and employee benefits, processing fees, bankcard, along with high regulatory fees. These were partly negated by lower marketing and business development, equipment costs, legal and consulting fees supplies and services, along with occupancy expenses.
Efficiency ratio decreased to 66.46% from the prior-year quarter’s 68.93%. Adjusted efficiency ratio was 66.40%, down from the year-earlier quarter’s 68.19%. A fall in efficiency ratio indicates rise in profitability.
As of Mar 31, 2021, average loans and leases were $16.2 billion, up 1.3% sequentially. Additionally, average deposits climbed 7.5% from the prior-quarter end to $26.8 billion.
Credit Quality Improves
During the reported quarter, credit metrics improved. Total non-accrual and restructured loans came in at $76.7 million, down 21% year over year. Provision for loan losses was a benefit of $7.5 million as against the provision of $88 million seen in the prior-year quarter.
Further, the ratio of net charge-offs to average loans was 0.13% in the reported quarter, down 10 bps from the year-ago quarter.
Strong Capital & Profitability Ratios
As of Mar 31, 2021, Tier 1 risk-based capital ratio was 12.25% compared with 11.90% on Mar 31, 2020. Also, total risk-based capital ratio was 14.28% compared with the 13.12% witnessed at the end of the prior-year quarter. Tier 1 leverage ratio was 8.08% compared with 8.81% as of Mar 31, 2020.
Adjusted return on average assets at the quarter’s end was 1.14%, against the year-ago quarter’s negative return of 0.03%. Additionally, return on average equity was 12.58% as against the loss of 0.28% witnessed in the prior-year quarter.
The margin trajectory will largely depend on the levels of liquidity, pace and timing of Paycheck Protection Program (PPP) forgiveness and reinvestment rates on cash flows in the securities portfolio. Overall, on a GAAP margin basis, some modest pressure in the second quarter is expected.
Some seasonal increases in expenses experienced in thefirst quarter of2021 is anticipated to decrease by $3-4 million in the second quarter.
Management expects another reserve release in the second quarter.
For full-year 2021, tax rate is expected to be approximately between 15% to 17%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 29.83% due to these changes.
At this time, UMB has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been 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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