UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1010 Grand Avenue, Kansas City, Missouri 64106
(Address of principal executive offices and Zip Code)
(816) 860-7000
(Registrant's telephone number, including area code)
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.
Yes X No
At June 30, 2000, UMB Financial Corporation had 21,354,406 shares of common
stock outstanding. This is the only class of stock of the Company.
UMB FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
As of June 30, 2000 and 1999 (unaudited) and
December 31, 1999 (audited) 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Shareholders' Equity for the
Six Months Ended June 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-9
Supplemental Financial Data
Average Balances/ Yields and Rates 10
Analysis of Changes in Net Interest Income and Margin 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-15
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
UMB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
-------------------------- ------------
ASSETS 2000 1999 1999
------------ ------------ ------------
Loans:
Commercial, financial and agricultural $ 1,695,419 $ 1,321,452 $ 1,511,594
Consumer (net of unearned interest) 1,003,031 945,667 981,488
Real estate 359,522 321,650 342,423
Leases 8,283 4,770 5,645
Allowance for loan losses (31,824) (32,392) (31,193)
------------ ------------ ------------
Net loans $ 3,034,461 $ 2,561,147 $ 2,809,957
Securities available for sale:
U.S. Treasury and agencies $ 1,825,288 $ 2,429,236 $ 2,866,361
State and political subdivisions 2,138 2,792 2,914
Commercial paper and other 22,880 49,966 279,860
------------ ------------ ------------
Total securities available for sale $ 1,850,306 $ 2,481,994 $ 3,149,135
Securities held to maturity:
State and political subdivisions
(market value of $733,559, $732,810
& $738,170, respectively) $ 744,375 $ 736,742 $ 748,651
Federal funds and resell agreements 242,578 162,753 132,664
Trading securities and other earning assets 74,197 56,684 77,074
------------ ------------ ------------
Total earning assets $ 5,945,917 $ 5,999,320 $ 6,917,481
Cash and due from banks 696,995 613,428 766,108
Bank premises and equipment, net 242,605 224,418 239,535
Accrued income 78,215 76,471 75,540
Premium on and intangibles of purchased banks 47,075 49,837 50,710
Other assets 86,617 73,035 81,947
------------ ------------ ------------
Total assets $ 7,097,424 $ 7,036,509 $ 8,131,321
============ ============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 1,980,155 $ 1,676,068 $ 1,781,141
Interest-bearing demand and savings 2,255,215 2,240,352 2,712,997
Time deposits under $100,000 804,326 857,167 863,426
Time deposits of $100,000 or more 322,420 388,793 566,371
------------ ------------ ------------
Total deposits $ 5,362,116 $ 5,162,380 $ 5,923,935
Federal funds and repurchase agreements 838,131 1,119,508 1,417,363
Short-term debt 95,929 1,097 0
Long-term debt 28,514 41,714 37,904
Accrued expenses and taxes 40,567 37,825 38,131
Other liabilities 65,605 29,003 58,997
------------ ------------ ------------
Total liabilities $ 6,430,862 $ 6,391,527 $ 7,476,330
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; authorized 33,000,000
shares; issued 26,472,039, 24,490,189 and $ 26,472 $ 24,490 $ 26,472
26,472,039 shares respectively
Capital surplus 683,407 608,936 683,410
Retained earnings 173,325 199,637 148,728
Accumulated other comprehensive loss (13,394) (2,406) (12,836)
