UMB Financial has been treading water for the past six months, holding steady at $109.81. The stock also fell short of the S&P 500’s 6.2% gain during that period.
Is there a buying opportunity in UMB Financial, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is UMB Financial Not Exciting?
We don't have much confidence in UMB Financial. Here are three reasons why there are better opportunities than UMBF and a stock we'd rather own.
1. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin represents how much a bank earns in relation to its outstanding loans. It’s one of the most important metrics to track because it shows how a bank’s loans are performing and whether it has the ability to command higher premiums for its services.
Over the past two years, we can see that UMB Financial’s net interest margin averaged a poor 2.5%, meaning it must compensate for lower profitability through increased loan originations.
2. Substandard TBVPS Growth Indicates Limited Asset Expansion
Tangible book value per share (TBVPS) serves as a key indicator of a bank’s financial strength, representing the hard assets available to shareholders after removing intangible assets that could evaporate during financial distress.
To the detriment of investors, UMB Financial’s TBVPS grew at a sluggish 4% annual clip over the last two years.
3. High Interest Expenses Increase Risk
Leverage is core to the bank’s business model (loans funded by deposits) and to ensure their stability, regulators require certain levels of capital and liquidity, focusing on a bank’s Tier 1 capital ratio.
Tier 1 capital is the highest-quality capital that a bank holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.
This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.
New regulation after the 2008 financial crisis requires that all banks must maintain a Tier 1 capital ratio greater than 4.5% On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, banks generally must maintain a 7-10% ratio at minimum.
Over the last two years, UMB Financial has averaged a Tier 1 capital ratio of 10.9%, which is considered unsafe in the event of a black swan or if macro or market conditions suddenly deteriorate. For this reason alone, we will be crossing it off our shopping list.
Final Judgment
UMB Financial isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 1.2× forward P/B (or $109.81 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of UMB Financial
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.
