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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: DECEMBER 31, 1995
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 0-4887
UMB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MISSOURI 43-0903811
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
1010 GRAND AVENUE, 64106
KANSAS CITY, MISSOURI (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (816) 860-7000
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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
As of February 29, 1996, the aggregate market value of common stock
outstanding held by nonaffiliates of the registrant was approximately
$500,149,000 based on the NASDAQ closing price of that date.
Indicate the number of shares outstanding of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 29, 1996
Common Stock, $1.00 Par Value 19,386,219
DOCUMENTS INCORPORATED BY REFERENCE
Company's 1996 Proxy Statement dated March 12, 1996--Part III
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INDEX
ITEM PAGE
---- ----
PART I
1. Business.................................................... 1
2. Properties.................................................. 4
3. Legal Proceedings........................................... 4
4. Submission of Matters to a Vote of Security Holders......... 4
PART II
Market for the Registrant's Common Equity and Related Stock-
5. holder Matters.............................................. 4
6. Selected Financial Data..................................... 5
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 5
8. Financial Statements and Supplementary Data................. 5
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 5
PART III
10. Directors and Executive Officers of the Registrant.......... 5
11. Executive Compensation...................................... 5
Security Ownership of Certain Beneficial Owners and Manage-
12. ment........................................................ 5
13. Certain Relationships and Related Transactions.............. 6
PART IV
Exhibits, Financial Statement Schedules and Reports on Form
14. 8-K......................................................... 6
Signatures......................................................... 8
Financial Information.............................................. Appendix A
i
PART I
ITEM 1. BUSINESS
GENERAL
UMB Financial Corporation (the "Company") was organized in 1967 under
Missouri law for the purpose of becoming a bank holding company registered
under the Bank Holding Company Act of 1956. The Company owns substantially all
of the outstanding stock of 16 commercial banks, a consumer credit bank, a
bank real estate corporation, a reinsurance company, a community development
corporation and a discount brokerage company.
The Company's 16 commercial banks are engaged in general commercial banking
business entirely in domestic markets. The banks, 11 located in Missouri, 2 in
Kansas, one each in Illinois, Colorado and Oklahoma, offer a full range of
banking services to commercial, retail, government and correspondent bank
customers. In addition to standard banking functions, the principal affiliate
bank, UMB Bank, n.a., provides international banking services, investment and
cash management services, data processing services for correspondent banks and
a full range of trust activities for individuals, estates, business
corporations, governmental bodies and public authorities. A table setting
forth the names and locations of the Company's affiliate banks as well as
their total assets, loans, deposits and shareholders' equity as of December
31, 1995, is included on page A-46 of the attached Appendix, and is
incorporated herein by reference.
United Missouri Bank, U.S.A. is a consumer credit bank chartered in
Delaware. United Missouri Bank, U.S.A. services all incoming credit card
requests, performs data entry services on new card requests and evaluates new
and existing credit lines.
Other subsidiaries of the Company are UMB Properties, Inc., United Missouri
Insurance Company, Scout Brokerage Services, Inc., UMB Community Development
Corporation, UMB Consulting Services, Inc. and UMB Data Corporation. UMB
Properties, Inc. is a real estate company that leases facilities to certain
subsidiaries and acquires and holds land and buildings for anticipated future
facilities. United Missouri Insurance Company, an Arizona corporation, is a
reinsurance company that reinsures credit life and disability insurance
originated by affiliate banks. Scout Brokerage Services, Inc. provides
transaction services in a variety of investment securities for the general
public. This subsidiary offers brokerage and custodial services to its
customers (including affiliate and correspondent banks) through the facilities
of National Financial Services Corporation, a wholly-owned subsidiary of
Fidelity Brokerage Services, Inc. UMB Community Development Corporation
provides low-cost mortgage loans to low- to moderate-income families for
acquiring or rehabing owner-occupied housing in Missouri, Kansas, Illinois and
Colorado. UMB Consulting Services, Inc. offers regulatory and compliance
assistance to regional banks. UMB Data Corporation provides complete
correspondent services to banks throughout the region.
On a full-time equivalent basis at December 31, 1995, UMB Financial
Corporation and subsidiaries employed 3,937 persons.
COMPETITION
The commercial banking business is highly competitive. Affiliate banks
compete with other commercial banks and with other financial institutions,
including savings and loan associations, finance companies, money market
mutual funds, mortgage banking companies and credit unions. In recent years,
competition has also increased from institutions not subject to the same
geographical and other regulatory restrictions as domestic banks and bank
holding companies.
MONETARY POLICY AND ECONOMIC CONDITIONS
The operations of the Company's affiliate banks are affected by general
economic conditions as well as the monetary policy of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") which affects the
supply of money available to commercial banks. Monetary policy measures by the
Federal
1
Reserve Board are effected through open market operations in U.S. Government
securities, changes in the discount rate on bank borrowings and changes in
reserve requirements.
SUPERVISION AND REGULATION
As a bank holding company, the Company is subject to the Bank Holding
Company Act of 1956, as amended (the "BHCA") and to regulation by the Federal
Reserve Board.
The BHCA requires every bank holding company to obtain the prior approval of
the Federal Reserve Board before it may (i) acquire substantially all the
assets of any bank, (ii) acquire more than 5% of any class of voting stock of
a bank or bank holding company which is not already majority owned, or (iii)
merge or consolidate with another bank holding company.
Under the BHCA, a bank holding company is prohibited, with certain
exceptions, from acquiring direct or indirect ownership or control of more
than 5% of the voting shares of any company which is not a bank and from
engaging in business other than that of banking, managing and controlling
banks or performing services for its banking subsidiaries. However, the BHCA
authorizes the Federal Reserve Board to permit bank holding companies to
engage in activities which are so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The Federal Reserve
Board possesses cease and desist powers over bank holding companies if their
actions represent unsafe or unsound practices or violations of law.
As a result of the Interstate Banking and Branching Efficiency Act of 1994,
beginning in September, 1995, bank holding companies may acquire banks in any
state, subject to state deposit caps and a 10% nationwide cap. Interstate
branching by bank merger will be permitted beginning June 1, 1997. States may
"opt out" of interstate branching prior to June 1, 1997, and may "opt in"
prior to that date.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit, with
limited exceptions. There are also various legal restrictions on the extent to
which a bank holding company and certain of its non-bank subsidiaries can
borrow or otherwise obtain credit from its bank subsidiaries. The Company and
its subsidiaries are also subject to certain restrictions on issuance,
underwriting and distribution of securities.
Three of the banks owned by the Company are national banks and are subject
to supervision and examination by the Comptroller of the Currency. United
Missouri Bank, U.S.A., a credit card bank, is chartered under the state
banking laws of Delaware and is subject to supervision and regular examination
by the Office of the State Bank Commissioner of Delaware. This Bank should
cease operations in 1996. A new national bank located in Omaha, Nebraska to be
known as UMB U.S.A. National Association will open in the first quarter of
1996 to engage in the credit card business. It will be subject to supervision
and examination by the Comptroller of the Currency. One of the affiliate banks
is chartered under the state banking laws of Colorado and is subject to
supervision and regular examination by the Office of the State Bank
Commissioner of Colorado. One of the affiliate banks is chartered under the
state banking laws of Kansas and is subject to supervision and regular
examination by the Kansas Banking Department. One is chartered under the state
banking laws of Oklahoma and is subject to supervision and regular examination
by the Oklahoma State Banking Department. The remaining 9 banks are chartered
under the state banking laws of Missouri and are subject to supervision and
regular examination by the Office of the Commissioner of Finance of Missouri.
In addition, the national banks and the one state bank that are members of the
Federal Reserve System are subject to examination by that agency. All
affiliate banks are members of and subject to examination by the Federal
Deposit Insurance Corporation.
Scout Brokerage Services, Inc. is subject to supervision and regulation by
the National Association of Securities Dealers. This subsidiary is also a
member of the Securities Investor Protection Corporation.
Information regarding capital adequacy standards of Federal banking
regulators is included on pages A-14, A-39 and A-40 of the attached Appendix,
and is incorporated herein by reference.
Information regarding dividend restrictions is on page A-14 of the attached
Appendix, incorporated herein by reference.
2
STATISTICAL DISCLOSURE
The information required by Guide 3, "Statistical Disclosure by Bank Holding
Companies," has been integrated throughout pages A-24 through A-46 of the
attached Appendix under the captions of "Five-Year Financial Summary" and
"Financial Review," and such information is incorporated herein by reference.
EXECUTIVE OFFICERS
The following are the executive officers of the Company, each of whom is
elected annually, and there are no arrangements or understandings between any
of the persons so named and any other person pursuant to which such person was
elected as an officer.
NAME AGE POSITION WITH REGISTRANT
- ---- --- ------------------------
R. Crosby Kemper........ 69 Chairman of the Board and Chief Executive Officer since
1972. Chairman and Chief Executive Officer of UMB Bank,
n.a. (a subsidiary of the Company) from 1971 through
1995, and as Chairman since January, 1996.
Alexander C. Kemper..... 30 President of the Company since January, 1995. President
of UMB Bank, n.a. since January 1994 and as President
and Chief Executive Officer since January, 1996. He
previously served as Divisional Executive Vice
President.
Peter J. Genovese....... 49 Vice Chairman of the Board since 1982. Chairman and
Chief Executive Officer of UMB Bank of St. Louis, n.a.
(a subsidiary of the Company) since 1979.
Rufus Crosby Kemper III. 45 Vice Chairman of the Board since January 1995.
President of UMB Bank of St. Louis, n.a. since 1993.
Executive Vice President of UMB Bank, n.a. prior
thereto.
J. Lyle Wells, Jr. ..... 68 Vice Chairman of the Board of the Company since 1993.
Vice Chairman of the Board of UMB Bank, n.a. since
1982.
Geoffrey E. Lind........ 47 Vice Chairman of the Board since 1993. Chairman,
President and Chief Executive Officer of UMB Bank
Colorado (a subsidiary of the Company) since 1991.
Executive Vice President of UMB Bank, n.a. prior
thereto.
Richard A. Renfro....... 61 President of UMB National Bank of America, Salina,
Kansas, (a subsidiary of the Company) since 1986.
James A. Sangster....... 41 Divisional Executive Vice President of UMB Bank, n.a.
since 1993. Executive Vice President prior thereto.
William C. Tempel....... 57 President and Chief Executive Officer of UMB Bank
Kansas (a subsidiary of the Company) since 1993, having
previously served as President.
Edward J. McShane, Jr. . 63 Divisional Executive Vice President and Senior Trust
Officer of UMB Bank, n.a. since 1989. Executive Vice
President and Head of Personal Trust and Custody
Division prior thereto.
Douglas F. Page......... 52 Executive Vice President of the Company since 1984 and
Divisional Executive Vice President, Loan
Administration, of UMB Bank, n.a. since 1989.
Timothy M. Connealy..... 38 Chief Financial Officer since 1994. Chief Financial
Officer of UMB Bank Kansas prior thereto.
3
NAME AGE POSITION WITH REGISTRANT
- ---- --- ------------------------
James C. Thompson... 53 Divisional Executive Vice President of UMB Bank, n.a.
since July 1994. Executive Vice President of UMB Bank
of St. Louis, n.a. since 1989.
E. Frank Ware....... 51 Executive Vice President of UMB Bank, n.a. since 1985.
ITEM 2. PROPERTIES
The Company's headquarters building, the UMB Bank Building, is located at
1010 Grand Avenue in downtown Kansas City, Missouri, and was opened in July
1986. Of the total 250,000 square feet, the offices of the parent company and
customer service functions of UMB Bank, n.a. comprise 175,000 square feet. The
remaining 75,000 square feet are leased to the Company's principal law firm
and principal accounting firm.
The banking facility of UMB Bank, n.a. at 928 Grand Avenue principally
houses that bank's operations, data processing and other support functions and
is connected to the headquarters building by an enclosed pedestrian walkway.
At December 31, 1995, the Company's affiliate banks operated a total of 16
main banking houses and 110 detached facilities, the majority of which are
owned by them or a non-bank subsidiary of the Company and leased to the
respective bank.
The Company's affiliate bank in St. Louis leases 40,000 square feet of space
in the Equitable Building in the heart of the downtown commercial sector. A
full service banking center, operations and administrative offices are housed
at this location. The St. Louis affiliate bank provides full service banking
at 19 additional offices, which circle the metropolitan area.
Additional information with respect to premises and equipment is presented
on page A-12 of the attached Appendix, which is incorporated herein by
reference.
In the opinion of the management of the Company, the physical properties of
the Company and its subsidiaries are suitable and adequate and are being fully
utilized.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries had
certain lawsuits pending against them at December 31, 1995. In the opinion of
management, after consultation with legal counsel, none of these suits will
have a significant effect on the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders for a vote during the fourth
quarter ending December 31, 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's stock is traded on the NASDAQ National Market System under the
symbol "UMBF." As of December 31, 1995, the Company had 2,647 shareholders.
Dividend and sale prices of stock information, by quarter, for the past two
years is contained on page A-43 of the attached Appendix and is hereby
incorporated by reference.
4
Information concerning restrictions on the ability of Registrant to pay
dividends and Registrant's subsidiaries to transfer funds to Registrant is
contained on page A-14 of the attached Appendix and is hereby incorporated by
reference.
ITEM 6. SELECTED FINANCIAL DATA
See the "Five-Year Financial Summary" on page A-24 of the attached Appendix,
which is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See the "Financial Review" on pages A-25 through A-46 of the attached
Appendix, which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data
appearing on the indicated pages of the attached Appendix are incorporated
herein by reference:
Consolidated Financial Statements -- pages A-2 through A-22.
Summary of Operating Results by Quarter -- page A-43.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is included in the Company's 1996 Proxy
Statement under the captions "Election of Directors" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" and is hereby
incorporated by reference.
Information regarding executive officers is included in Part I of this Form
10-K under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
This information is included in the Company's 1996 Proxy Statement under the
captions "Executive Compensation," "Report of the Officers Salary and Stock
Option Committee on Executive Compensation," "Director Compensation," "Salary
Committee Interlocks and Insider Participation," and "Performance Graph" and
is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
This information in included in the Company's 1996 Proxy Statement under the
caption "Principal Shareholders" and is hereby incorporated by reference.
SECURITY OWNERSHIP OF MANAGEMENT
This information is included in the Company's 1996 Proxy Statement under the
caption "Stock Beneficially Owned by Directors and Nominees and Executive
Officers" and is hereby incorporated by reference.
5
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is included in the Company's 1996 Proxy Statement under the
caption "Certain Transactions" and is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Set forth below are the consolidated financial statements of the Company
appearing on the indicated pages of the attached Appendix, which are hereby
incorporated by reference.
