UMB FINANCIAL CORP (UMBF) stock intrinsic value fair value estimate & owner earnings analysis

UMB Financial is a Kansas City-based bank holding company. About 70% of its revenue is net interest income on a loan book of roughly $39 billion (42% commercial real estate, most of the rest commercial and industrial lending, plus consumer and credit card loans), funded by about $60 billion of deposits. The other 30% comes from fee businesses: fund administration and custody, corporate trust, healthcare savings account custody, card and payments, and wealth management. Those service businesses bring in a large pool of low-cost institutional and operating deposits, which is the heart of the franchise. At the start of 2025 UMB acquired Heartland Financial (HTLF) in an all-stock deal. The deal added about $9.7 billion of loans and banks across the Midwest and Southwest, and it raised diluted shares from about 49 million to about 76 million. How we measured earnings. Deposits and borrowings are a bank's raw material, so we value the cash earnings left after all interest is paid and subtract no debt. Interest on the $474 million of subordinated notes and dividends on the $294 million of preferred stock are already deducted. We start from operating cash flow, strip out timing swings, and charge stock compensation and the capital spending needed to maintain the business. For loan losses we charge actual net charge-offs, not the accounting provision. Two judgement calls matter. First, HTLF's loans were bought about $570 million below face value, of which $85 million was a credit reserve. We count the rest of that discount as real income, because it is collected in cash as the loans repay at par. It is finite, though, so every case fades it to zero over about six years. Second, we add back amortization of the $474 million core-deposit intangible from the deal, because UMB has historically replaced and grown its deposits. The risk that acquired deposits run off is carried in the bear case. Owner earnings per share rose from $3.48 in 2016 to $9.96 in 2024, about 14% a year on a flat share count. The bank stayed profitable through the 2020 shutdown and the 2023 regional-bank deposit scare. The 2025 figure was $12.25, but that year included $142 million of one-time acquisition costs, a $62 million day-one loss reserve on HTLF loans, an unusually large deferred-tax benefit and about $1.50 a share of acquisition accretion. Without those items, the post-merger core level for 2025 was about $11.15 a share. The first half of 2026, the first clean period after integration, ran at about $14.50 a share annualized on the same basis. Net income was $539 million, and provisions of $55 million exceeded net charge-offs of about $35 million. Only two quarters support the higher figure, so we set the base level at $12.80. We then normalize credit losses to 0.30% of loans, against UMB's ten-year average near 0.27% and about 0.2% today, which takes the level to $12.40. Reported owner earnings grew 23% last year, almost all of it from the merger. The base case assumes 5% in its first year. Base case, $252 a share. Core earnings of $12.40 grow 5% a year for five years and 3% a year for the next five. That is well below the bank's own organic record: deposits grew about 12% a year and per-share owner earnings about 14% a year from 2016 to 2024. We credit this growth because it comes from deposit-gathering and fee businesses that UMB has run steadily through two stress periods, funded from retained earnings in small steps. We give no credit to faster growth, margin expansion or further acquisitions. Growth needs capital, so each year the case keeps back enough earnings to grow tangible equity at the same rate, and only the rest counts as cash to owners. Accretion on HTLF loans adds about $1.15 a share in year one and fades to nothing by year six. After year ten, earnings are held flat with no further growth, supported by a deposit franchise that has operated for over a century. Bear case, $143 a share. A credit cycle like 2008 to 2010 starts in year two. Net charge-offs run 1.5%, 2.0% and 1.5% of loans over three years, 5% in total. That is below the roughly 6.5% the U.S. banking industry charged off in 2009 to 2011, but far above UMB's own history. We use the heavier figure because commercial real estate rose to 42% of the book with HTLF. The case adds a $300 million reserve build and takes pre-provision earnings 15% lower during the cycle as interest rates are cut. The total after-tax cost is about $28 a share, roughly two years of earnings. The bank still earns a profit every year, with a trough of about $1.20 a share, so it needs no capital raise or dilution. After the cycle, earnings settle permanently at $9.50 a share with no growth ever again. That is below 2025's core level and reflects lower rates giving back part of 2025's 59-basis-point margin gain, plus some runoff of acquired deposits. Tangible book value is roughly $72 a share, so the bear value is about twice tangible book. The premium is justified because even this case's post-cycle earnings are about 13% a year on tangible equity. Those earnings come from low-cost institutional deposits and fee businesses that do not depend on lending, and those deposits grew through both 2020 and 2023. Bull case, $312 a share. The first-half 2026 earnings rate holds at $14.00 a share of core earnings, and growth runs at 7% a year for five years and then 4%. That is still at or below the demonstrated organic pace. Capital retention is the same as in the base case, and earnings are held flat after year ten. Debt. Because this is a bank, no debt is subtracted in any case, and the value of the business in each case is the value of the shares. The $474 million of holding-company notes is small next to about $8 billion of equity. What could make this wrong. About 65% of deposits ($39.7 billion) are uninsured, although $10.5 billion of that is affiliate or collateralized. A fast institutional outflow like those of spring 2023 could force securities sales, and $13.4 billion of the roughly $19.5 billion securities portfolio is already pledged. Commercial real estate is now a larger share of the book. The higher 2026 earnings rate is only two quarters old. Margin-of-safety price, $100. We are fairly confident earnings power sits between about $11 and $14.50 a share. The low end is the merger year with its one-off costs removed; the high end is the first clean half-year. The worst plausible outcome, which no case models, is a 2023-style deposit run during a credit cycle that forces securities sales at a loss and a dilutive capital raise. A regulated bank with about $72 a share of tangible equity, small holding-company debt and a low payout should survive that, but shareholders could be diluted. If we are wrong about the level ($11 rather than $12.40) and about growth (none), and a credit cycle arrives, the shares are worth roughly $140 to $150. The price assumes a four-to-five-year holding period. The bank pays a $1.63 dividend and keeps about $11 a share a year, which compounds tangible book from about $72 toward $120 within five years. A price of $100 is about book value ($102 a share) and about 8 times base-level earnings, an earnings yield of about 12%. A 20% annual return from $100 requires the shares to be worth about $250 in five years, which the base case supports. If the bear case arrives first, it implies a return in the high single digits, a roughly one-in-ten outcome. A higher price would leave too little room for that outcome and for the deposit-run risk outside the cases. Our previous estimate was built on a different basis, and its figures are not comparable.