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, 1998
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 of incorporation or organization)
(I.R.S. Employer 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, 1998, UMB Financial Corporation had 20,380,697 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, 1998 and 1997 (unaudited) and December 31, 1997
(audited) 3
Consolidated Statements of Income for the Three and Six Months
Ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 (unaudited) 5
Consolidated Statements of Shareholders' Equity for the Six Months
Ended June 30, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Supplemental Financial Data
Average Balances/ Yields and Rates 9
Analysis of Changes in Net Interest Income and Margin 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
UMB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, (Unaudited) December 31, (Audited)
------------------------------ --------------
ASSETS .................................................... 1998 1997 1997
----------- ----------- -----------
Loans:
Commercial, financial and agricultural ................ $ 1,324,595 $ 1,339,000 $ 1,377,380
Consumer (net of unearned interest) ................... 997,303 1,009,758 1,039,331
Real estate ........................................... 343,901 383,168 365,329
Leases ................................................ 3,415 2,856 3,991
Allowance for loan losses ............................. (33,468) (33,426) (33,274)
----------- ----------- -----------
Net Loans ......................................... $ 2,635,746 $ 2,701,356 $ 2,752,757
Securities available for sale:
U.S. Treasury and agencies ............................ $ 2,222,495 $ 2,192,875 $ 2,162,242
State and political subdivisions ...................... 5,040 4,446 7,904
Commercial paper and other ............................ 200,001 8,882 261,595
----------- ----------- -----------
Total securities available for sale ............... $ 2,427,536 $ 2,206,203 $ 2,431,741
Securities held to maturity:
State and political subdivisions ...................... $ 539,419 $ 364,151 $ 452,762
----------- ----------- -----------
Total securities held to maturity (market value
of $542,583, $365,654 & $456,745, respectively) ... $ 539,419 $ 364,151 $ 452,762
Federal funds and resell agreements ....................... 202,446 71,425 71,213
Trading securities and other earning assets ............... 79,394 106,597 60,548
----------- ----------- -----------
Total earning assets .......................... $ 5,884,541 $ 5,449,732 $ 5,769,021
Cash and due from banks ................................... 1,036,419 690,382 921,300
Bank premises and equipment, net .......................... 187,230 162,664 172,811
Accrued income ............................................ 74,562 70,965 72,627
Premium on and intangibles of purchased banks ............. 56,931 63,857 60,464
Other Assets .............................................. 64,279 54,506 57,784
=========== =========== ===========
Total assets ................................. $ 7,303,962 $ 6,492,106 $ 7,054,007
=========== =========== ===========
LIABILITIES
Deposits:
Noninterest-bearing demand ............................ $ 1,929,482 $ 1,609,069 $ 1,906,627
Interest-bearing demand and savings ................... 2,232,964 2,109,160 2,290,923
Time deposits under $100,000 .......................... 876,256 904,010 881,173
Time deposits of $100,000 or more ..................... 556,189 347,449 468,274
----------- ----------- -----------
Total deposits .................................... $ 5,594,891 $ 4,969,688 $ 5,546,997
Federal funds and repurchase agreements ................... 923,185 800,582 715,545
Short-term debt ........................................... 1,162 1,278 1,116
Long-term debt ............................................ 43,315 50,189 44,550
Accrued expenses and taxes ................................ 47,536 49,332 56,735
Other liabilities ......................................... 50,265 26,874 64,828
----------- ----------- -----------
Total liabilities ............................. $ 6,660,354 $ 5,897,943 $ 6,429,771
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; authorized 33,000,000
shares; issued 24,490,189; 23,503,084; & 24,490,189 ... $ 24,490 $ 23,503 $ 24,490
shares respectively
Capital surplus ........................................... 609,032 558,024 608,964
Retained earnings ......................................... 158,534 164,911 137,230