PAGE REFERENCE IN
THE ATTACHED APPENDIX
---------------------
Consolidated Balance Sheet as of December 31, 1995, 1994
and 1993................................................ A-2
Consolidated Statement of Income for the Three Years
Ended December 31, 1995................................. A-3
Consolidated Statement of Cash Flows for the Three Years
Ended December 31, 1995................................. A-4
Consolidated Statement of Shareholders' Equity for the
Three Years Ended December 31, 1995..................... A-5
Notes to Financial Statements............................ A-6 to A-22
Independent Auditors' Report............................. A-23
Condensed financial statements for parent company only may be found on page
A-22. All other schedules have been omitted because the required information
is presented in the financial statements or in the notes thereto, the amounts
involved are not significant or the required subject matter is not applicable.
REPORTS ON FORM 8-K
On December 19, 1995, the Company filed a report on Form 8-K reporting
information under Item 5, in regards to an individual stock buy-back
agreement.
EXHIBITS
The following Exhibit Index lists the Exhibits to Form 10-K.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(3a) Articles of incorporation filed as Exhibit 3a to Form S-4,
Registration No. 33-56450*
(3b) Bylaws filed as Exhibit 3b to Form S-4, Registration No.
33-56450*
(4) Description of the Registrant's common stock in Amendment
No. 1 on Form 8 to its General Form for Registration of
Securities on Form 10, dated March 5, 1993.*
The Registrant's Articles of Incorporation and Bylaws are
attached as Exhibits 3(a) and 3(b), respectively, to the
Registrant's Registration Statement on Form S-4
(Commission file no. 33-56450) and are incorporated herein
by reference in response to Exhibit 3 above. The following
portions of those documents define some of the rights of
the holders of the Registrant's common stock, par value
$12.50 per share: Articles III (authorized shares), "X"
(amendment of the Bylaws) and XI (amendment of the
Articles of Incorporation) of the Articles of
Incorporation and Articles II (shareholder meetings),
Sections 2 (number and classes of directors) and 3
(Election and Removal of Directors) of Article III,
Section 1 (stock certificates) of Article VII and Section
4 (indemnification) of Article VIII of the Bylaws.
Note: No long-term debt instrument issued by the
Registrant exceeds 10% of the consolidated total assets of
the Registrant and its subsidiaries. In accordance with
paragraph 4 (iii) of Item 601 of Regulation S-K, the
Registrant will furnish to the Commission, upon request,
copies of long-term debt instruments and related
agreements.
6
EXHIBIT
NUMBER DESCRIPTION
------- -----------
(10a) 1981 Incentive Stock Option Plan as amended November 27,
1985 and October 10, 1989, filed as Exhibit 10 to report
on Form 10-K for the fiscal year ended December 31, 1989*
(10b) 1992 Incentive Stock Option Plan filed as Exhibit 28 to
Form S-8, Registration No.
33-58312*
(10c) An Agreement and Plan of Merger between United Missouri
Bancshares, Inc. and CNB Financial Corporation filed as
Exhibit 2 to the Registrant's current report on Form 8-K
dated October 28, 1992*
(10d) Indenture between United Missouri Bancshares, Inc., Issuer
and NBD Bank, N.A., Trustee, filed as Exhibit 4a to Form
S-3, Registration No. 33-55394*
(11) Statement regarding computation of per share earnings
(12) Statement regarding computation of earnings to fixed
charges
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
(24) Powers of Attorney
(27) Financial Data Schedule
- --------
* Exhibit has heretofore been filed with the Securities and Exchange Commission
and is incorporated herein as an exhibit by reference.
7
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
UMB FINANCIAL CORPORATION
/s/ R. Crosby Kemper
_____________________________________
R. Crosby Kemper, Chairman of the
Board and Chief Executive Officer
/s/ Timothy M. Connealy
_____________________________________
Timothy M. Connealy,
Chief Financial Officer
Date: March 21 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES ON THE DATE INDICATED.
Paul D. Bartlett, Jr.* Director
______________________
Paul D. Bartlett, Jr.
Thomas E. Beal* Director
______________________
Thomas E. Beal
Director
______________________
H. Alan Bell
David R. Bradley, Jr.* Director
______________________
David R. Bradley, Jr.
Newton A. Campbell* Director
______________________
Newton A. Campbell
William Terry Fuldner* Director
______________________
William Terry Fuldner
Charles A. Garney* Director
______________________
Charles A. Garney
Peter J. Genovese* Director
______________________
Peter J. Genovese
C.N. Hoffman, Jr.* Director
______________________
C.N. Hoffman, Jr.
Alexander C. Kemper* Director
______________________
Alexander C. Kemper
R. Crosby Kemper III* Director
______________________
R. Crosby Kemper III
Daniel N. League, Jr.* Director
______________________
Daniel N. League, Jr.
William J. McKenna* Director
______________________
William J. McKenna
Director
______________________
Roy E. Mayes
John H. Mize, Jr.* Director
______________________
John H. Mize, Jr.
Mary Lynn Oliver* Director
______________________
Mary Lynn Oliver
W. L. Orscheln* Director
______________________
W. L. Orscheln
Robert W. Plaster* Director
______________________
Robert W. Plaster
8
Thomas A. Ward III Director
_______________________________
Thomas A. Ward III
Alan W. Rolley* Director
_______________________________
Alan W. Rolley
E. Jack Webster, Jr.* Director
_______________________________
E. Jack Webster, Jr.
Joseph F. Ruysser* Director
_______________________________
Joseph F. Ruysser
Jon Wefald* Director
_______________________________
Jon Wefald
Thomas D. Sanders* Director
_______________________________
Thomas D. Sanders
John E. Williams* Director
_______________________________
John E. Williams
Herman R. Sutherland* Director
_______________________________
Herman R. Sutherland
*/s/ R. Crosby Kemper
- -------------------------------------
R. Crosby Kemper
Attorney-in-Fact for each director
Date: March 21, 1996
9
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LEFT BLANK
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UMB FINANCIAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
PAGES
-----
Consolidated Balance Sheet........................................ A-2
Consolidated Statement of Income.................................. A-3
Consolidated Statement of Cash Flows.............................. A-4
Consolidated Statement of Shareholders' Equity.................... A-5
Notes to Financial Statements..................................... A-6 to A-22
Independent Auditors' Report...................................... A-23
Selected Financial Data ("Five-Year Financial Summary")........... A-24
Management's Discussion and Analysis of Financial Condition and
Results of Operations
("Financial Review")............................................. A-25 to A-46
A-1
UMB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
ASSETS
Loans:
Commercial, financial and agricultural... $1,198,808 $1,135,827 $1,103,306
Consumer................................. 784,481 688,672 591,383
Real estate.............................. 467,570 444,565 466,157
Leases................................... 2,057 2,157 1,627
Unearned interest........................ (390) (1,604) (2,712)
Allowance for loan losses................ (32,685) (32,527) (35,590)
---------- ---------- ----------
Net loans................................ $2,419,841 $2,237,090 $2,124,171
Securities available for sale:
U.S. Treasury and agencies............... $2,184,383 $2,211,711 $2,615,783
Mortgage-backed.......................... 145,781 55,477 73,472
Equity and other......................... 6,410 8,025 10,957
---------- ---------- ----------
Total securities available for sale...... $2,336,574 $2,275,213 $2,700,212
Investment securities:
State and political subdivisions......... $ 311,757 $ 298,556 $ 278,944
Mortgage-backed.......................... -- 86,278 --
---------- ---------- ----------
Total investment securities (market value
of $313,173, $373,644 and $282,346,
respectively)........................... $ 311,757 $ 384,834 $ 278,944
Federal funds sold........................ 55,300 289,414 75,994
Securities purchased under agreements to
resell................................... 33,865 244,685 263,181
Trading securities and other.............. 86,011 30,982 83,746
---------- ---------- ----------
Total earning assets..................... $5,243,348 $5,462,218 $5,526,248
Cash and due from banks................... 696,407 770,813 666,368
Bank premises and equipment, net.......... 147,576 130,261 128,898
Accrued income............................ 79,149 81,219 72,551
Premiums on and intangibles of purchased
banks.................................... 74,739 78,091 85,286
Other assets.............................. 40,109 76,418 49,475
---------- ---------- ----------
Total assets............................. $6,281,328 $6,599,020 $6,528,826
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand............... $1,634,960 $1,570,478 $1,488,278
Interest-bearing demand and savings...... 1,877,019 2,421,149 2,364,341
Time deposits under $100,000............. 977,666 949,728 1,058,354
Time deposits of $100,000 or more........ 324,038 191,479 250,756
---------- ---------- ----------
Total deposits........................... $4,813,683 $5,132,834 $5,161,729
Federal funds purchased................... 48,400 139,800 26,210
Securities sold under agreements to repur-
chase.................................... 672,940 661,203 598,872
Short-term debt........................... 501 872 1,453
Long-term debt............................ 40,736 46,330 51,529
Accrued expenses and taxes................ 63,135 38,638 56,754
Other liabilities......................... 19,493 22,037 45,636
---------- ---------- ----------
Total liabilities........................ $5,658,888 $6,041,714 $5,942,183
---------- ---------- ----------
Common stock repurchase commitment $ 46,481 $ -- $ --
---------- ---------- ----------
Common stock, $1.00 par. Authorized
23,000,000 shares; 22,547,521 shares is-
sued..................................... $ 22,548 $ 20,678 $ 236,579
Capital surplus........................... 522,892 442,606 167,368
Retained earnings......................... 136,943 182,159 208,557
Net unrealized gain (loss) on securities
available for sale....................... 3,612 (35,211) 14,333
Treasury stock 1,972,239; 1,676,451; and
1,300,346 shares, at cost, respectively.. (63,555) (52,926) (40,194)
Common stock repurchase commitment,
1,068,533 shares at December 31, 1995.... (46,481) -- --
---------- ---------- ----------
Total shareholders' equity............... $ 575,959 $ 557,306 $ 586,643
---------- ---------- ----------
Total liabilities and shareholders' equi-
ty...................................... $6,281,328 $6,599,020 $6,528,826
========== ========== ==========
See Notes to Financial Statements, pages A-6 to A-22.
A-2
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31
--------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS EXCEPT SHARE AND
PER SHARE DATA)
INTEREST INCOME
Loans........................................ $ 217,701 $ 171,905 $ 142,713
Securities available for sale................ 110,549 121,943 116,044
Investment securities:
Taxable interest............................ $ 974 $ 954 $ --
Tax-exempt interest......................... 13,276 11,743 11,656
---------- ---------- ----------
Total investment securities income.......... $ 14,250 $ 12,697 $ 11,656
Federal funds and resell agreements.......... 11,003 13,626 9,888
Trading securities and other................. 3,552 3,089 2,914
---------- ---------- ----------
Total interest income....................... $ 357,055 $ 323,260 $ 283,215
---------- ---------- ----------
INTEREST EXPENSE
Deposits..................................... $ 121,594 $ 106,958 $ 99,127
Federal funds and repurchase agreements...... 32,685 25,057 16,155
Short-term debt.............................. 48 33 29
Long-term debt............................... 3,460 4,016 4,407
---------- ---------- ----------
Total interest expense...................... $ 157,787 $ 136,064 $ 119,718
---------- ---------- ----------
Net interest income.......................... $ 199,268 $ 187,196 $ 163,497
Provision for loan losses.................... 5,090 2,640 3,332
---------- ---------- ----------
Net interest income after provision......... $ 194,178 $ 184,556 $ 160,165
---------- ---------- ----------
NONINTEREST INCOME
Trust fees................................... $ 35,864 $ 34,992 $ 32,048
Securities processing........................ 10,494 12,460 13,341
Trading and investment banking............... 11,178 9,932 13,629
Service charges on deposit accounts.......... 33,177 32,855 30,168
Other service charges and fees............... 11,272 11,695 11,168
Bankcard fees................................ 33,734 30,845 24,874
Net security gains........................... 1,416 3,632 1,607
Other........................................ 6,843 5,334 4,632
---------- ---------- ----------
Total noninterest income.................... $ 143,978 $ 141,745 $ 131,467
---------- ---------- ----------
NONINTEREST EXPENSE
Salaries and employee benefits............... $ 122,556 $ 121,304 $ 107,189
Occupancy, net............................... 15,963 15,096 14,809
Equipment.................................... 22,283 20,727 20,319
Supplies and services........................ 19,165 19,189 17,448
Bankcard processing.......................... 32,758 25,777 20,829
Marketing and business development........... 13,079 12,465 11,390
FDIC and regulatory fees..................... 7,636 12,225 10,955
Amortization of intangibles of purchased
banks....................................... 7,120 7,128 5,241
Other........................................ 19,973 21,991 22,203
---------- ---------- ----------
Total noninterest expense................... $ 260,533 $ 255,902 $ 230,383
---------- ---------- ----------
Income before income taxes................... $ 77,623 $ 70,399 $ 61,249
Income tax provision......................... 25,447 22,585 20,130
---------- ---------- ----------
Net income.................................. $ 52,176 $ 47,814 $ 41,119
========== ========== ==========
Per Share Data
Net income................................... $ 2.52 $ 2.26 $ 2.13
Dividends.................................... $ 0.73 $ 0.69 $ 0.66
Average shares outstanding................... 20,680,255 21,075,750 19,489,265
See Notes to Financial Statements, pages A-6 to A-22.
