UMB FinancialUMBF recorded a positive earnings surprise of 3.6% in third-quarter 2018. Net operating earnings of $1.16 per share beat the Zacks Consensus Estimate of $1.12. The reported figure compares favorably with the prior-year quarter's earnings of 98 cents.
Higher revenues, aided by rising loans and deposit balances, aided the results. Rising rates and improved credit quality were other tailwinds. However, lower non-interest income and elevated expenses were the undermining factors.
Including certain non-recurring items, the company reported net income of $57.8 million or $1.16 per share for the quarter under review, up from $48.9 million or 98 cents recorded in the prior-year quarter.
Increase in Revenues, Loans & Deposits Balance, Costs Flare Up
Total revenues for the Jul-Sep quarter came in at $251.4 million, up 2.5% year over year. However, the figure lagged the Zacks Consensus Estimate of $258 million.
Net interest income was $150.5 million, reflecting an increase of 6.8% from the year-ago quarter. Net Interest Margin (NIM) expanded 2 basis points (bps) to 3.18% from the prior-year quarter.
Non-interest income totaled $100.9 million, down 3.3% year over year. The decline resulted from a fall in most of the income components, except brokerage fees and other income.
Non-interest expenses (GAAP basis) came in at $180.4 million, up 5% from the year-ago tally. Adjusted non-interest expenses were $180.2 million, up 4.9% year over year.
Efficiency ratio (GAAP basis) declined to 70.09% from 71.20% in the prior-year quarter. Fall in efficiency ratio indicates improvement in profitability. Adjusted efficiency ratio was 69.69%, down from 71.09% in the prior-year quarter.
As of Sep 30, 2018, average loans and leases were $11.7 billion, up 7.3% year over year. Additionally, average deposits climbed 5.1% from the prior-year quarter's end to $16.5 billion.
Credit Quality: A Marked Improvement
Total non-accrual and restructured loans came in at $50.6 million, down 6.6% year over year. Further, provision for loan losses came in at $5.8 million, down from $11.5 million in the year-earlier quarter. Also, the ratio of net charge-offs to average loans was 0.09% in the reported quarter, down 31 bps from the year-ago quarter.
Capital & Profitability Ratios Improve
As of Sep 30, 2018, Tier 1 risk-based capital ratio was 13.47%, up from 12.18% as of Sep 30, 2017. Further, total risk-based capital ratio was 14.54%, up from 13.26% at the end of the prior-year quarter. Tier 1 leverage ratio was 10.58%, up from 9.43% as of Sep 30, 2017.
Adjusted return on average assets at the quarter end was 1.12%, up from 0.90% in the year-ago quarter. Additionally, return on average tangible common equity was 10.57% compared with 8.85% in the year-ago quarter.
UMB Financial reported a decent quarter. Organic growth is expected to continue aided by higher revenues. Moreover, soaring loan balances and an expanding net interest margin are likely to act as tailwinds. Furthermore, the company's efficiency ratio has been declining on a consistent basis, which signals better profitability over the long run.
Nevertheless, elevated expenses and lower fee income may dampen the company's revenues. In addition, intense competition from other FinTech companies and online service providers remains another concern.
UMB Financial Corporation Price, Consensus and EPS Surprise
UMB Financial currently has a Zacks Rank #4 (Sell).
Performance of Other Banks
Commerce Bancshares, Inc.'s CBSH third-quarter 2018 earnings per share of $1.03 have surpassed the Zacks Consensus Estimate of 97 cents. The figure also reflects an improvement of 53.7% from the year-ago quarter. Results primarily benefited from improvement in net interest income as well as non-interest income. Moreover, lower provisions supported results to quite an extent. However, elevated expenses hurt results.
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