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, 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 (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, 1998, UMB Financial Corporation had 20,278,943 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, 1998 and 1997
(unaudited) and December 31, 1997 (audited) 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 (unaudited) 5
Consolidated Statements of Shareholders' Equity for the Nine Months
Ended September 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 11-15
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 ................................................ 1998 1997 1997
----------- ----------- -----------
Loans:
Commercial, financial and agricultural ............ $ 1,248,555 $ 1,272,474 $ 1,377,380
Consumer (net of unearned interest) ............... 961,393 1,059,823 1,039,331
Real estate ....................................... 335,991 374,636 365,329
Leases ............................................ 4,797 2,658 3,991
Allowance for loan losses ......................... (33,542) (32,770) (33,274)
------- ------- -------
Net Loans ..................................... $ 2,517,194 $ 2,676,821 $ 2,752,757
Securities available for sale:
U.S. Treasury and agencies ........................ $ 2,117,736 $ 2,048,621 $ 2,162,242
State and political subdivisions .................. 3,364 4,022 7,904
Commercial paper and other ........................ 261,587 8,947 261,595
------- ----- -------
Total securities available for sale ........... $ 2,382,687 $ 2,061,590 $ 2,431,741
----------- ----------- -----------
Securities held to maturity:
State and political subdivisions .................. $ 609,200 $ 391,662 $ 452,762
----------- ----------- -----------
Total securities held to maturity (market value
of $617,504, $394,777 & $456,745, respectively) $ 609,200 $ 391,662 $ 452,762
Federal funds and resell agreements ................... 115,809 107,689 71,213
Trading securities and other earning assets ........... 86,891 84,617 60,548
------ ------ ------
Total earning assets ...................... $ 5,711,781 $ 5,322,379 $ 5,769,021
Cash and due from banks ............................... 673,750 818,103 921,300
Bank premises and equipment, net ...................... 194,737 167,435 172,811
Accrued income ........................................ 75,609 74,886 72,627
Premium on and intangibles of purchased banks ......... 55,150 62,103 60,464
Other Assets .......................................... 79,807 68,142 57,784
------ ------ ------
Total assets ............................. $ 6,790,834 $ 6,513,048 $ 7,054,007
=========== =========== ===========
LIABILITIES
Deposits:
Noninterest-bearing demand ........................ $ 1,639,267 $ 1,818,071 $ 1,906,627
Interest-bearing demand and savings ............... 2,309,251 2,032,850 2,290,923
Time deposits under $100,000 ...................... 875,630 892,965 881,173
Time deposits of $100,000 or more ................. 498,556 281,231 468,274
-------- ------- ------- -------
Total deposits ................................ $ 5,322,704 $ 5,025,117 $ 5,546,997
Federal funds and repurchase agreements ............... 654,035 742,718 715,545
Short-term debt ....................................... 300 471 1,116
Long-term debt ........................................ 39,739 45,101 44,550
Accrued expenses and taxes ............................ 49,493 54,033 56,735
Other liabilities ..................................... 73,429 34,483 64,828
------ ------ ------
Total liabilities ......................... $ 6,139,700 $ 5,901,923 $ 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 ....................................... 608,980 558,009 608,964
Retained earnings ..................................... 161,795 176,143 137,230
Net unrealized gain on securities available for sale .. 15,006 3,468 3,910
Unearned ESOP shares .................................. (10,617) (13,117) (12,492)
Treasury stock, 3,941,901, 3,720,595 and
3,737,430 shares, at cost, respectively ........... (148,520) (136,881) (137,866)
-------- -------- --------
Total shareholders' equity .................... $ 651,134 $ 611,125 $ 624,236
----------- ----------- -----------
Total liabilities and shareholders' equity $ 6,790,834 $ 6,513,048 $ 7,054,007
=========== =========== ===========
