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 March 31, 1999
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 March 31, 1999, UMB Financial Corporation had 20,063,336 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 March 31, 1999 and 1998 (unaudited) and
December 31, 1998 (audited) 3
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 (unaudited) 5
Consolidated Statements of Shareholders' Equity for the Three Months
Ended March 31, 1999 and 1998 (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 12-16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
UMB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
----------------------------- -------------
ASSETS 1999 1998 1998
------------- ------------- -------------
Loans:
Commercial, financial and agricultural $ 1,410,069 $ 1,343,644 $ 1,291,858
Consumer (net of unearned interest) 897,521 1,020,959 934,765
Real estate 321,343 349,375 327,796
Leases 4,802 3,572 4,717
Allowance for loan losses (32,847) (33,301) (33,169)
------------- ------------- -------------
Net loans $ 2,600,888 $ 2,684,249 $ 2,525,967
Securities available for sale:
U.S. Treasury and agencies $ 2,610,772 $ 2,133,160 $ 2,604,949
State and political subdivisions 2,949 6,904 2,547
Commercial paper and other 237,613 23,490 445,393
------------- ------------- -------------
Total securities available for sale $ 2,851,334 $ 2,163,554 $ 3,052,889
Securities held to maturity:
State and political subdivisions $ 722,338 $ 489,127 $ 702,160
------------- ------------- -------------
Total securities held to maturity (market value
of $729,953, $492,607 & $711,035, respectively) $ 722,338 $ 489,127 $ 702,160
Federal funds and resell agreements 52,017 246,131 61,369
Trading securities and other earning assets 74,620 79,941 36,000
------------- ------------- -------------
Total earning assets $ 6,301,197 $ 5,663,002 $ 6,378,385
Cash and due from banks 628,543 920,415 850,532
Bank premises and equipment, net 213,585 181,141 206,194
Accrued income 77,082 78,243 70,045
Premium on and intangibles of purchased banks 51,608 58,698 53,379
Other assets 74,466 47,351 89,563
------------- ------------- -------------
Total assets $ 7,346,481 $ 6,948,850 $ 7,648,098
============= ============= =============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 1,834,177 $ 1,928,568 $ 2,045,074
Interest-bearing demand and savings 2,220,344 2,243,817 2,378,814
Time deposits under $100,000 857,290 878,705 868,490
Time deposits of $100,000 or more 463,758 392,713 604,426
------------- ------------- -------------
------------- ------------- -------------
Total deposits $ 5,375,569 $ 5,443,803 $ 5,896,804
Federal funds and repurchase agreements 978,171 732,187 922,219
Short-term debt 200,380 19 31
Long-term debt 42,344 43,885 39,153
Accrued expenses and taxes 51,788 50,107 52,481
Other liabilities 39,703 40,896 74,643
------------- ------------- -------------
Total liabilities $ 6,687,955 $ 6,310,897 $ 6,985,331
------------- ------------- -------------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; authorized 33,000,000
shares; issued 24,490,189 shares $ 24,490 $ 24,490 $ 24,490
Capital surplus 608,935 609,032 608,934
Retained earnings 187,354 148,300 175,005
Accumulated other comprehensive income 6,746 6,180 13,693
Unearned ESOP shares (9,367) (11,867) (9,992)
Treasury stock, 4,189,196, 3,743,155 and
3,957,218 shares, at cost, respectively (159,632) (138,182) (149,363)
------------- ------------- -------------
Total shareholders' equity $ 658,526 $ 637,953 $ 662,767
------------- ------------- -------------
Total liabilities and shareholders' equity $ 7,346,481 $ 6,948,850 $ 7,648,098
============= ============= =============
See Notes to Consolidated Financial Statements.
