UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

(Mark one)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 20102011

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number: 0-4887

UMB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Missouri 43-0903811
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
1010 Grand Boulevard, Kansas City, Missouri 64106
(Address of principal executive offices) (ZIP Code)

(Registrant’s telephone number, including area code):(816) 860-7000

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class Name of each exchange on which registered
Common Stock, $1.00 Par Value The NASDAQ Global Select Market

Securities Registered Pursuant to Section 12(g) of the Act:None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    x  Yes    ¨  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerx Accelerated filer¨ Non-acceleratedNon- accelerated filer¨ (Do not check if a smaller reporting company) Smaller reporting company¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

As of June 30, 2010,2011 the aggregate market value of common stock outstanding held by nonaffiliates of the registrant was approximately $1,135,416,789$1,357,795,500 based on the NASDAQ Global Select Market closing price of that date.

Indicate the number of shares outstanding of the registrant’s classes of common stock, as of the latest practicable date.

Class

 Outstanding at February 18, 201115, 2012

Common Stock, $1.00 Par Value

 40,537,67640,549,504

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on April 27, 2011,24, 2012, are incorporated by reference into Part III of this Form 10-K.



INDEX

 

PART I

   3  

ITEM 1. BUSINESS

   3  

ITEM 1A. RISK FACTORS

   15

ITEM 1B. UNRESOLVED STAFF COMMENTS

18

ITEM 2. PROPERTIES

18

ITEM 3. LEGAL PROCEEDINGS

19

ITEM 4. RESERVED

1912  

PART IIITEM 1B. UNRESOLVED STAFF COMMENTS

   2016  

ITEM 2. PROPERTIES

16

ITEM 3. LEGAL PROCEEDINGS

17

ITEM 4. MINE SAFETY DISCLOSURES

17

ITEM  5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

   2018  

ITEM 6. SELECTED FINANCIAL DATA

   2119  

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   2321  

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   4745  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   5352  

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

   9697  

ITEM 9A. CONTROLS AND PROCEDURES

   9697  

ITEM 9B. OTHER INFORMATION

   9899  

PART III

   9899  

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

   9899  

ITEM 11. EXECUTIVE COMPENSATION

   9899  

ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

98

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

   99  

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

100

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

   99100  

PART IV

   99100  

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

   99100  

SIGNATURES

   102103  

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

     

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

     

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     


PART I

 

ITEM 1.  BUSINESS

 

General

 

UMB Financial Corporation (the Company) was organized as a corporation in 1967 under Missouri law for the purpose of becoming a bank holding company registered under the Bank Holding Company Act of 1956 (BHCA). In 2001, the Company elected to become a financial holding company under the Gramm-Leach-Bliley Act of 1999 (GLB Act). The Company owns all of the outstanding stock of four commercial banks and nineteen21 other subsidiaries.

 

The four commercial banks are engaged in general commercial banking business. The principal location of each bank is in Missouri, Colorado, Kansas, and Arizona, respectively. The principal subsidiary bank, UMB Bank, n.a., whose principal office is in Missouri, also has branches in Illinois, Kansas, Nebraska and Oklahoma. The banks offer a full range of banking services to commercial, retail, government and correspondent bank customers. In addition to standard banking functions, the principal subsidiary bank, UMB Bank, n.a., provides internationalcommercial and retail banking services including investment and cash management services and a full range of trust activities for individuals, estates, business corporations, governmental bodies and public authorities.

The table below sets forth the names and locations Subsidiaries of the Company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance and Scout Investments, offering equity and fixed income investment strategies for institutions and individual investors. The Company’s affiliate banks, as well asproducts and services are grouped into three segments, Commercial Financial Services, Institutional Financial Services, and Personal Financial Services. These segments are described in detail with their respective numberrelated financial results in Note 13 to the Consolidated Financial Statements provided in Item 8, pages 82 through 83 of locations, total assets, loans, total deposits and shareholders’ equity asthis report. The primary non-bank subsidiaries of December 31, 2010.the Company are described below.

SELECTED FINANCIAL DATA OF AFFILIATE BANKS(in thousands)

  December 31, 2010

 
  Number
of Locations


  Total Assets

  Loans

  Total
Deposits


  Shareholders’
Equity


 

Missouri

                    

UMB Bank, n.a.  

  106   $10,690,856   $3,724,520   $7,826,613   $679.793  

Colorado

                    

UMB Bank Colorado, n.a.  

  14    1,353,403    559,621    982,566    138,460  

Kansas

                    

UMB National Bank of America, n.a.  

  5    837,428    217,857    394,254    56,781  

Arizona

                    

UMB Bank Arizona, n.a.  

  1    109,023    94,574    49,457    11,120  

Other Subsidiaries

                    

UMB CDC, Inc.

                    

UMB Banc Leasing Corp.

                    

UMB Financial Services, Inc.

                    

UMB Insurance, Inc.

                    

UMB Capital Corporation

                    

United Missouri Insurance Company

                    

UMB South Dakota Trust Company

                    

UMB Fund Services, Inc.

                    

Kansas City Realty Company

                    

Kansas City Financial Corporation Association

                    

UMB Redevelopment Corporation

                    

UMB Realty Company, LLC

                    

Grand Distribution Services, LLC

                    

UMB Distribution Services, LLC

                    

J. D. Clark & Co., Inc.

                    

UMB Bank & Trust, National Association

                    

Scout Distributors, LLC

                    

Scout Investments, Inc.

                    

Prairie Capital Management, LLC

                    

UMB Merchant Banc, LLC

                    

 

UMB Fund Services, Inc., located in Milwaukee, Wisconsin, Kansas City, Missouri and Boston, Massachusetts, provides services to mutual fund groups representing funds and managed account services to asset management groups. In addition, JD Clark & Co., Inc., a subsidiary of UMB Fund Services, Inc., located in Ogden, Utah and Media, Pennsylvania provides services to alternative investment groups.

 

Scout Investments, Inc. is an institutional asset management company located in Kansas City, Missouri. Scout Investments, Inc. offers domestic and international equity investments through Scout Asset Management and fixed income investments through Reams Asset Management.Management both divisions of Scout Investments, Inc..

 

Prairie Capital Management, LLC, headquartered in Kansas City, Missouri, is a wealth management consulting firm and serves as investment manager to proprietary pooled investment vehicles, including traditional diversified equity funds, hedge funds, and private equity funds. Prairie Capital has branch offices in Illinois, Colorado, and Pennsylvania.

On a full-time equivalent basis at December 31, 2010,2011, the Company and its subsidiaries employed 3,3553,448 persons.

 

Segment Information.    Financial information regarding the Company’s three segments is included in Note 13 to the Consolidated Financial Statements provided in Item 8, pages 8182 through 83 of this report.

 

Competition.    The Company faces intense competition from hundreds of financial service providers in each of its business segments in the various markets served. The Company competes with other traditional and non-traditional financial service providers including banks, thrifts, finance companies, mutual funds, mortgage banking companies, brokerage companies, insurance companies, investment managers and credit unions. Customers are generally influenced by convenience of location, quality of service, personal contact, price of

3


services, and availability of products. The impact from competition is critical not only to pricing, but also to transaction execution, products and services offered, innovation and reputation. Within the Kansas City banking market, the Company ranks secondfirst based on the amount of deposits at June 30, 2010,2011, the most recent date for which deposit information is available from the Federal Deposit Insurance Corporation (FDIC). At June 30, 2010,2011, the Company had 11.113.4 percent of the deposits in its primary market, the Kansas City metropolitan area, compared to 10.011.1 percent at June 30, 2009.2010.

 

Monetary Policy and Economic Conditions.    The Company’s business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. It is particularly affected by the policies of the Board of Governors of the Federal Reserve System (the Federal Reserve Board or FRB), which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the FRB are: conducting open market operations in United States government securities; changing the discount rates of borrowings of depository institutions; imposing or changing reserve requirements against depository institutions’ deposits; and imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. The policies of the FRB have a material effect on the Company’s business, results of operations and financial condition.

 

Supervision and Regulation.    As a bank holding company and a financial holding company, the Company (and its subsidiaries) is subject to extensive regulation and is affected by numerous federal and state laws and regulations.

 

Supervision.Supervision.    The Company is subject to regulation and examination by the FRB. Its four subsidiary banks are subject to regulation and examination by the Office of the Comptroller of the Currency (OCC). UMB Insurance, Inc. is regulated by state agencies in the states in which it operates. Scout Investments, Inc., Scout Distributors, LLC, Prairie Capital Management, LLC and UMB Fund Services, Inc. are subject to the rules and regulations of the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) because of the Scout Funds and the servicing of other mutual fund groups and alternative investment products. The FRB possesses cease and desist powers over bank holding companies if their actions represent unsafe or unsound practices or violations of law. In addition, the FRB is empowered to impose civil monetary penalties for violations of banking statutes and regulations. Regulation by the FRB is intended to protect depositors of the Company’s banks, not the Company’s shareholders. The Company is subject to a number of restrictions and requirements imposed by the Sarbanes-Oxley Act of 2002 relating to internal controls over financial reporting, disclosure controls and procedures, loans to directors or executive officers of the Company and its subsidiaries, the preparation and certification of the Company’s consolidated financial statements, the duties of the Company’s audit committee, relations with and functions performed by the Company’s independent auditors, and various accounting and corporate governance matters. The Company’s brokerage affiliate, UMB Financial Services, Inc., is regulated by the SEC, FINRA, and is also subject to certain regulations of the various states in which it transacts business. It is subject to regulations covering all aspects of the securities business, including sales methods, trade practices among broker/dealers, capital structure, uses and safekeeping of customers’ funds and securities, recordkeeping, and the conduct of directors, officers and employees. The SEC

and the organizations to which it has delegated certain regulatory authority may conduct administrative proceedings that can result in censure, fines, suspension or expulsion of a broker/dealer, its directors, officers and employees. The principal purpose of regulation of securities broker/dealers is the protection of customers and the securities market, rather than the protection of stockholders of broker/dealers.dealers.

 

Limitation on Acquisitions and Activities.Activities.    The Company is subject to the Bank Holding Company Act, which requires the Company to obtain the prior approval of the Federal Reserve Board to (i) acquire substantially all the assets of any bank, (ii) acquire more than 5% of any class of voting stock of a bank or bank holding company which is not already majority owned, or (iii) merge or consolidate with another bank holding company. The BHCA also imposes significant limitations on the scope and type of activities in which the Company and its

4


subsidiaries may engage. The activities of bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the FRB has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In addition, under the GLB Act, a bank holding company, all of whose controlled depository institutions are “well-capitalized” and “well-managed” (as defined in federal banking regulations) and which obtains “satisfactory” Community Reinvestment Act (CRA) ratings, may declare itself to be a “financial holding company” and engage in a broader range of activities.

 

A financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or incidental or complementary to activities that are financial in nature. “Financial in nature” activities include:

 

securities underwriting, dealing and market making;

 

sponsoring mutual funds and investment companies;

 

insurance underwriting and insurance agency activities;

 

merchant banking; and

 

activities that the FRB determines to be financial in nature or incidental to a financial activity, or which are complementary to a financial activity and do not pose a safety and soundness risk.

 

A financial holding company that desires to engage in activities that are financial in nature or incidental to a financial activity but not previously authorized by the FRB must obtain approval from the FRB before engaging in such activity. Also, a financial holding company may seek FRB approval to engage in an activity that is complementary to a financial activity if it shows that the activity does not pose a substantial risk to the safety and soundness of insured depository institutions or the financial system. Under the GLB Act, subsidiaries of financial holding companies engaged in non-bank activities are supervised and regulated by the federal and state agencies which normally supervise and regulate such functions outside of the financial holding company context.

 

A financial holding company may acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, without prior approval from the FRB. Prior FRB approval is required, however, before the financial holding company may acquire control of more than 5% of the voting shares or substantially all of the assets of a bank holding company, bank or savings association. In addition, under the FRB’s merchant banking regulations, a financial holding company is authorized to invest in companies that engage in activities that are not financial in nature, as long as the financial holding company makes its investment with the intention of limiting the duration of the investment, does not manage the company on a day-to-day basis, and the company does not cross market its products or services with any of the financial holding company’s controlled depository institutions. If any subsidiary bank of a financial holding company receives a rating under the CRA of less than “satisfactory”, the financial holding company is limited with respect to its engaging in new activities or acquiring other companies, until the rating is raised to at least “satisfactory.”

 

Other Regulatory Restrictions & Requirements.Requirements.    A bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with the extension of credit, with limited

exceptions. There are also various legal restrictions on the extent to which a bank holding company and certain of its non-bank subsidiaries can borrow or otherwise obtain credit from its bank subsidiaries. The Company and its subsidiaries are also subject to certain restrictions on issuance, underwriting and distribution of securities. FRB policy requires a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. Under this “source of strength doctrine,” a bank holding company is expected to stand ready to use its available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity, and to maintain resources and the capacity to raise capital that it can commit to its subsidiary banks. Furthermore, the FRB has the right to order a bank holding company to terminate any activity that the FRB

5


believes is a serious risk to the financial safety, soundness or stability of any subsidiary bank. Also, under cross-guaranty provisions of the Federal Deposit Insurance Act (FDIA), bank subsidiaries of a bank holding company are liable for any loss incurred by the FDIC insurance fund in connection with the failure of any other bank subsidiary of the bank holding company.

 

The Company’s bank subsidiaries are subject to a number of laws regulating depository institutions, including the Federal Deposit Insurance Corporation Improvement Act of 1991, which expanded the regulatory and enforcement powers of the federal bank regulatory agencies. These laws require that such agencies prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, and mandated annual examinations of banks by their primary regulators. The Company’s bank subsidiaries are also subject to a number of consumer protection laws and regulations of general applicability, as well as the Bank Secrecy Act and USA Patriot Act, which are designed to identify, prevent and deter international money laundering and terrorist financing.

 

The rate of interest a bank may charge on certain classes of loans is limited by law. At certain times in the past, such limitations have resulted in reductions of net interest margins. Federal laws also impose additional restrictions on the lending activities of banks, including the amount that can be loaned to one borrower or a related group.

 

All four of the commercial banks owned by the Company are national banks and are subject to supervision and examination by the OCC. In addition, the national banks are subject to examination by The Federal Reserve System. All such banks are members of, and subject to examination by the FDIC.

 

Payment of dividends by the Company’s affiliate banks to the Company is subject to various regulatory restrictions. For national banks, the OCC must approve the declaration of any dividends generally in excess of the sum of net income for that year and retained net income for the preceding two years. At December 31, 2010,2011, approximately $15,200,000$22.0 million of the equity of the Company’s bank and non-bank subsidiaries was available for distribution as dividends to the Company without prior regulatory approval or without reducing the capital of the respective banks below prudent levels.

 

Each of the Company’s subsidiary banks are subject to the CRA and implementing regulations. CRA regulations establish the framework and criteria by which the bank regulatory agencies assess an institution’s record of helping to meet the credit needs of its community, including low and moderate-income neighborhoods. CRA ratings are taken into account by regulators in reviewing certain applications made by the Company and its bank subsidiaries.

 

Regulatory Capital Requirements Applicable to the Company.Company.    The FRB has promulgated capital adequacy guidelines for use in its examination and supervision of bank holding companies. If a bank holding company’s capital falls below minimum required levels, then the bank holding company must implement a plan to increase its capital, and its ability to pay dividends and make acquisitions of new bank subsidiaries may be restricted or prohibited. The FRB’s capital adequacy guidelines provide for the following types of capital:

 

Tier 1 capital, also referred to as core capital, calculated as:

 

common stockholders’ equity;

plus, non-cumulative perpetual preferred stock and any related surplus;

 

plus, minority interests in the equity accounts of consolidated subsidiaries;

 

less, all intangible assets (other than certain mortgage servicing assets, non-mortgage servicing assets and purchased credit card relationships);

 

less, certain credit-enhanced interest-only strips and non-financial equity investments required to be deducted from capital; and

 

6


less, certain deferred tax assets.

 

Tier 2 capital, also referred to as supplementary capital, calculated as:

 

allowances for loan and lease losses (limited to 1.25% of risk-weighted assets);

 

plus, unrealized gains on certain equity securities (limited to 45% of pre-tax net unrealized gains);

 

plus, cumulative perpetual and long-term preferred stock (original maturity of 20 years or more) and any related surplus;

 

plus, auction rate and similar preferred stock (both cumulative and non-cumulative);

 

plus, hybrid capital instruments (including mandatory convertible debt securities); and

 

plus, term subordinated debt and intermediate-term preferred stock with an original weighted average maturity of five years or more (limited to 50% of Tier 1 capital).

 

The maximum amount of supplementary capital that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital.

 

Total capital, calculated as:

 

Tier 1 capital;

 

plus, qualifying Tier 2 capital;

 

less, investments in banking and finance subsidiaries that are not consolidated for regulatory capital purposes;

 

less, intentional, reciprocal cross-holdings of capital securities issued by banks; and

 

less, other deductions (such as investments in other subsidiaries and joint ventures) as determined by supervising authority.

 

The Company is required to maintain minimum amounts of capital to various categories of assets, as defined by the banking regulators. See Table 13, , Risk-Based Capital, on page 4239 for additional detail on the computation of risk-based assets and the related capital ratios.

 

At December 31, 2010,2011, the Company was required to have minimum Tier 1 capital, Total capital, and leverage ratios of 4.00%, 8.00%, and 4.00% respectively. The Company’s actual ratios at that date were 11.30%11.20%, 12.45%12.20%, and 6.56%6.71%, respectively.

 

Regulatory Capital Requirements Applicable to the Company’s Subsidiary Banks.In addition to the minimum capital requirements of the FRB applicable to the Company, there are separate minimum capital requirements applicable to its subsidiary national banks.

 

Federal banking laws classify an insured financial institution in one of the following five categories, depending upon the amount of its regulatory capital:

 

“well-capitalized” if it has a total Tier 1 leverage ratio of 5% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a total risk-based capital ratio of 10% or greater (and is not subject to any order or written directive specifying any higher capital ratio);

“adequately capitalized” if it has a total Tier 1 leverage ratio of 4% or greater (or a Tier 1 leverage ratio of 3% or greater, if the bank has a Capital adequacy, Asset quality, Management, Liquidity, and Sensitivity to market risk (CAMELS) rating of 1), a Tier 1 risk-based capital ratio of 4% or greater, and a total risk-based capital ratio of 8% or greater;

 

7


“undercapitalized” if it has a total Tier 1 leverage ratio that is less than 4% (or a Tier 1 leverage ratio that is less than 3%, if the bank has a CAMELS rating of 1), a Tier 1 risk-based capital ratio that is less than 4% or a total risk-based capital ratio that is less than 8%;

 

“significantly undercapitalized” if it has a total Tier 1 leverage ratio that is less than 3%, a Tier 1 risk based capital ratio that is less than 3% or a total risk-based capital ratio that is less than 6%; and

 

“critically undercapitalized” if it has a Tier 1 leverage ratio that is equal to or less than 2%.

 

Federal banking laws require the federal regulatory agencies to take prompt corrective action against undercapitalized financial institutions. The Company’s banks must be well-capitalized and well-managed in order for the Company to remain a financial holding company. The capital ratios and classifications for the Company and each of the Company’s four banks as of December 31, 2010,2011, are set forth below:

 

Bank


  Total Tier 1 Leverage Ratio
(5% or greater)

   Tier 1 Risk Based
Capital Ratio

(6% or greater)

   Total Risk-Based
Capital Ratio

(10% or greater)

   Total Tier 1 Leverage Ratio
(5% or greater)

   Tier 1 Risk Based
Capital Ratio

(6% or greater)

   Total Risk-Based
Capital Ratio

(10% or greater)

 

UMB Financial Corporation

   6.56     11.30     12.45     6.71     11.20     12.20  

UMB Bank, n.a.

   6.15     10.83     12.01     6.32     10.68     11.73  

UMB National Bank of America, n.a.

   7.87     16.02     16.63     9.02     18.85     19.48  

UMB Bank Colorado, n.a.

   7.17     11.94     12.89     7.00     11.74     12.46  

UMB Bank Arizona, n.a.

   10.16     9.91     11.16     10.87     9.83     11.08  

 

The Company is required to maintain minimum balances with the FRB for each of its subsidiary banks. These balances are calculated from reports filed with the respective FRB for each affiliate. At December 31, 2010,2011, the Company was required to hold $41,632,000$63.3 million at the FRB.

 

Deposit Insurance and Assessments.Assessments.    The deposits of each of the Company’s four subsidiary banks are insured by an insurance fund administered by the FDIC, in general up to a maximum of $250,000 per insured deposit. Under federal banking regulations, insured banks are required to pay quarterly assessments to the FDIC for deposit insurance. The FDIC’s risk-based assessment system requires members to pay varying assessment rates depending upon the level of the institution’s capital and the degree of supervisory concern over the institution. As a result of the Federal Deposit Insurance Reform Act of 2005 (FDIRA), signed into law February 8, 2006, theThe FDIC assessment is now separated into two parts. The first part is the FDIC Insurance, and the second part is the assessment for the Financing Corporation (FICO).

Pursuant to the Emergency Economic Stabilization Act of 2008, the maximum deposit insurance amount was increased from $100,000 to $250,000 until December 31, 2009. On May 22, 2009, the FDIC extended the deposit insurance increase until December 31, 2013. On October 13, 2008, the FDIC established a Temporary Liquidity Guarantee Program (TLGP) under which the FDIC fully guaranteed all non-interest-bearing transaction accounts and all senior unsecured debt of insured depository institutions or their qualified holding companies issued between October 14, 2008, and June 30, 2009. Senior unsecured debt would include federal funds purchased and certificates of deposit outstanding to the credit of the bank. All eligible institutions participated in the program without cost for the first 30 days of the program. After December 5, 2008, institutions were assessed ten basis points for transaction account balances in excess of $250,000 and at the rate of 75 basis points of the amount of debt issued. The Company participated in the transaction guarantee part of the TLGP in 2009, and opted out of the debt guarantee part of the TLGP. On August 26, 2009, the transaction guarantee portion of the TLGP was extended until June 30, 2010. The Company has elected to opt out of the transaction guarantee extension.

In an effort to restore capitalization levels and to ensure the Deposit Insurance Fund (DIF) will adequately cover projected losses from future bank failures, the FDIC, on February 27, 2009, issued a final rule to alter the way in which it differentiates for risk in the risk-based assessment system and to revise deposit insurance assessment rates, including base assessment rates. The risk-based premium system provides for quarterly assessments based on an insured institution’s ranking in one of four risk categories based upon supervisory and capital evaluations. The assessment rate for an individual institution is determined according to a formula based on a weighted average of the institution’s individual CAMELS component ratings plus either six financial ratios. Well-capitalized institutions (generally those with CAMELS composite ratings of 1 or 2) are grouped in Risk Category I and their initial base assessment rate for deposit insurance is set at an annual rate of between 12 and 16 basis points. The initial base assessment rate for institutions in Risk Categories II, III and IV is set at annual rates of 22, 32 and 50 basis points, respectively. These initial base assessment rates are adjusted to determine an institution’s final assessment rate based on its brokered deposits, secured liabilities and unsecured debt.

On May 22, 2009, the FDIC imposed a special assessment equal to five basis points of assets less Tier 1 capital as of June 30, 2009, payable on September 30, 2009, and reserved the right to impose additional special assessments. In lieu of further special assessments, on November 12, 2009 the FDIC approved a final rule to require all insured depository institutions to prepay their estimated risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012 on December 30, 2009. For purposes of estimating future assessments, an institution would assume 5% annual growth in the assessment base and a three basis point increase in the current assessment rate for 2011 and 2012. The prepaid assessment would be applied against the actual assessment until exhausted. Any funds remaining after June 30, 2013, would be returned to the institution.

In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by FICO, an agency of the Federal government established to recapitalize the predecessor to the Savings Association Insurance Fund (SAIF). The FICO assessment rates, which are determined quarterly, averaged 0.002613% of insured deposits in fiscal 2010. These assessments will continue until the FICO bonds mature in 2017.

 

In October 2010, the FDIC adopted a new DIF restoration plan to ensure that the fund reserve ratio reaches 1.35% by September 30, 2020, as required by the “Dodd-Frank Wall Street Reform and Consumer Protection Act” (the Dodd-Frank Act). Under the new restoration plan, the FDIC will forego the uniform three-basis point increase in initial assessment rates scheduled to take place on January 1, 2011 and maintain the current schedule of assessment rates for all depository institutions. At least semi-annually, the FDIC will update its loss and income projections for the fund and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking if required.

In November 2010, the FDIC issued a final rule to implement provisions of the Dodd-Frank Act that provide for temporary unlimited coverage for non-interest-bearing transaction accounts. The separate coverage for non-interest-bearingnon interest-bearing transaction accounts became effective on December 31, 2010 and terminates on December 31, 2012.

In November 2010,February 2011, the FDIC issued a notice of proposed rulemakingfinal rule to change the deposit insurance assessment base from total domestic deposits to average total assets minus average tangible equity, as required by the Dodd-Frank Act, effective April 1, 2011. The FDIC also issuedcreated a notice of proposed rulemaking to revise the deposit insurance assessment system for large institutions. These proposals were made final on February 7, 2011. The FDIC proposes to create a two separaterisk based scorecard system one for most largeto determine an institutions that have more than $10 billion in assets and another for “highly complex” institutions that have over $50 billion in assets and are fully owned by a parent with over $500 billion in assets. Each scorecard would have a performance score and a loss-severity score that would be combined to produce a total score, which would be translated into an initialbase assessment rate. In calculating these scores, the FDIC would continue toThe scorecards utilize CAMELS ratings would introduceand certain new financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress, and would eliminate the use of risk categories and long-term debt issuer ratings. The FDIC would have the ability to make discretionary adjustments to the total score, up or down, by a maximum of

15 points, based upon significant risk factors that are not adequately captured in the scorecard. The total score would be constrained to be between 30 and 90 and would then translate to an initial base assessment rate on a non-linear, sharply-increasing scale.

For large institutions, the initial base assessment rate would range from 5 to 35 basis points on an annualized basis (basis points representing cents per $100 of assessable assets). After the effect of potential base-rate adjustments, the total base assessment rate could range from 2.5 to 45 basis points on an annualized basis. The potential adjustments to an institution’s initial base assessment rate include (i) a potential decrease of up to 5 basis points for certain long-term unsecured debt (“unsecured debt adjustment”) and (ii) a potential increase of up to 10 basis points for brokered deposits in excess of 10% of domestic deposits (“brokered deposit adjustment”). As the DIF reserve ratio grows, the rate schedule will be adjusted downward. Additionally, the proposed rule includes a new adjustment for depository institution debt whereby an institution would pay an additional premium equal to 50 basis points on every dollar of long-term, unsecured debt held that was issued by another insured depository institution (excluding debt guaranteed under the TLGP). The final rule related to this proposal is expected to be effective April 1, 2011.stress. The Company cannot provide any assurance as to the effect of any future proposed change in its deposit insurance premium rate should such a change occur, as such changes are dependent upon a variety of factors, some of which are beyond the Company’s control.

 

Limitations on Transactions with Affiliates.Affiliates.    The Company and its non-bank subsidiaries are “affiliates” within the meaning of Sections 23A and 23B of the Federal Reserve Act (FRA). The amount of loans or extensions of credit which a bank may make to non-bank affiliates, or to third parties secured by securities or obligations of the non-bank affiliates, are substantially limited by the FRA and the FDIA. Such acts further

8


restrict the range of permissible transactions between a bank and an affiliated company. A bank and subsidiaries of a bank may engage in certain transactions, including loans and purchases of assets, with an affiliated company, only if the terms and conditions of the transaction, including credit standards, are substantially the same as, or at least as favorable to the bank as, those prevailing at the time for comparable transactions with non-affiliated companies or, in the absence of comparable transactions, on terms and conditions that would be offered to non-affiliated companies.

 

Other Banking Activities.Activities.    The investments and activities of the Company’s subsidiary banks are also subject to regulation by federal banking agencies regarding; investments in subsidiaries, investments for their own account (including limitations in investments in junk bonds and equity securities), loans to officers, directors and their affiliates, security requirements, anti-tying limitations, anti-money laundering, financial privacy and customer identity verification requirements, truth-in-lending, types of interest bearing deposit accounts offered, trust department operations, brokered deposits, audit requirements, issuance of securities, branching and mergers and acquisitions.

 

A discussion of past acquisitions is included in Note 16 to the Consolidated Financial Statements provided in Item 8 on pagepages 86 and 87 of this report.

 

Future Legislation.Legislation.    On July 21, 2010, the Dodd-Frank Act was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things, will:

 

Centralize responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing, examining and enforcing compliance with federal consumer financial laws.

 

Restrict the preemption of state law by federal law and disallow subsidiaries and affiliates of national banks from availing themselves of such preemption.

 

Apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies.

Require the Office of the Comptroller of the Currency to seek to make its capital requirements for national banks countercyclical so that capital requirements increase in times of economic expansion and decrease in times of economic contraction.

 

Require financial holding companies to be well capitalized and well managed as of July 21, 2011.to maintain financial holding company status. Bank holding companies and banks must also be both well capitalized and well managed in order to acquire banks located outside their home state.

 

Change the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminate the ceiling on the size of the DIF and increase the floor of the size of the DIF.

 

Impose comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institution itself.

 

Require large, publicly traded bank holding companies to create a risk committee responsible for the oversight of enterprise risk management.

 

Implement corporate governance revisions, including with regard to executive compensation and proxy access by shareholders, that apply to all public companies, not just financial institutions.

 

Make permanent the $250 thousand$250,000 limit for federal deposit insurance and increase the cash limit of Securities Investor Protection Corporation protection from $100 thousand$100,000 to $250 thousand$250,000 and provide unlimited federal deposit insurance until December 31, 2012 for non-interest bearing demand transaction accounts at all insured depository institutions.

 

9


Repeal the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.

 

Amend the Electronic Fund Transfer Act (“EFTA”) to, among other things, give the Federal Reserve the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and to enforce a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

 

Increase the authority of the Federal Reserve to examine the Company and its non-bank subsidiaries.

 

Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on the Company, its customers or the financial industry more generally. In the future, management expects that legislative changes will continue to be introduced from time to time in Congress. This legislation may change banking statutes and the Company’s (and its subsidiaries’) operating environment in substantial and unpredictable ways. If enacted, this legislation could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations, credit unions and other financial institutions. The Company cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it or any implementing regulations could have on the business, results of operations or financial condition of the Company or its subsidiaries.

 

The references in the foregoing discussion to various aspects of statutes and regulations are merely summaries which do not purport to be complete and which are qualified in their entirety by reference to the actual statutes and regulations.

 

Statistical Disclosure.    The information required by Guide 3, “Statistical Disclosure by Bank Holding Companies,” has been included in Items 6, 7, and 7A, pages 2119 through 5251 of this report.

Executive Officers of the Registrants.    The following are the executive officers of the Company, each of whom is elected annually, and there are no arrangements or understandings between any of the persons so named and any other person pursuant to which such person was elected as an officer.

 

Name


  Age

  

Position with Registrant


J. Mariner KemperCraig Anderson

  3852  Mr. Kemper hasMr Anderson joined UMB Bank, n.a. in 1986. In 2011, he was named President of Commercial Banking for UMB Financial Corporation where he is responsible for all areas of commercial banking including treasury management. Prior to his appointment to that position, he served as the Chairman and CEO ofPresident for Regional Banking for the Company since May 2004from September 2009 through November 2011, and has served as Chairman and CEO of National Bank of America in Salina, Kansas from May 2004 to September 2009.

Terry W. D’Amore

55Mr. D’ Amore joined UMB Bank, Colorado, n.a. (a subsidiaryin June 2005. He serves as Executive Vice President, Director of Payment & Technology Solutions Division where he is responsible for sales, service and product management for the Company) since 2000. He was President ofTreasury Management, Healthcare, Foreign Exchange, and Merchant Services. Prior to coming to UMB Bank, Colorado from 1997 to 2000.n.a., he served as National Sales and Service Manager for Treasury Management’s Corporate Finance Division at PNC Bank in Pittsburgh, Pennsylvania.

Peter J. deSilva

  4950  Mr. deSilva has served as President and Chief Operating Officer of the Company since January 2004 and Chairman and Chief Executive Officer of UMB Bank, n.a. since May 2004. Mr. deSilva was previously employed by Fidelity Investments from 1987-2004, the last seven years as Senior Vice President with principal responsibility for brokerage operations.

10


Name


Age

Position with Registrant


Peter J. Genovese

  6465  Mr. Genovese has served as Vice Chairman of the Company since October 2008. He previously served as Vice Chairman of the Eastern Region and CEO of St. Louis of UMB Bank, n.a. from January 2004 to October 2008. He also served as President of the Company from January 2000 to January 2004.

Michael D. Hagedorn

  4445  Mr. Hagedorn has served as Vice Chairman, Chief Financial Officer, and Chief Administrative Officer of the Company since October 2009. Previously, he served as Executive Vice President and Chief Financial Officer of the Company from March 2005 to October 2009. He previously served as Senior Vice President and Chief Financial Officer of Wells Fargo, Midwest Banking Group from April 2001 to March 2005.

Bradley J. SmithDaryl S. Hunt

  55  Mr. SmithHunt joined UMB Bank, n.a. in November 2007, as Executive Vice President of Operations and Technology Group. Previously, Mr. Hunt worked at Fidelity Investments where he served as Senior Vice President for Transfer Operations from 2006 to 2007, Senior Vice President of Customer Processing Operations from 2003 to 2006, and Senior Vice President of Outbound Mail Operations from 2001 to 2003.

Andrew J. Iseman

47Mr. Iseman joined Scout Investments, Inc. as Chief Executive Officer in August 2010. From February 2009 to June 2010, he served as Chief Operating Officer of RK Capital Management. He was previously employed by Janus Capital Group from January 2003 to April 2008, most recently serving as the Executive Vice President from January 2008 to April 2008 and Chief Operating Officer from May 2007 to April 2008.

J. Mariner Kemper

39Mr. Kemper has served as the Chairman and CEO of the Company since May 2004 and has served as Chairman and CEO of UMB Bank Colorado, n.a. (a subsidiary of the Company) since 2000. He was President of UMB Bank Colorado from 1997 to 2000.

Stephen M. Kitts

51Mr. Kitts joined UMB Bank, n.a. in September 2007 as Executive Vice President of Banking Services where he supervises correspondent banking and investment banking. Prior to joining UMB Bank, n.a., he managed the Capital Markets Group at Commerce Bank from 1996 to 2007.

David D. Kling

65Mr. Kling has served as Executive Vice President and Chief Risk Officer of Consumerthe Company since October 2008. He previously served as the Executive Vice President for Enterprise Services forof UMB Bank, n.a. since January 2005. Previously heNovember 2007. He also served as Executive Vice President of RetailFinancial Services and Corporate Services, St. Francis Bank/Mid America Bank, Milwaukee, Wisconsin from 2000 through 2005.

James A. Sangster

56Mr. Sangster has served as PresidentSupport of UMB Bank, n.a. since 1999.from 1997 to 2007.

Douglas F. Page

  6768  Mr. Page has served as Executive Vice President of the Company since 1984 and Executive Vice President, Loan Administration, of UMB Bank, n.a. since 1989.

11


Name


Age

Position with Registrant


Christine Pierson

49Ms. Pierson joined the Company in January 2011 as Executive Vice President of Consumer Banking. Prior to 2011, she served the Vice President of US Sales—Animal Health Division for Bayer Healthcare Corporation since 2005.

Dennis R. Rilinger

64Mr. Rilinger has served as Executive Vice President and General Counsel of the Company and of UMB Bank, n.a. since 1996.

James A. Sangster

57Mr. Sangster has served as President of UMB Bank, n.a. since 1999.

Lawrence G. Smith

64Mr. Smith has served as Executive Vice President and Chief Organizational Effectiveness Officer of UMB Bank, n.a. since March 2005. Prior to coming to UMB Bank, n.a., Mr. Smith was Vice President—Human Resources for Fidelity Investments in Boston, Massachusetts where he was responsible for Fidelity’s business group human resource activities.

Brian J. Walker

40Mr. Walker joined the Company in June 2007 as Senior Vice President and Corporate Controller (Chief Accounting Officer). From July of 2004 to June 2007 he served as a Certified Public Accountant for KPMG where he worked primarily as an auditor for financial institutions. He worked as a Certified Public Accountant for Deloitte & Touche from November 2002 to July of 2004.

Clyde F. Wendel

  6364  Mr. Wendel has served as Vice Chairman of UMB Bank, n.a. and Chief Executive Officer of Personal Financial Services of UMB Bank, n.a. since October 2009. He previously served as President of the Asset Management Division of UMB Bank, n.a. and Vice Chairman of UMB Bank, n.a. from June 2006 to October 2009. Previously, he served as Regional President, Bank of America Private Bank and Senior Bank Executive for Iowa, Kansas, and Western Missouri from 2000-2006.

Name


Age

Position with Registrant


Andrew J. Iseman

46Mr. Iseman joined Scout Investments, Inc. as Chief Executive Officer in August 2010. From February 2009 to June 2010, he served as Chief Operating Officer of RK Capital Management. He was previously employed by Janus Capital Group from January 2003 to April 2008, most recently serving as the Executive Vice President from January 2008 to April 2008 and Chief Operating Officer from May 2007 to April 2008.

Daryl S. Hunt

54Mr. Hunt joined UMB Bank, n.a. in November 2007, as Executive Vice President of Operations and Technology Group. Previously, Mr. Hunt worked at Fidelity Investments where he served as Senior Vice President for Transfer Operations from 2006 to 2007, Senior Vice President of Customer Processing Operations from 2003 to 2006, and Senior Vice President of Outbound Mail Operations from 2001 to 2003.

Lawrence G. Smith

63Mr. Smith has served as Executive Vice President and Chief Organizational Effectiveness Officer of UMB Bank, n.a. since March 2005. Prior to coming to UMB Bank, n.a., Mr. Smith was Vice President – Human Resources for Fidelity Investments in Boston, Massachusetts where he was responsible for Fidelity’s business group human resource activities.

Dennis R. Rilinger

63Mr. Rilinger has served as Executive Vice President and General Counsel of the Company and of UMB Bank, n.a. since 1996.

David D. Kling

64Mr. Kling has served as Executive Vice President and Chief Risk Officer of the Company since October 2008. He previously served as the Executive Vice President for Enterprise Services of UMB Bank, n.a. since November 2007. He also served as Executive Vice President of Financial Services and Support of UMB Bank, n.a. from 1997 to 2007.

John P. Zader

  4950  Mr. Zader joined UMB Fund Services in December 2006. He serves as Chief Executive Officer of UMB Fund Services. He previously served as a consultant to Jefferson Wells International in 2006 and served as Senior Vice President and Chief Financial Officer of U.S. Bancorp Fund Services, LLC, a mutual and hedge fund service provider from 1988 to 2006.

Terry W. D’Amore

54Mr. D’ Amore joined UMB Bank, n.a. in 2006. He serves as Executive Vice President, Director of Payment & Technology Solutions Division where he is responsible for sales, service and product management for the Treasury Management, Healthcare, Foreign Exchange, and Merchant Services. Prior to coming to UMB Bank, n.a., he served as National Sales and Service Manager for Treasury Management’s Corporate Finance Division at PNC Bank in Pittsburgh, Pennsylvania.

Brian J. Walker

39Mr. Walker joined the Company in June 2007 as Senior Vice President and Corporate Controller (Chief Accounting Officer). From July of 2004 to June 2007 he served as a Certified Public Accountant for KPMG where he worked primarily as an auditor for financial institutions. He worked as a Certified Public Accountant for Deloitte & Touche from November 2002 to July of 2004.

Name


Age

Position with Registrant


Stephen M. Kitts

50Mr. Kitts joined UMB Bank, n.a. in September 2007 as Executive Vice President of Banking Services where he supervises correspondent banking and investment banking. Prior to joining UMB Bank, n.a., he managed the Capital Markets Group at Commerce Bank from 1996 to 2007.

 

The Company makes available free of charge on its website atwww.umb.com/investor, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, as soon as reasonably practicable after it electronically files or furnishes such material with or to the SEC.

 

ITEM 1A.  RISK FACTORS

 

Financial services companies routinely encounter and address risks. Some risks may give rise to occurrences that cause the Company’s future results to be materially different than what companies presently anticipate. In the following paragraphs, the Company describes its current view of certain important strategic risks, although the risks below are not the only risks the Company faces. If any such risks actually materialize, the Company’s business, results of operations, financial condition and prospects could be affected materially and adversely. These risk factors should be read in conjunction with management’s discussion and analysis, beginning on page 21 hereof, and the consolidated financial statements, beginning on page 52 hereof.

 

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General economic conditions such as the current economic downturn or recession, could materially impair customers’ ability to repay loans, harm operating results and reduce the volume of new loans.    The U.S. and the world economies impact how financial instruments are priced. Profitability depends significantly on economic conditions. Economic downturns or recessions, either nationally, internationally or in the states within the Company’s footprint, could materially reduce operating results. An economic downturn could negatively impact demand for loan and deposit products, the demand for insurance and brokerage products and the amount of credit related losses due to customers who cannot pay interest or principal on their loans. To the extent loan charge-offs exceed estimates, an increase to the amount of provision expense related to the allowance for loan losses would reduce income. See “Quantitative and Qualitative Disclosures About Market Risk—Credit Risk” in Part II, Item 7A for a discussion of how the Company monitors and manages credit risk.

 

General economic conditions, such as a stock market decline, could materially impair the number of investors in the equity and bond markets, the level of assets under management and the demand for other fee-based services.    Economic downturns or recessions could affect the volume of income from and demand for other fee-based services. The fee revenue from asset management segments including income from Scout Investments, Inc. and UMB Fund Services, Inc. subsidiaries, are largely dependent on both inflows to, and the fair value of, assets invested in the Scout Funds and the fund clients to whom the Company provides services. General economic conditions can affect investor sentiment and confidence in the overall securities markets which could adversely affect asset values, net flows to these funds and other assets under management. Bankcard revenues are dependent on transaction volumes from consumer and corporate spending to generate interchange fees. Depressed economic conditions could negatively affect the amount of such fee income. The Company’s banking services group is affected by corporate and consumer demand for debt securities which can be adversely affected by changes in general economic conditions.

 

The Company is subject to extensive regulation in the jurisdictions in which it conducts business.    The Company is subject to extensive state and federal regulation, supervision and legislation that govern most aspects of its operations. Laws and regulations, and in particular banking, securities and tax laws, are under intense scrutiny because of the current economic crisis and may change from time to time. For example, current federal law prohibits the payment of interest on corporate demand deposit accounts. Although a change to permit interest on corporate accounts would have a favorable impact on service-charge income, it would adversely affect net interest income as the Company’s cost of funds would increase. Changes in laws and regulations, lawsuits or actions by regulatory agencies could require the Company to devote significant time and

resources to compliance efforts and could lead to fines, penalties, judgments, settlements, withdrawal of certain products or services offered in the market or other adverse results which could affect the Company’s business, financial condition or results of operation, or cause serious reputational harm.

 

Changes in interest rates could affect results of operations.    A significant portion of the Company’s net income is based on the difference between interest earned on earning assets (such as loans and investments) and interest paid on deposits and borrowings. These rates are sensitive to many factors that are beyond the Company’s control, such as general economic conditions and policies of various governmental and regulatory agencies, such as the Federal Reserve Board. For example, policies and regulations of the Federal Reserve Board influence, directly and indirectly, the rate of interest paid by commercial banks on interest-bearing deposits and also may affect the value of financial instruments held by the Company. The actions of the Federal Reserve Board also determine to a significant degree the cost of funds for lending and investing. In addition, these policies and conditions can adversely affect customers and counterparties, which may increase the risk that such customers or counterparties default on their obligations. Changes in interest rates greatly affect the amount of income earned and the amount of interest paid. Changes in interest rates also affect loan demand, the prepayment speed of loans, the purchase and sale of investment bonds and the generation and retention of customer deposits. A rapid increase in interest rates could result in interest expense increasing faster than interest income because of differences in maturities of assets and liabilities. See “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” in Part II, Item 7A for a discussion of how the Company monitors and manages interest rate risk.

