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, 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 September 30, 1999, UMB Financial Corporation had 19,626,309 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, 1999 and 1998 (unaudited) and
December 31, 1998 (audited) 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Shareholders' Equity for the Nine Months
Ended September 30, 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 12-17
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
UMB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
ASSETS 1999 1998 1998
- ------ ---- ---- ----
Loans:
Commercial, financial and agricultural $1,392,346 $1,248,555 $1,291,858
Consumer (net of unearned interest) 951,716 961,393 934,765
Real estate 326,069 335,991 327,796
Leases 5,217 4,797 4,717
Allowance for loan losses (32,867) (33,542) (33,169)
------- ------- -------
Net loans 2,642,481 2,517,194 2,525,967
--------- --------- ---------
Securities available for sale:
U.S. Treasury and agencies 2,269,287 2,117,736 2,604,949
State and political subdivisions 1,949 3,364 2,547
Commercial paper and other 24,339 261,587 445,393
------ ------- -------
Total securities available for sale 2,295,575 2,382,687 3,052,889
--------- --------- ---------
Securities held to maturity:
State and political subdivisions 751,148 609,200 702,160
------- ------- -------
Total securities held to maturity (market value
of $744,343, $617,504 & $711,035, respectively) 751,148 609,200 702,160
--------- -------- --------- ------- ------- -------
Federal funds and resell agreements 202,326 115,809 61,369
Trading securities and other earning assets 74,710 86,891 36,000
------ ------ ------
Total earning assets 5,966,240 5,711,781 6,378,385
--------- --------- ---------
Cash and due from banks 615,446 673,750 850,532
Bank premises and equipment, net 239,304 194,737 206,194
Accrued income 81,431 75,609 70,045
Premium on and intangibles of purchased banks 48,067 55,150 53,379
Other assets 73,486 79,807 89,563
------ ------ ------
Total assets $7,023,974 $6,790,834 $7,648,098
========= ========= =========
LIABILITIES
- -----------
Deposits:
Noninterest-bearing demand $1,556,926 $1,639,267 $2,045,074
Interest-bearing demand and savings 2,345,533 2,309,251 2,378,814
Time deposits under $100,000 847,889 875,630 868,490
Time deposits of $100,000 or more 371,767 498,556 604,426
------- ------- -------
Total deposits 5,122,115 5,322,704 5,896,804
--------- --------- ---------
Federal funds and repurchase agreements 899,119 654,035 922,219
Short-term debt 151,105 300 31
Long-term debt 38,064 39,739 39,153
Accrued expenses and taxes 52,375 49,493 52,481
Other liabilities 109,122 73,429 74,643
------- ------ ------
Total liabilities 6,371,900 6,139,700 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 608,892 608,980 608,934
Retained earnings 211,152 161,795 175,005
Accumulated other comprehensive income (loss) (4,943) 15,006 13,693
Unearned ESOP shares (8,117) (10,617) (9,992)
Treasury stock, 4,657,909, 3,941,901 and
3,957,218 shares, at cost, respectively (179,400) (148,520) (149,363)
Total shareholders' equity 652,074 651,134 662,767
------- ------- -------
Total liabilities and shareholders' equity $7,023,974 $6,790,834 $7,648,098
========= ========= =========
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 1999 1998 1999 1998
---- ---- ---- ----
Loans $ 53,392 $ 56,055 $ 156,297 $ 173,720
Securities:
Taxable interest $ 36,575 $ 36,399 $ 115,858 $ 102,334
Tax-exempt interest 7,924 6,454 23,373 17,542
Total securities income $ 44,499 $ 42,853 $ 139,231 $ 119,876
Federal funds and resell agreements 1,667 2,396 3,392 10,736
Trading securities and other 1,010 972 2,536 3,260
----- --- ----- -----
Total interest income $100,568 $102,276 $301,456 $ 307,592
INTEREST EXPENSE
Deposits $ 29,944 $ 36,082 $ 90,877 $ 104,579
Federal funds and repurchase
agreements 15,457 11,622 41,036 34,865
Short-term debt 9 7 64 20
Long-term debt 704 892 2,132 2,470
--- --- ----- -----
Total interest expense $ 46,114 $ 48,603 $ 134,109 $ 141,934
-------- -------- --------- ---------
Net interest income $ 54,454 $ 53,673 $ 167,347 $ 165,658
-------- -------- --------- ---------