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited in thousands)
Three Months
Ended March 31,
INTEREST INCOME 1999 1998
------------ ------------
Loans $ 51,226 $ 59,657
Securities:
Taxable interest $ 41,676 $ 33,740
Tax-exempt interest 7,680 5,318
------------ ------------
Total securities income $ 49,356 $ 39,058
Federal funds and resell agreements 615 4,672
Trading securities and other 686 1,067
------------ ------------
Total interest income $101,883 $104,454
------------ ------------
INTEREST EXPENSE
Deposits $ 32,056 $ 34,906
Federal funds and repurchase
agreements 12,040 12,073
Short-term debt 50 7
Long-term debt 694 655
------------ ------------
Total interest expense $ 44,840 $ 47,641
------------ ------------
Net interest income $ 57,043 $ 56,813
Provision for loan losses 2,487 2,858
------------ ------------
Net interest income after provision $ 54,556 $ 53,955
------------ ------------
NONINTEREST INCOME
Trust income $ 12,849 $ 11,857
Securities processing 3,411 3,075
Trading and investment banking 5,780 4,349
Service charges on deposits 11,376 9,970
Other service charges and fees 6,225 5,578
Bankcard fees 1,158 330
Net investment security gains 11 1
Other 1,705 1,663
------------ ------------
Total noninterest income $ 42,515 $ 36,823
------------ ------------
NONINTEREST EXPENSE
Salaries and employee benefits $ 40,553 $ 38,052
Occupancy, net 5,338 5,096
Equipment 8,470 7,316
Supplies and services 5,635 5,233
Marketing and business development 3,867 4,644
Amortization of premium on purchased banks 1,771 1,767
Other 8,465 6,941
------------ ------------
Total noninterest expense $ 74,099 $ 69,049
------------ ------------
Income before income taxes $ 22,972 $ 21,729
Income tax provision 6,555 6,573
------------ ------------
NET INCOME $ 16,417 $ 15,156
============ ============
PER SHARE DATA
Net income - Basic & diluted $ 0.81 $ 0.74
Dividends $ 0.20 $ 0.20
Weighted average shares outstanding 20,179,252 20,437,716
See Notes to Consolidated Financial Statements.
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
Three Months Ended
March 31,
----------------------------------------
1999 1998
------------------ ---------------
Operating Activities
Net Income $ 16,417 $ 15,156
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 2,487 2,858
Depreciation and amortization 6,204 5,910
Deferred income taxes (410) 280
Net increase in trading securities (38,620) (19,393)
Gains on sales of securities available for sale (11) (1)
Amortization of securities premiums,
net of discount accretion (10,712) (615)
Earned ESOP shares 625 693
Changes in:
Accrued income (7,037) (5,616)
Accrued expenses and taxes 3,515 (8,176)
Other, net (19,843) (13,377)
------------ ------------
Net cash provided used in operating activities $ (47,385) $ (22,281)
------------ ------------
Investing Activities
Proceeds from maturities of investment securities $ 18,212 $ 11,759
Proceeds from sales of securities available for sale 34,290 10
Proceeds from maturities of securities available for sale 3,499,436 1,734,104
Purchases of investment securities (39,315) (48,681)
Purchases of securities available for sale (3,331,268) (1,461,339)
Net ( increase) decrease in loans (77,408) 65,650
Net (increase) decrease in fed funds and resell agreements 9,352 (174,918)
Purchases of bank premises and equipment (11,824) (12,724)
Proceeds from sales of bank premises and equipment 0 251
------------ ------------
Net cash provided by in investing activities $ 101,475 $ 114,112
------------ ------------
Financing Activities
Net decrease in demand and savings deposits $ (369,367) $ (25,165)
Net decrease in time deposits (151,868) (78,029)
Net increase in fed funds/ repurchase agreements 55,952 16,642
Net increase (decrease) in short term borrowings 200,349 (1,097)
Proceeds from long term debt 3,900 0
Repayment of long term debt (709) (665)
Cash dividends (4,068) (4,086)
Proceeds from exercise of stock options 69 0
Purchases of treasury stock (10,337) (316)
------------ ------------
Net cash used in financing activities $ (276,079) $ (92,716)
------------ ------------
Decrease in cash and due from banks $ (221,989) $ (885)
Cash and due from banks at beginning of year 850,532 921,300
------------ ------------
Cash and due from banks at end of period $ 628,543 $ 920,415
=========== ============
See Notes to Consolidated Financial Statements.
