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 September 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 September 30, 2000, UMB Financial Corporation had 21,198,567 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 September 30, 2000 and 1999 (unaudited) and
December 31, 1999 (audited) 3
Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Shareholders' Equity for the
Nine Months Ended September 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)
September 30, December 31,
-------------------------- ------------
ASSETS 2000 1999 1999
------------ ------------ ------------
Loans:
Commercial, financial and agricultural $ 1,661,548 $ 1,392,346 $ 1,511,594
Consumer (net of unearned interest) 1,071,694 951,716 981,488
Real estate 358,054 326,069 342,423
Leases 7,477 5,217 5,645
Allowance for loan losses (32,092) (32,867) (31,193)
------------ ------------ ------------
Net loans $ 3,066,681 $ 2,642,481 $ 2,809,957
Securities available for sale:
U.S. Treasury and agencies $ 1,681,001 $ 2,269,287 $ 2,866,361
State and political subdivisions 1,789 1,949 2,914
Commercial paper and other 45,307 24,339 279,860
------------ ------------ ------------
Total securities available for sale $ 1,728,097 $ 2,295,575 $ 3,149,135
Securities held to maturity:
State and political subdivisions
(market value of $726,335, $744,343
& $738,170, respectively) $ 731,178 $ 751,148 $ 748,651
Federal funds and resell agreements 371,715 202,326 132,664
Trading securities and other earning assets 65,250 74,710 77,074
------------ ------------ ------------
Total earning assets $ 5,962,921 $ 5,966,240 $ 6,917,481
Cash and due from banks 831,351 615,446 766,108
Bank premises and equipment, net 248,937 239,279 239,535
Accrued income 78,206 79,226 75,540
Premium on and intangibles of purchased banks 45,308 48,067 50,710
Other assets 85,825 73,486 81,947
------------ ------------ ------------
Total assets $ 7,252,548 $ 7,021,744 $ 8,131,321
============ ============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 2,229,329 $ 1,623,709 $ 1,781,141
Interest-bearing demand and savings 2,159,127 2,286,774 2,712,997
Time deposits under $100,000 811,544 847,889 863,426
Time deposits of $100,000 or more 254,355 371,767 566,371
------------ ------------ ------------
Total deposits $ 5,454,355 $ 5,130,139 $ 5,923,935
Federal funds and repurchase agreements 778,811 891,094 1,417,363
Short-term debt 161,944 151,105 0
Long-term debt 27,780 38,064 37,904
Accrued expenses and taxes 47,635 50,146 38,131
Other liabilities 96,065 109,122 58,997
------------ ------------ ------------
Total liabilities $ 6,566,590 $ 6,369,670 $ 7,476,330
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; authorized 33,000,000
shares; issued 26,472,039, 24,490,189 and
26,472,039 shares respectively $ 26,472 $ 24,490 $ 26,472
Capital surplus 683,366 608,892 683,410
Retained earnings 185,382 211,152 148,728
Accumulated other comprehensive loss (5,993) (4,943) (12,836)
Unearned ESOP shares (5,616) (8,117) (7,491)
Treasury stock, 5,116,587, 4,657,909 and
4,702,849 shares, at cost, respectively (197,653) (179,400) (183,292)
------------ ------------ ------------
Total shareholders' equity $ 685,958 $ 652,074 $ 654,991
------------ ------------ ------------
Total liabilities & shareholders' equity $ 7,252,548 $ 7,021,744 $ 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 September 30, Ended September 30,
INTEREST INCOME 2000 1999 2000 1999
----------- ----------- ----------- -----------
Loans $ 66,536 $ 53,392 $188,678 $156,297
Securities:
Taxable interest $ 26,393 $ 36,575 $ 96,732 $115,858
Tax-exempt interest 7,961 7,924 23,961 23,373
----------- ----------- ----------- -----------
Total securities income $ 34,354 $ 44,499 $120,693 $139,231
Federal funds and resell agreements 5,714 1,667 11,421 3,392
Trading securities and other 1,260 1,010 3,625 2,536
----------- ----------- ----------- -----------
Total interest income $107,864 $100,568 $324,417 $301,456
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits $ 32,996 $ 29,944 $ 99,821 $ 90,877
Federal funds and repurchase
agreements 14,195 15,457 46,566 41,036
Short-term debt 1,322 9 1,801 64
Long-term debt 491 704 1,538 2,132
----------- ----------- ----------- -----------
Total interest expense $ 49,004 $ 46,114 $149,726 $134,109
----------- ----------- ----------- -----------
Net interest income $ 58,860 $ 54,454 $174,691 $167,347
Provision for loan losses 2,513 1,966 6,549 6,921