 

13


Reliance on systems, employees and certain counterparties, and certain failures could adversely affect operations.    The Company is dependent on its ability to process a large number of transactions. If any of the financial, accounting, or other data processing systems fail or have other significant shortcomings, the Company could be adversely affected. The Company is similarly dependent on its employees. The Company could be adversely affected if a significant number of employees are unavailable due to a pandemic, natural disaster, war, act of terrorism, or other reason, or if an employee causes a significant operational break-down or failure, either as a result of human error, purposeful sabotage or fraudulent manipulation of operations or systems. Third parties with which the Company does business could also be sources of operational risk, including break-downs or failures of such parties’ own systems or employees. Any of these occurrences could result in a diminished ability of the Company to operate, potential liability to clients, reputational damage and regulatory intervention, which could have an adverse impact on the Company. Operational risk also includes the ability to successfully integrate acquisitions into existing charters as an acquired entity will most likely be on a different system. See “Quantitative and Qualitative Disclosures About Market Risk—Operational Risk” in Part II, Item 7A for a discussion of how the Company monitors and manages operational risk.

 

In a firm as large and complex asthe ordinary course of our business, the Company lapsescollects and stores sensitive data, including intellectual property, our proprietary business information and that of our customers, and personally identifiable information of our customers and employees, in our data centers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or deficienciesbreached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in internal control over financial reporting may occur from time to time,legal claims or proceedings, regulatory penalties, and damage our reputation which could adversely affect our business. In addition, there is no assurancethe risk that controls and procedures, as well as business continuity and data security systems, may prove to be inadequate. Any such failure could affect operations and could adversely affect results of operations by requiring the Company to expend significant deficienciesresources to correct the defect, as well as by exposing the Company to litigation or material weaknesses in internal controls maylosses not occur in the future.covered by insurance.

 

In addition, there is the risk that controls and procedures, as well as business continuity and data security systems, may prove to be inadequate. Any such failure could affect operations and could adversely affect results of operations by requiring the Company to expend significant resources to correct the defect, as well as by exposing the Company to litigation or losses not covered by insurance.

 

If the Company does not successfully handle issues that may arise in the conduct of its business and operations, the Company’s reputation could be damaged, which could in turn negatively affect its business.    The Company’s ability to attract and retain customers and transact with the Company’s counterparties could be adversely affected to the extent its reputation is damaged. The failure of the Company to deal with various issues that could give rise to reputational risk could cause harm to the Company and its business prospects. These issues include, but are not limited to potential conflicts of interest, legal and regulatory requirements, ethical issues, money-laundering, privacy, recordkeeping, sales and trading practices and proper

identification of the legal, reputational, credit, liquidity and market risks inherent in its products. The failure to appropriately address these issues could make clients unwilling to do business with the Company, which could adversely affect results.

 

The Company faces strong competition from other financial services firms, which could lead to pricing pressures that could materially adversely affect revenue and profitability.    In addition to the challenge of competing against local, regional and national banks in attracting and retaining customers, the Company’s competitors also include brokers, mortgage bankers, mutual fund sponsors, securities dealers, investment advisors and specialty finance and insurance companies. The financial services industry is intensely competitive and is expected to remain so. The Company competes on the basis of several factors, including transaction execution, products and services, innovation, reputation and price. The Company may experience pricing pressures as a result of these factors and as some competitors seek to increase market share by reducing prices on products and services or increasing rates paid on deposits.

 

14


The shift from paper-based to electronic-based payments may be difficult and negatively affect earnings.    In today’s payment environment, checks continue to be a payment choice; however, checks as a percent of the total payment volume are declining and the transactions are shifting to electronic alternatives. Check products are serviced regionally due to the physical constraints of paper documents; however, electronic documents are not bound by the same constraints, thus opening geographic markets to all providers of electronic services. To address this shift, new systems are being developed and marketed which involve significant software and hardware costs. It is anticipated that we will encounter new competition, and any competitor that attracts the payments business of existing customers will compete strongly for the remainder of such customers’ banking business.

 

The Company’s framework for managing risks may not be effective in mitigating risk and loss to the Company.    The Company’s risk management framework is made up of various processes and strategies to manage risk exposure. Types of risk to which the Company is subject include liquidity risk, credit risk, price risk, interest rate risk, operational risk, compliance and litigation risk, foreign exchange risk, reputation risk, and fiduciary risk, among others. Although management continually monitors, evaluates, and updates the Company’s risk management framework and the Board oversees the Company’s overall risk management strategy, there can be no assurance that the Company’s framework to manage risk, including such framework’s underlying assumptions, will be effective under all conditions and circumstances. If the Company’s risk management framework proves ineffective, it could suffer unexpected losses and could be materially adversely affected.

 

Liquidity is essential to the Company’s businesses and the Company relies on the securities market and other external sources to finance a significant portion of its operations.    Liquidity affects the Company’s ability to meet financial commitments. Liquidity could be negatively affected should the need arise to increase deposits or obtain additional funds through borrowing to augment current liquidity sources. Factors beyond the Company’s control, such as disruption of the financial markets or negative views about the general financial services industry, could impair the Company’s access to funding. If the Company is unable to raise funding using the methods described above, it would likely need to sell assets, such as its investment and trading portfolios, to meet maturing liabilities. The Company may be unable to sell some of its assets on a timely basis, or it may have to sell assets at a discount from market value, either of which could adversely affect its results of operations. Liquidity and funding policies have been designed to ensure that the Company maintains sufficient liquid financial resources to continue to conduct business for an extended period in a stressed liquidity environment. If the liquidity and funding policies are not adequate, the Company may be unable to access sufficient financing to service its financial obligations when they come due, which could have a material adverse franchise or business impact. See “Quantitative and Qualitative Disclosures About Market Risk—Liquidity Risk” in Part II, Item 7A for a discussion of how the Company monitors and manages liquidity risk.

 

Inability to hire or retain qualified employees could adversely affect the Company’s performance.    The Company’s people are its most important resource and competition for qualified employees is intense. Employee compensation is the Company’s greatest expense. The Company relies on key personnel to

manage and operate its business, including major revenue generating functions such as its loan and deposit portfolios. Theportfolios, investment management function and asset servicing function .The loss of key staff may adversely affect the Company’s ability to maintain and manage these portfolios effectively, which could negatively affect its results of operations. If compensation costs required to attract and retain employees become unreasonably expensive, the Company’s performance, including its competitive position, could be adversely affected.

 

Changes in accounting standards could impact reported earnings.    The accounting standard setting bodies, including the Financial Accounting Standards Board and other regulatory bodies periodically change the financial accounting and reporting standards affecting the preparation of the consolidated financial statements. These changes are not within the Company’s control and could materially impact the consolidated financial statements.

 

15


The Company is subject to a variety of litigation which may affect its business, operating results and reputation.    The Company and its subsidiaries may be involved from time to time in a variety of litigation. This litigation can include class action litigation concerning servicing processes or fees or charges, or employment practices, and potential reductions in fee revenues resulting from such litigation. Past, present and future litigation have included or could include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. Substantial legal liability could materially adversely affect its business, financial condition or results of operations and/or cause significant reputational harm to its business.

 

Future events may be different than those anticipated by management assumptions and estimates, which may cause unexpected losses in the future.    Pursuant to current Generally Accepted Accounting Principles, the Company is required to use certain estimates in preparing its financial statements, including accounting estimates to determine allowance for loan losses, and the fair values of certain assets and liabilities, among other items. Should the Company’s determined values for such items prove inaccurate, the Company may experience unexpected losses which could be material.

 

ITEM 1B.  UNRESOLVED STAFF COMMENTS

 

There are no unresolved comments from the staff of the SEC required to be disclosed herein as of the date of this Form 10-K.

 

ITEM 2.  PROPERTIES

 

The Company’s headquarters building, the UMB Bank Building, is located at 1010 Grand Boulevard in downtown Kansas City, Missouri, and opened during July 1986. Of the 250,000 square feet, 227,000 square feet is occupied by departments and customer service functions of UMB Bank, n.a. as well as offices of the parent company, UMB Financial Corporation. The remaining 23,000 square feet of space within the building is leased to a law firm.

 

Other main facilities of UMB Bank, n.a. in downtown Kansas City, Missouri, are located at 928 Grand Boulevard (185,000 square feet); 906 Grand Boulevard (140,000 square feet); and 1008 Oak Street (180,000 square feet). Both the 928 Grand and 906 Grand buildings house backroom support functions. The 928 Grand building also houses Scout Investments, Inc. Additionally, within the 906 Grand building there is 20,000 square feet of space leased to several small tenants. The 928 Grand building underwent a major renovation during 2004/2004 and 2005. The 928 Grand building is connected to the UMB Bank Building (1010 Grand) by an enclosed elevated pedestrian walkway. The 1008 Oak building, which opened during the second quarter of 1999, houses the Company’s operations and data processing functions.

 

UMB Bank, n.a. leases 51,71152,000 square feet in the Hertz Building located in the heart of the commercial sector of downtown St. Louis, Missouri. This location has a full-service banking center and is home to some operational and administrative support functions.

UMB Bank, Colorado, n.a. leases 27,13030,000 square feet on the first, second, third, and fifth floors of the 1670 Broadway building located in the financial district of downtown Denver, Colorado. The location has a full-service banking center and is home to the operational and administrative support functions for UMB Bank, Colorado, n.a.

 

UMB Fund Services, Inc., a subsidiary of the Company, leases 72,13572,000 square feet in Milwaukee, Wisconsin, at which its fund services operation is headquartered.

 

As of December 31, 2010,2011, the Company’s affiliate banks operated a total of 126124 banking centers and two Wealth Management offices.

 

16


The Company utilizes all of these properties to support aspects of all of the Company’s business segments.

 

Additional information with respect to premises and equipment is presented in Notes 1 and 8 to the Consolidated Financial Statements in Item 8, pages 5857 and 7374 of this report.

 

ITEM 3.  LEGAL PROCEEDINGS

 

In the normal course of business, the Company and its subsidiaries are named defendants in various lawsuits and counter-claims. In the opinion of management, after consultation with legal counsel, except as noted below, none of these lawsuits are expected to have a materially adversematerial effect on the financial position, results of operations, or cash flows of the Company.

 

During 2010, two suits were filed against UMB Bank, N.A. (the “Bank”) in Missouri state court. The first suit was made by a customercourt alleging that the Bank’s checkingdeposit account posting practices resulted in excessive overdraft fees in violation of Missouri’s consumer protection statute and the account agreement. The suit seeksBoth suits sought class-action status for Bankthe Bank’s Missouri customers who may have been similarly affected. The Bank removed this actionthe first of the two suits (Johnson, et. al. vs. UMB Bank N.A.) to the U.S. District Court for the Western District of Missouri. ThisThe action was then transferred to the multidistrict litigation in the U.S. District Court for the Southern District of Florida, where similar claims against other financial institutions are pending. AThe second suit (Allen, et. al. vs. UMB Bank N.A., et. al.) was also filed in Missouri state court by another Bank customer alleging the substantially identical facts. The Allen suit was subsequently amended to add the Company and all of its other bank subsidiaries as defendants, and to seek to include customers of all of the defendant banks in a class action. During the first quarter of 2011, a third suit (Downing vs. UMB Bank N.A., et. al.) was filed in the U.S. District Court for the Western District of Oklahoma by another bank customer alleging similar facts and also seeking class action status. At this early stageOn May 13, 2011, the Company and all of its bank subsidiaries entered into an agreement to settle the Allen suit. To resolve the litigation, it is not possibleand without admitting any wrongdoing, the Company agreed to establish a $7.8 million escrow settlement fund, and recognized the related expense in its consolidated statements of income for managementthe period ended June 30, 2011. The settlement was subject to approval by the Circuit Court of Jackson County, Missouri. The court gave preliminary approval to the Banksettlement agreement on June 27, 2011, and gave final approval to determine the probability ofsettlement agreement at a material adverse outcome or reasonably estimatefairness hearing on October 31, 2011. The Johnson suit was dismissed without prejudice on August 31, 2011. The Downing suit was dismissed on November 2, 2011, and the amount of any potential loss.time to appeal the Allen suit settlement has passed.

 

ITEM 4.  RESERVEDMINE SAFETY DISCLOSURES

Not applicable.

17


PART II

 

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s stock is traded on the NASDAQ Global Select Stock Market under the symbol “UMBF.” As of February 18, 2011,15, 2012, the Company had 2,7102,168 shareholders of record. Company stock information for each full quarter period within the two most recent fiscal years is set forth in the table below.

 

Per Share  Three Months Ended

   Three Months Ended

 

2010


  March 31

   June 30

   Sept. 30

   Dec. 31

 

2011


  March 31

   June 30

   Sept. 30

   Dec. 31

 

Dividend

  $0.185    $0.185    $0.185    $0.195    $0.195    $0.195    $0.195    $0.205  

Book value

   25.43     26.42     26.98     26.24     26.62     27.97     28.97     29.46  

Market price:

                        

High

   41.96     44.51     39.58     42.36     44.21     42.65     45.20     38.53  

Low

   37.24     35.56     31.88��    34.73     37.20     37.05     32.08     30.49  

Close

   40.60     35.56     35.51     41.44     37.37     41.88     32.08     37.25  
Per Share  Three Months Ended

 

2009


  March 31

   June 30

   Sept. 30

   Dec. 31

 

Dividend

  $0.175    $0.175    $0.175    $0.185  

Book value

   24.19     24.42     25.08     25.11  

Market price:

            

High

   49.75     48.72     45.50     42.31  

Low

   33.65     36.52     36.34     37.51  

Close

   42.49     38.01     40.44     39.35  

Per Share  Three Months Ended

 

2010


  March 31

   June 30

   Sept. 30

   Dec. 31

 

Dividend

  $0.185    $0.185    $0.185    $0.195  

Book value

   25.43     26.42     26.98     26.24  

Market price:

                    

High

   41.96     44.51     39.58     42.36  

Low

   37.24     35.56     31.88     34.73  

Close

   40.60     35.56     35.51     41.44  

 

Information concerning restrictions on the ability of the Registrant to pay dividends and the Registrant’s subsidiaries to transfer funds to the Registrant is presented in Item 1, page 3 and Note 10 to the Consolidated Financial Statements provided in Item 8, pages 7576 and 7677 of this report. Information concerning securities the Company issued under equity compensation plans is contained in Item 12, pages 9899 and 99100 and in Note 11 to the Consolidated Financial Statements provided in Item 8, pages 7778 through 8081 of this report.

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

The following table provides information about share repurchase activity by the Company during the quarter ended December 31, 2010:2011:

 

ISSUER PURCHASEPURCHASES OF EQUITY SECURITIES

 

Period


  (a)
Total
Number  of
Shares
Purchased


   (b)
Average
Price
Paid per
Share


   (c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs


   (d)
Maximum Number
of Shares that May Yet
Be Purchased Under
the Plans or
Programs


 

October 1—October 31, 2010

   9,355    $36.20     9,355     1,881,653  

November 1—November 30, 2010

   7,159     37.78     7,159     1,874,494  

December 1—December 31, 2010

   17,401     41.18     17,401     1,857,093  
   


  


  


     

Total

   33,915    $39.09     33,915       
   


  


  


     

Period


  (a)
Total
Number  of
Shares
Purchased


   (b)
Average
Price
Paid per
Share


   (c)
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs


   (d)
Maximum Number
of Shares that May Yet
Be Purchased Under
the Plans or
Programs


 

October 1—October 31, 2011

   9,547    $35.63     9,547     1,812,184  

November 1—November 30, 2011

   4,869     35.13     4,869     1,807,315  

December 1—December 31, 2011

   5,388     36.27     5,388     1,801,927  
   


  


  


     

Total

   19,804    $35.68     19,804       
   


  


  


     

 

On April 27, 2010,26, 2011, the Company announced a plan to repurchase up to two million shares of common stock. This plan will terminate on April 26, 2011.25, 2012. All open market share purchases under the share repurchase planplans are

18


intended to be within the scope of Rule 10b-18 promulgated under the Exchange Act. Rule 10b-18 provides a safe harbor for purchases in a given day if the Company satisfies the manner, timing and volume conditions of the rule when purchasing its own common shares. The Company has not made any repurchases other than through this plan.

 

ITEM 6.  SELECTED FINANCIAL DATA

 

For a discussion of factors that may materially affect the comparability of the information below, please see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, pages 2321 through 52,51, of this report.

19


FIVE-YEAR FINANCIAL SUMMARY

(in thousands except per share data)

 

EARNINGS  2010

 2009

 2008

 2007

 2006

   2011

 2010

 2009

 2008

 2007

 

Interest income

  $346,507   $356,217   $387,973   $414,413   $369,083    $343,653   $346,507   $356,217   $387,973   $414,413  

Interest expense

   35,894    53,232    112,922    181,729    151,859     26,680    35,894    53,232    112,922    181,729  

Net interest income

   310,613    302,985    275,051    232,684    217,224     316,973    310,613    302,985    275,051    232,684  

Provision for loan losses

   31,510    32,100    17,850    9,333    8,734     22,200    31,510    32,100    17,850    9,333  

Noninterest income

   360,370    310,176    312,783    288,788    254,945     414,332    360,370    310,176    312,783    288,788  

Noninterest expense

   512,622    460,585    430,153    407,164    381,417     562,746    512,622    460,585    430,153    407,164  

Net income

   91,002    89,484    98,075    74,213    59,767     106,472    91,002    89,484    98,075    74,213  
  


 


 


 


 


  


 


 


 


 


AVERAGE BALANCES

      

Assets

  $11,108,233   $10,110,655   $8,897,886   $7,996,286   $7,583,217    $12,417,274   $11,108,233   $10,110,655   $8,897,886   $7,996,286  

Loans, net of unearned interest

   4,490,587    4,383,551    4,193,871    3,901,853    3,579,665     4,756,165    4,490,587    4,383,551    4,193,871    3,901,853  

Securities

   5,073,839    4,382,179    3,421,213    2,846,620    2,797,114     5,774,217    5,073,839    4,382,179    3,421,213    2,846,620  

Interest-bearing due from banks

   593,518    492,915    66,814    —      —       837,807    593,518    492,915    66,814    —    

Deposits

   8,451,966    7,584,025    6,532,270    5,716,202    5,488,798     9,593,638    8,451,966    7,584,025    6,532,270    5,716,202  

Long-term debt

   19,141    32,067    36,404    36,905    37,570     11,284    19,141    32,067    36,404    36,905  

Shareholders’ equity

   1,066,872    1,006,591    933,055    874,078    843,097     1,138,625    1,066,872    1,006,591    933,055    874,078  
  


 


 


 


 


  


 


 


 


 


YEAR-END BALANCES

      

Assets

  $12,404,932   $11,663,355   $10,976,596   $9,342,959   $8,917,765    $13,541,398   $12,404,932   $11,663,355   $10,976,596   $9,342,959  

Loans, net of unearned interest

   4,598,097    4,332,228    4,410,034    3,929,365    3,767,565     4,970,558    4,598,097    4,332,228    4,410,034    3,929,365  

Securities

   5,742,104    5,003,720    4,924,407    3,486,780    3,363,453     6,277,482    5,742,104    5,003,720    4,924,407    3,486,780  

Interest-bearing due from banks

   848,598    1,057,195    575,309    —      —       1,164,007    848,598    1,057,195    575,309    —    

Deposits

   9,028,741    8,534,488    7,725,326    6,550,802    6,308,964     10,169,911    9,028,741    8,534,488    7,725,326    6,550,802  

Long-term debt

   8,884    25,458    35,925    36,032    38,020     6,529    8,884    25,458    35,925    36,032  

Shareholders’ equity

   1,060,860    1,015,551    974,811    890,574    848,875     1,191,132    1,060,860    1,015,551    974,811    890,574  
  


 


 


 


 


  


 


 


 


 


PER SHARE DATA

      

Earnings—basic

  $2.27   $2.22   $2.41   $1.78   $1.40    $2.66   $2.27   $2.22   $2.41   $1.78  

Earnings—diluted

   2.26    2.20    2.38    1.77    1.40     2.64    2.26    2.20    2.38    1.77  

Cash dividends

   0.75    0.71    0.66    0.57    0.52     0.79    0.75    0.71    0.66    0.57  

Dividend payout ratio

   33.04  31.98  27.18  32.02  37.14   29.70  33.04  31.98  27.18  32.02

Book value

  $26.24   $25.11   $23.81   $21.55   $20.08    $29.46   $26.24   $25.11   $23.81   $21.55  

Market price

      

High

   44.51    49.75    69.60    47.06    38.04     45.20    44.51    49.75    69.60    47.06  

Low

   31.88    33.65    35.76    34.95    31.80     30.49    31.88    33.65    35.76    34.95  

Close

   41.44    39.35    49.14    38.36    36.51     37.25    41.44    39.35    49.14    38.36  
  


 


 


 


 


  


 


 


 


 


Return on average assets

   0.82  0.89  1.10  0.93  0.79   0.86  0.82  0.89  1.10  0.93

Return on average equity

   8.53    8.89    10.51    8.49    7.09     9.35    8.53    8.89    10.51    8.49  

Average equity to average assets

   9.60    9.96    10.49    10.93    11.12     9.17    9.60    9.96    10.49    10.93  

Total risk-based capital ratio

   12.45    14.18    14.09    14.58    14.65     12.20    12.45    14.18    14.09    14.58  
  


 


 


 


 


  


 


 


 


 


20


ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

The following presents management’s discussion and analysis of the Company’s consolidated financial condition, changes in condition, and results of operations. This review highlights the major factors affecting results of operations and any significant changes in financial conditions for the three-year period ended December 31, 2010.2011. It should be read in conjunction with the accompanying Consolidated Financial Statements and other financial statistics appearing elsewhere in the report.

 

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

The information included or incorporated by reference in this report contains forward-looking statements of expected future developments within the meaning of and pursuant to the safe harbor provisions established by Section 21E of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. These forward-looking statements may refer to financial condition, results of operations, plans, objectives, future financial performance and business of the Company, including, without limitation:

 

Statements that are not historical in nature; and

 

Statements preceded by, followed by or that include the words “believes,” “expects,” “may,” “should,” “could,” “anticipates,” “estimates,” “intends,” or similar words or expressions; and

Statements regarding the timing of the closing of branch sales and purchases.expressions.

 

Forward-looking statements are not guarantees of future performance or results. You are cautioned not to put undue reliance on any forward-looking statement which speaks only as of the date it was made. Forward-looking statements reflect management’s expectations and are based on currently available data; however, they involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

 

General economic and political conditions, either nationally, internationally or in the Company’s footprint, may be less favorable than expected;

 

Legislative or regulatory changes;

 

Changes in the interest rate environment;

 

Changes in the securities markets impacting mutual fund performance and flows;

 

Changes in operations;

 

Changes in accounting rules;

The ability to successfully and timely integrate acquisitions into existing charters;acquisitions;

 

Competitive pressures among financial services companies may increase significantly;

 

Changes in technology may be more difficult or expensive than anticipated;

 

Changes in the ability of customers to repay loans;

 

Changes in loan demand may adversely affect liquidity needs; and

 

Changes in employee costs.costs; and

 

Results of litigation claimsclaims.

 

Any forward-looking statements should be read in conjunction with information about risks and uncertainties set forth in this report and in documents incorporated herein by reference. Forward-looking

statements speak only as of the date they are made, and the Company does not intend to review or revise any particular forward-looking statement in light of events that occur thereafter or to reflect the occurrence of unanticipated events, except as required by federal securities laws.

 

21


Results of Operations

 

Overview

 

The Company continues to focus on the following five strategies which management believes will improve net income and strengthen the balance sheet.

 

The first strategy is to grow the Company’s fee-based businesses. Throughout these times of economic change, the Company has continued to emphasize its fee-based operations. With a diverse source of revenues, this strategy has helped reduce the Company’s exposure to changes in interest rates. During 2010,2011, noninterest income increased $50.2$54.0 million, or 16.215.0 percent, to $360.4$414.3 million for the year ended December 31, 2010,2011, compared to the same period in 2009.2010. Trust and securities processing income increased $39.8 million to $160.4$48.0 million, or 33.030.0 percent, for year-to-date December 31, 2010,2011 as compared to the same period in 2009.2010. Bankcard fees increased $9.5 million to $54.8$5.0 million, or 20.99.1 percent, compared to 2010. Gains from the sale of securities available for sale of $16.1 million were recognized during the year ended December 31, 2011 compared to $8.3 million for the same period in 2009.of 2010. The Company is focused on the growth of its asset management and asset servicing businesses. The Company also maintains focus on its wealth management, credit card, healthcare, and payments businesses.

 

The second strategy is a focus on net interest income through loan and deposit growth. During 2010,2011, continued progress on this strategy was illustrated by an increase in net interest income of $7.6$6.4 million, or 2.52.1 percent, from the previous year. Through the effects of increased volume of average earning assets and a low cost of funds in its balance sheet, the Company has continued to show increased net interest income in a historically low rate environment. Average earning assets increased by $889.6 million,$1.2 billion, or 9.611.7 percent, from 2009.2010. This earning asset growth was primarily funded with a $444.9$522.3 million increase in average interest-bearing deposits, or 8.59.2 percent, and a $423.0$619.4 million increase in average noninterest-bearing deposits, or 17.822.2 percent, compared to 20092010 respectively. Net interest margin, on a tax-equivalent basis, decreased 2227 basis points, and net interest spread decreased 1423 basis points as compared to 2009,2010, respectively.

 

The third strategy is a focus on improving operating efficiencies. At December 31, 2010,2011, the Company had 126124 branches. The Company continues to emphasize increasing its primary retail customer base by providing a broad offering of services through our existing branch network. These efforts have resulted in the total deposits growth previously discussed. Throughout 2010, the Company invested in technological advances that will help management drive operating efficiencies through improved data analysis and automation. Starting in 2011, the Company has converted to a new financial and human resource software that is integrated and enterprise wide. In addition to the use of automation technology, the Company will continue to evaluate its cost structure for opportunities to moderate expense growth without sacrificing growth initiatives.

 

The fourth strategy is a focus on capital management. The Company places a significant emphasis on the maintenance of a strong capital position, which management believes promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. The Company continues to maximize shareholder value through a mix of reinvesting in organic growth, investing in acquisitions, evaluating increasedacquisition opportunities that complement the strategies, increasing dividends over time and properly utilizing a share buy-back strategy. At December 31, 2010,2011, the Company had $1.1$1.2 billion in total shareholders’ equity. This is an increase of $45.3$130.3 million, or 4.512.3 percent, compared to total shareholders’ equity at December 31, 2009.2010. At December 31, 2010,2011, the Company had a total risk-based capital ratio of 12.4512.20 percent, which is higher than the 10 percent regulatory minimum to be considered well-capitalized. The Company repurchased 235,433238,834 shares at an average price of $37.71$38.28 per share during 2010.2011. Further, the Company paid $30.3$32.0 million in dividends during 2010,2011, which represents a 5.35.4 percent increase compared to 2009.2010.

 

The fifth strategy is to deliverthe unparalleled customer experience. The Company delivers products and services through outstanding associates who are focused on a high-touch customer service model. The Company

continues to hire key associates within the core segments that are focused on achieving our strategies through a

22


high level of service. The Company’s associates exhibit pride, power, and passion each day to enable the Company to retain a strong customer base and focus on growing this base to obtain the financial results noted below.

 

Earnings Summary

 

The Company recorded consolidated net income of $91.0$106.5 million for the year ended December 31, 2010.2011. This represents a 1.717.0 percent increase over 2009.2010. Net income for 2009 decreased 8.82010 increased 1.7 percent compared to 2008. This decrease is explained by the impact of the Visa, Inc. (Visa) transactions and the sale of the securities transfer product transactions, which contributed, on a pre-tax basis, $14.0 million to 2008 results.2009. Basic earnings per share for the year ended December 31, 2010,2011, were $2.27$2.66 per share compared to $2.27 per share in 2010 and $2.22 per share in 2009 and $2.41 per share in 2008.2009. Basic earnings per share for 2011 increased 17.2 percent over 2010, which increased 2.3 percent over 2009, which had decreased 7.9 percent over 2008.2009. Fully diluted earnings per share for the year ended December 31, 2010,2011, were $2.26$2.64 per share compared to $2.26 per share in 2010 and $2.20 per share in 2009 and $2.38 per share in 2008.2009.

 

The Company’s net interest income increased to $317.0 million in 2011 compared to $310.6 million in 2010 compared toand $303.0 million in 2009 and $275.1 million in 2008. The2009. In total, a favorable volume variance outpaced the impact from an unfavorable rate variance, resulting in a $6.4 million increase in net interest income in 2011, compared to 2010. Upon further examination, the reduced cost of funding on interest-bearing deposits reduced the impact from an unfavorable rate variance on earning assets, resulting in the net favorable volume variance described. See Table 1 on page 25. The favorable volume variance was led by a 40.3 percent increase in the average balance of tax-exempt securities, a 6.6 percent increase in average taxable securities, and a 5.9 percent increase in the average balance of loans and loans held for sale. This was more than offset by an unfavorable rate variance in the same categories. However, a 19 basis points reduction in rate on interest-bearing deposits drove the resulting increase in net interest income. While decreasing due to the current low rate environment, the Company continues to see benefit from interest-free funds. The impact of this benefit is illustrated on Table 2 on page 26. The $7.6 million increase in net interest income in 2010, compared to 2009. See Table 1 on page 27.2009, is primarily a result of a favorable volume variance. The favorable volume variance was leddriven by a 15.5 percent increase in the average balance of taxable securities, a 16.5 percent increase in average tax-exempt securities, and a 2.4 percent increase in the average balance of loans and loans held for sale. This was partially offset by an unfavorable rate variance in taxable securities, or an 82 basis points decrease in yield. While decreasing due to low rate environment, the Company continues to see benefit from interest-free funds. The impact of this benefit is illustrated on Table 2 on page 28. The $27.9 million increase in net interest income in 2009, compared to 2008, is primarily a result of a favorable volume variance. The favorable volume variance was driven by a 31.2 percent increase in the average balance of taxable securities, a 19.9 percent increase in tax-exempt securities, and a 4.5 percent increase in the average balance of loans and loans held for sale. Net interest spread improved by 8 basis points in 2009, compared to 2008. The rate variance was slightly negative, but was more than offset by the positive volume variance and benefited from interest-free funds. The current credit environment has made it difficult to anticipate the future of the Company’s margins. The magnitude and duration of this impact will be largely dependent upon the Federal Reserve’s policy decisions and market movements. See Table 15 on page 4846 for an illustration of the impact of a rate increase or decrease on net interest income as of December 31, 2010.2011.

 

The Company had an increase of $54.0 million, or 15.0 percent, in noninterest income in 2011, compared to 2010, and a $50.2 million, or 16.2 percent, in noninterest incomeincrease in 2010, compared to 2009, and a $2.6 million, or 0.8 percent, decrease in 2009, compared to 2008.2009. The increase is primarily attributable to higher trust and securities processing income and higher bankcard fees. Trust and securities processing income increased $39.8$48.0 million, or 33.030.0 percent, for the year ended December 31, 2010,2011, compared to the same period in 2009.2010. Bankcard fees increased $9.5$5.0 million, or 20.99.1 percent. Noninterest income in 2009 decreased $2.6 million, or 0.8 percent, as compared to 2008. The change in noninterest income in 2011 from 2010, and 2010 from 2009 and 2009 from 2008 is illustrated on Table 5 on page 31.29.

 

Noninterest expense increased in 2011 by $50.1 million, or 9.8 percent, compared to 2010 and increased in 2010 by $52.0 million, or 11.3 percent, compared to 2009 and increased in 2009 by $30.4 million, or 7.1 percent, compared to 2008.2009. Salaries and employee benefits expense increased by $26.4$27.5 million, or 11.0 percent, mostly due to higher employee base salaries, higher commissions and bonuses and higher cost of benefits. Processing fees increased $10.0 million, or 28.3 percent, due to increased third-party custodian fees related to international transactions from mutual fund clients and fees paid by the advisors to third-party distributors of the Scout Funds.10.3 percent. Amortization of other intangibles increased by $5.0 million, or 80.644.5 percent, and was driven by acquisition activity in 2010. Noninterest expense in 2009Processing fees increased $30.4$4.5 million, or 7.1 percent, as compared9.9 percent. Additionally, during the second quarter, the Company established a $7.8 million escrow fund to 2008. Impacting 2009, regulatory fees increased $12.9 million, or 473.1 percent, primarily due to increased deposit insurance assessments from the FDIC andsettle a $4.8 million special assessment paid to the FDIC in the third quarter of 2009.class action lawsuit. The increase in noninterest expense in 2011 from 2010, and 2010 from 2009 and 2009 from 2008 is illustrated on Table 6 on page 32.

30.

Net Interest Income

 

Net interest income is a significant source of the Company’s earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest earning assets and the related funding sources, the overall mix of these assets and liabilities, and the rates paid on each

23


affect net interest income. Table 1 summarizes the change in net interest income resulting from changes in volume and rates for 2011, 2010 2009 and 2008.2009.

 

Net interest margin is calculated as net interest income on a fully tax equivalent basis (FTE) as a percentage of average earning assets. A critical component of net interest income and related net interest margin is the percentage of earning assets funded by interest-free sources. Table 2 analyzes net interest margin for the three years ended December 31, 2011, 2010 2009 and 2008.2009. Net interest income, average balance sheet amounts and the corresponding yields earned and rates paid for the years 20062007 through 20102011 are presented in a table following “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” on pages 4644 and 47.45. Net interest income is presented on a tax-equivalent basis to adjust for the tax-exempt status of earnings from certain loans and investments, which are primarily obligations of state and local governments.

24


Table 1

 

RATE-VOLUME ANALYSIS(in thousands)

 

This analysis attributes changes in net interest income either to changes in average balances or to changes in average rates for earning assets and interest-bearing liabilities. The change in net interest income is due jointly to both volume and rate and has been allocated to volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. All rates are presented on a tax-equivalent basis and give effect to the disallowance of interest expense for federal income tax purposes, related to certain tax-free assets. The loan average balances and rates include nonaccrual loans.

 

Average Volume

Average Volume

   Average Rate

 

2010 vs. 2009


  Increase (Decrease)

 Average Volume

   Average Rate

 

2011 vs. 2010


  Increase (Decrease)

 
2010

   2009

   2010

 2009

   Volume

 Rate

 Total

 
2011

2011

   2010

   2011

 2010

   Volume

 Rate

 Total

 
       

Change in interest earned on:

   
$4,756,165    $4,490,587     4.61  4.95 

Loans

  $12,228   $(14,949 $(2,721
       

Change in interest earned on:

          

Securities:

   
$4,490,587    $4,383,551     4.95  4.92 

Loans

  $5,338   $1,154   $6,492  4,224,456     3,964,661     2.01    2.28   

Taxable

   5,235    (10,524  (5,289
       

Securities:

   1,497,834     1,067,689     3.54    4.28   

Tax-exempt

   13,908    (8,638  5,270  
3,964,661     3,432,373     2.28    3.10   

Taxable

   12,138    (28,203  (16,06531,273     44,383     0.32    0.36   

Federal funds sold and resell agreements

   (42  (16  (58
1,067,689     916,302     4.28    4.98   

Tax-exempt

   6,509    (6,388  121  837,807     593,518     0.39    0.66   

Interest-bearing due from banks

   958    (1,588  (630
44,383     54,069     0.36    0.49   

Federal funds sold and resell agreements

   (35  (69  (10451,927     41,489     2.64    1.91   

Other

   274    300    574  
593,518     492,915     0.66    0.83   

Interest-bearing due from banks

   663    (827  (164

  


  


 


   


 


 


41,489     33,503     1.91    2.39   

Other

   161    (151  10  11,399,462     10,202,327     3.18    3.56   

Total

   32,561    (35,415  (2,854



  


  


 


   


 


 


       

Change in interest incurred on:

   
10,202,327     9,312,713     3.56    4.00   

Total

   24,774    (34,484  (9,7106,178,795     5,656,508     0.40    0.59   

Interest-bearing deposits

   2,082    (10,901  (8,819
       

Change in interest incurred on:

   1,471,011     1,409,349     0.12    0.14   

Federal funds purchased and repurchase agreements

   72    (377  (305
5,656,508     5,211,569     0.59    0.96   

Interest-bearing deposits

   2,631    (19,103  (16,47236,580     42,313     0.93    1.02   

Other

   (53  (36  (89
1,409,349     1,351,206     0.14    0.15   

Federal funds purchased and repurchase agreements

   83    (67  16  

  


  


 


   


 


 


$  7,686,386    $7,108,170     0.35  0.50 

Total

   2,101    (11,314  (9,213
42,313     51,857     1.02    2.53   

Other

   (97  (785  (882

  


  


 


   


 


 





  


  


 


   


 


 


       

Net interest income

  $30,460   $(24,101 $6,359  
$7,108,170    $6,614,632     0.50  0.80 

Total

   2,617    (19,955  (17,338         


 


 





  


  


 


   


 


 


       

Net interest income

  $22,157   $(14,529 $7,628  
         


 


 


Average Volume

   Average Rate

 

2009 vs. 2008


  Increase (Decrease)

 
2009

   2008

   2009

 2008

   Volume

 Rate

 Total

 
       

Change in interest earned on:

   
$4,383,551    $4,193,871     4.92  5.77 

Loans

  $9,315   $(35,737 $(26,422
       

Securities:

   
3,432,373     2,614,787     3.10    4.22   

Taxable

   25,362    (29,267  (3,905
916,302     764,070     4.98    5.20   

Tax-exempt

   5,321    (2,191  3,130  
54,069     321,757     0.49    2.42   

Federal funds sold and resell agreements

   (1,302  (6,234  (7536
492,915     68,548     0.83    0.68   

Interest-bearing due from banks

   3,535    102    3,637  
33,503     40,622     2.39    3.69   

Other

   (161  (499  (660



  


  


 


   


 


 


9,312,713     8,003,655     4.00    5.02   

Total

   42,070    (73,826  (31,756
       

Change in interest incurred on:

   
5,211,569     4,596,100     0.96    1.95   

Interest-bearing deposits

   5,895    (45,720  (39,825
1,351,206     1,288,901     0.15    1.65   

Federal funds purchased and repurchase agreements

   92    (19,397  (19,305
51,857     53,735     2.53    3.48   

Other

   (48  (513  (561



  


  


 


   


 


 


$6,614,632    $5,938,736     0.80  1.90 

Total

   5,939    (65,630  (59,691



  


  


 


   


 


 


       

Net interest income

  $36,131   $(8,196 $27,935  
         


 


 


Average Volume

   Average Rate

  

2010 vs. 2009


  Increase (Decrease)

 
2010

   2009

   2010

  2009

     Volume

  Rate

  Total

 
                  

Change in interest earned on:

             
$  4,490,587    $4,383,551     4.95  4.92 

Loans

  $5,338   $1,154   $6,492  
                  

Securities:

             
 3,964,661     3,432,373     2.28    3.10   

Taxable

   12,138    (28,203  (16,065
 1,067,689     916,302     4.28    4.98   

Tax-exempt

   6,509    (6,388  121  
 44,383     54,069     0.36    0.49   

Federal funds sold and resell agreements

   (35  (69  (104
 593,518     492,915     0.66    0.83   

Interest-bearing due from banks

   663    (827  (164
 41,489     33,503     1.91    2.39   

Other

   161    (151  10  



  


  


 


    


 


 


 10,202,327     9,312,713     3.56    4.00   

Total

   24,774    (34,484  (9,710
                  

Change in interest incurred on:

             
 5,656,508     5,211,569     0.59    0.96   

Interest-bearing deposits

   2,631    (19,103  (16,472
 1,409,349     1,351,206     0.14    0.15   

Federal funds purchased and repurchase agreements

   83    (67  16  
 42,313     51,857     1.02    2.53   

Other

   (97  (785  (882



  


  


 


    


 


 


$7,108,170    $6,614,632     0.50  0.80 

Total

   2,617    (19,955  (17,338



  


  


 


    


 


 


                  

Net interest income

  $22,157   $(14,529 $    7,628  
                     


 


 


25


Table 2

 

ANALYSIS OF NET INTEREST MARGIN(in thousands)

 

  2010

 2009

 2008

   2011

 2010

 2009

 

Average earning assets

  $10,202,327   $9,312,713   $8,003,655    $11,399,462   $10,202,327   $9,312,713  

Interest-bearing liabilities

   7,108,170    6,614,632    5,938,736     7,686,386    7,108,170    6,614,632  
  


 


 


  


 


 


Interest-free funds

  $3,094,157   $2,698,081   $2,064,919    $3,713,076   $3,094,157   $2,698,081  
  


 


 


  


 


 


Free funds ratio (free funds to earning assets)

   30.33  28.97  25.80   32.57  30.33  28.97
  


 


 


  


 


 


Tax-equivalent yield on earning assets

   3.56  4.00  5.02   3.18  3.56  4.00

Cost of interest-bearing liabilities

   0.50    0.80    1.90     0.35    0.50    0.80  
  


 


 


  


 


 


Net interest spread

   3.06  3.20  3.12   2.83  3.06  3.20

Benefit of interest-free funds

   0.15    0.23    0.48     0.11    0.15    0.23  
  


 


 


  


 


 


Net interest margin

   3.21  3.43  3.60   2.94  3.21  3.43
  


 


 


  


 


 


 

The Company experienced an increase in net interest income of $6.4 million, or 2.1 percent, for the year 2011, compared to 2010. This follows an increase of $7.6 million, or 2.5 percent, for the year 2010, compared to 2009. This follows an increase of $27.9 million, or 10.2 percent, for the year 2009, compared to 2008. As illustrated in Table 1, the 2010 increase is due to a favorable volume variance. The most significant portion of this favorable volume variance is associated with higher securities balances, coupled with continued growth in the loan balances in 20102011 and 2009,2010, respectively. In 2010,2011, the favorable volume variances for earning assets were outpaced by the rate variances. However, the Company reduced the average cost of interest-bearing liabilities by 3015 basis points during 2010,2011, resulting in the positive increase in net interest income.

 

The decrease in the cost of funds has led to a declining beneficial impact from interest-free funds. However, the Company still maintains a significant portion of its deposit funding with noninterest-bearing demand deposits. Noninterest-bearing demand deposits represented 38.8 percent, 32.0 percent 32.5 percent and 30.932.5 percent of total outstanding deposits at December 31, 2011, 2010 2009 and 2008,2009, respectively. As illustrated in Table 2, the impact from these interest-free funds was 11 basis points in 2011, compared to 15 basis points in 2010 compared toand 23 basis points in 2009 and 48 basis points in 2008.2009.

 

The 20092010 increase in net interest income over 20082009 is due to boththe combined impacts from a favorable volume variance and a slightlyan unfavorable rate variance. In addition to the significant favorable volume variance associated with higher loan and securities balances in 2009,2010, the reduction of the average cost of interest-bearing liabilities of 11030 basis points during the year helped reduce the impact from the unfavorable rate variance on earning assets.

 

The Company has experienced a repricing of its earning assets and interest-bearing liabilities during the 20102011 interest rate cycle. The average rate on earning assets during 20102011 has decreased by 4438 basis points, while the average rate on interest-bearing liabilities decreased by 3015 basis points, resulting in a 1423 basis point decline in spread. The volume of loans has increased from an average of $4.4$4.5 billion in 20092010 to an average of $4.5$4.8 billion in 2010.2011. Loan-related earning assets tend to generate a higher spread than those earned in the Company’s investment portfolio. By design, the Company’s investment portfolio is relatively short in duration and liquid in its composition of assets. If the Federal Reserve’s Open Market Committee maintains rates at current levels, the Company anticipates a negative impact to interest income as a result. The magnitude of this impact will be largely dependent upon the Federal Reserve’s policy decisions, market movements and the duration of this rate environment.

 

During 2011,2012, approximately $1.8$1.4 billion of securities are expected to have principal repayments and be reinvested. This includes approximately $682$410 million which will have principal repayments during the first quarter of 2011.2012. The total investment portfolio had an average life of 28.732.8 months and 22.928.7 months as of December 31, 20102011 and 2009,2010, respectively. It should be noted that the Company also had a portfolio of short-termshort-

26


term investments as of the end of both 20102011 and 2009. These securities are held due to the seasonal fluctuation

related to public fund deposits, which are expected to flow out of the bank in a relatively short period.2010. At December 31, 2010,2011, the amount of such investments was approximately $396$157 million, and without these investments, the average life of the investment portfolio would have been 30.633.6 months. At December 31, 2009,2010, the amount of such short-term investments was approximately $1.1 billion,$396 million, and without these short-term investments, the average life of the investment portfolio would have been 27.530.6 months.

 

Provision and Allowance for Loan Losses

 

The allowance for loan losses (ALL) represents management’s judgment of the losses inherent in the Company’s loan portfolio as of the balance sheet date. An analysis is performed quarterly to determine the appropriate balance of the ALL. This analysis considers items such as historical loss trends, a review of individual loans, migration analysis, current economic conditions, loan growth and characteristics, industry or segment concentration and other factors. This analysis is performed separately for each bank as regulatory agencies require that the adequacy of the ALL be maintained on a bank-by-bank basis. After the balance sheet analysis is performed for the ALL, the provision for loan losses is computed as the amount required to adjust the ALL to the appropriate level.