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, 1998 $24,490 $ 608,964 $ 137,230 $ 3,910 $ (137,866) $ (12,492) $ 624,236
Net income - - 15,156 - - - 15,156
Comprehensive income, net of tax
Unrealized gains on securities of
$2,271 net of reclassification adj.
for gains included in net income
of $1. - - - 2,270 - - 2,270
---------------
Total comprehensive income 17,426
Cash Dividends - - (4,086) - - - (4,086)
Earned ESOP shares - 68 - - - 625 693
Purchase of treasury stock - - - - (316) - (316)
Exercise of stock options - - - - - - -
--------------------------------------------------------------------------------------------
Balance - March 31, 1998 $24,490 $ 609,032 $ 148,300 $ 6,180 $ (138,182) $ (11,867) $ 637,953
============================================================================================
Balance - January 1, 1999 $24,490 $ 608,934 $ 175,005 $ 13,693 $ (149,363) $ (9,992) $ 662,767
Net income - - 16,417 - - - 16,417
Comprehensive income, net of tax
Unrealized loss on securities of
$6,958 net of reclassification adj.
for gains included in net income
of $11. - - - (6,947) - - (6,947)
---------------
Total comprehensive income 9,470
Cash dividends - - (4,068) - - - (4,068)
Earned ESOP shares - - - - - 625 625
Purchase of treasury stock - - - - (10,337) - (10,337)
Exercise of stock options - 1 - - 68 - 69
--------------------------------------------------------------------------------------------
Balance - March 31, 1999 $24,490 $ 608,935 $ 187,354 $ 6,746 $ (159,632) $ (9,367) $ 658,526
============================================================================================
See Notes to Consolidated Financial Statements.
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
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 1998
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. Diluted earnings per share takes
into account the dilutive effect of 34,470 and 72,074 shares issuable under
options granted by the Company at March 31, 1999 and 1998, respectively.
3. Allowance for Loan Losses:
The following is a summary of the Allowance for Loan Losses for the three months
ended March 31, 1999 and 1998 (in thousands):
Three Months Ended March 31,
------------------------------
1999 1998
----------------- ------------
Balance January 1 $33,169 $33,274
Additions:
Provision for loan losses 2,487 2,858
----- -----
Total Before Deductions 35,656 36,132
------ ------
Deductions:
Charge-offs (3,504) (3,447)
Less recoveries on loans previously charged-off 695 616
--- ---
Net charge-offs (2,808) (2,831)
------ ------
Balance, March 31 $32,847 $33,301
======= =======
At March 31, 1999 the amount of loans that are considered to be impaired under
SFAS No. 114 was $10,484,000 compared to $10,221,000 at December 31, 1998 and
$2,544,000 at March 31, 1998. At March 31, 1999 all of these loans are on a
non-accrual or restructured basis. Included in the impaired loans is $7,442,000
of loans for which the related allowance is $1,784,000. The remaining $3,042,000
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 March 31, 1999 was approximately
$10,353,000.
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
4. Segment Reporting: Public enterprises are required to report certain
information concerning its operating segments in annual and interim financial
statements. Beginning in 1998, the Company began preparing periodic reporting on
its operating segments. Operating segments are considered to be components of an
enterprise for which separate financial information is available and evaluated
regularly by key decision-makers for purposes of allocating resources and
assessing performance. The Company has defined its operations into the following
segments: Commercial Banking: Providing a full range of lending and cash
management services to commercial and governmental entities through the
commercial division of the Company's lead bank. Trust & 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. 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:
Three Months Ended March 31,
(in thousands)
----------------------------
1999 1998
Revenues
Commercial Banking $ 19,808 $ 19,708
Trust and Securities Processing 16,358 14,630
Investment Banking and Brokerage 10,319 7,673
Community Banking 51,942 52,968
Other 4,699 3,125
Less: Intersegment revenues (6,055) (5,836)
______ ______
Total $ 97,071 $ 92,268
====== ======
Net Income
Commercial Banking $ 8,394 $ 8,395
Trust and Securities Processing 3,698 3,181
Investment Banking and Brokerage 2,123 1,743
Community Banking 4,526 5,062
Other - -
Less: Intersegment income (2,324) (3,225)
______ _______
Total $ 16,417 $ 15,156
====== ======
Total Average Assets
Commercial Banking $1,552,335 $1,749,972
Trust and Securities Processing 16,460 12,833
Investment Banking and Brokerage 2,031,223 1,554,425
Community Banking 3,939,933 3,869,108
Other 419,375 54,942
Less: Intersegment assets (424,726) (206,234)
_________ _________
Total $7,534,600 $7,035,046
========= =========
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
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." 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, 2000.
The Company is in the process of evaluating the potential impact of the new
Statement.