----------- ----------- ----------- -----------
Net interest income after provision $ 56,347 $ 52,488 $168,142 $160,426
----------- ----------- ----------- -----------
NONINTEREST INCOME
Trust income $ 14,132 $ 13,600 $ 42,982 $ 40,005
Securities processing 4,797 3,463 14,625 10,743
Trading and investment banking 4,180 4,628 13,717 15,882
Service charges on deposits 11,963 11,245 37,074 34,661
Other service charges and fees 7,584 8,006 21,133 20,674
Bankcard fees 4,106 3,245 10,984 9,210
Net investment security gains (losses) (1) 478 11 537
Other 2,557 1,792 7,212 5,031
----------- ----------- ----------- -----------
Total noninterest income $ 49,318 $ 46,457 $147,738 $136,743
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits $ 46,737 $ 42,281 $136,831 $124,104
Occupancy, net 6,637 5,920 18,734 16,745
Equipment and software 12,372 9,913 35,000 27,452
Supplies and services 5,588 5,225 16,475 16,133
Marketing and business development 5,500 3,569 14,483 10,277
Processing fees 3,822 3,089 11,890 10,708
Legal and consulting 2,018 1,048 4,765 4,002
Amortization of premium on purchased banks 1,767 1,771 5,401 5,312
Other 5,645 5,579 16,889 16,501
----------- ----------- ----------- -----------
Total noninterest expense $ 90,086 $ 78,395 $260,468 $231,234
----------- ----------- ----------- -----------
Minority interest in loss of consolidated sub. $ 6,520 $ 0 $ 11,514 0
----------- ----------- ----------- -----------
Income before income taxes $ 22,099 $ 20,550 $ 66,926 $ 65,935
Income tax provision 5,769 5,065 17,394 17,752
----------- ----------- ----------- -----------
NET INCOME $ 16,330 $ 15,485 $ 49,532 $ 48,183
=========== =========== =========== ===========
PER SHARE DATA
Net income - Basic $ 0.77 $ 0.72 $ 2.32 $ 2.20
Net income - Diluted $ 0.77 $ 0.72 $ 2.32 $ 2.20
Dividends $ 0.20 $ 0.18 $ 0.60 $ 0.55
Weighted average shares outstanding 21,199,077 21,616,622 21,309,675 21,862,614
<FN>
See Notes to Consolidated Financial Statements.
</FN>
4
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
Three Months Ended
September 30,
-----------------------------
2000 1999
------------ -----------
Operating Activities
Net Income $ 49,532 $ 48,183
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 6,549 6,921
Depreciation and amortization 27,603 20,004
Deferred income taxes 357 (824)
Net (increase) decrease in trading securities 11,824 (38,710)
Gains on sales of securities available for sale (11) (537)
Amortization of securities premiums,
net of discount accretion (1,444) (20,930)
Earned ESOP shares 1,875 1,875
Changes in:
Accrued income (2,666) (11,386)
Accrued expenses and taxes 11,802 8,884
Other, net 26,342 52,798
------------ -----------
Net cash provided by (used in) operating activities $ 131,763 $ 66,278
------------ -----------
Investing Activities
Proceeds from maturities of investment securities $ 65,266 $ 58,439
Proceeds from sales of securities available for sale 45,831 247,896
Proceeds from maturities of securities available for sale 6,042,571 7,789,242
Purchases of investment securities (50,688) (110,405)
Purchases of securities available for sale (4,651,977) (7,284,423)
Net increase in loans (263,273) (123,435)
Net decrease in fed funds and resell agreements (239,051) (140,957)
Purchases of bank premises and equipment (31,604) (47,802)
------------ -----------
Net cash provided by investing activities $ 917,075 $ 388,555
------------ -----------
Financing Activities
Net decrease in demand and savings deposits $ (105,682) $ (521,429)
Net decrease in time deposits (363,898) (253,260)
Net increase (decrease) in fed funds/ repurchase agreements (638,552) (23,100)
Net increase in short term borrowings 161.944 151,074
Proceeds from long term debt 2,615 3,900
Repayment of long term debt (12,739) (4,989)
Cash dividends (12,878) (12,036)
Proceeds from exercise of stock options 74 230
Purchases of treasury stock (14,479) (30,309)
------------ -----------
Net cash used in financing activities $ (983,595) $ (689,919)
------------ -----------
Decrease in cash and due from banks $ 65,243 $ (235,086)
Cash and due from banks at beginning of year 766,108 850,532
------------ -----------
Cash and due from banks at end of period $ 831,351 $ 615,446
============ ===========
<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 - - 48,183 - - - 48,183
Comprehensive income,net of tax
Unrealized loss on securities of
$19,173 net of reclassification adj.
