UMB financial company (UMBF – Free Report) has a well-diversified operation strategically aligned to generate stable and consistent revenue. Most of its revenue comes from its commercial banking division, followed by institutional banking and personal banking. Yet the upward trend in operating expenses will remain a concern.
Its recent agreement to acquire Former National Bank’s Health Savings Account (HSA) business will significantly expand UMBF’s direct employer accounts and thereby enhance its revenue capabilities.
The company’s net loan and deposit growth is quite impressive. Over the past five years, net loans and deposits have experienced a compound annual growth rate of 11% and 28%, respectively. With the recovery of the economy and the resumption of business activities, the demand for loans is expected to improve in the coming period. Management expects a strong loan pipeline in the second quarter, positioning it for another quarter of solid growth.
UMB Financial’s capital deployment activities are encouraging. It has steadily increased its dividends since 2002. In April 2022, it approved a share buyback plan program of up to 2 million shares, valid until April 2023.
Last year, UMBF succeeded in reducing its non-interest expenses. However, the expenses are likely to be high due to the company’s investments in new technologies. Such an increase in current costs could limit the expansion of net income.
In addition to technology spending, we believe that the decline in its capital position will prevent any future proactive expansion. In fact, as of March 31, 2022, the total risk-based capital ratio was 13.55%, down from 14.28% in the prior year quarter.
On the cash side, the company has seen high leverage in recent quarters, with the trend continuing into the first quarter. Cash and bank claims also declined over the same period. Although its operations are well diversified, the bulk of UMB Financial’s loan portfolio is concentrated in commercial and industrial loans, for which it may face stiff competition.
Currently, UMBF carries a Zacks Rank #3 (Hold). Over the past six months, the company’s shares are down 18.4% compared to the 14.6% drop recorded by the industry.
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Stock worth a look
A few higher ranked stocks in the banking sector are Former second Bancorp (OSBC – free report) and Bancshares Trading (CBSH – free report). OSBC sports a Zacks rank of 1 (strong buy) while CBSH currently carries a Zacks rank of 2 (buy). You can see the full list of today’s Zacks #1 Rank stocks here.
Old Second Bancorp’s Zacks consensus estimate for current-year earnings has been revised up 20% in the past 60 days. Commerce Bancshares’ Zacks consensus estimate for current-year earnings has been revised slightly higher.
Over the past month, shares of OSBC and CBSH have fallen 7.2% and 4.9%, respectively.