See Notes to Consolidated Financial Statements
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited in thousands)
Three Months Nine Months
Ended September 30, Ended September 30,
INTEREST INCOME ............................... 1998 1997 1998 1997
Loans ........................................ $ 57,388 $ 61,232 $ 175,053 $ 175,516
Securities:
Taxable interest ......................... $ 36,399 $ 31,035 $ 102,334 $ 95,651
Tax-exempt interest ...................... 6,454 4,368 17,542 12,077
----- ----- ------ ------
Total securities income .............. $ 42,853 $ 35,403 $ 119,876 $ 107,728
------------ ------------ ------------ ------------
Federal funds and resell agreements .......... 2,396 2,209 10,736 6,179
Trading securities and other ................. 972 1,276 3,260 3,677
--- ----- ----- -----
Total interest income ............ $ 103,609 $ 100,120 $ 308,925 $ 293,100
------------ ------------ ------------ ------------
INTEREST EXPENSE
Deposits .................................... $ 36,082 $ 32,098 $ 104,579 $ 95,108
Federal funds and repurchase
agreements .............................. 11,622 10,885 34,865 30,312
Short-term debt ............................. 7 7 20 27
Long-term debt .............................. 892 814 2,470 2,647
--- --- ----- -----
Total interest expense .............. $ 48,603 $ 43,804 $ 141,934 $ 128,094
------------ ------------ ------------ ------------
Net interest income ........................... $ 55,006 $ 56,316 $ 166,991 $ 165,006
Provision for loan losses ..................... 2,538 2,807 8,310 8,109
----- ----- ----- -----
Net interest income after provision .. $ 52,468 $ 53,509 $ 158,681 $ 156,897
------------ ------------ ------------ ------------
NONINTEREST INCOME
Trust income ................................. $ 11,987 $ 11,824 $ 36,306 $ 33,588
Securities processing ........................ 3,812 3,138 11,028 8,686
Trading and investment banking ............... 4,331 3,071 13,222 9,920
Service charges on deposits .................. 9,504 9,509 30,185 26,741
Other service charges and fees ............... 6,915 5,746 17,276 15,910
Bankcard fees ................................ 156 377 986 968
Net investment security gains (losses)........ 0 540 (5) 672
Other ...................................... 1,793 1,568 4,984 5,708
----- ----- ----- -----
Total noninterest income ........... $ 38,498 $ 35,773 $ 113,982 $ 102,193
NONINTEREST EXPENSE
Salaries and employee benefits ............. $ 50,108 $ 36,231 $ 127,370 $ 105,080
Occupancy, net .............................. 5,560 5,022 15,780 14,290
Equipment ................................... 7,869 7,282 22,772 20,396
Supplies and services ....................... 5,174 5,024 15,226 15,311
Bankcard processing ......................... 0 0 0 0
Marketing and business development .......... 3,502 4,547 13,116 13,068
Amortization of premium on purchased banks .. 1,780 1,754 5,314 5,371
Other ............................................ 7,788 7,304 21,532 19,724
----- ----- ------ ------
Total noninterest expense ............. $ 81,781 $ 67,164 $ 221,110 $ 193,240
------------ ------------ ------------ ------------
Income before income taxes .....................$ 9,185 $ 22,118 $ 51,553 $ 65,850
Income tax provision ........................... 1,811 7,002 14,655 20,995
----- ----- ------ ------
NET INCOME ...................... $ 7,374 $ 15,116 $ 36,898 $ 44,855
============ ============ ============ ============
PER SHARE DATA
Net income - Basic .......................... $ 0.36 $ 0.74 $ 1.81 $ 2.19
Net income - Diluted ........................ $ 0.36 $ 0.74 $ 1.80 $ 2.18
Dividends ................................... $ 0.20 $ 0.19 $ 0.60 $ 0.57
Weighted average shares outstanding ......... 20,334,817 20,441,486 20,392,415 20,462,448
See Notes to Consolidated Financial Statements
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
Nine Months Ended
September 30,
--------------------------
1998 1997
----------- -----------
Operating Activities
Net Income ................................................ $ 36,898 $ 44,855
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses ......................... 8,310 8,109
Depreciation and amortization ..................... 17,777 17,804
Deferred income taxes ............................. (2,120) (336)
Net increase in trading securities ................ (26,343) (4,803)