for losses included in net income
of $537. - - - (18,636) - - (18,636)
-----------
Total comprehensive income 29,547
Cash Dividends - - (12,036) - - - (12,036)
Earned ESOP shares - - - - - 1,875 1,875
Purchase of treasury stock - - - - (30,309) - (30,309)
Exercise of stock options - (42) - - 272 - 230
------------------------------------------------------------------------------------
Balance - September, 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 - - 49,532 - - - 49,532
Comprehensive income, net of tax
Unrealized gain on securities of
$6,854 net of reclassification adj.
for gains included in net income
of $11. - - - 6,843 - - 6,843
-----------
Total comprehensive income 56,375
Cash dividends - - (12,878) - - - (12,878)
Earned ESOP shares - - - - - 1,875 1,875
Purchase of treasury stock - - - - (14,479) - (14,479)
Exercise of stock options - (44) - - 118 - 74
------------------------------------------------------------------------------------
Balance - September, 2000 $26,472 $ 683,366 $ 185,382 $(5,993) $ (197,653) $ (5,616) $ 685,958
====================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
6
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 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 23,382 and 37,885 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 September 30, 2000 and 1999 (in thousands):
Nine Months Ended September 30,
2000 1999
---- ----
Balance January 1 $31,193 $33,169
Additions:
Provision for loan losses 6,549 6,921
-------- --------
Total Before Deductions 37,742 40,090
-------- --------
Deductions:
Charge-offs (8,179) (9,618)
Less recoveries on loans previously charged-off 2,529 2,395
-------- --------
Net charge-offs (5,650) (7,223)
-------- --------
Balance, September, 2000 $32,092 $32,867
======== ========
At September 30, 2000 the amount of loans that are considered to be impaired
under SFAS No. 114 was $5,620,000 compared to $4,809,000 at December 31, 1999
and $8,145,000 at September 30, 1999. At September 30, 2000 all of these loans
are on a non-accrual or restructured basis. Included in the impaired loans is
$1,008,000 of loans for which the related allowance is $658,000. 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 $4,612,000 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
September 30, 2000 was approximately $5,002,000.
7
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 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.
During 1999, the Company merged several affiliate banks into the lead bank,
which change the manner in which various segments are evaluated and managed. 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.
Trustand 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 September 30,
2000 1999
Revenues
Commercial Banking $ 32,237 $ 21,193
Trust and Securities Processing 18,112 16,773
Investment Banking and Brokerage 2,273 9,081
Community Banking 60,284 55,172
Other 1,338 4,142
Less: Intersegment revenues (8,579) (7,686)
----------- -----------
Total $ 105,665 $ 98,945
=========== ===========
Net Income (loss)
Commercial Banking $ 13,552 $ 7,585
Trust and Securities Processing 3,447 3,423
Investment Banking and Brokerage (3,031) 1,425
Community Banking 1,213 4,225
Other - -
Less: Intersegment (income) loss 1,149 (1,173)
----------- -----------
Total $ 16,330 $ 15,485
=========== ===========
Total Average Assets
Commercial Banking $1,987,650 $1,695,860
Trust and Securities Processing 20,568 20,672
Investment Banking and Brokerage 2,222,745 1,855,283
Community Banking 3,203,284 3,631,758
Other 257,763 363,728
Less: Intersegment assets (285,446) (191,143)
----------- -----------
Total $7,406,564 $7,376,158
=========== ===========
8
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 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. In June, 2000, the Financial Accounting
Standards Board issued SFAS No. 138, which amended some of the provisions 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 inventorying its derivative instruments, however management
does not expect them to have a material impact.