A-3
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
---------- --------- ----------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income................................. $ 52,176 $ 47,814 $ 41,119
Adjustments to reconcile net income to net
cash provided by (used in) operating ac-
tivities:
Provision for loan losses.................. 5,090 2,640 3,332
Depreciation and amortization.............. 23,436 22,291 19,222
Deferred income taxes and investment tax
credits................................... (3,955) 390 (225)
Net (increase) decrease in trading securi-
ties...................................... (55,029) 42,860 (34,731)
Gains on sales of:
Investment securities..................... -- -- (17)
Securities available for sale............. (3,734) (3,719) (1,598)
Losses on sales of securities available for
sale...................................... 2,318 87 8
Amortization of securities premium, net of
discount accretion........................ 32,725 44,368 36,853
Changes in:
Accrued income............................ 3,353 (8,668) (6,334)
Accrued expenses and taxes................ 20,631 (7,013) 9,251
Other, net................................. (678) 371 (632)
---------- --------- ----------
Net cash provided by operating activities.. $ 76,333 $ 141,421 $ 66,248
---------- --------- ----------
INVESTING ACTIVITIES
Proceeds from sales of:
Investment securities...................... $ -- $ -- $ 697
Securities available for sale.............. 411,351 150,570 225,587
Proceeds from maturities of:
Investment securities...................... 112,173 133,721 131,723
Securities available for sale.............. 1,276,660 844,237 654,769
Purchases of:
Investment securities...................... (117,406) (242,492) (158,018)
Securities available for sale.............. (1,569,946) (687,722) (1,025,388)
Net increase in loans...................... (139,828) (115,559) (146,800)
Net (increase) decrease in federal funds
sold and resell agreements................ 449,134 (194,924) 113,147
Purchases of bank premises and equipment... (27,884) (16,741) (12,804)
Proceeds from sales of bank premises and
equipment................................. 551 216 811
Purchases of financial organizations, net
of cash received.......................... (11,147) -- 57,211
Other, net................................. 14,728 (13,765) (5,727)
---------- --------- ----------
Net cash provided by (used in) investing
activities................................ $ 398,386 $(142,459) $ (164,792)
---------- --------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in demand and sav-
ings deposits............................. $ (530,827) $ 130,852 $ 400,373
Net increase (decrease) in time deposits... 101,852 (167,903) (131,946)
Net increase (decrease) in federal funds
purchased and repurchase agreements....... (88,320) 175,921 (115,439)
Net decrease in short-term debt............ (371) (581) (689)
Proceeds from issuance of long-term debt... -- -- 25,000
Repayments of long-term debt............... (5,594) (5,199) (7,801)
Cash dividends............................. (15,114) (14,669) (13,064)
Purchases of treasury stock................ (11,098) (13,318) (4,859)
Proceeds from issuance of treasury stock... 347 380 508
---------- --------- ----------
Net cash provided by (used in) financing
activities................................ $ (549,125) $ 105,483 $ 152,083
---------- --------- ----------
Increase (decrease) in cash and due from
banks...................................... $ (74,406) $ 104,445 $ 53,539
Cash and due from banks at beginning of
year....................................... 770,813 666,368 612,829
---------- --------- ----------
Cash and due from banks at end of year...... $ 696,407 $ 770,813 $ 666,368
========== ========= ==========
Supplemental disclosures:
Income taxes paid.......................... $ 28,717 $ 27,983 $ 20,833
Total interest paid........................ 153,758 134,575 119,407
- --------
Note: Certain noncash transactions regarding the adoption of SFAS No. 115 and
common stock issued for acquisitions are disclosed in the accompanying
financial statements and notes to financial statements.
See Notes to Financial Statements, pages A-6 to A-22.
A-4
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
COMMON CAPITAL RETAINED NET UNREALIZED TREASURY REPURCHASE
STOCK SURPLUS EARNINGS HOLDING GAINS (LOSSES) STOCK COMMITMENT
-------- -------- -------- --------------------- -------- ----------
Balance -- January 1,
1993................... $184,815 $ 63,046 $180,502 $ -- $(28,684) $ --
Net income.............. -- -- 41,119 -- -- --
Cash dividends ($0.66
per share)............. -- -- (13,064) -- -- --
Issuance for acquisi-
tions, net............. 51,764 104,642 -- -- (7,478) --
Purchase of treasury
stock.................. -- -- -- -- (4,859) --
Exercise of stock op-
tions.................. -- (320) -- -- 827 --
Net unrealized gain on
securities available
for sale............... -- -- -- 14,333 -- --
-------- -------- -------- -------- -------- --------
Balance -- December 31,
1993................... $236,579 $167,368 $208,557 $ 14,333 $(40,194) $ --
Net income.............. -- -- 47,814 -- -- --
Cash dividends ($0.69
per share)............. -- -- (14,669) -- -- --
Adjust Stock par value.. (217,652) 217,652 -- -- -- --
Stock dividend (10%).... 1,751 57,792 (59,543) -- -- --
Purchase of treasury
stock.................. -- -- -- -- (13,318) --
Exercise of stock op-
tions.................. -- (206) -- -- 586 --
Net unrealized loss on
securities available
for sale............... -- -- -- (49,544) -- --
-------- -------- -------- -------- -------- --------
Balance -- December 31,
1994................... $ 20,678 $442,606 $182,159 $(35,211) $(52,926) $ --
Net income.............. -- -- 52,176 -- -- --
Cash dividends ($0.73
per share)............. -- -- (15,114) -- -- --
Stock dividend (10%).... 1,870 80,408 (82,278) -- -- --
Purchase of treasury
stock.................. -- -- -- -- (11,098) --
Exercise of stock op-
tions.................. -- (122) -- -- 469 --
Net unrealized gain on
securities available
for sale............... -- -- -- 38,823 -- --
Common stock repurchase
commitment............. -- -- -- -- -- (46,481)
-------- -------- -------- -------- -------- --------
Balance -- December 31,
1995................... $ 22,548 $522,892 $136,943 $ 3,612 $(63,555) $(46,481)
======== ======== ======== ======== ======== ========
See Notes to Financial Statements, pages A-6 to A-22.
A-5
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
UMB Financial Corporation is a multi-bank holding company which offers a
wide range of banking services to its customers through its branches and
offices in the states of Missouri, Kansas, Colorado, Illinois, Oklahoma, Iowa
and Nebraska. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions 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 those estimates. Following is a summary of the more significant
accounting policies to assist the reader in understanding the financial
presentation.
CONSOLIDATION -- All subsidiaries are included in the financial statements.
Intercompany accounts and transactions have been eliminated where significant.
ACQUISITIONS -- Banks acquired and recorded under the purchase method are
recorded at the fair value of the net assets acquired at the acquisition date,
and results of operations are included from that date. Excess of purchase
price over the value of net assets acquired is recorded as premiums on
purchased banks. Premiums on purchases prior to 1982 are being amortized
ratably over 40 years. Premiums on purchases in 1982 and after are being
amortized ratably over 15 years. Core deposit intangible assets are being
amortized ratably over 10 years.
LOANS -- Interest on discount loans is recorded on a method that
approximates income at a level rate of return on the principal amount
outstanding over the term of the loan. Interest on all other loans is
recognized based on the rate times the principal amount outstanding. Interest
accrual is discontinued when, in the opinion of management, the likelihood of
collection becomes doubtful.
Affiliate banks enter into lease financing transactions that are generally
recorded under the financing method of accounting. Income is recognized on a
basis that results in an approximately level rate of return over the life of
the lease.
Annual bankcard fees are recognized on a straight-line basis over the period
that cardholders may use the card.
The adequacy of the allowance for loan losses is based on management's
continuing evaluation of the pertinent factors underlying the quality of the
loan portfolio, including actual loan loss experience, current and anticipated
economic conditions, detailed analysis of individual loans for which full
collectibility may not be assured and determination of the existence and
realizable value of the collateral and guarantees securing such loans. The
actual losses, notwithstanding such considerations, however, could differ
significantly from the amounts estimated by management.
SECURITIES AVAILABLE FOR SALE -- Debt securities available for sale include
principally U.S. Treasury and agency securities and mortgage-backed
securities. Securities classified as available for sale are measured at fair
value. Unrealized holding gains and losses are excluded from earnings and
reported as a separate component of shareholders' equity until realized.
Realized gains and losses on sales are computed by the specific identification
method at the time of disposition and are shown separately as a component on
noninterest income.
In conjunction with the adoption of the Implementation Guide for SFAS No.
115 issued by the Financial Accounting Standards Board, the Company reassessed
its intent to hold some of its mortgage-backed securities to maturity.
Accordingly, on December 22, 1995, the Company reclassified its mortgage-
backed securities portfolio, with a book value of $86.2 million and a market
value of $85.2 million, to available for sale.
INVESTMENT SECURITIES -- Investment securities are carried at amortized
historical cost based on management's intention, and the Company's ability, to
hold them to maturity. The Company classifies securities of state and
political subdivisions as investment securities. Certain significant
unforeseeable changes in circumstances may cause a change in the intent to
hold these securities to maturity. For example, such changes
A-6
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
may include a deterioration in the issuer's creditworthiness that is expected
to continue or a change in tax law that eliminates the tax-exempt status of
interest on the security.
TRADING SECURITIES -- Trading securities, generally acquired for subsequent
sale to customers, are carried at market value. Market adjustments, fees and
gains or losses on the sale of trading securities are considered to be a
normal part of operations and are included in trading and investment banking
income. Interest income on trading securities is included in income from
earning assets.
TAXES -- The Company recognizes certain income and expenses in different
time periods for financial reporting and income tax purposes. The provision
for deferred income taxes is based on the liability method and represents the
change in the deferred income tax accounts during the year, including the
effect of enacted tax rate changes.
PER SHARE DATA -- Earnings per share are computed based on the weighted
average number of shares of common stock outstanding during each period. All
per share presentations have been restated to give effect to the 10% stock
dividend paid January 2, 1996, to the shareholders of record December 12,
1995. The dilutive effect of shares issuable under stock options granted by
the Company is immaterial.
RECLASSIFICATIONS -- Certain reclassifications were made to the 1994 and
1993 financial statements to conform to the current year presentation.
INDUSTRY SEGMENT REPORTING -- The Company operates principally in a single
business segment offering general commercial banking services.
ACCOUNTING CHANGES
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -- On January 1, 1995, the
Company implemented SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan." This Statement requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price or the fair value of
collateral if the loan is collateral-dependent. In October 1994, SFAS No. 118
was issued as an amendment to SFAS No. 114 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. The
implementation of these Statements did not have a significant effect on the
Company's financial position or results of operation.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS -- The Financial Accounting
Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets." This Statement, effective for fiscal years beginning after
December 15, 1995, establishes accounting standards for the impairment of
long-lived assets, certain intangibles, and goodwill related to those assets.
The Company does not expect this Statement to have a material effect on the
consolidated financial statements.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS -- The Financial Accounting
Standards Board issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which is an amendment to SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities." This Statement establishes accounting standards
for originated mortgage servicing rights. Under the new Statement, all
capitalized mortgage servicing rights are evaluated for impairment based on
the excess of the mortgage servicing rights over their fair value. SFAS No.
122 was adopted by the Company on January 1, 1995 and did not have a
significant effect on the Company's financial position or results of
operation.
ACCOUNTING FOR STOCK-BASED COMPENSATION -- Effective as of January 1, 1996,
SFAS No. 123, "Accounting for Stock-Based Compensation," will require
increased disclosure of compensation expense arising
A-7
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
from both fixed and performance stock compensation plans. Compensation will be
measured as the fair value of the award at the date it is granted using an
option-pricing model that takes into account the exercise price and expected
term of the option, the current price of the underlying stock, its expected
volatility, expected dividends on the stock and the expected risk-free rate of
return during the term of the option. The compensation cost would be
recognized over the service period, usually the period from the grant date to
the vesting date. SFAS No. 123 encourages rather than requires companies to
adopt a new method that accounts for stock compensation awards based on their
estimated fair value at the date they are granted. Companies would be
permitted, however, to continue accounting under APB Opinion No. 25 which
requires compensation cost for stock-based employee compensation plans be
recognized based on the difference, if any, between the quoted market price of
the stock and the amount an employee must pay to acquire the stock. The
Company will continue to apply APB Opinion No. 25 in its financial statements
and will disclose pro forma net income and earnings per share in a footnote to
future financial statements, determined as if the Company applied the new
method.
ACQUISITIONS
On December 13, 1995, the Company acquired First Sooner Bancshares, the one-
bank holding company of The Oklahoma Bank, Oklahoma City, Oklahoma (now UMB
Oklahoma Bank), for $12.7 million. The acquisition was funded with existing
working capital. The acquisition of this $139 million bank was recorded as a
purchase, with $3.3 million recorded as premium on purchased bank. This
acquisition is not deemed to be material in relation to the consolidated
results of the Company.
As of June 25, 1993, the Company had consummated the acquisitions of eight
Kansas bank holding companies (the "Kansas banks"). During 1994, these Kansas
banks were merged to form two banks, UMB National Bank of America and UMB Bank
Kansas. The eight companies and their subsidiary banks are presented below:
NUMBER OF
COMPANY
ACQUISITION COMPANY/ ASSETS AS OF SHARES
DATE SUBSIDIARY BANKS ACQUISITION ISSUED (NET) CASH
----------- ---------------- ------------ ----------- ---------
(IN (IN
MILLIONS) THOUSANDS)
3/26/93 Farmers Bancshares, Inc.... $ 57 168,898 $ 2,329
Farmers National Bank
4/30/93 NBA Bankshares, Inc........ 125 276,497 4,986
The National Bank of
America
5/14/93 M L Bancshares, Inc........ 159 308,578 6,620
Russell State Bank
Security State Bank
5/17/93 Highland Bancshares, Inc... 103 265,754 2,299
Highland Park Bank & Trust
5/17/93 North Plaza Bancshares, 43 -- 7,433
Inc.......................
North Plaza State Bank
5/28/93 BellCorp, Inc.............. 110 373,951 2,894
Citizens Bank & Trust Co.
6/14/93 Overland Park Bancshares, 188 1,021,580 --
Inc.......................
Overland Park State Bank &
Trust Co.
6/25/93 CNB Financial Corporation.. 504 1,526,770 --
Commercial National Bank
City National Bank
First Bank & Trust, N.A.
Security State Bank
------ --------- -------
Total...................... $1,289 3,942,028 $26,561
====== ========= =======
A-8
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The cash portion of the purchase prices was obtained principally through the
issuance of debt by the Company. On February 24, 1993, the Company issued $10
million in medium-term notes due 2000 at 6.81% and $15 million in medium-term
notes due 2003 at 7.30%.
The acquisitions of the Kansas banks have been accounted for by the Company
under the purchase method of accounting in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations," as amended. Under
this method of accounting, the purchase prices have been allocated to assets
acquired and liabilities assumed based on their estimated fair values,
including applicable income tax effects, at the effective dates of the
acquisitions. Income of the combined company does not include income of the
acquired companies prior to the effective dates of the acquisitions.
The following table presents supplementary information regarding the
acquisitions of the Kansas banks (in thousands):
Fair values of assets acquired:
Securities.......................................................... $ 529,111
Net loans........................................................... 522,111
Federal funds sold and resell agreements............................ 85,207
Core deposit intangible............................................. 12,756
Other............................................................... 140,108
----------
Total............................................................. $1,289,293
----------
Fair values of liabilities assumed:
Deposits............................................................ $1,062,992
Federal funds purchased and repurchase agreements................... 74,984
Borrowed funds...................................................... 6,103
Other............................................................... 19,190
----------
Total............................................................. $1,163,269
----------
Fair value of net assets acquired................................... $ 126,024
----------
Purchase prices of acquisitions:
Issuance of common stock (net of treasury stock acquired)........... $ 148,928
Cash paid........................................................... 26,561
Direct costs of acquisitions........................................ 963
Previous investments in institutions acquired....................... 1,506
----------
Total............................................................. $ 177,958
----------
Goodwill (excess of purchase prices over fair value of net assets
acquired).......................................................... $ 51,934
==========
The following unaudited pro forma consolidated financial information gives
effect to the Kansas banks as if they were all acquired on January 1, 1993
These pro forma results have been prepared for comparative purposes only and
do not purport to be indicative of the results of operations which actually
would have resulted had the combinations been in effect on the dates
indicated, or which may result in the future.
