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UMB (UMBF) Up 4.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for UMB Financial (UMBF). Shares have added about 4.6% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

UMB Financial Q3 Earnings & Revenues Lag

UMB Financial’s third-quarter 2022 net operating income per share of $1.82 lagged the Zacks Consensus Estimate of $2.16. The bottom line also compares unfavorably with the prior-year quarter’s earnings of $1.95.

Results were adversely impacted by higher provisions for credit losses and a rise in non-interest expenses. Yet, higher revenues, driven by increase in NII and fee income, acted as a tailwind. A rise in average loans was another positive.

Net income (GAAP) was $88 million or $1.81 per share, down from $94.5 million or $1.94 per share in the prior-year quarter.

Revenues & Costs Rise, Average Loans Up

Total revenues (on a fully tax-equivalent basis or FTE) were $368.7 million, up 13.7% year over year. The top line missed the Zacks Consensus Estimate of $373 million.

NII, on an FTE basis, was $239.9 million, reflecting an increase of 10.9%. The increase was driven by organic loan growth and excess liquidity.

On FTE basis, the NIM expanded 24 basis points to 2.76%.

Non-interest income totaled $128.7 million, jumping 19.3%. The rise mainly resulted from higher trust and securities processing fees, brokerage fees, bankcard income, other income and net investment securities gains.

Non-interest expenses were $231.4 million, up 10.8%, mainly due to increase in salaries and employee benefits, legal and consulting expenses, and processing expenses.

The efficiency ratio was 63.58% compared with the prior-year quarter’s 65.62%. A decline in the efficiency ratio indicates improved profitability.

As of Sep 30, 2022, average loans and leases were $19.3 billion, up 5.3% from the prior quarter. This included paycheck protection program loan balances. Average deposits fell 5.7% to $29.8 billion.

Credit Quality: Mixed Bag

The ratio of net charge-offs to total average loans was 0.02% in the reported quarter, down from 0.07% in the year-ago quarter. Non-accrual and restructured loans were $19.8 million, declining 79.5% year over year.

The provision for credit losses was $22 million compared with a benefit of $5 million in the prior-year quarter.

Capital & Profitability Ratios Mixed

As of Sep 30, 2022, the Tier 1 risk-based capital ratio was 11.18% compared with 12.26% as of Sep 30, 2021. The total risk-based capital ratio was 13.13% compared with 14.17% in the year-ago quarter. Tier 1 leverage ratio was 8.66% at the third-quarter end compared with 7.87% as of Sep 30, 2021.

Return on average assets at the quarter’s end was 0.96% compared with the year-ago quarter’s 1.04%. Also, return on average equity was 12.9% compared with 11.89% witnessed in the prior-year quarter.

How Have Estimates Been Moving Since Then?

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

The consensus estimate has shifted -10.26% due to these changes.

VGM Scores

At this time, UMB has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise UMB has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

UMB is part of the Zacks Banks - Midwest industry. Over the past month, Commerce Bancshares (CBSH), a stock from the same industry, has gained 7.8%. The company reported its results for the quarter ended September 2022 more than a month ago.

Commerce reported revenues of $384.89 million in the last reported quarter, representing a year-over-year change of +9.5%. EPS of $1.02 for the same period compares with $1 a year ago.

For the current quarter, Commerce is expected to post earnings of $1.05 per share, indicating a change of +11.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +1% over the last 30 days.

Commerce has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.

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