Unearned ESOP shares (6,242) (8,742) (7,491)
Treasury stock, 5,099,034, 4,602,116 and
4,702,849 shares, at cost, respectively (197,006) (176,933) (183,292)
------------ ------------ ------------
Total shareholders' equity $ 666,562 $ 644,982 $ 654,991
------------ ------------ ------------
Total liabilities & shareholders' equity $ 7,097,424 $ 7,036,509 $ 8,131,321
============ ============ ============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
3
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
INTEREST INCOME 2000 1999 2000 1999
----------- ----------- ----------- -----------
Loans $ 63,382 $ 51,678 $122,142 $102,905
Securities:
Taxable interest $ 29,776 $ 37,607 $ 70,339 $ 79,283
Tax-exempt interest 7,986 7,769 16,000 15,449
----------- ----------- ----------- -----------
Total securities income $ 37,762 $ 45,376 $ 86,339 $ 94,732
Federal funds and resell agreements 3,957 979 5,707 1,725
Trading securities and other 1,208 840 2,365 1,526
----------- ----------- ----------- -----------
Total interest income $106,309 $ 98,873 $216,553 $200,888
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits $ 31,811 $ 28,878 $ 66,825 $ 60,933
Federal funds and repurchase
agreements 15,694 13,338 32,371 25,579
Short-term debt 479 5 479 55
Long-term debt 499 744 1,047 1,428
----------- ----------- ----------- -----------
Total interest expense $ 48,483 $ 42,965 $100,722 $ 87,995
----------- ----------- ----------- -----------
Net interest income $ 57,826 $ 55,908 $115,831 $112,893
Provision for loan losses 2,131 2,468 4,036 4,955
----------- ----------- ----------- -----------
Net interest income after provision $ 55,695 $ 53,440 $111,795 $107,938
----------- ----------- ----------- -----------
NONINTEREST INCOME
Trust income $ 14,722 $ 13,556 $ 28,850 $ 26,405
Securities processing 5,218 3,869 9,828 7,280
Trading and investment banking 4,608 5,474 9,537 11,254
Service charges on deposits 11,963 11,245 24,441 22,621
Other service charges and fees 7,292 7,169 14,219 13,463
Bankcard fees 1,738 1,524 3,416 2,682
Net investment security gains 11 48 12 59
Other 2,592 1,534 4,655 3,239
----------- ----------- ----------- -----------
Total noninterest income $ 48,144 $ 44,419 $ 94,958 $ 87,003
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits $ 45,276 $ 41,270 $ 90,094 $ 81,823
Occupancy, net 6,090 5,487 12,097 10,825
Equipment 11,525 9,065 22,628 17,539
Supplies and services 5,512 5,273 10,887 10,908
Marketing and business development 5,046 2,841 8,983 6,708
Processing fees 3,230 3,080 6,157 5,671
Legal and consulting 1,411 1,140 2,747 2,954
Amortization of premium on purchased banks 1,815 1,770 3,634 3,541
Other 5,208 5,510 9,693 9,587
----------- ----------- ----------- -----------
Total noninterest expense $ 85,113 $ 75,436 $166,920 $149,556
----------- ----------- ----------- -----------
Minority interest in loss of consolidated sub. $ 4,053 $ 0 $ 4,994 0
----------- ----------- ----------- -----------
Income before income taxes $ 22,779 $ 22,423 $ 44,827 $ 45,385
Income tax provision 6,121 6,142 11,625 12,687
----------- ----------- ----------- -----------
NET INCOME $ 16,658 $ 16,281 $ 33,202 $ 32,698
=========== =========== =========== ===========
PER SHARE DATA
Net income - Basic $ 0.78 $ 0.75 $ 1.55 $ 1.48
Net income - Diluted $ 0.78 $ 0.75 $ 1.55 $ 1.48
Dividends $ 0.20 $ 0.18 $ 0.40 $ 0.36
Weighted average shares outstanding 21,303,378 21,840,370 21,365,582 21,987,649
<FN>
See Notes to Consolidated Financial Statements.