YEAR ENDED
DECEMBER 31, 1993
--------------------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
Net interest income........................................ $180,663
Noninterest income......................................... 137,937
Net income................................................. 44,715
Net income per share....................................... 2.09
A-9
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
ALLOWANCE FOR LOAN LOSSES
The table below provides an analysis of the allowance for loan losses for
the three years ended December 31, 1995 (in thousands):
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
------- ------- -------
Allowance -- beginning of year...................... $32,527 $35,590 $24,456
Allowances of acquired banks........................ 485 -- 12,076
Additions (deductions):
Charge-offs........................................ $(8,090) $(8,269) $(7,135)
Recoveries......................................... 2,673 2,566 2,861
------- ------- -------
Net charge-offs................................... $(5,417) $(5,703) $(4,274)
Provision charged to expense........................ 5,090 2,640 3,332
------- ------- -------
Allowance -- end of year............................ $32,685 $32,527 $35,590
======= ======= =======
At December 31, 1995, the amount of loans that were considered to be
impaired under SFAS No. 114 was $1,069,000. All of the loans were on a
nonaccrual or restructured basis. Included in the impaired loans was $385,000
of loans for which the related allowance was $141,000. The remaining $684,000
of impaired loans did 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 year ended December 31, 1995, was approximately
$1,008,000. The Company had no material amount recorded as interest income on
its impaired loans for the year ended December 31, 1995.
SECURITIES AVAILABLE FOR SALE
The table below provides detailed information for securities available for
sale at December 31, 1995, 1994 and 1993 (in thousands):
DECEMBER 31
-------------------------------------------
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
1995
U.S. Treasury....................... $1,679,881 $ 8,928 $ (2,493) $1,686,316
U.S. Agencies....................... 498,310 679 (922) 498,067
Mortgage-backed..................... 147,194 162 (1,575) 145,781
Federal Reserve Bank Stock.......... 3,656 -- -- 3,656
Equity.............................. 1,713 1,028 -- 2,741
Other............................... 13 -- -- 13
---------- ------- -------- ----------
Total.............................. $2,330,767 $10,797 $ (4,990) $2,336,574
========== ======= ======== ==========
1994
U.S. Treasury....................... $2,197,912 $ 76 $(55,571) $2,142,417
U.S. Agencies....................... 69,774 115 (595) 69,294
Mortgage-backed..................... 57,969 57 (2,549) 55,477
Federal Reserve Bank Stock.......... 3,656 -- -- 3,656
Equity.............................. 2,764 1,544 (60) 4,248
Other............................... 121 -- -- 121
---------- ------- -------- ----------
Total.............................. $2,332,196 $ 1,792 $(58,775) $2,275,213
========== ======= ======== ==========
1993
U.S. Treasury....................... $2,518,436 $23,457 $ (2,414) $2,539,479
U.S. Agencies....................... 76,585 -- (281) 76,304
Mortgage-backed..................... 73,293 328 (149) 73,472
Federal Reserve Bank Stock.......... 4,620 -- -- 4,620
Equity.............................. 3,940 2,187 (60) 6,067
Other............................... 270 -- -- 270
---------- ------- -------- ----------
Total.............................. $2,677,144 $25,972 $ (2,904) $2,700,212
========== ======= ======== ==========
A-10
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The following table presents contractual maturity information for securities
available for sale at December 31, 1995. Securities may be disposed of before
contractual maturities due to sales by the Company or because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
Due in 1 year or less.................................... $1,183,017 $1,181,901
Due after 1 year through 5 years......................... 992,239 999,604
Due after 5 years through 10 years....................... 2,935 2,878
---------- ----------
Total................................................... $2,178,191 $2,184,383
---------- ----------
Mortgage-backed securities............................... 147,194 145,781
Equity securities and other.............................. 5,382 6,410
---------- ----------
Total securities available for sale..................... $2,330,767 $2,336,574
========== ==========
Securities available for sale with a market value of $1,784,018,000 at
December 31, 1995, $1,476,231,000 at December 31, 1994, and $1,554,257,000 at
December 31, 1993, were pledged to secure U.S. Government deposits, other
public deposits and certain trust deposits as required by law.
During 1995, proceeds from the sales of securities available for sale were
$411,351,000 compared to $150,570,000 for 1994. Securities transactions
resulted in gross realized gains of $3,734,000 for 1995 and $3,719,000 for
1994. The gross realized losses were $2,318,000 for 1995 and $87,000 for 1994.
The net unrealized holding gain (loss) on trading securities at December 31,
1995 and 1994, was $77,000 and $(39,000), respectively, and was included in
trading and investment banking income.
INVESTMENT SECURITIES
The table below provides detailed information for investment securities at
December 31, 1995, 1994 and 1993 (in thousands):
DECEMBER 31
-----------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
1995 COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
State and political subdivisions...... $ 311,757 $ 2,435 $ (1,019) $313,173
========= ========== ========== ========
1994
Mortgage-backed....................... $ 86,278 $ -- $ (5,340) $ 80,938
State and political subdivisions...... 298,556 823 (6,673) 292,706
--------- ---------- ---------- --------
Total............................... $ 384,834 $ 823 $ (12,013) $373,644
========= ========== ========== ========
1993
State and political subdivisions...... $ 278,944 $ 4,111 $ (709) $282,346
========= ========== ========== ========
A-11
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The following table presents contractual maturity information for investment
securities at December 31, 1995. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
--------- --------
(IN THOUSANDS)
Due in 1 year or less....................................... $ 95,686 $ 95,586
Due after 1 year through 5 years............................ 168,755 169,800
Due after 5 years through 10 years.......................... 46,917 47,360
Due after 10 years.......................................... 399 427
-------- --------
Total investment securities............................... $311,757 $313,173
======== ========
There were no sales of investment securities during 1995 and 1994. During
1993, proceeds from sales of investment securities were $697,000 and gross
realized gains were $17,000. There were no gross realized losses on such sales
for 1993.
Investment securities with a market value of $36,627,000 at December 31,
1995, $1,190,000 at December 31, 1994 and $5,356,000 at December 31, 1993,
were pledged to secure U.S. Government deposits, other public deposits and
certain trust deposits as required by law.
LOANS TO MANAGEMENT
Certain Company and principal affiliate bank executive officers and
directors, including companies in which those persons are principal holders of
equity securities or are general partners, borrow in the normal course of
business from affiliate banks of the Company. All such loans have been made on
the same terms, including interest rates and collateral, as those prevailing
at the same time for comparable transactions with other persons. In addition,
all such loans are current as to repayment terms. For the years 1995, 1994 and
1993, an analysis of activity with respect to such aggregate loans to related
parties appears below (in thousands):
YEAR ENDED DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
Balance -- beginning of year................... $ 158,330 $ 111,921 $ 142,880
New loans..................................... 798,688 458,400 377,601
Repayments.................................... (778,579) (411,991) (408,560)
--------- --------- ---------
Balance -- end of year......................... $ 178,439 $ 158,330 $ 111,921
========= ========= =========
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation, which is computed primarily on an accelerated method. Bank
premises are depreciated over a 20- to 40-year life span, while equipment is
depreciated over a life span of 3 to 20 years. Bank premises and equipment
consisted of the following (in thousands):
DECEMBER 31
-------------------------------
1995 1994 1993
--------- --------- ---------
Land........................................... $ 31,975 $ 29,873 $ 27,622
Buildings and leasehold improvements........... 146,411 134,401 133,651
Equipment...................................... 138,558 122,025 111,571
--------- --------- ---------
$ 316,944 $ 286,299 $ 272,844
Accumulated depreciation....................... (169,368) (156,038) (143,946)
--------- --------- ---------
Bank premises and equipment, net............... $ 147,576 $ 130,261 $ 128,898
========= ========= =========
A-12
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Consolidated rental and operating lease expenses were $2,820,000 in 1995,
$2,522,000 in 1994 and $2,932,000 in 1993. Minimum rental commitments as of
December 31, 1995, for all noncancelable operating leases are: 1996 --
$2,321,000; 1997 -- $2,095,000; 1998 -- $2,033,000; 1999-- $1,637,000; 2000 --
$851,000; and thereafter -- $10,666,000.
BORROWED FUNDS
The components of the Company's short-term and long-term debt were as
follows (in thousands):
DECEMBER 31
-----------------------
1995 1994 1993
------- ------- -------
SHORT-TERM DEBT
U.S. Treasury demand notes and other................... $ 501 $ 872 $ 1,453
------- ------- -------
LONG-TERM DEBT
6.81% senior notes due 2000............................ $10,000 $10,000 $10,000
7.30% senior notes due 2003............................ 15,000 15,000 15,000
9.15% senior notes due 1999............................ 12,000 15,000 15,000
7.50% notes maturing serially through 1997............. 3,093 4,639 6,186
8.00% note maturing serially through 2000.............. 643 724 799
8.83% senior notes due 1996............................ -- 890 4,462
7.50% note maturing serially through 2015.............. -- 77 82
------- ------- -------
Total long-term debt................................. $40,736 $46,330 $51,529
------- ------- -------
Total borrowed funds................................. $41,237 $47,202 $52,982
======= ======= =======
Long-term debt represents direct, unsecured obligations of the parent
company. The senior notes due in 2000 and 2003 cannot be redeemed prior to
stated maturity. The senior notes due in 1996 required annual redemptions of
$3,572,000. Optional prepayments without premiums were made on the senior
notes due in 1996 of $2,678,000 in 1993 and $3,572,000 in 1992. The senior
notes due in 1999 require annual redemptions of $3,000,000 beginning in 1995.
The 7.50% notes that mature in 1997 require annual principal payments of
$1,546,000. The senior notes contain financial covenants relating to the
issuance of additional debt, payment of dividends, reacquisition of common
stock and maintenance of minimum tangible capital. Under the most restrictive
covenant, approximately $102,848,000 was available for the payment of
dividends at December 31, 1995.
The Company enters into sales of securities with simultaneous agreements to
repurchase ("repurchase agreements"). The amounts received under these
agreements represent short-term borrowings and are reflected as a separate
item in the consolidated balance sheet. The amount outstanding at December 31,
1995, was $672,940,000 (with accrued interest payable of $926,000). Of that
amount, $1,970,000 represented sales of securities in which the securities
were obtained under reverse repurchase agreements ("resell agreements"). The
remainder of $670,970,000 represented sales of U.S. Treasury and agency
securities obtained from the Company's securities portfolio. The carrying
amounts and market values of the securities and the related repurchase
liabilities and weighted average interest rates of the repurchase liabilities
(grouped by maturity of the repurchase agreements) were as follows (in
thousands):
SECURITIES WEIGHTED
----------------- AVERAGE
MATURITY OF THE CARRYING MARKET REPURCHASE INTEREST
REPURCHASE LIABILITIES AMOUNT VALUE LIABILITIES RATE
- ---------------------- -------- -------- ----------- --------
On demand................................ $516,541 $535,838 $526,064 4.87%
2 to 30 days............................. 83,867 86,368 80,507 5.19
31 to 90 days............................ 23,231 24,136 23,628 5.39
Over 90 days............................. 39,823 41,581 40,771 5.57
-------- -------- -------- ----
Total................................... $663,462 $687,923 $670,970 4.97%
======== ======== ======== ====
A-13
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
REGULATORY REQUIREMENTS
Payment of dividends by the affiliate banks to the parent company is subject
to various regulatory restrictions. For national banks, state banks that are
Federal Reserve members and state banks in Colorado and Oklahoma, the
governing regulatory agency must approve the declaration of any dividends
generally in excess of the sum of net income for that year and retained net
income for the preceding two years. The state banks in Missouri, Kansas and
Illinois are subject to state laws permitting dividends to be declared from
retained earnings, provided certain specified capital requirements are met. At
December 31, 1995 approximately $25,384,000 of the equity of the affiliate
banks was available for distribution as dividends to the parent company
without prior regulatory approval or without reducing the capital of the
respective affiliate banks below prudent levels.
The Company is required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by the banking regulators. At December 31,
1995, the Company is required to have minimum Tier 1 and Total capital ratios
of 4.00% and 8.00%, respectively. The Company's actual ratios at that date
were 15.17% and 16.16%, respectively. The Company's leverage ratio at December
31, 1995, was 8.02%.
Certain affiliate banks maintain reserve balances with the Federal Reserve
Bank as required by law. During 1995, this amount averaged $137,259,000.
EMPLOYEE BENEFITS
The Company has a noncontributory profit sharing plan, which features an
employee stock ownership plan. These plans are for the benefit of
substantially all officers and employees of the Company and its subsidiaries.
Contributions to these plans for the years 1995, 1994 and 1993 were
$5,000,000, $3,983,000, and $3,542,00, respectively.
The Company has a qualified 401(k) profit sharing plan that permits
participants to make contributions by salary reduction. The Company made a
matching contribution to this plan of $144,000 for 1995.
Substantially all officers and employees are covered by a noncontributory
defined benefit pension plan. Under the plan, retirement benefits are based on
years of service and the average of the employee's highest 120 consecutive
months of compensation. The Company's funding policy is to contribute annually
the maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future. To the
extent that these requirements are fully covered by assets in the plan, a
contribution may not be made in a particular year.
The pension plan was amended in January 1995 whereby the plan would not
accept any new participants. This change was made with consideration given to
discontinuing the current plan at a future date. New employees of the Company
that are not eligible to participate in the pension plan will receive a
partial matching contribution to the qualified 401(k) plan, as amended.
