In Q4 of 2023, UMB Financial reported a robust operating earnings of $2.29 per share, sailing past the Zacks Consensus Estimate of $1.76. The earnings showed an upward trend from the $2.07 per share recorded in the year-ago quarter, indicating a promising trajectory for the company.
Strong Performance Marred by Rising Costs
The positive earnings were underpinned by a surge in non-interest income, robust loan and deposit balances, and zero provisions. However, the quarter witnessed challenges in the form of decreasing net interest income (NII), a dip in net interest margin (NIM), and escalating expenses, which somewhat tainted the otherwise stellar performance.
The financial results of UMBF were overshadowed by the $52.8 million charge due to the FDIC special assessment. Consequently, the net income for UMBF declined significantly by 29.2% year over year to $70.9 million for the specified quarter.
Looking at the annual picture, operating earnings saw a dip of 8.3% from the prior year, landing at $8.14 per share. This missed the Zacks Consensus Estimate of $7.49. Similarly, the net income (GAAP) for 2023 stood at $350 million, down 18.9% from 2022 figures.
Revenue Growth and Escalating Costs
Despite challenges, the quarterly revenues painted a slightly optimistic picture, landing at $370.8 million, edging past the Zacks Consensus Estimate of $361.6 million. However, total revenues for 2023 slightly missed the mark, amounting to $1.46 billion, down from the previous year’s figures of $1.47 billion.
Non-interest income surged by 11.8% year over year to reach $140.3 million, fueled by growth in trust and securities processing, service charges on deposit accounts, and investment securities gain. Meanwhile, non-interest expenses soared by 21.9% year over year to $290 million, primarily driven by higher regulatory fees, with a significant contribution from the FDIC special assessment.
The rise in processing fees and an uptick in deferred compensation expenses also added to the cost escalation. The surge in costs is reflected in the increase in the efficiency ratio to 77.65% from the prior-year quarter’s 63.72%, indicating a decrease in profitability.
Improvement in Credit Quality and Capital Position
The challenges notwithstanding, UMB Financial managed to improve its credit quality, with the net charge-offs to average loans ratio decreasing to 0.02% in the reported quarter from 0.04% in the year-ago quarter. The total non-accrual and restructured loans also exhibited a downturn, dropping by 31.4% year over year to $13.2 million.
The capital ratios showed an upward trend, with the Tier 1 risk-based capital ratio at 10.94% as of Dec 31, 2023, compared to 10.62% as of Dec 31, 2022. Similarly, both Tier 1 leverage ratio and total risk-based capital ratio exhibited improvement from the year-ago levels.
Profitability Takes a Hit
The downside was evident in the waning profitability, as the return on average assets decreased to 0.69% from the year-ago quarter’s 1.06%. Additionally, the operating return on average equity plummeted to 9.52% from 15.16% reported in the previous year’s quarter.
Market Outlook and Stock Rating
Despite the near-term headwinds, UMB Financial stands to benefit from elevated loan and deposit balances, augmented non-interest income, and enhanced asset quality. However, the concerns pertaining to reduced NII and NIM, coupled with escalating expenses, warrant cautious optimism.
Performance of other Banks
In the context of the robust lending market and the evolving economic scenario, it’s interesting to contrast UMB Financial’s performance with its peers. For instance, Hancock Whitney Corp reported adjusted earnings per share that exceeded estimates, albeit with year-over-year decline. Similarly, WaFd, Inc. surpassed the Zacks Consensus Estimate, although its bottom line witnessed a decline from the previous year.