</FN>
4
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
Three Months Ended
June 30,
-----------------------------
2000 1999
------------ -----------
Operating Activities
Net Income $ 33,202 $ 32,698
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 4,036 4,955
Depreciation and amortization 18,247 12,842
Deferred income taxes 357 (338)
Net (increase) decrease in trading securities 4,822 (20,684)
Gains on sales of securities available for sale (11) (59)
Amortization of securities premiums,
net of discount accretion (4,201) (16,436)
Earned ESOP shares 1,249 1,250
Changes in:
Accrued income (2,675) (6,426)
Accrued expenses and taxes 4,816 (5,484)
Other, net (755) (29,111)
------------ -----------
Net cash provided by (used in) operating activities $ 59,087 $ (26,793)
------------ -----------
Investing Activities
Proceeds from maturities of investment securities $ 53,015 $ 44,101
Proceeds from sales of securities available for sale 45,557 34,361
Proceeds from maturities of securities available for sale 4,980,792 6,031,150
Purchases of investment securities (50,687) (80,637)
Purchases of securities available for sale (3,721,961) (5,501,100)
Net increase in loans (228,540) (40,135)
Net decrease in fed funds and resell agreements (111,859) (101,384)
Purchases of bank premises and equipment (17,683) (27,525)
------------ -----------
Net cash provided by investing activities $ 948,634 $ 358,831
------------ -----------
Financing Activities
Net decrease in demand and savings deposits $ (258,768) $ (507,468)
Net decrease in time deposits (303,051) (226,956)
Net increase (decrease) in fed funds/ repurchase agreements (579,232) 197,289
Net increase in short term borrowings 95.929 1.066
Proceeds from long term debt 2,615 3,900
Repayment of long term debt (12,005) (1,339)
Cash dividends (8,605) (8,066)
Proceeds from exercise of stock options 19 84
Purchases of treasury stock (13,736) (27,652)
------------ -----------
Net cash used in financing activities $(1,076,834) $ (569,142)
------------ -----------
Decrease in cash and due from banks $ (69,113) $ (237,104)
Cash and due from banks at beginning of year 766,108 850,532
------------ -----------
Cash and due from banks at end of period $ 696,995 $ 613,428
============ ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
5
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other
Common Capital Retained Comprehensive Treasury Unearned
Stock Surplus Earnings Income (Loss) Stock ESOP Total
------------------------------------------------------------------------------------
Balance - January 1, 1999 $24,490 $ 608,934 $ 175,005 $ 13,693 $ (149,363) $ (9,992) $ 662,767
Net income - - 32,698 - - - 32,698
Comprehensive income,net of tax
Unrealized loss on securities of
$16,158 net of reclassification adj.
for losses included in net income
of $59. - - - (16,099) - - (16,099)
-----------
Total comprehensive income 16,599
Cash Dividends - - (8,066) - - - (8,066)
Earned ESOP shares - - - - - 1,250 1,250
Purchase of treasury stock - - - - (27,652) - (27,654)
Exercise of stock options - 2 - - 82 - 84
------------------------------------------------------------------------------------
Balance - June 30, 1999 $24,490 $ 608,936 $ 199,637 $ (2,406) $ (176,933) $ (8,742) $ 644,982
====================================================================================
Balance - January 1, 2000 $26,472 $ 683,410 $ 148,728 $(12,836) $ (183,292) $ (7,491) $ 654,991
Net income - - 33,202 - - - 33,202
Comprehensive income,net of tax
Unrealized loss on securities of
$570 net of reclassification adj.
for gains included in net income
of $12. - - - (558) - - (558)
-----------
Total comprehensive income 32,644
Cash dividends - - (8,605) - - - (8,605)
Earned ESOP shares - - - - - 1,249 1,249
Purchase of treasury stock - - - - (13,736) - (13,736)
Exercise of stock options - (3) - - 22 - 19
------------------------------------------------------------------------------------
Balance - June 30, 2000 $26,472 $ 683,407 $ 173,325 $(13,394) $ (197,006) $ (6,242) $ 666,562
====================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
6
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
1. Financial Statement Presentation:
The consolidated financial statements include the accounts of the Company and
its subsidiaries after elimination of all material intercompany transactions. In
the opinion of management of the Company, all adjustments, which were of a
normal recurring nature, necessary for a fair presentation of the financial
position and results of operations, have been made. The financial statements
should be read in conjunction with the Management's Discussion and Analysis of
Financial Condition and results of Operations and with reference to the 1999
Annual Report to Shareholders.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates 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 these estimates.
2. Earnings:
Earnings per share are based on the weighted average number of shares of common
stock outstanding during the interim periods. Diluted earnings per share takes
into account the dilutive effect of 23,298 and 34,470 shares issuable under
options granted by the Company at June 30, 2000 and 1999, respectively.