The following items are components of the net periodic pension expense
(income) for the three years ended December 31, 1995 (in thousands):
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
------- ------- -------
Service costs -- benefits earned during the year..... $ 2,234 $ 1,998 $ 1,463
Interest cost on projected benefit obligation........ 2,330 2,100 2,059
Actual return on plan assets......................... (2,130) 70 (2,208)
Net amortization and deferral........................ (789) (3,343) (1,626)
------- ------- -------
Net periodic pension expense (income).............. $ 1,645 $ 825 $ (312)
======= ======= =======
A-14
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Assumptions used in accounting for the plan were as follows:
1995 1994 1993
---- ---- ----
Weighted average discount rate................................ 7.00% 7.50% 7.50%
Rate of increase in future compensation levels................ 4.25 4.25 4.25
Expected long-term rate of return on assets................... 8.00 8.00 8.00
The following table sets forth the pension plan's funded status, using
valuation dates of September 30, 1995, 1994 and 1993 (in thousands):
1995 1994 1993
-------- -------- --------
Actuarial present value of benefit obligation:
Vested benefits................................. $(26,588) $(24,395) $(20,177)
Nonvested benefits.............................. (1,008) (1,198) (1,027)
-------- -------- --------
Accumulated benefit obligation.................. $(27,596) $(25,593) $(21,204)
Additional benefits based on estimated future
salary levels.................................. (7,738) (6,677) (7,804)
-------- -------- --------
Projected benefit obligation................... $(35,334) $(32,270) $(29,008)
Plan assets at fair value, primarily U.S. obliga-
tions........................................... 31,109 31,874 34,701
-------- -------- --------
Plan assets in excess (deficiency) of projected
benefit obligation.............................. $ (4,225) $ (396) $ 5,693
Unrecognized net loss from past experience dif-
ferent from that assumed........................ 11,268 10,120 6,028
Prior service cost not yet recognized in net pe-
riodic pension cost............................. 327 361 260
Unrecognized net transition asset being recog-
nized over 10.66 years.......................... (1,778) (2,848) (3,919)
-------- -------- --------
Prepaid pension cost included in other assets.... $ 5,592 $ 7,237 $ 8,062
======== ======== ========
On April 16, 1992, the shareholders of the Company approved the 1992
Incentive Stock Option Plan ("the 1992 Plan"), which provides incentive
options to certain key employees for up to 500,000 common shares of the
Company. The options are not exercisable for two years from the date of the
grant and are thereafter exercisable for such periods as the Board of
Directors, or a committee thereof, specify (which may not exceed 10 years),
provided that the optionee has remained in the employment of the Company or
its subsidiaries. The Board or the committee may accelerate the exercise
period for an option upon the optionee's disability, retirement or death. All
options expire at the end of the exercise period. The Company makes no
recognition in the balance sheet of the options until such options are
exercised and no amounts applicable thereto are reflected in net income.
Options are granted at not less than 100% of fair market value at date of
grant.
Activity in the 1992 Plan for the three years ended December 31, 1995, is
summarized in the following table:
NUMBER OF OPTION PRICE
STOCK OPTIONS UNDER THE 1992 PLAN SHARES PER SHARE
- --------------------------------- --------- ----------------
Outstanding -- January 1, 1993...................... 17,733 $30.57 to $33.64
Granted............................................ 18,726 30.88 to 33.96
Canceled........................................... (484) to 30.57
------ ----------------
Outstanding -- December 31, 1993.................... 35,975 $30.57 to $33.96
Granted............................................ 17,888 28.74 to 31.62
Canceled........................................... (5,082) 30.57 to 30.88
------ ----------------
Outstanding -- December 31, 1994.................... 48,781 $28.74 to $33.97
Granted............................................ 22,627 39.76 to 43.74
Canceled........................................... (3,432) 28.74 to 33.97
------ ----------------
Outstanding -- December 31, 1995.................... 67,976 $28.74 to $43.74
====== ================
Exercisable -- December 31, 1995.................... 13,894 $30.52 to $33.97
All figures have been restated to reflect the 10% stock dividend paid January
2, 1996.
A-15
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The 1981 Incentive Stock Option Plan ("the 1981 Plan") was adopted by the
Company on October 22, 1981, and amended November 27, 1985, and October 10,
1989. No further options may be granted under the 1981 Plan. Provisions of the
1981 Plan regarding option price, term and exercisability are generally the
same as that described for the 1992 Plan. Activity in the 1981 Plan for the
three years ended December 31, 1995, is summarized in the following table:
NUMBER OF OPTION PRICE
STOCK OPTIONS UNDER THE 1981 PLAN SHARES PER SHARE
- --------------------------------- --------- ----------------
Outstanding -- January 1, 1993....................... 181,514 $ 9.76 to $29.28
Canceled............................................ (3,594) 19.30 to 26.61
Exercised........................................... (35,642) 9.76 to 23.85
------- ----------------
Outstanding -- December 31, 1993..................... 142,278 $12.01 to $29.28
Canceled............................................ (25,422) 16.97 to 24.22
Exercised........................................... (23,532) 12.01 to 26.23
------- ----------------
Outstanding -- December 31, 1994..................... 93,324 $17.03 to $29.28
Canceled............................................ (18,401) 17.05 to 26.62
Exercised........................................... (6,665) 17.03 to 21.48
------- ----------------
Outstanding -- December 31, 1995..................... 68,258 $19.28 to $29.28
======= ================
Exercisable -- December 31, 1995..................... 66,602 $19.28 to $29.28
All figures have been restated to reflect the 10% stock dividend paid January
2, 1996.
COMMON STOCK
The following table summarizes the share transactions for the three years
ended December 31, 1995:
SHARES
SHARES SHARES IN SUBJECT TO
ISSUED TREASURY REPURCHASE
---------- ---------- ----------
Balance -- January 1, 1993................... 14,785,172 (1,003,700) --
Issued (received) in acquisitions........... 4,141,135 (199,107) --
Purchase of treasury stock.................. -- (126,996) --
Issued in stock options..................... -- 29,457 --
---------- ---------- ----------
Balance -- December 31, 1993................. 18,926,307 (1,300,346) --
Stock dividend (10%)........................ 1,751,251 -- --
Purchase of treasury stock.................. -- (396,984) --
Issued in stock options..................... -- 20,879 --
---------- ---------- ----------
Balance -- December 31, 1994................. 20,677,558 (1,676,451) --
Stock dividend (10%)........................ 1,869,963 -- --
Purchase of treasury stock.................. -- (312,517) --
Issued in stock options..................... -- 16,729 --
Common stock repurchase commitment.......... -- -- (1,068,533)
---------- ---------- ----------
Balance -- December 31, 1995................. 22,547,521 (1,972,239) (1,068,533)
========== ========== ==========
COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk in order to meet the financing needs
of its customers and to reduce its own exposure to fluctuations in interest
A-16
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
rates. These financial instruments include commitments to extend credit,
commercial letters of credit, standby letters of credit, and futures
contracts. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
balance sheet. The contract or notional amounts of those instruments reflect
the extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
commercial letters of credit and standby letters of credit is represented by
the contract or notional amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. For futures contracts, the contract or
notional amounts do not represent exposure to credit loss. The Company
controls the credit risk of its futures contracts through credit approvals,
limits and monitoring procedures.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the agreement. These
conditions generally include, but are not limited to, each customer being
current as to repayment terms of existing loans and no deterioration in the
customer's financial condition. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The
interest rate is generally a variable, or floating, interest rate. If the
commitment has a fixed interest rate, the rate is generally not set until such
time as credit is extended. For credit card customers, the Company has the
right to change or terminate any terms or conditions of the credit card
account at any time. Since a large portion of the commitments and unused
credit card lines are never actually drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on an individual basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, real estate, plant and equipment,
stock, securities and certificates of deposit.
Commercial letters of credit are issued specifically to facilitate trade or
commerce. Under the terms of a commercial letter of credit, as a general rule,
drafts will be drawn when the underlying transaction is consummated as
intended. Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The Company
holds collateral supporting those commitments when deemed necessary.
Collateral varies but may include such items as those described for
commitments to extend credit.
Futures contracts are contracts for delayed delivery of securities or money
market instruments in which the seller agrees to make delivery at a specified
future date of a specified instrument at a specified yield. Risks arise from
the possible inability of counterparties to meet the terms of their contracts
and from movements in securities values and interest rates. Instruments used
in trading activities are carried at market value and gains and losses on
futures contracts are settled in cash daily. Any changes in the market value
are recognized in trading and investment banking income.
The Company's use of futures contracts is very limited. The Company uses
contracts to offset interest rate risk on specific securities held in the
trading portfolio. The contract amount of open positions in financial futures
contracts at December 31, 1995 was $59.1 milion and $36.0 million at December
31, 1994. Open futures contract positions averaged $42.6 million and $44.5
million during the years ended December 31, 1995 and 1994, respectively. Net
futures activity resulted in losses of $3.4 million for 1995 and gains of $2.7
million for 1994.
The Company also enters into foreign exchange contracts on a limited basis.
For operating purposes the Company maintains certain balances in foreign
banks. Foreign exchange contracts are purchased on a monthly
A-17
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
basis to avoid foreign exchange risk on these foreign balances. The Company
will also enter into foreign exchange contracts to facilitate foreign exchange
needs of customers. The Company will enter into a contract to buy or sell a
foreign currency at a future date only as part of a contract to sell or buy
the foreign currency at the same future date to a customer. The Company had
foreign exchange contracts at December 31, 1995 of $4.5 million and no foreign
exchange contracts at December 31, 1994. During 1995 contracts to purchase and
to sell foreign currency averaged approximately $1.7 million, compared to $1.2
million during 1994. The gain or loss on these foreign exchange contracts for
1995 and 1994 was not significant.
With respect to group concentrations of credit risk, most of the Company's
business activity is with customers in the states of Missouri, Kansas,
Colorado and Illinois. At December 31, 1995, the Company did not have any
significant credit concentrations in any particular industry.
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 these lawsuits will
have a materially adverse effect on the financial position or results of
operations of the Company.
CONTRACT OR NOTIONAL
AMOUNT DECEMBER 31
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Financial instruments whose contract amounts repre-
sent credit risk:
Commitments to extend credit for loans (excluding
credit card plans)............................... $637,696 $568,017 $592,395
Commitments to extend credit under credit card
plans............................................ 850,006 729,417 715,188
Commercial letters of credit...................... 14,864 16,047 17,281
Standby letters of credit......................... 69,492 72,718 74,046
Financial instruments whose notional or contract
amounts exceed the amount of credit risk:
Futures contracts................................. $ 59,100 $ 36,000 $ 58,500
COMMON STOCK REPURCHASE COMMITMENT
On December 14, 1995, the Company and its Employee Stock Ownership Plan
(ESOP) entered into a commitment to repurchase 1,581,133 shares of common
stock of the Company at a price of $43.50 per share. On January 2, 1996, a
total of 1,068,533 of those shares were acquired from the Seller. The Company
acquired 688,533 of such shares for treasury stock purposes using existing
working capital. The remaining 380,000 shares were purchased by the ESOP and
funded by a seven-year, 6.1% fixed rate loan, which is guaranteed by the
Company. The accompanying balance sheet at December 31, 1995 reflects the
shares acquired in January as temporary equity with a corresponding reduction
of shareholders' equity.
The remaining 512,600 common shares to be purchased are not presently owned
by the Seller, but are subject to an option agreement with a third-party
financial institution. Due to uncertainties surrounding the transfer of such
options to the Company and continued regulatory approval, the remaining
shares, which will be purchased in equal installments in March and June of
1996, have not been recorded as temporary equity.
A-18
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
INCOME TAXES
Income taxes as set forth below produce effective federal income tax rates
of 30.77% in 1995, 29.78% in 1994 and 30.17% in 1993. These percentages are
computed by dividing total federal income tax by the sum of such tax and net
income. Income taxes include the following components (in thousands):
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
------- ------- -------
Federal
Currently payable.................................... $26,885 $19,512 $18,000
Deferred............................................. (3,698) 770 (232)
------- ------- -------
Total federal tax provision........................ $23,187 $20,282 $17,768
State
Currently payable.................................... 2,517 2,683 2,355
Deferred............................................. (257) (380) 7
------- ------- -------
Total tax provision................................ $25,447 $22,585 $20,130
======= ======= =======
Tax effect of security gains included above.......... $ 496 $ 1,271 $ 562
The reconciliation between the income tax provision and the amount computed
by applying the statutory federal tax rate of 35% to income before income
taxes is as follows (in thousands):
YEAR ENDED DECEMBER 31
-------------------------
1995 1994 1993
------- ------- -------
Provision at statutory rate......................... $27,168 $24,640 $21,437
Tax-exempt interest income.......................... (5,698) (5,016) (4,966)
Disallowed interest expense......................... 642 484 474
State and local income taxes, net of federal tax
benefits........................................... 1,470 1,497 1,582
Amortization of intangibles of purchased banks...... 1,877 1,881 1,420
Other............................................... (12) (901) 183
------- ------- -------
Total tax provision............................... $25,447 $22,585 $20,130
======= ======= =======
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities.
A-19
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Temporary differences which comprise a significant portion of deferred tax
assets and liabilities at December 31, 1995, 1994 and 1993 were as follows (in
thousands):
1995 1994 1993
-------- -------- --------
Deferred tax liabilities:
Net unrealized gain of securities available for
sale............................................ $ 2,195 $ -- $ 8,735
Asset revaluations on purchased banks............ 6,981 6,557 8,130
Depreciation..................................... 5,262 5,269 5,001
Pension.......................................... 2,106 2,765 3,078
Insurance........................................ 1 1,945 --
Tax allowance for loan losses.................... 346 823 1,484
Miscellaneous.................................... 93 165 54
-------- -------- --------
Total deferred tax liabilities................. $ 16,984 $ 17,524 $ 26,482
-------- -------- --------
Deferred tax assets:
Net unrealized loss on securities available for
sale............................................ $ -- $(21,771) $ --
Allowance for loan losses........................ (12,390) (12,349) (13,480)
Miscellaneous.................................... (875) (849) (333)
-------- -------- --------
Total deferred tax assets...................... $(13,265) $(34,969) $(13,813)
-------- -------- --------
Net deferred tax liability (asset)............... $ 3,719 $(17,445) $ 12,669
======== ======== ========
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosures about the fair value of all financial instruments,
whether or not recognized in the balance sheet. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
CASH AND SHORT-TERM INVESTMENTS -- The carrying amounts of cash and due from
banks, federal funds sold and resell agreements are reasonable estimates of
their fair values.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES -- Fair values are
based on quoted market prices or dealer quotes, if available. If a quoted
market price is not available, fair value is estimated using quoted market
prices for similar securities.
TRADING SECURITIES -- Fair values for trading securities (including
financial futures), which also are the amounts recognized in the balance
sheet, are based on quoted market prices where available. If quoted market
prices are not available, fair values are based on quoted market prices for
similar securities.
LOANS -- Fair values are estimated for portfolios with similar financial
characteristics. Loans are segregated by type, such as commercial, real
estate, consumer, and credit card. Each loan category is further segmented
into fixed and variable interest rate categories. The fair value of loans is
estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturities.
DEPOSIT LIABILITIES -- The fair value of demand deposits and savings
accounts is the amount payable on demand at December 31, 1995, 1994 and 1993.