Gains on sales of securities available for sale ... (7) (690)
Losses on sales of securities available for sale .. 12 18
Amortization of securities premiums,
net of discount accretion ..................... 1,153 11,739
Earned ESOP shares ................................ 1,943 1,906
Changes in:
Accrued income ............................. (2,982) (2,169)
Accrued expenses and taxes ................. (10,096) 5,325
Other, net ........................................ (14,364) 16,694
----------- -----------
Net cash provided by operating activities .... $ 10,181 $ 98,452
----------- -----------
Investing Activities
Proceeds from maturities of investment securities ......... $ 46,459 $ 50,591
Proceeds from sales of investment securities .............. -- --
Proceeds from sales of securities available for sale ...... 16,981 86,596
Proceeds from maturities of securities available for sale . 6,483,938 1,585,763
Purchases of investment securities ........................ (204,875) (124,418)
Purchases of securities available for sale ................ (6,433,981) (1,347,996)
Net ( increase) decrease in loans ......................... 227,253 (160,703)
Net increase in federal funds and resell agreements ....... (44,596) (48,729)
Purchases of bank premises and equipment .................. (34,725) (27,002)
Proceeds from sales of bank premises and equipment ........ 284 37
----------- -----------
Net cash provided by investing activities . $ 56,738 $ 14,139
----------- -----------
Financing Activities
Net decrease in demand and savings deposits ............... $ (249,032) $ (45,503)
Net increase (decrease) in time deposits .................. 24,739 (119,914)
Net increase (decrease) in fed funds/ repurchase agreements (61,510) 128,323
Net decrease in short term borrowings ..................... (816) (440)
Repayment of long term debt ............................... (4,811) (6,249)
Cash dividends ............................................ (12,333) (11,659)
Proceeds from exercise of stock options ................... 123 194
Purchases of treasury stock ............................... (10,829) (11,871)
----------- -----------
Net cash used in financing activities .......... $ (314,469) $ (67,119)
----------- -----------
Increase (decrease) in cash and due from banks ........... $ (247,550) $ 45,472
Cash and due from banks at beginning of year .............. 921,300 772,631
----------- -----------
Cash and due from banks at end of period .................. $ 673,750 $ 818,103
=========== ===========
See Notes to Consolidated Financial Statements.
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 ......................................... -- -- 44,855 -- -- --
Cash Dividends ...................................... -- -- (11,659) -- -- --
Earned ESOP shares .................................. -- 20 -- -- -- 1,886
Purchase of treasury stock ............................ -- -- -- -- (11,871) --
Exercise of stock options ............................. -- (84) -- -- 278 --
Net unrealized gain on securities available for sale .. -- -- -- 5,223 -- --
----- ----- ----- ----- ----- -----
Balance - September 30, 1997 .......................... $23,503 $ 558,009 $ 176,143 $ 3,468 $(136,881) $(13,117)
======= ========= ========= ======== ========= ========
Balance - December 31, 1997 .......................... $24,490 $ 608,964 $ 137,230 $ 3,910 $(137,866) $(12,492)
Net income ........................................... -- -- 36,898 -- -- --
Cash dividends ....................................... -- -- (12,333) -- -- --
Earned ESOP shares ................................... -- 68 -- -- -- 1,875
Purchase of treasury stock ........................... -- -- -- -- (10,829) --
Exercise of stock options ............................ -- (52) -- -- 175 --
Net unrealized gain on securities available for sale . -- -- -- 11,096 -- --
----- ----- ----- ----- ----- -----
Balance - September 30, 1998 ......................... $24,490 $ 608,980 $ 161,795 $ 15,006 $(148,520) $(10,617)
======= ========= ========= ======== ========= ========
See Notes to Consolidated Financial Statements.
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 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 65,666 and 43,141
shares issuable under options granted by the Company at September 30, 1998 and
1997, respectively.