Net unrealized gain (loss) on securities available for sale 5,839 (1,723) 3,910
Unearned ESOP shares ...................................... (11,242) (13,743) (12,492)
Treasury stock, 3,824,304, 3,721,818 and
3,737,430 shares, at cost, respectively ............... (143,045) (136,809) (137,866)
----------- ----------- -----------
Total shareholders' equity ........................ $ 643,608 $ 594,163 $ 624,236
----------- ----------- -----------
Total liabilities and shareholders' equity .... $ 7,303,962 $ 6,492,106 $ 7,054,007
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
UMB FINANCIAL CORPORATION
Three Months Six Months
Ended June 30, Ended June 30,
INTEREST INCOME ............................... 1998 1997 1998 1997
------------ ------------ ------------ ------------
Loans ......................................... $ 58,008 $ 58,901 $ 117,665 $ 114,284
Securities:
Taxable interest .......................... $ 32,195 $ 31,369 $ 65,935 $ 64,616
Tax-exempt interest ....................... 5,770 4,001 11,088 7,709
------------ ------------ ------------ ------------
Total securities income ............... $ 37,965 $ 35,370 $ 77,023 $ 72,325
Federal funds and resell agreements ........... 3,668 2,068 8,340 3,970
Trading securities and other .................. 1,221 1,316 2,288 2,401
------------ ------------ ------------ ------------
Total interest income ............. $ 100,862 $ 97,655 $ 205,316 $ 192,980
------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits ...................................... $ 33,591 $ 31,564 $ 68,497 $ 63,010
Federal funds and repurchase
agreements ................................ 11,170 10,061 23,243 19,427
Short-term debt ............................... 6 9 13 20
Long-term debt ................................ 923 917 1,578 1,833
------------ ------------ ------------ ------------
Total interest expense ................ $ 45,690 $ 42,551 $ 93,331 $ 84,290
------------ ------------ ------------ ------------
Net interest income ........................... $ 55,172 $ 55,104 $ 111,985 $ 108,690
Provision for loan losses ..................... 2,914 3,377 5,772 5,302
------------ ------------ ------------ ------------
Net interest income after provision $ 52,258 $ 51,727 $ 106,213 $ 103,388
------------ ------------ ------------ ------------
NONINTEREST INCOME
Trust income .................................. $ 12,462 $ 11,048 $ 24,319 $ 21,764
Securities processing ......................... 4,141 2,875 7,216 5,548
Trading and investment banking ................ 4,542 3,302 8,891 6,849
Service charges on deposits ................... 9,504 8,321 19,474 17,232
Other service charges and fees ................ 5,990 5,585 11,568 10,164
Bankcard fees ................................. 2,097 1,690 3,917 3,310
Net investment security gains ................. (6) 29 (5) 132
Other ......................................... 1,528 2,736 3,191 4,140
------------ ------------ ------------ ------------
Total noninterest income .............. $ 40,258 $ 35,586 $ 78,571 $ 69,139
------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits ................ $ 39,210 $ 35,012 $ 77,262 $ 68,849
Occupancy, net ................................ 5,124 4,633 10,220 9,268
Equipment ..................................... 7,587 6,881 14,903 13,114
Supplies and services ......................... 4,819 5,318 10,052 10,287
Bankcard processing ........................... 1,597 1,451 3,087 2,719
Marketing and business development ............ 4,970 4,273 9,614 8,521
Amortization of premium on purchased banks .... 1,767 1,807 3,534 3,617
Other ......................................... 6,803 6,359 13,744 12,420
------------ ------------ ------------ ------------
Total noninterest expense ............. $ 71,877 $ 65,734 $ 142,416 $ 128,795
------------ ------------ ------------ ------------
Income before income taxes .................... $ 20,639 $ 21,579 $ 42,368 $ 43,732
Income tax provision .......................... 6,271 6,801 12,844 13,993
============ ============ ============ ============
NET INCOME ........................ $ 14,368 $ 14,778 $ 29,524 $ 29,739
============ ============ ============ ============
PER SHARE DATA
Net income - Basic ............................ $ 0.71 $ 0.72 $ 1.45 $ 1.45
Net income - Diluted .......................... $ 0.70 $ 0.71 $ 1.44 $ 1.44
Dividends ..................................... $ 0.20 $ 0.19 $ 0.40 $ 0.38
Weighted average shares outstanding ........... 20,405,843 20,440,500 20,421,691 20,473,102
<FN>
See Notes to Consolidated Financial Statements.
