Why Is UMB (UMBF) Down 3.4% Since Last Earnings Report?

It has been about a month since the last earnings report for UMB Financial (UMBF). Shares have lost about 3.4% 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 catalysts.

UMB Financial’s Q4 Earnings Beat Estimates, Costs Rise

UMB Financial’s fourth-quarter 2023 operating earnings per share of $2.29 beat the Zacks Consensus Estimate of $1.76. Also, the bottom line compared favorably with $2.07 in the year-ago quarter.

Results benefited from higher non-interest income, strong loan and deposit balances, and nil provisions. Nonetheless, a decline in NII, lower net interest margin (NIM) and increased expenses were the headwinds.

The results included the charge of $52.8 million related to FDIC special assessment. After considering these charges, net income was $70.9 million for the specified quarter, down 29.2% year over year.

In 2023, operating earnings per share were $8.14, which decreased 8.3% from the prior year and missed the Zacks Consensus Estimate of $7.49. Net income (GAAP) was $350 million, which declined 18.9% from 2022.

Quarterly Revenues Increase, Costs Rise

Quarterly revenues were $370.8 million, up marginally year over year. Also, the top line beat the Zacks Consensus Estimate of $361.6 million.

In 2023, total revenues were $1.46 billion, slightly down from the previous year. Also, the top line missed the Zacks Consensus Estimate of $1.47 billion.

NII on FTE basis was $237.2 million, which declined 5.8% from the prior-year quarter. On FTE basis, NIM was 2.46%, down 37 basis points.

Non-interest income was $140.3 million, up 11.8% year over year. The rise was primarily driven by an increase in trust and securities processing, service charges on deposit accounts and investment securities gain.

Non-interest expenses were $290 million, up 21.9% year over year. The rise was caused by higher regulatory fees, mainly from FDIC special assessment. Also, a rise in processing fees and an uptick in deferred compensation expenses were some of the other major reasons behind the jump. These were partially offset by a decline in bonus and commission expenses, equipment costs, and legal and consulting expenses. The operating non-interest expense was $235.9 million.

The efficiency ratio increased to 77.65% from the prior-year quarter’s 63.72%. An increase in efficiency ratio indicates a decrease in profitability.

As of Dec 31, 2023, average loans and leases were $23.1 billion, up 1.6% sequentially. Also, average deposits increased 4.3% to $32.7 billion.

Credit Quality Improves

The ratio of net charge-offs to average loans was 0.02% in the reported quarter, which decreased from 0.04% in the year-ago quarter.

Also, total non-accrual and restructured loans were $13.2 million, down 31.4% year over year.

The provision for credit losses was nil for the fourth quarter of 2023 compared with $9 million reported in the prior-year quarter. This reduction was primarily due to favorable changes in macroeconomic factors and credit metrics, partially offset by increased loan growth.

Capital Ratios Improve

As of Dec 31, 2023, the Tier 1 risk-based capital ratio was 10.94%, which rose from 10.62% as of Dec 31, 2022. The Tier 1 leverage ratio was 8.49%, which increased from 8.43% as of Dec 31, 2022. The total risk-based capital ratio was 12.85%, which grew from 12.50% in the year-ago quarter.

Profitability Ratios Deteriorate

Return on average assets at the quarter’s end was 0.69%, which dipped from the year-ago quarter’s 1.06%. Further, operating return on average equity was 9.52%, which decreased from 15.16% in the prior-year quarter.

2024 Outlook

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.

The consensus estimate has shifted 7.13% due to these changes.

VGM Scores

At this time, UMB has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Performance of an Industry Player

UMB belongs to the Zacks Banks - Midwest industry. Another stock from the same industry, Huntington Bancshares (HBAN), has gained 1.3% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.

Huntington Bancshares reported revenues of $1.73 billion in the last reported quarter, representing a year-over-year change of -12.1%. EPS of $0.27 for the same period compares with $0.43 a year ago.

For the current quarter, Huntington Bancshares is expected to post earnings of $0.27 per share, indicating a change of -29% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Huntington Bancshares. Also, the stock has a VGM Score of C.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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