UMB FINANCIAL CORPORATION
AVERAGE BALANCES/YIELDS AND RATES
(tax-equivalent basis) (in thousands)
1999 1998
Average Average Average Average
Assets Balance Yield/Rate Balance Yield/Rate
-------------------------- --------------------------
Loans, net of unearned interest $ 2,563,121 8.13 % $ 2,742,946 8.95 %
Securities:
Taxable $ 3,137,134 5.39 $ 2,337,642 5.85
Tax-exempt 714,961 6.35 471,029 6.72
-------------------------- --------------------------
Total securities $ 3,852,095 5.57 $ 2,808,671 6.00
Federal funds and resell agreements 53,081 4.70 336,448 5.83
Other earning assets 56,502 5.27 75,360 6.00
-------------------------- --------------------------
Total earning assets $ 6,524,799 6.57 $ 5,963,425 7.29
Allowance for loan losses (33,011) (33,137)
Other assets 1,042,812 1,104,758
--------------- --------------
Total assets $ 7,534,600 $ 7,035,046
=============== ==============
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 3,764,306 3.45 % $ 3,567,730 3.97 %
Federal funds and repurchase agreements 1,150,596 4.24 956,531 5.12
Borrowed funds 43,218 6.98 44,801 5.99
-------------------------- --------------------------
Total interest-bearing liabilities $ 4,958,120 3.67 $ 4,569,062 4.23
Noninterest-bearing demand deposits 1,842,468 1,731,709
Other liabilities 68,734 93,699
Shareholders' equity 665,278 640,576
--------------- --------------
Total liabilities and shareholders' equity $ 7,534,600 $ 7,035,046
=============== ==============
Net interest spread 2.90 % 3.06 %
Net interest margin 3.78 4.05
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
March 31, 1999 vs. 1998
----------------------------------------------------------
Volume Rate Total
Change in interest earned on:
Loans $ (3,783) $ (4,683) $ (8,466)
Securities:
Taxable 10,794 (2,858) 7,936
Tax-exempt 3,841 (445) 3,396
Federal funds sold (3,390) (667) (4,057)
Other (256) (125) (381)
----------------- ----------------- ----------------
Interest income $ 7,206 $ (8,778) $ (1,572)
----------------- ----------------- ----------------
Change in interest paid on:
Interest-bearing deposits $ 1,849 $ (4,699) $ (2,850)
Federal funds purchased 2,222 (2,255) (33)
Borrowed funds (24) 106 82
----------------- ----------------- ----------------
Interest expense $ 4,047 $ (6,848) $ (2,801)
----------------- ----------------- ----------------
Net interest income $ 3,159 $ (1,930) $ 1,229
================= ================= ================
ANALYSIS OF NET INTEREST MARGIN
Three Months Ended
March 31, 1999
----------------------------------------------------------
1999 1998 Change
Average earning assets $ 6,524,799 $ 5,963,425 $ 561,374
Interest-bearing liabilities 4,958,120 4,569,062 389,058
----------------- ----------------- ----------------
Interest free funds $ 1,566,679 $ 1,394,363 $ 172,316
================= ================= ================
Free funds ratio 24.01 % 23.38 % 0.63 %
(free funds to earning assets)
Tax-equivalent yield on earning assets 6.57 % 7.29 % (0.72)%
Cost of interest-bearing liabilities 3.67 4.23 (0.56)
----------------- ----------------- ----------------
Net interest spread 2.90 % 3.06 % (0.16)%
Benefit of interest free funds 0.88 0.99 (0.11)
----------------- ----------------- ----------------
Net interest margin 3.78 % 4.05 % (0.27)%
================= ================= ================
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
The following financial review presents management's discussion and analysis of
UMB Financial Corporation's consolidated financial condition and results of
operations. This review highlights the major factors affecting results of
operations and any significant changes in financial condition for the period
ended March 31, 1999. 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. They include, but are not limited to
statements relating to the Company's and various third parties' Year 2000
readiness efforts. There can be no assurance that results or future developments
will be in accordance with the Company's expectations or that the effect of
future developments on the Company will be those anticipated by the Company.