</FN>
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
Six Months Ended
June 30,
-----------
1998 1997
----------- -----------
Operating Activities
Net Income ..................................................... $ 29,524 $ 29,739
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses .............................. 5,772 5,302
Depreciation and amortization .......................... 12,147 12,027
Deferred income taxes .................................. 771 (1,087)
Net increase in trading securities ..................... (18,846) (26,783)
Gains on sales of securities available for sale ........ (7) (132)
Losses on sales of securities available for sale ....... 12 --
Amortization of securities premiums,
net of discount accretion .......................... 379 7,348
Earned ESOP shares ..................................... 1,318 1,237
Changes in:
Accrued income .................................. (1,935) 1,752
Accrued expenses and taxes ...................... (10,262) 492
Other, net ............................................. (21,092) 26,637
----------- -----------
Net cash provided by (used in) operating activities $ (2,219) $ 56,532
----------- -----------
Investing Activities
Proceeds from maturities of investment securities .............. $ 31,203 $ 34,733
Proceeds from sales of investment securities ................... -- --
Proceeds from sales of securities available for sale ........... 13,228 31,958
Proceeds from maturities of securities available for sale ...... 3,840,374 1,392,682
Purchases of investment securities ............................. (119,064) (80,567)
Purchases of securities available for sale ..................... (3,846,308) (1,249,745)
Net ( increase) decrease in loans .............................. 111,239 (182,431)
Net increase in federal funds and resell agreements ............ (131,233) (12,465)
Purchases of bank premises and equipment ....................... (23,328) (18,174)
Proceeds from sales of bank premises and equipment ............. 281 3
----------- -----------
Net cash used in investing activities .............. $ (123,608) $ (84,006)
----------- -----------
Financing Activities
Net decrease in demand and savings deposits .................... $ (35,104) $ (178,195)
Net increase (decrease) in time deposits ....................... 82,998 (42,651)
Net increase in fed funds/ repurchase agreements ............... 207,640 186,187
Net increase in short term borrowings .......................... 46 367
Repayment of long term debt .................................... (1,235) (1,161)
Cash dividends ................................................. (8,220) (7,775)
Proceeds from exercise of stock options ........................ -- 71
Purchases of treasury stock .................................... (5,179) (11,618)
----------- -----------
Net cash provided by (used in) financing activities $ 240,946 $ (54,775)
----------- -----------
Increase (decrease) in cash and due from banks ................ $ 115,119 $ (82,249)
Cash and due from banks at beginning of year ................... 921,300 772,631
=========== ===========
Cash and due from banks at end of period ....................... $ 1,036,419 $ 690,382
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Net
Unrealized
Common Capital Retained Holding Treasury Unearned
Stock Surplus Earnings Gain (Loss) Stock ESOP
-------- --------- --------- ------------ ---------- ---------
Balance - December 31, 1996 .........................$ 23,503 $ 558,073 $ 142,947 $ (1,755) $ (125,288) $ (15,003)
Net income .......................................... -- -- 29,739 -- -- --
Cash Dividends ....................................... -- -- (7,775) -- -- --
Earned ESOP shares ................................... -- 23) -- -- -- 1,260
Purchase of treasury stock ........................... -- -- -- -- (11,618) --
Exercise of stock options ............................ -- (26) -- -- 97 --
Net unrealized gain on securities available for sale . -- -- -- 32 -- --
-------- --------- --------- --------- ---------- ---------
Balance - June 30, 1997 .............................$ 23,503 $ 558,024 $ 164,911 $ (1,723) $ (136,809) $ (13,743)
======== ========= ========= ========= ========== =========
Balance - December 31, 1997 .................... . $ 24,490 $ 608,964 $ 137,230 $ 3,910 $ (137,866) $ (12,492)
Net income ...................................... -- -- 29,524 -- -- --
Cash dividends ..................................... -- -- (8,220) -- -- --
Earned ESOP shares .............................. -- 68 -- -- -- 1,250
Purchase of treasury stock ...................... -- -- -- -- (5,179) --
Exercise of stock options ........................ -- -- -- -- -- --
Net unrealized gain on securities available for sale -- -- -- 1,929 -- --
-------- --------- --------- -------- ---------- ---------
Balance - June 30, 1998 ...................... $ 24,490 $ 609,032 $ 158,534 $ 5,839 $ (143,045) $ (11,242)
======== ========= ========= ======== ========== =========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998
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 1997
Annual Report to Shareholders. The preparation of financial statements in
conformity with generally accepted accounting principles 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. All share and per share data has
been adjusted to reflect a 5% stock dividend paid on January 2, 1998. Diluted
earnings per share takes into account the dilutive effect of 72,631 and 39,500
shares issuable under options granted by the Company at June 30, 1998 and 1997,
respectively.