Provision for loan losses 1,966 2,538 6,921 8,310
----- ----- ----- -----
Net interest income after provision $ 52,488 $ 51,135 $ 160,426 $ 157,348
NONINTEREST INCOME
Trust income $ 13,600 $ 11,987 $ 40,005 $ 36,306
Securities processing 3,463 3,812 10,743 11,028
Trading and investment banking 4,628 4,331 15,882 13,222
Service charges on deposits 9,504 8,321 34,661 30,185
Other service charges and fees 9,747 8,098 20,674 17,276
Bankcard fees 1,609 1,489 4,291 2,319
Net investment security gains (losses) 478 0 537 (5)
Other 1,792 1,793 5,031 4,984
----- ----- ----- -----
Total noninterest income $ 44,821 $ 39,831 $ 131,824 $ 115,315
NONINTEREST EXPENSE
Salaries and employee benefits $ 42,281 $ 50,108 $ 124,104 $ 127,370
Occupancy, net 5,920 5,560 16,745 15,780
Equipment 9,913 7,869 27,452 22,772
Supplies and services 5,225 5,174 16,133 15,226
Marketing and business development 3,569 2,950 10,277 11,493
Amortization of premium on purchased banks 1,771 1,780 5,312 5,314
Other 8,080 8,340 26,292 23,155
----- ----- ------ ------
Total noninterest expense $ 76,759 $ 81,781 $ 226,315 $ 221,110
-------- -------- --------- ---------
Income before income taxes $ 20,550 $ 9,185 $ 65,935 $ 51,553
Income tax provision 5,065 1,811 17,752 14,655
----- ----- ------ ------
NET INCOME $ 15,485 $ 7,374 $ 48,183 $ 36,898
======== ======= ======== ========
PER SHARE DATA
Net income - Basic $ 0.79 $ 0.36 $ 2.42 $ 1.81
Net income - Diluted $ 0.79 $ 0.36 $ 2.42 $ 1.80
Dividends $ 0.20 $ 0.20 $ 0.60 $ 0.60
Weighted average shares outstanding 19,656,143 20,334,817 19,903,706 20,392,415
See Notes to Consolidated Financial Statements.
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
Nine Months Ended
September 30,
-------------------------------------
1999 1998
---------------- ---------------
Operating Activities
Net Income $ 48,183 $ 36,898
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 6,921 8,310
Depreciation and amortization 20,004 17,777
Deferred income taxes (824) (2,120)
Net increase in trading securities (38,710) (26,343)
(Gains) losses on sales of securities available for sale (537) 5
Amortization of securities premiums,
net of discount accretion (20,930) 1,153
Earned ESOP shares 1,875 1,943
Changes in:
Accrued income (11,386) (2,982)
Accrued expenses and taxes 8,884 (10,096)
Other, net 52,798 (14,364)
---------------- ---------------
Net cash provided by operating activities $ 66,278 $ 10,181
---------------- ---------------
Investing Activities
Proceeds from maturities of investment securities $ 58,439 $ 46,459
Proceeds from sales of securities available for sale 247,896 16,981
Proceeds from maturities of securities available for sale 7,789,242 6,483,938
Purchases of investment securities (110,405) (204,875)
Purchases of securities available for sale (7,284,423) (6,433,981)
Net (increase) decrease in loans (123,435) 227,253
Net increase in fed funds and resell agreements (140,957) (44,596)
Purchases of bank premises and equipment (47,802) (34,725)
Proceeds from sales of bank premises and equipment 0 284
---------------- ---------------
Net cash provided by investing activities $ 388,555 $ 56,738
---------------- ---------------
Financing Activities
Net decrease in demand and savings deposits $ (521,429) $ (249,032)
Net increase (decrease) in time deposits (253,260) 24,739
Net decrease in fed funds/ repurchase agreements (23,100) (61,510)
Net increase (decrease) in short term borrowings 151,074 (816)
Proceeds from long term debt 3,900 0
Repayment of long term debt (4,989) (4,811)
Cash dividends (12,036) (12,333)
Proceeds from exercise of stock options 230 123
Purchases of treasury stock (30,309) (10,829)
---------------- ---------------
Net cash used in financing activities $ (689,919) $ (314,469)
---------------- ---------------
Decrease in cash and due from banks $ (235,086) $ (247,550)
Cash and due from banks at beginning of year 850,532 921,300
---------------- ---------------
Cash and due from banks at end of period $ 615,446 $ 673,750
================ ===============
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 - - 36,898 - - - 36,898
Comprehensive income,net of tax
Unrealized gains on securities of
$11,091 net of reclassification adj.