3. Allowance for Loan Losses:
The following is a summary of the Allowance for Loan Losses for the six months
ended June 30, 2000 and 1999 (in thousands):
Six Months Ended June 30,
2000 1999
---- ----
Balance January 1 $31,193 $33,169
Additions:
Provision for loan losses 4,036 4,955
-------- --------
Total Before Deductions 35,229 38,124
-------- --------
Deductions:
Charge-offs (5,055) (7,258)
Less recoveries on loans previously charged-off 1,650 1,526
Net charge-offs (3,405) (5,732)
-------- --------
Balance, June 30 $31,824 $32,392
======== ========
At June 30, 2000 the amount of loans that are considered to be impaired under
SFAS No. 114 was $5,026,000 compared to $4,809,000 at December 31, 1999 and
$10,093,000 at June 30, 1999. At June 30, 2000 all of these loans are on a
non-accrual or restructured basis. Included in the impaired loans is $2,136,000
of loans for which the related allowance is $246,000. This specific allowance is
based on a comparison of the recorded loan value to either an estimate of the
present value of the loan's estimated cash flows, its estimated fair value, or
the fair value of the collateral securing the loan if the loan is collateral
dependent. The remaining $2,890,000 of impaired loans do not have an allowance
for loan losses as a result of write-downs and supporting collateral value. The
average recorded investment in impaired loans during the period ended June 30,
2000 was approximately $4,796,000.
7
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
4. Segment Reporting:
Public enterprises are required to report certain information concerning
operating segments in annual and interim financial statements. Operating
segments are considered to be components of an enterprise for which separate
financial information is available and evaluated regularly by key
decision-makers for purposes of allocating resources and assessing performance.
The Company has defined its operations into the following segments:
Commercial Banking: Providing a full range of lending and cash management
services to commercial and governmental entities through the commercial
division of the Company's lead bank.
Trust and Securities Processing: Providing estate planning, trust, employee
benefit, asset management and custodial services to individuals and
corporate customers.
Investment Banking and Brokerage: Providing commercial and retail brokerage,
investment accounting and safekeeping services to individuals and corporate
customers, as well as the Company's treasury function.
Community Banking: Providing a full range of banking services to retail and
corporate customers through the Company's affiliate banks' and branch
network.
Other: The Other category consists primarily of Overhead and Support departments
of the Company. The net revenues and expenses of these departments are
allocated to the other segments of the organization in the Company's
periodic segment reporting. Reported segment revenues, net income and
average assets include revenue and expense distributions for services
performed for other segments within the Company as well as balances due
from other segments within the Company. Such intercompany transactions and
balances are eliminated in the Company's consolidated financial statements.
The table below lists selected financial information by business segment
(in thousands):
Three Months Ended June 30,
2000 1999
Revenues
Commercial Banking $ 30,368 $ 22,633
Trust and Securities Processing 19,545 17,240
Investment Banking and Brokerage 1,005 7,887
Community Banking 59,548 58,552
Other 4,523 4,143
Less: Intersegment revenues (11,150) (12,596)
----------- -----------
Total $ 103,839 $ 97,859
=========== ===========
Net Income (loss)
Commercial Banking $ 11,991 $ 7,627
Trust and Securities Processing 4,752 3,531
Investment Banking and Brokerage (3,144) 893
Community Banking 3,004 4,395
Other - -
Less: Intersegment (income) loss 54 (165)
----------- -----------
Total $ 16,658 $ 16,281
=========== ===========
Total Average Assets
Commercial Banking $2,073,314 $1,683,580
Trust and Securities Processing 20,885 19,263
Investment Banking and Brokerage 2,065,484 1,975,183
Community Banking 3,221,440 3,727,248
Other 634,658 286,714
Less: Intersegment assets (702,559) (347,811)
----------- -----------
Total $7,313,222 $7,344,177
=========== ===========
8
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
5. Commitments and Contingencies:
In the normal course of business, the Company and its subsidiaries are named
defendants in various lawsuits and counterclaims. In the opinion of management,
after consultation with legal counsel, none of the suits will have a materially
adverse effect on the financial position or results of the Company
6. New Accounting Pronouncements:
In June, 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In June, 1999,
the Financial Accounting Standards Board issued SFAS No. 137 which deferred the
effective date of SFAS No. 133. This standard requires entities to recognize all
derivatives as either assets or liabilities in its financial statements and to
measure such instruments at their fair value. The Statement is effective for the
Company's financial statements for the fiscal year beginning January 1, 2001.
The Company is in the process of evaluating the potential impact of the new
Statement.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 (SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on revenue recognition policies and
procedures. The Company adopted the provisions during the first quarter of the
current year and determined it does not have a material impact on its
consolidated financial statements as and for the year ending December 31, 2000.
7. New Subsidiary:
During the first quarter of 2000, the Company's lead bank formed a subsidiary
under the name eScout.com LLC (eScout), minority interests in which were
acquired by several outside investors. eScout's function is to serve as an
electronic commerce network for UMB's commercial customers, correspondent banks
and their commercial customers, and other small businesses. According to the
terms of eScout's operating agreement any initial operating losses are to be
allocated to the outside minority investors. Therefore results of eScout's start
up and initial operations are not anticipated to have a material impact on the
results or operations of the Company.
9
UMB FINANCIAL CORPORATION
AVERAGE BALANCES/YIELDS AND RATES
(tax-equivalent basis) (in thousands)
Three Months Ended June 30,
2000 1999
Average Average Average Average
Assets Balance Yield/Rate Balance Yield/Rate
------------------------ -----------------------
Loans, net of unearned interest $ 2,963,807 8.31 % $ 2,565,105 8.12 %
Securities:
Taxable $ 2,413,065 5.86 $ 2,972,640 5.38
Tax-exempt 744,934 6.38 722,571 6.30
------------------------ -----------------------
Total securities $ 3,157,999 5.98 $ 3,695,211 5.56
Federal funds and resell agreements 180,307 6.37 76,746 4.53
Other earning assets 75,605 6.44 59,678 5.45
------------------------ -----------------------
Total earning assets $ 6,377,718 7.08 $ 6,396,740 6.57
Allowance for loan losses (31,326) (32,969)
Other assets 1,202,872 1,075,305
-------------- ------------
Total assets $ 7,549,264 $ 7,439,076
============== ============
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 3,567,885 3.77 % $ 3,651,561 3.37 %
Federal funds and repurchase agreements 1,200,194 5.42 1,215,576 4.24
Borrowed funds 48,057 6.39 43,043 6.95
------------------------ -----------------------
Total interest-bearing liabilities $ 4,816,136 4.21 $ 4,910,180 3.61
Noninterest-bearing demand deposits 1,967,523 1,792,100
Other liabilities 103,510 75,739
Shareholders' equity 662,095 661,057
-------------- ------------
Total liabilities & shareholders'
equity $ 7,549,264 $ 7,439,076
============== ============
Net interest spread 2.87 % 2.96 %
Net interest margin 3.91 3.80
10
UMB FINANCIAL CORPORATION
ANALYSIS OF CHANGES IN NET INTEREST INCOME AND MARGIN
(tax-equivalent basis) (in thousands)
ANALYSIS OF CHANGES IN NET INTEREST INCOME
Three Months Ended Six Months Ended
June 30, 2000 vs. 1999 June 30, 2000 vs. 1999
------------------------------------------ ------------------------------------------
Volume Rate Total Volume Rate Total
------------------------------------------ ------------------------------------------
Change in interest earned on:
Loans $ 9,994 $ 1,688 $11,682 $ 16,680 $ 2,544 $ 19,224
Securities:
Taxable (11,252) 3,423 (7,829) (15,727) 6,784 (8,943)
Tax-exempt 187 217 404 752 306 1,058
Federal funds sold 1,891 690 2,581 3,064 918 3,982
Other 102 219 321 481 328 809
------------ ----------- ------------ ------------ ----------- -----------
Interest income $ 922 $ 6,237 $ 7,159 $ 5,250 $ 10,880 $ 16,130
------------ ----------- ------------ ------------ ----------- -----------
Change in interest paid on:
Interest-bearing deposits $ (931) $ 3,864 $ 2,933 $ (1,400) $ 7,292 $ 5,892
Federal funds purchased (1,915) 4,271 2,356 (326) 7,118 6,792
Borrowed funds 313 (84) 229 167 (124) 43
------------ ----------- ------------ ------------ ----------- -----------
Interest expense $(2,533) $ 8,051 $ 5,518 (1,559) 14,286 12,727
------------ ----------- ------------ ------------ ----------- -----------
Net interest income $ 3,455 $ (1,814) $ 1,641 6,809 (3,406) 3,403
============ ============ ============ ============ ============ ============
ANALYSIS OF NET INTEREST MARGIN
Three Months Ended Three Months Ended
June 30, 2000 June 30, 2000
----------------------------------------- -----------------------------------------
2000 1999 Change 2000 1999 Change
----------------------------------------- -----------------------------------------
Average earning assets $ 6,125,253 $ 6,269,595 $(144,342) $ 6,377,718 $ 6,396,740 $ (19,022)
Interest-bearing liabilities 4,605,314 4,862,768 (257,454) 4,816,136 4,910,180 (94,044)
------------ ------------ ----------- ----------- ------------ -----------