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 banks and 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 September 30,
2000 1999
Average Average Average Average
Assets Balance Yield/Rate Balance Yield/Rate
------------------------ -----------------------
Loans, net of unearned interest $ 2,998,293 8.43 % $ 2,579,725 8.13 %
Securities:
Taxable $ 2,205,211 5.86 $ 2,863,170 5.41
Tax-exempt 742,709 6.37 729,763 6.26
------------------------ -----------------------
Total securities $ 2,947,920 5.99 $ 3,592,933 5.58
Federal funds and resell agreements 230,428 6.62 97,006 4.67
Other earning assets 74,718 6.63 63,757 5.58
------------------------ -----------------------
Total earning assets $ 6,251,359 7.19 $ 6,333,421 6.61
Allowance for loan losses (31,495) (32,824)
Other assets 1,186,700 1,075,561
-------------- ------------
Total assets $ 7,406,564 $ 7,376,158
============== ============
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 3,489,803 3.82 % $ 3,605,516 3.37 %
Federal funds and repurchase agreements 1,118,491 5.56 1,255,226 4.37
Borrowed funds 69,623 6.41 43,383 6.77
------------------------ -----------------------
Total interest-bearing liabilities $ 4,677,917 4.28 $ 4,904,125 3.66
Noninterest-bearing demand deposits 1,945,187 1,731,064
Other liabilities 115,031 83,543
Shareholders' equity 668,429 657,426
-------------- ------------
Total liabilities & shareholders'
equity $ 7,406,564 $ 7,376,158
============== ============
Net interest spread 2.91 % 2.95 %
Net interest margin 3.99 3.78
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
September 30, 2000 vs. 1999 September 30, 2000 vs. 1999
------------------------------------------ ------------------------------------------
Volume Rate Total Volume Rate Total
------------------------------------------ ------------------------------------------
Change in interest earned on:
Loans $ 9,722 $ 3,404 $13,126 $ 26,362 $ 5,991 $ 32,353
Securities:
Taxable (12,592) 2,410 (10,182) (28,196) 9,070 (19,126)
Tax-exempt (95) 304 209 627 639 1,266
Federal funds sold 3,116 931 4,047 6,164 1,865 8,029
Other 16 226 242 500 551 1,051
------------ ----------- ------------ ------------ ----------- -----------
Interest income $ 167 $ 7,275 $ 7,442 $ 5,457 $ 18,116 $ 23,573
------------ ----------- ------------ ------------ ----------- -----------
Change in interest paid on:
Interest-bearing deposits $(1,620) $ 4,672 $ 3,052 $ (2,978) $ 11,922 $ 8,944
Federal funds purchased (5,016) 3,754 (1,262) (4,811) 10,341 5,530
Borrowed funds 1,103 (3) 1,100 1,266 (123) 1,143
------------ ----------- ------------ ------------ ----------- -----------
Interest expense $(5,533) $ 8,423 $ 2,890 (6,523) 22,140 15,617
------------ ----------- ------------ ------------ ----------- -----------
Net interest income $ 5,700 $ (1,148) $ 4,552 11,980 (4,024) 7,956
============ ============ ============ ============ ============ ============
ANALYSIS OF NET INTEREST MARGIN
Three Months Ended Three Months Ended
September 30, 2000 September 30, 2000
----------------------------------------- -----------------------------------------
2000 1999 Change 2000 1999 Change
----------------------------------------- -----------------------------------------
Average earning assets $ 5,998,632 $ 6,208,910 $(210,278) $ 6,251,359 $ 6,333,421 $ (82,062)
Interest-bearing liabilities 4,401,482 4,892,276 (490,794) 4,677,917 4,904,125 (226,208)
------------ ------------ ----------- ----------- ------------ -----------
Interest free funds $ 1,597,150 $ 1,316,634 $280,516 $ 1,573,442 $ 1,429,296 $ 144,146
=========== =========== ========= =========== =========== =========
Free funds ratio 26.63 % 21.21 % 5.42 % 25.17 % 22.57 % 2.60 %
(free funds to earning assets)
Tax-equivalent yield on earning assets 7.42 % 6.67 % 0.75 % 7.19 % 6.61 % 0.58 %
Cost of interest-bearing liabilities 4.43 3.74 0.69 4.28 3.66 0.62
------- ------- ------- ------- ------- -------
Net interest spread 2.99 % 2.93 % (0.06)% 2.91 % 2.95 % (0.04)%
Benefit of interest free funds 1.18 0.80 0.38 1.08 0.83 0.25
------- ------- ------- ------- ------- -------
Net interest margin 4.17 % 3.73 % 0.44% 3.99 % 3.78 % 0.21 %
======= ======= ======= ======= ======= =======
11
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 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 September 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 $16,330,000 for the three months ended
September 30, 2000, compared to $15,485,000 for the same period a year earlier.
This represents per share earnings of $0.77 for the third quarter of 2000
compared to $0.72 for the third quarter of 1999. For the nine-month period ended
September 30, 2000 the Company reported net income of $49,532,000, compared with
$48,183,000 for the same period in 1999. Earnings per share for the nine months
ended September 30, 2000 were $2.32, compared to $2.20 for the same period the
prior year, an increase of 5.45%.
