A character wearing the Undead Trophy can still have morale lowered via geists’ screams.
In the example attached, Sigbold the Slaughterer started at confident morale, missed a geist with rupture, and the geist then used a Horrific Scream that caused Sigbold’s morale to drop to steady.
From your screenshot it looks like the Geist used Horrific Scream on Eike and succeeded in getting him to flee. This in turn caused a morale check for Sigbold. It’s working as intended, but the order of events in the combat log is mixed up.