UMB Financial Stock Rises 36.9% in 6 Months: Is it Worth a Look?

UMB Financial Corporation UMBF shares have gained 36.9% in the past six months, outperforming the industry’s growth of 24.3%. The stock has also outperformed its close peers like Huntington Bancshares Incorporated HBAN and Commerce Bancshares, Inc. CBSH over the same time frame.Six Months Price PerformanceImage Source: Zacks Investment ResearchAfter such a strong rally, investors are left wondering whether UMBF stock is worth considering in 2025. Let’s find out.What’s Aiding UMB Financial’s Performance?Fed’s Interest Rate Cuts: One of the key reasons behind UMB Financial’s rally could be attributed to the Federal Reserve's decision to lower interest rates. The Fed started cutting interest rates in September 2024 and lowered interest rates by 100 basis points, with the latest cut on Dec. 18, 2024. At present, the fed fund rate stands at 4.25-4.5%. For 2025, the Fed indicates two rate cuts. UMB Financial’s net interest income (NII) witnessed a CAGR of 8.2% over the last four years (ended 2023), with the uptrend continuing in the first nine months of 2024. Net interest margin (NIM) expanded to 2.63% in 2022 from 2.50% in 2021. However, it declined in 2023 and the first nine months of 2024 due to high funding costs.The Fed’s interest rate reductions are expected to gradually stabilize funding costs. Hence, these measures will likely support UMBF’s NII and margin expansion in the upcoming period.Impending Heartland Financial’s Buyout Looks Encouraging: In April 2024, UMBF entered into a definitive merger agreement to acquire Heartland Financial in an all-stock transaction valued at around $2 billion. This acquisition will enable UMBF to diversify its business further and expand its consumer and small business offerings. The deal will extend UMB Financial’s footprint into California, Minnesota, New Mexico, Iowa and Wisconsin, strengthening its presence in both the Midwest and Southwest markets, as well as reinforcing its existing operations.Upon completion, UMB Financial’s total assets will grow to $64.5 billion, with retail deposits doubling and private wealth management’s assets under management/administration increasing by 31% to $21.2 billion. The acquisition also boosts the bank’s loan and deposit balances, further strengthening its overall balance sheet.Solid Balance Sheet Position: As of Sept. 30, 2024, UMB Financial had debt (comprising short-term and long-term debt) of $1.43 billion. Cash and due from banks, and interest-bearing due from banks were $7.4 billion as of the same date.The company seems well-placed in terms of its liquidity profile and is expected to continue meeting its debt obligations even if the economic situation worsens.Strong Capital Position: As of Sept. 30, 2024, the company’s capital ratios were well above the regulatory requirements, with a Tier 1 risk-based capital ratio of 11.22%, and a total risk-based capital ratio of 13.14%.UMBF’s focus on maintaining a strong capital position will support its capital distribution activities. The bank has been raising dividends annually regularly since 2002, with the latest hike of 2.6% announced in October 2024. The company has a payout ratio of 17% with a five-year annualized dividend growth of 6.03%. Similarly, HBAN and CBSH consistently pay steady dividends. HBAN distributes a quarterly dividend of 16 cents per share, while CBSH pays 27 cents per share. HBAN maintains a payout ratio of 53%, whereas CBSH's payout ratio stands at 28%.Apart from a steady dividend payout, UMBF also has a share repurchase program. In the first quarter of 2024, the company approved the repurchase of up to one million shares of its common stock. As of Sept. 30, 2024, the full authorization remains available for repurchase. Given solid liquidity and a favorable debt-to-equity ratio and payout rate compared with the broader industry, the company's capital-distribution activities seem sustainable.Few Concerns Prevail for UMBFElevated Expenses: Cost escalation is the key concern for UMB Financial. The non-interest expenses flared up, seeing a CAGR of 6.4% over the last four years (2019-2023), with the trend continuing in the first nine months 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.Expense Growth TrendImage Source: Zacks Investment ResearchLack of Loan Portfolio Diversification: The majority of UMB Financial’s loan portfolio, 81.4% of the total average loans as of Sept. 30, 2024, comprises total commercial loans (commercial and industrial as well as commercial real estate). The current rapidly changing macroeconomic backdrop is affecting commercial lending activity and the asset quality of the loan category. Thus, the lack of loan portfolio diversification is likely to hurt its financials if the economic situation worsens.Analyst Estimates for UMBFAnalysts seem to be neutral about the company’s growth prospects. In the past 30 days, the Zacks Consensus Estimate for 2024 and 2025 earnings has remained unchanged.  Image Source: Zacks Investment ResearchThe projected figures imply a rise of 15.13% and 1.85% for 2024 and 2025, respectively.Is UMBF Stock Worth a Look?The company’s inorganic growth efforts, combined with a solid capital position, are expected to bolster its financial performance in the upcoming period. Further, Heartland Financial’s acquisition will boost the loan and deposit balances, strengthening its balance sheet.However, an elevated expense base and lack of portfolio diversification are near-term concerns for UMB Financial. Hence, we advise investors not to rush to buy UMBF stock right now, instead, keep this stock on their radar and analyze how the company navigates through increasing expense and interest rate cuts to optimize its financial performance in the upcoming period. Those who already own the stock can hold it for now as it is less likely to disappoint over the long term.UMBF currently carries a Zacks Rank of 3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.Just Released: Zacks Top 10 Stocks for 2024Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2025. You can still be among the first to see these just-released stocks with enormous potential. See New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Huntington Bancshares Incorporated (HBAN): Free Stock Analysis Report Commerce Bancshares, Inc. (CBSH): Free Stock Analysis Report UMB Financial Corporation (UMBF): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks