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Why Is UMB (UMBF) Down 0.6% Since Last Earnings Report?

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A month has gone by 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 its most recent earnings report in order to get a better handle on the important catalysts.

UMB Financial Tops Q2 Earnings Estimates on Fall in Expenses

UMB Financial’s second-quarter operating earnings per share of $1.80 per share outpaced the Zacks Consensus Estimate of $1.74. The bottom line also compares favorably with the prior-year quarter’s $1.33.

Higher revenues, aided by a rise in interest and fee income, supported the company’s performance. However, low interest rates were major drags.

Including certain non-recurring items, the company reported a net income of $87.4 million or $1.79 per share in the second quarter compared with $60.5 million or $1.26 per share recorded in the prior year.

Revenues, Loans & Deposit Balance Rise, Costs Dip

Total revenues (fully tax-equivalent) in the June-ended quarter were $339.3 million, up 9.6% year over year. The revenue figure outpaced the Zacks Consensus Estimate of $312 million.

Net interest income was $201.1 million, reflecting an increase of 12.8% from the year-ago quarter. Growth in organic loans, excess liquidity and the company’s PPP participation mainly led to the upside. Net interest margin contracted to 2.56% from the prior-year quarter’s 2.79%.

Non-interest income totaled $131.6 million, rising 9.2% year over year. The upsurge mainly resulted from a rise in investment securities gains; and services income and corporate trust income, service charges on deposits, and derivative income.

Non-interest expenses were $201.3 million, down 3.5% from the year-ago quarter mainly due to lower deferred compensation expenses recorded in salaries and employee benefits, and software expenses. These were partly negated by higher processing fees, legal and professional expenses, and marketing and business development expenses.

Efficiency ratio decreased to 60.41% from the prior-year quarter’s 70.20%. A fall in efficiency ratio indicates a rise in profitability.

As of Jun 30, 2021, average loans and leases were $16.8 billion, up 3.5% sequentially. Additionally, average deposits climbed 3.6% from the prior-quarter end to $27.8 billion.

Credit Quality Improves

In the reported quarter, credit metrics improved. Total non-accrual and restructured loans came in at $58.2 million, down 29% year over year. The ratio of net charge-offs to average loans was 0.68% in the reported quarter, down 2 basis points from the year-ago quarter.

Provision for loan losses was $24 million compared with $21.5 million seen in the prior-year quarter.

Capital Ratios Decline, Profitability Improves

As of Jun 30, 2021, Tier 1 risk-based capital ratio was 11.91% compared with 11.92% on Jun 30, 2020. Tier 1 leverage ratio was 8% compared with 8.35% as of Jun 30, 2020.Total risk-based capital ratio was 13.84% compared with the 13.17% witnessed at the end of the prior-year quarter.

Adjusted return on average assets at the quarter’s end was 1.02% compared with the year-ago quarter’s 0.87%. Additionally, operating return on average equity was 11.46% compared with 9.44% witnessed in the prior-year quarter.

Outlook

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 half of the year is expected.

For 2021, tax rate is expected to be between 16% and 18%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 9.92% due to these changes.

VGM Scores

Currently, UMB has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, 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 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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