 

As shown in Table 3, the ALL has been allocated to various loan portfolio segments. The Company manages the ALL against the risk in the entire loan portfolio and therefore, the allocation of the ALL to a particular loan segment may change in the future. Management of the Company believes the present ALL is adequate considering the Company’s loss experience, delinquency trends and current economic conditions. Future economic conditions and borrowers’ ability to meet their obligations, however, are uncertainties which could affect the Company’s ALL and/or need to change its current level of provision. For more information on loan portfolio segments and ALL methodology refer to Note 3 to the Consolidated Financial Statements.

 

Table 3

 

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES(in thousands)

 

This table presents an allocation of the allowance for loan losses by loan portfolio segment. The breakdown is based on a number of qualitative factors; therefore, the amounts presented are not necessarily indicative of actual future charge-offs in any particular category.

 

  December 31

   December 31

 

Loan Category


  2010

   2009

   2008

   2007

   2006

   2011

   2010

   2009

   2008

   2007

 

Commercial

  $39,138    $40,420    $31,617    $30,656    $31,136    $37,927    $39,138    $40,420    $31,617    $30,656  

Real estate

   18,557     13,321     9,737     5,537     3,353     20,486     18,557     13,321     9,737     5,537  

Consumer

   16,243     10,128     10,893     9,743     10,387     13,593     16,243     10,128     10,893     9,743  

Leases

   14     270     50     50     50     11     14     270     50     50  
  


  


  


  


  


  


  


  


  


  


Total allowance

  $73,952    $64,139    $52,297    $45,986    $44,926    $72,017    $73,952    $64,139    $52,297    $45,986  
  


  


  


  


  


  


  


  


  


  


 

Table 4 presents a five-year summary of the Company’s ALL. Also, please see “Quantitative and Qualitative Disclosures About Market Risk—Credit Risk” on pages 50 and 51page 49 in this report for information relating to nonaccrual, past due, restructured loans, and other credit risk matters. For more information on loan portfolio segments and ALL methodology refer to Note 3 of the Consolidated Financial Statements.

 

As illustrated in Table 4 below, the ALL increaseddecreased as a percentage of total loans to 1.45 percent as of December 31, 2011, compared to 1.61 percent as of December 31, 2010, compared to 1.49 percent as of December 31, 2009.2010. Based on the factors above, management of the Company had a reduction of expense of $0.6$9.3 million, or 1.829.6 percent, related to the provision for loan losses in 2010,2011, compared to 2009.2010. This decrease is primarily attributable to a slight decrease in the inherent risk within the loan portfolio and includes a slight decrease from the qualitative impact of the economic conditions during 2010.portfolio. This compares to a $14.3$0.6 million, or 79.81.8 percent, increasedecrease in the provision for loan losses in 2009,2010, compared to 2008.2009.

27


Table 4

 

ANALYSIS OF ALLOWANCE FOR LOAN LOSSES(in thousands)

 

  2010

 2009

 2008

 2007

 2006

   2011

 2010

 2009

 2008

 2007

 

Allowance-beginning of year

  $64,139   $52,297   $45,986   $44,926   $40,825    $73,952   $64,139   $52,297   $45,986   $44,926  

Provision for loan losses

   31,510    32,100    17,850    9,333    8,734     22,200    31,510    32,100    17,850    9,333  

Allowance of banks and loans acquired

   —      —      216    —      2,359     —      —      —      216    —    

Charge-offs:

      

Commercial

   (6,644  (5,532  (4,281  (2,615  (5,861   (12,693  (6,644  (5,532  (4,281  (2,615

Consumer

      

Credit card

   (15,606  (13,625  (8,092  (5,684  (4,522   (13,493  (15,606  (13,625  (8,092  (5,684

Other

   (2,979  (4,911  (4,147  (3,857  (2,554   (1,945  (2,979  (4,911  (4,147  (3,857

Real estate

   (258  (881  (61  (318  —       (532  (258  (881  (61  (318
  


 


 


 


 


  


 


 


 


 


Total charge-offs

   (25,487  (24,949  (16,581  (12,474  (12,937   (28,663  (25,487  (24,949  (16,581  (12,474

Recoveries:

      

Commercial

   637    1,419    1,338    1,046    3,494     813    637    1,419    1,338    1,046  

Consumer

      

Credit card

   1,327    1,334    1,253    1,107    1,073     2,366    1,327    1,334    1,253    1,107  

Other

   1,797    1,936    2,220    2,032    1,376     1,317    1,797    1,936    2,220    2,032  

Real estate

   29    2    15    16    2     32    29    2    15    16  
  


 


 


 


 


  


 


 


 


 


Total recoveries

   3,790    4,691    4,826    4,201    5,945     4,528    3,790    4,691    4,826    4,201  
  


 


 


 


 


  


 


 


 


 


Net charge-offs

   (21,697  (20,258  (11,755  (8,273  (6,992   (24,135  (21,697  (20,258  (11,755  (8,273
  


 


 


 


 


  


 


 


 


 


Allowance-end of year

  $73,952   $64,139   $52,297   $45,986   $44,926    $72,017   $73,952   $64,139   $52,297   $45,986  
  


 


 


 


 


  


 


 


 


 


Average loans, net of unearned interest

  $4,478,377   $4,356,187   $4,175,658   $3,888,149   $3,562,038    $4,748,909   $4,478,377   $4,356,187   $4,175,658   $3,888,149  

Loans at end of year, net of unearned interest

   4,583,683    4,314,705    4,388,148    3,917,125    3,753,445     4,960,343    4,583,683    4,314,705    4,388,148    3,917,125  

Allowance to loans at year-end

   1.61  1.49  1.19  1.17  1.20   1.45  1.61  1.49  1.19  1.17

Allowance as a multiple of net charge-offs

   3.41  3.17  4.45  5.56  6.43   2.98  3.41  3.17  4.45  5.56

Net charge-offs to:

      

Provision for loan losses

   68.86  63.11  65.86  88.64  80.04   108.71  68.86  63.11  65.86  88.64

Average loans

   0.48    0.47    0.28    0.21    0.20     0.51    0.48    0.47    0.28    0.21  

 

Noninterest Income

 

A key objective of the Company is the growth of noninterest income to enhance profitability and provide steady income, as fee-based services are typically non-credit related and are not generally affected by fluctuations in interest rates. Noninterest income increased $50.2$54.0 million, or 16.215.0 percent, to $360.4$414.3 million for the year ended December 31, 2010,2011, compared to the same period in 2009.2010. Trust and securities processing income increased $39.8 million to $160.4$48.0 million, or 33.030.0 percent, for year-to-date December 31, 2010,2011, as compared to the same period in 2009.2010. Bankcard fees increased $9.5 million to $54.8$5.0 million, or 20.99.1 percent, compared to 2010. Gains from the sale of securities available for sale of $16.1 million were recognized during the year ended December 31, 2011, compared to $8.3 million for the same period in 2009. Slightly offsetting these increases, service charges on deposits decreased $5.8 million, or 6.9 percent, compared to the same period in 2009.of 2010.

 

The Company’s fee-based services provide the opportunity to offer multiple products and services to customers which management believes will more closely align the customer’s product demand with the Company. The Company’s ongoing focus is to continue to develop and offer multiple products and services to its customers. The Company is currently emphasizing fee-based services including trust and securities processing, bankcard, securities trading/brokerage and cash/treasury management. Management believes that it can offer these products and services both efficiently and profitably, as most have common platforms and support structures.

28


Table 5

 

SUMMARY OF NONINTEREST INCOME(in (in thousands)

 

  Year Ended December 31

   Year Ended December 31

 
  
   
   
   Dollar Change

 Percent Change

               Dollar Change

 Percent Change

 
  2010

   2009

   2008

   10-09

 09-08

 10-09

 09-08

   2011

   2010

   2009

   11-10

 10-09

 11-10

 10-09

 

Trust and securities processing

  $160,356    $120,544    $122,255    $39,812   $(1,711  33.0  (1.4)%   $208,392    $160,356    $120,544    $48,036   $39,812    30.0  33.0

Trading and investment banking

   29,211     26,587     19,636     2,624    6,951    9.9    35.4     27,720     29,211     26,587     (1,491  2,624    (5.1  9.9  

Service charges on deposit accounts

   77,617     83,392     85,064     (5,775  (1,672  (6.9  (2.0   74,659     77,617     83,392     (2,958  (5,775  (3.8  (6.9

Insurance fees and commissions

   5,565     4,800     4,564     765    236    15.9    5.2     4,375     5,565     4,800     (1,190  765    (21.4  15.9  

Brokerage fees

   6,345     7,172     8,660     (827  (1,488  (11.5  (17.2   9,950     6,345     7,172     3,605    (827  56.8    (11.5

Bankcard fees

   54,804     45,321     43,348     9,483    1,973    20.9    4.6     59,767     54,804     45,321     4,963    9,483    9.1    20.9  

Gain on sale of securities transfer

   —       —       1,090     —      (1,090  (100.0

Gains on sales of securities available for sale, net

   8,315     9,737     3,334     (1,422  6,403    (14.6  >100.0     16,125     8,315     9,737     7,810    (1,422  93.9    (14.6

Gain on mandatory redemption of Visa, Inc. common stock

   —       —       8,875     —      (8,875  (100.0

Other

   18,157     12,623     15,957     5,534    (3,334  43.8    (20.9   13,344     18,157     12,623     (4,813  5,534    (26.5  43.8  
  


  


  


  


 


 


 


  


  


  


  


 


 


 


Total noninterest income

  $360,370    $310,176    $312,783    $50,194   $(2,607  16.2  (0.8)%   $414,332    $360,370    $310,176    $53,962   $50,194    15.0  16.2
  


  


  


  


 


 


 


  


  


  


  


 


 


 


 

Noninterest income and the year-over-year changes in noninterest income are summarized in Table 5 above. The dollar change and percent change columns highlight the respective net increase or decrease in the categories of noninterest income in 2011 compared to 2010, and in 2010 compared to 2009, and in 2009 compared to 2008.2009.

 

Trust and securities processing income consists of fees earned on personal and corporate trust accounts, custody of securities services, trust investments and money management services, and mutual fund assets servicing. This income category increased by $48.0 million, or 30.0 percent in 2011, compared to 2010, and increased by $39.8 million, or 33.0 percent in 2010, compared to 2009, and decreased by $1.7 million, or 1.4 percent in 2009, compared to 2008.2009. The Company increased fund administration and custody services fee income by $6.8 million and $14.5 million in 2010.2011 and 2010, respectively. Advisory fee income from the Scout Funds increased $14.4 million in 2011 compared to 2010 and $15.5 million fromin 2010 compared to 2009. Fee income from institutional and personal investment management services increased $23.2 million in 2011 and $6.0 million in 2010. In 2009, alternative investment fee income increased $10.2 million offset by reductions in advisory fee income from the Scout Funds of $2.5 million, fund administration fees of $6.1 million, and corporate trust fees of $2.3 million. Fees in this category are highly correlated to the market value of assets and the overall health of the equity and financial markets and thus, have been positively impacted during 2010, but negatively impacted in 2009. Management continues to emphasize sales of services to both new and existing clients as well as increasing and improving the distribution channels.

 

Trading and investment bankingBankcard fees increased $2.7$5.0 million, or 9.99.1 percent, and $7.0 million, or 35.4 percent in 2010 and 2009, respectively. This activity is indicative of the dynamic rate environment and is predominately due to market increases in bond trading and the Company’s mutual fund investments.

Service charges on deposits decreased $5.8 million, or 6.9 percent, compared to the same period in 2009. This decrease is primarily attributable to new overdraft regulations enacted on July 21, 2010.

Bankcard fees increased $9.5 million, or 20.9 percent, and $2.0 million, or 4.6 percent, in 2010 andcompared to 2009, respectively. The increase in both years reflects both higher card volume and a greater average transaction dollar amount. Credit card acquisitions have increased balances by approximately $90 million over the last year. Healthcare card volume has increased 26.6 percent over 2009. Additionally, credit card rebate programs encourage increased usage by both consumer and commercial customers.

Gains on sales of securities available for sale increased $7.8 million in 2011 compared to 2010, but decreased by $1.4 million in 2010 compared to 2009, but increased by $6.4 million in 2009, compared to 2008.2009.

 

During the first quarter of 2008, the Company recorded an $8.9 million pre-tax gain on the mandatory partial redemption of Visa, Inc. common stock. This transaction was a direct result of Visa, Inc.’s initial public offering, which required the Company to redeem a portion of its holdings of Class B shares.

Noninterest Expense

 

Noninterest expense increased in both 20102011 and 20092010 compared to the respective prior years. Noninterest expense increased in 2011 by $50.1 million, or 9.8 percent, compared to 2010 and increased in 2010 by $52.0 million, or 11.3 percent, compared to 2009 and increased in 2009 by $30.4 million, or 7.1 percent, compared to 2008.2009. The main drivers of this increase in 2010 were salaries and employee benefits expense, amortization expense from acquisitions, processing fees, and amortization expense from acquisitions.a legal settlement. Table 6 below summarizes the components of noninterest expense and the respective year-over-year changes for each category.

 

29


Table 6

 

SUMMARY OF NONINTEREST EXPENSE(in thousands)

 

  Year Ended December 31

   Year Ended December 31

 
  
   
   
 Dollar Change

 Percent Change

   
   
   
   Dollar Change

 Percent Change

 
  2010

   2009

   2008

 10-09

 09-08

 10-09

 09-08

   2011

   2010

   2009

   11-10

 10-09

 11-10

 10-09

 

Salaries and employee benefits

  $267,213    $240,819    $227,938   $26,394   $12,881    11.0  5.7  $294,756    $267,213    $240,819    $27,543   $26,394    10.3  11.0

Occupancy, net

   36,251     34,760     32,472    1,491    2,288    4.3    7.0     38,406     36,251     34,760   �� 2,155    1,491    5.9    4.3  

Equipment

   44,934     47,645     53,044    (2,711  (5,399  (5.7  (10.2   42,728     44,934     47,645     (2,206  (2,711  (4.9  (5.7

Supplies and services

   18,841     20,237     24,221    (1,396  (3,984  (6.9  (16.4   22,166     18,841     20,237     3,325    (1,396  17.6    (6.9

Marketing and business development

   18,348     15,446     19,431    2,902    (3,985  18.8    (20.5   20,150     18,348     15,446     1,802    2,902    9.8    18.8  

Processing fees

   45,502     35,465     32,742    10,037    2,723    28.3    8.3     49,985     45,502     35,465     4,483    10,037    9.9    28.3  

Legal and consulting

   14,046     10,254     8,214    3,792    2,040    37.0    24.8     15,601     14,046     10,254     1,555    3,792    11.1    37.0  

Bankcard

   16,714     14,251     11,537    2,463    2,714    17.3    23.5     15,600     16,714     14,251     (1,114  2,463    (6.7  17.3  

Amortization of other intangible assets

   11,142     6,169     3,105    4,973    3,064    80.6    98.7     16,100     11,142     6,169     4,958    4,973    44.5    80.6  

Regulatory fees

   13,448     15,675     2,735    (2,227  12,940    (14.2  >100.0     10,395     13,448     15,675     (3,053  (2,227  (22.7  (14.2

Covered litigation provision

   —       —       (4,023  —      4,023    0.0    (100.0

Class action litigation settlement

   7,800     —       —       7,800    —      >100.0    0.0  

Other

   26,183     19,864     18,738    6,319    1,126    31.8    6.0     29,059     26,183     19,864     2,876    6,319    11.0    31.8  
  


  


  


 


 


 


 


  


  


  


  


 


 


 


Total noninterest expense

  $512,622    $460,585    $430,153   $52,037   $30,432    11.3  7.0  $562,746    $512,622    $460,585    $50,124   $52,037    9.8  11.3
  


  


  


 


 


 


 


  


  


  


  


 


 


 


 

Salaries and employee benefits expense increased $27.5 million, or 10.3 percent, and $26.4 million, or 11.0 percent, in 2011 and $12.9 million, or 5.7 percent, in 2010, and 2009, respectively. The increase in both 20102011 and 20092010 is primarily due to higher employee base salaries, higher commissions and bonuses and higher cost of benefits. TheBase salaries increased by $13.8 million, or 11.1 percent, in 2011, compared to the same period in 2010. Commissions and bonuses increased by $8.6 million, or 15.9 percent, in 2011, compared to the same period in 2010. Employee benefits increased by $5.5 million, or 13.2 percent, in 2011, compared to the same period in 2010. Significantly driving these results, the Company has added key officers and associates during 20102011 and 2009,2010, including those added as a result of acquisitions. During 2009, included

Processing fees increased $4.5 million, or 9.9 percent, and $10.0 million, or 28.3 percent, in the higher cost of benefits2011 and 2010, respectively. This increase, which is a $4.1 millioncorrelated to the increase in health insurance costs associated withtrust and securities processing income noted above, is due to increased third party custodian fees related to international transactions from mutual fund clients and fees paid by the Company’s self-funded insurance plan.

Equipment expense decreased $2.7 million, or 5.7 percent, and $5.4 million, or 10.2 percent, in 2010 and 2009, respectively. Several equipment and software components completed their useful lives during 2009 and 2010, resulting in a lower depreciation and amortization expense.advisor to third-party distributors of the Scout Funds.

 

Amortization of other intangibles increased $4.9$5.0 million, or 44.5 percent, and $5.0 million, or 80.6 percent, during 2011 and $3.1 million, or 98.7 percent, during 2010, and 2009, respectively. These increases are due to increased amortization from the acquisition activity in these years.

Regulatory fees increased $12.9 million in 2009 compared to 2008. These expenses more than quadrupled and were a direct result of increased depository insurance assessment rates and a special assessment levied during the second quarter by the FDIC. During 2010, the Company has seen some leveling with a slight decrease in this expense.

 

During the fourthsecond quarter of 2007, the Company, as a member of Visa U.S.A. Inc. (Visa USA), received shares of restricted stock in Visa, Inc. (Visa) as a result of its participation in the global restructuring of Visa USA., Visa Canada Association, and Visa International Service Association, in preparation for an initial public offering. Based on this participation,2011, the Company and other Visa USA member banks became awareits subsidiaries, UMB Bank, n.a., UMB Bank Colorado, n.a., UMB Bank Arizona, n.a., and UMB National Bank of America entered into an obligationagreement to provide indemnificationsettle a class action lawsuit, filed in Missouri, in November 2010 and amended in May 2011, arising from the Company’s consumer personal deposit account posting practices, which allegedly resulted in excessive overdraft fees in violation of Missouri’s consumer protection statute and the account agreement. While admitting no wrongdoing, in order to Visafully and finally resolve the litigation and avoid any further expense and distraction caused by the litigation, the Company established a $7.8 million escrow fund in connectionaccordance with its potential losses resulting from “covered litigation” as described in Visa’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on December 21, 2007. This covered litigation provision contributed to the increase in noninterest expense in 2009’s year-over-year change.this agreement.

 

Income Taxes

 

Income tax expense totaled $39.9 million, $35.8 million and $31.0 million in 2011, 2010 and $41.8 million in 2010, 2009, and 2008, respectively. These amounts equate to effective rates of 27.3 percent, 28.3 percent and 25.7 percent for 2011,

30


2010 and 29.9 percent for 2010, 2009, and 2008, respectively. The changes in the effective tax rate over the three-year period isare primarily attributable to (i) one-time benefits recognized in 2009 for historic rehabilitationrehab tax credits and state tax positions with no similar benefits recognized in 20102011 or 2008,2010, (ii) an increase in the valuation allowance during 2010, and (iii) changes in the portion of income earned from tax-exempt municipal securities. For further information on income taxes refer to Note 17 of the Notes to Consolidated Financial Statements.

 

Business Segments

 

The Company has strategically aligned its operations into the following three reportable segments (collectively, “Business Segments”): Commercial Financial Services, Institutional Financial Services, and Personal Financial Services. The Business Segments were redefined during the first quarter of 2010 to better organize the Company’s business around customer needs. In 2009, the Business Segments were Commercial Banking and Lending, Payment and Technology Solutions, Banking Services, Consumer Services, Asset Management, and Fund Services. Business segment financial results produced by the Company’s internal management accounting system are evaluated regularly by the Executive Committee in deciding how to allocate resources and assess performance for individual Business Segments. The management accounting system assigns balance sheet and income statement items to each business segment using methodologies that are refined on an ongoing basis. For comparability purposes, amounts in all periods presented are based on methodologies in effect at December 31, 2010.2011.

 

Commercial Financial Services’ net income before taxes increased $0.7$7.7 million, or 1.112.5 percent, to $61.4$69.4 million from the prior year. The increase in net income was driven primarily by a decrease in provision for loan loss of $6.2 million, or 38.0 percent, an increase into margin and noninterest income, of $1.5 million, or 4.7 percent, and offset by an increase in noninterest expense of $7.4expense. Total average earning asset balances increased over the prior year by $244.1 million, or 6.77.0 percent; additionally, average deposits and repurchase agreements increased by $574.3 million, or 15.7 percent. Net interest margin increased by $8.5 million, or 5.5 percent, due to the balance sheet increases and enhanced net margin spread in this segment. Noninterest income increased $2.7 million, or 7.2 percent, due to increased fees from the sales of commercial credit cards, deposit service charges, and letters of credit. Noninterest expense increased by $3.6 million, or 3.0 percent, primarily due to higheran increase in allocated technology and general overhead costsexpenses. Provision for loan loss decreased slightly by $0.8 million, or 0.7 percent, compared to 2009. Total earning asset balances are up over2010 as the prior year by $90.9 million, or 2.6 percent; additionally, deposits and repurchase agreements increased by $369.9 million, or 10.3 percent. Net interest margin was flat toinherent risk in the prior year despite volume increases on both sides of the balance sheet.loan portfolio remained stable in this segment.

 

Institutional Financial Services’ net income before taxes decreased $2.5increased $19.5 million, or 40.4 percent, to $51.1$67.7 million from the same period in 2009.2010. Noninterest income increased $46.2$36.0 million, or 16.4 percent, net interest margin increased by $1.8 million, or 3.6 percent, and provision decreased by $9.2 million, or 50.0 percent. This was offset by a $41.3$27.6 million, or 13.4 percent, increase in noninterest expense and a $4.4 million decrease in net interest income.expense. Noninterest income increased due to a $15.5$14.4 million increase in advisory fees associated with thefrom Scout Funds and a $14.5Investments, $6.8 million increase in fund administration and custody services income. Scout Fundincome, $15.4 million increase in institutional management fee income and a $4.3 million increase in card services income. Fee income increased largely due to the acquisitions and net inflows of $1.4$1.1 billion for

the year ended December 31, 2010 and overall market appreciation over last year. 2011. Fee income from new sales is the acquisition of J.D. Clark & Co., Inc. and market appreciation were the driversprimary driver of the increase in fund administration and custodyalternative investments. Card services income comparedincreased from our credit card portfolio acquisitions in 2010 and due to 2009. Creditincreased sales volume in commercial card, incomehealthcare services and debit card. Noninterest expense increased $6.2$17.8 million in salary and benefit costs related to the increase to staffing related to acquisitions and growth in Fund Services and Card Services. Amortization of intangibles related to the acquisitions increased by $4.2 million. Overhead allocations increased to this segment of $3.7 million due to increased processing fees. Credit card balances increased approximately $110.0 million compared to 2009 primarily from the acquisition of five credit card portfolios totaling approximately $90.0 million over the past year. Bond trading feeincreases in revenue in this segment. Net interest income increased $4.0$1.8 million over 2009. Noninterest expense increased $2.0 million from third party custodial fees relateddue to international transactions from mutual fund clients and increased $4.3 million in third party fees paid by the advisor to distributors of the Scout Funds. The other driver was an increase in salaries and benefitsaverage deposits of $20.4 million due to increased commission expense related to the increased revenue in this segment as well as the addition of base salary expenses from acquisitions. Credit card processing expense increased $4.0 million from increased transaction volume. Net interest income decreased due to decreased funds transfer pricing on deposits in this segment.$492.6 million.

 

Personal Financial Services’ net income before taxes increaseddecreased by $12.5$6.8 million, or 49.1 percent, to $13.7$7.0 million compared to 2009. The increase in net interest margin was the primary driver of the net income improvement.prior year. Net interest income increased $11.6decreased $3.7 million, or 12.63.6 percent, over 20092010 due to a 93 basis pointdecrease in earning assets of $5.3 million and lower funds transfer credits on deposits in this segment. Average loans decreased by $1.4 million offset by an increase in net loan yieldsaverage deposit balances of 257.0 million primarily in demand, interest checking, and an increase of 63 basis pointsmoney market with a reduction in the net funds transfer price onsavings and time deposits. Loan balances have decreased by $69.9 million with the driver being the continued runoff of the indirect automobile portfolio and was partially offset by the growth in the home equity loan portfolio. Deposit balances have also increased in this segment compared to 2009, by $201.4 million. Noninterest income increased $3.8$6.7 million, or 4.16.9 percent, from 2009.2010. This increase was due primarily to an increase of $13.7 million in investment management fee income related to the acquisition of Prairie Capital Management, LLC.acquisitions and growth in personal trust fee income. This increase was offset by reduced deposit service charges of $6.6 million primarily due to a reductiondecrease in overdraft and insufficient fund fees. Noninterest expense increased $2.3$9.8 million, or 1.35.3 percent, over 2009.2010. The increase was primarily due to additional legalan increase of $6.0 million in salary and benefit costs and $1.0 million in amortization costs fromof intangibles related to recent acquisitions.

 

31


The net income before tax for the Treasury and Other Adjustments category was $0.7$2.2 million for 2010the year ended December 31, 2011, compared to $5.1net income before tax of $3.1 million for the same period in 2009.

2010.

Balance Sheet Analysis

 

Loans and Loans Held For Sale

 

Loans represent the Company’s largest source of interest income. Loan balances excluding loans held for saleinvestment increased by $269.0$376.7 million, or 6.28.2 percent, in 2010.2011. Commercial real estateloans had the most significant growth in outstanding balances in 2010,2011, compared to 2009.2010. Commercial real estate and home equity and consumer credit card loans had smaller increases compared to 2009.2010. These increases were offset by small decreases in both consumer loans and residentialconstruction real estate loans.estate.

 

Table 7

 

ANALYSIS OF LOANS BY TYPE(in thousands)

 

  December 31

   December 31

 
  2010

 2009

 2008

 2007

 2006

   2011

 2010

 2009

 2008

 2007

 

Commercial

  $1,937,052   $1,963,533   $2,128,512   $1,769,505   $1,564,793    $2,234,817   $1,937,052   $1,963,533   $2,128,512   $1,769,505  

Commercial—credit card

   84,544    65,273    59,196    57,487    44,436     95,339    84,544    65,273    59,196    57,487  

Real estate—construction

   128,520    106,914    89,960    83,292    84,141     84,590    128,520    106,914    89,960    83,292  

Real estate—commercial

   1,294,897    1,141,447    1,030,227    823,531    752,336     1,394,555    1,294,897    1,141,447    1,030,227    823,531  

Leases

   7,055    7,510    9,895    6,113    5,781     3,834    7,055    7,510    9,895    6,113  
  


 


 


 


 


  


 


 


 


 


Total business-related

   3,452,068    3,284,677    3,317,790    2,739,928    2,451,487     3,813,135    3,452,068    3,284,677    3,317,790    2,739,928  
  


 


 


 


 


  


 


 


 


 


Real estate—residential

   193,157    218,081    181,935    160,380    171,997     185,886    193,157    218,081    181,935    160,380  

Real estate—HELOC

   476,057    435,814    377,740    278,478    192,072     533,032    476,057    435,814    377,740    278,478  

Consumer—credit card

   322,208    231,254    194,958    169,729    149,402     333,646    322,208    231,254    194,958    169,729  

Consumer—other

   140,193    144,879    315,725    568,610    788,487     94,644    140,193    144,879    315,725    568,610  
  


 


 


 


 


  


 


 


 


 


Total consumer-related

   1,131,615    1,030,028    1,070,358    1,177,197    1,301,958     1,147,208    1,131,615    1,030,028    1,070,358    1,177,197  
  


 


 


 


 


  


 


 


 


 


Loans before allowance and loans held for sale

   4,583,683    4,314,705    4,388,148    3,917,125    3,753,445     4,960,343    4,583,683    4,314,705    4,388,148    3,917,125  

Allowance for loan losses

   (73,952  (64,139  (52,297  (45,986  (44,926   (72,017  (73,952  (64,139  (52,297  (45,986
  


 


 


 


 


  


 


 


 


 


Net loans before loans held for sale

   4,509,731    4,250,566    4,335,851    3,871,139    3,708,519     4,888,326    4,509,731    4,250,566    4,335,851    3,871,139  

Loans held for sale

   14,414    17,523    21,886    12,240    14,120     10,215    14,414    17,523    21,886    12,240  
  


 


 


 


 


  


 


 


 


 


Net loans and loans held for sale

  $4,524,145   $4,268,089   $4,357,737   $3,883,379   $3,722,639    $4,898,541   $4,524,145   $4,268,089   $4,357,737   $3,883,379  
  


 


 


 


 


  


 


 


 


 


As a % of total loans and loans held for sale

      

Commercial

   42.13  45.32  48.27  45.03  41.53   44.96  42.13  45.32  48.27  45.03

Commercial—credit card

   1.84    1.51    1.34    1.46    1.18     1.92    1.84    1.51    1.34    1.46  

Real estate-construction

   2.80    2.47    2.04    2.12    2.23     1.70    2.80    2.47    2.04    2.12  

Real estate-commercial

   28.16    26.35    23.36    20.96    19.97     28.06    28.16    26.35    23.36    20.96  

Leases

   0.15    0.17    0.22    0.16    0.16     0.08    0.15    0.17    0.22    0.16  
  


 


 


 


 


  


 


 


 


 


Total business-related

   75.08    75.82    75.23    69.73    65.07     76.72    75.08    75.82    75.23    69.73  
  


 


 


 


 


  


 


 


 


 


Real estate—residential

   4.20    5.03    4.13    4.08    4.57     3.74    4.20    5.03    4.13    4.08  

Real estate—HELOC

   10.35    10.06    8.57    7.09    5.10     10.72    10.35    10.06    8.57    7.09  

Consumer—credit card

   7.01    5.34    4.42    4.32    3.97     6.71    7.01    5.34    4.42    4.32  

Consumer—other

   3.05    3.35    7.15    14.47    20.92     1.90    3.05    3.35    7.15    14.47  
  


 


 


 


 


  


 


 


 


 


Total consumer-related

   24.61    23.78    24.27    29.96    34.56     23.07    24.61    23.78    24.27    29.96  

Loans held for sale

   0.31    0.40    0.50    0.31    0.37     0.21    0.31    0.40    0.50    0.31  
  


 


 


 


 


  


 


 


 


 


Total loans and loans held for sale

   100.0  100.0  100.0  100.0  100.0   100.0  100.0  100.0  100.0  100.0
  


 


 


 


 


  


 


 


 


 


32


Included in Table 7 is a five-year breakdown of loans by type. Business-related loans continue to represent the largest segment of the Company’s loan portfolio, comprising approximately 75.176.7 percent and 75.875.1 percent of total loans and loans held for sale at the end of 20102011 and 2009,2010, respectively.

 

Commercial loans represent the largest percent of total loans. Commercial loans decreased slightly as a percentagehave increased $297.8 million, or 15.4 percent, compared to 2010. Commercial loans have also increased to 45.0 percent of total loans but thecompared to 42.1 percent in 2010. The Company has also increased its capacity to lend through increased commitments over 2009. However, commercial2010. Commercial line utilization has beenremained lower compared to prior years due to the current economic conditions.

 

As a percentage of total loans, commercial real estate and real estate construction loans now comprise 31.029.8 percent of total loans, compared to 28.831.0 percent at the end of 2009.2010. Commercial real estate increased 99.7 million, or 7.7 percent, compared to 2010. This increase was offset by a $43.9 million, or 34.2 percent, decrease in construction real estate. Generally, these loans are made for working capital or expansion purposes and are primarily secured by real estate with a maximum loan-to-value of 80 percent. Most of these properties are owner-occupied and/or have other collateral or guarantees as security.

 

Bankcard loans including both commercial and consumer categories have increased $110.2$22.2 million, or 5.5 percent in 2010,2011, compared to 2009.2010. The increase in bankcard loans is due primarily to bankcard portfolio acquisitions of approximately $90.0 million as well as increasedcontinued promotional activity and rewards programs. Bankcard loans continue to be an area of emphasis forprograms associated with the Company.various card products.

 

Other consumer installment loans continued to decrease in total amount outstanding and as a percentage of loans. During the third quarterThese loans decreased $45.5 million, or 32.5 percent, compared to 2010 and decreased to 1.9 percent of 2007, the Company made the decisiontotal loans in 2011 compared to allow the indirect3.1 percent in 2010. This decrease was driven by a reduction in auto loan portfolio to run-off. This is part of a strategy to enhance asset yields. The Company will continue to service existing loans until maturity or payoff.with reduced demand for other consumer credit as well.

 

Real estate home equity loans (HELOC) have increased in both volume and as a percentage$57.0 million, or 12.0 percent, compared to 2010, but remained relatively flat at 10.7 percent of the overall loan portfolio over 2009.total loans compared to 2010. The HELOC growth was a result of the success of multiple promotions, as well as market penetration within the Company’s current customer base through its current distribution channels. Continued expansion of this portfolio is anticipated.

 

Nonaccrual, past due and restructured loans are discussed under “Credit Risk” within the Quantitative and Qualitative Disclosure about Market Risk in Item 7A on pages 50 and 51page 49 of this report.

 

Investment Securities

 

The Company’s security portfolio provides liquidity as a result of the composition and average life of the underlying securities. This liquidity can be used to fund loan growth or to offset the outflow of traditional funding sources. In addition to providing a potential source of liquidity, the security portfolio can be used as a tool to manage interest rate sensitivity. The Company’s goal in the management of its securities portfolio is to maximize return within the Company’s parameters of liquidity goals, interest rate risk and credit risk. The Company maintains high liquidity levels while investing in only high-grade securities. The security portfolio generates the Company’s second largest component of interest income.

 

Securities available for sale and securities held to maturity comprised 50.0 percent and 50.4 percent of earning assets as of December 31, 2011 and 2010, compared to 46.4 percent at year-end 2009.respectively. Total investment securities totaled $5.7$6.3 billion at December 31, 2010,2011, compared to $5.0$5.7 billion at year-end 2009.2010. Management expects deposit balance changes, loan demand, and collateral pledging requirements for public funds deposit balance changes, and loan demand to be the primary factors impacting changes in the level of security holdings.

 

Securities available for sale comprised 97.897.3 percent of the Company’s investment securities portfolio at December 31, 2010,2011, compared to 97.697.8 percent at year-end 2009.2010. Securities available for sale had a net unrealized

33


gain of $39.9$128.0 million at year-end, compared to a net unrealized gain of $63.8$39.9 million the preceding year. These amounts are reflected, on an after-tax basis, in the Company’s other comprehensive income in shareholders’ equity, as an unrealized gain of $25.5$81.1 million at year-end 2010,2011, compared to an unrealized gain of $40.5$25.5 million for 2009.

2010.

The securities portfolio achieved an average yield on a tax-equivalent basis of 2.4 percent for 2011, compared to 2.7 percent forin 2010, compared toand 3.5 percent in 2009 and 4.4 percent in 2008.2009. The decrease in yield is due to the replacement of higher yielding securities with lower yielding securities as the investment portfolio is reinvested. The average life of the securities portfolio was 28.732.8 months at December 31, 2010,2011, compared to 22.928.7 months at year-end 2009.2010.

 

Included in Tables 8 and 9 are analyses of the cost, fair value and average yield (tax-equivalent basis) of securities available for sale and securities held to maturity.

 

The securities portfolio contains securities that have unrealized losses and are not deemed to be other-than-temporarily impaired (see the table of these securities in Note 4 to the Consolidated Financial Statements on page 6970 of this document). The unrealized losses in the Company’s investments in direct obligations of U.S. treasury obligations, U.S. government agencies, federal agency mortgage-backed securities, and municipal securities were caused by changes in interest rates. Because the Company does not have the intent to sell these securities, it is more likely than not that the Company will not be required to sell these securities before a recovery of fair value. The Company expects to recover its cost basis in the securities and does not consider these investments to be other-than-temporarily impaired at December 31, 2010.2011.

 

Table 8

 

SECURITIES AVAILABLE FOR SALE(in thousands)

 

December 31, 2011


  Amortized Cost

   Fair Value

 

U.S. Treasury

  $184,523    $189,325  

U.S. Agencies

   1,615,637     1,632,009  

Mortgage-backed

   2,437,282     2,492,348  

State and political subdivisions

   1,642,844     1,694,036  

Corporates

   99,620     100,164  
  


  


Total

  $5,979,906    $6,107,882  
  


  


December 31, 2010


  Amortized Cost

   Fair Value

   Amortized Cost

   Fair Value

 

U.S. Treasury

  $482,912    $486,713    $482,912    $486,713  

U.S. Agencies

   1,994,696     2,000,298     1,994,696     2,000,298  

Mortgage-backed

   1,813,023     1,833,475     1,813,023     1,833,475  

State and political subdivisions

   1,252,067     1,262,275     1,252,067     1,262,275  

Corporates

   30,453     30,286     30,453     30,286  
  


  


  


  


Total

  $5,573,151    $5,613,047    $5,573,151    $5,613,047  
  


  


  


  


December 31, 2009


  Amortized Cost

   Fair Value

 

U.S. Treasury

  $596,067    $599,077  

U.S. Agencies

   1,479,784     1,488,760  

Mortgage-backed

   1,786,899     1,813,658  

State and political subdivisions

   958,231     984,293  
  


  


Total

  $4,820,981    $4,885,788  
  


  


 

  U.S. Treasury Securities

 U.S. Agency Securities

 Mortgage-backed
Securities


   U.S. Treasury Securities

 U.S. Agency Securities

 Mortgage-backed
Securities


 

December 31, 2010


  Fair Value

   Weighted
Average
Yield


 Fair Value

   Weighted
Average
Yield


 Fair Value

   Weighted
Average
Yield


 

December 31, 2011


  Fair Value

   Weighted
Average
Yield


 Fair Value

   Weighted
Average
Yield


 Fair Value

   Weighted
Average
Yield


 

Due in one year or less

  $252,942     0.93 $340,716     2.32 $110,205     4.82  $—       —   $525,045     1.41 $66,084     4.62

Due after 1 year through 5 years

   233,771     1.12    1,637,534     1.45    1,507,034     3.20     184,265     1.32    1,106,964     1.17    2,140,763     2.55  

Due after 5 years through 10 years

   —       —      22,048     —      205,120     3.59     5,060     1.98    —       —      267,696     2.78  

Due after 10 years

   —       —      —       —      11,116     4.02     —       —      —       —      17,805     4.12  
  


  


 


  


 


  


  


  


 


  


 


  


Total

  $486,713     1.09 $2,000,298     1.49 $1,833,475     3.45  $189,325     1.34 $1,632,009     1.25 $2,492,348     2.65
  


  


 


  


 


  


  


  


 


  


 


  


   State and Political
Subdivisions


  Corporates

      
 

December 31, 2010


  Fair Value

   Weighted
Average
Yield


  Fair
Value


   Weighted
Average
Yield


  Total Fair
Value


   
 

Due in one year or less

  $189,271     3.77 $—       —   $893,134       

Due after 1 year through 5 years

   725,317     3.92    30,286     1.16    4,133,942       

Due after 5 years through 10 years

   318,147     4.50    —       —      545,315       

Due after 10 years

   29,540     4.17    —       —      40,656       
   


  


 


  


 


     

Total

  $1,262,275     4.05 $30,286     1.16 $5,613,047       
   


  


 


  


 


     

 

   U.S. Treasury Securities

  U.S. Agency Securities

  Mortgage-backed
Securities


 

December 31, 2009


  Fair Value

   Weighted
Average
Yield


  Fair Value

   Weighted
Average
Yield


  Fair Value

   Weighted
Average
Yield


 

Due in one year or less

  $246,655     2.40 $365,675     1.68 $173,107     4.80

Due after 1 year through 5 years

   352,422     1.32    1,123,085     1.63    1,472,163     1.21  

Due after 5 years through 10 years

   —       —      —       —      110,058     3.82  

Due after 10 years

   —       —      —       —      58,330     3.85  
   


  


 


  


 


  


Total

  $599,077     1.77 $1,488,760     1.65 $1,813,658     3.95
   


  


 


  


 


  


34


   State and Political
Subdivisions


  Corporates

      

December 31, 2011


  Fair Value

   Weighted
Average
Yield


  Fair Value

   Weighted
Average
Yield


  Total Fair
Value


   

Due in one year or less

  $271,922     3.17 $—       —   $863,051     

Due after 1 year through 5 years

   815,473     3.12    100,164     1.34    4,347,629     

Due after 5 years through 10 years

   515,414     3.75    —       —      788,170     

Due after 10 years

   91,227     3.61    —       —      109,032     
   


  


 


  


 


   

Total

  $1,694,036     3.34 $100,164     1.51 $6,107,882     
   


  


 


  


 


   

 

  State and Political
Subdivisions


     U.S.  Treasury
Securities

 U.S. Agency
Securities

 Mortgage-backed
Securities


 

December 31, 2009


  Fair Value

   Weighted
Average
Yield


 Total Fair
Value


 

December 31, 2010


  Fair Value

   Weighted
Average
Yield


 Fair Value

   Weighted
Average
Yield


 Fair Value

   Weighted
Average
Yield


 

Due in one year or less

  $161,673     4.26 $947,110    $252,942     0.93 $340,716     2.32 $110,205     4.82

Due after 1 year through 5 years

   573,148     4.47    3,520,818     233,771     1.12    1,637,534     1.45    1,507,034     3.20  

Due after 5 years through 10 years

   232,794     5.29    342,852     —       —      22,048     —      205,120     3.59  

Due after 10 years

   16,678     5.34    75,008     —       —      —       —      11,116     4.02  
  


  


 


  


  


 


  


 


  


Total

  $984,293     4.64 $4,885,788    $486,713     1.09 $2,000,298     1.49 $1,833,475     3.45
  


  


 


  


  


 


  


 


  


   State and Political
Subdivisions


  Corporates

      

December 31, 2010


  Fair Value

   Weighted
Average
Yield


  Fair
Value


   Weighted
Average
Yield


  Total Fair
Value


   

Due in one year or less

  $189,271     3.77 $—       —   $893,134     

Due after 1 year through 5 years

   725,317     3.92    30,286     1.16    4,133,942     

Due after 5 years through 10 years

   318,147     4.50    —       —      545,315     

Due after 10 years

   29,540     4.17    —       —      40,656     
   


  


 


  


 


   

Total

  $1,262,275     4.05 $30,286     1.16 $5,613,047     
   


  


 


  


 


   

 

Table 9

 

SECURITIES HELD TO MATURITY(in thousands)

 

December 31, 2011


  Amortized
Cost


   Fair Value

   Weighted Average
Yield/Average Maturity


Due in one year or less

  $256    $293    1.55%

Due after 1 year through 5 years

   30,154     34,560    3.28%

Due after 5 years through 10 years

   17,562     20,128    4.38%

Due over 10 years

   41,274     47,306    3.46%
  


  


  

Total

  $89,246    $102,287    11 yr. 0 mo.
  


  


  

December 31, 2010


  Amortized
Cost


   Fair
Value


   Weighted Average
Yield/Average Maturity


           

Due in one year or less

  $1,635    $1,769    5.42%  $1,635    $1,769    5.42%

Due after 1 year through 5 years

   13,809     14,935    5.55      13,809     14,935    5.55%

Due after 5 years through 10 years

   7,554     8,170    4.40      7,554     8,170    4.40%

Due over 10 years

   40,568     43,878    3.69      40,568     43,878    3.69%
  


  


  
  


  


  

Total

  $63,566    $68,752    11 yr. 9 mo.  $63,566    $68,752    11 yr. 9 mo.
  


  


  
  


  


  

December 31, 2009


           

Due in one year or less

  $—      $—      —  %

Due after 1 year through 5 years

   14,808     15,166    5.03 

Due after 5 years through 10 years

   12,334     12,633    5.17 

Due over 10 years

   29,844     30,567    4.28 
  


  


  

Total

  $56,986    $58,366    13 yr. 6 mo.
  


