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UMB (UMBF) Up 7.3% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for UMB Financial (UMBF - Free Report) . Shares have added about 7.3% 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’s Q3 Earnings Beat, Costs Up

UMB Financial recorded a positive earnings surprise of 3.6% in third-quarter 2018. Net operating earnings of $1.16 per share beat the Zacks Consensus Estimate of $1.12. The reported figure compares favorably with the prior-year quarter’s earnings of 98 cents.

Higher revenues, aided by rising loans and deposit balances, aided the results. Rising rates and improved credit quality were other tailwinds. However, lower non-interest income and elevated expenses were the undermining factors.

Including certain non-recurring items, the company reported net income of $57.8 million or $1.16 per share for the quarter under review, up from $48.9 million or 98 cents recorded in the prior-year quarter.

Increase in Revenues, Loans & Deposits Balance, Costs Flare Up

Total revenues for the Jul-Sep quarter came in at $251.4 million, up 2.5% year over year. However, the figure lagged the Zacks Consensus Estimate of $258 million.

Net interest income was $150.5 million, reflecting an increase of 6.8% from the year-ago quarter. Net Interest Margin (NIM) expanded 2 basis points (bps) to 3.18% from the prior-year quarter.

Non-interest income totaled $100.9 million, down 3.3% year over year. The decline resulted from a fall in most of the income components, except brokerage fees and other income.

Non-interest expenses (GAAP basis) came in at $180.4 million, up 5% from the year-ago tally. Adjusted non-interest expenses were $180.2 million, up 4.9% year over year.

Efficiency ratio (GAAP basis) declined to 70.09% from 71.20% in the prior-year quarter. Fall in efficiency ratio indicates improvement in profitability. Adjusted efficiency ratio was 69.69%, down from 71.09% in the prior-year quarter.

As of Sep 30, 2018, average loans and leases were $11.7 billion, up 7.3% year over year. Additionally, average deposits climbed 5.1% from the prior-year quarter’s end to $16.5 billion.

Credit Quality: A Marked Improvement

Total non-accrual and restructured loans came in at $50.6 million, down 6.6% year over year. Further, provision for loan losses came in at $5.8 million, down from $11.5 million in the year-earlier quarter. Also, the ratio of net charge-offs to average loans was 0.09% in the reported quarter, down 31 bps from the year-ago quarter.

Capital & Profitability Ratios Improve

As of Sep 30, 2018, Tier 1 risk-based capital ratio was 13.47%, up from 12.18% as of Sep 30, 2017. Further, total risk-based capital ratio was 14.54%, up from 13.26% at the end of the prior-year quarter. Tier 1 leverage ratio was 10.58%, up from 9.43% as of Sep 30, 2017.

Adjusted return on average assets at the quarter end was 1.12%, up from 0.90% in the year-ago quarter. Additionally, return on average tangible common equity was 10.57% compared with 8.85% in the year-ago quarter.

Accelerated Share Repurchase

The company has entered into an agreement with Bank of America Merrill Lynch (BAML) to repurchase an aggregate of $50 million of the company’s common stock through an accelerated share repurchase (ASR). The company will receive an initial delivery of shares representing around 85% of the expected total to be repurchased. The final number of shares repurchased and delivered under the ASR will be based on the volume weighted average share price of the company’s common stock during the term of the transaction.

The final settlement of the transactions under the ASR is expected to occur no later than the end of the first quarter of 2019, and may be accelerated at the option of BAML. The ASR is part of the company’s authorization to repurchase up to two million shares of the company’s common stock, which was announced this April.

Outlook

For full-year 2018, tax rate is likely to be between 14% and 16%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, UMB has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 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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