Why Is UMB (UMBF) Up 5% Since Last Earnings Report?

A month has gone by since the last earnings report for UMB Financial (UMBF). Shares have added about 5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

UMB Financial Reports Q1 Loss on Higher Provisions

Impacted by higher provisions, UMB Financial reported first-quarter 2020 net operating loss of 4 cents per share as against the Zacks Consensus Estimate of earnings of 89 cents. The reported figure also compares unfavorably with the prior-year quarter’s earnings of $1.19.

Higher provisions on the heightening coronavirus scare and implementation of CECL was a major drag. Further, reduction in net interest margin was an undermining factor. However, higher revenues, aided by rising loans and deposit balances, and prudent expense management supported the company’s results.

Including certain non-recurring items, the company reported a net loss of $3.4 million or 7 cents per share for the first quarter, down from the net income of $57.7 million or $1.18 per share recorded in the prior-year quarter.

Increase in Revenues, Loans & Deposits Balance, Costs Down

Total revenues for the January-March quarter came in at $272.4 million, marginally up year over year. The revenue figure, however, lagged the Zacks Consensus Estimate of $275.9 million.

Net interest income came in at $173.9 million, reflecting an increase of 6.1% from the year-ago quarter. Growth in average loans and investment securities mainly led to this upside, partly offset by reduced loan yields due to low interest rates. Net Interest Margin (NIM) contracted 23 basis points (bps) to 2.97% from the prior-year quarter reported tally.

Non-interest income totaled $98.4 million, down 8.4% year over year. This decline mainly resulted from lower trading and investment banking income, bankcard fees and other income, partly muted by higher service charges on deposit accounts, trust and securities processing and brokerage fees.

Non-interest expenses (GAAP basis) came in at $188.6 million, down 1.1% from the year-ago tally, mainly due to lower salaries and employee benefits and other expenses, partly negated by higher equipment and processing costs along with elevated amortization of other intangible assets.

Efficiency ratio (GAAP basis) decreased to 68.93% from the prior-year quarter’s 70%. Adjusted efficiency ratio was 68.19%, down from the year-earlier quarter’s 69.78%. A fall in efficiency ratio indicates rise in profitability.

As of Mar 31, 2020, average loans and leases were $13.6 billion, up 3% sequentially. Additionally, average deposits climbed 2% from the prior-quarter end to $20.8 billion.

Credit Quality: A Mixed Bag

Total non-accrual and restructured loans came in at $97 million, up 53.2% year over year. Further, provision for loan losses came in at $88 million, significantly up from the year-earlier quarter on rising coronavirus concerns and due to the implementation of CECL. Yet, the ratio of net charge-offs to average loans was 0.23% in the reported quarter, down 18 bps from the year-ago quarter.

Strong Capital & Profitability Ratios

As of Mar 31, 2020, Tier 1 risk-based capital ratio was 11.90% compared with 12.70% as of Mar 31, 2019. Also, total risk-based capital ratio was 13.12% compared with 13.72% at the end of the prior-year quarter. The Tier 1 leverage ratio was 8.81% compared with 9.65% as of Mar 31, 2019.

Adjusted return on average assets at the quarter’s end was negative 0.03%, down from the year-ago quarter’s 1.03%. Additionally, return on average equity was a negative 0.28% compared with the 10.56% witnessed in the prior-year quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -34.23% 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. 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, UMB has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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