For the period ended September 30, 1998 the Company reported net income of
$36,898,000. Its total comprehensive income, reported pursuant to SFAS No. 130
was $47,994,000, which includes the change in accumulated unrealized gains and
losses on AFS securities, net of income taxes of $5,968,000. For the nine months
ended September 30, 1997 comprehensive income was $50,078,000 which includes the
change in accumulated unrealized gains and losses on AFS securities, net of
income tax expense of $5,223,000.
4. Allowance for Loan Losses:
The following is a summary of the Allowance for Loan Losses for the nine months
ended September 30, 1998 and 1997 (in thousands):
Nine Months Ended September 30,
1998 1997
---------------------- ----------------------
Balance January 1 $ 33,274 $ 33,414
Additions:
Provision for loan losses 8,310 8,109
---------------------- ----------------------
$ 41,584 $ 41,523
---------------------- ----------------------
Deductions:
Charge-offs $ (10,415) $ (10,579)
Less recoveries on loans
previously charged-off 2,373 1,826
---------------------- ----------------------
Net charge-offs $ (8,042) $ (8,753)
---------------------- ----------------------
Balance, September 30 $ 33,542 $ 32,770
====================== ======================
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
3. Allowance for Loan Losses: (Continued)
At September 30, 1998 the amount of loans that are considered to be impaired
under SFAS No. 114 was $12,851,000 compared to $4,763,000 at September 30, 1997
and $3,270,000 at December 31, 1997. At September 30, 1998 all of these loans
are on a nonaccrual or restructured basis. Included in the impaired loans is
$1,094,000 of loans for which the related allowance for loan losses is $271,000.
The remaining $11,757.000 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, 1998
was approximately $7,321,000.
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)
Nine Months Ended September 30,
1998 1997
Average Average Average Average
Assets Balance Yield/Rate Balance Yield/Rate
Loans, net of unearned interest ...... $ 2,678,042 8.77% $2,633,112 8.95%
Securities:
Taxable ............................ $ 2,348,381 5.83 $2,182,969 5.86
Tax-exempt ......................... 523,429 6.54 353,905 6.63
------- ---- ------- ----
Total securities ................... $2,871,810 5.96 $2,536,874 5.97
Federal funds and resell agreements ..... 257,444 5.58 142,952 5.78
Other earning assets .................... 76,295 6.00 82,026 6.26
------ ---- ------ ----
Total earning assets ................$5,883,591 7.22 $5,394,964 7.42
Allowance for loan losses ............... (33,215) (33,077)
Other assets ............................ 1,120,514 1,109,134
--------- ---------
Total assets ........................... $6,970,890 $6,471,021
=========== ===========
Liabilities and Shareholders' Equity
Interest-bearing deposits .............. $3,575,556 3.91% $3,348,037 3.80%
Federal funds and repurchase agreements 911,615 5.11 810,409 5.00
Borrowed funds ......................... 44,004 7.56 50,835 7.03
------ ---- ------ ----
Total interest-bearing liabilities . $4,531,175 4.19 $4,209,281 4.07
Noninterest-bearing demand deposits .... 1,702,363 1,567,603
Other liabilities ................... 90,466 103,007
Shareholders' equity ................ 646,886 591,130
------- -------
Total liabilities and
shareholders' equity $6,970,890 $6,471,021
=========== ==========
Net interest spread ................. 3.03% 3.35%
Net interest margin ................... 4.00 4.25
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 Nine Months Ended
September 30, 1998 vs. 1997 September 30, 1998 vs. 1997
Volume Rate Total Volume Rate Total
Change in interest earned on:
Loans ..................................... $(2,582) $(1,288) $(3,870) $ 2,980 $(3,530) $ (550)
Securities:
Taxable ............................... 5,895 (531) 5,364 7,211 (528) 6,683
Tax-exempt ............................ 3,226 (235) 2,991 8,296 (233) 8,063
Federal funds sold ........................ 359 (172) 187 4,782 (225) 4,557
