Why Is UMB (UMBF) Up 14.9% Since Last Earnings Report?
A month has gone by since the last earnings report for UMB Financial (UMBF). Shares have added about 14.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.
UMB Financial Q3 Earnings Beat, Revenues Miss Estimates
UMB Financial’s third-quarter 2023 operating earnings per share of $2.02 surpassed the Zacks Consensus Estimate of $1.76. The bottom line increased 11% from the prior-year quarter’s $2.83.
Results were affected by a decline in revenues, a contraction of net interest margin (NIM) and a rise in expenses. Nonetheless, increasing loan balances offered some support.
UMB Financial reported GAAP net income of $96.5 million in the third quarter, up 9.7% year over year.
Revenues Decline, Costs Rise
Total revenues were $362.16 million, down 1.7% year over year. Further, the top line missed the Zacks Consensus Estimate of $363.77 million.
NII on an FTE basis was $228.8 million, reflecting a decline of 4.6% from the prior-year quarter. On an FTE basis, NIM contracted to 2.43% from the prior-year quarter’s 2.76%.
Non-interest income was $133.3 million, up 3.5% year over year. The rise was driven by an increase in trust and securities processing, and service charges on deposit accounts. These were partially offset by a decrease in trading and investment banking income.
Non-interest expenses were $231.4 million, up marginally year over year. Increased processing fees, supplies and services costs, bankcard expenditure, the amortization of other intangible assets and regulatory expenses primarily led to this upside.
The efficiency ratio increased to 64.51% from the prior-year quarter’s 63.58%. An increase in efficiency ratio indicates a decrease in profitability.
As of Sep 30, 2023, average loans and leases were $22.75 billion, up 2.5% sequentially. However, average deposits declined marginally to $31.33 billion as of Sep 30, 2023.
Credit Quality Improves
The ratio of net charge-offs to average loans was 0.08% in the reported quarter, up from 0.02% in the year-ago quarter.
Nonetheless, the provision for credit losses was $4.97 million compared with $22 million in the prior-year quarter. Also, total non-accrual and restructured loans were $17.04 million, down 14%.
Capital Ratios Decline, Profitability Ratios Improve
As of Sep 30, 2023, the Tier 1 risk-based capital ratio was 10.77% compared with 11.18% as of Sep 30, 2022. The Tier 1 leverage ratio was 8.55% compared with 8.66% as of Sep 30, 2022. The total risk-based capital ratio was 12.68% compared with 13.13% a year ago.
Return on average assets at the quarter’s end was 0.97% compared with the year-ago quarter’s 0.96%. Additionally, operating return on average equity was 13.50% compared with 12.94% witnessed in the prior-year quarter.
Outlook 2023
Management anticipates NII to remain flat to grow slightly.
The effective tax rate is projected to be between 17% and 19%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, UMB has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. 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 D. 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. Notably, UMB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
UMB belongs to the Zacks Banks - Midwest industry. Another stock from the same industry, Associated Banc-Corp (ASB), has gained 14.4% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.
Associated Banc-Corp reported revenues of $325.63 million in the last reported quarter, representing a year-over-year change of -4.3%. EPS of $0.53 for the same period compares with $0.62 a year ago.
For the current quarter, Associated Banc-Corp is expected to post earnings of $0.53 per share, indicating a change of -24.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +6.9% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Associated Banc-Corp. Also, the stock has a VGM Score of C.
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