Interest free funds $ 1,519,939 $ 1,406,827 $113,112 $ 1,561,582 $ 1,486,560 $ 75,022
=========== =========== =========== =========== =========== ===========
Free funds ratio 24.81 % 22.44 % 2.38 % 24.48 % 23.24 % 1.25 %
(free funds to earning assets)
Tax-equivalent yield on earning assets 7.22 % 6.58 % 0.64 % 7.08 % 6.57 % 0.51 %
Cost of interest-bearing liabilities 4.23 3.56 0.67 4.21 3.61 0.60
------- ------ ------- ------- ------ -------
Net interest spread 2.99 % 3.02 % (0.03)% 2.87 % 2.96 % (0.09)%
Benefit of interest free funds 1.05 0.80 0.25 1.04 0.84 0.20
------- ------ ------- ------- ------- -------
Net interest margin 4.04 % 3.82 % 0.22% 3.91 % 3.80 % 0.11 %
======= ======= ======= ======= ======= =======
11
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
The following financial review presents management's discussion and analysis of
the consolidated financial condition and results of operations of UMB Financial
Corporation (the Company). This review highlights the major factors affecting
results of operations and any significant changes in financial condition for the
period ended June 30, 2000. It should be read in conjunction with the
accompanying consolidated financial statements, notes to financial statements
and other financial statistics appearing elsewhere in this report.
Estimates and forward looking statements are included in this review and as such
are subject to certain risks, uncertainties and assumptions that are beyond the
Company's ability to control or estimate precisely. These statements are based
on current financial and economic data and management's expectations concerning
future developments and their effects. Actual results could differ materially
from management's current expectations. Factors that could cause material
differences in actual operating results include, but are not limited to, the
impact of competition; changes in pricing, loan demand, consumer savings habits,
employee costs and interest rates; the ability of customers to repay loans;
changes in U.S. or international economic or political conditions, such as
inflation or fluctuation in interest or foreign exchange rates; disruptions in
operations due to failures of telecommunications systems, utility systems,
security clearing systems, or other elements of the financial industry
infrastructure. While the Company periodically reassesses material trends and
uncertainties affecting the Company's results of operations and financial
condition in connection with the preparation of management's discussion and
analysis contained in the Company's annual and quarterly reports, the Company
does not intend to review or revise any particular forward-looking statement
referenced herein in light of future events.
Summary
The Company earned net income of $16,658,000 for the three months ended June 30,
2000, compared to $16,281,000 for the same period a year earlier. This
represents per share earnings of $0.78 for the second quarter of 2000 compared
to $0.75 for the second quarter of 1999. For the six-month period ended June
30,2000 the Company reported net income of $33,202,000, compared with
$32,698,000 for the same period in 1999. Earnings per share for the six months
ended June 30, 2000 were $1.55, compared to $1.48 for the same period the prior
year, an increase of 4.73%.
The Company's improved performance has been driven by loan growth, increases in
non-interest income and improved credit quality, which allowed for a reduction
in the provision for loan losses. During the first half of 2000, non-interest
income increased by over 9 percent over the first half of 1999. This improvement
was fueled by increases in trust fees, income from securities processing and
fees related to cash management. The Company's operating expenses increased by
11.6 percent for the first half of 2000. Most of this increase was driven by
costs associated with capital investments and growth initiatives implemented
during 1999. Net interest income and non-interest income and expense include the
results of operations of eScout.com, LLC, a majority-owned subsidiary of the
Company. Due to the terms of the LLC agreement, the net results of operations of
this subsidiary are reflected as minority interest in loss of consolidated
subsidiary.