For the period ended June 30, 1998 the Company reported net income of
$29,524,000. Its total comprehensive income, reported pursuant to SFAS No. 130
was $31,453,000, which includes the change in accumulated unrealized gains and
losses on AFS securities, net of income tax expense of $340,000. For the six
months ended June 30, 1997 comprehensive income was $29,771,000 which includes
the change in accumulated unrealized gains and losses on AFS securities, net of
income tax expense of $20,000.
3. Allowance for Loan Losses:
The following is a summary of the Allowance for Loan Losses for the six months
ended June 30, 1998 and 1997 (in thousands):
Six Months Ended June 30,
1998 1997
-------- --------
Balance January 1 ............. $ 33,274 $ 33,414
Additions:
Provision for loan losses 5,772 5,302
-------- --------
$ 39,046 $ 38,716
-------- --------
Deductions:
Charge-offs ............. $ (6,893) $ (6,630)
Less recoveries on loans
previously charged-off 1,315 1,340
-------- --------
Net charge-offs ....... $ (5,578) $ (5,290)
-------- --------
Balance, June 30 .............. $ 33,468 $ 33,426
======== ========
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998
3. Allowance for Loan Losses: (Continued)
At June 30, 1998 the amount of loans that are considered to be impaired under
SFAS No. 114 was $10,625,000 compared to $4,049,000 at June 30, 1997 and
$9,325,000 at December 31, 1996. At June 30, 1997 all of these loans are on a
nonaccrual or restructured basis. Included in the impaired loans is $743,000 of
loans for which the related allowance for loan losses is $134,000. The remaining
$9,882.000 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, 1998 was
approximately $5,478,000.
4. 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 operations of the Company.
5. New Accounting Pronouncements: In June 1997, FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," The
Statement establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. The Company
anticipates that the implementation of this Statement at year-end 1998 will
require additional disclosures.
UMB FINANCIAL CORPORATION
AVERAGE BALANCES/YIELDS AND RATES
(tax-equivalent basis) (in thousands)
Six Months Ended June 30,
1998 1997
Average Average Average Average
Assets ........................................................... Balance Yield/Rate Balance Yield/Rate
----------- ------------- ---------- -------------
Loans, net of unearned interest ................................... $2,712,207 8.78% $2,586,754 8.95%
Securities:
Taxable ......................................................... $2,269,851 5.86 $2,224,358 5.86
Tax-exempt .................................................... 493,833 6.63 339,589 6.63
----------- ---------- ---------- ----------
Total securities ...................................... $2,763,684 6.00 $2,563,947 5.96
Federal funds and resell agreements ............................. 299,625 5.61 140,561 5.70
Other earning assets ............................................... 79,002 6.12 80,022 6.29
----------- ------------- ---------- ----------
Total earning assets .................................... $5,854,518 7.27 $5,371,284 7.40
Allowance for loan losses .................................... (33,157) (32,952)
Other assets ........................................... 1,144,399 1,100,473
---------- ----------
Total assets ..................................................... $6,965,760 $6,438,805
========== ==========
Liabilities and Shareholders' Equity
Interest-bearing deposits .................................. $3,529,030 3.91% $3,361,196 3.78%
Federal funds and repurchase agreements ......................... 918,073 5.11 795,056 4.93
Borrowed funds .................................................. 44,633 7.19 51,773 7.22
----------- --------- ---------- -------------