  


  

35


Other Earning Assets

 

Federal funds transactions essentially are overnight loans between financial institutions, which allow for either the daily investment of excess funds or the daily borrowing of another institution’s funds in order to meet short-term liquidity needs. The net sold position was $13.1 million at December 31, 2011, and $4.2 million at December 31, 2010, and $9.8 million at December 31, 2009.2010.

 

The Company’s principal affiliate bank buys and sells federal funds as agent for non-affiliated banks. Because the transactions are pursuant to agency arrangements, these transactions do not appear on the balance sheet and averaged $408.9 million in 2011, and $445.1 million in 2010, and $629.9 million in 2009.2010.

 

At December 31, 2010,2011, the Company held securities bought under agreements to resell of $230.9$53.0 million compared to $319.9$230.9 million at year end 2009.2010. The Company used these instruments as short-term secured investments, in lieu of selling federal funds, or to acquire securities required for collateral purposes. These investments averaged $27.5 million in 2011 and $33.3 million in 2010 and $42.2 million in 2009.2010.

 

The Company also maintains an active securities trading inventory. The average holdings in the securities trading inventory in 20102011 were $41.5$51.9 million, compared to $33.5$41.5 million in 2009,2010, and were recorded at market value. As discussed in the “Quantitative and Qualitative Disclosures About Market Risk—Trading Account” in Part II, Item 7A on pages 49 and 50,page 48, the Company offsets the trading account securities by the sale of exchange-traded financial futures contracts, with both the trading account and futures contracts marked to market daily.

 

Deposits and Borrowed Funds

 

Deposits represent the Company’s primary funding source for its asset base. In addition to the core deposits garnered by the Company’s retail branch structure, the Company continues to focus on its cash management services, as well as its asset management and mutual fund servicing segments in order to attract and retain additional core deposits. Deposits totaled $9.0$10.2 billion at December 31, 2010,2011, and $8.5$9.0 billion at year end 2009.2010. Deposits averaged $9.6 billion in 2011 and $8.5 billion in 2010 and $7.6 billion in 2009.2010. The Company continually strives to expand, improve and promote its cash management services in order to attract and retain commercial funding customers.

 

Noninterest–bearing demand deposits averaged $3.4 billion in 2011 and $2.8 billion in 2010 and $2.4 billion in 2009.2010. These deposits represented 33.135.6 percent of average deposits in 2010,2011, compared to 31.333.1 percent in 2009.2010. The Company’s large commercial customer base provides a significant source of noninterest–bearing deposits. Many of these commercial accounts do not earn interest; however, they receive an earnings credit to offset the cost of other services provided by the Company.

 

Table 10

 

MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE(in thousands)

 

  December 31

   December 31

 
  2010

   2009

   2011

   2010

 

Maturing within 3 months

  $469,951    $587,650    $462,992    $469,951  

After 3 months but within 6 months

   138,345     196,192     142,852     138,345  

After 6 months but within 12 months

   192,266     173,580     135,225     192,266  

After 12 months

   199,900     125,536     191,870     199,900  
  


  


  


  


Total

  $1,000,462    $1,082,958    $932,939    $1,000,462  
  


  


  


  


36


Table 11

 

ANALYSIS OF AVERAGE DEPOSITS(in thousands)

 

  2010

 2009

 2008

 2006

 2006

   2011

 2010

 2009

 2008

 2007

 

Amount

      

Noninterest-bearing demand

  $2,795,458   $2,372,456   $1,936,170   $1,780,098   $1,840,640    $3,414,843   $2,795,458   $2,372,456   $1,936,170   $1,780,098  

Interest-bearing demand and savings

   4,059,615    3,631,486    3,162,015    2,649,849    2,454,684     4,731,300    4,059,615    3,631,486    3,162,015    2,649,849  

Time deposits under $100,000

   728,804    782,469    833,033    796,528    783,811     661,957    728,804    782,469    833,033    796,528  
  


 


 


 


 


  


 


 


 


 


Total core deposits

   7,583,877    6,786,411    5,931,218    5,226,475    5,079,135     8,808,100    7,583,877    6,786,411    5,931,218    5,226,475  

Time deposits of $100,000 or more

   868,089    797,614    601,052    489,727    409,663     785,537    868,089    797,614    601,052    489,727  
  


 


 


 


 


  


 


 


 


 


Total deposits

  $8,451,966   $7,584,025   $6,532,270   $5,716,202   $5,488,798    $9,593,637   $8,451,966   $7,584,025   $6,532,270   $5,716,202  
  


 


 


 


 


  


 


 


 


 


As a % of total deposits

      

Noninterest-bearing demand

   33.07  31.28  29.64  31.14  33.53   35.59  33.07  31.28  29.64  31.14

Interest-bearing demand and savings

   48.03    47.88    48.41    46.36    44.72     49.32    48.03    47.88    48.41    46.36  

Time deposits under $100,000

   8.63    10.32    12.75    13.93    14.29     6.90    8.63    10.32    12.75    13.93  
  


 


 


 


 


  


 


 


 


 


Total core deposits

   89.73    89.48    90.80    91.43    92.54     91.81    89.73    89.48    90.80    91.43  

Time deposits of $100,000 or more

   10.27    10.52    9.20    8.57    7.46     8.19    10.27    10.52    9.20    8.57  
  


 


 


 


 


  


 


 


 


 


Total deposits

   100.00  100.00  100.00  100.00  100.00   100.00  100.00  100.00  100.00  100.00
  


 


 


 


 


  


 


 


 


 


 

Repurchase agreements are transactions involving the exchange of investment funds by the customer for securities by the Company, under an agreement to repurchase the same issues at an agreed-upon price and date. Securities sold under agreements to repurchase and federal funds purchased totaled $2.0 billion at December 31, 2011, and $2.1 billion at December 31, 2010, and $1.9 billion at December 31, 2009.2010. These agreements averaged $1.5 and $1.4 billion in 2011 and 2010, and 2009.respectively. The Company enters into these transactions with its downstream correspondent banks, commercial customers, and various trust, mutual fund and local government relationships.

 

Table 12

 

SHORT-TERM DEBT(in thousands)

   2010

  2009

 
   Amount

   Rate

  Amount

   Rate

 

At December 31:

                   

Federal funds purchased

  $16,274     0.05 $47,334     0.03

Repurchase agreements

   2,068,068     0.27    1,880,273     0.17  

Other

   35,220     0.00    29,514     0.00  
   


  


 


  


Total

  $2,119,562     0.26 $1,957,121     0.16
   


  


 


  


Average for year:

                   

Federal funds purchased

  $37,203     0.09 $99,738     0.11

Repurchase agreements

   1,372,146     0.14    1,251,468     0.15  

Other

   23,172     0.00    19,790     0.00  
   


  


 


  


Total

  $1,432,521     0.14 $1,370,996     0.15
   


  


 


  


Maximum month-end balance:

                   

Federal funds purchased

  $57,362        $356,510       

Repurchase agreements

   2,068,068         1,880,273       

Other

   29,670         35,996       

   2011

  2010

 
   Amount

   Rate

  Amount

   Rate

 

At December 31:

                   

Federal funds purchased

  $2,796     0.02 $16,274     0.05

Repurchase agreements

   1,948,031     0.11    2,068,068     0.27  

Other

   12,000     1.10    35,220     0.00  
   


  


 


  


Total

  $1,962,827     0.12 $2,119,562     0.26
   


  


 


  


Average for year:

                   

Federal funds purchased

  $32,804     0.05 $37,203     0.09

Repurchase agreements

   1,438,207     0.12    1,372,146     0.14  

Other

   25,296     0.12    23,172     0.00  
   


  


 


  


Total

  $1,496,307     0.12 $1,432,521     0.14
   


  


 


  


Maximum month-end balance:

                   

Federal funds purchased

  $46,208        $57,362       

Repurchase agreements

   1,948,031         2,068,068       

Other

   26,798         29,670       

37


The Company has fourtwo fixed-rate advances at December 31, 2010,2011, from the Federal Home Loan Banks at rates of 0.390.35 percent toand 5.89 percent. These advances, collateralized by the Company’s securities, are used to offset interest rate risk of longer-term fixed-rate loans.

 

Capital Resources and Liquidity

 

The Company places a significant emphasis on the maintenance of a strong capital position, which promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. The Company is not aware of any trends, demands, commitments, events or uncertainties that would materially change its capital position or affect its liquidity in the foreseeable future. Capital is managed for each subsidiary based upon its respective risks and growth opportunities as well as regulatory requirements.

 

Total shareholders’ equity was $1,060.9 million$1.2 billion at December 31, 2010,2011, compared to $1,015.6 million$1.1 billion one year earlier. During each year, management has the opportunity to repurchase shares of the Company’s stock if it concludes that the repurchases would enhance overall shareholder value. During 20102011 and 2009,2010, the Company acquired 235,433238,834 shares and 703,723235,433 shares of its common stock, respectively.

 

Risk-based capital guidelines established by regulatory agencies establish minimum capital standards based on the level of risk associated with a financial institution’s assets. A financial institution’s total capital is required to equal at least 8% of risk-weighted assets. At least half of that 8% must consist of Tier 1 core capital, and the remainder may be Tier 2 supplementary capital. The risk-based capital guidelines indicate the specific risk weightings by type of asset. Certain off-balance-sheet items (such as standby letters of credit and binding loan commitments) are multiplied by credit conversion factors to translate them into balance sheet equivalents before assigning them specific risk weightings. Due to the Company’s high level of core capital and substantial portion of earning assets invested in government securities, the Tier 1 capital ratio of 11.3011.20 percent and total capital ratio of 12.4512.20 percent substantially exceed the regulatory minimums.

 

For further discussion of capital and liquidity, see the “Liquidity Risk” section of Item 7A, Quantitative and Qualitative Disclosures about Market Risk on pages 51 and 52page 50 of this report.

38


Table 13

 

RISK-BASED CAPITAL(in thousands)

 

This table computes risk-based capital in accordance with current regulatory guidelines. These guidelines as of December 31, 2010,2011, excluded net unrealized gains or losses on securities available for sale from the computation of regulatory capital and the related risk-based capital ratios.

 

 Risk-Weighted Category

  Risk-Weighted Category

 
 0%

 20%

   50%

 100%

   Total

  0%

 20%

   50%

 100%

   Total

 

Risk-Weighted Assets

              

Loans held for sale

 $—     $1,183    $13,092   $139    $14,414   $—     $908    $9,200   $107    $10,215  

Loans and leases

  —      51,002     201,384    4,331,297     4,583,683    —      56,140     195,535    4,708,668     4,960,343  

Securities available for sale

  1,785,313    3,727,690     29,694    30,453     5,573,150    1,607,524    4,231,657     41,106    99,620     5,979,907  

Securities held to maturity

  —      63,566     —      —       63,566    —      89,246     —      —       89,246  

Federal funds and resell agreements

  —      235,176     —      —       235,176    —      66,078     —      —       66,078  

Trading securities

  400    24,095     5,337    12,648     42,480    400    31,213     7,252    19,277     58,142  

Cash and due from banks

  744,769    459,921     —      —       1,204,690    1,079,940    530,647     —      —       1,610,587  

All other assets

  14,258    —       —      404,160     418,418    14,273    —       —      401,206     415,479  
 


 


  


 


  


 


 


  


 


  


Category totals

  2,544,740    4,562,633     249,507    4,778,697     12,135,577    2,702,137    5,005,889     253,093    5,228,878     13,189,997  
 


 


  


 


  


 


 


  


 


  


Risk-weighted totals

  —      912,527     124,753    4,778,697     5,815,977    —      1,001,178     126,547    5,228,878     6,356,603  

Off-balance-sheet items (risk-weighted)

  —      —       1,714    719,444     721,158    —      4     623    993,491     994,118  
 


 


  


 


  


 


 


  


 


  


Total risk-weighted assets

 $—     $912,527    $126,467   $5,498,141    $6,537,135   $—     $1,001,182    $127,170   $6,222,369    $7,350,721  
 


 


  


 


  


 


 


  


 


  


 Tier1

 Tier2

   Total

        Tier1

 Tier2

   Total

       

Regulatory Capital

              

Shareholders’ equity

 $1,060,860   $—      $1,060,860       $1,191,132   $—      $1,191,132      

Accumulated other comprehensive gains

  (25,465  —       (25,465      (81,099  —       (81,099    

Goodwill and intangibles

  (296,632  —       (296,632      (286,848  —       (286,848    

Allowance for loan losses

  —      74,950     74,950        —      73,737     73,737      
 


 


  


     


 


  


    

Total capital

 $738,763   $74,950    $813,713       $823,185   $73,737    $896,922      
 


 


  


     


 


  


    
       Company

              Company

       

Capital ratios

              

Tier 1 capital to risk-weighted assets

    11.30        11.20    

Total capital to risk-weighted assets

    12.45        12.20    

Leverage ratio (Tier 1 to total average assets less goodwill and intangibles)

    6.56        6.71    
   


       


    

 

For further discussion of regulatory capital requirements, see noteNote 10, “Regulatory Requirements” with the Notes to Consolidated Financial Statements under Item 8 on pages 7576 and 76.77.

 

Commitments, Contractual Obligations and Off-balance Sheet Arrangements

 

The Company’s main off-balance sheet arrangements are loan commitments, commercial and standby letters of credit, futures contracts and forward exchange contracts, which have maturity dates rather than payment due dates. These commitments and contingent liabilities are not required to be recorded on the Company’s balance sheet. Since commitments associated with letters of credit and lending and financing arrangements may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. See

Table 14 below, as well as Note 15, “Commitments, Contingencies and Guarantees” in the Notes to Consolidated

39


Financial Statements under Item 8 on pages 84 tothrough 86 for detailed information and further discussion of these arrangements. Management does not anticipate any material losses from its off-balance sheet arrangements.

 

Table 14

 

COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS(in thousands)

 

The table below details the contractual obligations for the Company as of December 31, 2010.2011. The Company has no capital leases or long-term purchase obligations. Includes principal payments only.

 

  Payments due by Period

   Payments due by Period

 
  Total

   Less than 1
year


   1-3 years

   3-5 years

   More than
5 years


   Total

   Less than 1
year


   1-3 years

   3-5 years

   More than
5 years


 

Contractual Obligations

                              

Fed funds purchased and repurchase agreements

  $2,084,342    $2,084,342    $—      $—      $—      $1,950,827    $1,950,827    $—      $—      $—    

Short-term debt obligations

   35,220     35,220     —       —       —       12,000     12,000     —       —       —    

Long-term debt obligations

   8,884     1,769     3,371     2,256     1,488     6,529     1,600     2,906     1,552     471  

Operating lease obligations

   72,999     7,475     14,109     11,959     39,456     70,553     8,023     14,854     12,817     34,859  

Time open and C.D.’s

   1,694,062     1,330,874     167,760     137,164     58,264     1,548,414     1,198,096     289,909     60,394     15  
  


  


  


  


  


  


  


  


  


  


Total

  $3,895,507    $3,459,680    $185,240    $151,379    $99,208    $3,588,323    $3,170,546    $307,669    $74,763    $35,345  
  


  


  


  


  


  


  


  


  


  


 

As of December 31, 2010,2011, our total liabilities for unrecognized tax benefits were $3.9$4.1 million. The Company cannot reasonably estimate the timing of the future payments of these liabilities. Therefore, these liabilities have been excluded from the table above. See Note 17 to the consolidated financial statements for information regarding the liabilities associated with unrecognized tax benefits.

 

The table below (a continuation of Table 14 above) details the commitments, contingencies and guarantees for the Company as of December 31, 2010.2011.

 

  Maturities due by Period

   Maturities due by Period

 
  Total

   Less than 1
year


   1-3 years

   3-5 years

   More than
5 years


   Total

   Less than 1
year


   1-3 years

   3-5 years

   More than
5 years


 

Commitments, Contingencies and Guarantees

                              

Commitments to extend credit for loans (excluding credit card loans)

  $1,729,011    $475,263    $585,158    $123,790    $544,800    $2,202,838    $348,926    $364,365    $851,422    $638,125  

Commitments to extend credit under credit card loans

   1,970,508     1,970,508     —       —       —       2,059,193     2,059,193     —       —       —    

Commercial letters of credit

   3,537     3,537     —       —       —       19,564     19,564     —       —       —    

Standby letters of credit

   308,154     199,477     97,533     11,144     —       320,119     207,436     86,993     25,690     —    

Futures contracts

   22,400     22,400     —       —       —       30,600     30,600     —       —       —    

Forward foreign exchange contracts

   3,685     3,685     —       —       —       119,200     119,200     —       —       —    

Spot foreign exchange contracts

   2,608     2,608     —       —       —       3,040     3,040     —       —       —    
  


  


  


  


  


  


  


  


  


  


Total

  $4,039,903    $2,677,478    $682,691    $134,934    $544,800    $4,754,554    $2,787,959    $451,358    $877,112    $638,125  
  


  


  


  


  


  


  


  


  


  


 

Critical Accounting Policies and Estimates

 

Management’s Discussion and Analysis of financial condition and results of operations discusses the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets

and liabilities and the disclosure of contingent liabilities at the date of the Consolidated Financial Statements and

40


the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customers and suppliers, allowance for loan losses, bad debts, investments, financing operations, long-lived assets, taxes, other contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions, actual results may differ from the recorded estimates.

 

Management believes that the Company’s critical accounting policies are those relating to: the allowance for loan losses, goodwill and other intangibles, revenue recognition, accounting for stock-based compensation, and accounting for uncertainty in income taxes.taxes, and fair value measurements.

 

Allowance for Loan Losses

 

The Company’s allowance for loan losses represents management’s judgment of the loan losses inherent in the loan portfolio. The allowance is maintained and computed for each bank at a level that such individual bank management considers adequate. The allowance is reviewed quarterly, considering both quantitative and qualitative factors such as historical trends, internal ratings, migration analysis, current economic conditions, loan growth and individual impairment testing.

 

Larger commercial loans are individually reviewed for potential impairment. For these loans, if management deems it probable that the borrower cannot meet its contractual obligations with respect to payment or timing such loans are deemed to be impaired under current accounting standards. Such loans are then reviewed for potential impairment based on management’s estimate of the borrower’s ability to repay the loan given the availability of cash flows, collateral and other legal options. Any allowance related to the impairment of an individually impaired loan is based on the present value of discounted expected future cash flows, the fair value of the underlying collateral, or the fair value of the loan. Based on this analysis, some loans that are classified as impaired do not have a specific allowance as the discounted expected future cash flows or the fair value of the underlying collateral exceeds the Company’s basis in the impaired loan.

 

The Company also maintains an internal risk grading system for other loans not subject to individual impairment. An estimate of the inherent loan losses on such risk-graded loans is based on a migration analysis which computes the net charge-off experience related to each risk category.

 

An estimate of inherent losses is computed on remaining loans based on the type of loan. Each type of loan is segregated into a pool based on the nature of such loans. This includes remaining commercial loans that have a low risk grade, as well as other homogenous loans. Homogenous loans include automobile loans, credit card loans and other consumer loans. Allowances are established for each pool based on the loan type using historical loss rates, certain statistical measures and loan growth.

 

An estimate of the total inherent loss is based on the above three computations. From this an adjustment can be made based on other factors management considers to be important in evaluating the probable losses in the portfolio such as general economic conditions, loan trends, risk management and loan administration and changes in internal policies. For more information on loan portfolio segments and ALL methodology refer to Note 3 to the Consolidated Financial Statements.

 

Goodwill and Other Intangibles

 

Goodwill is tested annually for impairment. Goodwill is assigned to various reporting units basedimpairment tests are performed on which units were expected to benefit froman annual basis or when events or circumstances dictate. In these tests, the synergiesCompany performs a qualitative assessment of the combination at the time of the acquisition. The Company tests impairment at the reporting unit level by estimating the fair value of theeach reporting unit. If management’s estimatethe Company determines, on the basis of qualitative factors, that the fair value of the reporting unit exceedsis more likely than not greater than the carrying amount, of the reporting unit, theretwo-step impairment test is no

impairment. In order to estimatenot required. If the fair value of the reporting units, management uses multiplesunit is not more likely than not greater than the carrying amount, the fair value is

41


compared to the carrying amount of earningseach reporting unit to determine if impairment is indicated. If impairment is indicated, the implied fair value of the reporting unit’s goodwill is compared to its carrying amount and assets from recent acquisitionsthe impairment loss is measured by the excess of similar banking, asset management, and fund servicing entities as such entities have comparable operations and economic characteristics.the carrying value over fair value. As a result of such impairment tests, the Company has not recognized an impairment charge.

 

For customer-based identifiable intangibles, the Company amortizes the intangibles over their estimated useful lives of up to seventeen years. When facts and circumstances indicate potential impairment of amortizing intangible assets, the Company evaluates the fair value of the asset and compares it to the carrying value for possible impairment.

 

Revenue Recognition

 

Revenue recognition includes the recording of interest on loans and securities and is recognized based on a rate multiplied by the principal amount outstanding and also includes the impact of the amortization of related premiums and discounts. Interest accrual is discontinued when, in the opinion of management, the likelihood of collection becomes doubtful, or the loan is past due for a period of ninety days or more unless the loan is both well-secured and in the process of collection. Other noninterest income is recognized as services are performed or revenue-generating transactions are executed.

 

Accounting for Stock-Based Compensation

 

The amount of compensation recognized is based primarily on the value of the awards on the grant date. To value stock options, the Company uses the Black-Scholes model, which requires the input of several variables. The expected option life is derived from historical exercise patterns and represents the amount of time that options granted are expected to be outstanding. The expected volatility is based on a combination of historical and implied volatilities of the Company’s stock. The interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of the stock on the grant date is used to value awards of restricted stock. Forfeitures are estimated at the grant date and reduce the expense recognized. The forfeiture rate is adjusted annually based on experience. The value of the awards, adjusted for forfeitures, is amortized using the straight-line method over the requisite service period. Management of the Company believes that it is probable that all current performance-based awards will achieve the performance target. Please see the discussion of the “Accounting for Stock-Based Compensation” under Note 1 and Note 11 in the Notes to the Consolidated Financial Statements under Item 8 on pages 5857 and 77.78.

 

Accounting for Uncertainty in Income Taxes

 

The Company is subject to income taxes in both the U.S. federal and multiplevarious states jurisdictions. The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in these jurisdictions. The Company records the financial statement effects of an income tax position when it is more likely than not, based on the technical merits, that it will be sustained upon examination. The estimate for any uncertain tax issue is based on management’s best judgment. These estimates may change as a result of changes in tax laws and regulations, interpretations of law by taxing authorities, and income tax examinations among other factors. Due to the complexity of these uncertainties, the ultimate resolution may differ from the current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. See the discussion of “Liabilities Associated with Unrecognized Tax Benefits” under Note 17 in the Notes to the Consolidated Financial Statements.

Fair Value Measurements

Fair value is measured in accordance with U.S. GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value include the market approach, income approach and cost approach. The market approach uses prices or relevant information generated by market

42


transactions involving identical or comparable assets or liabilities. The income approach involves discounting future amounts to a single present amount and is based on current market expectations about those future amounts. The cost approach is based on the amount that currently would be required to replace the service capacity of the asset.

U.S. GAAP establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities that are available at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3—Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. Unobservable inputs reflect assumptions about what market participants would use to price the asset or liability. The inputs are developed based on the best information available in the circumstances, which might include the Company’s own financial data such as internally developed pricing models and discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

The Company’s fair value measurements involve various valuation techniques and models, which involve inputs that are observable, when available, and include available-for-sale, trading securities, and contingent consideration measured at fair value on a recurring basis.

Fair value pricing information obtained from third party data providers and pricing services for investment securities are reviewed for appropriateness on a periodic basis. The third party service providers are also analyzed to understand and evaluate the valuation methodologies utilized. This review includes an analysis of current market prices compared to pricing provided by the third party pricing service to assess the relative accuracy of the data provided.

43


The following table presents, for the periods indicated, the average earning assets and resulting yields, as well as the average interest-bearing liabilities and resulting yields, expressed in both dollars and rates.

 

FIVE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent(tax-equivalent basis) (in millions)

 

 2010

 2009

  2011

 2010

 
 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


  Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 

ASSETS

  

Loans, net of unearned interest (FTE) (2)(3)

 $4,490.6   $222.1    4.95 $4,383.6   $215.6    4.92

Loans, net of unearned interest (FTE) (2) (3)

 $4,756.2   $219.4    4.61 $4,490.6   $222.1    4.95

Securities:

  

Taxable

  3,964.7    90.4    2.28    3,432.4    106.5    3.10    4,224.5    85.1    2.01    3,964.7    90.4    2.28  

Tax-exempt (FTE)

  1,067.7    45.7    4.28    916.3    45.7    4.98    1,497.8    53.0    3.54    1,067.7    45.7    4.28  
 


 


 


 


 


 


 


 


 


 


 


 


Total securities

  5,032.4    136.1    2.71    4,348.7    152.2    3.50    5,722.3    138.1    2.41    5,032.4    136.1    2.71  

Federal funds sold and resell agreements

  44.4    0.2    0.36    54.1    0.3    0.49    31.3    0.1    0.32    44.4    0.2    0.36  

Interest-bearing

  593.5    3.9    0.66    492.9    4.1    0.83    837.8    3.3    0.39    593.5    3.9    0.66  

Other earning assets (FTE)

  41.4    0.8    1.91    33.5    0.8    2.39    51.9    1.4    2.64    41.4    0.8    1.91  
 


 


 


 


 


 


 


 


 


 


 


 


Total earning assets (FTE)

  10,202.3    363.1    3.56    9,312.8    373.0    4.00    11,399.5    362.3    3.18    10,202.3    363.1    3.56  

Allowance for loan losses

  (69.1  (57.3   (73.0  (69.1 

Cash and due from banks

  388.9    345.2     396.9    388.9   

Other assets

  586.1    510.0     693.9    586.1   
 


 


  


 


 

Total assets

 $11,108.2   $10,110.7    $12,417.3   $11,108.2   
 


 


  


 


 

LIABILITIES AND SHAREHOLDERS’ EQUITY

  

Interest-bearing demand and savings deposits

 $4,059.6   $10.1    0.25 $3,631.4   $16.1    0.45 $4,731.3   $8.0    0.17 $4,059.6   $10.1    0.25

Time deposits under $100,000

  728.8    11.8    1.62    782.5    18.4    2.35    662.0    7.8    1.18    728.8    11.8    1.62  

Time deposits of $100,000 or more

  868.1    11.5    1.32    797.6    15.4    1.93    785.5    8.8    1.12    868.1    11.5    1.32  
 


 


 


 


 


 


 


 


 


 


 


 


Total interest bearing deposits

  5,656.5    33.4    0.59    5,211.5    49.9    0.96    6,178.8    24.6    0.40    5,656.5    33.4    0.59  

Short-term debt

  23.2    —      0.00    19.8    —      1.28    25.3    0.2    0.79    23.2    —      0.00  

Long-term debt

  19.1    0.4    0.03    32.1    1.3    4.53    11.3    0.2    1.77    19.1    0.4    0.03  

Federal funds purchased and repurchase agreements

  1,409.3    2.0    0.14    1,351.2    2.0    0.15    1,471.0    1.7    0.12    1,409.3    2.0    0.14  
 


 


 


 


 


 


 


 


 


 


 


 


Total interest bearing liabilities

  7,108.1    35.8    0.50    6,614.6    53.2    0.80    7,686.4    26.7    0.35    7,108.1    35.8    0.50  

Noninterest bearing demand deposits

  2,795.5    2,372.5     3,414.8    2,795.5   

Other

  137.7    117.0     177.4    137.7   
 


 


  


 


 

Total

  10,041.3    9,104.1     11,278.6    10,041.3   
 


 


  


 


 

Total shareholders’ equity

  1,066.9    1,006.6     1,138.7    1,066.9   
 


 


  


 


 

Total liabilities and shareholders’ equity

 $11,108.2   $10,110.7    $12,417.3   $11,108.2   
 


 


  


 


 

Net interest income (FTE)

 $327.3   $319.7    $335.6   $327.3   

Net interest spread

  3.06  3.20  2.83  3.06

Net interest margin

  3.21  3.43  2.94  3.21
 


 


 


 



(1) Interest income and yields are stated on a fully tax-equivalent (FTE) basis, using a rate of 35%. The tax-equivalent interest income and yields give effect to disallowance of interest expense, for federal income tax purposes related to certain tax-free assets. Rates earned/paid may not compute to the rates shown due to presentation in millions. The tax-equivalent interest income totaled $18.6 million $16.6 million, $16.7 million, $13.9 million, and $12.2 million and $10.9 million in 2011, 2010, 2009, 2008, 2007, and 2006,2007, respectively.
(2) Loan fees are included in interest income. Such fees totaled $11.6 million $13.0 million, $13.8 million, $13.2 million, and $10.3 million and $9.9 million in 2011, 2010, 2009, 2008, 2007, and 2006,2007, respectively.
(3) Loans on non-accrual are included in the computation of average balances. Interest income on these loans is also included in loan income.

44


FIVE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (in(in millions) (continued)

 

2008

 2007

 2006

   
2009

2009

 2008

 2007

   
Average
Balance


Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance
Five-Year
Compound
Growth Rate


 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance


 Interest
Income/
Expense (1)


 Rate
Earned/
Paid (1)


 Average
Balance
Five-Year
Compound
Growth Rate


 
$4,193.9   $242.0    5.77 $3,901.9   $270.8    6.94 $3,579.7   $238.6    6.66  9.534,383.6   $215.6    4.92 $4,193.9   $242.0    5.77 $3,901.9   $270.8    6.94  5.85
2,616.5    110.4    4.22    2,062.0    97.6    4.73    2,059.9    85.6    4.15    7.86  3,432.4    106.5    3.10    2,616.5    110.4    4.22    2,062.0    97.6    4.73    15.45  
764.1    39.8    5.20    725.8    37.1    5.12    682.4    34.1    4.99    8.29  916.3    45.7    4.98    764.1    39.8    5.20    725.8    37.1    5.12    17.03  



 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


3,380.6    150.2    4.44    2,787.8    134.7    4.83    2,742.3    119.7    4.36    7.95  4,348.7    152.2    3.50    3,380.6    150.2    4.44    2,787.8    134.7    4.83    15.85  
321.8    7.8    2.42    360.2    18.7    5.18    378.0    19.1    5.06    (28.0454.1    0.3    0.49    321.8    7.8    2.42    360.2    18.7    5.18    (39.25
66.8    0.4    0.68    —      —      —      —      —      —      100.00  492.9    4.1    0.83    66.8    0.4    0.68    —      —      —      100.00  
40.6    1.5    3.69    58.9    2.4    4.03    56.6    2.6    4.68    (13.5033.5    0.8    2.39    40.6    1.5    3.69    58.9    2.4    4.03    (1.71



 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


8,003.7    401.9    5.02    7,108.8    426.6    6.00    6,756.6    380.0    5.62    8.84  9,312.8    373.0    4.00    8,003.7    401.9    5.02    7,108.8    426.6    6.00    11.03  
(49.5  (45.6  (42.2  5.28  (57.3  (49.5  (45.6  11.58  
487.6    481.1    461.7    (7.55345.2    487.6    481.1    (2.98
456.2    452.0    407.1    6.98  510.0    456.2    452.0    11.26  



 


 


 




 


 


 


$8,897.9   $7,996.3   $7,583.2    7.8510,110.7   $8,897.9   $7,996.3    10.37



 


 


 




 


 


 


$3,162.0   $37.8    1.20 $2,649.9   $60.7    2.29 $2,454.7   $48.9    1.99  10.403,631.4   $16.1    0.45 $3,162.0   $37.8    1.20 $2,649.9   $60.7    2.29  14.02
833.0    30.7    3.69    796.5    35.9    4.51    783.8    30.4    3.88    3.19  782.5    18.4    2.35    833.0    30.7    3.69    796.5    35.9    4.51    (3.32
601.1    21.2    3.53    489.7    23.6    4.82    409.7    17.6    4.30    28.60  797.6    15.4    1.93    601.1    21.2    3.53    489.7    23.6    4.82    13.90  



 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


4,596.1    89.7    1.95    3,936.1    120.2    3.05    3,648.2    96.9    2.66    10.87  5,211.5    49.9    0.96    4,596.1    89.7    1.95    3,936.1    120.2    3.05    11.11  
17.4    0.6    1.28    12.9    0.6    4.59    13.5    0.6    2.87    1.48  19.8    —      1.28    17.4    0.6    1.28    12.9    0.6    4.59    13.39  
36.3    1.7    4.53    36.9    1.7    4.53    37.5    1.6    4.27    12.64  32.1    1.3    4.53    36.3    1.7    4.53    36.9    1.7    4.53    (21.33
1,288.9    21.3    1.65    1,272.7    59.3    4.66    1,148.5    52.8    4.60    5.16  1,351.2    2.0    0.15    1,288.9    21.3    1.65    1,272.7    59.3    4.66    5.07  



 


 


 


 


 


 


 


 


 




 


 


 


 


 


 


 


 


 


5,938.7    113.3    1.90    5,258.6    181.8    3.46    4,847.7    151.9    3.13    9.52  6,614.6    53.2    0.80    5,938.7    113.3    1.90    5,258.6    181.8    3.46    9.66  
1,936.2    1,780.1    1,840.6    4.92  2,372.5    1,936.2    1,780.1    13.16  
89.9    83.5    51.8    21.99  117.0    89.9    83.5    27.92  



 


 


 




 


 


 


7,964.8    7,122.2    6,740.1    8.32  9,104.1    7,964.8    7,122.2    10.85  



 


 


 




 


 


 


933.1    874.1    843.1    4.15  1,006.6    933.1    874.1    6.20  



 


 


 




 


 


 


$8,897.9   $7,996.3   $7,583.2    7.8510,110.7   $8,897.9   $7,996.3    10.37



 


 


 




 


 


 


 $288.6   $244.8   $228.1    $319.7   $288.6   $244.8   
  3.12  2.54  2.49   3.20  3.12  2.54 
  3.60  3.44  3.38   3.43  3.60  3.44 
 


 


 


  


 


 


 

 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Risk Management

 

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange prices, commodity prices or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading.

 

The Company is subject to market risk primarily through the effect of changes in interest rates of its assets held for purposes other than trading. The following discussion of interest risk, however, combines instruments held for trading and instruments held for purposes other than trading because the instruments held for trading represent such a small portion of the Company’s portfolio that the interest rate risk associated with them is immaterial.

45


Interest Rate Risk

 

In the banking industry, a major risk exposure is changing interest rates. To minimize the effect of interest rate changes to net interest income and exposure levels to economic losses, the Company manages its exposure to changes in interest rates through asset and liability management within guidelines established by its Funds Management Committee (FMC) and approved by the Company’s Board of Directors. The FMC is responsibilityresponsible for approving and ensuring compliance with asset/liability management policies, including interest rate exposure. The Company’s primary method for measuring and analyzing consolidated interest rate risk is the Net Interest Income Simulation Analysis. The Company also uses a Net Portfolio Value model to measure market value risk under various rate change scenarios and a gap analysis to measure maturity and repricing relationships between interest-earning assets and interest-bearing liabilities at specific points in time. The Company does not use hedges or swaps to manage interest rate risk except for limited use of futures contracts to offset interest rate risk on certain securities held in its trading portfolio.

 

Overall, the Company attempts to manage interest rate risk by positioning the balance sheet to maximize net interest income while maintaining an acceptable level of interest rate and credit risk, remaining mindful of the relationship among profitability, liquidity, interest rate risk and credit risk.

 

Net Interest Income Modeling

 

The Company’s primary interest rate risk tool, the Net Interest Income Simulation Analysis, measures interest rate risk and the effect of interest rate changes on net interest income and net interest margin. This analysis incorporates all of the Company’s assets and liabilities together with forecasted changes in the balance sheet and assumptions that reflect the current interest rate environment. Through these simulations, management estimates the impact on net interest income of a 300 basis point upward or a 100 basis point downward gradual change (e.g. ramp) of market interest rates over a one year period. Assumptions are made to project rates for new loans and deposits based on historical analysis, management outlook and repricing strategies. Asset prepayments and other market risks are developed from industry estimates of prepayment speeds and other market changes. The results of these simulations can be significantly influenced by assumptions utilized and management evaluates the sensitivity of the simulation results on a regular basis.

 

Table 15 shows the expected net interest income increase or decrease over the next twelve months as of December 31, 20102011 and 2009.2010.

 

Table 15

 

MARKET RISK(in thousands)

 

  Net Interest Income

   Net Interest Income

 

Rate Change in Basis Points


  December 31, 2010
Amount of
Change


   December 31, 2009
Amount of
Change


   December 31, 2011
Amount of
Change


   December 31, 2010
Amount of
Change


 

300

  $6,413    $(11,455  $20,555    $6,413  

200

   4,174     (7,224   12,176     4,174  

100

   1,873     (2,913   6,679     1,873  

Static

   —       —       —       —    

(100)

   N/A     N/A     N/A     N/A  

 

The Company is sensitive at December 31, 2010,2011, to increases in rates. Increases in interest rates are projected to cause increases in net interest income. A large portion of the Company’s assets and liabilities have reached a floor. Due to the already low interest rate environment, the Company did not include a 100 basis point falling scenario. There is little room for projected yields on liabilities to decrease. For projected increases in rates, net interest income is projected to increase due to the Company being positioned to adjust yields on assets with changes in market rates more than the cost of paying liabilities is projected to increase. Nevertheless, the Company is positioned in the current low rate environment to be

46


relatively neutral to further interest rate changes over the next twelve months.

If rates remain flat the Company will be exposed to the risk of asset yields continuing to decrease while deposit costs remain relatively flat.

Repricing Mismatch Analysis

 

The Company also evaluates its interest rate sensitivity position in an attempt to maintain a balance between the amount of interest-bearing assets and interest-bearing liabilities which are expected to mature or reprice at any point in time. While a traditional repricing mismatch analysis (gap analysis) provides a snapshot of interest rate risk, it does not take into consideration that assets and liabilities with similar repricing characteristics may not, in fact, reprice at the same time or the same degree. Also, it does not necessarily predict the impact of changes in general levels of interest rates on net interest income.

 

Management attempts to structure the balance sheet to provide for the repricing of approximately equal amounts of assets and liabilities within specific time intervals. Table 16 is a static gap analysis, which presents the Company’s assets and liabilities, based on their repricing or maturity characteristics. Table 17 presents the break-out of fixed and variable rate loans by repricing or maturity characteristics for each loan class.

 

Table 16

 

INTEREST RATE SENSITIVITY ANALYSIS(in millions)

 

December 31, 2009


 1-90
Days

 91-180
Days


 181-365
Days


 Total

 1-5
Years

 Over 5
Years


 Total

 

December 31, 2011


 1-90
Days

 91-180
Days


 181-365
Days


 Total

 1-5
Years

 Over 5
Years


 Total

 

Earning assets

  

Loans

 $2,636.0   $277.7   $432.8   $3,346.5   $1,191.8   $59.8   $4,598.1   $2,951.0   $309.9   $370.8   $3,631.7   $1,225.4   $113.5   $4,970.6  

Securities

  648.7    466.9    698.5    1,814.1    3,316.5    569.0    5,699.6    459.4    366.3    643.4    1,469.1    3,725.9    1,024.3    6,219.3  

Federal funds sold and resell agreements

  235.2    —      —      235.2    —      —      235.2    66.1    —      —      66.1    —      —      66.1  

Other

  796.8    48.8    23.4    869.0    22.1    —      891.1    1,123.2    60.8    22.0    1,206.0    16.1    —      1,222.1  
 


 


 


 


 


 


 


 


 


 


 


 


 


 


Total earning assets

 $4,316.7   $793.4   $1,154.7   $6,264.8   $4,530.4   $628.8   $11,424.0   $4,599.7   $737.0   $1,036.2   $6,372.9   $4,967.4   $1,137.8   $12,478.1  
 


 


 


 


 


 


 


 


 


 


 


 


 


 


% of total earning assets

  37.8  6.9  10.1  54.8  39.7  5.5  100.0  36.9  5.9  8.3  51.1  39.8  9.1  100.0
 


 


 


 


 


 


 


 


 


 


 


 


 


 


Funding sources

  

Interest-bearing demand and savings

 $762.7   $572.0   $1,144.1   $2,478.8   $160.6   $1,806.4   $4,445.8   $775.5   $591.2   $1,182.4   $2,549.1   $174.0   $1,957.0   $4,680.1  

Time deposits

  653.0    309.2    371.1    1,333.3    351.8    9.0    1,694.1    631.3    283.2    283.5    1,198.0    340.3    10.1    1,548.4  

Federal funds purchased and repurchase agreements

  2,084.3    —      —      2,084.3    —      —      2,084.3    1,950.8    —      —      1,950.8    —      —      1,950.8  

Borrowed funds

  44.1    —      —      44.1    —      —      44.1    18.5    —      —      18.5    —      —      18.5  

Noninterest-bearing sources

  1,587.2    38.0    69.1    1,694.3    389.4    1,072.0    3,155.7    2,378.7    58.9    106.2    2,543.8    595.3    1,141.2    4,280.3  
 


 


 


 


 


 


 


 


 


 


 


 


 


 


Total funding sources

 $5,131.3   $919.2   $1,584.3   $7,634.8   $901.8   $2,887.4   $11,424.0   $5,754.8   $933.3   $1,572.1   $8,260.2   $1,109.6   $3,108.3   $12,478.1  
 


 


 


 


 


 


 


 


 


 


 


 


 


 


% of total earning assets

  44.9  8.0  13.9  66.8  7.9  25.2  100.0  46.1  7.5  12.6  66.2  8.9  24.9  100.0

Interest sensitivity gap

 $(814.6 $(125.8 $(429.6 $(1,370.0 $3,628.6   $(2,258.6  $(1,155.1 $(196.3 $(535.9 $(1,887.3 $3,857.8   $(1,970.5 

Cumulative gap

  (814.6  (940.4  (1,370.0  (1,370.0  2,258.6    —       (1,155.1  (1,351.4  (1,887.3  (1,887.3  1,970.5    —     

As a % of total earning assets

  (7.1)%   (8.2)%   (12.0)%   (12.0)%   19.8  —       (9.2)%   (10.8  (15.1  (15.1  15.8    —     

Ratio of earning assets to funding sources

  0.84    0.86    0.73    0.82    5.02    0.22     0.80    0.79    0.66    0.77    4.48    0.37   
 


 


 


 


 


 


  


 


 


 


 


 


 

Cumulative ratio of Earning Assets 2010

  0.84    0.84    0.82    0.82    1.26    1.00   

to Funding Sources 2009

  0.98    1.02    0.99    0.99    1.34    1.00   

Cumulative ratio of Earning Assets 2011

  0.80    0.80    0.77    0.77    1.21    1.00   

to Funding Sources 2010

  0.84    0.84    0.82    0.82    1.26    1.00   
 


 


 


 


 


 


  


 


 


 


 


 


 

47


Table 17

Maturities and Sensitivities to Changes in Interest Rates

This table details loan maturities by variable and fixed rates as of December 31, 2011 (in thousands):

   Due in one
year or less


   Due after one year
through five years


   Due after
five years


   Total

 

Variable Rate

                    

Commercial

  $1,546,087    $21,972    $390    $1,568,449  

Commercial – Credit Card

   95,339     —       —       95,339  

Real Estate – Construction

   35,404     492     —       35,896  

Real Estate – Commercial

   299,514     102,279     7     401,800  

Real Estate – Residential

   43,850     32,140     2,630     78,620  

Real Estate – HELOC

   2,587     —       —       2,587  

Consumer – Credit Card

   333,646     —       —       333,646  

Consumer – Other

   16,571     17     350     16,938  

Leases

   3,834     —       —       3,834  
   


  


  


  


Total variable rate loans

   2,376,832     156,900     3,377     2,537,109  

Fixed Rate

                    

Commercial

  $290,122    $347,512    $28,734    $666,368  

Commercial – Credit Card

   —       —       —       —    

Real Estate – Construction

   17,721     20,789     10,184     48,694  

Real Estate – Commercial

   380,721     547,921     64,113     992,755  

Real Estate – Residential

   50,427     61,137     5,917     117,481  

Real Estate – HELOC

   451,992     77,335     1,117     530,444  

Consumer – Credit Card

   —       —       —       —    

Consumer – Other

   63,880     13,772     55     77,707  

Leases

   —       —       —       —    
   


  


  


  


Total fixed rate loans

   1,254,863     1,068,466     110,120     2,433,449  
   


  


  


  


Total loans and loans held for sale

  $3,631,695    $1,225,366    $113,497    $4,970,558  
   


  


  


  


 

Trading Account

 

The Company’s subsidiary, UMB Bank, n.a. carries taxable governmental securities in a trading account that is maintained according to Board-approved policy and procedures. The policy limits the amount and type of securities that can be carried in the trading account and requires compliance with any limits under applicable law

and regulations, and mandates the use of a value-at-risk methodology to manage price volatility risks within financial parameters. The risk associated with the carrying of trading securities is offset by the sale of exchange-traded financial futures contracts, with both the trading account and futures contracts are marked to market daily.