Other ..................................... (225) (99) (324) (262) (159) (421)
---- --- ---- ---- ---- ----
Interest income ................... $ 6,673 $(2,325) $ 4,348 $ 23,007 $(4,675) $ 18,332
------- ------- ------- -------- ------- --------
Change in interest paid on:
Interest-bearing deposits ................. $ 3,403 $ 581 $ 3,984 $ 6,597 $ 2,874 $ 9,471
Federal funds purchased ................... 745 (8) 737 3,858 695 4,553
Borrowed funds ............................ (113) 191 78 (377) 193 (184)
---- --- -- ---- --- ----
Interest expense .................. $ 4,035 $ 764 $ 4,799 $ 10,078 $ 3,762 $ 13,840
------- ------- ------- -------- ------- --------
Net interest income ........................... $ 2,638 $(3,089) $ (451) $ 12,929 $(8,437) $ 4,492
======= ======= ======= ======== ======= ========
ANALYSIS OF NET INTEREST MARGIN
Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 Change 1998 1997 Change
Average earning assets ............... $ 5,941,734 $ 5,442,324 $ 499,410 $ 5,883,591 $ 5,394,964 $ 488,627
Interest-bearing liabilities ......... 4,610,053 4,211,793 398,260 4,531,175 4,209,281 321,894
--------- --------- ------- --------- --------- -------
Interest free funds .................. $ 1,331,681 $ 1,230,531 $ 101,150 $ 1,352,416 $ 1,185,683 $ 166,733
============= ============= =========== ============= ============= ===========
Free funds ratio ................. .. 22.41% 22.61% (0.20)% 22.99% 21.98% 1.01%
(free funds to earning assets)
Tax-equivalent yield on earning assets 7.13% 7.49% (0.36)% 7.22% 7.42% (0.20)%
Cost of interest-bearing liabilities . 4.18 4.14 0.04 4.19 4.07 0.12
---- ---- ---- ---- ---- ----
Net interest spread .................. 2.95 3.35 (0.40) 3.03 3.35 (0.32)%
Benefit of interest free funds ....... 0.94 0.92 0.02 0.97 0.90 0.07
---- ---- ---- ---- ---- ----
Net interest margin .................. 3.89% 4.27% (0.38)% 4.00% 4.25% (0.25)%
==== ==== ===== ==== ==== =====
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Summary UMB Financial Corporation (the Company) earned net income of $7,374,000
for the three months ended September 30, 1998, compared to $15,116,000 for the
same period a year earlier. Included in these results was a pretax charge of $10
million, taken in the third quarter of 1998, representing the cost to the
Company for the termination and liquidation of its defined benefit pension plan.
The Company's expense for this plan termination could be significantly less than
the current estimate, depending on final settlement calculations, the purchase
of annuity contracts and other factors. Final settlement should occur during the
fourth quarter. On an operating basis, which excludes the nonrecurring pension
expense, the Company earned $13,801,000 or $0.69 per share, compared to $0.74
for the third quarter of 1997. On a year-to-date basis earnings were
$36,898,000, compared to $44,855,000 for the prior year. Excluding the pension
plan termination charge the year-to-date earnings were $43,325,000, or $2.12 per
share, compared to $2.19 per share for the prior year.
The Company's net interest income showed a small increase on a 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 September 30, 1998 the Company
earned net interest income of $55,006,000 compared to $56,316,000 for the third
quarter of 1997. On a year-to-date basis net interest income increased to
$166,991,000, compared to $165,006,000 for the same period last year. Loan
volume and continued decreases in interest rates have impacted the growth rate
of net interest income. While the average earning assets increased, the
Company's net interest margin decreased to 4.00% compared to 4.25% 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. The
yield on the Company's investment portfolio for 1998 was relatively unchanged
from the same period a year earlier. The Company is not willing to jeopardize
the quality or liquidity of the investment portfolio by changing its long-term,
prudent investment philosophy.