Total interest-bearing liabilities ......................... $4,491,736 4.19 $4,208,025 4.04
Noninterest-bearing demand deposits ....................... 1,741,064 1,523,177
Other liabilities ........................................ 91,809 123,684
Shareholders' equity ............................................ 641,151 583,919
---------- ----------
Total liabilities and shareholders' equity ............. . $6,965,760 $6,438,805
========== ==========
Net interest spread ......................................... 3.08% 3.36%
Net interest margin .......................................................... 4.05 4.23
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, 1998 vs. 1997 June 30, 1998 vs. 1997
------------------------------------------------ --------------------------------------
Volume Rate Total Volume Rate Total
Change in interest earned on:
Loans $ 1,204 $ (2,153) $ (949) $ 5,492 $ (2,172) $ 3,320
Securities:
Taxable 1,028 (188) 840 1,321 (2) 1,319
Tax-exempt 2,682 (56) 2,626 5,071 0 5,071
Federal funds sold 1,819 (219) 1,600 4,429 (59) 4,370
Other (54) (44) (98) (32) (64) (96)
-------- ------- ------------ --------
Interest income $ 6,679 $ (2,660) $ 4,019 $ 16,281 $ (2,297) $ 13,984
-------- --------- ------------- --------- --------------- -------
Change in interest paid on:
Interest-bearing deposits $ 1,503 $ 524 $ 2,027 $ 3,212 $ 2,275 $ 5,487
Federal funds purchased 1,052 57 1,109 3,094 722 3,816
Borrowed funds (134) 137 3 (255) (7) (262)
------------- ----------- -------------- ----------
Interest expense $ 2,421 $ 718 $ 3,139 $ 6,051 $ 2,990 $ 9,041
-------------- -------------- ------------- ---------- --------- ----------
Net interest income $ 4,258 $ (3,378) $ 880 $ 10,230 $ (5,287) $ 4,943
============== ============== ============= ========== ========= =========
ANALYSIS OF NET INTEREST MARGIN
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1998 1997 Change 1998 1997 Change
Average earning assets ..... $5,745,611 $5,331,374 $414,237 $5,854,518 $5,371,284 $483,234
Interest-bearing liabilities 4,414,408 4,181,726 232,682 4,491,736 4,208,025 283,711
---------- ---------- -------- ---------- ---------- --------
Interest free funds ........ $1,331,203 $1,149,648 $181,555 $1,362,782 $1,163,259 $199,523
========== ========== ======== ========== ========== ========
Free funds ratio ..................... 23.17% 21.56% 1.61% 23.28% 21.66% 1.62%
(free funds to earning assets)
Tax-equivalent yield on earning assets 7.27 7.53 (0.26) 7.27 7.40 (0.13)
Cost of interest-bearing liabilities . 4.16 4.09 0.07 4.19 4.04 0.15
----- ----- ------ ----- ----- ------
Net interest spread .................. 3.10 3.44 (0.34) 3.08 3.36 (0.28)
Benefit of interest free funds ....... 0.95 0.87 0.08 0.97 0.87 0.10
----- ----- ------ ----- ----- ------
Net interest margin .................. 4.06% 4.31% (0.25)% 4.05% 4.23% (0.18)%
===== ===== ====== ===== ===== ======
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Summary
UMB Financial Corporation (the Company) earned net income of $14,368,000 for the
three months ended June 30, 1998, compared to $14,778,000 for the same period a
year earlier. This represents per share earnings of $0.71 for the second quarter
of 1998 compared to $0.72 for the second quarter of 1997. On a year-to-date
basis earnings were $29,524,000, or $1.45 per share, compared to $29,739,000, or
$1.45 per share, for the prior year.
The Company's net interest income showed a small increase on a quarterly and
year-to-date basis. Non interest income increased for both periods as the
Company continues to build on its substantial fee-based income. Non interest
expenses were higher for both periods as the Company continues its investments
in personnel, equipment and technology systems required to sustain long-term
growth.