The fair value of fixed-maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
A-20
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
SHORT-TERM DEBT -- The carrying amounts of federal funds purchased,
repurchase agreements and other short-term debt are reasonable estimates of
their fair values.
LONG-TERM DEBT -- Rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt.
OTHER OFF-BALANCE-SHEET INSTRUMENTS -- The fair value of a loan commitment
and a letter of credit is determined based on the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreement and the present creditworthiness of the counterparties. Neither the
fees earned during the year on these instruments or their fair value at year-
end are significant to the Company's consolidated financial position.
The estimated fair values of the Company's financial instruments at December
31, 1995, 1994 and 1993 are as follows (in millions):
1995 1994 1993
------------------ ------------------ ------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
Financial assets:
Cash and short-term in-
vestments............. $ 785.6 $ 785.6 $1,305.0 $1,305.0 $1,005.6 $1,005.6
Securities available
for sale.............. 2,336.6 2,336.6 2,275.2 2,275.2 2,700.2 2,700.2
Investment securities.. 311.8 313.2 384.8 373.6 278.9 282.4
Trading securities..... 86.0 86.0 31.0 31.0 83.7 83.7
Loans.................. $2,452.5 $2,438.2 $2,269.6 $2,209.6 $2,159.7 $2,156.8
Less: allowance for
loan losses........... (32.7) -- (32.5) -- (35.6) --
-------- -------- -------- -------- -------- --------
Net loans............ $2,419.8 $2,438.2 $2,237.1 $2,209.6 $2,124.1 $2,156.8
-------- -------- -------- -------- -------- --------
Total financial as-
sets................ $5,939.8 $5,959.6 $6,233.1 $6,194.4 $6,192.5 $6,228.7
======== ======== ======== ======== ======== ========
Financial liabilities:
Demand and savings de-
posits................ $3,512.0 $3,512.0 $3,991.6 $3,991.6 $3,852.6 $3,852.6
Time deposits.......... 1,301.7 1,299.9 1,141.2 1,132.9 1,309.1 1,314.1
Federal funds and re-
purchase.............. 721.4 721.4 801.0 801.0 625.1 625.1
Short-term debt........ .5 .5 .9 .9 1.5 1.5
Long-term debt......... 40.7 39.0 46.3 45.6 51.5 53.9
-------- -------- -------- -------- -------- --------
Total financial lia-
bilities............ $5,576.3 $5,572.8 $5,981.0 $5,972.0 $5,839.8 $5,847.2
======== ======== ======== ======== ======== ========
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995, 1994 and 1993. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
A-21
UMB FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
PARENT COMPANY FINANCIAL INFORMATION
DECEMBER 31
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
BALANCE SHEET
Assets:
Investment in subsidiaries:
Banks........................................... $589,846 $567,381 $605,148
Non-banks....................................... 8,692 8,336 7,616
-------- -------- --------
Total investment in subsidiaries.............. $598,538 $575,717 $612,764
Premiums on purchased banks..................... 12,768 14,278 15,803
Securities available for sale and other......... 69,349 21,530 16,511
-------- -------- --------
Total assets.................................. $680,655 $611,525 $645,078
======== ======== ========
Liabilities and Shareholders' Equity:
Dividends payable............................... $ 3,789 $ 3,804 $ 3,536
Notes payable to others......................... 40,093 45,529 50,647
Accrued expenses and other...................... 14,333 4,886 4,252
-------- -------- --------
Total liabilities............................. $ 58,215 $ 54,219 $ 58,435
Common stock repurchase commitment.............. 46,481 -- --
Shareholders' equity............................ 575,959 557,306 586,643
-------- -------- --------
Total liabilities and shareholders' equity.... $680,655 $611,525 $645,078
======== ======== ========
STATEMENT OF INCOME
Income:
Dividends received from affiliate banks......... $ 53,114 $ 38,781 $ 41,285
Service fees from subsidiaries.................. 9,790 4,882 7,101
Net security gains.............................. 426 618 249
Other........................................... 762 298 371
-------- -------- --------
Total income.................................. $ 64,092 $ 44,579 $ 49,006
-------- -------- --------
Expense:
Salaries and employee benefits.................. $ 3,834 $ 3,624 $ 3,188
Interest on notes payable:
Affiliate bank.................................. 21 9 46
Other........................................... 3,399 3,952 4,334
Services from affiliate banks................... 654 662 870
Other........................................... 11,149 11,624 11,032
-------- -------- --------
Total expense................................. $ 19,057 $ 19,871 $ 19,470
-------- -------- --------
Income before income taxes and equity in undis-
tributed earnings of subsidiaries.............. $ 45,035 $ 24,708 $ 29,536
Income tax benefit.............................. (2,356) (4,417) (3,639)
-------- -------- --------
Income before equity in undistributed earnings
of subsidiaries................................ $ 47,391 $ 29,125 $ 33,175
Equity in undistributed earnings of subsidiar-
ies:
Banks........................................... 5,031 18,220 7,498
Non-banks....................................... (246) 469 446
-------- -------- --------
Net income.................................... $ 52,176 $ 47,814 $ 41,119
======== ======== ========
STATEMENT OF CASH FLOWS
Operating Activities:
Net income...................................... $ 52,176 $ 47,814 $ 41,119
Equity in earnings of subsidiaries.............. (57,899) (57,470) (49,229)
Gains from sales of securities available for
sale........................................... (426) (618) (249)
Other........................................... 477 1,329 766
-------- -------- --------
Net cash used by operating activities.......... $ (5,672) $ (8,945) $ (7,593)
-------- -------- --------
Investing Activities:
Increase in Commercial Paper.................... $(39,955) $ -- $ --
Proceeds from sales of securities available for
sale........................................... 1,665 1,687 319
Proceeds from maturities of securities held to
maturity....................................... 12,650 -- --
Purchases of securities available for sale...... (20,141) -- --
Net increase in repurchase agreements........... (4,000) (5,500) (2,160)
Net capital investment in affiliate banks....... 32,778 6,819 (29,789)
Dividends received from subsidiaries............ 53,114 38,781 41,285
Net capital expenditures for premises and equip-
ment........................................... (80) (211) (159)
-------- -------- --------
Net cash provided by investing activities....... $ 36,031 $ 41,576 $ 9,496
-------- -------- --------
Financing Activities:
Issuance of long-term debt...................... $ -- $ -- $ 25,000
Repayments of long-term debt.................... (5,436) (5,118) (7,797)
Net increase in short-term debt................. -- -- (500)
Cash dividends paid............................. (15,114) (14,669) (13,064)
Net purchase of treasury stock.................. (10,751) (12,938) (4,351)
-------- -------- --------
Net cash used by financing activities........... $(31,301) $(32,725) $ (712)
-------- -------- --------
Net increase (decrease) in cash.................. $ (942) $ (94) $ 1,191
======== ======== ========
A-22
INDEPENDENT AUDITORS' REPORT
To the Shareholders and the Board of Directors of UMB Financial Corporation:
We have audited the accompanying consolidated balance sheets of UMB
Financial Corporation and subsidiaries as of December 31, 1995, 1994 and 1993,
and the related consolidated statements of income, shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of UMB Financial Corporation and
subsidiaries as of December 31, 1995, 1994 and 1993, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
As discussed in the Accounting Policies note to the consolidated financial
statements, the Company changed its method of accounting for certain
investments in debt and equity securities effective December 31, 1993, to
conform with Statement of Financial Accounting Standards No. 115.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
January 16, 1996
A-23
UMB FINANCIAL CORPORATION
FIVE-YEAR FINANCIAL SUMMARY
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
EARNINGS
Interest income......... $ 357,055 $ 323,260 $ 283,215 $ 253,367 $ 298,199
Interest expense........ 157,787 136,064 119,718 123,786 171,677
Net interest income..... 199,268 187,196 163,497 129,581 126,522
Provision for loan loss-
es..................... 5,090 2,640 3,332 2,981 6,044
Noninterest income...... 143,978 141,745 131,467 113,462 98,691
Noninterest expense..... 260,533 255,902 230,383 184,947 165,774
Net income.............. 52,176 47,814 41,119 39,367 39,485
AVERAGE BALANCES
Assets.................. $5,899,169 $6,372,607 $5,766,843 $4,622,968 $4,162,583
Loans, net of unearned
interest............... 2,346,325 2,148,606 1,786,529 1,337,305 1,356,082
Securities*............. 2,382,248 2,844,306 2,729,270 2,109,121 1,816,711
Deposits................ 4,581,349 5,021,401 4,559,551 3,595,644 3,189,224
Long-term debt.......... 44,450 50,370 53,522 40,966 46,322
Shareholders' equity.... 597,401 572,446 502,614 385,988 355,570
YEAR-END BALANCES
Assets.................. $6,281,328 $6,599,020 $6,528,826 $5,003,187 $4,692,053
Loans, net of unearned
interest............... 2,452,526 2,269,617 2,159,761 1,483,048 1,349,144
Securities*............. 2,648,331 2,660,047 2,979,156 2,293,438 1,753,563
Deposits................ 4,813,683 5,132,834 5,161,729 3,843,166 3,410,193
Long-term debt.......... 40,736 46,330 51,529 33,531 42,226
Shareholders' equity.... 575,959 557,306 586,643 399,679 372,683
PER SHARE DATA
Earnings................ $ 2.52 $ 2.26 $ 2.13 $ 2.35 $ 2.36
Cash dividends.......... 0.73 0.69 0.66 0.66 0.60
Dividend payout ratio... 28.97% 30.53% 30.99% 28.09% 25.42%
Book value.............. $ 29.53 $ 26.66 $ 27.50 $ 23.96 $ 22.32
Market price
High................... 45.25 31.41 33.68 34.50 30.78
Low.................... 27.27 26.82 30.16 29.95 19.72
Close.................. 35.25 28.41 30.99 33.05 30.78
RATIOS
Return on average as-
sets................... 0.88% 0.75% 0.71% 0.85% 0.95%
Return on average equi-
ty..................... 8.73 8.35 8.18 10.20 11.10
Average equity to as-
sets................... 10.13 8.98 8.72 8.35 8.54
Total risk-based capital
ratio.................. 16.16 17.85 18.50 20.16 21.25
- --------
Per share information restated for 10% stock dividend paid January 2, 1996.
*Securities include investment securities and securities available for sale.
A-24
UMB FINANCIAL CORPORATION
FINANCIAL REVIEW
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 three-
year period ending December 31, 1995. 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.
OVERVIEW
The Company recorded consolidated net income of $52.2 million for the year
ended December 31, 1995, compared to $47.8 million and $41.1 million for 1994
and 1993, respectively. These operating results represent a 9.1% increase in
net income for 1995 as compared to 1994 and a 16.3% increase for 1994 as
compared to 1993. Per share earnings for 1995 were $2.52, an 11.5% increase
over 1994 per share earnings of $2.26. Per share results for 1994 represented
a 6.1% increase over 1993 results of $2.13. All share and per share data have
been restated to give effect to a 10 percent stock dividend distributed to
shareholders on January 2, 1996.
The Company's improved earnings during 1995 over 1994 were primarily driven
by an increase in net interest income, along with a slight increase in
noninterest income. These increases were partially offset by an increased
provision for loan losses and marginally higher noninterest expenses.
A significant factor in the increase in the Company's earnings in 1994 as
compared to 1993 was the acquisition of 12 banks in the State of Kansas (the
Acquired Banks) during 1993. These acquisitions were completed by the second
quarter of 1993. Each of the acquisitions was accounted for as a purchase
transaction, therefore the results of operations of the Acquired Banks are
included in consolidated earnings from the respective date of acquisition.
Per share earnings for both 1995 and 1994 also benefited from a reduction in
outstanding shares of the Company's common stock resulting from ongoing share
repurchases. The Company continues to consider purchases based on
availability, price and alternative use of funds.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the Company's principal source of earnings, is the
amount of interest income generated by earning assets less interest expense
paid on interest-bearing liabilities. Table 1 summarizes the changes in net
interest income resulting from changes in volume and rates for the past two
years. Net interest income on a fully tax-equivalent basis (FTE), average
balance sheet amounts, and the corresponding yields and rates for the years
1991 through 1995 are shown on pages A-44 and A-45. Net interest income is
presented on a "tax-equivalent" basis to adjust for the tax-exempt status of
earnings from certain loans and investments, primarily the obligations of
states and local governments.
For the year ended December 31, 1995, interest income, on a tax-equivalent
basis, increased by $34.7 million to $365.1 million, compared to $330.4
million in 1994 and $290.0 million in 1993. For 1995, interest expense
increased by $21.7 million to $157.8 million, compared to $136.1 million in
1994 and $119.7 million in 1993. These changes resulted in an increase in the
Company's net interest income, on a tax-equivalent basis, of $13.0 million to
$207.3 million during 1995 compared to $194.3 million in 1994 and $170.3
million in 1993.
A-25
TABLE 1: TAX-EQUIVALENT RATE-VOLUME ANALYSIS (IN THOUSANDS)
This analysis attributes changes in net interest income on a tax-equivalent
basis either to changes in average balances or to changes in average rates for
earning assets and interest-bearing liabilities. The change in interest due
jointly to volume and rate has been allocated to volume and rate in proportion
to the relationship of the absolute dollar amount of change in each. All
information is presented on a tax-equivalent basis and gives effect to the
disallowance of interest expense, for federal income tax purposes, related to
certain tax-free assets.