for losses included in net income
of $5. - - - 11,096 - - 11,096
------ ------
Total comprehensive income 47,994
Cash Dividends - - (12,333) - - - (12,333)
Earned ESOP shares - 68 - - - 1,875 1,943
Purchase of treasury stock - - - - (10,829) - (10,829)
Exercise of stock options - (52) - - 175 - 123
-------- -------- -------- -------- -------- -------- --------
Balance - September 30, 1998 $ 24,490 $608,980 $ 161,795 $ 15,006 $(148,520) $ (10,617) $651,134
======== ======== ========= ======== ========= ========= ========
Balance - January 1, 1999 $ 24,490 $608,934 $ 175,005 $ 13,693 $(149,363) $ (9,992) $662,767
Net income - - 48,183 - - - 48,183
Comprehensive income,net of tax
Unrealized loss on securities of
$18,099 net of reclassification adj.
for gains included in net income
of $537. - - - (18,636) - - (18,636)
----- ------- -------
Total comprehensive income 29,547
Cash dividends - - (12,036) - - - (12,036)
Earned ESOP shares - - - - - 1,875 1,875
Purchase of treasury stock - - - - (30,309) - (30,309)
Exercise of stock options - (42) - - 272 - 230
-------- -------- -------- -------- -------- -------- --------
Balance - September 30, 1999 $ 24,490 $608,892 $ 211,152 $ (4,943) $(179,400) $ (8,117) $652,074
======== ======== ========= ======== ========= ======== ========
See Notes to Consolidated Financial Statements.
7
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 30,668 and 65,666 shares issuable under
options granted by the Company at September 30, 1999 and 1998, respectively.
3. Allowance for Loan Losses:
The following is a summary of the Allowance for Loan Losses for the nine months
ended September 30, 1999 and 1998 (in thousands):
Nine Months Ended September 30,
1999 1998
---- ----
Balance January 1 $33,169 $33,274
Additions:
Provision for loan losses 6,921 8,310
----- -----
Total Before Deductions 40,090 41,584
------ ------
Deductions:
Charge-offs (9,618) (10,414)
Less recoveries on loans previously
charged-off 2,395 2,372
----- -----
Net charge-offs (7,223) (8,042)
------ ------
Balance, September 30 $32,867 $33,542
======= =======
At September 30, 1999 the amount of loans that are considered to be impaired
under SFAS No. 114 was $8,145,000 compared to $10,221,000 at December 31, 1998
and $12,851,000 at September 30, 1998. At September 30, 1999 all of these loans
are on a non-accrual or restructured basis. Included in the impaired loans is
$6,927,000 of loans for which the related allowance is $1,643,000. This specific
allowance is based on a comparison of the recorded loan value to either an
estimate of the present value of the loan's estimated cash flows, its estimated
fair value, or the fair value of the collateral securing the loan if the loan is
collateral dependent. The remaining $1,218,000 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, 1999 was approximately $9,736,000.