 

This account had a balance of $58.1 million as of December 31, 2011, compared to $42.5 million as of December 31, 2010, compared to $38.2 million as of December 31, 2009.2010.

 

Management presents documentation of the methodology used in determining value at risk at least annually to the Board for approval in compliance with OCC Banking Circular 277, Risk Management of Financial Derivatives, and other banking laws and regulations. The aggregate value at risk is reviewed quarterly.

 

Other Market Risk

 

The Company does not have material commodity price risks or derivative risks.

 

48


Credit Risk

 

Credit risk represents the risk that a customer or counterparty may not perform in accordance with contractual terms. The Company utilizes a centralized credit administration function, which provides information on affiliate bank risk levels, delinquencies, an internal ranking system and overall credit exposure. Loan requests are centrally reviewed to ensure the consistent application of the loan policy and standards. In addition, the Company has an internal loan review staff that operates independently of the affiliate banks. This review team performs periodic examinations of each bank’s loans for credit quality, documentation and loan administration. The respective regulatory authority of each affiliate bank also reviews loan portfolios.

 

Another means of ensuring loan quality is diversification of the portfolio. By keeping its loan portfolio diversified, the Company has avoided problems associated with undue concentrations of loans within particular industries. Commercial real estate loans comprise only 28.228.1 percent of total loans at December 31, 2010,2011, with no history of significant losses. The Company has no significant exposure to highly-leveraged transactions and has no foreign credits in its loan portfolio.

 

The allowance for loan losses (ALL) is discussed on pages 2927 and 30.28. Also, please see Table 4 for a five-year analysis of the ALL. The adequacy of the ALL is reviewed quarterly, considering such items as historical loss trends including a migration analysis, a review of individual loans, current economic conditions, loan growth and characteristics, industry or segment concentration and other factors. A primary indicator of credit quality and risk management is the level of nonperformingnon-performing loans. NonperformingNon-performing loans include both nonaccrual loans and restructured loans. The Company’s nonperformingnon-performing loans increased $1.9$0.4 million from December 31, 2009,2010, and increased $14.4$2.3 million compared to December 31, 2008. The increase from 2009 compared to 2008 is related to the downgrade of a large syndicated credit combined with the general effects of the continued downturn in the economy.2009. While the Company plans to increase its loan portfolio, management does not intend to compromise the Company’s high credit standards as it grows its loan portfolio. The impact of future loan growth on the allowance for loan losses is uncertain as it is dependent on many factors including asset quality and changes in the overall economy.

 

The Company had $4.4$6.0 million in other real estate owned as of December 31, 2010.2011. There was $5.2$4.4 million of other real estate owned at December 31, 2009.2010. Loans past due more than 90 days totaled $6.0 million at December 31, 2011, compared to $5.5 million at December 31, 2010, compared to $8.3 million at December 31, 2009.2010.

 

A loan is generally placed on nonaccrual status when payments are past due 90 days or more and/or when management has considerable doubt about the borrower’s ability to repay on the terms originally contracted. The accrual of interest is discontinued and recorded thereafter only when actually received in cash.

Certain loans are restructured to provide a reduction or deferral of interest or principal due to deterioration in the financial condition of the respective borrowers. The Company had $0.2$2.9 million of restructured loans at December 31, 2010,2011, and $2.0$0.2 million at December 31, 2009.2010.

 

49


Table 1718 summarizes the various aspects of credit quality discussed above.

 

Table 1718

 

LOAN QUALITY(in thousands)

 

  December 31

   December 31

 
  2010

 2009

 2008

 2007

 2006

   2011

 2010

 2009

 2008

 2007

 

Nonaccrual loans

  $24,925   $21,263   $8,675   $6,437   $6,539    $22,650   $24,925   $21,263   $8,675   $6,437  

Restructured loans

   217    2,000    141    144    24  

Restructured loans on nonaccrual

   2,931    217    2,000    141    144  
  


 


 


 


 


  


 


 


 


 


Total nonperforming loans

   25,142    23,263    8,816    6,581    6,563  

Total non-performing loans

   25,581    25,142    23,263    8,816    6,581  

Other real estate owned

   4,387    5,203    1,558    1,151    317     5,959    4,387    5,203    1,558    1,151  
  


 


 


 


 


  


 


 


 


 


Total nonperforming assets

  $29,529   $28,466   $10,374   $7,732   $6,880  

Total non-performing assets

  $31,540   $29,529   $28,466   $10,374   $7,732  
  


 


 


 


 


  


 


 


 


 


Loans past due 90 days or more

  $5,480   $8,319   $6,923   $2,922   $4,034    $5,998   $5,480   $8,319   $6,923   $2,922  

Restructured loans accruing

   3,089    —      —      —      —    

Allowance for loans losses

   73,952    64,139    52,297    45,986    44,926     72,017    73,952    64,139    52,297    45,986  
  


 


 


 


 


Ratios

      

Nonperforming loans as a % of loans

   0.55  0.54  0.20  0.17  0.17

Nonperforming assets as a % of loans plus other real estate owned

   0.64    0.66    0.24    0.20    0.18  

Nonperforming assets as a % of total assets

   0.24    0.24    0.09    0.08    0.08  

Non-performing loans as a % of loans

   0.52  0.55  0.54  0.20  0.17

Non-performing assets as a % of loans plus other real estate owned

   0.64    0.64    0.66    0.24    0.20  

Non-performing assets as a % of total assets

   0.23    0.24    0.24    0.09    0.08  

Loans past due 90 days or more as a % of loans

   0.12    0.18    0.16    0.07    0.11     0.12    0.12    0.18    0.16    0.07  

Allowance for Loan Losses as a % of loans

   1.61��   1.48    1.19    1.17    1.20     1.45    1.61    1.48    1.19    1.17  

Allowance for Loan Losses as a multiple of nonperforming loans

   2.94  2.76  5.93  6.99  6.85

Allowance for Loan Losses as a multiple of non-performing loans

   2.82  2.94  2.76  5.93  6.99

 

Liquidity Risk

 

Liquidity represents the Company’s ability to meet financial commitments through the maturity and sale of existing assets or availability of additional funds. The Company believes that the most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable supply of core deposits and wholesale funds. Ultimately, public confidence is generated through profitable operations, sound credit quality and a strong capital position. The primary source of liquidity for the Company is regularly scheduled payments on and maturity of assets, which include $5.6$6.1 billion of high-quality securities available for sale. The liquidity of the Company and its affiliate banks is also enhanced by its activity in the federal funds market and by its core deposits.

 

Another factor affecting liquidity is the amount of deposits and customer repurchase agreements that have pledging requirements. All customer repurchase agreements require collateral in the form of a security. The U.S. Government, other public entities, and certain trust depositors require the Company to pledge securities if their deposit balances are greater than the FDIC-insured deposit limitations. These pledging requirements affect liquidity risk in that the related security cannot otherwise be disposed due to the pledging restriction. At December 31, 2010,2011, approximately 82.489.1 percent of the securities available-for-sale were pledged or used as collateral; compared to 86.582.4 percent at December 31, 2009.2010.

 

Neither the Company nor its subsidiaries are active in the debt market. The traditional funding source for the Company’s subsidiary banks has been core deposits. The Company has not issued any debt since 1993, when $15 million of medium-term notes were issued to fund bank acquisitions. Prior to being paid off in February 2003, these notes were rated A3 by Moody’s Investor Service and A- by Standard and Poor’s.

The Company also has other commercial commitments that may impact liquidity. These commitments include unused commitments to extend credit, standby letters of credit, and commercial letters of credit. The total amount of these commercial commitments at December 31, 2010,2011, was $4.0$4.6 billion. The Company believes that since many of these commitments expire without being drawn upon, the total amount of these commercial commitments does not necessarily represent the future cash requirements of the Company.

 

50


The Company’s cash requirements consist primarily of dividends to shareholders, debt service, operating expenses, and treasury stock purchases. Management fees and dividends received from subsidiary banks traditionally have been sufficient to satisfy these requirements and are expected to be sufficient in the future. The Company’s subsidiary banks are subject to various rules regarding payment of dividends to the Company. For the most part, all banks can pay dividends at least equal to their current year’s earnings without seeking prior regulatory approval. From time to time, approvals have been requested to allow a subsidiary bank to pay a dividend in excess of its current earnings. All such requests have been approved.

 

To enhance general working capital needs, the Company has a revolving line of credit with Wells Fargo, N.A. which allows the Company to borrow up to $25.0 million for general working capital purposes. The interest rate applied to borrowed balances will be at the Company’s option either 1.00 percent above LIBOR or 1.75 percent below Prime on the date of an advance. The Company will also pay a 0.2 percent unused commitment fee for unused portions of the line of credit. As shown above, the Company had a $10.0 million advance outstanding at December 31, 2011 with an interest rate of 1.25 percent and a maturity of January, 2012.

Operational Risk

 

The Company is exposed to numerous types of operational risk. Operational risk generally refers to the risk of loss resulting from the Company’s operations, including, but not limited to the risk of fraud by employees or persons outside the Company, the execution of unauthorized transactions by employees or others, errors relating to transaction processing and systems, and breaches of the internal control system and compliance requirements. This risk of loss also includes the potential legal or regulatory actions that could arise as a result of an operational deficiency, or as a result of noncompliance with applicable regulatory standards. Included in the legal and regulatory issues with which the Company must comply are a number of rules resulting from the enactment of the Sarbanes-Oxley Act of 2002.

 

The Company operates in many markets and places reliance on the ability of its employees and systems to properly process a high number of transactions. In the event of a breakdown in the internal control systems, improper operation of systems or improper employee actions, the Company could suffer financial loss, face regulatory action and suffer damage to its reputation. In order to address this risk, management maintains a system of internal controls with the objective of providing proper transaction authorization and execution, safeguarding of assets from misuse or theft, and ensuring the reliability of financial and other data.

 

The Company maintains systems of controls that provide management with timely and accurate information about the Company’s operations. These systems have been designed to manage operational risk at appropriate levels given the Company’s financial strength, the environment in which it operates, and considering factors such as competition and regulation. The Company has also established procedures that are designed to ensure that policies relating to conduct, ethics and business practices are followed on a uniform basis. In certain cases, the Company has experienced losses from operational risk. Such losses have included the effects of operational errors that the Company has discovered and included as expense in the statement of income. While there can be no assurance that the Company will not suffer such losses in the future, management continually monitors and works to improve its internal controls, systems and corporate-wide processes and procedures.

51


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of

UMB Financial Corporation and Subsidiaries

Kansas City, Missouri

 

We have audited the accompanying consolidated balance sheetsstatements of financial condition of UMB Financial Corporation and subsidiaries (the “Company”) as of December 31, 20102011 and 2009,2010, and the related consolidated statements of income, shareholders’stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2010.2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of UMB Financial Corporation and subsidiaries as of December 31, 20102011 and 2009,2010, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 2010,2011, in conformity with accounting principles generally accepted in the United States of America.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010,2011, based on the criteria established inInternal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 201128, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

/s/ Deloitte & Touche LLP

 

Kansas City, Missouri

February 23, 201128, 2012

52


CONSOLIDATED BALANCE SHEETS

UMB FINANCIAL CORPORATION AND SUBSIDIARIES

(in thousands, except share data)

 

  December 31

   December 31

 
  2010

 2009

   2011

 2010

 

ASSETS

      

Loans

  $4,583,683   $4,314,705    $4,960,343   $4,583,683  

Allowance for loan losses

   (73,952  (64,139   (72,017  (73,952
  


 


  


 


Net loans

   4,509,731    4,250,566     4,888,326    4,509,731  

Loans held for sale

   14,414    17,523     10,215    14,414  

Investment securities:

      

Available for sale

   5,613,047    4,885,788     6,107,882    5,613,047  

Held to maturity (market value of $68,752 and $58,366, respectively)

   63,566    56,986  

Held to maturity (market value of $102,287 and $68,752, respectively)

   89,246    63,566  

Trading

   42,480    38,214     58,142    42,480  

Federal Reserve Bank stock and other

   23,011    22,732     22,212    23,011  
  


 


  


 


Total investment securities

   5,742,104    5,003,720     6,277,482    5,742,104  

Federal funds sold and securities purchased under agreements to resell

   235,176    329,765     66,078    235,176  

Interest-bearing due from banks

   848,598    1,057,195     1,164,007    848,598  

Cash and due from banks

   356,092    458,093     446,580    356,092  

Bank premises and equipment, net

   219,727    217,642     227,936    219,727  

Accrued income

   76,653    64,949     75,997    76,653  

Goodwill

   211,114    131,356     211,114    211,114  

Other intangibles

   92,297    47,462     84,331    92,297  

Other assets

   99,026    85,084     89,332    99,026  
  


 


  


 


Total assets

  $12,404,932   $11,663,355    $13,541,398   $12,404,932  
  


 


  


 


LIABILITIES

      

Deposits:

      

Noninterest-bearing demand

  $2,888,881   $2,775,222    $3,941,372   $2,888,881  

Interest-bearing demand and savings

   4,445,798    3,904,268     4,680,125    4,445,798  

Time deposits under $100,000

   693,600    772,040     615,475    693,600  

Time deposits of $100,000 or more

   1,000,462    1,082,958     932,939    1,000,462  
  


 


  


 


Total deposits

   9,028,741    8,534,488     10,169,911    9,028,741  

Federal funds purchased and repurchase agreements

   2,084,342    1,927,607     1,950,827    2,084,342  

Short-term debt

   35,220    29,514     12,000    35,220  

Long-term debt

   8,884    25,458     6,529    8,884  

Accrued expenses and taxes

   145,458    107,896     186,380    145,458  

Other liabilities

   41,427    22,841     24,619    41,427  
  


 


  


 


Total liabilities

   11,344,072    10,647,804     12,350,266    11,344,072  
  


 


  


 


SHAREHOLDERS’ EQUITY

      

Common stock, $1.00 par value; 80,000,000 shares authorized, 55,056,730 shares issued and 40,430,081 and 40,439,607 shares outstanding, respectively

   55,057    55,057  

Common stock, $1.00 par value; 80,000,000 shares authorized, 55,056,730 shares issued and 40,426,342 and 40,430,081 shares outstanding, respectively

   55,057    55,057  

Capital surplus

   718,306    712,774     723,299    718,306  

Retained earnings

   623,415    562,748     697,923    623,415  

Accumulated other comprehensive income

   25,465    40,454     81,099    25,465  

Treasury stock, 14,626,649 and 14,617,123 shares, at cost, respectively

   (361,383  (355,482

Treasury stock, 14,630,388 and 14,626,649 shares, at cost, respectively

   (366,246  (361,383
  


 


  


 


Total shareholders’ equity

   1,060,860    1,015,551     1,191,132    1,060,860  
  


 


  


 


Total liabilities and shareholders’ equity

  $12,404,932   $11,663,355    $13,541,398   $12,404,932  
  


 


  


 


 

See Notes to Consolidated Financial Statements.

53


CONSOLIDATED STATEMENTS OF INCOME

UMB FINANCIAL CORPORATION AND SUBSIDIARIES

(in thousands, except share and per share data)

 

  Year Ended December 31

   Year Ended December 31

 
  2010

   2009

   2008

   2011

   2010

   2009

 

INTEREST INCOME

                  

Loans

  $221,797    $215,305    $241,727    $219,076    $221,797    $215,305  

Securities:

                  

Available for sale—taxable interest

   90,409     106,474     110,379     85,120     90,409     106,474  

Available for sale—tax exempt interest

   27,998     28,201     25,380     33,079     27,998     28,201  

Held to maturity—taxable interest

   —       —       —    

Held to maturity—tax exempt interest

   1,499     1,175     866     1,687     1,499     1,175  
  


  


  


  


  


  


Total securities income

   119,906     135,850     136,625     119,886     119,906     135,850  
  


  


  


  


  


  


Federal funds sold and resell agreements

   159     263     7,799     102     159     263  

Interest-bearing due from banks

   3,914     4,078     441     3,284     3,914     4,078  

Trading securities

   731     721     1,381     1,305     731     721  
  


  


  


  


  


  


Total interest income

   346,507     356,217     387,973     343,653     346,507     356,217  
  


  


  


��  


  


  


INTEREST EXPENSE

                  

Deposits

   33,447     49,919     89,744     24,628     33,447     49,919  

Federal funds purchased and repurchase agreements

   2,017     2,001     21,306     1,712     2,017     2,001  

Other

   430     1,312     1,872     340     430     1,312  
  


  


  


  


  


  


Total interest expense

   35,894     53,232     112,922     26,680     35,894     53,232  
  


  


  


  


  


  


Net interest income

   310,613     302,985     275,051     316,973     310,613     302,985  

Provision for loan losses

   31,510     32,100     17,850     22,200     31,510     32,100  
  


  


  


  


  


  


Net interest income after provision for loan losses

   279,103     270,885     257,201     294,773     279,103     270,885  
  


  


  


  


  


  


NONINTEREST INCOME

                  

Trust and securities processing

   160,356     120,544     122,255     208,392     160,356     120,544  

Trading and investment banking

   29,211     26,587     19,636     27,720     29,211     26,587  

Service charges on deposit accounts

   77,617     83,392     85,064     74,659     77,617     83,392  

Insurance fees and commissions

   5,565     4,800     4,564     4,375     5,565     4,800  

Brokerage fees

   6,345     7,172     8,660     9,950     6,345     7,172  

Bankcard fees

   54,804     45,321     43,348     59,767     54,804     45,321  

Gain on sale of securities transfer, net

   —       —       1,090  

Gains on sales of securities available for sale, net

   8,315     9,737     3,334     16,125     8,315     9,737  

Gain on mandatory redemption of Visa, Inc. class B common stock

   —       —       8,875  

Other

   18,157     12,623     15,957     13,344     18,157     12,623  
  


  


  


  


  


  


Total noninterest income

   360,370     310,176     312,783     414,332     360,370     310,176  
  


  


  


  


  


  


NONINTEREST EXPENSE

                  

Salaries and employee benefits

   267,213     240,819     227,938     294,756     267,213     240,819  

Occupancy, net

   36,251     34,760     32,472     38,406     36,251     34,760  

Equipment

   44,934     47,645     53,044     42,728     44,934     47,645  

Supplies and services

   18,841     20,237     24,221     22,166     18,841     20,237  

Marketing and business development

   18,348     15,446     19,431     20,150     18,348     15,446  

Processing fees

   45,502     35,465     32,742     49,985     45,502     35,465  

Legal and consulting

   14,046     10,254     8,214     15,601     14,046     10,254  

Bankcard

   16,714     14,251     11,537     15,600     16,714     14,251  

Amortization of other intangible assets

   11,142     6,169     3,105     16,100     11,142     6,169  

Regulatory fees

   13,448     15,675     2,735     10,395     13,448     15,675  

Covered litigation provision

   —       —       (4,023

Class action litigation settlement

   7,800     —       —    

Other

   26,183     19,864     18,737     29,059     26,183     19,864  
  


  


  


  


  


  


Total noninterest expense

   512,622     460,585     430,153     562,746     512,622     460,585  
  


  


  


  


  


  


Income before income taxes

   126,851     120,476     139,831     146,359     126,851     120,476  

Income tax expense

   35,849     30,992     41,756     39,887     35,849     30,992  
  


  


  


  


  


  


Net income

  $91,002    $89,484    $98,075    $106,472    $91,002    $89,484  
  


  


  


  


  


  


PER SHARE DATA

                  

Net income—basic

  $2.27    $2.22    $2.41    $2.66    $2.27    $2.22  

Net income—diluted

   2.26     2.20     2.38     2.64     2.26     2.20  

Weighted average shares outstanding

   40,071,751     40,324,437     40,739,240     40,034,435     40,071,751     40,324,437  

 

See Notes to Consolidated Financial Statements.

54


STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY

UMB FINANCIAL CORPORATION AND SUBSIDIARIES

(dollars in thousands, except per share data)

 

  Common
Stock


   Capital
Surplus


 Retained
Earnings


 Accumulated
Other
Comprehensive
Income (Loss)


 Treasury
Stock


 Total

   Common
Stock


   Capital
Surplus


 Retained
Earnings


 Accumulated
Other
Comprehensive
Income (Loss)


 Treasury
Stock


 Total

 

Balance January 1, 2008

  $55,057    $702,914   $430,824   $12,246   $(310,467 $890,574  

Balance January 1, 2009

  $55,057    $707,812   $502,073   $41,105   $(331,236 $974,811  
       —    

Net income

   —       —      98,075    —      —      98,075     —       —      89,484    —      —      89,484  

Change in net unrealized gains on securities

   —       —      —      28,859    —      28,859  

Change in net unrealized gains on securities, net of tax

   —       —      —      (651  —      (651
  


  


 


 


 


 


  


  


 


 


 


 


Total comprehensive income

       126,934         88,833  

Cash dividends ($0.655 per share)

   —       —      (26,826  —      —      (26,826

Purchase of treasury stock

   —       —      —      —      (23,406  (23,406

Issuance of equity awards

   —       (899  —      —      1,039    140  

Recognition of equity based compensation

   —       4,212    —      —      —      4,212  

Net tax benefit related to equity compensation

   —       367    —      —      367  

Sale of treasury stock

   —       392    —      —      170    562  

Exercise of stock options

   —       826    —      —      1,428    2,254  
  


  


 


 


 


 


Balance December 31, 2008

  $55,057    $707,812   $502,073   $41,105   $(331,236 $974,811  
  


  


 


 


 


 


Net income

   —       —      89,484    —      —      89,484  

Change in net unrealized gains on securities

   —       —      —      (651  —      (651
  


  


 


 


 


 


Total comprehensive income

       88,833  

Cash Dividends ($0.710 per share)

   —       —      (28,809  —      —      (28,809

Cash Dividends ($0.71 per share)

   —       —      (28,809  —      —      (28,809

Purchase of treasury stock

   —       —      —      —      (26,894  (26,894   —       —      —      —      (26,894  (26,894

Issuance of equity awards

   —       (1,457  —      —      1,589    132     —       (1,457  —      —      1,589    132  

Recognition of equity based compensation

   —       5,313    —      —      —      5,313     —       5,313    —      —      —      5,313  

Net tax benefit related to equity compensation plans

   —       191    —      —      —      191     —       191    —      —      —      191  

Sale of treasury stock

   —       419    —      —      215    634     —       419    —      —      215    634  

Exercise of stock options

   —       496    —      —      844    1,340     —       496    —      —      844    1,340  
  


  


 


 


 


 


  


  


 


 


 


 


Balance December 31, 2009

  $55,057    $712,774   $562,748   $40,454   $(355,482 $1,015,551    $55,057    $712,774   $562,748   $40,454   $(355,482 $1,015,551  
  


  


 


 


 


 


  


  


 


 


 


 


Net income

   —       —      91,002    —      —      91,002     —       —      91,002    —      —      91,002  

Change in net unrealized gains on securities

   —       —      —      (14,989  —      (14,989

Change in net unrealized gains on securities, net of tax

   —       —      —      (14,989  —      (14,989
  


  


 


 


 


 


  


  


 


 


 


 


Total comprehensive income

       76,013         76,013  

Cash Dividends ($0.75 per share)

   —       —      (30,335  —      —      (30,335   —       —      (30,335  —      —      (30,335

Purchase of treasury stock

   —       —      —      —      (8,879  (8,879   —       —      —      —      (8,879  (8,879

Issuance of equity awards

   —       (1,673  —      —      1,798    125     —       (1,673  —      —      1,798    125  

Recognition of equity based compensation

   —       5,953    —      —      —      5,953     —       5,953    —      —      —      5,953  

Net tax benefit related to equity compensation plans

   —       152    —      —      —      152     —       152    —      —      —      152  

Sale of treasury stock

   —       540    —      —      298    838     —       540    —      —      298    838  

Exercise of stock options

   —       560    —      —      882    1,442     —       560    —      —      882    1,442  
  


  


 


 


 


 


  


  


 


 


 


 


Balance December 31, 2010

  $55,057    $718,306   $623,415   $25,465   $(361,383 $1,060,860    $55,057    $718,306   $623,415   $25,465   $(361,383 $1,060,860  
  


  


 


 


 


 


  


  


 


 


 


 


Net income

   —       —      106,472    —      —      106,472  

Change in net unrealized gains on securities, net of tax

   —       —      —      55,634    —      55,634  
  


  


 


 


 


 


Total comprehensive income

       162,106  

Cash Dividends ($0.79 per share)

   —       —      (31,964  —      —      (31,964

Purchase of treasury stock

   —       —      —      —      (9,142  (9,142

Issuance of equity awards

   —       (2,244  —      —      2,484    240  

Recognition of equity based compensation

   —       6,510    —      —      —      6,510  

Net tax benefit related to equity compensation plans

   —       79    —      —      —      79  

Sale of treasury stock

   —       295    —      —      315    610  

Exercise of stock options

   —       353    —      —      1,480    1,833  
  


  


 


 


 


 


Balance December 31, 2011

  $55,057    $723,299   $697,923   $81,099   $(366,246 $1,191,132  
  


  


 


 


 


 


 

See Notes to Consolidated Financial Statements

55


CONSOLIDATED STATEMENTS OF CASH FLOWS

UMB FINANCIAL CORPORATION AND SUBSIDIARIES

(in thousands)

 

  Year Ended December 31

   Year Ended December 31

 
  2010

 2009

 2008

   2011

 2010

 2009

 

OPERATING ACTIVITIES

      

Net income

  $91,002   $89,484   $98,075    $106,472   $91,002   $89,484  

Adjustments to reconcile net income to net cash provided by operating activities:

      

Provision for loan losses

   31,510    32,100    17,850     22,200    31,510    32,100  

Depreciation and amortization

   39,376    38,107    37,729     42,931    39,376    38,107  

Deferred income tax benefit

   (13,226  (5,966  (5,023   (197  (13,226  (5,966

Net (increase) decrease in trading securities and other earning assets

   (4,266  266    5,403     (15,662  (4,266  266  

Gains on sales of securities available for sale

   (8,315  (9,737  (3,334   (16,125  (8,315  (9,737

(Gains) losses on sales of assets

   (368  458    567  

Losses (gains) on sales of assets

   175    (368  458  

Amortization of securities premiums, net of discount accretion

   32,088    25,712    3,425     44,909    32,088    25,712  

Originations of loans held for sale

   (217,965  (248,670  (133,229   (204,099  (217,965  (248,670

Net gains on sales of loans held for sale

   (1,379  (1,587  (726   (1,598  (1,379  (1,587

Proceeds from sales of loans held for sale

   222,453    254,620    124,309     209,896    222,453    254,620  

Issuance of equity awards

   125    132    140     240    125    132  

Equity based compensation

   5,953    5,313    4,212     6,510    5,953    5,313  

Changes in:

      

Accrued income

   (11,704  (436  (1,598   656    (11,704  (436

Accrued expenses and taxes

   246    3,996    (3,669   16,990    246    3,996  

Other assets and liabilities, net

   14,464    (37,102  (10,100   (255  14,464    (37,102
  


 


 


  


 


 


Net cash provided by operating activities

   179,994    146,690    134,031     213,043    179,994    146,690  
  


 


 


  


 


 


INVESTING ACTIVITIES

      

Proceeds from maturities of securities held to maturity

   9,574    7,922    15,984     8,814    9,574    7,922  

Proceeds from sales of securities available for sale

   649,083    198,953    110,339     1,012,068    649,083    198,953  

Proceeds from maturities of securities available for sale

   1,994,810    3,141,929    3,173,015     1,561,960    1,994,810    3,141,929  

Purchases of securities held to maturity

   (16,193  (18,105  (30,657   (34,788  (16,193  (18,105

Purchases of securities available for sale

   (3,421,255  (3,421,837  (4,649,962   (3,008,900  (3,421,255  (3,421,837

Net (increase) decrease in loans

   (215,442  66,276    (427,693   (407,232  (215,442  66,276  

Net decrease (increase) in fed funds sold and resell agreements

   94,589    (94,673  476,920     169,098    94,589    (94,673

Net decrease ( increase) in interest bearing balances due from other financial institutions

   114,570    (174,405  (70,943

Net decrease (increase) in interest bearing balances due from other financial institutions

   20,117    114,570    (174,405

Purchases of bank premises and equipment

   (32,592  (23,426  (20,637   (35,557  (32,592  (23,426

Net cash paid for acquisitions

   (159,154  (48,451  (47,100   (8,134  (159,154  (48,451

Proceeds from sales of bank premises and equipment

   2,793    2,165    712     182    2,793    2,165  
  


 


 


  


 


 


Net cash used in investing activities

   (979,217  (363,652  (1,470,022   (722,372  (979,217  (363,652
  


 


 


  


 


 


FINANCING ACTIVITIES

      

Net increase in demand and savings deposits

   655,039    415,784    1,151,514     1,286,818    655,039    415,784  

Net (decrease) increase in time deposits

   (160,936  393,291    (62,078   (145,648  (160,936  393,291  

Net increase (decrease) in fed funds purchased and repurchase agreements

   156,735    (199,746  392,604  

Net (decrease) increase in fed funds purchased and repurchase agreements

   (133,515  156,735    (199,746

Net change in short-term debt

   4,548    13,707    (17,946   (22,020  4,548    13,707  

Proceeds from long-term debt

   —      2,000    4,200     500    —      2,000  

Repayment of long-term debt

   (15,416  (12,467  (4,307   (4,055  (15,416  (12,467

Payment of contingent consideration on acquisitions

   (8,316  —      —    

Cash dividends paid

   (30,328  (28,792  (26,814   (31,801  (30,328  (28,792

Net tax benefit related to equity compensation plans

   152    191    367     79    152    191  

Proceeds from exercise of stock options and sales of treasury shares

   2,280    1,974    2,816     2,443    2,280    1,974  

Purchases of treasury stock

   (8,879  (26,894  (23,406   (9,142  (8,879  (26,894
  


 


 


  


 


 


Net cash provided by financing activities

   603,195    559,048    1,416,950     935,343    603,195    559,048  
  


 


 


  


 


 


(Decrease) increase in cash and due from banks

   (196,028  342,086    80,959  

Increase (decrease) in cash and due from banks

   426,014    (196,028  342,086  

Cash and due from banks at beginning of year

   1,229,645    887,559    806,600     1,033,617    1,229,645    887,559  
  


 


 


  


 


 


Cash and due from banks at end of year

  $1,033,617   $1,229,645   $887,559    $1,459,631   $1,033,617   $1,229,645  
  


 


 


  


 


 


Supplemental disclosures:

      

Income taxes paid

  $48,116   $35,202   $45,516    $41,041   $48,116   $35,202  

Total interest paid

   40,128    53,521    122,873     28,148    40,128    53,521  

 

See Notes to Consolidated Financial Statements.

56


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.  SUMMARY OF ACCOUNTING POLICIES

 

UMB Financial Corporation (the Company) is a multi-bank holding company, which offers a wide range of banking and other financial services to its customers through its branches and offices in the states of Missouri, Kansas, Colorado, Illinois, Oklahoma, Arizona, Nebraska, Pennsylvania, South Dakota, Indiana, Wisconsin, Utah, New Jersey, and Massachusetts. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also impact reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Following is a summary of the more significant accounting policies to assist the reader in understanding the financial presentation.

 

Consolidation

 

The Company and its wholly owned subsidiaries are included in the consolidated financial statements (references hereinafter to the “Company” in these Notes to Consolidated Financial Statements include wholly owned subsidiaries). Intercompany accounts and transactions have been eliminated.

 

Revenue Recognition

 

Interest on loans and securities is recognized based on rate times the principal amount outstanding. This includes the impact of amortization of premiums and discounts. Interest accrual is discontinued when, in the opinion of management, the likelihood of collection becomes doubtful. Other noninterest income is recognized as services are performed or revenue-generating transactions are executed.

 

Cash and Due From Banks

 

Cash on hand, cash items in the process of collection, and amounts due from correspondent banks are included in cash and due from banks.

 

Interest-bearing Due From Banks

 

Amounts due from the Federal Reserve Bank which are interest-bearing for all periods presented, and amounts due from certificates of deposits held at other financial institutions are included in interest-bearing due from banks. The amount due from the Federal Reserve Bank totaled $677.5$1,031.1 million and $771.6$677.5 million at December 31, 20102011 and 2009,2010, respectively, and is considered cash and cash equivalents. The amounts due from certificates of deposit totaled $171.1$151.0 million and $285.6$171.1 million at December 31, 20102011 and 2009,2010, respectively.

 

This table provides a summary of cash and due from banks as presented on the Consolidated Statement of Cash Flows as of December 31, 20102011 and 20092010 (in thousands)::

 

  Year Ended December 31

   Year Ended December 31

 
  2010

   2009

   2011

   2010

 

Due from the Federal Reserve

  $677,525    $771,552    $1,013,051    $677,525  

Cash and due from banks

   356,092     458,093     446,580     356,092  
  


  


  


  


Cash and due from banks at end of year

  $1,033,617    $1,229,645    $1,459,631    $1,033,617  
  


  


  


  


 

57


Loans and Loans Held for Sale

 

Loans are classified by the portfolio segments of commercial, real estate, consumer, and leases. The portfolio segments are further disaggregated into the loan classes of commercial, commercial credit card, real estate—construction, real estate—commercial, real estate—residential, real estate—HELOC, consumer—credit card, consumer—other, and leases.

A loan is considered to be impaired when management believes it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan. If a loan is impaired, the Company records a loss valuation allowance equal to the carrying amount of the loan in excess of the present value of the estimated future cash flows discounted at the loan’s effective rate, based on the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.

 

A loan is accounted for as a troubled debt restructuring when a concession had been granted to a debtor experiencing financial difficulties. The Company’s modifications generally include interest rate adjustments, and amortization and maturity date extensions. These modifications allow the debtor short-term cash relief to allow them to improve their financial condition. Restructured loans are individually evaluated for impairment as part of the allowance for loan loss analysis.

Loans, including those that are considered to be impaired and restructured, are evaluated regularly by management. Loans are considered delinquent when payment has not been received within 30 days of its contractual due date. Loans are placed on non-accrual status when the collection of interest or principal is 90 days or more past due, unless the loan is adequately secured and in the process of collection. When a loan is placed on non-accrual status, any interest previously accrued but not collected is reversed against current income. Loans may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Interest payments received on non-accrual loans are applied to principal unless the remaining principal balance has been determined to be fully collectible.

 

The adequacy of the allowance for loan losses is based on management’s continuing evaluation of the pertinent factors underlying the quality of the loan portfolio, including actual loan loss experience, current economic conditions, detailed analysis of individual loans for which full collectability may not be assured, determination of the existence and realizable value of the collateral and guarantees securing such loans. The actual losses, notwithstanding such considerations, however, could differ from the amounts estimated by management.

 

The Company maintains a reserve, separate from the allowance for loan losses, to address the risk of loss associated with loan contingencies, which is included as accrued expenses and taxes in the Consolidated Balance Sheet. In order to maintain the off-balance sheet reserve at an appropriate level, a provision to increase or reduce the reserve is included in the Company’s Consolidated Statement of Income. The level of the reserve will be adjusted as needed to maintain the reserve at a specified level in relation to contingent loan risk. The risk of loss arising from un-funded loan commitments has been assessed by dividing the contingencies into pools of similar loan commitments and by applying two factors to each pool. The gross amount of contingent exposure is first multiplied by a potential use factor to estimate the degree to which the unused commitments might reasonably be expected to be used in a time of high usage. The resultant figure is then multiplied by a factor to estimate the risk of loss assuming funding of these loans. The potential loss estimates for each segment of the portfolio are added to arrive at a total potential loss estimate that is used to set the reserve.

 

Loans held for sale are carried at the lower of aggregate cost or market value. Loan fees (net of certain direct loan origination costs) on loans held for sale are deferred until the related loans are sold or repaid. Gains or losses on loan sales are recognized at the time of sale and determined using the specific identification method.

 

58


Securities

 

Debt securities available for sale principally include U.S. Treasury and agency securities, mortgage-backed securities, and certain securities of state and political subdivisions.subdivisions, and corporates. Securities classified as available for sale are measured at fair value. Unrealized holding gains and losses are excluded from earnings and reported in accumulated other comprehensive income (loss) until realized. Realized gains and losses on sales are computed by the specific identification method at the time of disposition and are shown separately as a component of noninterest income.

 

Securities held to maturity are carried at amortized historical cost based on management’s intention, and the Company’s ability to hold them to maturity. The Company classifies certain securities of state and political subdivisions as held to maturity.

Trading securities, acquired for subsequent sale to customers, are carried at market value. Market adjustments, fees and gains or losses on the sale of trading securities are considered to be a normal part of operations and are included in trading and investment banking income.

 

On the Consolidated Statements of Shareholders’ Equity, Accumulated Other Comprehensive Income (Loss) consists only of unrealized gain (loss) on securities.

 

Goodwill and Other Intangibles

 

Goodwill on purchased affiliates represents the cost in excess of net tangible assets acquired. Goodwill impairment tests are performed on an annual basis or when events or circumstances dictate. In these tests, the Company performs a qualitative assessment of each reporting unit. If the Company determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not greater than the carrying amount, the two-step impairment test is not required. If the fair value of the reporting unit is not more likely than not greater than the carrying amount, the fair value is compared to the carrying amount of each reporting unit to determine if impairment is indicated. If impairment is indicated, the implied fair value of the reporting unit’s goodwill is compared to its carrying amount and the impairment loss is measured by the excess of the carrying value over fair value. The Company has elected November 30 as its annual measurement date for testing impairment, and as a result of the impairment tests of goodwill performed on that date in 2011, 2010 2009 and 2008,2009, no impairment was indicated. Other intangible assets are amortized over a period of up to 17 years and are evaluated for impairment when events or circumstances dictate. No impairment of intangible assets existed for 2011, 2010, 2009, and 2008.2009.

 

Bank Premises and Equipment

 

Bank premises and equipment are stated at cost less accumulated depreciation, which is computed primarily on the straight line method. Bank premises are depreciated over 15 to 40 year lives, while equipment is depreciated over lives of 3 to 20 years. Gains and losses from the sale of bank premises and equipment are included in other noninterest income.

 

Impairment of Long-Lived Assets

 

Long-lived assets, including premises and equipment, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes a comparison of future cash flows expected to be generated by the asset or group of assets to their current carrying value. If the carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying value exceeds fair value.

 

59


Income Taxes

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are measured based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the periods in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The provision for deferred income taxes represents the change in the deferred income tax accounts during the year excluding the tax effect of the change in net unrealized gain/gain (loss) on securities available for sale.

 

The Company records deferred tax assets to the extent these assets will more likely than not be realized. All available evidence is considered in making such determination, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is recorded for the portion of deferred tax assets that do not meet the more-likely-than-not threshold, and any changes to the valuation allowance are recorded in income tax expense.

The Company records the financial statement effects of an income tax position when it is more likely than not, based on the technical merits, that it will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured and recorded as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position will be sustained. The benefit associated with previously unrecognized tax positions are generally recognized in the first period in which the more-likely-than-not threshold is met at the reporting date, the tax matter is ultimately settled through negotiation or litigation or when the related statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. The recognition, derecognition and measurement of tax positions are based on management’s best judgment given the facts, circumstance and information available at the reporting date.

 

The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and penalties in other noninterest expense. Accrued interest and penalties are included within the related liability lines in the consolidated balance sheet. For the year ended December 31, 2010,2011, the Company has recognized an immaterial amount in interest and penalties related to the unrecognized tax benefits.

 

Per Share Data

 

Basic income per share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted year-to-date income per share includes the dilutive effect of 275,522; 240,673; 301,902; and 399,230301,902 shares issuable upon the exercise of stock options granted by the Company at December 31, 2011, 2010, 2009, and 2008,2009, respectively.

 

Options issued under employee benefit plans to purchase 879,588; 1,081,564; 896,621; and 122,900896,621 shares of common stock were outstanding at December 31, 2011, 2010, 2009, and 2008,2009, respectively, but were not included in the computation of diluted earnings per share because the options were anti-dilutive.

 

Accounting for Stock-Based Compensation

 

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the date of the grant. The grant date fair value is estimated using either an option-pricing model which is consistent with the terms of the award or an observed market price, if such a price exists. Such cost is generally recognized over the vesting period during which an employee is required to provide service in exchange for the award.award and, in some cases, when performance metrics are met. The Company also estimates the number of instruments that will ultimately be issued by applying a forfeiture rate to each grant.

 

60


2.  NEW ACCOUNTING PRONOUNCEMENTS

Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140    In June 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 166 “Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140” or Accounting Standards Codification (“ASC”) 860. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This Statement removes the concept of a qualifying special-purpose entity from SFAS No. 140 and removes the exception from applying FASB Interpretation No. 46 to qualifying special-purpose entities. The Company adopted this statement on January 1, 2010 with no impact on its financial position or results of operations.

Amendments to FASB Interpretation No. 46(R)    In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” or ASC 810, which amends the consolidation guidance applicable to variable interest entities. The amendments to the consolidation guidance affect all entities currently within the scope of FIN 46(R), as well as qualifying special-purpose entities that are currently excluded from the scope of FIN 46(R). The Company adopted this statement on January 1, 2010 with no impact on its financial position or results of operations.

 

Fair Value Measurements and Disclosures    In January 2010, the FASB issued Accounting Standards Update (“ASU”)(ASU) No. 2010-06, “Fair Value Measurements and Disclosures” (ASU 2010-06), which amends ASC 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will bewas effective for fiscal years beginning after December 15, 2010. The Company adopted this statementthe provisions related to Level 1 and 2 disclosures on January 1, 2010 and adopted the provisions related to Level 3 disclosures on January 1, 2011 with no impact on its financial position or results of operationsstatements except for additional financial statement disclosures.

 

Credit Quality of Financing Receivables and the Allowance for Credit Losses    In July 2010, the FASB issued ASU No. 2010-20, “Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (ASU 2010-10)2010-20), which amends ASC 310 by requiring more robust and disaggregated disclosures about the credit quality of an entity’s financial receivables and its allowance for credit losses. ASU 2010-20 will bewas effective for the Company for the annual reporting period endingended December 31, 2010. The Company adopted this statement on December 31, 2010 with no impact on its financial position or resultsstatements except for additional financial statement disclosures. In January 2011, the FASB issued ASU No. 2011-01, “Deferral of operationsthe Effective Date of Disclosures About Troubled Debt Restructurings (TDRs) in Update No. 2010-20”, which temporarily defers the effective date in ASU 2010-20 for disclosures about TDRs by creditors until the FASB finalizes its project on determining what constitutes a TDR for a creditor. In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” which adds clarification to ASC 310 about which loan modifications constitute TDRs. It is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a TDR, both for purposes of recording an impairment loss and for disclosure of TDRs. ASU 2011-02 was effective for the Company for the interim reporting period ended September 30, 2011. The Company adopted this statement on September 30, 2011 with retrospective application to January 1, 2011 with no material impact on its financial statements except for additional financial statement disclosures.

 

Presentation of Comprehensive Income    In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income: Presentation of Comprehensive Income” (ASU 2011-05), which amends the FASB Standards Codification to allow the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. These amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 will be effective for the Company for the interim reporting period ending March 31, 2012. The Company does not expect this standard to have a material impact on its financial statements except for a change in presentation.

Testing for Goodwill Impairment    In September 2011, the FASB issued ASU No. 2011-08, “Testing for Goodwill Impairment” (ASU2011-08), which amends ASC 350 to allow companies the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e. step one of the goodwill impairment test). If the Company determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not greater than the carrying amount, the two-step impairment test would not be required. The amendments are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, early adoption is permitted. The Company early adopted this standard for the goodwill impairment test performed as of November 30, 2011 without a material impact on its financial statements.

61


3.  LOANS AND ALLOWANCE FOR LOAN LOSSES

 

Loan Origination/Risk Management

 

The Company has certain lending policies and procedures in place that are designed to minimize the level of risk within the loan portfolio. Diversification of the loan portfolio manages the risk associated with fluctuations in economic conditions. The Company maintains an independent loan review department that reviews and validates the credit risk program on a continual basis. Management regularly evaluates the results of the loan reviews. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

 

Commercial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Commercial loans are made based on the identified cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts from its customers. Commercial credit cards are generally unsecured and are underwritten with criteria similar to commercial loans including an analysis of the borrower’s cash flow, available business capital, and overall credit-worthiness of the borrower.