The Company's loan loss provision for the third quarter of 1998 was $2,538,000
compared to $2,807,000 for the same period of 1997. The year-to-date loan loss
provision for the Company in 1998 was $8,310,000 compared to $8,109,000 for
1997. The third quarter decrease in provision for loan loss was primarily due to
a decrease in net loan charge-offs. Net loan charge-offs in the first nine
months of 1998 were $8,042,000 compared to $8,753,000 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
and related underwriting efforts in order to minimize credit losses.
Non interest income totaled $38,498,000 for the third quarter of 1998 compared
to $35,773,000 for the same period of 1997. For the first nine months of 1998,
non-interest income increased to $113,982,000 from $102,193,000 for the prior
year, an increase of 11.5%. 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. This continued
double-digit growth in fee income was the result of increases in both commercial
UMB FINANCIAL CORPORATION UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
and retail fee income, including brokerage activity, corporate trust and custody
income, and traditional trust fees.
Non interest expense was $81,781,000 for the three months ended September 30,
1998 compared to $67,164,000 for the same period of 1997. For the first nine
months of 1998 non-interest expense was $221,110,000 compared to $193,240,000
for the first nine months of 1997. Included in the 1998 results was a $10
million charge for the termination and the planned liquidation of the Company's
defined benefit pension plan. This nonrecurring charge was required to fully
fund the plan and distribute the assets to plan participants. The Company
elected to fund and liquidate the pension plan and replace it with a benefit
plan that is more closely tied to Company performance and not a defined benefit
formula. The distribution of plan assets will also give participants discretion
over asset investment decisions. 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 core operating systems. The prudent management of
non-interest expense will continue to be a priority for the Company.
Financial Condition
Total assets at September 30, 1998 were $6.791 billion compared to $6.513
billion at September 30, 1997 and $7.054 billion at December 31, 1997. Loans,
net of unearned interest, decreased to $2.551 billion as of September 30, 1998
compared to $2.710 billion at September 30, 1997. This decrease in loans
reflects a very competitive loan market in which the Company operates. Total
investment securities increased to $2.992 billion as of September 30, 1998
compared to $2.453 billion at September 30, 1997. The increase in investment
securities resulted from the combined effect of a decrease in loans and an
increase in deposits, the Company's primary funding source for its asset base.
Total deposits increased to $5.323 billion at September 30, 1998 compared to
$5.025 billion at September 30, 1997
Non accrual and restructured loans totaled $13,573,000, 0.53% of loans, at
September 30, 1998 compared to $6,948,000, 0.26% of loans, at September 30, 1997
and $4,120,000 at December 31, 1997, 0.15% of loans. Loans past due 90 days or
more were $9,093,000, 0.36% of loans at September 30, 1998, compared to
$9,383,000, 0.35% of loans at September 30, 1997 and $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 September 30, 1998 the Company's allowance for loan
losses was $33,542,000 or 1.31% 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.
Liquidity and Capital Resources
The Company's liquidity position continues to be strong. For the nine months
ended September 30, 1998, the Company's average loan to deposit ratio was 50.7%
compared to 53.6% at September 30, 1997. At September 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.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Shareholders' equity totaled $651 million at September 30, 1998 compared to $611
million at September 30, 1997 and $624 million at year-end 1997. During the
twelve months ended September 30, 1998 the Company increased its treasury stock
holdings by $11.6 million. Management will continue to consider treasury stock
purchases depending on price, availability and alternative use of funds. At
September 30, 1998, the net unrealized gain on securities available for sale was
$15.0 million, compared to $3.4 million at September 30, 1997 and $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 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, 1998.
Net Portfolio Value
Rates in
Basis Points Dollar Change Percentage
(Rate Shock) Amount Change
200 $1,240,515 $33,416 2.77 %
100 1,230,712 23,613 1.96 %
Static 1,207,099 - -%
(100) 1,170,928 (36,171) (3.00)%
(200) 1,157,510 (49,589) (4.11)%
The Company's capital position is summarized in the table below and far exceeds
regulatory requirements.
