Why Is UMB (UMBF) Down 5.1% Since Last Earnings Report?

It has been about a month since the last earnings report for UMB Financial (UMBF). Shares have lost about 5.1% 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 Q1 Earnings Beat, Revenues Up Y/Y

UMB Financial reported first-quarter 2022 net operating income per share of $2.17, surpassing the Zacks Consensus Estimate of $1.65. The bottom line also compares favorably with the prior-year quarter’s earnings of $1.91.

Results were supported by higher revenues driven by an increase in NII and fee income. A solid balance sheet position was another positive. Increased expenses and deteriorating credit quality were headwinds. Capital ratios witnessed a decline.

Revenues and Costs Up, Balance Sheet Strong

First-quarter 2022 total revenues (on a fully tax-equivalent basis or FTE) were $340.4 million, up 10% year over year. The top line beat the Zacks Consensus Estimate of $332.5 million.

NII, on an FTE basis, was $216.8 million, reflecting an increase of 8% from the year-ago quarter’s figure. Growth in average securities and increased average loans mainly led to this upside. These increases were driven by organic loan growth and excess liquidity. However, On a FTE basis, the NIM contracted to 2.35% from the prior-year quarter’s 2.59%.

Non-interest income totaled $123.7 million, increasing 13.6% year over year. The rise mainly resulted from higher income from all components except trading and investment banking, as well as insurance fees and commissions.

Non-interest expenses were $214.8 million, up 6.9% from the year-ago quarter’s level, mainly due to increase in all components except equipment, supplies and services, and amortization of other intangible assets

The efficiency ratio was 63.98% compared with the prior-year quarter’s 66.46%. A decline in the efficiency ratio indicates an increase in profitability.

As of Mar 31, 2022, average loans and leases were $17.4 billion, up 4% from the sequential quarter’s level. This included paycheck protection program loan balances.

Average deposits climbed 3% from the prior quarter’s level to $32.6 billion as of Mar 31, 2022.

Credit Quality Deteriorates

The ratio of net charge-offs to total average loans was 0.20% in the reported quarter, up 7 basis points from the year-ago quarter’s level. The recoveries for credit losses were $6.5 million compared with $7.5 million in the prior-year quarter.

Moreover, total non-accrual and restructured loans were $110.4 million, surging 44% year over year.

Capital Ratios Decline, Profitability Ratios Mixed

As of Mar 31, 2022, the Tier 1 risk-based capital ratio was 11.81% compared with 12.25% as of Mar 31, 2021. The total risk-based capital ratio was 13.55% compared with 14.28% in the year-ago quarter. Tier 1 leverage ratio was 7.53% at first-quarter end compared with 8.08% as of Mar 31, 2021.

Adjusted return on average assets at the quarter’s end was 1.10% compared with the year-ago quarter’s 1.14%. Nonetheless, operating return on average equity was 14.67% compared with 12.58% witnessed in the prior-year quarter.

Share Repurchase

The board of directors also approved a share repurchase plan of up to two million shares of the company’s common stock, valid till the 2023 annual meeting of the company’s shareholders.

2022 Outlook

Tax rate is expected between 17% and 19%.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

The consensus estimate has shifted 7.41% due to these changes.

VGM Scores

At this time, UMB has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 C. 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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