 

Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Company requires an

appraisal of the collateral be made at origination on an as-needed basis, in conformity with current market conditions and regulatory requirements. The underwriting standards address both owner and non-owner occupied real estate.

 

Construction loans are underwritten using feasibility studies, independent appraisal reviews, sensitivity analysis or absorption and lease rates and financial analysis of the developers and property owners. Construction loans are based upon estimates of costs and value associated with the complete project. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term borrowers, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their repayment being sensitive to interest rate changes, governmental regulation of real property, economic conditions, and the availability of long-term financing.

 

Underwriting standards for residential real estate and home equity loans are based on the borrower’s loan-to-value percentage, collection remedies, and overall credit history.

 

Consumer loans are underwritten based on the borrower’s repayment ability. The Company monitors delinquencies on all of its consumer loans and leases and periodically reviews the distribution of FICO scores relative to historical periods to monitor credit risk on its credit card loans. The underwriting and review practices combined with the relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Consumer loans and leases that are 90 days past due or more are considered non-performing.

62


This table provides a summary of loan classes and an aging of past due loans as of December 31, 2011 (in thousands):

   Year Ended December 31, 2011

 
   30-89
Days Past
Due and
Accruing


   Greater
than 90
Days Past
Due and
Accruing


   Non-Accrual
Loans


   Total
Past Due


   Current

   Total Loans

 

Commercial:

                              

Commercial

  $2,986    $767    $9,234    $12,987    $2,221,830    $2,234,817  

Commercial—credit card

   896     284     —       1,180     94,159     95,339  

Real estate:

                              

Real estate—construction

   430     —       642     1,072     83,518     84,590  

Real estate—commercial

   2,368     313     7,218     9,899     1,384,656     1,394,555  

Real estate—residential

   1,713     247     1,660     3,620     182,266     185,886  

Real estate—HELOC

   819     41     696     1,556     531,476     533,032  

Consumer:

                              

Consumer—credit card

   2,858     3,394     4,638     10,890     322,756     333,646  

Consumer—other

   1,260     952     1,493     3,705     90,939     94,644  

Leases

   —       —       —       —       3,834     3,834  
   


  


  


  


  


  


Total loans

  $13,330    $5,998    $25,581    $44,909    $4,915,434    $4,960,343  
   


  


  


  


  


  


 

This table provides a summary of loan classes and an aging of past due loans as of December 31, 2010 (in thousands):

 

   Year Ended
December 31, 2010

 
   30-89
Days Past
Due and
Accruing


   Greater
than 90
Days Past
Due and
Accruing


   Non-
Accrual
Loans


   Total
Past
Due


   Current

   Total
Loans

 

Commercial:

                              

Commercial

  $9,585    $204    $11,345    $21,134    $1,915,918    $1,937,052  

Commercial—credit card

   1,391     296     —       1,687     82,857     84,544  

Real estate:

                              

Real estate—construction

   674     262     600     1,536     126,984     128,520  

Real estate—commercial

   10,682     340     6,753     17,775     1,277,122     1,294,897  

Real estate—residential

   4,802     153     1,094     6,049     187,108     193,157  

Real estate—HELOC

   1,318     62     75     1,455     474,602     476,057  

Consumer:

                              

Consumer—credit card

   3,892     3,731     4,424     12,047     310,161     322,208  

Consumer—other

   1,745     432     634     2,811     137,382     140,193  

Leases

   —       —       —       —       7,055     7,055  
   


  


  


  


  


  


Total loans

  $34,089    $5,480    $24,925    $64,494    $4,519,189    $4,583,683  
   


  


  


  


  


  


This table provides a summary of the major categories of loans as of December 31, 2009 (in thousands):

   Year Ended
December 31,
2009


 

Commercial, financial, and agricultural

  $1,963,533  

Real estate construction

   106,914  

Consumer

   441,406  

Real Estate

   1,795,342  

Leases

   7,510  
   


Total loans

   4,314,705  

Loans held for sale

   17,523  
   


Total loans and loans held for sale

  $4,332,228  
   


   Year Ended December 31, 2010

 
   30-89
Days Past
Due and
Accruing


   Greater
than 90
Days Past
Due and
Accruing


   Non-Accrual
Loans


   Total
Past Due


   Current

   Total Loans

 

Commercial:

                              

Commercial

  $9,585    $204    $11,345    $21,134    $1,915,918    $1,937,052  

Commercial—credit card

   1,391     296     —       1,687     82,857     84,544  

Real estate:

                              

Real estate—construction

   674     262     600     1,536     126,984     128,520  

Real estate—commercial

   10,682     340     6,753     17,775     1,277,122     1,294,897  

Real estate—residential

   4,802     153     1,094     6,049     187,108     193,157  

Real estate—HELOC

   1,318     62     75     1,455     474,602     476,057  

Consumer:

                              

Consumer—credit card

   3,892     3,731     4,424     12,047     310,161     322,208  

Consumer—other

   1,745     432     634     2,811     137,382     140,193  

Leases

   —       —       —       —       7,055     7,055  
   


  


  


  


  


  


Total loans

  $34,089    $5,480    $24,925    $64,494    $4,519,189    $4,583,683  
   


  


  


  


  


  


 

The Company sold $209.9 million, $222.5 million, and $254.6 million of real estate residential and $124.3 million ofstudent loans during the periods ended December 31, 2011, 2010, 2009, and 20082009 respectively.

 

The Company has ceased the recognition of interest on loans with a carrying value of $24.9$25.6 million and $21.3$24.9 million at December 31, 20102011 and 2009,2010, respectively. Restructured loans totaled $0.2$6.0 million and $2.0$0.2 million at December 31, 20102011 and 2009,2010, respectively. Loans 90 days past due and still accruing interest amounted to $5.5$6.0 million and $8.3$5.5 million at December 31, 20102011 and 2009,2010, respectively. There was an insignificant amount of interest recognized on impaired loans during 2011, 2010, 2009, and 2008.2009.

 

Maturities and Sensitivities to Changes in Interest Rates63

This table details loan maturities by variable and fixed rates as of December 31, 2010 (in thousands):

   Due in one
year or less


   Due after
one year
through five
years


   Due after
five years


   Total

 

Variable Rate

                    

Commercial, financial and agricultural

  $555,370    $16,877    $—      $572,247  

Real estate construction

   9,562     763     —       10,325  

All other loans

   452,939     117,027     —       569,966  
   


  


  


  


Total variable rate loans

   1,017,871     134,667     —       1,152,538  

Fixed Rate

                    

Commercial, financial and agricultural

   1,025,493     405,235     28,318     1,459,046  

Real estate construction

   79,306     37,635     1,254     118,195  

All other loans

   825,610     906,170     136,538     1,868,318  
   


  


  


  


Total fixed rate loans

   1,930,409     1,349,040     166,110     3,445,559  
   


  


  


  


Total loans and loans held for sale

  $2,948,280    $1,483,707    $166,110    $4,598,097  
   


  


  


  


This table details loan maturities by variable and fixed rates as of December 31, 2009 (in thousands):

   Due in one
year or less


   Due after
one year
through five
years


   Due after
five years


   Total

 

Variable Rate

                    

Commercial, financial and agricultural

  $240,319    $307,391    $22,112    $569,822  

Real estate construction

   7,661     5,786     1,212     14,659  

All other loans

   325,941     71,754     189,324     587,019  
   


  


  


  


Total variable rate loans

   573,921     384,931     212,648     1,171,500  

Fixed Rate

                    

Commercial, financial and agricultural

   914,007     425,703     54,001     1,393,711  

Real estate construction

   51,824     19,282     21,149     92,255  

All other loans

   610,457     923,605     140,700     1,674,762  
   


  


  


  


Total fixed rate loans

   1,576,288     1,368,590     215,850     3,160,727  
   


  


  


  


Total loans and loans held for sale

  $2,150,209    $1,753,521    $428,498    $4,332,228  
   


  


  


  



Credit Quality Indicators

 

As part of the on-going monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk grading of specified classes of loans, net charge-offs, non-performing loans, and general economic conditions.

 

The Company utilizes a risk grading matrix to assign a rating to each of its commercial, commercial real estate, and construction real estate loans. The loan rankings are summarized into the following categories: Non-watch list, Watch, Special Mention, and Substandard. Any loan not classified in one of the categories described below is considered to be a Non-watch list loan. A description of the general characteristics of the loan ranking categories is as follows:

 

Watch—This rating represents credit exposure that presents higher than average risk and warrants greater than routine attention by Company personnel due to conditions affecting the borrower, the Borrower’s industry or the economic environment. These conditions have resulted in some degree of uncertainty that results in higher than average credit risk.

 

Special Mention—This rating reflects a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or the institution’s credit position at some future date. The rating is not adversely classified and does not expose an institution to sufficient risk to warrant adverse classification.

 

Substandard—This rating represents an asset inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. This category may include loans where the collection of full principal is doubtful or remote.

 

All other classes of loans are generally evaluated and monitored based on payment activity. Non-performing loans include restructured loans impaired loans,on non-accrual and loans greater than 90 days past due.

all other non-accrual loans.

This table provides an analysis of the credit risk profile of each loan class as of December 31, 2011 (in thousands):

Credit Exposure

Credit Risk Profile by Risk Rating

   Commercial

   Real estate-
construction


   Real estate-
commercial


 
   2011

   2011

   2011

 

Non-watch list

  $2,064,658    $83,100    $1,275,280  

Watch

   100,499     355     27,777  

Special Mention

   16,688     —       35,019  

Substandard

   52,972     1,135     56,479  
   


  


  


Total

  $2,234,817    $84,590    $1,394,555  
   


  


  


64


Credit Exposure

Credit Risk Profile Based on Payment Activity

   Commercial–
credit card

   Real estate-
residential


   Real estate-
HELOC


 
   2011

   2011

   2011

 

Performing

  $95,339    $184,226    $532,336  

Non-performing

   —       1,660     696  
   


  


  


Total

  $95,339    $185,886    $533,032  
   


  


  


   Consumer-
credit card


   Consumer-
other


   Leases

 
   2011

   2011

   2011

 

Performing

  $329,008    $93,151    $3,834  

Non-performing

   4,638     1,493     —    
   


  


  


Total

  $333,646    $94,644    $3,834  
   


  


  


This table provides an analysis of the credit risk profile of each loan class as of December 31, 2010 (in thousands):

 

Corporate Credit Exposure

Credit Risk Profile by Risk Rating

 

   Commercial

   Real estate-
construction


   Real estate-
commercial


 
   2010

   2010

   2010

 

Non-watch list

  $1,718,691    $127,709    $1,196,679  

Watch

   77,201     —       18,917  

Special Mention

   48,915     44     34,006  

Substandard

   92,245     767     45,295  
   


  


  


Total

  $1,937,052    $128,520    $1,294,897  
   


  


  


 

Corporate Credit Exposure

Credit Risk Profile Based on Payment Activity

 

  Commercial-
credit card

   Real estate-
residential


   Real estate-
HELOC


   Commercial –
credit card


   Real estate-
residential


   Real estate-
HELOC


 
  2010

   2010

   2010

   2010

   2010

   2010

 

Performing

  $82,857    $201,522    $474,602    $82,857    $201,522    $474,602  

Non-performing

   1,687     6,049     1,455     1,687     6,049     1,455  
  


  


  


  


  


  


Total

  $84,544    $207,571    $476,057    $84,544    $207,571    $476,057  
  


  


  


  


  


  


  Consumer-
credit card


   Consumer-
other

   Leases

 
  2010

   2010

   2010

 

Performing

  $314,053    $139,127    $7,055  

Non-performing

   8,155     1,066     —    
  


  


  


Total

  $322,208    $140,193    $7,055  
  


  


  


 

   Consumer-
credit card


   Consumer-
other


   Leases

 
   2010

   2010

   2010

 

Performing

  $314,053    $139,127    $7,055  

Non-performing

   8,155     1,066     —    
   


  


  


Total

  $322,208    $140,193    $7,055  
   


  


  


65


Allowance for Loan Losses

 

The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s judgment of losses within the Company’s loan portfolio as of the balance sheet date. The allowance is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Accordingly, the methodology is based on historical loss trends. The Company’s process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for possible loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors.

 

The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific loans; however, the entire allowance is available for any loan that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company’s allowance for loan losses consists of specific valuation allowances and general valuation allowances based on historical loan loss experience for similar loans with similar characteristics and trends, general economic conditions and other qualitative risk factors both internal and external to the Company.

 

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal risk grading process that evaluates the obligor’s ability to repay, the underlying collateral, if any, and the economic environment and industry in which the borrower operates. When a loan is considered impaired, the loan is analyzed to determine the need, if any, to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk ranking of the loan and economic conditions affecting the borrower’s industry.

 

General valuation allowances are calculated based on the historical loss experience of specific types of loans including an evaluation of the time span and volume of the actual charge-off. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are updated based on actual charge-off experience. A valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio, time span to charge-off, and the total dollar amount of the loans in the pool. The Company’s pools of similar loans include similarly risk-graded groups of commercial loans, commercial real estate loans, commercial credit card, home equity loans, consumer real estate loans and consumer and other loans. The Company also considers a loan migration analysis for criticized loans. This analysis includes an assessment of the probability that a loan will move to a loss position based on its criticized category. In addition, a portion of the allowance is determined by a review of qualitative factors by Management.

 

66


ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS

This table provides a rollforward of the allowance for loan losses by portfolio segment for the year ended December 31, 2011 (in thousands):

   Year Ended December 31, 2011

 
   Commercial

  Real estate

  Consumer

  Leases

  Total

 

Allowance for loan losses:

                     

Beginning balance

  $39,138   $18,557   $16,243   $14   $73,952  

Charge-offs

   (12,693  (532  (15,438  —      (28,663

Recoveries

   813    32    3,683    —      4,528  

Provision

   10,669    2,429    9,105    (3  22,200  
   


 


 


 


 


Ending Balance

  $37,927   $20,486   $13,593   $11   $72,017  
   


 


 


 


 


Ending Balance: individually evaluated for impairment

  $3,662   $268   $—     $—     $3,930  

Ending Balance: collectively evaluated for impairment

   34,266    20,217    13,593    11    68,087  

Ending Balance: loans acquired with deteriorated credit quality

   —      —      —      —      —    

Loans:

                     

Ending Balance: loans

  $2,330,156   $2,198,063   $428,290   $3,834   $4,960,343  

Ending Balance: individually evaluated for impairment

   11,061    12,468    23    —      23,552  

Ending Balance: collectively evaluated for impairment

   2,319,095    2,185,595    428,267    3,834    4,936,791  

Ending Balance: loans acquired with deteriorated credit quality

   —      —      —      —      —    

 

This table provides a rollforward of the allowance for loan losses by portfolio segment for the year ended December 31, 2010 (in thousands):

 

  Year Ended December 31, 2010

   Year Ended December 31, 2010

 
  Commercial

 Real estate

 Consumer

 Leases

 Total

   Commercial

 Real estate

 Consumer

 Leases

 Total

 

Allowance for loan losses:

      

Beginning balance

  $40,430   $13,311   $10,128   $270   $64,139     40,430   $13,311   $10,128   $270   $64,139  

Charge-offs

   (6,644  (258  (18,585  —      (25,487   (6,644  (258  (18,585  —      (25,487

Recoveries

   637    29    3,124    —      3,790     637    29    3,124    —      3,790  

Provision

   4,715    5,475    21,576    (256  31,510     4,715    5,475    21,576    (256  31,510  
  


 


 


 


 


  


 


 


 


 


Ending Balance

  $39,138   $18,557   $16,243   $14   $73,952    $39,138   $18,557   $16,243   $14   $73,952  
  


 


 


 


 


  


 


 


 


 


Ending Balance: individually evaluated for impairment

  $798   $1,762   $—     $—     $2,560    $798   $1,762   $—     $—     $2,560  

Ending Balance: collectively evaluated for impairment

   38,340    16,795    16,243    14    71,392     38,340    16,795    16,243    14    71,392  

Ending Balance: loans acquired with deteriorated credit quality

   —      —      —      —      —       —      —      —      —      —    

Loans:

      

Ending Balance: loans

  $2,021,597   $2,092,630   $462,401   $7,055   $4,583,683    $2,021,597   $2,092,630   $462,401   $7,055   $4,583,683  

Ending Balance: individually evaluated for impairment

   11,913    8,886    15    —      20,814     11,913    8,886    15    —      20,814  

Ending Balance: collectively evaluated for impairment

   2,009,684    2,083,744    462,386    7,055    4,562,869     2,009,684    2,083,744    462,386    7,055    4,562,869  

Ending Balance: loans acquired with deteriorated credit quality

   —      —      —      —      —       —      —      —      —      —    

67


This table provides a rollforward of the allowance for loan losses for the yearsyear ended December 31, 2009 and 2008 (in thousands):

 

  Year Ended December 31

 
        2009      

       2008      

   2009

 

Allowance—beginning of year

  $52,297   $45,986    $52,297  

Additions (deductions):

      

Charge-offs

   (24,949  (16,581   (24,949

Recoveries

   4,691    4,826     4,691  
  


 


  


Net charge-offs

   (20,258  (11,755   (20,258
  


 


  


Provision charged to expense

   32,100    17,850     32,100  

Allowance for banks and loans acquired

   —      216     —    
  


 


  


Allowance—end of year

  $64,139   $52,297    $64,139  
  


 


  


 

Impaired Loans

 

This table provides an analysis of impaired loans by class for the year ended December 31, 2011 (in thousands):

   Year Ended December 31, 2011

 
   Unpaid
Principal
Balance


   Recorded
Investment
with No
Allowance


   Recorded
Investment
with
Allowance


   Total
Recorded
Investment


   Related
Allowance


   Average
Recorded
Investment


 

Commercial:

                              

Commercial

  $14,368    $2,940    $8,121    $11,061    $3,662    $8,038  

Commercial—credit card

   —       —       —       —       —       —    

Real estate:

                              

Real estate—construction

   90     50     —       50     —       15  

Real estate—commercial

   9,323     7,983     1,247     9,230     226     7,000  

Real estate—residential

   3,568     2,329     859     3,188     42     2,312  

Real estate—HELOC

   —       —       —       —       —       —    

Consumer:

                              

Consumer—credit card

   —       —       —       —       —       —    

Consumer—other

   23     23     —       23     —       28  

Leases

   —       —       —       —       —       —    
   


  


  


  


  


  


Total

  $27,372    $13,325    $10,227    $23,552    $3,930    $17,393  
   


  


  


  


  


  


68


This table provides an analysis of impaired loans by class for the year ended December 31, 2010 (in thousands):

 

   Year Ended December 31, 2010

 
   Unpaid
Principal
Balance


   Recorded
Investment
with No
Allowance


   Recorded
Investment
with
Allowance


   Total
Recorded
Investment


   Related
Allowance


   Average
Recorded
Investment


 

Commercial:

                              

Commercial

  $13,497    $10,180    $1,733    $11,913    $798    $15,426  

Commercial—credit card

   —       —       —       —       —       —    

Real estate:

                              

Real estate—construction

   —       —       —       —       —       121  

Real estate—commercial

   7,415     439     6,612     7,051     1,475     4,092  

Real estate—residential

   2,071     612     1,223     1,835     287     2,535  

Real estate—HELOC

   —       —       —       —       —       —    

Consumer:

                              

Consumer—credit card

   —       —       —       —       —       —    

Consumer—other

   15     15     —       15     —       6  

Leases

   —       —       —       —       —       —    
   


  


  


  


  


  


Total

  $22,998    $11,246    $9,568    $20,814    $2,560    $22,180  
   


  


  


  


  


  


 

This table provides an analysis of impaired loans for the yearsyear ended December 31, 2009 and 2008 (in thousands):

 

  Year Ended December 31

 
        2009      

         2008      

   2009

 

Total impaired loans as of December 31

  $20,880    $7,582    $20,880  

Amount of impaired loans which have a related allowance

   14,290     537     14,290  

Amount of related allowance

   3,813     225     3,813  

Remaining impaired loans with no allowance

   6,590     7,045     6,590  

Average recorded investment in impaired loans during year

   14,974     5,958     14,974  

Troubled Debt Restructurings

The Company adopted ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” as of July 1, 2011. This update provides additional guidance on evaluating whether a modification or restructuring of a receivable is a TDR. A loan modification is considered a TDR when a concession had been granted to a debtor experiencing financial difficulties. The Company assessed loan modifications made to borrowers experiencing financial distress occurring after January 1, 2011. The Company’s modifications generally include interest rate adjustments, and amortization and maturity date extensions. These modifications allow the debtor short-term cash relief to allow them to improve their financial condition. The Company’s restructured loans are individually evaluated for impairment and evaluated as part of the allowance for loan loss as described above in the Allowance for Loan Losses section of this note. There was no significant impact to the allowance for loan losses as a result of adopting the new guidance. The Company had $36 thousand in commitments to lend to borrowers with loan modifications classified as TDR’s.

The Company made no TDR’s in the last 12 months that had payment defaults for the year ended December 31, 2011.

69


This table provides a summary of loans restructured by class for the year ended December 31, 2011 (in thousands):

   For the Year Ended December 31, 2011

 
   Number of
Contracts


   Pre-Modification
Outstanding
Recorded
Investment


   Post-
Modification
Outstanding
Recorded
Investment


 

Troubled Debt Restructurings

               

Commercial:

               

Commercial

   3    $1,750    $1,750  

Commercial—credit card

   —       —       —    

Real estate:

               

Real estate—construction

   —       —       —    

Real estate—commercial

   2     2,806     2,866  

Real estate—residential

   3     1,462     1,462  

Real estate—HELOC

   —       —       —    

Consumer:

               

Consumer—credit card

   —       —       —    

Consumer—other

   —       —       —    

Leases

   —       —       —    
   


  


  


Total

   8    $6,018    $6,078  
   


  


  


4.   SECURITIES

 

Securities Available for Sale

 

This table provides detailed information about securities available for sale at December 31, 20102011 and 20092010 (in thousands):

 

2010


  Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


 Fair Value

 

2011


  Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


 Fair Value

 

U.S. Treasury

  $482,912    $3,801    $—     $486,713    $184,523    $4,802    $—     $189,325  

U.S. Agencies

   1,994,696     12,567     (6,965  2,000,298     1,615,637     16,434     (62  1,632,009  

Mortgage-backed

   1,813,023     33,718     (13,266  1,833,475     2,437,282     55,985     (919  2,492,348  

State and political subdivisions

   1,252,067     18,347     (8,139  1,262,275     1,642,844     51,336     (144  1,694,036  

Corporates

   30,453     7     (174  30,286     99,620     566     (22  100,164  
  


  


  


 


  


  


  


 


Total

  $5,573,151    $68,440    $(28,544 $5,613,047    $5,979,906    $129,123    $(1,147 $6,107,882  
  


  


  


 


  


  


  


 


2009


  Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


 Fair Value

 

U.S. Treasury

  $596,067    $3,549    $(539 $599,077  

U.S. Agencies

   1,479,784     10,426     (1,450  1,488,760  

Mortgage-backed

   1,786,899     33,038     (6,279  1,813,658  

State and political subdivisions

   958,231     26,530     (468  984,293  
  


  


  


 


Total

  $4,820,981    $73,543    $(8,736 $4,885,788  
  


  


  


 


 

2010


  Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


  Fair Value

 

U.S. Treasury

  $482,912    $3,801    $—     $486,713  

U.S. Agencies

   1,994,696     12,567     (6,965  2,000,298  

Mortgage-backed

   1,813,023     33,718     (13,266  1,833,475  

State and political subdivisions

   1,252,067     18,347     (8,139  1,262,275  

Corporates

   30,453     7     (174  30,286  
   


  


  


 


Total

  $5,573,151    $68,440    $(28,544 $5,613,047  
   


  


  


 


70


The following table presents contractual maturity information for securities available for sale at December 31, 20102011 (in thousands):

 

  Amortized
Cost


   Fair
Value


   Amortized
Cost


   Fair
Value


 

Due in 1 year or less

  $778,675    $782,929    $792,158    $796,967  

Due after 1 year through 5 years

   2,608,704     2,626,908     2,166,689     2,206,866  

Due after 5 years through 10 years

   341,600     340,195     495,313     520,474  

Due after 10 years

   31,149     29,540     88,464     91,227  
  


  


  


  


Total

   3,760,128     3,779,572     3,542,624     3,615,534  

Mortgage-backed securities

   1,813,023     1,833,475     2,437,282     2,492,348  
  


  


  


  


Total securities available for sale

  $5,573,151    $5,613,047    $5,979,906    $6,107,882  
  


  


  


  


 

Securities may be disposed of before contractual maturities due to sales by the Company or because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

During 2010,2011, proceeds from the sales of securities available for sale were $649,083,000$1.0 billion compared to $198,953,000$649.1 million for 2009.2010. Securities transactions resulted in gross realized gains of $8,544,000$16.2 million for 2011, $8.5 million for 2010 $9,752,000and $9.8 million for 2009 and $3,339,000 for 2008.2009. The gross realized losses were $229,000$70 thousand for 2011, $229 thousand for 2010, $15,000and $15 thousand for 2009, and $5,000 for 2008.2009.

 

Trading Securities

 

The net unrealized lossesgains on trading securities at December 31, 20102011 were $10,152,$571 thousand, net unrealized losses on trading securities were $10 thousand for 2010, and net unrealized gains on trading securities were $109,962 and $90,283$110 thousand for 2009 and 2008, respectively.2009. Net unrealized gains/losses were included in trading and investment banking income on the consolidated statements of income.

Securities Held to Maturity

 

The table below provides detailed information for securities held to maturity at December 31, 20102011 and 20092010 (in thousands):

 

2010


  Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


   Fair
Value


 

2011


  Amortized
Cost


   Gross
Unrealized
Gains


   Gross
Unrealized
Losses


   Fair
Value

 

State and political subdivisions

  $63,566    $5,186    $—      $68,752    $89,246    $13,041    $—      $102,287  
  


  


  


  


  


  


  


  


2009


                

2010


                
  


  


  


  


State and political subdivisions

  $56,986    $1,380    $—      $58,366    $63,566    $5,186    $—      $68,752  
  


  


  


  


  


  


  


  


 

The following table presents contractual maturity information for securities held to maturity at December 31, 20102011 (in thousands):

 

  Amortized
Cost


   Fair
Value


   Amortized
Cost


   Fair
Value

 

Due in 1 year or less

  $1,635    $1,769    $256    $293  

Due after 1 year through 5 years

   13,809     14,935     30,154     34,560  

Due after 5 years through 10 years

   7,554     8,170     17,562     20,128  

Due after 10 years

   40,568     43,878     41,274     47,306  
  


  


  


  


Total securities held to maturity

  $63,566    $68,752    $89,246    $102,287  
  


  


  


  


 

71


Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

There were no sales of securities held to maturity during 2011, 2010, 2009, and 2008.2009.

 

Securities available for sale and held to maturity with a market value of $4,625,112,000$5.4 billion at December 31, 2010,2011, and $4,227,243,000$4.6 billion at December 31, 2009,2010, were pledged to secure U.S. Government deposits, other public deposits and certain Trusttrust deposits as required by law.

 

The following table shows the Company’s available for sale investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 20102011 and 20092010 (in thousands).

 

2010


  Less than 12 months

  12 months or more

   Total

 

Description of Securities


  Fair Value

   Unrealized
Losses


  Fair
Value


   Unrealized
Losses


   Fair Value

   Unrealized
Losses


 

U.S. Treasury Obligations

  $—      $—     $—      $—      $—      $—    

Direct obligations of U.S. government agencies

   515,230     (6,965  —       —       515,230     (6,965

Federal agency mortgage backed securities

   541,061     (13,266  —       —       541,061     (13,266

Municipal securities

   374,350     (8,139  —       —       374,350     (8,139

Corporates

   26,774     (174  —       —       26,774     (174
   


  


 


  


  


  


Total temporarily-impaired debt securities available for sale

  $1,457,415    $(28,544 $—      $—      $1,457,415    $(28,544
   


  


 


  


  


  


000000000000000000000000000000000000000000000000000000

2011


  Less than 12 months

  12 months or more

  Total

 

Description of Securities


  Fair Value

   Unrealized
Losses


  Fair
Value


   Unrealized
Losses


  Fair Value

   Unrealized
Losses


 

U.S. Treasury

  $—      $—     $—      $—     $—      $—    

U.S. Agencies

   66,992     (62  —       —      66,992     (62

Mortgage-backed

   226,081     (919  —       —      226,081     (919

State and political subdivisions

   45,918     (139  2,571     (5  48,489     (144

Corporates

   12,471     (22  —       —      12,471     (22
   


  


 


  


 


  


Total temporarily- impaired debt
securities available for sale

  $351,462    $(1,142 $2,571    $(5 $354,033    $(1,147
   


  


 


  


 


  


2009


  Less than 12 months

  12 months or more

  Total

 

Description of Securities


  Fair Value

   Unrealized
Losses


  Fair
Value


   Unrealized
Losses


  Fair Value

   Unrealized
Losses


 

U.S. Treasury Obligations

  $169,516    $(539 $—      $—     $169,516    $(539

Direct obligations of U.S. government agencies

   373,255     (1,450  —       —      373,255     (1,450

Federal agency mortgage backed securities

   398,111     (6,279  —       —      398,111     (6,279

Municipal securities

   44,921     (427  1,711     (41  46,632     (468
   


  


 


  


 


  


Total temporarily-impaired debt securities available for sale

  $985,803    $(8,695 $1,711    $(41 $987,514    $(8,736
   


  


 


  


 


  


2010


  Less than 12 months

  12 months or more

   Total

 

Description of Securities


  Fair Value

   Unrealized
Losses


  Fair
Value


   Unrealized
Losses


   Fair Value

   Unrealized
Losses


 

U.S. Treasury

  $—      $—     $—      $—      $—      $—    

U.S. Agencies

   515,230     (6,965  —       —       515,230     (6,965

Mortgage-backed

   541,061     (13,266  —       —       541,061     (13,266

State and political subdivisions

   374,350     (8,139  —       —       374,350     (8,139

Corporates

   26,774     (174  —       —       26,774     (174
   


  


 


  


  


  


Total temporarily-impaired debt
securities available for sale

  $1,457,415    $(28,544 $—      $—      $1,457,415    $(28,544
   


  


 


  


  


  


 

The unrealized losses in the Company’s investments in direct obligations of U.S. treasury obligations, U.S. government agencies, federal agency mortgage-backed securities, and municipal securities, and corporates were caused by changes in interest rates. Because the Company does not have the intent to sell these securities, it is more likely than not that the Company will not be required to sell these securities before a recovery of fair value. The Company expects to recover its cost basis in the securities and does not consider these investments to be other-than-temporarily impaired at December 31, 2010.2011.

 

5.  SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

 

The Company regularly enters into agreements for the purchase of securities with simultaneous agreements to resell (resell agreements). The agreements permit the Company to sell or repledge these securities. Resell agreements were $230,946,000$53.0 million and $319,940,000$230.9 million at December 31, 20102011 and 2009,2010, respectively. Of those balances, $200,000,000$200.0 million in 2010, and $198,407,000 in 2009, represented sales of securities in which securities were received under reverse repurchase agreements (resell agreements). The Company obtains possession of collateral with a market value equal to or in excess of the principal amount loaned under resale agreements.

 

72


6.  LOANS TO OFFICERS AND DIRECTORS

 

Certain Company and principal affiliate bank executive officers and directors, including companies in which those persons are principal holders of equity securities or are general partners, borrow in the normal course of business from affiliate banks of the Company. All such loans have been made on the same terms, including interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties. In addition, all such loans are current as to repayment terms.

 

For the years 20102011 and 2009,2010, an analysis of activity with respect to such aggregate loans to related parties appears below (in thousands):

 

  Year Ended December 31

   Year Ended December 31

 
  2010

 2009

   2011

 2010

 

Balance—beginning of year

  $358,476   $377,302    $302,894   $358,476  

New loans

   267,623    321,431     212,800    267,623  

Repayments

   (323,205  (340,257   (248,825  (323,205
  


 


  


 


Balance—end of year

  $302,894   $358,476    $266,869   $302,894  
  


 


  


 


7.  GOODWILL AND OTHER INTANGIBLES

 

Changes in the carrying amount of goodwill for the periods ended December 31, 20102011 and December 31, 20092010 by operating segment are as follows (in thousands):

 

   Commercial
Financial
Services


  Institutional
Financial
Services


   Personal
Financial
Services


  Total

 

Balances as of January 1, 2009

  $42,999   $25,988    $35,937   $104,924  

Acquisition of J.D. Clark & Co., Inc.

   —      19,476     —      19,476  

Other goodwill acquired during period

   —      5,875     1,355    7,230  

Acquisition of Citadel Bank-adjustments

   (154  —       (120  (274
   


 


  


 


Balances as of December 31, 2009

  $42,845   $51,339    $37,172   $131,356  
   


 


  


 


Balances as of January 1, 2010

  $42,845   $51,339    $37,172   $131,356  

Prairie Capital Management, LLC acquired during period

   —      —       32,228    32,228  

Reams Asset Management, LLC acquired during period

   —      47,530     —      47,530  
   


 


  


 


Balances as of December 31, 2010

  $42,845   $98,869    $69,400   $211,114  
   


 


  


 


   Commercial
Financial
Services


   Institutional
Financial
Services


   Personal
Financial
Services


   Total

 

Balances as of January 1, 2010

  $42,845    $51,339    $37,172    $131,356  

Prairie Capital Management, LLC acquired during period

   —       —       32,228     32,228  

Reams Asset Management, LLC acquired during period

   —       47,530     —       47,530  
   


  


  


  


Balances as of December 31, 2010

  $42,845    $98,869    $69,400    $211,114  
   


  


  


  


Balances as of January 1, 2011

  $42,845    $98,869    $69,400    $211,114  
   


  


  


  


Balances as of December 31, 2011

  $42,845    $98,869    $69,400    $211,114  
   


  


  


  


 

Following are the intangible assets that continue to be subject to amortization as of December 31, 20102011 and 20092010 (in thousands):

 

   As of December 31, 2010

 
  Gross Carrying
Amount


   Accumulated
Amortization


   Net Carrying
Amount


 

Core deposit intangible assets

  $36,497    $26,700    $9,797  

Other intangible assets

   44,681     15,380     29,301  

Other intangible assets acquired from the acquisition of Prairie Capital Management, LLC

   19,418     1,015     18,403  

Other intangible assets acquired from the acquisition of Reams Asset Management, LLC

   26,033     330     25,703  

Other intangible assets acquired during period

   10,525     1,432     9,093  
   


  


  


Total other intangible assets

   100,657     18,157     82,500  
   


  


  


Total intangible assets

  $137,154    $44,857    $92,297  
   


  


  


   As of December 31, 2009

 

Core deposit intangible assets

  $36,497    $24,444    $12,053  

Other intangible assets

   9,151     6,812     2,315  

Other intangible assets acquired from the acquisition of J.D. Clark & Co., Inc.

   24,831     2,278     22,553  

Other intangible assets acquired during period

   10,699     182     10,541  
   


  


  


Total other intangible assets

   44,681     9,272     35,409  
   


  


  


Total intangible assets

  $81,178    $33,716    $47,462  
   


  


  


   As of December 31, 2011

 
   Gross Carrying
Amount


   Accumulated
Amortization


   Net Carrying
Amount


 

Core deposit intangible assets

  $36,497    $28,629    $7,868  

Customer relationships

   105,544     30,645     74,899  

Other intangible assets

   3,247     1,683     1,564  
   


  


  


Total intangible assets

  $145,288    $60,957    $84,331  
   


  


  


   As of December 31, 2010

 

Core deposit intangible assets

  $36,497    $26,700    $9,797  

Customer relationships

   97,410     17,169     80,241  

Other intangible assets

   3,247     988     2,259  
   


  


  


Total intangible assets

  $137,154    $44,857    $92,297  
   


  


  


 

Other intangible73


Intangible assets acquired during the period include customer lists and non-compete agreements.

Amortization expense for the years ended December 31, 2011, 2010, and 2009 was $16.1 million, $11.1 million and 2008 was $11,142,000, $6,169,000 and $3,104,000,$6.2 million, respectively. The following table discloses the estimated amortization expense of intangible assets in future years (in thousands):

 

For the year ended December 31, 2011

  $15,277  

For the year ended December 31, 2012

   13,606    $14,855  

For the year ended December 31, 2013

   12,159     13,408  

For the year ended December 31, 2014

   11,086     12,335  

For the year ended December 31, 2015

   8,491     9,739  

For the year ended December 31, 2016

   8,446  

 

8.  BANK PREMISES AND EQUIPMENT

 

Bank premises and equipment consisted of the following (in thousands):

 

  December 31

   December 31

 
  2010

 2009

   2011

 2010

 

Land

  $45,036   $46,032    $44,855   $45,036  

Buildings and leasehold improvements

   278,038    263,572     284,843    278,038  

Equipment

   110,739    105,991     105,244    110,739  

Software

   92,347    86,798     96,047    92,347  
  


 


  


 


   526,160    502,393     530,989    526,160  

Accumulated depreciation

   (226,836  (215,295   (223,884  (226,836

Accumulated amortization

   (79,597  (69,456   (79,169  (79,597
  


 


  


 


Bank premises and equipment, net

  $219,727   $217,642    $227,936   $219,727  
  


 


  


 


 

Consolidated rental and operating lease expenses were $8,668,000$10.1 million in 2011, $8.7 million in 2010, $8,284,000and $8.3 million in 2009, and $6,588,000 in 2008.2009. Consolidated bank premises and equipment depreciation and amortization expenses were $28,234,000$26.8 million in 2011, $28.2 million in 2010, $31,938,000and $31.9 million in 2009, and $34,625,000 in 2008.2009.

 

Minimum future rental commitments as of December 31, 2010,2011, for all non-cancelable operating leases are as follows (in thousands):

 

2011

  $7,475  

2012

   7,360    $8,023  

2013

   6,749     7,736  

2014

   6,186     7,118  

2015

   5,773     6,648  

2016

   6,169  

Thereafter

   39,456     34,859  
  


  


Total

  $72,999    $70,553  
  


  


74


9.  BORROWED FUNDS

 

The components of the Company’s short-term and long-term debt are as follows (in thousands):

 

   December 31

 
   2010

   2009

 

Short-term debt:

          

U. S. Treasury demand notes and other

  $29,670    $29,514  

Federal Home Loan Bank Repo Advance 0.39% due 2011

   4,350     —    

Federal Home Loan Bank 3.27% due 2011

   1,200     —    
   


  


Total short-term debt

   35,220     29,514  
   


  


Long-term debt:

          

Federal Home Loan Bank 3.27% due 2011

   —       1,200  

Federal Home Loan Bank 5.14% due 2020

   —       86  

Federal Home Loan Bank 5.47% due 2020

   —       13,797  

Federal Home Loan Bank 5.54% due 2021

   1,206     1,284  

Federal Home Loan Bank 5.89% due 2014

   1,245     1,571  

Federal Home Loan Bank 7.13% due 2010

   —       61  

Kansas Equity Fund IV, L.P. 0% due 2014

   544     660  

Kansas Equity Fund V, L.P. 0% due 2016

   345     400  

Kansas Equity Fund VI, L.P. 0% due 2016

   759     863  

Kansas City Equity Fund 2007, L.L.C. 0% due 2014

   603     674  

Kansas City Equity Fund 2008, L.L.C. 0% due 2014

   741     910  

Kansas City Equity Fund 2009, L.L.C. 0% due 2015

   904     910  

St. Louis Equity Fund 2005 L.L.C. 0% due 2010

   128     308  

St. Louis Equity Fund 2006 L.L.C. 0% due 2010

   109     154  

St. Louis Equity Fund 2007 L.L.C. 0% due 2010

   630     760  

St. Louis Equity Fund 2008 L.L.C. 0% due 2010

   760     910  

St. Louis Equity Fund 2009 L.L.C. 0% due 2010

   910     910  
   


  


Total long-term debt

   8,884     25,458  
   


  


Total borrowed funds

  $44,104    $54,972  
   


  


   December 31

 
   2011

   2010

 

Short-term debt:

          

U. S. Treasury demand notes and other

  $—      $29,670  

Federal Home Loan Bank Repo Advance 0.35% due 2012

   2,000     4,350  

Federal Home Loan Bank 3.27% due 2011

   —       1,200  

Wells Fargo Bank 1.25% due 2012

   10,000     —    
   


  


Total short-term debt

   12,000     35,220  
   


  


Long-term debt:

          

Federal Home Loan Bank 5.54% due 2021

   —       1,206  

Federal Home Loan Bank 5.89% due 2014

   893     1,245  

Kansas Equity Fund IV, L.P. 0% due 2016

   420     544  

Kansas Equity Fund V, L.P. 0% due 2017

   288     345  

Kansas Equity Fund VI, L.P. 0% due 2018

   629     759  

Kansas Equity Fund IX, L.P. 0% due 2020

   483     —    

Kansas City Equity Fund 2007, L.L.C. 0% due 2016

   531     603  

Kansas City Equity Fund 2008, L.L.C. 0% due 2014

   497     741  

Kansas City Equity Fund 2009, L.L.C. 0% due 2017

   770     904  

St. Louis Equity Fund 2005 L.L.C. 0% due 2013

   10     128  

St. Louis Equity Fund 2006 L.L.C. 0% due 2013

   67     109  

St. Louis Equity Fund 2007 L.L.C. 0% due 2015

   484     630  

St. Louis Equity Fund 2008 L.L.C. 0% due 2016

   610     760  

St. Louis Equity Fund 2009 L.L.C. 0% due 2017

   847     910  
   


  


Total long-term debt

   6,529     8,884  
   


  


Total borrowed funds

  $18,529    $44,104  
   


  


 

Aggregate annual repayments of long-term debt at December 31, 2010,2011, are as follows (in thousands):

 

2011

  $1,769  

2012

   1,672    $1,600  

2013

   1,699     1,657  

2014

   1,285     1,249  

2015

   971     916  

2016

   636  

Thereafter

   1,488     471  
  


  


Total

  $8,884    $6,529  
  


  


 

All of the Federal Home Loan Bank notes are secured by investment securities of the Company. Federal Home Loan Bank notes require monthly principal and interest payments and may require a penalty for payoff prior to the maturity date.

 

The Company has a revolving line of credit with Wells Fargo, N.A. which allows the Company to borrow up to $25.0 million for general working capital purposes. The interest rate applied to borrowed balances will be at the Company’s option either 1.00 percent above LIBOR or 1.75 percent below Prime on the date of an advance. The Company will also pay a 0.2 percent unused commitment fee for unused portions of the line of credit. As shown above, the Company had a $10.0 million advance outstanding at December 31, 2011 with an interest rate of 1.25 percent with an original maturity of January 2012. This advance was renewed with a maturity of March 2012.

75


The Company enters into sales of securities with simultaneous agreements to repurchase (repurchase agreements). The amounts received under these agreements represent short-term borrowings. The amount outstanding at December 31, 2010,2011, was $2,068,068,000$1.9 billion (with accrued interest payable of $34,687)$18 thousand). ThisThe amount consistsoutstanding at December 31, 2010, was $2.1 billion (with accrued interest payable of $200,000,000$35 thousand), which consisted of $200.0 million representing sales of securities in which securities were received under reverse

repurchase agreements (resell agreements) and $2,268,068,000$2.3 billion of sales of U.S. Treasury and Agency securities from the Company’s securities portfolio. The amount outstanding at December 31, 2009, was $1,880,273,000 (with accrued interest payable of $27,653).

 

The carrying amounts and market values of the securities and the related repurchase liabilities and weighted average interest rates of the repurchase liabilities (grouped by maturity of the repurchase agreements) were as follows as of December 31, 20102011 (in thousands):

 

Maturity of the Repurchase Liabilities


  Securities Market
Value


   Repurchase
Liabilities


   Weighted Average
Interest Rate


   Securities Market
Value


   Repurchase
Liabilities


   Weighted Average
Interest Rate


 

On Demand

  $36,116    $35,976     0.10  $8,963    $8,948     0.01

2 to 30 days

   2,028,423     2,032,092     0.27     1,947,845     1,939,083     0.11  
  


  


  


  


  


  


Total

  $2,064,539    $2,068,068     0.27  $1,956,808    $1,948,031     0.11
  


  


  


  


  


  


 

10.  REGULATORY REQUIREMENTS

 

Payment of dividends by the affiliate banks to the parent company is subject to various regulatory restrictions. For national banks, the governing regulatory agency must approve the declaration of any dividends generally in excess of the sum of net income for that year and retained net income for the preceding two years. At December 31, 2010,2011, approximately $15,200,000$22.0 million of the equity of the affiliate banks and non-bank subsidiaries was available for distribution as dividends to the parent company without prior regulatory approval or without reducing the capital of the respective affiliate banks below minimum levels.