Included in this report are limited forward looking statements concerning the
Company's future financial condition and results of operations. These statements
are the result of Management's current expectations based on information
presently available. Actual results could differ from these expectations as a
result of many factors including changes in economic conditions impacting
customers ability to repay loans, interest rates and loan demand. Changes in
technology, regulatory requirements and competition will also impact future
results.
Results of Operations
For the three months ended June 30, 1998 the Company earned net interest income
of $55,172,000 compared to $55,104,000 for the second quarter of 1997. On a
year-to-date basis net interest income increased 3.03% to $111,985,000 for the
first half of 1998, compared to $108,690,000 for the same period last year. The
improvement in the Company's net interest income was fueled by an increase in
average earning assets of 9.00%. While the average earning assets increased the
Company's net interest margin decreased to 4.05% compared to 4.23% for the same
period of 1997. This decrease primarily resulted from continued pressure on
short-term interest rates, which negatively impacted the yield on loans. Also
effecting the spread and margin decreases was the increased rates the Company
paid on its interest bearing liabilities.
The Company's loan loss provision for the second quarter of 1998 was $2,914,000
compared to $3,377,000 for the same period of 1997. The year-to-date loan loss
provision for the Company in 1998 was $5,772,000 compared to $5,302,000 for
1997. The year to date increase in provision for loan losses was primarily due
to increased loan charge-offs. Net loan charge-offs in the first six months of
1998 were $5,772,000 compared to $5,290,000 for the same period last year. The
majority of the charge-offs in both periods were from Bankcard and consumer
loans. The Company will continue to closely monitor its loan positions, the
related underwriting efforts and underwriting in order to minimize credit
losses.
page>
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Non interest income totaled $40,258,000 for the second quarter of 1998 compared
to $35,586,000 for the same period of 1997. For the first half of 1998,
non-interest income increased to $78,571,000 from $69,139,000 for the prior
year, an increase of 3.6%. Nearly all categories of fee income increased as the
Company continues its efforts to grow this revenue source, which does not carry
the credit and interest rate risk of interest-based revenue. Trust and custody
services, service charges and trading income were the largest components of the
increases in non interest income.
Non interest expense was $71,877,000 for the three months ended June 30, 1998
compared to $65,734,000 for the same period of 1997. For the first six months of
1998 non-interest expense was $142,416,000 compared to $128,795,000 for the
first six months of 1997. In comparing the quarter and year-to-date increase the
Company incurred increases in staffing, occupancy and equipment related
expenses. Staffing for the Company's many growth initiatives, coupled with a
tight labor market, has contributed to the increase. Equipment expense also
increased as a result of technology and conversion costs related to the
replacement and upgrade of cores operating systems. The prudent management of
non-interest expense will continue to be a priority for the Company.
Financial Condition
Total assets at June 30, 1998 were $7.304 billion compared to $6.439 billion at
June 30, 1997 and $7.054 billion at December 31, 1997. Loans, net of unearned
interest, decreased to $2.669 billion as of June 30, 1998 compared to $2.735
billion at June 30, 1997. This decrease in loans reflects a very competitive
loan market in which the Company operates. The increase in investment securities
resulted from both a decrease in loans and an increase in deposits, the
Company's primary funding source for its asset base. Total deposits increased to
$5.595 billion at June 30, 1998 compared to $4.970 billion at June 30, 1997.
Non accrual and restructured loans totaled $12,321,000, 0.46% of loans, at June
30, 1998 compared to $4,769,000, 0.17% of loans, at June 30, 1997 and $4,120,000
at December 31, 1997, 0.15% of loans. Loans past due 90 days or more were
$9,071,000, 0.34% of loans at June 31, 1998, compared to $8,456,000, 0.31% of
loans at June 30, 1997and $7,752,000 at December 31,1997,0.28% of loans. The
Company's loan quality remains strong by industry standards. This increase in
non-accrual loans was primarily the result of one commercial credit risk, which
is not expected to result in a significant loss. The total non-performing loans
and loans past due 90 days or more were less than 1.0% of total loans. At June
30, 1998 the Company's allowance for loan losses was $33,468,000 or 1.25% of
outstanding loans. The Company has a well-diversified loan portfolio with no
foreign loans and no significant credit exposure to commercial real estate.