AVERAGE
AVERAGE VOLUME RATE INCREASE (DECREASE)
--------------------- ---------- --------------------------
1995 1994 1995 1994 1995 VS. 1994 VOLUME RATE TOTAL
---------- ---------- ---- ---- ------------------------ -------- ------- -------
Change in interest
earned on:
$2,346,325 $2,148,606 9.33% 8.06% Loans................... $ 16,857 $28,940 $45,797
Securities:
2,076,169 2,555,231 5.32 4.77 Taxable................. (24,498) 13,104 (11,394)
306,079 289,075 6.83 6.41 Tax-exempt.............. 1,124 1,241 2,365
Federal funds sold and
187,836 337,958 5.86 4.03 resell agreements...... (7,410) 4,787 (2,623)
60,239 56,487 6.19 5.65 Other................... 220 315 535
---------- ---------- ---- ---- -------- ------- -------
$4,976,648 $5,387,357 7.34% 6.13% Total................... $(13,707) $48,387 $34,680
---------- ---------- ---- ---- -------- ------- -------
Change in interest paid
on:
Interest-bearing
$3,244,545 $3,576,025 3.75% 2.99% deposits............... $(10,587) $25,223 $14,636
Federal funds purchased
and repurchase
613,862 664,499 5.32 3.77 agreements............. (2,032) 9,660 7,628
45,570 51,365 7.70 7.88 Other................... (448) (93) (541)
---------- ---------- ---- ---- -------- ------- -------
$3,903,977 $4,291,889 4.04% 3.17% Total................... $(13,067) $34,790 $21,723
========== ========== ==== ==== -------- ------- -------
Net interest income..... $ (640) $13,597 $12,957
======== ======= =======
AVERAGE
AVERAGE VOLUME RATE INCREASE (DECREASE)
--------------------- ---------- --------------------------
1994 1993 1994 1993 1994 VS. 1993 VOLUME RATE TOTAL
---------- ---------- ---- ---- ------------------------ -------- ------- -------
Change in interest
earned on:
$2,148,606 $1,786,529 8.06% 8.06% Loans................... $ 29,173 $ (94) $29,079
Securities:
2,555,231 2,468,796 4.77 4.70 Taxable................. 4,106 1,793 5,899
289,075 260,474 6.41 6.53 Tax-exempt.............. 1,839 (320) 1,519
Federal funds sold and
337,958 320,391 4.03 3.09 resell agreements...... 567 3,171 3,738
56,487 58,156 5.65 5.24 Other................... (89) 235 146
---------- ---------- ---- ---- -------- ------- -------
$5,387,357 $4,894,346 6.13% 5.92% Total................... $ 35,596 $ 4,785 $40,381
---------- ---------- ---- ---- -------- ------- -------
Change in interest paid
on:
Interest-bearing
$3,576,025 $3,285,879 2.99% 3.02% deposits............... $ 8,685 $ (854) $ 7,831
Federal funds purchased
and repurchase
664,499 581,130 3.77 2.78 agreements............. 2,555 6,347 8,902
51,365 54,937 7.88 8.07 Other................... (284) (103) (387)
---------- ---------- ---- ---- -------- ------- -------
$4,291,889 $3,921,946 3.17% 3.05% Total................... $ 10,956 $ 5,390 $16,346
========== ========== ==== ==== -------- ------- -------
Net interest income..... $ 24,640 $ (605) $24,035
======== ======= =======
A-26
Net interest margin measures the Company's ability to generate net interest
income. It is defined as net interest income (FTE) as a percent of average
earning assets. The behavior of the margin depends on the interaction of three
factors: 1) net interest spread (defined as the difference between the yield
on earning assets and the rate paid on interest-bearing liabilities); 2) yield
earned on assets funded by interest-free funding sources (primarily
noninterest-bearing demand deposits and equity capital); and 3) percentage of
earning assets funded by interest-free funding sources.
TABLE 2: ANALYSIS OF NET INTEREST MARGIN
1995 1994 CHANGE
---------- ---------- ---------
(IN THOUSANDS)
Average earning assets...................... $4,976,649 $5,387,357 $(410,708)
Interest-bearing liabilities................ 3,903,977 4,291,889 (387,912)
---------- ---------- ---------
Interest-free funds......................... $1,072,672 $1,095,468 $ (22,796)
========== ========== =========
Free funds ratio (free funds to earning as- 21.55% 20.33% 1.22%
sets)...................................... ===== ===== ====
Tax-equivalent yield on earning assets...... 7.34% 6.13% 1.21%
Cost of interest-bearing liabilities........ 4.04 3.17 0.87
----- ----- ----
Net interest spread......................... 3.30% 2.96% 0.34%
Benefit of interest-free funds.............. 0.87 0.65 0.22
----- ----- ----
Net interest margin......................... 4.17% 3.61% 0.56%
===== ===== ====
Earning assets averaged $5.0 billion during 1995 compared to $5.4 billion in
1994 and $4.9 billion in 1993. The decrease in average earnings assets during
1995 was primarily the result of a reduction in investment securities which
were used to fund a decrease in deposits. The decrease in deposits was
primarily related to deposits associated with the Company's mutual fund
processing. The increase in average earning assets in 1994 as compared to 1993
was primarily the result of Acquired Banks.
The net interest margin earned by the Company during 1995 was 4.17%,
compared to 3.61% in 1994 and 3.48% in 1993. The primary factors in the
improvement in the Company's net interest margin in 1995 as compared to 1994
were an overall increase in interest rates and a change in the balance sheet
mix of the Company. Average loans increased by $198 million in 1995 and
comprised 47% of total earning assets as compared to 40% in 1994 and 37% in
1993. The increase in loans, which occurred during a period of increasing
interest rates, has benefited the Company because loans generally reprice
faster than investment securities. The increase in the Company's net interest
income in 1994 as compared to 1993 was primarily driven by an increase in
lending activity.
The yield on the Company's earning assets during 1995 was 7.34% compared to
6.13% for 1994 and 5.92% for 1993. During 1995, the Company was in a position
to benefit from increasing interest rates due to its floating rate loans,
which comprise 55.4% of the loan portfolio and the reinvestment of security
maturities and short-term investments.
The general increase in interest rates in 1995 as compared to 1994 also
resulted in an increase in the Company's cost of funds. Cost of funds
increased to 4.04% in 1995 from 3.17% in 1994 and 3.05% in 1993. The 87-basis-
point increase in cost of funds for 1995 compares to a 121-basis-point
increase in the yield on earning assets for 1995. As a result of these
changes, the Company's net interest spread increased to 3.30% for 1995 from
2.96% in 1994 and 2.87% in 1993. This represents the largest net interest
spread the Company has earned in eight years. This 1995 increase allowed the
Company to increase its net interest income even though average earning assets
decreased by 7.6% during 1995. As interest rates increase, the impact on the
Company's cost of funds has traditionally been delayed or diluted due to the
flexibility the Company has in pricing its core deposits, which comprised
87.6% of average funding sources for 1995.
A-27
TABLE 3: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
This table presents an allocation of the allowance for loan losses by loan
categories. The breakdown is based on a number of qualitative factors,
therefore amounts presented are not necessarily indicative of actual future
charge-offs in any particular category. The percent of loans in each category
to total loans is provided in Table 5.
DECEMBER 31
---------------------------------------
LOAN CATEGORY 1995 1994 1993 1992 1991
- ------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
Commercial.............................. $16,150 $16,000 $17,500 $13,250 $14,000
Consumer................................ 13,500 13,400 13,500 10,500 11,000
Real estate............................. 2,500 2,500 3,000 500 1,000
Agricultural............................ 450 500 1,000 100 100
Leases.................................. 50 50 50 50 50
Unallocated............................. 35 77 540 56 91
------- ------- ------- ------- -------
Total allowance........................ $32,685 $32,527 $35,590 $24,456 $26,241
======= ======= ======= ======= =======
PROVISION AND ALLOWANCE FOR LOAN LOSS
The allowance for loan losses (ALL) represents management's judgment of the
losses inherent in the Company's loan portfolio. The provision for loan losses
is the amount necessary to adjust the ALL to the level considered appropriate
by management. The adequacy of the ALL is reviewed quarterly considering such
items as historical loss trends, a review of individual loans, current and
projected economic conditions, loan growth and characteristics and other
factors. Bank regulatory agencies require that the adequacy of the ALL be
maintained on a bank-by-bank basis for each of the Company's subsidiaries.
At December 31, 1995, the Company's ALL was $32.7 million, compared to $32.5
million and $35.6 million at December 31, 1994 and 1993, respectively. At
December 31, 1995, the ALL as a percentage of total loans was 1.3% compared to
1.4% and 1.7% at December 31, 1994 and 1993, respectively. At December 31,
1995, the ALL exceeded total nonperforming loans by $29.0 million compared to
an excess of $27.2 million at year-end 1994.
As shown in Table 3, the ALL has been allocated to various loan portfolio
segments. The Company manages the ALL against the risk in the entire loan
portfolio and therefore the allocation of the ALL to a particular loan segment
may change in the future. In the opinion of management, the ALL is adequate
based on the inherent losses in the loan portfolio at December 31, 1995.
The company's provision for loan losses was $5.1 million in 1995, $2.6
million in 1994 and $3.3 million in 1993. The increase in the provision for
loan losses in 1995, compared to the prior two years, is primarily a factor of
the increase in the Company's average loans and not indicative of a change in
the overall credit quality of the loan portfolio. Net charge-offs in 1995 were
$5.4 million compared to $5.7 million and $4.3 million in 1994 and 1993,
respectively. Charge-offs of bankcard and other consumer loans have increased
for the last two years. The overall increase in consumer indebtedness on a
national basis has fueled predictions that the quality of consumer debt will
deteriorate and therefore increase losses in the industry. The Company has
experienced only a marginal increase in bankcard delinquencies over 30 days,
which totaled 3.03% of total bankcard loans at December 31, 1995. There has
been no change in the Company's underwriting policies and practices in this
area. The delinquency rate and loss rate on the bankcard loan portfolio is and
should remain well below industry averages. The Company will continue to
closely monitor this area and take appropriate actions, including increasing
collection efforts, in order to minimize credit losses.
Based on a current assessment of the risk in the total loan portfolio and
current economic conditions, and absent any unforeseen circumstances,
management does not anticipate a material increase in the Company's loan
A-28
loss provision for 1996. Any significant increase in the loan loss provision
for 1996 would likely be a result of continued increases in the loan
portfolio.
Table 4 presents a five-year summary of the Company's allowance for loan
losses. Net charge-offs as a percentage of average loans for 1995 were 0.23%,
which is the lowest level of charge-offs the Company has experienced in over
10 years.
TABLE 4: ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Allowance -- beginning
of year................ $ 32,527 $ 35,590 $ 24,456 $ 26,241 $ 27,268
Provision for loan loss-
es..................... 5,090 2,640 3,332 2,981 6,044
Allowances of acquired
banks.................. 485 -- 12,076 207 352
Charge-offs:
Commercial............. $ (948) $ (2,833) $ (1,717) $ (1,401) $ (3,823)
Consumer:
Bankcard.............. (5,427) (4,236) (3,983) (4,082) (4,657)
Other................. (1,602) (1,018) (836) (890) (864)
Real estate............ (113) (182) (578) (175) (81)
Agricultural........... -- -- (21) -- (13)
---------- ---------- ---------- ---------- ----------
Total charge-offs... $ (8,090) $ (8,269) $ (7,135) $ (6,548) $ (9,438)
Recoveries:
Commercial............. $ 947 $ 573 $ 1,051 $ 186 $ 680
Consumer:
Bankcard.............. 994 1,102 1,144 956 1,002
Other................. 569 528 469 363 307
Real estate............ 122 118 138 70 19
Agricultural........... 41 245 59 -- 7
---------- ---------- ---------- ---------- ----------
Total recoveries.... $ 2,673 $ 2,566 $ 2,861 $ 1,575 $ 2,015
---------- ---------- ---------- ---------- ----------
Net charge-offs......... $ (5,417) $ (5,703) $ (4,274) $ (4,973) $ (7,423)
---------- ---------- ---------- ---------- ----------
Allowance -- end of
year................... $ 32,685 $ 32,527 $ 35,590 $ 24,456 $ 26,241
========== ========== ========== ========== ==========
Average loans........... $2,346,325 $2,148,606 $1,786,529 $1,337,305 $1,356,082
Loans at end of year,
net of unearned
interest............... 2,452,526 2,269,617 2,159,761 1,483,048 1,349,144
Allowance to loans at
year-end............... 1.33% 1.43% 1.65% 1.65% 1.95%
Allowance as a multiple
of net charge-offs 6.03x 5.70x 8.33x 4.92x 3.54x
Net charge-offs to:
Provision for loan
losses................ 106.42% 216.02% 128.27% 166.82% 122.82%
Average loans.......... 0.23 0.27 0.24 0.37 0.55
NONINTEREST INCOME
Management has stressed growth of noninterest income to enhance the
Company's profitability since fee-based services are non credit related,
provide steady income and are not affected by fluctuations in interest rates.
These activities are also relatively low-risk and do not impact the Company's
regulatory capital needs. Fee-based services that have been emphasized include
trust and securities processing, securities trading, cash management and
merchant processing. Fee income (exclusive of net security gains) as a percent
of adjusted operating revenues was 40.8% in 1995. Adjusted operating revenues
is defined as tax-equivalent net interest income plus noninterest income,
excluding net security gains.
A-29
Noninterest income, exclusive of net securities gains, was $142.6 million in
1995, compared to $138.1 million in 1994 and $129.9 million in 1993. This
represents a 3.2% increase for 1995, compared to 1994. This increase, which is
less than the traditional growth rate for the Company, was affected by a
reduction in income from mutual fund securities processing and only slight
growth in trust fees. Approximately 50% of the increase in noninterest income
in 1994 over 1993 was the result of including the Acquired Banks on
consolidated results of operation for an entire year in 1994.
Trust fees represent the largest component of noninterest income and totaled
$35.9 million in 1995, $35.0 million in 1994 and $32.0 million in 1993. The
Company has long been identified as a leader in the trust area. Management will
continue to aggressively market these services in order to grow and benefit
from this recognized strength of the Company. The Company offers a full range
of trust services including personal and custody services, investment
management and employee benefits. During 1995 the Company began a comprehensive
review of the pricing and structure of trust services in order to increase
efficiencies. The Company also plans to increase its marketing efforts at the
retail level in order to take better advantage of its existing branch network.
The aggregate value of managed trust assets at December 31, 1995, was $10.0
billion, compared to $8.7 billion and $9.3 billion at December 31, 1994 and
1993, respectively.
The Company's revenue from custodial trust services is primarily related to
the mutual fund industry. Revenue from securities processing services decreased
to $10.5 million in 1995 from $12.5 million in 1994 and $13.3 million in 1993.
The declines in the past two years are primarily the result of changes with
what was the Company's largest custody processing customer. During 1993, the
customer was given significant price concessions because of competitive
pressures. The Company reduced its related operating costs where possible, in
order to minimize the effect of the pricing change. In 1994 this same customer
was acquired by a competitor of the Company, which resulted in the loss of this
custody processing business. The transition period prior to the loss of this
business was sufficient to allow for an orderly reduction in operating costs to
help offset the effect of this change. The Company is aggressively pursuing new
business to replace the above loss. During the last year the Company has
established relationships with 10 additional mutual funds companies. The
magnitude of the services provided to these new customers varies. This
diversification should allow the Company the opportunity to regain its lost
market share with reduced concentration risks. Total trust assets under custody
were $102.9 billion at December 31, 1995, $189.8 billion at year-end 1994 and
$187.1 billion at year-end 1993.