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
4. Segment Reporting: Public enterprises are required to report certain
information concerning 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 and Securities Processing:
Providing estate planning, trust, employee benefit, asset management and
custodial services to individuals and corporate customers. Investment Banking
and Brokerage: Providing commercial and retail brokerage, investment accounting
and safekeeping services to individuals and corporate customers. Community
Banking: Providing a full range of banking services to retail and corporate
customers through the Company's affiliate banks' and branch network. Other: The
Other category consists primarily of Overhead and Support departments of the
Company. The net revenues and expenses of these departments are allocated to the
other segments of the organization in the Company's periodic segment reporting.
Reported segment revenues, net income and average assets include revenue and
expense distributions for services performed for other segments within the
Company as well as balances due from other segments within the Company. Such
intercompany transactions and balances are eliminated in the Company's
consolidated financial statements. The table below lists selected financial
information by business segment (in thousands):
Three Months Ended September 30,
1999 1998
---- ----
Revenues
Commercial Banking $21,193 $23,837
Trust and Securities Processing 16,773 14,415
Investment Banking and Brokerage 9,081 6,592
Community Banking 55,172 54,474
Other 4,412 4,647
Less: Intersegment revenues (9,322) (12,999)
------ -------
Total $97,309 $90,966
======= =======
Net Income
Commercial Banking $ 7,585 $7,470
Trust and Securities Processing 3,423 1,664
Investment Banking and Brokerage 1,425 381
Community Banking 4,225 273
Other - -
Less: Intersegment income (1,173) (2,414)
------ ------
Total $15,485 $7,374
======= ======
Total Average Assets
Commercial Banking $1,695,860 $1,693,330
Trust and Securities Processing 20,672 11,603
Investment Banking and Brokerage 1,855,283 1,679,755
Community Banking 3,631,758 3,650,775
Other 363,728 159,937
Less: Intersegment assets (314,209) (214,250)
-------- --------
Total $7,253,092 $6,981,150
========== ==========
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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, 2001.
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)
Nine Months Ended September 30,
1999 1998
Average Average Average Average
Assets Balance Yield/Rate Balance Yield/Rate
Loans, net of unearned interest $ 2,579,725 8.13 % $ 2,678,042 8.77 %
Securities:
Taxable $ 2,863,170 5.41 $ 2,348,381 5.83
Tax-exempt 729,763 6.26 523,429 6.54
------- ---- ------- ----
Total securities $ 3,592,933 5.58 $ 2,871,810 5.96
----------- ---- ----------- ----
Federal funds and resell agreements 97,006 4.67 257,444 5.58
Other earning assets 63,757 5.58 76,295 6.00
------ ---- ------ ----
Total earning assets $ 6,333,421 6.61 $ 5,883,591 7.22
----------- ---- ----------- ----
Allowance for loan losses (32,824) (33,215)
Other assets 1,075,561 1,120,514
--------- ---------
Total assets $ 7,376,158 $ 6,970,890
=========== ===========
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 3,605,516 3.37 % $ 3,575,556 3.91 %
Federal funds and repurchase agreements 1,255,226 4.37 911,615 5.11
Borrowed funds 43,383 6.77 44,004 7.56
------ ---- ------ ----
Total interest-bearing liabilities $ 4,904,125 3.66 $ 4,531,175 4.19
----------- ---- ----------- ----
Noninterest-bearing demand deposits 1,731,064 1,702,363
Other liabilities 83,543 90,466
Shareholders' equity 657,426 646,886
------- -------
Total liabilities and shareholders' equity $ 7,376,158 $ 6,970,890
=========== ===========
Net interest spread 2.95 % 3.03 %
Net interest margin 3.78 4.00
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, 1999 vs. 1998 September 30, 1999 vs. 1998
------------------------------------------ ------------------------------------------
Volume Rate Total Volume Rate Total
Change in interest earned on:
Loans $ (27) $ (3,975) $ (4,002) $ (6,293) $ (12,521) $ (18,814)
Securities:
Taxable 2,014 (1,836) 178 21,225 (7,701) 13,524
Tax-exempt 2,516 (330) 2,186 9,698 (1,161) 8,537
Federal funds sold (463) (266) (729) (5,832) (1,512) (7,344)
Other 14 8 22 (535) (228) (763)
------------ ------------ ------------ ------------ ------------ -----------
Interest income $ 4,054 $ (6,399) $ (2,345) $ 18,263 $ (23,123) $ (4,860)
------------ ------------ ------------ ------------ ------------ -----------
Change in interest paid on:
Interest-bearing deposits $(1,464) $ (4,674) $ (6,138) $ 869 $ (14,571) $ (13,702)
Federal funds purchased 5,141 (1,306) 3,835 11,764 (5,593) 6,171
Borrowed funds 27 (213) (186) (35) (259) (294)
------------ ------------ ------------ ------------ ------------ -----------
Interest expense $ 3,704 $ (6,193) $ (2,489) $ 12,598 $ (20,423) $ (7,825)
------------ ------------ ------------ ------------ ------------ -----------
Net interest income $ 350 $ (206) $ 144 $ 5,665 $ (2,700) $ 2,965
============ ============ ============ ============ ============ ===========
ANALYSIS OF NET INTEREST MARGIN
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------------------------------ ------------------------------------------
1999 1998 Change 1999 1998 Change
Average earning assets $6,208,910 $ 5,941,734 $ 267,176 $ 6,333,421 $5,883,591 $ 449,830
Interest-bearing liabilities 4,892,276 4,610,053 282,223 4,904,125 4,531,175 372,950
------------ ------------ ------------ ------------ ------------ -----------
Interest free funds $1,316,634 $ 1,331,681 $ (15,047) $ 1,429,296 $1,352,416 $ 76,880
============ ============ ============ ============ ============ ===========
Free funds ratio 21.21 % 22.41 % (1.21)% 22.57 % 22.99 % (0.42)%
(free funds to earning assets)
Tax-equivalent yield on earning assets 6.67 % 7.13 % (0.46)% 6.61 % 7.22 % (0.61)%
Cost of interest-bearing liabilities 3.74 4.18 (0.44) 3.66 4.19 (0.53)
------------ ------------ ------------ ------------ ------------ -----------
Net interest spread 2.93 2.95 % (0.02)% 2.95 % 3.03 % (0.08)%
Benefit of interest free funds 0.80 0.94 (0.14) 0.83 0.97 (0.14)
------------ ------------ ------------ ------------ ------------ -----------
Net interest margin 3.73 % 3.89 % (0.16)% 3.78 % 4.00 % (0.22)%
============ ============ ============ ============ ============ ===========
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The following financial review presents management's discussion and analysis of
the consolidated financial condition and results of operations of UMB Financial
Corporation (the Company). This review highlights the major factors affecting
results of operations and any significant changes in financial condition for the
period ended September 30, 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 resources, including, without limitation, those associated with Year
2000 issues; the ability of third parties to successfully deal with their Year
2000 issues, the unanticipated costs and disruption in operations 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 of management's discussion and
analysis contained in the Company's annual and quarterly reports, the Company
does not intend to review or revise any particular forward-looking statement
referenced herein in light of future events.
Summary The Company earned net income of $15,485,000 for the three months ended
September 30, 1999, compared to $7,374,000 for the same period a year earlier.
It should be noted that the 1998 results include a one-time charge related to
the termination of the Company's defined benefit pension plan. Absent this
charge, operating results for the third quarter of 1998 were $13,802,000 or
$0.69 per share. Earnings per share for the three months ended September 30,
1999 were $0.79, a 14.5% increase over 1998 operating results. For the
nine-month period ended September 30, 1999, the Company reported net income of
$48,183,000, compared with $36,898,000 for the same period in 1998. Prior year
operating results, which exclude the pension termination charge, were
$43,326,000 or $2.12 per share. Earnings per share for the nine months ended
September 30, 1999 were $2.42, a 14.2% increase over 1998 operating results.
