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UMB Financial (UMBF) Thrives on Loan Growth Amid Rising Costs

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UMB Financial Corporation (UMBF - Free Report) is gaining from balance-sheet strength on the back of increasing loan and deposit balances. Also, steady capital distributions are backed by a decent liquidity position. However, intense competition, along with elevated expenses, are major headwinds.

UMB Financial has a healthy balance sheet position. The company witnessed impressive net loan growth in the last three years (2020-2023), with compounded annual growth rate (CAGR) of 13%. Also, deposits saw a CAGR of 9.8% in the same time frame. The rising trend continued for both metrics in the first half of 2024. The acquisition of Heartland Financial will add meaningful loans and deposit balance, thus fortifying UMB Financial’s balance sheet. Also, the strong deposit and loan pipeline are likely to support the company’s financials.

UMBF has been diversifying its operations into non-interest sources to reduce the company’s exposure on spread income. Non-interest income saw a CAGR of 6.2% for the four-year period that ended in 2023, with the rising trend continuing in the first half of 2024. The company's investment in revenue-producing capabilities is likely to support top-line growth. Going forward, diverse lines of business and verticals will keep aiding UMB Financial’s non-interest income (NII).

The company’s NII witnessed a CAGR of 8.2% in the last four years (ended 2023), with the uptrend continuing in the first half of 2024. UMBF’s decent loan demand will further support the metric growth in the upcoming period. With the Federal Reserve indicating a rate cut beginning September 2024, the company’s NII is likely to benefit further as funding costs will be stabilized.

As of Jun 30, 2024, UMB Financial had debt (comprising short-term and long-term debt) of $1.68 billion. Cash and due from banks and interest-bearing due from banks were $5.1 billion as of the same date. UMBF seems to be well placed in terms of its liquidity profile and expected to continue meeting the company’s debt obligations even if the economic situation worsens.

UMB Financial has been raising dividends annually regularly since 2002, with the latest hike of 2.6% announced in October 2023. Also, the bank has a share repurchase plan in place. In the first quarter of 2024, the company approved the repurchase of up to one million shares of its common stock. These can take place at any point in time until its termination, following the 2025 annual meeting of the company’s shareholders. The company has not repurchased any of its common shares to date. Given solid liquidity and a favorable debt-to-equity ratio and payout rate compared with the broader industry, its capital-distribution activities seem sustainable.

UMB Financial’s return on equity (ROE) reflects its growth potential. The company’s ROE of 14.23% compares favorably with 10.94% of the industry, reflecting UMFB’s efficiency in using its shareholders’ funds.

The bank currently carries a Zacks Rank #2 (Buy). In the past three months, shares of UMBF have gained 15.8% compared with the industry's growth of 7.6%.

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The Zacks Consensus Estimate for UMBF’s current-year earnings has been revised upward in the past 30 days. This reflects that analysts are optimistic regarding its earnings growth potential.

Despite the above-mentioned tailwinds, cost escalation is the key concern for UMB Financial. The non-interest expenses flared up, seeing a CAGR of 6.4% in the last four years (2019-2023), with the trend continuing in the first half of 2024.

Though the company is focusing on improving its operating leverage, a rise in expenses based on higher salaries and employee benefits costs is likely to impede bottom-line growth in the upcoming period.

Additionally, the company faces intense competition in its business operations. The growing market share of FinTech companies and online service providers remains a key threat to traditional banks like UMB Financial. Also, these new entrants are not subject to the same level of regulations and supervision.

Other Stocks to Consider

A couple of other top-ranked finance stocks are First Community Corp (FCCO - Free Report) and First Bancorp (FBNC - Free Report) .

The consensus estimate for FCCO’s current-year earnings has been revised 4.3% upward in the past 30 days. FCCO currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

First Bancorp’s current-year earnings estimate has been revised 11.3% upward in the past 30 days. FBNC currently carries a Zacks Rank #2.


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