12
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
Results of Operations
For the three months ended June 30, 2000, the Company earned net interest income
of $57,826,000 compared to $55,908,000 for the second quarter of 1999. On a
year-to-date basis, net interest income increased to $100,722,000 for the first
six months of 2000, compared to $112,893,000 for the same period last year. The
Company achieved and should continue to see increases in net interest income as
a result of both sustained loan growth and more favorable interest rates. As of
June 30, 2000, loans totaled $3.066 billion, an increase of more than 18 percent
from the total one year earlier. This loan growth, coupled with an overall
increase in interest rates allowed the Company to achieve a net interest margin
of 4.04 percent for the second quarter of 2000, compared to 3.82 percent one
year earlier. The yield on the Company's investment portfolio for 2000 also
increased on both a quarterly and year-to-date basis from the period year,
however the average balance on investment securities decreased in both periods.
The Company's loan loss provision for the second quarter of 2000 was $2,131,000
compared to $2,468,000 for the same period of 1999. The year-to-date loan loss
provision for the Company in 2000 was $4,036,000 compared to $4,955,000 for
1999. The decrease in provision for loan loss was due to a combination of
decreases in net loan charge-offs and a decrease in non-performing loans. For
the three months ended June 30, 2000 the net loan charge-offs were $1,581,000,
compared to $2,923,000 for the same period in 1999. Net loan charge-offs in the
first six months of 2000 were $3,405,000 compared to $5,732,000 for the same
period last year. The majority of the charge-offs in both periods was from
Bankcard and consumer loans. The Company will continue to closely monitor its
loan positions and related underwriting efforts in order to minimize credit
losses.
Non-interest income totaled $48,144,000 for the second quarter of 2000 compared
to $44,419,000 for the same period of 1999. For the first six months of 2000,
non-interest income increased to $94,958,000 from $87,003,000 for the prior
year, an increase of 9.1 percent. Nearly all categories of fee income, other
than trading and investment banking, experienced growth for the quarter and year
to date. The largest areas of increases were from trust and securities
processing, which showed a combined increase of nearly 15% from the same period
one year earlier. Fee income from deposit services, cash management services and
bankcard fees also increased as the Company continued its efforts to grow these
revenue sources, which do not carry the credit and interest rate risk of
interest-based revenue.
Non-interest expense was $85,113,000 for the three months ended June 30, 2000
compared to $75,436,000 for the same period of 1999. For the first six months of
2000 non-interest expense was $166,920,000 compared to $149,556,000 for the
first six months of 1999. The major factors driving the increase in the
Company's non-interest expense, for both periods, were higher staffing costs and
an increase in equipment related expenses. Staffing for the Company's many
growth initiatives, coupled with a tight labor market, have contributed to the
increase in salaries and employee benefits. Equipment expense also increased as
a result of technology and conversion costs related to the replacement and
upgrades of core operating systems. The benefits of the new initiatives and
upgrades implemented in 1999 are partially underway and should be more fully
realized throughout the year. Both periods also showed increases in occupancy,
marketing and business development. During both periods, but especially during
the second quarter, the Company's non-interest expense has been impacted by the
start-up of its e-commerce subsidiary venture eScout.com LLC. Due to the terms
of the LLC agreement, the net results of operations of this subsidiary are
reflected as minority interest in loss of consolidated subsidiary. The prudent
management on non-interest expense will continue to be a priority for the
Company.
13
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
Financial Condition
Total assets at June 30, 2000 were $7.097 billion compared to $7.037 billion at
June 30, 1999 and $8.131 billion at December 31, 1999. Loans, net of unearned
interest, increased to $3.066 billion as of June 30, 2000 compared to $2.594
billion at June 30, 1999 and $2.841 billion at December 31, 1999. This increase
in loans reflects the Company's continuing efforts to expand loan growth despite
a very competitive loan market in which the Company operates. Total investment
securities decreased to $2.595 billion as of June 30, 2000 compared to $3.219
billion at June 30, 1999 and $3.898 billion at December 31, 1999. During the six
months ended June 30, 2000, the investment securities portfolio provided the
primary source of funding for the increase in loans. Total deposits increased to
$5.362 billion at June 30, 2000 compared to $5.162 billion at June 30, 1999, and
decreased from $5.924 billion at December 31, 1999. The deposit balances have
increased marginally from the prior year. The decrease from year-end totals
reflects the outflow of public funds balances on deposit at December 31, 1999.