 

Certain affiliate banks maintain reserve balances with the Federal Reserve Bank as required by law. During 2010,2011, this amount averaged $347,270,000,$696.5 million, compared to $279,562,000$347.3 million in 2009.2010.

 

The Company is required to maintain minimum amounts of capital to total “risk weighted” assets, as defined by the banking regulators. At December 31, 2010,2011, the Company is required to have minimum Tier 1 and Total capital ratios of 4.0% and 8.0%, respectively. The Company’s actual ratios at that date were 11.45%11.20% and 12.60%12.20%, respectively. The Company’s leverage ratio at December 31, 2010,2011, was 6.64%6.71%.

 

As of December 31, 2010,2011, the most recent notification from the Office of Comptroller of the Currency categorized all of the affiliate banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized all of the Company’s affiliate banks must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%, respectively. There are no conditions or events since that notification that management believes have changed the affiliate banks’ category.

76


Actual capital amounts as well as required and well-capitalized Tier 1, Total and Tier 1 Leverage ratios as of December 31, for the Company and its banks are as follows (in thousands):

 

  2010

   2011

 
  Actual

 For Capital
Adequacy Purposes


 To Be Well
Capitalized Under
Prompt
Corrective Action
Provisions


 
(in thousands)  Amount

   Ratio

 Amount

   Ratio

 Amount

   Ratio

 

Tier 1 Capital:

            

UMB Financial Corporation

  $738,763     11.30 $261,485     4.00 $N/A     N/A

UMB Bank, n. a.

   595,432     10.83    219,827     4.00    329,741     6.00  

UMB National Bank of America, n.a.

   50,724     16.02    12,666     4.00    18,999     6.00  

UMB Bank Colorado, n.a.

   88,532     11.94    29,669     4.00    44,504     6.00  

UMB Bank Arizona, n.a.

   11,011     9.91    4,444     4.00    6,666     6.00  

Total Capital:

            

UMB Financial Corporation

   813,713     12.45    522,971     8.00    N/A     N/A  

UMB Bank, n. a.

   659,951     12.01    439,655     8.00    549,569     10.00  

UMB National Bank of America, n.a.

   52,662     16.63    25,332     8.00    31,665     10.00  

UMB Bank Colorado, n.a.

   95,573     12.89    59,339     8.00    74,174     10.00  

UMB Bank Arizona, n.a.

   12,401     11.16    8,888     8.00    11,111     10.00  

Tier 1 Leverage:

            

UMB Financial Corporation

   738,763     6.56    450,619     4.00    N/A     N/A  

UMB Bank, n. a.

   595,432     6.15    387,303     4.00    484,129     5.00  

UMB National Bank of America, n.a.

   50,724     7.87    25,771     4.00    32,214     5.00  

UMB Bank Colorado, n.a.

   88,532     7.17    49,357     4.00    61,696     5.00  

UMB Bank Arizona, n.a.

   11,011     10.16    4,334     4.00    5,418     5.00  
  Actual

 For
Capital Adequacy
Purposes


 To Be Well Capitalized
Under Prompt
Corrective Action
Provisions


 
  2009

   Amount

   Ratio

 Amount

   Ratio

 Amount

   Ratio

 

Tier 1 Capital:

                        

UMB Financial Corporation

  $801,175     13.11 $244,388     4.00 $N/A     N/A  $823,187     11.20 $294,029     4.00 $N/A     N/A

UMB Bank, n. a.

   528,556     10.47    201,942     4.00    302,913     6.00     643,972     10.68    241,188     4.00    361,782     6.00  

UMB National Bank of America, n.a.

   52,696     16.56    12,731     4.00    19,096     6.00     58,620     18.85    12,442     4.00    18,663     6.00  

UMB Bank Colorado, n.a.

   95,581     12.56    30,441     4.00    45,661     6.00     103,867     11.74    35,393     4.00    53,089     6.00  

UMB Bank Arizona, n.a.

   10,456     11.89    3,516     4.00    5,274     6.00     15,303     9.83    6,229     4.00    9,344     6.00  

Total Capital:

                        

UMB Financial Corporation

   866,312     14.18    488,775     8.00    N/A     N/A     896,924     12.20    588,058     8.00    N/A     N/A  

UMB Bank, n. a.

   583,349     11.55    403,885     8.00    504,856     10.00     707,010     11.73    482,376     8.00    602,971     10.00  

UMB National Bank of America, n.a.

   54,417     17.10    25,462     8.00    31,827     10.00     60,579     19.48    24,884     8.00    31,105     10.00  

UMB Bank Colorado, n.a.

   103,173     13.56    60,882     8.00    76,102     10.00     110,291     12.46    70,785     8.00    88,482     10.00  

UMB Bank Arizona, n.a.

   11,488     13.07    7,033     8.00    8,791     10.00     17,254     11.08    12,459     8.00    15,574     10.00  

Tier 1 Leverage:

                        

UMB Financial Corporation

   801,175     7.87    406,983     4.00    N/A     N/A     823,187     6.71    490,374     4.00    N/A     N/A  

UMB Bank, n. a.

   528,556     6.05    349,280     4.00    436,600     5.00     643,972     6.32    407,693     4.00    509,616     5.00  

UMB National Bank of America, n.a.

   52,696     8.52    24,745     4.00    30,931     5.00     58,620     9.02    26,006     4.00    32,507     5.00  

UMB Bank Colorado, n.a.

   95,581     10.14    37,692     4.00    47,115     5.00     103,867     7.00    59,352     4.00    74,190     5.00  

UMB Bank Arizona, n.a.

   10,456     12.52    3,339     4.00    4,174     5.00     15,303     10.87    5,633     4.00    7,041     5.00  

   2010

 

Tier 1 Capital:

                            

UMB Financial Corporation

  $738,763     11.30 $261,485     4.00 $N/A     N/A

UMB Bank, n. a.

   595,432     10.83    219,827     4.00    329,741     6.00  

UMB National Bank of America, n.a.

   50,724     16.02    12,666     4.00    18,999     6.00  

UMB Bank Colorado, n.a.

   88,532     11.94    29,669     4.00    44,504     6.00  

UMB Bank Arizona, n.a.

   11,011     9.91    4,444     4.00    6,666     6.00  

Total Capital:

                            

UMB Financial Corporation

   813,713     12.45    522,971     8.00    N/A     N/A  

UMB Bank, n. a.

   659,951     12.01    439,655     8.00    549,569     10.00  

UMB National Bank of America, n.a.

   52,662     16.63    25,332     8.00    31,665     10.00  

UMB Bank Colorado, n.a.

   95,573     12.89    59,339     8.00    74,174     10.00  

UMB Bank Arizona, n.a.

   12,401     11.16    8,888     8.00    11,111     10.00  

Tier 1 Leverage:

                            

UMB Financial Corporation

   738,763     6.56    450,619     4.00    N/A     N/A  

UMB Bank, n. a.

   595,432     6.15    387,303     4.00    484,129     5.00  

UMB National Bank of America, n.a.

   50,724     7.87    25,771     4.00    32,214     5.00  

UMB Bank Colorado, n.a.

   88,532     7.17    49,357     4.00    61,696     5.00  

UMB Bank Arizona, n.a.

   11,011     10.16    4,334     4.00    5,418     5.00  

77


11.  EMPLOYEE BENEFITS

 

The Company has a discretionary noncontributory profit sharing plan, which features an employee stock ownership plan. This plan is for the benefit of substantially all eligible officers and employees of the Company and its subsidiaries. The Company has accrued and anticipates making a discretionary payment of $2,000,000$2.0 million in March 2012, for 2011. A $2.0 million contribution was paid in 2011, for 2010. A $2,973,000$3.0 million contribution was paid in 2010, for 2009. A $3,437,000 contribution was paid in 2009, for 2008.

 

The Company has a qualified 401(k) profit sharing plan that permits participants to make contributions by salary deduction. The Company made a matching contribution to this plan of $3,210,000$3.2 million in 2011, for 2010 and $3.2 million in 2010, for 2009 and $3,027,000 in 2009, for 2008.2009. The Company anticipates making a matching contribution of $3,315,000$4.5 million in March 2010,2012, for 2011.

 

The Company uses the Black-Scholes pricing model to determine the fair value of its options. The assumptions for stock-based awards in the past three years utilized in the model are shown in the table below.

 

Black-Scholes pricing model:


  2010

 2009

 2008

   2011

 2010

 2009

 

Weighted average fair value of the granted options

  $8.32   $8.74   $8.02    $9.73   $8.32   $8.74  

Weighted average risk-free interest rate

   2.77  2.13  3.04   2.65  2.77  2.13

Expected option life in years

   6.25    6.25    6.64     6.25    6.25    6.25  

Expected volatility

   23.25  22.28  18.23   24.54  23.25  22.28

Expected dividend yield

   1.96  1.57  1.57   1.80  1.96  1.57

 

The expected option life is derived from historical exercise patterns and represents the amount of time that options granted are expected to be outstanding. The expected volatility is based on historical volatilities of the Company’s stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

 

The Company recognized $2.1 million, $1.8$2.1 million, and $1.5$1.8 million in expense related to outstanding stock options and $4.4 million, $4.0 million, $3.5 million, and $2.8$3.5 million in expense related to outstanding restricted stock grants for the years ended December 31, 2011, 2010, 2009, and 2008,2009, respectively. The Company has $4.4$4.3 million of unrecognized compensation expense related to the outstanding options and $7.6$8.8 million of unrecognized compensation expense related to outstanding restricted stock grants at December 31, 2010.2011.

 

On April 18, 2002, the shareholders of the Company approved the 2002 Incentive Stock Options Plan (the 2002 Plan), which provides incentive options to certain key employees to receive up to 2,000,000 common shares of the Company. All options that are issued under the 2002 Plan are in effect for 10 years (except for any option granted to a person holding more than 10 percent of the Company’s stock, in which case the option is in effect for five years). All options issued prior to 2005, under the 2002 Plan, could not be exercised until at least four years 11 months after the date they are granted. Options issued in 2006, 2007, and 2008 under the 2002 Plan, have a vesting schedule of 50 percent after three years; 75 percent after four years and 100 percent after four years and eleven months. Except under circumstances of death, disability or certain retirements, the options cannot be exercised after the grantee has left the employment of the Company or its subsidiaries. The exercise period for an option may be accelerated upon the optionee’s qualified disability, retirement or death. All options expire at the end of the exercise period. Prior to 2006, the Company made no recognition in the balance sheet of the options until such options were exercised and no amounts applicable thereto were reflected in net income as all options were granted at strike prices at the then current fair value of the underlying shares. For options granted after January 1, 2006, compensation expense is recognized on unvested options outstanding. Options are granted at exercise prices of no less than 100 percent of the fair market value of the underlying shares based on the fair value of the option at date of grant. On January 25, 2011, the Board of Directors amended and froze the 2002 Plan such that no shares of Company stock shall thereafter be available for grants under the 2002 Plan. Existing awards granted under the 2002 Plan will continue in accordance with their terms under the 2002 Plan. The plan terminates April 17, 2012.

78


The table below discloses the information relating to option activity in 2010,2011, under the 2002 Plan:

 

Stock Options
Under the 2002 Plan


  Number
of Shares


 Weighted Average
Price Per Share


   Weighted Average
Remaining
Contractual Term


   Aggregate
Intrinsic
Value


   Number
of Shares

 Weighted Average
Price Per Share


   Weighted Average
Remaining
Contractual Term


   Aggregate
Intrinsic
Value


 

Outstanding—December 31, 2009

   738,183   $32.85        

Outstanding—December 31, 2010

   680,858   $32.99        

Granted

   —      —             —      —          

Canceled

   (28,600  34.72           (22,595  38.86        

Exercised

   (28,725  28.35           (27,754  24.87        
  


 


        


 


      

Outstanding—December 31, 2010

   680,858    32.99     5.2    $5,749,339  

Outstanding—December 31, 2011

   630,509    33.16     4.3     2,581,756  
  


 


  


  


  


 


  


  


Exercisable—December 31, 2010

   475,589    30.26        

Exercisable—December 31, 2011

   546,884    32.14        
  


 


        


 


      

Exercisable and expected to be exercisable—December 31, 2010

   663,313   $32.78     5.2    $5,742,810  

Exercisable and expected to be exercisable— December 31, 2011

   622,344    33.05     4.3     2,612,303  
  


 


  


  


  


 


  


  


 

The weighted average grant-date fair value of options granted during 2008 was $9.27. No options were granted under the 2002 Plan during either 2009, 2010 or 2010.2011. The total intrinsic value of options exercised during the year ended December 31, 2011, 2010, and 2009 was $1.1 million, $1.2 million, and 2008 was $1,158,290, $1,100,728, and $1,491,966,$1.1 million, respectively. As of December 31, 2010,2011, there was $1,125,666$526 thousand of unrecognized compensation cost related to the nonvested shares. The cost is expected to be recognized over a period of 3.21.6 years.

 

On April 16, 1992, the shareholders of the Company approved the 1992 Incentive Stock Option Plan (the 1992 Plan), which provides incentive options to certain key employees for up to 1,000,000 common shares of the Company. Of the options granted prior to 1998, 40 percent are exercisable two years from the date of the grant and are thereafter exercisable in 20 percent increments annually, or for such periods or vesting increments as the Board of Directors, or a committee thereof, specify (which may not exceed 10 years or in the case of a recipient holding more than 10 percent of the Company’s stock, five years), provided that the optionee has remained in the employment of the Company or its subsidiaries. None of the options granted during or after 1998 were exercisable until four years eleven months after the grant date. The exercise period may be accelerated for an option upon the optionee’s qualified disability, retirement or death. All options expire at the end of the exercise period. Prior to 2006, the Company made no recognition in the balance sheet of the options until such options were exercised and no amounts applicable thereto were reflected in net income, because options were granted at exercise prices of no less than 100 percent of the fair market value of the underlying shares at date of grant. No further options may be granted under the 1992 Plan.

 

The table below discloses the information relating to option activity in 2010,2011, under the 1992 Plan:

 

Stock Options
Under the 1992 Plan


  Number
of Shares


 Weighted Average
Price Per Share


   Weighted Average
Remaining
Contractual Term


   Aggregate
Intrinsic
Value


   Number
of  Shares

 Weighted
Average
Price Per
Share


   Weighted Average
Remaining
Contractual Term


   Aggregate
Intrinsic
Value


 

Outstanding—December 31, 2009

   72,780   $18.71        

Outstanding—December 31, 2010

   43,078   $20.01        

Granted

   —      —             —      —          

Canceled

   (1,283  16.97           (5,325  20.01        

Exercised

   (28,419  16.82           (37,753  20.01        
  


 


        


 


      

Outstanding—December 31, 2010

   43,078    20.01     0.9    $923,162  

Outstanding—December 31, 2011

   —      —       —       —    
  


 


  


  


  


 


  


  


Exercisable—December 31, 2010

   43,078   $20.01     0.9    $923,162  

Exercisable—December 31, 2011

   —      —       —       —    
  


 


  


  


  


 


  


  


 

There were no options granted under the plan during the years 2011, 2010, 2009, and 2008.2009. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010, and 2009 was $1.4 million, $1.1 million and 2008 was $1,101,875, $1,130,323 and $2,594,069,$1.1 million, respectively. As of December 31, 2010,2011, there was no unrecognized compensation expense to be recognized for this plan.

On May 4, 2004, the Company entered into an agreement with Peter J. deSilva, President and Chief Operating Officer of the Company to issue 8,000 shares of common stock of the Company. The shares vested 20 percent per year of employment and fully vested on January 20, 2009. These restricted shares were automatically enrolled in the dividend reinvestment plan of the Company. Dividends paid on the restricted shares were used to purchase new shares which contain the same restriction. As of December 31, 2010, there was no unrecognized compensation cost related to the nonvested shares. Total fair value of shares vested during the years ended December 31, 2009, and 2008 was $66,845 and $61,912, respectively.

79


At the April 26, 2005, shareholders’ meeting, the shareholders approved the UMB Financial Corporation Long-Term Incentive Compensation Plan (LTIP) which became effective as of January 1, 2005. The Plan permits the issuance to selected officers of the Company service based restricted stock grants, performance-based restricted stock grants and non-qualified stock options. Service-based restricted stock grants contain a service requirement. The performance-based restricted grants contain performance and service requirements. The non-qualified stock options will containcontains a service requirement.

 

The Plan reserves up to 2,000,0005,250,000 shares of the Company’s stock. Of the total, no more than 800,0001,200,000 shares can be issued as restricted stock. These two requirements were in effect with the 2006 LTIP issuance. No one eligible employee may receive more than $1,000,000$1.0 million in benefits under the Plan during any one fiscal year taking into account the value of all stock options and restricted stock received during such fiscal year.

 

The service-based restricted stock grants contain a service requirement. The vesting schedule is 50 percent of the shares after three years of service, 75 percent after four years of service and 100 percent after five years of service.

 

The performance-based restricted stock grants contain a service and a performance requirement. The performance requirement is based on a predetermined performance requirement over a three year period. The service requirement portion is a three year cliff vesting. If the performance requirement is not met, the executives do not receive the shares.

 

The dividends on service and performance-based restricted stock grants are treated as two separate transactions. First, cash dividends are paid on the restricted stock. Those cash dividends are then paid to purchase additional shares of restricted stock. Dividends earned as additional shares of restricted stock have the same terms as the associated grant. The dividends paid on the stock are recorded as a reduction to retained earnings (similar to all dividend transactions).

 

The table below discloses the status of the service based restricted shares during 2010:2011:

 

Service Based Restricted Stock


  Number
of Shares


 Weighted Average
Grant Date Fair
Value


   Number
of Shares


 Weighted Average
Grant Date Fair
Value


 

Nonvested—December 31, 2009

   227,573   $39.81  

Nonvested - December 31, 2010

   259,011   $39.86  

Granted

   107,900    38.02     109,632    41.64  

Canceled

   (6,264  43.58     (10,277  39.79  

Vested

   (70,198  36.55     (49,351  41.83  
  


 


  


 


Nonvested—December 31, 2010

   259,011   $39.86  

Nonvested - December 31, 2011

   309,015    40.18  
  


 


  


 


 

As of December 31, 2010,2011, there was $6,219,035$7.3 million of unrecognized compensation cost related to the nonvested shares. The cost is expected to be recognized over a period of 3.0 years. Total fair value of shares vested during the year ended December 31, 2011, 2010, and 2009 was $2.0 million, $2.7 million, and 2008 was $2,730,259, $1,176,929, and $1,285,183$1.2 million respectively.

The table below discloses the status of the performance based restricted shares during 2010:2011:

 

Performance Based Restricted Stock


  Number
of Shares


 Weighted Average
Grant Date Fair
Value


   Number
of Shares


 Weighted Average
Grant Date Fair
Value


 

Nonvested—December 31, 2009

   103,089   $39.27  

Nonvested—December 31, 2010

   108,658   $38.91  

Granted

   38,608    37.84     40,833    41.71  

Canceled

   (3,520  38.23     (2,881  38.92  

Vested

   (29,519  38.85     (35,082  37.73  
  


 


  


 


Nonvested—December 31, 2010

   108,658   $38.91  

Nonvested—December 31, 2011

   111,528    40.31  
  


 


  


 


 

80


As of December 31, 2010,2011, there was $1,368,196$1.5 million of unrecognized compensation cost related to the nonvested shares. The cost is expected to be recognized over a period of 1.7 years. Total fair value of shares vested during the years ended December 31, 2011, 2010 and 2009, was $1.5 million, $1.2 million and 2008, was $1,212,936, $1,156,007 and $1,144,219,$1.2 million, respectively.

 

The non-qualified stock options carry a service requirement and will vest 50 percent after three years, 75 percent after four years and 100 percent after five years.

 

The table below discloses the information relating to option activity in 20102011 under the LTIP:

 

Stock Options Under the LTIP


  Number
of Shares


 Weighted Average
Price Per Share


   Weighted Average
Remaining
Contractual Term


   Aggregate
Intrinsic
Value


   Number
of Shares

 Weighted Average
Price Per Share


   Weighted Average
Remaining
Contractual Term


   Aggregate
Intrinsic
Value


 

Outstanding—December 31, 2009

   714,830   $37.21        

Outstanding—December 31, 2010

   913,772   $37.33        

Granted

   230,952    37.84           238,192    41.70        

Canceled

   (27,640  38.79           (10,554  40.00        

Exercised

   (4,370  34.47           (12,585  30.77        
  


 


        


 


  


  


Outstanding—December 31, 2010

   913,772    37.33     7.1    $3,854,377  

Outstanding—December 31, 2011

   1,128,825    38.30     6.7     (1,189,120
  


 


  


  


  


 


  


  


Exercisable—December 31, 2010

   224,433    32.56        

Exercisable—December 31, 2011

   355,231    34.69        
  


 


        


 


      

Exercisable and expected to be exercisable—December 31, 2010

   874,528   $36.73     7.0    $4,119,480  

Exercisable and expected to be exercisable—December 31, 2011

   1,076,303    38.23     6.6     (1,051,441
  


 


  


  


  


 


  


  


 

The weighted average grant-date fair value of options granted during the years 2011, 2010, and 2009 was $9.73, $8.32, and 2008 was $8.32, $8.74, and $7.20.$8.74. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009, was $476 thousand, $178 thousand and 2008, was $178,316, $228,078 and $734,335,$228 thousand, respectively. As of December 31, 2010,2011, there was $3,260,455$3.8 million of unrecognized compensation cost related to the nonvested shares. The cost is expected to be recognized over a period of 3.23.3 years.

 

Cash received from options exercised under all share based compensation plans was $1,441,875, $1,339,823,$1.8 million, $1.4 million, and $2,253,976$1.3 million for the years ended December 31, 2011, 2010, 2009, and 2008,2009, respectively. The tax benefit realized for stock options exercised was $151,955$79 thousand in 2011, $152 thousand in 2010 $190,728and $191 thousand in 2009 and $367,000 in 2008.2009.

 

The Company has no specific policy to repurchase common shares to mitigate the dilutive impact of options; however, the Company has historically made adequate discretionary purchases to satisfy stock option exercise activity. See a description of the Company’s share repurchase plan in Note 14 to the Consolidated Financial Statements provided in Item 8, page 84 of this report.

12.  OTHER COMPREHENSIVE INCOME (LOSS)

 

The table below discloses the Company’s component of other comprehensive income (loss) during the periods presented, which are comprised of unrealized gains (losses) on available for sale securities (in thousands):

 

   2010

  2009

  2008

 

Change in unrealized holding gains, net

  $(15,601 $8,725   $48,901  

Reclassification adjustments for gains included in net income

   (8,315  (9,737  (3,334
   


 


 


Net unrealized holding (losses) gains

   (23,916  (1,012  45,567  

Income tax benefit (expense)

   8,927    361    (16,708
   


 


 


Other comprehensive (loss) income

  $(14,989 $(651 $28,859  
   


 


 


   2011

  2010

  2009

 

Change in unrealized holding gains, net

  $104,204   $(15,601 $8,725  

Reclassification adjustments for gains included in net income

   (16,125  (8,315  (9,737
   


 


 


Net unrealized holding gains (losses)

   88,079    (23,916  (1,012

Income tax (expense) benefit

   (32,445  8,927    361  
   


 


 


Other comprehensive income (loss)

  $55,634   $(14,989 $(651
   


 


 


 

81


13.  BUSINESS SEGMENT REPORTING

 

The Company has strategically aligned its operations into the following three reportable segments (collectively, “Business Segments”): Commercial Financial Services, Institutional Financial Services, and Personal Financial Services. The Business Segments were redefined during the first quarter of 2010 to better organize the Company’s business around customer needs. In 2009, the Business Segments were Commercial Banking and Lending, Payment and Technology Solutions, Banking Services, Consumer Services, Asset Management, and Fund Services. Business segment financial results produced by the Company’s internal management accounting system are evaluated regularly by the Executive Committee in deciding how to allocate resources and assess performance for individual Business Segments. The management accounting system assigns balance sheet and income statement items to each business segment using methodologies that are refined on an ongoing basis. For comparability purposes, amounts in all periods are based on methodologies in effect at December 31, 2010.2011.

 

The following summaries provide information about the activities of each segment:

 

Commercial Financial Services resulted from combining Commercial Banking and Lending with Treasury Management (previously a component of Payment and Technology Solutions). Commercial Financial Services serves the commercial lending and leasing, capital markets, and treasury management needs of the Company’s mid-market businesses and governmental entities by offering various products and services. Such services include commercial loans, letters of credit, loan syndication services, consultative services, and a variety of financial options for companies that need non-traditional banking services. Capital markets services include asset-based financing, asset securitization, equity and mezzanine financing, factoring, private and public placement of senior debt, as well as merger and acquisition consulting.Treasuryconsulting. Treasury management services include depository services, account reconciliation services, electronic fund transfer services, controlled disbursements, lockbox services, and remote deposit capture services.

 

Institutional Financial Services is a combination of Banking Services, Fund Services,banking services, fund services, and Asset Managementasset management services provided to institutional clients. This segment also includes consumer credit card services, formerly included in Consumer Services, and commercial credit card services formerly included in Payment and Technology Solutions. Healthcareaddition to healthcare services, mutual fund cash management, and international payments, previously included in Payment and Technology Solutions, are also included in this segment.payments. Institutional Financial Services includes businesses such as the Company’s institutional investment services functions, Scout Investment Advisors, UMB Fund Services, corporate trust and escrow services as well as correspondent banking, investment banking, and UMB Healthcare Services.healthcare services. Products and services include bond trading transactions, cash letter collections, FiServ account processing, investment portfolio accounting and safekeeping, reporting for asset/liability management, and Fed funds transactions. UMB Fund Services provides fund administration and accounting, investor services and transfer agency, marketing and distribution, custody and alternative investment and managed account services.

Personal Financial Services combines Consumer Servicesconsumer services and Asset Managementasset management services provided to personal clients. This segment combines the Company’s consumer bank with the individual investment and wealth management solutions. The range of services offered to UMB clients extends from a basic checking account to estate planning and trust services. Products and services include the Company’s bank branches, call center, internet banking and ATM network, deposit accounts, private banking, installment loans, home equity lines of credit, residential mortgages, small business loans, brokerage services, and insurance services in addition to a full spectrum of investment advisory, trust, and custody services.

 

Treasury and Other Adjustments includes asset and liability management activities and miscellaneous other items of a corporate nature not allocated to specific business lines. The assets within this segment include the Company’s investment portfolio. Corporate eliminations are also allocated to this segment.

82


BUSINESS SEGMENT INFORMATION

 

Line of business/segment financial results were as follows:

 

  Year Ended December 31

   Year Ended December 31

 
  Commercial Financial Services

   Institutional Financial Services

   Commercial Financial Services

   Institutional Financial Services

 
(dollars in thousands)  2010

   2009

   2008

   2010

   2009

   2008

   2011

   2010

   2009

   2011

   2010

   2009

 

Net interest income

  $154,784    $154,610    $130,613    $51,932    $56,343    $44,060    $163,204    $154,692    $154,618    $53,706    $51,857    $56,169  

Provision for loan losses

   10,288     16,599     6,171     17,010     14,012     10,703     11,184     11,261     16,599     9,166     18,333     14,011  

Noninterest income

   34,231     32,696     34,084     223,604     177,418     173,179     40,447     37,731     36,972     256,023     219,984     172,980  

Noninterest expense

   117,307     109,945     107,852     207,449     166,169     150,398     123,083     119,498     110,819     232,864     205,302     161,524  
  


  


  


  


  


  


  


  


  


  


  


  


Net income before tax

  $61,420    $60,762    $50,674    $51,077    $53,580    $56,138    $69,384    $61,664    $64,172    $67,699    $48,206    $53,614  
  


  


  


  


  


  


  


  


  


  


  


  


Average assets

  $3,597,000    $3,507,000    $3,256,000    $719,000    $532,000    $471,000  

Depreciation and amortization

   8,857     9,495     10,620     15,631     12,421     10,645  

Expenditures for additions to premises and equipment

   6,406     6,833     7,783     13,601     9,052     6,973  
  Personal Financial Services

   Treasury and Other Adjustments

 
(dollars in thousands)  2010

   2009

   2008

   2010

   2009

   2008

 

Net interest income

  $103,594    $92,020    $94,340    $303    $12    $6,038  

Provision for loan losses

   1,835     1,489     976     2,377     —       —    

Noninterest income

   96,765     92,997     99,274     5,770     7,065     6,246  

Noninterest expense

   184,870     182,539     174,235     2,996     1,932     (2,332
  


  


  


  


  


  


Net income before tax

  $13,654    $989    $18,403    $700    $5,145    $14,616  
  


  


  


  


  


  


Average assets

  $778,000    $836,000    $956,000    $6,014,000    $5,236,000    $4,215,000    $4,224,000    $3,604,000    $3,511,000    $877,000    $714,000    $528,000  

Depreciation and amortization

   12,870     14,349     14,987     2,018     1,842     1,477     8,365     9,288     9,580     19,787     15,125     11,245  

Expenditures for additions to premises and equipment

   10,158     6,636     10,955     2,427     905     1,468     6,481     6,789     9,232     15,654     13,503     11,225  

 

000000000000000000000000000000000000
  Total Consolidated Company

   Personal Financial Services

 Treasury and Other Adjustments

 
(dollars in thousands)  2010

   2009

   2008

   2011

   2010

   2009

 2011

   2010

   2009

 

Net interest income

  $310,613    $302,985    $275,051    $99,979    $103,701    $92,133   $84    $363    $65  

Provision for loan losses

   31,510     32,100     17,850     1,850     1,916     1,490    —       —       —    

Noninterest income

   360,370     310,176     312,783     103,562     96,885     92,253    14,300     5,770     7,971  

Noninterest expense

   512,622     460,585     430,153     194,649     184,833     185,453    12,150     2,989     2,789  
  


  


  


  


  


  


 


  


  


Net income before tax

  $126,851    $120,476    $139,831    $7,042    $13,837    $(2,557 $2,234    $3,144    $5,247  
  


  


  


  


  


  


 


  


  


Average assets

  $11,108,000    $10,111,000    $8,898,000    $882,000    $778,000    $836,000   $6,434,000    $6,012,000    $5,236,000  

Depreciation and amortization

   39,376     38,107     37,729     13,121     12,949     14,789    1,658     2,014     2,493  

Expenditures for additions to premises and equipment

   32,592     23,426     27,179     11,764     10,302     816    1,658     1,998     2,153  

   Total Consolidated Company

 
(dollars in thousands)  2011

   2010

   2009

 

Net interest income

  $316,973    $310,613    $302,985  

Provision for loan losses

   22,200     31,510     32,100  

Noninterest income

   414,332     360,370     310,176  

Noninterest expense

   562,746     512,622     460,585  
   


  


  


Net income before tax

  $146,359    $126,851    $120,476  
   


  


  


Average assets

  $12,417,000    $11,108,000    $10,111,000  

Depreciation and amortization

   42,931     39,376     38,107  

Expenditures for additions to premises and equipment

   35,557     32,592     23,426  

83


14.  COMMON STOCK AND EARNINGS PER SHARE

 

The following table summarizes the share transactions for the three years ended December 31, 2010:2011:

 

  Shares
Issued


   Shares in
Treasury


 

Balance December 31, 2007

   55,056,730     (13,729,106

Purchase of Treasury Stock

   —       (580,096

Sale of Treasury Stock

   —       12,112  

Issued for stock options & restricted stock

   —       188,155  
  


  


  Shares
Issued


   Shares in
Treasury


 

Balance December 31, 2008

   55,056,730     (14,108,935   55,056,730     (14,108,935

Purchase of Treasury Stock

   —       (703,723   —       (703,723

Sale of Treasury Stock

   —       15,376     —       15,376  

Issued for stock options & restricted stock

   —       180,159     —       180,159  
  


  


  


  


Balance December 31, 2009

   55,056,730     (14,617,123   55,056,730     (14,617,123

Purchase of Treasury Stock

   —       (242,383   —       (242,383

Sale of Treasury Stock

   —       21,735     —       21,735  

Issued for stock options & restricted stock

   —       211,122     —       211,122  
  


  


  


  


Balance December 31, 2010

   55,056,730     (14,626,649   55,056,730     (14,626,649

Purchase of Treasury Stock

   —       (254,274

Sale of Treasury Stock

   —       16,218  

Issued for stock options & restricted stock

   —       234,317  
  


  


  


  


Balance December 31, 2011

   55,056,730     (14,630,388
  


  


 

The Company’s Board of Directors approved a plan to repurchase up to two million2,000,000 shares of common stock annually at its 2007, 2008, 2009, 2010 and 20102011 Annual Meetings of Shareholders. All open market share purchases under the share repurchase plans are intended to be within the scope of Rule 10b-18 promulgated under the Exchange Act. Rule 10b-18 provides a safe harbor for purchases in a given day if the Company satisfies the manner, timing and volume conditions of the rule when purchasing its own common shares. The Company has not made any repurchases other than through these plans.

 

Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of shares outstanding during the year. Diluted earnings per share gives effect to all potential common shares that were outstanding during the year.

 

The shares used in the calculation of basic and diluted earnings per share, are shown below:

 

  For the Years Ended December 31

   For the Years Ended December 31

 
  2010

   2009

   2008

   2011

   2010

   2009

 

Weighted average basic common shares outstanding

   40,071,751     40,324,437     40,739,240     40,034,435     40,071,751     40,324,437  

Dilutive effect of stock options and restricted stock

   239,924     301,902     399,230     275,522     239,924     301,902  
  


  


  


  


  


  


Weighted average diluted common shares outstanding

   40,311,675     40,626,339     41,138,470     40,309,957     40,311,675     40,626,339  
  


  


  


  


  


  


 

15.  COMMITMENTS, CONTINGENCIES AND GUARANTEES

 

In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, commercial letters of credit, standby letters of credit, and futures contracts. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amount of those instruments reflects the extent of involvement the Company has in particular classes of financial instruments.

 

84


The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit, commercial letters of credit, and standby letters of credit is represented by the contract or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. These conditions generally include, but are not limited to, each customer being current as to repayment terms of existing loans and no deterioration in the customer’s financial condition. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The interest rate is generally a variable rate. If the commitment has a fixed interest rate, the rate is generally not set until such time as credit is extended. For credit card customers, the Company has the right to change or terminate terms or conditions of the credit card account at any time. Since a large portion of the commitments and unused credit card lines are never actually drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on an individual basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, real estate, plant and equipment, stock, securities and certificates of deposit.

 

Commercial letters of credit are issued specifically to facilitate trade or commerce. Under the terms of a commercial letter of credit, as a general rule, drafts will be drawn when the underlying transaction is consummated as intended.

 

Standby letters of credit are conditional commitments issued by the Company payable upon the non-performance of a customer’s obligation to a third party. The Company issues standby letters of credit for terms ranging from three months to three years. The Company generally requires the customer to pledge collateral to support the letter of credit. The maximum liability to the Company under standby letters of credit at December 31, 2011 and 2010, and 2009, was $308.2$320.1 million and $308.9$308.2 million, respectively. As of December 31, 20102011 and 2009,2010, standby letters of credit totaling $76.9$55.9 million and $57.8$76.9 million, respectively, were with related parties to the Company.

 

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities. The Company holds collateral supporting those commitments when deemed necessary. Collateral varies but may include such items as those described for commitments to extend credit.

 

Futures contracts are contracts for delayed delivery of securities or money market instruments in which the seller agrees to make delivery at a specified future date, of a specified instrument, at a specified yield. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movement in securities values and interest rates. Instruments used in trading activities are carried at market value and gains and losses on futures contracts are settled in cash daily. Any changes in the market value are recognized in trading and investment banking income.

 

The Company uses contracts to offset interest rate risk on specific securities held in the trading portfolio. Open futures contract positions average notional amount was $17.7$34.7 million and $14.0$17.7 million during the years ended December 31, 20102011 and 2009,2010, respectively. Net futures activity resulted in losses of $1.1 million, $0.8 million and $0.1 million for 2011, 2010, and $2.1 million for 2010, 2009, and 2008, respectively. The Company controls the credit risk of its futures contracts through credit approvals, limits and monitoring procedures.

 

The Company also enters into foreign exchange contracts on a limited basis. For operating purposes, the Company maintains certain balances in foreign banks. Foreign exchange contracts are purchased on a monthly basis to avoid foreign exchange risk on these foreign balances. The Company will also enter into foreign exchange contracts to facilitate foreign exchange needs of customers. The Company will enter into a contract to buy or sell a foreign currency at a future date only as part of a contract to sell or buy the foreign currency at the

85


same future date to a customer. During 2010,2011, contracts to purchase and to sell foreign currency averaged approximately $49.0$39.9 million compared to $23.0$49.0 million during 2009.2010. The net gains on these foreign exchange contracts for 2011, 2010 and 2009 and 2008 were $1.9$2.2 million, $1.9 million and $2.3$1.9 million, respectively.

 

With respect to group concentrations of credit risk, most of the Company’s business activity is with customers in the states of Missouri, Kansas, Colorado, Oklahoma, Nebraska, Arizona, and Illinois. At December 31, 2010,2011, the Company did not have any significant credit concentrations in any particular industry.

During 2010, two suits were filed against UMB Bank, N.A. (the “Bank”) in Missouri state court. The first suit was made by a customer alleging that the Bank’s checking account posting practices resulted in excessive overdraft fees in violation of Missouri’s consumer protection statute and the account agreement. The suit seeks class-action status for Bank customers who may have been similarly affected. The Bank removed this action to the U.S. District Court for the Western District of Missouri. This action was then transferred to the multidistrict litigation in the U.S. District Court for the Southern District of Florida, where similar claims against other financial institutions are pending. A second suit was filed in Missouri state court by another Bank customer alleging the substantially identical facts and also seeking class action status. At this early stage of the litigation, it is not possible for management of the Bank to determine the probability of a material adverse outcome or reasonably estimate the amount of any potential loss.

 

The following table summarizes the Company’s off-balance sheet financial instruments as described above.

 

  Contract or Notional
Amount December 31


   Contract or Notional
Amount December 31


 

(in thousands)


  2010

   2009

   2011

   2010

 

Commitments to extend credit for loans (excluding credit card loans)

  $1,729,011    $1,868,869    $2,202,838    $1,729,011  

Commitments to extend credit under credit card loans

   1,970,508     1,320,416     2,059,193     1,970,508  

Commercial letters of credit

   3,537     3,538     19,564     3,537  

Standby letters of credit

   308,154     308,866     320,119     308,154  

Futures contracts

   22,400     13,300     30,600     22,400  

Forward foreign exchange contracts

   3,685     69,342     119,200     3,685  

Spot foreign exchange contracts

   2,608     5,513     3,040     2,608  

 

16.  ACQUISITIONS

 

The following acquisitions were completed during the third and fourth quarters of 2010 and the second quarter of 2009, and the2009. The pro-forma impact of these transactions was not material. Each of these acquisitions have a contingent consideration liability which has had payments and valuation adjustments applied since the acquisition date. A rollforward of these changes is included in Note 18 in the Notes to the Consolidated Financial Statements under Item 8 on pages 89 through 93

 

On July 30, 2010, UMB Advisors, LLC (“UMB Advisors”) and UMB Merchant Banc, LLC (“UMBMB”, together with UMB Advisors, the “Buyers”), a subsidiary of UMB Financial Corporation, completed the purchase of substantially all of the assets of Prairie Capital Management LLC (“Prairie Capital”) and PCM LLC (“PCM”) for cash of $25.9 million and future consideration. After the completion of the transaction, UMB Advisors name was changed to Prairie Capital Management, LLC. Prairie Capital is in the business of providing investment management services, and PCM is the general partner of various investment funds and associated with Prairie Capital’s business. UMB Advisors purchased substantially all of the assets of Prairie Capital’s business, and UMBMB purchased substantially all of the assets of PCM’s business. This acquisition increased the Company’s assets under management base by $2.2 billion and increased the Company’s servicing assets by $2.6 billion. Goodwill amounted to $32.2 million with the remaining purchase price allocated to cash, furniture, fixtures, prepaid assets, and unearned income. Identifiable intangible assets amounted to $19.4 million. Total goodwill and intangible assets are inclusive of contingent earn-out payments based on revenue targets over the next five years. This earn-out liability was estimated to be $26.0 million at the purchase date. No changesEarn-out payments and valuation adjustments have occurred to this estimate asbeen made in 2011 resulting in a contingent earn-out liability of $26.1 million at December 31, 2010. After the completion of the transaction, UMB Advisors name was changed to Prairie Capital Management, LLC.2011.

 

On September 1, 2010, Scout Investment Advisors, Inc. (Scout), a wholly-owned subsidiary of UMB Financial Corporation, completed the purchase of substantially all of the assets of Reams Asset Management Company, LLC (“Reams”) for cash of $44.7 million and future consideration. Reams is a provider of investment management services to institutional clients and a manager of over $9.8 billion in fixed income assets. Reams is now operated as a division of Scout Investments, Inc. Goodwill amounted to $47.5 million with the remaining purchase price allocated to cash, furniture, fixtures, prepaid assets, and unearned income. Identifiable intangible assets totaled $26.0 million. Total goodwill and intangible assets are inclusive of contingent earn-out payments

86


based on revenue targets over the next five years. This earn-out liability was estimated to be $32.5 million at the purchase date.

Earn-out payments and valuation adjustments were made in 2011 resulting in a contingent earn-out liability of $31.6 million at December 31, 2011.

On May 7, 2009, UMB Fund Services, Inc., a subsidiary of UMB Financial Corporation, completed the purchase of 100 percent of the outstanding equity interests of J.D. Clark & Co., Inc. (J.D. Clark), a privately held, third-party fund service provider to alternative investment firms in a cash transaction of $23.1 million and future consideration. Management believes this acquisition will grow the Company’s fund servicing fee base and enhance the Company’s technology and servicing capabilities to alternative investment firms. J.D. Clark, with $18 billion in assets under administration will operateoperates as a wholly-owned subsidiary of UMB Fund Services, Inc. J.D. Clark will retainretained its name and continuecontinues its operations from Ogden, Utah. Goodwill amounted to $19.5 million with the remaining purchase price allocated to $2.0 million in furniture, fixtures, and software and $1.2 million in accounts receivable. Identifiable intangible assets amounted to $24.8 million. Total goodwill and intangible assets are inclusive of contingent earn-out payments of approximately $23.7 million based on revenue targets over the next four years. Earn-out payments and valuation adjustments have been made in 2010 and 2011 resulting in a contingent earn-out liability of $13.4 million at December 31, 2011.

 

17.  INCOME TAXES

 

Income taxes as set forth below produce effective income tax rates of 27.3 percent in 2011, 28.3 percent in 2010, and 25.7 percent in 2009, and 29.9 percent in 2008.2009. These percentages are computed by dividing total income tax by the sum of such tax and net income.

 

Income taxes includetax expense includes the following components (in thousands):

 

   Year Ended December 31

 
   2010

  2009

  2008

 

Current

             

Federal provision

  $46,127   $34,763   $44,422  

State provision

   2,948    2,195    2,357  
   


 


 


Total current tax provision

   49,075    36,958    46,779  

Deferred

             

Federal (benefit) provision

   (13,836  (4,932  (4,815

State (benefit) provision

   610    (1,034  (208
   


 


 


Total deferred tax (benefit) provision

   (13,226  (5,966  (5,023
   


 


 


Total tax provision

  $35,849   $30,992   $41,756  
   


 


 


   Year Ended December 31

 
   2011

  2010

  2009

 

Current tax expense

             

Federal

  $37,669   $46,127   $34,763  

State

   2,415    2,948    2,195  
   


 


 


Total current tax provision

   40,084    49,075    36,958  

Deferred tax expense

             

Federal

   (178  (13,836  (4,932

State

   (19  610    (1,034
   


 


 


Total deferred tax benefit

   (197  (13,226  (5,966
   


 


 


Total tax expense

  $39,887   $35,849   $30,992  
   


 


 


 

The reconciliation between the income tax provisionexpense and the amount computed by applying the statutory federal tax rate of 35% to income taxes is as follows (in thousands):

 

  Year Ended December 31

   Year Ended December 31

 
  2010

 2009

 2008

   2011

 2010

 2009

 

Provision at statutory rate

  $44,398   $42,167   $48,941  

Statutory federal income tax expense

  $51,226   $44,398   $42,167  

Tax-exempt interest income

   (10,365  (10,257  (8,756   (12,301  (10,365  (10,257

State and local income taxes, net of federal tax benefits

   431    759    1,451     1,193    431    759  

Federal tax credits

   (564  (1,100  (234   (687  (564  (1,100

Other

   1,949    (577  354     456    1,949    (577
  


 


 


  


 


 


Total tax provision

  $35,849   $30,992   $41,756  

Total tax expense

  $39,887   $35,849   $30,992  
  


 


 


  


 


 


 

87


In preparing its tax returns, the Company is required to interpret complex tax laws and regulations to determine its taxable income. Periodically, the Company is subject to examinations by various taxing authorities that may give rise to differing interpretations of these complex laws. The Company is currently not under federal audit by the Internal Revenue Service. Two state tax authorities are in the examination process of auditing state incomewith any tax returns of various subsidiaries. One of these state audits isjurisdictions at the appeals level. UponDecember 31, 2011. However, upon examination, agreement of tax liabilities between the Company and the multiple tax jurisdictions in which the Company files tax returns may ultimately be different.