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 on a year-to-date basis. During the first nine
months of 2000, non-interest income increased by over 8 percent over the same
period 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 12.6 percent for the first nine months 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 eliminated
through 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 SEPTEMBER 30, 2000
Results of Operations
Results of Operations
For the three months ended September 30, 2000, the Company earned net interest
income of $58,860,000 compared to $54,454,000 for the third quarter of 1999. On
a year-to-date basis, net interest income increased to $174,691,000 for the
first nine months of 2000, compared to $167,347,000 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. Year-to-date average loans as of September 30, 2000, totaled $2.998
billion, an increase of more than 16 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 3.99 compared to 3.78 percent one
year earlier. For the third quarter of 2000 the net interest margin increased to
4.17 percent compared to 3.73 for the third quarter of 1999. 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 third quarter of 2000 was $2,513,000
compared to $1,966,000 for the same period of 1999. The year-to-date loan loss
provision for the Company in 2000 was $6,549,000 compared to $6,921,000 for
1999. The decrease in provision for loan loss on a yearly basis was due to a
combination of decreases in net loan charge-offs and a decrease in
non-performing loans. For the three months ended September 30, 2000 the net loan
charge-offs were $2,245,000, compared to $1,492,000 for the same period in 1999.
Net loan charge-offs in the first nine months of 2000 were $5,650,000 compared
to $7,223,000 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 $49,318,000 for the third quarter of 2000 compared
to $46,457,000 for the same period of 1999. For the first nine months of 2000,
non-interest income increased to $147,738,000 from $136,743,000 for the prior
year, an increase of 8.0 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 13.5% 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 $90,086,000 for the three months ended September 30,
2000 compared to $78,395,000 for the same period of 1999. For the first nine
months of 2000 non-interest expense was $260,468,000 compared to $231,234,000
for the first nine 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 of 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 SEPTEMBER 30, 2000
Financial Condition
Total assets at September 30, 2000 were $7.253 billion compared to $7.022
billion at September 30, 1999 and $8.131 billion at December 31, 1999. Loans,
net of unearned interest, increased to $3.099 billion as of September 30, 2000
compared to $2.675 billion at September 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 $2.459 billion as of
September 30, 2000 compared to $3.047 billion at September 30, 1999 and $3.898
billion at December 31, 1999. During the nine months ended September 30, 2000,
the investment securities portfolio provided the primary source of funding for
the increase in loans. Total deposits increased to $5.454 billion at September
30, 2000 compared to $5.130 billion at September 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 $6,905,000, 0.22% of loans, at
September 30, 2000 compared to $9,360,000, 0.35% of loans, at September 30,
1999, and $6,292,000 at December 31, 1999, 0.22% of loans. Loans past due 90
days or more were $8,681,000, 0.28% of loans at September 30, 2000, compared to
$9,562,000, 0.36% of loans at September 30, 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 September 30, 2000 the Company's
allowance for loan losses was $32,092,000 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 SEPTEMBER 30, 2000
Liquidity and Capital Resources
The Company's liquidity position continues to be strong. At September 30, 2000,
the Company's average loan to deposit ratio was 55.2% compared to 48.3% at
September 30, 1999. At September 30, 2000, the average life of the securities
portfolio was 22 months with 39% 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 $686 million at September 30, 2000 compared to $652
million at September 30, 1999 and $655 million at year-end 1999. During the
twelve months ended September 30, 2000 the Company increased its treasury stock
holdings by $18.3 million. Management will continue to consider treasury stock
purchases depending on price, availability and alternative use of funds. At
September 30, 2000, the net unrealized loss on securities available for sale was
$6.0 million, compared to $4.9 million at September 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 September 30, 2000.
Net Portfolio Value
Rates in Basis Points Dollar Percentage
(Rate Shock) Amount Change Change
- ---------------------- ----------- ---------- ----------
200 $1,669,258 $ 3,812 0.23 %
100 1,674,506 9,060 0.54 %
Static 1,665,446 - - %
(100) 1,600,222 (65,224) (3.92)%
(200) 1,529,826 (135,620) (8.14)%
The Company's capital position is summarized in the table below and exceeds
regulatory requirements.
Six Months Ended
September 30,
RATIOS 2000 1999
- ------ ---- ----
Return on average assets 0.89 % 0.86 %
Return on average equity 9.90 9.80
Average equity to assets 9.02 8.91
Tier 1 risk-based capital ratio 16.02 16.44
Total risk-based capital ratio 16.80 17.33
Leverage ratio 9.36 8.40
Per Share Data
Earnings Basic $ 2.32 $ 2.20
Earnings Diluted $ 2.32 $ 2.20
Cash Dividends $ 0.60 $ 0.54
Dividend payout ratio 25.86 % 24.55 %
Book value $ 32.36 $ 30.20
15
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 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
September 30, 2000 Form 10-Q.
b) Reports on Form 8-K:
The Company filed no report on Form 8-K during the quarter
ended September 30, 2000.
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: November 14, 2000
17