Non accrual and restructured loans totaled $6,922,000, 0.23% of loans, at June
30, 2000 compared to $11,393,000, 0.44% of loans, at June 30, 1999, and
$6,292,000 at December 31, 1999, 0.22% of loans. Loans past due 90 days or more
were $14,278,000, 0.47% of loans at June 30, 2000, compared to $7,082,000, 0.27%
of loans at June 31, 1999, and $4,998,000 at December 31,1999, 0.18% of loans.
The Company's loan quality remains strong by industry standards. The total
non-performing loans and loans past due 90 days or more were less than 1.0% of
total loans. At June 30, 2000 the Company's allowance for loan losses was
$31,824,000 or 1.04% of outstanding loans. The adequacy of the Company's
allowance for loan losses is evaluated based on reserves for specific loans, and
reserves on homogeneous groups of loans based on historical loss experience and
current loss trends. The Company has a well-diversified loan portfolio with no
foreign loans and no significant credit exposure to commercial real estate.
14
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
Liquidity and Capital Resources
The Company's liquidity position continues to be strong. At June 30, 2000, the
Company's average loan to deposit ratio was 53.5% compared to 47.1% at June 30,
1999. At June 30, 2000, the average life of the securities portfolio was 24
months with 33% of the portfolio maturing during the next twelve months. The
Company has access to various borrowing markets should there be a need for
additional funding.
Shareholders' equity totaled $667 million at June 30, 2000 compared to $645
million at June 30, 1999 and $655 million at year-end 1999. During the twelve
months ended June 30, 2000 the Company increased its treasury stock holdings by
$20.1 million. Management will continue to consider treasury stock purchases
depending on price, availability and alternative use of funds. At June 30, 2000,
the net unrealized loss on securities available for sale was $13.4 million,
compared to $2.4 million at June 30, 1999 and $12.8 million at December 31,
1999.
The Company will continue to manage its interest rate risk using static gap
analysis along with other tools that help measure the impact of various interest
rate scenarios. One of these tools is a model that internally generates
estimates of the change in net portfolio value (NPV). NPV is the present value
of expected cash flows from assets, liabilities and off-balance sheet contracts.
By projecting the timing and amount of future net cash flows an estimated value
of that asset or liability can be determined. The following table sets forth the
Company's NPV as of June 30, 2000.
Net Portfolio Value
Rates in Basis Points Dollar Percentage
(Rate Shock) Amount Change Change
- ---------------------- ----------- ---------- ----------
200 $1,632,276 $(13,045) (0.79)%
100 1,644,771 (550) (0.03)%
Static 1,645,321 - - %
(100) 1,597,311 (48,010) (2.92)%
(200) 1,545,809 (99,512) (6.05)%
The Company's capital position is summarized in the table below and exceeds
regulatory requirements.
Six Months Ended
June 30,
RATIOS 2000 1999
- ------ ---- ----
Return on average assets 0.88 % 0.89 %
Return on average equity 10.08 9.97
Average equity to assets 8.77 8.89
Tier 1 risk-based capital ratio 15.71 15.84
Total risk-based capital ratio 16.47 16.69
Leverage ratio 8.98 8.14
Per Share Data
Earnings Basic $ 1.55 $ 1.48
Earnings Diluted $ 1.55 $ 1.48
Cash Dividends $ 0.40 $ 0.36
Dividend payout ratio 25.81 % 24.32 %
Book value $ 31.44 $ 29.82
15
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
PART II. Other Information
Item 6. Exhibits and Reports on form 8-K
a) The following exhibit is filed herewith:
27-Article 9 of Regulation S-X Financial Data Schedule for
June 30, 2000 Form 10-Q.
b) Reports on Form 8-K:
The Company filed one report on Form 8-K during the quarter
ended June 30, 2000, announcing several changes in the
Company's management structure.
16
UMB FINANCIAL CORPORATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned hereunto duly authorized.
UMB FINANCIAL CORPORATION
- -------------------------
/s/R. Crosby Kemper
- ----------------------
R. Crosby Kemper
Chairman
/s/Timothy M. Connealy
- ----------------------
Timothy M. Connealy
Chief Financial Officer
Date: August 14, 2000
17