Deferred income tax expense (benefit) results from differences between the carrying value of assets and liabilities measured for financial reporting and the tax basis of assets and liabilities for income tax return purposes.

 

The significant components of deferred tax assets and liabilities are reflected in the following table (in thousands):

 

  December 31,

   December 31,

 
  2010

 2009

   2011

 2010

 

Deferred tax assets:

      

Allowance for loan losses

  $28,034   $26,137  

Stock-based Compensation

   3,598    3,279  

Loans, principally due to allowance for loan losses

  $29,301   $28,034  

Stock-based compensation

   4,637    3,598  

Accrued expenses

   9,348    3,293     8,968    9,348  

Miscellaneous

   7,032    5,218     4,257    7,032  
  


 


  


 


Total deferred tax assets before valuation allowance

   48,012    37,927     47,163    48,012  

Valuation allowance

   (2,378  (768   (2,605  (2,378
  


 


  


 


Total deferred tax assets

   45,634    37,159     44,558    45,634  
  


 


  


 


Deferred tax liabilities:

      

Net unrealized gain on securities available for sale

   (14,431  (23,359   (46,877  (14,431

Land, building, and equipment

   (22,541  (24,174

Land, buildings and equipment

   (25,448  (22,541

Intangibles

   (4,451  (6,893   (2,771  (4,451

Miscellaneous

   (5,909  (6,585   (3,409  (5,909
  


 


  


 


Total deferred tax liabilities

   (47,332  (61,011   (78,505  (47,332
  


 


  


 


Net deferred tax liability

  $(1,698 $(23,852  $(33,947 $(1,698
  


 


  


 


 

The Company has various state net operating loss carryforwards of approximately $23.8 million, $25.5 million, and $22.0 million for 2011, 2010 and $15.5 million for 2010, 2009 and 2008 respectively. These net operating losses expire at various times through 2030.between 2012 and 2031. As of December 31, 20102011 the Company has a full valuation allowance of $0.9$0.8 million for these state net operating losses as they are not expected to be fully realized. In addition, to the state net operating loss valuation allowance, the Company has recorded a valuation allowance of $1.5$1.8 million to reduce certain state deferred tax assets to the amount of tax benefit management believes it will more likely than not realize. The increase in the valuation allowance during 2010 is attributable to an overall increase in deferred tax assets over deferred tax liabilities, exclusive of the liabilities for indefinite-lived assets in certain states where the Company has experienced net operating losses in recent years.

 

The net deferred tax liability at December 31, 20102011 and 20092010 is included in accrued expenses and taxes.

 

Liabilities Associated With Unrecognized Tax Benefits

 

The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years prior to 2008 in the jurisdictions in which it files.

The gross amount of unrecognized tax benefits totaled $3.9$4.1 million and $2.9$3.9 million at December 31, 20102011 and 2009,2010, respectively. The total amount of unrecognized tax benefits, net of associated deferred tax benefit, that would impact the effective tax rate, if recognized, would bewas $2.7 million and $2.5 million at December 31, 2011 and $2.0 million forDecember 31, 2010, and 2009, respectively. The unrecognized tax benefit relates to state tax positions that, if recognized,

88


would result in the recognition of a deferred tax asset for the corresponding federal tax benefit. While it is expected that the amount of unrecognized tax benefits will change in the next twelve months, the Company does not expect this change to have a material impact on the results of operations or the financial position of the Company.

 

The Company files income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years prior to 2007 in the jurisdictions in which it files.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

  December 31,

   December 31,

 
2010

 2009

  2011

 2010

 

Unrecognized tax benefits—opening balance

  $2,948   $2,381    $3,898   $2,948  

Gross increases—tax positions in prior period

   225    —       —      225  

Gross decreases—tax positions in prior period

   (179  —       (374  (179

Gross increases—current-period tax positions

   1,279    942     1,045    1,279  

Settlements

   —      —       —      —    

Lapse of statute of limitations

   (375  (375   (468  (375
  


 


  


 


Unrecognized tax benefits—ending balance

  $3,898   $2,948    $4,101   $3,898  
  


 


  


 


 

18.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The following table presents information about the Company’s assets measured at fair value on a recurring basis as of December 31, 2010,2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

 

Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets and liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such cases, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

 

89


Assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010 and 2009(in(in thousands):

 

      Fair Value Measurement at Reporting Date Using

 

Description


  December 31,
2010


   Fair Value Measurement at Reporting Date Using

   December 31,
2011


   Quoted Prices in
Active Markets
for Identical
Assets (Level 1)


   Significant Other
Observable Inputs

(Level 2)

   Significant
Unobservable
Inputs (Level 3)


 
  Quoted Prices in
Active Markets
for Identical
Assets (Level 1)


   Significant Other
Observable Inputs
(Level 2)


   Significant
Unobservable
Inputs (Level 3)


 

Assets

            

U.S. Treasury

  $400    $400    $—      $—      $400    $400    $—      $—    

U.S. Agencies

   16,632     16,632     —       —       1,517     1,517     —       —    

Mortgage-backed

   7,521     —       7,521     —    

Mortgage—backed

   29,641     —       29,641     —    

State and political subdivisions

   5,336     —       5,336     —       7,252     —       7,252     —    

Trading—other

   12,591     12,591     —       —       19,332     19,317     15     —    
  


  


  


  


  


  


  


  


Trading securities

   42,480     29,623     12,857     —       58,142     21,234     36,908     —    
  


  


  


  


  


  


  


  


U.S. Treasury

   486,713     486,713     —       —       189,325     189,325     —       —    

U.S. Agencies

   2,000,298     2,000,298     —       —       1,632,009     1,632,009     —       —    

Mortgage-backed

   1,833,475     —       1,833,475     —    

Mortgage—backed

   2,492,348     —       2,492,348     —    

State and political subdivisions

   1,262,275     —       1,262,275     —       1,694,036     —       1,694,036     —    

Corporates

   30,286     30,286     —       —       100,164     100,164     —       —    
  


  


  


  


  


  


  


  


Available for sale securities

   5,613,047     2,517,297     3,095,750     —       6,107,882     1,921,498     4,186,384     —    
  


  


  


  


  


  


  


  


Total

  $5,655,527    $2,546,920    $3,108,607    $          —      $6,166,024    $1,942,732    $4,223,292    $—    
  


  


  


  


  


  


  


  


Liabilities

            

Contingent consideration liability

  $72,046    $—      $—      $72,046  
  


  


  


  


       Fair Value Measurement at Reporting Date Using

 

Description


  December 31,
2010


   Quoted Prices in
Active Markets
for Identical
Assets (Level 1)


   Significant Other
Observable
Inputs (Level 2)


   Significant
Unobservable
Inputs (Level 3)


 

U.S. Treasury

  $400    $400    $—      $—    

U.S. Agencies

   16,632     16,632     —       —    

Mortgage—backed

   7,521     —       7,521     —    

State and political subdivisions

   5,336     —       5,336     —    

Trading—other

   12,591     12,591     —       —    
   


  


  


  


Trading securities

   42,480     29,623     12,857     —    
   


  


  


  


U.S. Treasury

   486,713     486,713     —       —    

U.S. Agencies

   2,000,298     2,000,298     —       —    

Mortgage—backed

   1,833,475     —       1,833,475     —    

State and political subdivisions

   1,262,275     —       1,262,275     —    

Corporates

   30,286     30,286     —       —    
   


  


  


  


Available for sale securities

   5,613,047     2,517,297     3,095,750     —    
   


  


  


  


Total

  $5,655,527    $2,546,920    $3,108,607    $—    
   


  


  


  


Liabilities

                    

Contingent consideration liability

  $77,719    $—      $—      $77,719  
   


  


  


  


Description


  December 31,
2009


   Fair Value Measurement at Reporting Date Using

 
    Quoted Prices in
Active Markets
for Identical
Assets (Level 1)


   Significant Other
Observable Inputs
(Level 2)


   Significant
Unobservable
Inputs (Level 3)


 

U.S. Treasury

  $899    $899    $—      $—    

U.S. Agencies

   14,098     14,098     —       —    

Mortgage-backed

   209     —       209     —    

State and political subdivisions

   9,012     —       9,012     —    

Trading—other

   13,996     13,974     22     —    
   


  


  


  


Trading securities

   38,214     28,971     9,243     —    
   


  


  


  


U.S. Treasury

   599,077     599,077     —       —    

U.S. Agencies

   1,488,760     1,488,760     —       —    

Mortgage-backed

   1,813,658     —       1,813,658     —    

State and political subdivisions

   984,293     —       984,293     —    

Corporates

   —       —       —       —    
   


  


  


  


Available for sale securities

   4,885,788     2,087,837     2,797,951     —    
   


  


  


  


Total

  $4,924,002    $2,116,808    $2,807,194    $          —    
   


  


  


  


90


The following table reconciles the beginning and ending balances of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable (Level 3) input as of December 31, 2011 and 2010 (in thousands):

   December 31,

 
   2011

  2010

 

Beginning balance

  $77,719   $29,284  

Contingent consideration from new acquisitions

   —      58,527  

Payment of contingent consideration on acquisitions

   (8,316  (8,479

Expense(Income) from fair value adjustments

   2,643    (1,613
   


 


Ending balance

  $72,046   $77,719  
   


 


 

Valuation methods for instruments measured at fair value on a recurring basis

 

Fair value disclosures require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The following methods and assumptions were used to estimate the fair value of each class of financial instruments measured on a recurring basis:

Cash and Short-Term Investments    The carrying amounts of cash and due from banks, federal funds sold and resell agreements are reasonable estimates of their fair values.

 

Securities Available for Sale and Investment Securities    Fair values are based on quoted market prices or dealer quotes, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

 

Trading Securities    Fair values for trading securities (including financial futures), are based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices for similar securities.

 

Loans    Fair values are estimated for portfolios with similar financial characteristics. Loans are segregated by type, such as commercial, real estate, consumer, and credit card. Each loan category is further segmented into fixed and variable interest rate categories. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit rating and for the same remaining maturities.

Deposit LiabilitiesContingent Consideration    The fair value of demand deposits and savings accounts is the amount payablecontingent consideration liabilities are derived from a discounted cash flow model of future contingent payments. These future contingent payments are calculated based on demand at December 31, 2010 and 2009. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates that are currently offered for deposits of similar remaining maturities.

Short-Term Debt    The carrying amounts of federal funds purchased, repurchase agreements and other short-term debt are reasonable estimates of their fair value becausefuture income and expense from each acquisition. Potential valuation adjustments are made as future income and expense projections for each acquisition are made which affect the calculation of the short-term nature of their maturities.related contingent consideration payment. These adjustments are recorded through noninterest income and expense.

 

Long-Term Debt    Rates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Other Off-Balance Sheet Instruments    The fair value of loan commitments and letters of credit are determined based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present creditworthiness of the counterparties. Neither the fees earned during the year on these instruments nor their fair value at year-end are significant to the Company’s consolidated financial position.

Assets measured at fair value on a non-recurring basis as of December 31, 2011 and 2010 and 2009(in(in thousands):

 

Description


  December 31,
2010


   Fair Value Measurement at Reporting Date Using

 
      Fair Value Measurement at December 31, 2011 Using

 

Description


December 31,
2010


   Quoted Prices in
Active Markets
for Identical
Assets (Level 1)


   Significant Other
Observable Inputs
(Level 2)


   Significant
Unobservable
Inputs (Level 3)


   December 31,
2011


   Quoted Prices in
Active Markets

for Identical
Assets (Level 1)


   Significant Other
Observable Inputs

(Level 2)

   Significant
Unobservable

Inputs (Level  3)

   Total
Gains
(Losses)
Recognized
During the
Twelve
Months
Ended
December 31


 
  $—      $—      $7,008    $6,296    $—      $—      $6,296    $(1,370

Other real estate owned

   4,387     —       —       4,387     5,909     —       —       5,909    $(1,065
  


  


  


  


  


  


  


  


  


Total

  $11,395    $—      $—      $11,395    $12,505    $—      $—      $12,505    $(2,435
  


  


  


  


  


  


  


  


  


 

Description


  December 31,
2009


   Fair Value Measurement at Reporting Date Using

 
    Quoted Prices in
Active Markets
for Identical
Assets (Level 1)


   Significant Other
Observable Inputs
(Level 2)


   Significant
Unobservable
Inputs (Level 3)


 

Impaired loans

  $10,477    $—      $—      $10,477  

Other real estate owned

   5,203     —       —       5,203  
   


  


  


  


Total

  $15,680    $—      $—      $15,680  
   


  


  


  


91


       Fair Value Measurement at December 31, 2010 Using

 

Description


  December 31,
2010


   Quoted Prices in
Active Markets
for Identical
Assets (Level 1)


   Significant Other
Observable Inputs

(Level 2)

   Significant
Unobservable
Inputs (Level 3)


   Total
Gains
(Losses)
Recognized
During the
Twelve
Months
Ended
December 31


 

Impaired loans

  $7,008    $—      $—      $7,008    $—    

Other real estate owned

   4,387     —       —       4,387    $—    
   


  


  


  


  


Total

  $11,395    $—      $—      $11,395    $—    
   


  


  


  


  


 

Valuation methods for instruments measured at fair value on a nonrecurring basis

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments measured on a non-recurring basis:

 

Impaired loans    While the overall loan portfolio is not carried at fair value, adjustments are recorded on certain loans to reflect partial write-downs that are based on the value of the underlying collateral. In determining the value of real estate collateral, the Company relies on external appraisals and assessment of property values by its internal staff. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Because many of these inputs are not observable, the measurements are classified as Level 3.

 

Other real estate owned    Other real estate owned consists of loan collateral which has been repossessed through foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including auto, recreational and marine vehicles. Other real estate owned is recorded as held for sale initially at the lower of the loan balance or fair value of the collateral.collateral less cost to sell. Subsequent to foreclosure, valuations are updated periodically, and the assets may be marked down further, reflecting a new cost basis. Fair value measurements may be based upon appraisals or third-party price opinions and, accordingly, those measurements may be classified as Level 2. Other fair value measurements may be based on internally developed pricing methods, and those measurements may be classified as Level 3. The fair value measurements in the table above exclude cost to sell.

The estimated fair value of the Company’s financial instruments not recorded at fair value at December 31, 20102011 and 20092010 are as follows (in millions):

 

  December 31

   December 31

 
  2010

   2009

   2011

   2010

 
  Carrying
Amount


   Fair
Value


   Carrying
Amount


   Fair
Value


   Carrying
Amount


   Fair
Value


   Carrying
Amount


   Fair
Value


 

FINANCIAL ASSETS

                        

Cash and short-term investments

  $1,439.9     1,439.9    $1,845.1     1,845.1  

Securities available for sale

   5,613.0     5,613.0     4,885.8     4,885.8  

Securities held to maturity

   63.6     68.8     57.0     57.0     89.2     102.3     63.6     68.8  

Federal Reserve Bank and other stock

   23.0     23.0     22.7     22.7     22.2     22.2     23.0     23.0  

Trading securities

   42.5     42.5     38.2     38.2  

Loans (exclusive of allowance for loan loss)

   4,524.1     4,666.8     4,268.1     4,395.1     4,898.5     5,042.0     4,524.1     4,666.8  

FINANCIAL LIABILITIES

                        

Demand and savings deposits

   7,334.7     7,334.7     6,679.5     6,679.5  

Time deposits

   1,694.1     1,705.9     1,855.0     1,874.7     1,548.4     1,557.8     1,694.1     1,705.9  

Federal funds and repurchase agreements

   2,084.3     2,084.2     1,927.6     1,927.6  

Short-term debt

   35.2     35.2     29.5     29.6  

Long-term debt

   8.9     9.5     25.5     27.8     6.5     6.8     8.9     9.5  

OFF-BALANCE SHEET ARRANGEMENTS

                        

Commitments to extend credit for loans

      5.6        4.7        5.8        5.6  

Commercial letters of credit

      0.3        0.2        0.3        0.3  

Standby letters of credit

   308.2     2.0     308.9     1.6        2.2        2.0  

92


The fair values of cash and short-term investments, demand and savings deposits, federal funds and repurchase agreements, and short-term debt approximate the carrying values.

Securities Held to MaturityFair value of held-to-maturity securities are estimated by discounting the future cash flows using the current rates at which similar investments would be made to borrowers with similar credit ratings and for the same remaining maturities.

Federal Reserve Bank and Other StockAmount consists of Federal Reserve Bank stock held by the Company’s affiliate banks and other miscellaneous investments. The fair value is considered to be the carrying value because no readily determinable market exists for these investments.

LoansFair values are estimated for portfolios with similar financial characteristics. Loans are segregated by type, such as commercial, real estate, consumer, and credit card. Each loan category is further segmented into fixed and variable interest rate categories. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Time DepositsThe fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the rates that are currently offered for deposits of similar remaining maturities.

Long-Term DebtRates currently available to the Company for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.

Other Off-Balance Sheet InstrumentsThe fair value of loan commitments and letters of credit are determined based on the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreement and the present creditworthiness of the counterparties. Neither the fees earned during the year on these instruments nor their fair value at year-end are significant to the Company’s consolidated financial position.

 

The fair value estimates presented herein are based on pertinent information available to management as of December 31, 20102011 and 2009.2010. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amount presented herein.

In the previously filed Form 10-K for the year ended December 31, 2010, the Company inadvertently excluded certain disclosures regarding the fair value of the contingent consideration liability from this footnote as required by ASC 820,Fair Value Measurements and Disclosures. As a result, the accompanying 2010 fair value footnote has been amended to include the appropriate disclosures. There is no quantitative impact on the financial statements of the Company as a result of this additional disclosure.

93


19.   PARENT COMPANY FINANCIAL INFORMATION

 

UMB FINANCIAL CORPORATION

BALANCE SHEETS (in thousands)

   December 31

 
   2011

   2010

 

BALANCE SHEETS(in thousands)

          

ASSETS:

          

Investment in subsidiaries:

          

Banks

  $1,011,776    $886,154  

Non-banks

   143,463     130,485  
   


  


Total investment in subsidiaries

   1,155,239     1,016,639  

Goodwill on purchased affiliates

   5,011     5,011  

Cash

   5,904     17,804  

Securities available for sale and other

   39,790     26,947  
   


  


Total assets

  $1,205,944    $1,066,401  
   


  


LIABILITIES AND SHAREHOLDERS’ EQUITY

          

Short-term debt

  $10,000    $—    

Accrued expenses and other

   4,812     5,541  
   


  


Total liabilities

   14,812     5,541  
   


  


Shareholders’ equity

   1,191,132     1,060,860  
   


  


Total liabilities and shareholders’ equity

  $1,205,944    $1,066,401  
   


  


   Year Ended December 31

 
   2011

  2010

  2009

 

STATEMENTS OF INCOME(in thousands)

             

INCOME:

             

Dividends and income received from affiliate banks

  $41,000   $56,750   $77,600  

Service fees from subsidiaries

   30,422    20,402    14,772  

Other

   694    1,873    3,214  
   


 


 


Total income

   72,116    79,025    95,586  
   


 


 


EXPENSE:

             

Salaries and employee benefits

   33,194    24,470    22,033  

Other

   14,974    14,649    11,041  
   


 


 


Total expense

   48,168    39,119    33,074  
   


 


 


Income before income taxes and equity in undistributed earnings of subsidiaries

   23,948    39,906    62,512  

Income tax benefit

   (6,458  (6,621  (5,863
   


 


 


Income before equity in undistributed earnings of subsidiaries

   30,406    46,527    68,375  

Equity in undistributed earnings of subsidiaries:

             

Banks

   65,885    58,926    19,693  

Non-Banks

   10,181    (14,451  1,416  
   


 


 


Net income

  $106,472   $91,002   $89,484  
   


 


 


 

   December 31

 
   2010

   2009

 

ASSETS:

          

Investment in subsidiaries:

          

Banks

  $886,154    $842,122  

Non-banks

   130,485     109,330  
   


  


Total investment in subsidiaries

   1,016,639     951,452  

Goodwill on purchased affiliates

   5,011     5,011  

Cash

   17,804     32,748  

Securities available for sale and other

   26,947     32,002  
   


  


Total assets

  $1,066,401    $1,021,213  
   


  


LIABILITIES AND SHAREHOLDERS’ EQUITY

          

Dividends payable

  $—      $125  

Accrued expenses and other

   5,541     5,537  
   


  


Total liabilities

   5,541     5,662  

Shareholders’ equity

   1,060,860     1,015,551  
   


  


Total liabilities and shareholders’ equity

  $1,066,401    $1,021,213  
   


  


94


   Year Ended December 31

 
   2011

  2010

  2009

 
STATEMENTS OF CASH FLOWS(in thousands)             

OPERATING ACTIVITIES:

             

Adjustments to reconcile net income to cash used in operating activities:

             

Net income

  $106,472   $91,002   $89,484  

Equity in earnings of subsidiaries

   (117,066  (101,225  (98,708

Net (increase) decrease in trading securities

   (6,629  1,325    (2,412

Other

   (6,567  3,683    (3,389
   


 


 


Net cash used in operating activities

   (23,790  (5,215  (15,025
   


 


 


INVESTING ACTIVITIES:

             

Net capital investment in subsidiaries

   (6,900  (35,701  (27,154

Dividends received from subsidiaries

   41,000    56,750    77,600  

Net capital expenditures for premises and equipment

   (538  51    90  
   


 


 


Net cash provided by investing activities

   33,562    21,100    50,536  
   


 


 


FINANCING ACTIVITIES:

             

Proceeds from short-term debt

   10,000    —      —    

Cash dividends paid

   (31,801  (30,460  (28,792

Net purchase of treasury stock

   129    (369  (19,284
   


 


 


Net cash used in financing activities

   (21,672  (30,829  (48,076
   


 


 


Net (decrease) in cash

   (11,900  (14,944  (12,565
   


 


 


Cash at beginning of period

   17,804    32,748    45,313  
   


 


 


Cash at end of period

  $5,904   $17,804   $32,748  
   


 


 


 

STATEMENTS OF INCOME(in thousands)95

   Year Ended December 31

 
   2010

  2009

  2008

 

INCOME:

             

Dividends and income received from affiliate banks

  $56,750   $77,600   $88,500  

Service fees from subsidiaries

   20,402    14,772    12,563  

Other

   1,873    3,214    (3,034
   


 


 


Total income

   79,025    95,586    98,029  
   


 


 


EXPENSE:

             

Salaries and employee benefits

   24,470    22,033    19,420  

Other

   14,649    11,041    11,229  
   


 


 


Total expense

   39,119    33,074    30,649  
   


 


 


Income before income taxes and equity in undistributed earnings of subsidiaries

   39,906    62,512    67,380  

Income tax benefit

   (6,621  (5,863  (8,044
   


 


 


Income before equity in undistributed earnings of subsidiaries

   46,527    68,375    75,424  

Equity in undistributed earnings of subsidiaries:

             

Banks

   58,926    19,693    22,502  

Non-Banks

   (14,451  1,416    149  
   


 


 


Net income

  $91,002   $89,484   $98,075  
   


 


 


STATEMENTS OF CASH FLOWS(in thousands)

   Year Ended December 31

 
   2010

  2009

  2008

 

OPERATING ACTIVITIES:

     

Adjustments to reconcile net income to cash used in operating activities:

             

Net income

  $91,002   $89,484   $98,075  

Equity in earnings of subsidiaries

   (101,225  (98,708  (111,151

Net decrease (increase) in trading securities

   1,325    (2,412  3,446  

Other

   3,683    (3,389  951  
   


 


 


Net cash used in operating activities

   (5,215  (15,025  (8,679
   


 


 


INVESTING ACTIVITIES:

             

Proceeds from sales of securities available for sale

   —      —      349  

Proceeds from maturities of securities available for sale

   —      —      —    

Purchases of securities available for sale

   —      —      (349

Net capital investment in subsidiaries

   (35,701  (27,154  (23,359

Dividends received from subsidiaries

   56,750    77,600    88,500  

Net capital expenditures for premises and equipment

   51    90    (664
   


 


 


Net cash provided by investing activities

   21,100    50,536    64,477  
   


 


 


FINANCING ACTIVITIES:

             

Cash dividends paid

   (30,460  (28,792  (26,814

Net purchase of treasury stock

   (369  (19,284  (20,223
   


 


 


Net cash used in financing activities

   (30,829  (48,076  (47,037
   


 


 


Net (decrease) increase in cash

   (14,944  (12,565  8,761  
   


 


 


Cash at beginning of period

   32,748    45,313    36,552  
   


 


 


Cash at end of period

  $17,804   $32,748   $45,313  
   


 


 



20.  SUMMARY OF OPERATING RESULTS BY QUARTER (unaudited) (in thousands except per share data)

 

  Three Months Ended

   Three Months Ended

 

2010


  March 31

 June 30

 Sept 30

 Dec 31

 

2011


  March 31

 June 30

 Sept 30

 Dec 31

 

Interest income

  $86,101   $86,733   $86,891   $86,782    $85,973   $86,551   $85,624   $85,505  

Interest expense

   (10,327  (9,065  (8,508  (7,994   (7,525  (6,633  (6,550  (5,972
  


 


 


 


  


 


 


 


Net interest income

   75,774    77,668    78,383    78,788     78,448    79,918    79,074    79,533  

Provision for loan losses

   (8,310  (8,100  (7,700  (7,400   (7,100  (5,600  (4,500  (5,000

Noninterest income

   86,430    89,100    90,084    94,756     107,750    107,856    100,957    97,769  

Noninterest expense

   (117,378  (126,122  (130,635  (138,487   (135,516  (145,581  (139,428  (142,221

Income tax expense

   (10,331  (9,533  (7,359  (8,626   (12,712  (10,272  (10,088  (6,815
  


 


 


 


  


 


 


 


Net income

  $26,185   $23,013   $22,773   $19,031    $30,870   $26,321   $26,015   $23,266  
  


 


 


 


  


 


 


 


2009


  March 31

 June 30

 Sept 30

 Dec 31

 

Interest income

  $90,082   $87,707   $88,926   $89,504  

Interest expense

   (14,873  (13,533  (13,030  (11,795
  


 


 


 


Net interest income

   75,209    74,174    75,896    77,709  

Provision for loan losses

   (6,000  (6,300  (8,300  (11,500

Noninterest income

   68,909    77,323    80,518    83,425  

Noninterest expense

   (106,644  (118,880  (115,257  (119,807

Income tax expense

   (8,873  (7,290  (8,859  (5,969
  


 


 


 


Net income

  $22,601   $19,027   $23,998   $23,858  
  


 


 


 


Per Share  Three Months Ended

 

2010


  March 31

 June 30

 Sept 30

 Dec 31

 

Net income—basic

  $0.65   $0.57   $0.57   $0.48  

Net income—diluted

   0.65    0.57    0.57    0.47  

Dividend

   0.185    0.185    0.185    0.195  

Book value

   25.43    26.42    26.98    26.24  

Per Share

     

2009


  March 31

 June 30

 Sept 30

 Dec 31

 

Net income—basic

  $0.56   $0.47   $0.60   $0.59  

Net income—diluted

   0.55    0.47    0.59    0.59  

Dividend

   0.18    0.18    0.18    0.19  

Book value

   24.19    24.42    25.08    25.11  

 

2010


  March 31

  June 30

  Sept 30

  Dec 31

 

Interest income

  $86,101   $86,733   $86,891   $86,782  

Interest expense

   (10,327  (9,065  (8,508  (7,994
   


 


 


 


Net interest income

   75,774    77,668    78,383    78,788  

Provision for loan losses

   (8,310  (8,100  (7,700  (7,400

Noninterest income

   86,430    89,100    90,084    94,756  

Noninterest expense

   (117,378  (126,122  (130,635  (138,487

Income tax expense

   (10,331  (9,533  (7,359  (8,626
   


 


 


 


Net income

  $26,185   $23,013   $22,773   $19,031  
   


 


 


 


21.  VISA

Per Share

2011


  Three Months Ended

 
  March 31

   June 30

   Sept 30

   Dec 31

 

Net income—basic

  $0.77    $0.66    $0.65    $0.58  

Net income—diluted

   0.76     0.65     0.64     0.58  

Dividend

   0.195     0.195     0.195     0.205  

Book value

   26.62     27.97     28.97     29.46  

Per Share

2010


  March 31

   June 30

   Sept 30

   Dec 31

 

Net income—basic

  $0.65    $0.57    $0.57    $0.48  

Net income—diluted

   0.65     0.57     0.57     0.47  

Dividend

   0.185     0.185     0.185     0.195  

Book value

   25.43     26.42     26.98     26.24  

 

During the fourth quarter of 2007, the Company, as a member of Visa U.S.A. Inc. (Visa USA), received shares of restricted stock in Visa, Inc. (Visa) as a result of its participation in the global restructuring of Visa U.S.A., Visa Canada Association, and Visa International Service Association, in preparation for an initial public offering. Based on this participation, the Company and other Visa USA member banks became aware of an obligation to provide indemnification to Visa in connection with its potential losses resulting from “covered litigation” as described in Visa’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on December 21, 2007. The Company recorded a “covered litigation provision” by accruing $4.6 million as an estimate of its contingent indemnification liability to Visa, based upon its proportionate membership interest in Visa. During the first quarter of 2008, Visa conducted an initial public offering (IPO). As a direct result of this IPO, a pre-tax gain of $8.9 million from the mandatory redemption of a portion of the Company’s class B shares in Visa was recognized. The Company also reduced its liability accrual in the first quarter of 2008 by $4.0 million related to the Company’s estimated share of Visa’s covered litigation. This reduction was a result of funding the covered litigation escrow account as part of its IPO process. Subsequent to these transactions, Visa placed additional deposits into the covered litigation escrow account thus reducing the Company’s conversion ratio of the remaining Class B shares owned by the Company.

96

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


ITEM 9.  CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.  CONTROLSAND PROCEDURES

 

Disclosure Controls and Procedures    At the end of the period covered by this report on Form 10-K, the Company’s Chief Executive Officer and Chief Financial Officer have each evaluated the effectiveness of the Company’s “Disclosure Controls and Procedures” (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) and have concluded that the Company’s Disclosure Controls and Procedures were effective as of the end of the period covered by this report on Form 10-K.

 

Management’s Report on Internal Control Over Financial Reporting    Management of the Company is responsible for establishing and maintaining adequate “internal control over financial reporting”, as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of the Company, and effected by the Company’s Board of Directors, management and other personnel, an evaluation of the effectiveness of internal control over financial reporting was conducted based on the Committee of Sponsoring Organizations of the Treadway Commission’sInternal Control—Integrated Framework. Because this assessment was conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), it included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C).

 

Based on the evaluation under the framework inInternal Control—Integrated Framework, the Company’s Chief Executive Officer and Chief Financial Officer have each concluded that internal control over financial reporting was effective at the end of the period covered by this report on Form 10-K. Deloitte & Touche LLP, the independent registered public accounting firm that audited the financial statements included within this report, has issued an attestation report on the effectiveness of internal control over financial reporting at the end of the period covered by this report. Deloitte & Touche LLP’s attestation report is set forth below.

 

Changes in Internal Control Over Financial Reporting    No changes in the Company’s internal control over financial reporting occurred that has materially affected, or is reasonably likely to materially affect, such controls during the last quarter of the period covered by this report.

97


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and the Board of Directors of

UMB Financial Corporation and Subsidiaries

Kansas City, Missouri

 

We have audited the internal control over financial reporting of UMB Financial Corporation and subsidiaries (the “Company”) as of December 31, 20102011, based on criteria established inInternal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Because management’s assessment and our audit were conducted to meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), management’s assessment and our audit of the Company’s internal control over financial reporting included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010,2011, based on the criteria established inInternal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 20102011 of the Company, and our report dated February 23, 201128, 2012 expressed an unqualified opinion on those financial statements.

 

/s/ Deloitte & Touche LLP

 

Kansas City, Missouri

February 23, 201128 2012

98


ITEM 9B.  OTHERINFORMATION

 

None

 

PART III

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 10.  DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this item relating to executive officers is included in Part I of this Form 10-K (pages 10 and 11)(page 10) under the caption “Executive Officers of the Registrants.”

 

The information required by this item regarding Directors is incorporated herein by reference under the caption “Proposal #1: Election of Directors” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on April 26, 201124, 2012 (the 20112012 Annual Meeting of Shareholders).

 

The information required by this item regarding the Audit Committee and the Audit Committee financial experts is incorporated herein by reference under the caption “Corporate Governance—Committees of the Board of Directors—Audit Committee” of the Company’s Proxy Statement for the 20112012 Annual Meeting of Shareholders.

 

The information required by this item concerning Section 16(a) beneficial ownership reporting compliance is incorporated herein by reference under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s Proxy Statement for the 20112012 Annual Meeting of Shareholders.

 

The Company has adopted a code of ethics that applies to all directors, officers and employees, including its chief executive officer, chief financial officer and chief accounting officer. You can find the Company’s code of ethics on its website by going to the following address:www.umb.com/investor.aboutumb/investorrelations. The Company will post any amendments to the code of ethics, as well as any waivers that are required to be disclosed, under the rules of either the SEC or NASDAQ. A copy of the code of ethics will be provided, at no charge, to any person requesting same, by written notice sent to the Company’s Corporate Secretary, 6th floor, 1010 Grand Blvd., Kansas City, Missouri 64106.

 

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 11.  EXECUTIVECOMPENSATION

 

The information required by this item is incorporated herein by reference under the Executive Compensation section of the Company’s Proxy Statement for the 20112012 Annual Meeting of Shareholders.

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 12.  SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Security Ownership of Certain Beneficial Owners

 

This information required by this item is incorporated herein by reference to the Company’s 2011 Proxy Statement under the caption “Stock Ownership—Principal Shareholders.”

 

Security Ownership of Management

 

The information required by this item is incorporated herein by reference to the Company’s Proxy Statement for the 20112012 Annual Meeting of Shareholders under the caption “Stock Beneficially Owned by Directors and Nominees and Executive Officers.”

99


The following table summarizes shares authorized for issuance under the Company’s equity compensation plans.

 

  Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights


   Weighted
average exercise
price of
outstanding
options, warrants
and rights


   Number of securities
remaining available for
future issuance under
equity compensation plan


   Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights


   Weighted
average exercise
price of
outstanding
options, warrants
and rights


   Number of securities
remaining available for
future issuance under equity
compensation plan


 

Plan Category

                  

Equity compensation plans approved by security holders

                  

1992 Incentive Stock Option Plan

   72,780    $18.71     None  

2002 Incentive Stock Option Plan

   738,183     32.85     1,197,602     630,509     33.16     None  

2005 Long-term Incentive Plan
Non-Qualified Stock Options

   714,830     37.27     464,356     1,128,825     38.35     2,799,727  

Equity compensation plans not approved by security holders

   None     None     None     None     None     None  
  


  


  


  


  


  


Total

   1,525,793    $34.25     1,661,958     1,759,334    $36.49     2,799,727  
  


  


  


  


  


  


 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 13.  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this item is incorporated herein by reference to the information provided under the captions “Corporate Governance—Certain Transactions” and “Corporate Governance—Director Independence” of the Company’s Proxy Statement for the 20112012 Annual Meeting of Shareholders.

 

ITEM 14.  PRINCIPALACCOUNTING FEES AND SERVICES

 

The information required by this item is incorporated herein by reference to the information provided under the caption “Proposal #2: Ratification of Selection of Independent Public Accountants” of the Company’s Proxy Statement for the 20112012 Annual Meeting of Shareholders.

 

PART IV

 

ITEM 15.  EXHIBITS,FINANCIAL STATEMENT SCHEDULES

 

Consolidated Financial Statements and Financial Statement Schedules

 

The following Consolidated Financial Statements of the Company are included in item 8 of this report.

 

Consolidated Balance Sheets as of December 31, 20102011 and 20092010

Consolidated Statements of Income for the Three Years Ended December 31, 20102011

Consolidated Statements of Cash Flows for the Three Years Ended December 31, 20102011

Consolidated Statements of Shareholders’ Equity for the Three Years Ended December 31, 20102011

Notes to Consolidated Financial Statements

Independent Auditors’ Report

 

Condensed Consolidated Financial Statements for the parent company only may be found in item 8 above. All other schedules have been omitted because the required information is presented in the Consolidated Financial Statements or in the notes thereto, the amounts involved are not significant or the required subject matter is not applicable.

100


Exhibits

 

The following Exhibit Index lists the Exhibits to Form 10-K:

 

3.1  Articles of Incorporation restated as of April 25, 2006. Amended Article III was filed with the Missouri Secretary of State on May 18, 2006 and incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 and filed with the Commission on May 9, 2006.
3.2  Bylaws, amended and restated as of April 22, 2008July 26, 2011 incorporated by reference to Exhibit 3 (ii).2 to the Company’s Current Report on Form 8-K and filed with the Commission on April 23, 2008.August 4, 2011.
4  Description of the Registrant’s common stock in Amendment No. 1 on Form 8 to its General Form for Registration of Securities on Form 10 dated March 5, 1993. The following portions of those documents define some of the rights of the holders of the Registrant’s common stock, par value $1.00 per share: Articles III (authorized shares), X (amendment of the Bylaws) and XI (amendment of the Articles of Incorporation) of the Articles of Incorporation and Articles II (shareholder meetings), Sections 2 (number and classes of directors) and 3 (election and removal of directors) of Article III, Section 1(stock certificates) of Article VII and Section 4 (indemnification) of Article IX of the By-laws. Note: No long-term debt instrument issued by the Registrant exceeds 10% of the consolidated total assets of the Registrant and its subsidiaries. In accordance with paragraph 4 (iii) of Item 601 of Regulation S-K, the Registrant will furnish to the Commission, upon request, copies of long-term debt instruments and related agreements.
10.1  1992 Incentive Stock Option Plan incorporated by reference to Exhibit 2.8 to Form S-8 Registration Statement filed on February 17, 1993.
10.2
  2002 Incentive Stock Option Plan, amended and restated as of April 22, 2008 incorporated by reference to Appendix B of the Company’s Proxy Statement for the Company’s April 22, 2008 Annual Meeting filed with the Commission on March 17, 2008.
10.3  UMB Financial Corporation Long-Term Incentive Compensation Plan amended and restated as of January 22, 2008 incorporated by reference to Appendix A of the Company’s Proxy Statement for the Company’s April 22, 2008 Annual Meeting filed with the Commission on March 17, 2008.
10.4  Deferred Compensation Plan, dated as of April 20, 1995 and incorporated by reference to Exhibit 10.6 to Company’s Form 10-K filed on March 12, 2003.
10.5  UMBF 2005 Short-Term Incentive Plan incorporated by reference to Exhibit 10.7 to the Company’s Form 10-K for December 31, 2004 and filed with the Commission on March 14, 2005
10.6  Restricted Stock Award Agreement and description of employment arrangement between the Company and Peter J. deSilva, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, and filed with the Commission of May 7, 2004.
10.7  Employment offer letter between the Company and Michael D. Hagedorn dated February 9, 2005, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 9, 2005, and filed with the Commission on February 14, 2005.
10.8  Employment offer letter between the company and Bradley J. Smith dated January 6, 2005 incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K for December 31, 2004 and filed with the Commission on March 14, 2005.
10.9  Consulting Agreement between the Company and R. Crosby Kemper, Jr. dated November 1, 2004 incorporated by reference to Exhibit 10.11 to the Company’s Form 10-K for December 31, 2004 and filed with the Commission on March 14, 2005.
10.10  Employment offer letter between the Company and Clyde Wendel dated June 8, 2006, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and filed with the Commission on August 8, 2006.

101


10.11  Employment offer letter between the Company and Brian J. Walker dated May 17, 2007, incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and filed with the Commission on August 8, 2007.
10.12  Employment offer letter between the company and Daryl S. Hunt dated October 22, 2007 incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K for December 31, 2007 and filed with the Commission on February 28, 2008.
10.13  Stock purchase agreement between the Company and Jeffrey D. Clark, Bonnie J. Clark, Michelle Jenson, Chad J. Allen, Jerry A. Wright, and Jill L. Calton dated May 7, 2009 incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 2009 and filed with the Commission on August 5, 2009.
10.14  Stock purchase agreement between the Company and Prairie Capital Management, LLC dated June 27, 2010 incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q for the quarter ended June 30, 2010 and filed with the Commission on August 4, 2010.
10.15  Asset purchase agreement between the Company and Reams Asset Management Company, LLC, MME Investments, LLC, Mark M. Egan, David B. McKinney, Hilltop Capital, LLC, Thomas M. Fink, Stephen T. Vincent, Todd C. Thompson, Deanne B. Olson, Daniel P. Spurgeon dated September 1, 2010 incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q for the quarter ended September 30, 2010 and filed with the Commission on November 4, 2010.
10.16  Employment offer letter between the Company and Andrew Iseman dated August 12, 2010 incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10Q for the quarter ended September 30, 2010 and filed with the Commission on November 4, 2010.
10.17Employment offer letter between the Company and Christine Pierson dated December 8, 2010 incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10Q for the quarter ended March 31, 2011 and filed with the Commission on May 5, 2011.
21  Subsidiaries of the Registrant
23  Consent of Independent Auditors
24  Powers of Attorney
31.1  CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act
31.2  CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act
32.1  CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act
32.2  CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS*  XBRL Instance
101.SCH*  XBRL Taxonomy Extension Schema
101.CAL*  XBRL Taxonomy Extension Calculation
101.DEF*  XBRL Taxonomy Extension Definition
101.LAB*  XBRL Taxonomy Extension Labels
101.PRE*  XBRL Taxonomy Extension Presentation

* XBRL information will be considered to be furnished, not filed, for the first two years of a company’s submission of XBRL information.

102


SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

UMB FINANCIAL CORPORATION

/S/s/    J. MARINER KEMPER        Mariner Kemper    


J. Mariner Kemper

Chairman of the Board

/s/    Michael D. Hagedorn    

Michael D. Hagedorn

Chief Financial Officer

/S/    MICHAEL D. HAGEDORN        s/    Brian J. Walker    


Michael D. Hagedorn
Chief Financial Officer

/S/    BRIAN J. WALKER        


Brian J. Walker

Senior Vice President, Controller

(Chief Accounting Officer)

 

Date: February 24, 201128, 2012

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated.

 

        THEODORE M. ARMSTRONG         


Theodore M. Armstrong

Director

        DAVID R. BRADLEY, JR.        


David R. Bradley, Jr.

Director

        NANCY K. BUESE        


Nancy K. Buese

 Director

        PETER J.DESILVA        


Peter J. deSilva

 

Director,

President, and

Chief Operating Officer

 

        TERRENCE P. DUNN        


Terrence P. Dunn

 Director

        KEVIN C. GALLAGHER        


Kevin C. Gallagher

 

Director

 

        GREGORY M. GRAVES        


Gregory M. Graves

 Director

        ALEXANDER C. KEMPER        


Alexander C. Kemper

 

Director

 

        JOHN H. MIZE, JR.        


John H. Mize, Jr.

 

Director

        KRIS A. ROBBINS        


Kris A. Robbins

 

Director

 

        THOMAS D. SANDERS        


Thomas D. Sanders

 

Director

        L. JOSHUA SOSLAND        


L. Joshua Sosland

 

Director

 

        PAUL UHLMANN III        


Paul Uhlmann III

 

Director

        NANCY K. BUESE        


Nancy K. Buese

Director

        THOMAS J. WOOD III        


Thomas J. Wood III

 

Director

 

/s/S/     J. MARINER KEMPER    


J. Mariner Kemper

Attorney-in-Fact for each director

 Director, Chairman of the Board

 

Date: February 24, 201128, 2012

 

102103