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Revenue Growth Aids UMB Financial (UMBF), High Cost Ail
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UMB Financial Corporation (UMBF - Free Report) benefits from revenue strength aided by rising net interest income (NII) along with diversified fee income. However, escalating expenses are major concerns. Also, intense competition and significant exposure to commercial loans remain headwinds.
UMB Financials’ impressive growth in net loans and deposits over the years reflects a healthy balance sheet position. Strong loan pipeline and growing deposit balances are likely to support the company’s financials in the upcoming period. Management continues to see opportunities for loan growth in various verticals across its footprint in third-quarter 2023.
Thus, decent loan demand along with higher rates will continue to aid UMBF’s NII in the upcoming period. The metric has witnessed a rising trend over the years. As Federal Reserve Board is expected to keep rates high in the near term, the metric is likely to witness moderate growth. Management expects mid-single-digit growth in NII in 2023.
Further, UMB Financial has been focusing on diversifying operations to non-interest sources of revenues in order to reduce exposure to spread income. Going forward, the company's investment in revenue-producing capabilities is likely to support growth.
As of Jun 30, 2023, UMB Financial had debt (comprising of short-term and long-term debt) of $2.18 billion, and cash and due from banks as well as interest-bearing due from banks were $3.8 billion. The company, therefore, seems to be well placed in terms of its liquidity profile. This is likely to support its capital distribution activities, thus, instilling investors’ confidence in the stock.
However, escalating costs is the key downside for UMBF. The non-interest expenses flared up, seeing a compounded annual growth rate of 4.9% over the last four years (2019-2022). The rising trend continued in the first half of 2023. Hence, such a rise in expenses is likely to impede bottom-line growth in the upcoming quarters.
The majority of UMB Financial’s loan portfolio, nearly 80.7% as of Jun 30, 2023, comprises total commercial loans (commercial and industrial as well as commercial real estate lending). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Thus, the lack of loan portfolio diversification is likely to hurt its financials if the economic situation worsens.
Also, the company faces intense competition in its business operations. Growing market share of FinTech companies and online service providers remain key threats to traditional banks like UMB Financial. Also, these new entrants are not subject to the same level of regulations and supervision.
Over the past six months, this Zacks Rank #3 (Hold) stock has gained 4.9% against the industry's 9.1% decline.
The Zacks Consensus Estimate for TROW’s 2023 earnings has been revised 1.5% upward over the past 30 days. The stock has lost 5.6% over the past six months.
The consensus estimate for BY’s 2023 earnings has been revised 2.3% upward over the past 30 days. Over the past six months, the company’s share price has decreased 7.3%.
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Revenue Growth Aids UMB Financial (UMBF), High Cost Ail
UMB Financial Corporation (UMBF - Free Report) benefits from revenue strength aided by rising net interest income (NII) along with diversified fee income. However, escalating expenses are major concerns. Also, intense competition and significant exposure to commercial loans remain headwinds.
UMB Financials’ impressive growth in net loans and deposits over the years reflects a healthy balance sheet position. Strong loan pipeline and growing deposit balances are likely to support the company’s financials in the upcoming period. Management continues to see opportunities for loan growth in various verticals across its footprint in third-quarter 2023.
Thus, decent loan demand along with higher rates will continue to aid UMBF’s NII in the upcoming period. The metric has witnessed a rising trend over the years. As Federal Reserve Board is expected to keep rates high in the near term, the metric is likely to witness moderate growth. Management expects mid-single-digit growth in NII in 2023.
Further, UMB Financial has been focusing on diversifying operations to non-interest sources of revenues in order to reduce exposure to spread income. Going forward, the company's investment in revenue-producing capabilities is likely to support growth.
As of Jun 30, 2023, UMB Financial had debt (comprising of short-term and long-term debt) of $2.18 billion, and cash and due from banks as well as interest-bearing due from banks were $3.8 billion. The company, therefore, seems to be well placed in terms of its liquidity profile. This is likely to support its capital distribution activities, thus, instilling investors’ confidence in the stock.
However, escalating costs is the key downside for UMBF. The non-interest expenses flared up, seeing a compounded annual growth rate of 4.9% over the last four years (2019-2022). The rising trend continued in the first half of 2023. Hence, such a rise in expenses is likely to impede bottom-line growth in the upcoming quarters.
The majority of UMB Financial’s loan portfolio, nearly 80.7% as of Jun 30, 2023, comprises total commercial loans (commercial and industrial as well as commercial real estate lending). The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Thus, the lack of loan portfolio diversification is likely to hurt its financials if the economic situation worsens.
Also, the company faces intense competition in its business operations. Growing market share of FinTech companies and online service providers remain key threats to traditional banks like UMB Financial. Also, these new entrants are not subject to the same level of regulations and supervision.
Over the past six months, this Zacks Rank #3 (Hold) stock has gained 4.9% against the industry's 9.1% decline.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are T. Rowe Price Group, Inc. (TROW - Free Report) and Byline Bancorp, Inc. (BY - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for TROW’s 2023 earnings has been revised 1.5% upward over the past 30 days. The stock has lost 5.6% over the past six months.
The consensus estimate for BY’s 2023 earnings has been revised 2.3% upward over the past 30 days. Over the past six months, the company’s share price has decreased 7.3%.