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; the unavailability or increased cost of
certain of certain resources, including, without limitation, those associated
Year 2000 issues; the ability of third parties to successfully deal with their
Year 2000 issues, the unanticipated costs and disruption in operating due to
Year 2000 non-compliance of the Company and/or its affiliates, customers,
suppliers, counterparties, public utilities, issuers of investment securities,
and other entities. While the Company periodically reassesses material trends
and uncertainties affecting the Company's results of operations and financial
condition in connection with the preparation and 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 UMB Financial Corporation (the Company) earned net income of $16,417,000
for the three months ended March 31, 1999, compared to $15,156,000 for the same
period a year earlier. This represents per share earnings of $0.81 for the first
quarter of 1999 compared to $0.74 for the first quarter of 1998, an increase of
9.46%.
The Company's improved performance has been primarily driven by an increase in
non-interest income. Nearly all fee categories increased as the Company
continues to build on its substantial fee-based income. The Company's net
interest income showed a small increase on a year-to-date basis. Non interest
expenses were higher as the Company continues its investments in personnel,
equipment and technology systems required to sustain long-term growth.
The Board of Directors of the Company has authorized the purchase of up to one
million shares of the Company's stock during 1999, such purchases to be on such
terms and conditions as management may deem appropriate. The purchases may be
made, from time to time, in both open market and privately negotiated
transactions.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Results of Operations
For the three months ended March 31, 1999 the Company earned net interest income
of $57,043,000 compared to $56,813,000 for the first quarter of 1998. 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 3.78% compared to 4.05% for the same
period of 1998. 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 1999 also decreased 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 first quarter of 1999 was $2,487,000
compared to $2,858,000 for the same period of 1998. The decrease in provision
for loan loss was due to a decrease in net loans and a decrease in net
charge-offs. Net loan charge-offs in the first three months of 1999 were
$2,809,000 compared to $2,831,000 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 $42,515,000 for the first quarter of 1999 compared
to $36,823,000 for the same period of 1998, an increase of 15.5%. Nearly all
categories of fee experienced double-digit growth for the quarter. The largest
area of increase was from securities sales and retail brokerage activities that
showed an increase of more than 30% from the same period one year earlier. Fee
income from deposit services, cash management services and trust services
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. Non interest expense was $74,099,000 for the three months ended March
31, 1999 compared to $69,049,000 for the same period of 1998. In comparing the
year-to-date increase the Company incurred increases in staffing 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 March 31, 1999 were $7.346 billion compared to $6.949 billion at
March 31, 1998 and $7.648 billion at December 31, 1998. Loans, net of unearned
interest, decreased to $2.634 billion as of March 31, 1999 compared to $2.718
billion at March 31, 1998, yet increased from $2.559 billion at December 31,
1998. This decrease in loans reflects a very competitive loan market in which
the Company operates. Total investment securities increased to $3.574 billion as
of March 31, 1999 compared to $2.653 billion at March 31, 1998. The increase in
investment securities resulted from the combined effect of a decrease in loans
and a decrease in federal funds and resell transactions. Total deposits
decreased to $5.376 billion at March 31, 1999 compared to $5.444 billion at
March 31, 1998 and $5.897 billion at December 31, 1998.
Non accrual and restructured loans totaled $11,755,000, 0.45% of loans, at March
31, 1999 compared to $3,837,000, 0.14% of loans, at March 31, 1998, and
$10,746,000 at December 31, 1998, 0.42% of loans. Loans past due 90 days or more
were $5,885,000, 0.22% of loans at March 31, 1999, compared to $9,185,000, 0.34%
of loans at March 31, 1998, and $7,915,000 at December 31,1998, 0.31% 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 March 31, 1999 the Company's allowance for loan losses was
$32,847,000 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 THREE MONTHS ENDED MARCH 31, 1999
Liquidity and Capital Resources
The Company's liquidity position continues to be strong. At March 31, 1999, the
Company's average loan to deposit ratio was 45.7% compared to 51.8% at March 31,
1998. At March 31, 1999, the average life of the securities portfolio was 17
months with 51% 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 $659 million at March 31, 1999 compared to $638
million at March 31, 1998 and $663 million at year-end 1998. During the twelve
months ended March 31, 1999 the Company increased its treasury stock holdings by
$21.5 million. Management will continue to consider treasury stock purchases
depending on price, availability and alternative use of funds. At March 31,
1999, the net unrealized gain on securities available for sale was $6.7 million,
compared to $6.2 million at March 31, 1998 and $13.7 million at December 31,
1998.