Nine Months Ended
September 30,
1998 1997
RATIOS
Returnon average assets 0.71% 0.93%
Return on average equity 7.63 10.15
Averageequity to assets 9.28 9.14
Tier 1 risk-based capital ratio 15.82 15.52
Total risk-based capital ratio 16.73 16.45
Leverage ratio 8.64 8.52
Per Share Data
Earnings Basic $ 1.81$ 2.19
Earnings Diluted $ 1.80$ 2.18
Cash Dividends $ 0.60$ 0.57
Dividend payout ratio 27.62%26.03%
Book value $32.11$29.90
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
YEAR 2000
The Year 2000 readiness issue is the result of computer programs that have been
coded to define a year using two digits rather than four. For example, a
substantial number of programs have date sensitive coding which may recognize a
date using "00" as 1900 rather than 2000. This could result in system failures
or miscalculations causing disruptions to the Company's operations.
The Company has been actively working on this issue since 1996. A plan was
developed in which Year 2000 issues are divided into two areas - those involving
mission critical functions and those involving non-critical functions. Within
these two areas, applications were further divided into those over which the
Company had control and those which were controlled by outside vendors.
A five-step plan was then developed involving 1) inventory, 2) solution
planning, 3) renovation, 4) testing, and 5) implementation. The approximate
percentage of each type of mission critical application for which the Company
has completed the respective step of the five-step plan is set forth below:
Company-Controlled Vendor-Controlled
Mission Critical Mission Critical
Inventory 99% 99%
Solution Planning 99% 99%
Renovation 99% 83%
Testing 99% 81%
Implementation 90% 77%
The Company also has made significant steps toward assessing its hardware and is
making substantial progress toward replacing necessary equipment. All mainframe
and mid-range systems are in place, and an inventory of personal computers is
under way. The Company's five-step plan also applies to all identified
non-information technology assets such as equipment containing embedded chips.
The Company estimates that the total cost of its Year 2000 project will be
approximately $24 million dollars. Of this amount, $10 million was spent in
1997; approximately $12 million will be spent in 1998, and the remaining $2
million is projected for 1999. While these numbers are substantial, they include
the cost of a significant number of system replacements that would have been
required in the near future regardless of the Year 2000 issue. These costs are
being funded through operating cash flows. Financial institutions are heavily
dependent on technology, and the cost of Year 2000 efforts should be viewed in
its context as a significant portion of the Company's annual Information
Technology budget.
The Company has in place a program to investigate and quantify the Year 2000
issues arising from its relationships with third parties such as borrowers,
vendors, counterparties, issuers of debt and equity securities in which the
trust department of its subsidiary banks may invest, and service providers (e.g.
the Federal Reserve system, telecommunications providers and electric
utilities). Interfaces and connectivity with these parties and systems also
present significant issues.
A failure of counterparties, significant suppliers, customers with substantial
relationships, or failures in the payment system could have a substantial
negative impact on the Company. In addition, the Company could face significant
disruptions of business and financial losses if there were failures of
telecommunications systems, utility systems, security clearing systems or other
elements of the financial industry infrastructure.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
All of the foregoing is based on management's current assessment of the
situation using information available to it. Other factors that might cause
material changes include, but are not limited to, the loss of key personnel and
the ability to respond to unforeseen complications. Because the Company's
remediation process is not complete and due to the reliance on business
partners, vendors, customers, utilities, telecommunications providers and
others, the outcome of Year 2000 readiness is uncertain and such issues may have
a material adverse effect on the Company's future financial condition and future
operating results. At this point it is impossible to assess a "worst case"
scenario.
The Company continues to develop contingency plans to cover failures due to Year
2000 issues relating to its operations, physical locations, products, suppliers,
public infrastructure and customers. Contingency planning is expected to be
substantially complete by year-end.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
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, 1998 Form 10-Q. b) Reports on Form 8-K: The
Company filed an 8-K on September 15,1998 to disclose its nonrecurring charge
for the pension plan termination.
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 13, 1998