The Company's improved performance has been primarily driven by an increase in
non-interest income on both a quarterly and year-to-date basis. Significant
gains were achieved in trust services, mutual fund servicing, service charge on
deposits and cash management. For the quarter ended September 30, 1999,
non-interest income increased by 12.5% over the same period a year earlier. For
the nine-month period ended September 30, 1999, non-interest income increased
14.3% over the prior year. Also effecting net income was a decrease in the
Company's provision for loan losses.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Results of Operations
For the three months ended September 30, 1999 the Company
earned net interest income of $54,454,000 compared to $53,673,000 for the third
quarter of 1998. On a year-to-date basis, net interest income increased to
$167,347,000 for the first nine months of 1999, compared to $165,658,000 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 yearly average
earning assets increased, the Company's net interest margin decreased to 3.78%
compared to 4.00% 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 third quarter of 1999 was $1,966,000
compared to $2,538,000 for the same period of 1998. The year-to-date loan loss
provision for the Company in 1999 was $6,921,000 compared to $8,310,000 for
1998. The decrease in provision for loan loss was due to a combination of a
decrease in net loans, decreases in net loan charge-offs and a decrease in
non-performing loans. Net loan charge-offs in the first nine months of 1999 were
$7,223,000 compared to $8,042,000 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 $44,821,000 for the third quarter of 1999 compared
to $39,831,000 for the same period of 1998. For the first nine months of 1999,
non-interest income increased to $131,824,000 from $115,315,000 for the prior
year, an increase of 14.3%. Nearly all categories of fee income experienced
double-digit growth for the quarter. One of the largest areas of increase was
from trading and investment banking activities that showed an increase of more
than 20% from the same period one year earlier. Fee income from deposit
services, cash management services and trust services increased as the Company
continued its efforts to grow these revenue sources, which do not carry the
credit and interest rate risk of interest-based revenue.
Non- interest expense was $76,759,000 for the three months ended September 30,
1999 compared to $71,781,000 for the same period of 1998. For the first nine
months of 1999 non-interest expense was $226,315,000 compared to $221,110,000
for the first nine months of 1998. Included in both the quarterly and
year-to-date results for 1998 was a $10 million charge for the termination 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.
In comparing the non-interest expense increases, other than the 1998
nonrecurring charge, the Company incurred higher 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 upgrades of core operating systems. The prudent management on
non-interest expense will continue to be a priority for the Company.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Financial Condition
Total assets at September 30, 1999 were $7.024 billion
compared to $6.791 billion at September 30, 1998 and $7.648 billion at December
31, 1998. Loans, net of unearned interest, increased to $2.675 billion as of
September 30, 1999 compared to $2.551 billion at September 30, 1998 and $2.559
billion at December 31, 1998. This increase in loans reflects the Company's
continuing efforts to expand loan growth despite a very competitive loan market
in which the Company operates. Total investment securities increased to $3.047
billion as of September 30, 1999 compared to $2.992 billion at September 30,
1998, and decreased from $3.755 billion at December 31, 1998. Total deposits
decreased to $5.122 billion at September 30, 1999 compared to $5.323 billion at
September 30, 1998 and $5.897 billion at December 31, 1998. The deposit decrease
has occurred mainly in the large time deposits as customers are currently
placing their funds in short term repurchase agreements.
Non accrual and restructured loans totaled $9,360,000, 0.35% of loans, at
September 30, 1999 compared to $13,573,000, 0.53% of loans, at September 30,
1998, and $10,746,000 at December 31, 1998, 0.42% of loans. Loans past due 90
days or more were $9,562,000, 0.36% of loans at September 30, 1999, compared to
$9,093,000, 0.36% of loans at September 30, 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 September 30, 1999 the Company's
allowance for loan losses was $32,867,000 or 1.23% of outstanding loans. The
adequacy of the Company's allowance for loan losses is evaluated based on
reserves for specific loans, and reserves on homogeneous groups of loans based
on historical loss experience and current loss trends. The Company has a
well-diversified loan portfolio with no foreign loans and no significant credit
exposure to commercial real estate.