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 March 31, 1999.
Net Portfolio Value
Rates in
Basis Points Dollar Percentage
(Rate Shock) Amount Change Change
200 $1,490,306 $28,871 1.98 %
100 1,482,951 21,516 1.47 %
Static 1,461,435 - - %
(100) 1,397,305 (64,130) (4.39)%
(200) 1,328,394 (133,041) (9.10)%
The Company's capital position is summarized in the table below and far exceeds
regulatory requirements.
Three Months Ended
March 31,
RATIOS 1999 1998
Return on average assets 0.88 % 0.87 %
Return on average equity 10.01 9.60
Average equity to assets 8.83 9.11
Tier 1 risk-based capital ratio 15.75 15.52
Total risk-based capital ratio 16.61 16.45
Leverage ratio 8.39 8.52
Per Share Data
Earnings Basic $ 0.81 $ 0.74
Earnings Diluted $ 0.81 $ 0.74
Cash Dividends $ 0.20 $ 0.20
Dividend payout ratio 24.69 % 27.03 %
Book value $ 32.82 $ 31.20
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
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. If not corrected this could result in
system failures or miscalculations causing disruptions to the Company's
operations, and a material adverse effect on the Company's operations and
financial performance.
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. This plan addresses
both Information Technology systems and non-information technology assets such
as equipment containing embedded chips. 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% 99%
Testing 98% 94%
Implementation 93% 91%
Substantial progress has been made on the completion of the five step plan for
non-mission critical items: as of March 31, 1999, 97% of all identified
company-controlled applications had been completed through the testing stage,
and 87% of the vendor-controlled applications had been completed through the
testing stage. Completion of testing is scheduled for June 30, 1999.
The Company 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 has
been concluded.
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; $12 million was 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.
Although the priority given to Year 2000 issues may cause other Information
Technology projects to be delayed, such delay is not expected to have a material
impact on the Corporation's financial condition, business or operations.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Year 2000 issues can affect the Company not only as a result of its own internal
systems, but also as a result of the success of third parties in dealing with
their Year 2000 issues. 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 held by the Company's subsidiaries and their trust departments, 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. The Company has been contacting certain
third party vendors and other significant third parties to determine the status
of their Year 2000 plans and progress. The Company has established a policy in
which, as part of its affiliates' evaluation of investment securities, they
review the portions of the public filings of the issuers of such investment
securities describing their respective efforts and status relating to their Year
2000 readiness. Such affiliates do not, however, attempt to independently
confirm or verify any of the representations or statements made by such issuers
in their public filings. There can be no assurance that each third party will
adequately address its Year 2000 issues.
A failure by the Company to successfully remediate its own Year 2000 problems,
or a failure by counterparties, issuers of securities, 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 as well as financial
losses if there were failures of telecommunications systems, utility systems,
security clearing systems or other elements of the industry infrastructure. The
Company's business, results of operations and financial positions could be
materially adversely affected as a result of any such failures. Because of the
range of possible issues associated with the Companys and third parties' Year
2000 issues, and the large number of variables involved, it is impossible to
quantify the potential consequence or costs of problems that may occur if
respective remediation efforts are not successful.
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 Year
2000 efforts are not entirely complete, and due to its 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.
The Company continues to develop contingency plans to address failures due to
Year 2000 issues relating to, among other things, its operations, systems,
physical locations, products, vendors and public infrastructure. The Company's
contingency planning includes remediation contingency plans and business
resumption contingency plans. Remediation contingency plans are designed to
address alternative courses of action in the event remediation of a mission
critical system falls behind schedule or is not successfully remediated.
Business resumption contingency plans are designed to address Year 2000 problems
that could arise even though the Company and third parties have completed
remediation. The Year 2000 business resumption contingency planning includes
event plans for each functional department, documented back-up procedures in the
event of a failure, identification of supplies, materials and processes that
must be on hand in the event the plan is activated and coordination of
personnel. Business resumption planning is well under way and will continue
through the second two quarter of 1999. Notwithstanding extensive contingency
planning, the failure of certain mission critical third parties, such as
utilities, telecommunications providers, transportation service providers or
certain governmental entities could adversely affect the Company.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999
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 March 31, 1999 Form 10-Q.
b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the
quarter ended March 31, 1999.
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: May 13, 1999