Delinquency rates in the Company's bankcard loan portfolio are well below
industry averages.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Liquidity and Capital Resources
The Company's liquidity position continues to be
strong. At June 30, 1998, the Company's average loan to deposit ratio was 51.5%
compared to 53.0% at June 30, 1997. At June 30, 1998, the average life of the
securities portfolio was 19 months with 43% of the portfolio matures during the
next twelve months. The Company has access to various borrowing markets should
there be a need for additional funding.
Shareholders' equity totaled $644 million at June 30, 1998 compared to $594
million at June 30, 1997 and $624 million at year-end 1997. During the twelve
months ended June 30, 1998 the Company increased its treasury stock holdings by
$6 million. Management will continue to consider treasury stock purchases
depending on price, availability and alternative use of funds. At June 30, 1998,
the net unrealized gain on securities available for sale was $5.8 million,
compared to an unrealized loss of $1.7 million at June 30, 1997 and an
unrealized gain of $3.9 million at December 31, 1997.
The Company will continue to manage its interest rate risk using static gap
analysis along with other tools which help measure the impact of various
interest rate scenarios. One of these tools is a model which 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, 1998.
Net Portfolio Value
Rates in
Basis Points Dollar Percentage
(Rate Shock) Amount Change Change
200 $1,472,079 $62,970 4.47%
100 1,448,810 39,702 2.82%
Static 1,409,109 - -%
(100) 1,290,224 (118,884) (8.44)%
(200) 1,273,053 (136,055) (9.66)%
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1998
The Company's capital position is summarized in the table below and
far exceeds regulatory requirements.
Six Months Ended
June 30,
RATIOS 1998 1997
Return on average assets 0.85 % 0.93 %
Return on average equity 9.29 10.27
Average equity to assets 9.20 9.07
Tier 1 risk-based capital ratio 16.01 15.54
Total risk-based capital ratio 16.94 16.51
Leverage ratio 8.26 8.31
Per Share Data
Earnings Basic $ 1.45 $ 1.45
Earnings Diluted $ 1.44 $ 1.44
Cash Dividends $ 0.40 $ 0.38
Dividend payout ratio 27.59 % 26.21 %
Book value $ 31.58 $ 29.10
YEAR 2000
The approach of the year 2000 presents significant issues for many financial,
information, and operating systems. Many systems in use today may not be able to
interpret dates after December 31, 1999 appropriately, because such systems
allow only two digits to indicate the year in a date. As a result, such systems
are unable to distinguish January 1, 2000 from January 1, 1900, which could have
adverse consequences on the operations of the entity and the integrity of
information processing, causing safety, operational and financial concerns.
The Company has adopted a plan to address the year 2000 issues. Actions include
the following phases:inventory, solution, planning, renovation, testing and
implementation. The Company plans to substantially complete the required
software modifications or replacements in 1998. The Company also has an ongoing
program to review the status of Year 2000 efforts of its business partners,
vendors and large customers. While the Company believes it is taking all the
appropriate steps to assure the Company's Year 2000 readiness, the Company is
dependent on business partners, vendor and customer compliance to a large
extent. The Company has estimated the cost it will pay to third parties to
remediate or replace systems to achieve Year 2000 readiness at $10 to $15
million. A majority of this cost has already been incurred. In addition, the
Company has and will continue to devote internal resources to complete this
process. Continquency plans to this issue will vary depending upon the area of
concern and the results of testing and communication received from business
partners, vendors and customers. The Company has designed its plan to allow for
the commitment of additional resources to take corrective action in the event
that its original plan does not address the significant issues. Because the
Company's Year 2000 remediation process is not complete and due to the reliance
on business partners, vendor and customers the outcome of Year 2000 readiness is
uncertain and may have a material adverse effect on the Company's future
operating results.
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, 1998 Form 10-Q.
b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the
quarter ended June 30, 1998.
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, 1998