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Liquidity and Capital Resources
The Company's liquidity position continues to be
strong. At September 30, 1999, the Company's average loan to deposit ratio was
48.3% compared to 50.7% at September 30, 1998. At September 30, 1999, the
average life of the securities portfolio was 23 months with 37% 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 $652 million at September 30, 1999 compared to $651
million at September 30, 1998 and $663 million at year-end 1998. During the
twelve months ended September 30, 1999 the Company increased its treasury stock
holdings by $30.9 million. Management will continue to consider treasury stock
purchases depending on price, availability and alternative use of funds. At
September 30, 1999, the net unrealized loss on securities available for sale was
$4.9 million, compared to net unrealized gains of $15.0 million at September 30,
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 September 30, 1999.
Net Portfolio Value
Rates in
Basis Points Dollar Change Percentage
(Rate Shock) Amount Change
200 $1,382,557 $(24,670) (1.75)%
100 1,401,531 (5,696) (0.40)%
Static 1,407,227 - - %
(100) 1,366,646 (40,582) (2.88)%
(200) 1,322,942 (84,286) (5.99)%
The Company's capital position is summarized in the table below and far exceeds
regulatory requirements.
Nine Months Ended
September 30,
RATIOS 1999 1998
---- ----
Return on average assets 0.86 % 0.71%
Return on average equity 9.80 7.63
Average equity to assets 8.91 9.28
Tier 1 risk-based capital ratio 16.44 15.82
Total risk-based capital ratio 17.33 16.73
Leverage ratio 8.40 8.64
Per Share Data
Earnings Basic $ 2.42 $ 1.81
Earnings Diluted $ 2.42 $ 1.80
Cash Dividends $ 0.60 $ 0.60
Dividend payout ratio 24.79 % 33.15%
Book value $ 33.22 $ 32.11
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
YEAR 2000 READINESS DISCLOSURES
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 100% 100%
Solution Planning 100% 100%
Renovation 100% 100%
Testing 100% 100%
Implementation 98% 95%
Substantial progress has been made on the completion of the five step plan for
non-mission critical items: as of September 30, 1999, 99% of all identified
company-controlled applications had been completed through the testing stage,
and 96% of the vendor-controlled applications had been completed through the
testing stage. Implementation for non-mission critical items was 99% for
company-controlled applications and 88% for vendor controlled items.
With the exception of a small number of personal computers that are still being
deployed in remaining remote locations (which deployment is scheduled to be
completed no later than December 31, 1999), all hardware (including mainframe,
mid-range and personal computers) that were identified for replacement or
modification, have already been replaced or modified in accordance with the
Company's plan. Testing of such equipment has been successfully completed. The
Company has put in place a policy that restricts any proposed programming
changes during the balance of the year, to only those that have no adverse
impact on the completed steps of the plan.
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 being spent
in 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 NINE MONTHS ENDED SEPTEMBER 30, 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 or failure 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 a number of such 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). The relationships that the
Company has with such third parties are important to the Company's operations
and financial condition, and their failure to achieve year 2000 readiness in a
timely manner could have a material adverse impact on the Company. 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, but due to the limited quantity of detailed information that many of
such parties make available to the public regarding their year 2000 readiness
efforts and status (as well as the year 2000 readiness status and efforts of
entities with whom they conduct business), the Company cannot be assured that
all of them will achieve year 2000 readiness in a timely fashion. 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. Moreover, the public
filings are normally updated only quarterly, and the information that the
Company obtains through its review of such filings may not be current as of any
given time. 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, or
customers with substantial relationships, or failures in the payment system
could have a substantial and material 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, and 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 Company's
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 systems fall behind schedule or are not successful. 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 will continue through the fourth 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 NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 1999 Form 10-Q.
b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the
quarter ended September 30, 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
____________________________________
R. Crosby Kemper
Chairman
____________________________________
Timothy M. Connealy
Chief Financial Officer
Date: November 15, 1999