Fee income from service charges on deposit accounts was $33.2 million in
1995, compared to $32.9 million in 1994 and $30.2 million in 1993. Other
service charge income was $11.3 million in 1995, $11.7 million in 1994 and
$11.2 million in 1993. The increase in interest rates in 1995 allowed
commercial customers a higher level of earnings credits on demand deposit
balances to offset service charges for account activity and other services
provided. During 1995, the Company completed a review of all service charge
fees and as a result increased fee levels in many areas. These increases did
not have a significant impact in 1995, but an entire year's benefit will be
realized in 1996. Bankcard fees increased 9.4% in 1995 to $33.7 million from
$30.8 million in 1994 and $24.9 million in 1993. The increase in 1995 was
primarily the result of a higher volume of merchant transactions. When
possible, the fees charged to merchants were adjusted during 1995 in response
to an increase in the Company's cost structure resulting from a conversion to a
new bankcard merchant processor. The increase in 1994 over 1993 was the result
of an increase in merchant transaction volume and the activity related to the
Acquired Banks.
Trading and investment banking income increased 12.5% during 1995 to $11.2
million compared to $9.9 million in 1994 and $13.6 million in 1993. Transaction
volumes increased during 1995 as a result of increased demand for municipal and
government-backed securities. The Company's correspondent bank customers
experienced an increase in liquidity during 1995 which resulted in higher
transaction volumes. The decrease in income during 1994 as compared to 1993 was
consistent with the industry norm as demand for mortgage-backed securities
decreased significantly and a lack of liquidity by correspondent banks
decreased overall volume.
A-30
Other income increased to $6.8 million in 1995 from $5.3 million in 1994 and
$4.6 million in 1993. Included in other income for 1995 is an approximate $2.5
million gain on the sale of the Company's minority ownership in an
unconsolidated subsidiary. The increase in other income in 1994 over 1993 was
primarily the result of the Acquired Banks. Net security gains in 1995 were
$1.4 million, compared to $3.6 million in 1994 and $1.6 million in 1993. During
1995, the Company generally matched gains with losses when repositioning
portions of the available for sale portfolio. Over 80% of the net security
gains in 1994 and 1993 was the result of repositioning the investment
portfolio.
NONINTEREST EXPENSE
Noninterest expense increased by less than 2.0% in 1995 to $260.5 million,
from $255.9 million in 1994 and $230.4 million in 1993. The most significant
items affecting 1995 results were tighter control of staffing costs, a
reduction in premiums for deposit insurance and an increase in bankcard
processing expense. The majority of the increase in noninterest expense in 1994
over 1993 was the result of the Acquired Banks.
Personnel cost is the largest component of noninterest expense as it
represents approximately 47% of total operating costs. Salary and employee
benefit expense totaled $122.6 million in 1995, compared to $121.3 million in
1994 and $107.2 million in 1993. The minimal increase in staffing costs during
1995 was the result of a reduction in staffing levels which, prior to the
December 1995 acquisition of a bank in Oklahoma, were 3,785 at year-end 1995
compared to 4,006 at year-end 1994. This reduction was partially offset by
merit salary increases and increased costs associated with the Company's profit
sharing and pension plans. The Company intends to continue reviewing its
staffing levels and further reductions, net of expansion, will be considered. A
primary factor in these considerations will be ensuring that changes do not
adversely affect the level of customer service offered by the Company.
Premiums paid for deposit insurance and regulatory fees totaled $7.6 million
in 1995, $12.2 million in 1994 and $11.0 million in 1993. The decrease in 1995
expense was the result of a mid-year reduction in the assessment rate for
deposit insurance. This assessment rate was further reduced for 1996, which
should benefit the Company in future years. Deposit insurance expense was also
affected by a reduction in average deposits which totaled $4.6 billion in 1995
and $5.0 billion in 1994.
Bankcard processing costs increased 27.1% in 1995 to $32.8 million from $25.8
million in 1994 and $20.8 million in 1993. The 1995 change is a result of
higher merchant transaction volumes and an increase in costs resulting from a
conversion to a new bankcard processor. Prior to 1995 the Company's bankcard
processing was performed by a joint venture between the Company, as a minority
owner, and two other banking companies. Based on the requests of the majority
owners, the operations of this joint venture were sold to the Company's current
processor during 1995. The costs associated with converting to the new
processing system were greater than expected as were the new ongoing processing
costs. Much effort has gone toward better control of the new processing system
in order to increase its efficiency. The Company will continue to review its
options related to merchant bankcard processing costs and the profitability of
the business line.
Occupancy costs increased by 5.7% in 1995 to $16.0 million from $15.1 million
in 1994 and $14.8 million in 1993. The 1995 increase was the result of costs
related to new facilities opened during the year and the outsourcing of certain
functions previously performed in-house. The Company's 1995 expansion also
impacted equipment costs which increased 7.5% to $22.3 million in 1995 from
$20.7 million in 1994 and $20.3 million in 1993. The Company also has higher
equipment costs from increased investments in new technology including
information and data processing equipment and software.
Supplies and services expense was $19.2 million in both 1995 and 1994,
compared to $17.4 million in 1993. The increase in 1994 over 1993 was primarily
the result of the Acquired Banks. Marketing and business development expense
was $13.1 million in 1995, compared to $12.5 million in 1994 and $11.4 million
in 1993.
A-31
During 1995 the Company continued its practice of identifying selected products
or services for special promotional campaigns. Other expenses totaled $20.0
million in 1995, compared to $22.0 million in 1994 and $22.2 million in 1993.
The decrease in other expenses during 1995 was the result of a reduction in
legal and professional services and overall efforts to reduce operating costs.
INCOME TAXES
Income tax expense totaled $25.4 million in 1995, compared to $22.6 million
in 1994 and $20.1 million in 1993. The effective tax rates were 32.78%, 32.08%
and 32.87% for 1995, 1994 and 1993, respectively. The primary reason for the
difference between the Company's effective tax rate and the statutory rate is
the effect of nontaxable interest income, partially offset by nondeductible
goodwill amortization.
FINANCIAL CONDITION
LOANS
As of December 31, 1995, total loans were $2.5 billion, compared to $2.3
billion and $2.2 billion at December 31, 1994 and 1993, respectively. These
loan totals represent an 8.1% increase for 1995 and a 5.1% increase in 1994.
Average loans were $2.3 billion, $2.1 billion and $1.8 billion for 1995, 1994
and 1993, respectively. The increase in loans for 1995 was prudently
diversified between business and consumer loans. The increase in consumer
installment loans during 1995 was primarily the result of a targeted loan
campaign offered by all of the Company's subsidiary banks. Traditionally, the
largest portion of the Company's consumer installment loan portfolio has been
indirect automobile loans purchased from automobile dealers. During 1995 the
Company aggressively marketed a direct automobile loan program for the dual
purpose of making high quality loans and establishing a direct relationship
with the borrower. Other retail products were then sold to these new loan
customers. There were no changes or compromises to the Company's underwriting
standards for purposes of the direct automobile campaign.
As noted in Table 5, business-related loans have consistently been the
largest segment of the loan portfolio. The Company's subsidiary banks are
structured as business banks that target small- to medium-size commercial and
manufacturing companies within the trade territory of the bank. The Company's
targeted customer base is often a second or third generation, family-owned
company that utilizes several credit and noncredit products of the Company.
Recent expansion plans for the Company have included loan production offices in
cities in which the Company previously had no office or branch. The primary
goal of the loan production offices is to market business-related loans and
other commercial products to potential customers who may feel displaced or
unsatisfied by their current lender. The Company will continue its efforts to
increase market share by opportunities brought on by the ongoing consolidation
in the banking industry and the competition's increased emphasis on retail
business versus commercial.
A-32
Commercial real estate loans, which comprise 12.3% of total loans, generally
are traditional business loans made for working capital or expansion purposes
that are primarily secured by real estate. These loans generally do not exceed
a maximum loan-to-value of 80% and often have other collateral or guarantees
as security. Many of these properties are owned-occupied, allowing the Company
to regularly monitor the condition and market of the real estate. Real estate
construction loans made up less than 1% of total loans at year-end 1995.
TABLE 5: ANALYSIS OF LOANS BY TYPE
DECEMBER 31
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
AMOUNT (IN THOUSANDS)
- ------
Commercial.............. $1,138,680 $1,066,621 $1,035,159 $ 777,205 $ 652,583
Agricultural............ 60,128 69,206 68,148 28,880 35,035
Leases.................. 2,057 2,157 1,627 1,930 2,595
Real estate -- commer-
cial................... 300,493 281,011 280,060 140,278 126,326
---------- ---------- ---------- ---------- ----------
Total business-relat-
ed................... $1,501,358 $1,418,995 $1,384,994 $ 948,293 $ 816,539
---------- ---------- ---------- ---------- ----------
Bankcard................ $ 201,048 $ 188,374 $ 180,345 $ 145,241 $ 148,361
Other consumer install-
ment................... 583,433 500,298 411,037 282,726 279,500
Real estate -- residen-
tial................... 167,077 163,554 186,097 110,061 109,547
---------- ---------- ---------- ---------- ----------
Total consumer-relat-
ed................... $ 951,558 $ 852,226 $ 777,479 $ 538,028 $ 537,408
---------- ---------- ---------- ---------- ----------
Total loans........... $2,452,916 $2,271,221 $2,162,473 $1,486,321 $1,353,947
Unearned interest....... (390) (1,604) (2,712) (3,273) (4,803)
Allowance for loan loss-
es..................... (32,685) (32,527) (35,590) (24,456) (26,241)
---------- ---------- ---------- ---------- ----------
Net loans............. $2,419,841 $2,237,090 $2,124,171 $1,458,592 $1,322,903
========== ========== ========== ========== ==========
AS A % OF TOTAL LOANS
- ---------------------
Commercial.............. 46.4% 47.0% 47.9% 52.3% 48.2%
Agricultural............ 2.4 3.0 3.2 2.0 2.6
Leases.................. 0.1 0.1 0.1 0.1 0.2
Real estate -- commer-
cial................... 12.3 12.4 12.9 9.4 9.3
---------- ---------- ---------- ---------- ----------
Total business-relat-
ed................... 61.2% 62.5% 64.1% 63.8% 60.3%
---------- ---------- ---------- ---------- ----------
Bankcard................ 8.2% 8.3% 8.3% 9.8% 11.0%
Other consumer install-
ment................... 23.8 22.0 19.0 19.0 20.6
Real estate -- residen-
tial................... 6.8 7.2 8.6 7.4 8.1
---------- ---------- ---------- ---------- ----------
Total consumer-relat-
ed................... 38.8% 37.5% 35.9% 36.2% 39.7%
---------- ---------- ---------- ---------- ----------
Total loans........... 100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
LOAN QUALITY
The quality of the loan portfolio has always been an underlying strength of
the Company. A measure of the effectiveness of credit risk management is the
percentage of the loan portfolio that is classified as nonperforming.
Nonperforming loans include nonaccrual loans and restructured loans. The
Company's nonperforming loans totaled $3.6 million at December 31, 1995,
representing only 0.1% of the loan portfolio, compared to $5.3 million and
0.2% one year earlier. The Company's nonperforming loans have not exceeded
0.5% of total loans in any of the last five years.
Nonperforming assets include foreclosed real estate along with the
nonaccrual and restructured loans. The Company's nonperforming asset ratio
(nonperforming assets divided by loans plus foreclosed real estate) was 0.2%
at December 31, 1995, and 0.5% at December 31, 1994. At December 31, 1995, the
Company had foreclosed real estate of only $0.6 million compared to $5.4
million at December 31, 1994.
A-33
At December 31, 1995, loans over 90 days past due totaled $5.3 million, or
0.2% of total loans, compared to 0.2% of total loans at year-end 1994.
Approximately 25% of the year-end 1995 past due amounts were bankcard loans.
Key factors of the Company's loan quality program are a sound credit policy
combined with periodic and independent credit reviews. All affiliate banks
operate under written loan policies. Credit decisions continue to be based on
the borrower's cash flow position and the value of underlying collateral, as
well as other relevant factors. Each bank is responsible for evaluating its
loans by using a ranking system. In addition, the Company has an internal loan
review staff that operates independently of the affiliate banks. This review
team performs periodic examinations of each bank's loans for credit quality,
documentation and loan administration.
Another means of ensuring loan quality is diversification. By keeping its
loan portfolio diversified, the Company has avoided problems associated with
undue concentrations of loans within particular industries. Commercial real
estate loans comprise 12.3% of total loans, with a history of no significant
losses. The Company has no significant exposure to highly leveraged
transactions and has no foreign credits in its loan portfolio.
A loan is generally placed on nonaccrual status when payments are past due
90 days or more and when management has considerable doubt about the
borrower's ability to repay on the terms originally contracted. The accrual of
interest is discontinued and recorded thereafter only when actually received
in cash. At year-end 1995, $227,000 of interest due was not recorded as
earned, compared to $215,000 for the prior year.
Certain loans are restructured to provide a reduction or deferral of
interest or principal because of deterioration in the financial condition of
the respective borrowers. Management estimates that approximately $25,000 of
additional interest would have been earned in 1995 if the terms of these loans
were similar to other comparable loans. In certain instances, the Company
continues to accrue interest on loans past due 90 days or more. Though the
loan payments are delinquent, collection of interest and principal is expected
to resume and sufficient collateral is believed to exist to protect the
Company from significant loss. Consequently, management considers the ultimate
collection of these loans to be reasonable and has recorded $217,000 of
interest due as earned for 1995. The comparative figure for 1994 was $54,000.
TABLE 6: LOAN QUALITY
DECEMBER 31
-----------------------------------------
1995 1994 1993 1992 1991
------ ------- ------- ------- ------
(IN THOUSANDS)
Nonaccrual loans.................... $2,664 $ 3,131 $ 4,639 $ 1,887 $4,744
Restructured loans.................. 985 2,149 2,553 1,205 932
------ ------- ------- ------- ------
Total nonperforming loans......... $3,649 $ 5,280 $ 7,192 $ 3,092 $5,676
Other real estate owned............. 626 5,388 7,187 6,932 2,325
------ ------- ------- ------- ------
Total nonperforming assets........ $4,275 $10,668 $14,379 $10,024 $8,001
====== ======= ======= ======= ======
Nonperforming loans as a % of loans. 0.15% 0.23% 0.33% 0.21% 0.42%
Allowance as a multiple of
nonperforming loans................ 8.96x 6.16x 4.95x 7.91x 4.62x
Nonperforming assets as a % of loans
plus other real estate owned....... 0.17% 0.47% 0.66% 0.67% 0.59%
Loans past due 90 days or more...... $5,270 $ 4,779 $ 6,359 $ 4,507 $5,500
As a % of loans..................... 0.21% 0.21% 0.29% 0.30% 0.41%
SECURITIES
In December 1995, the Company adopted Financial Accounting Standards Board's
"A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." The implementation guide allows
for, among other things, the one-time reclassification of securities from the
held to
A-34
maturity portfolio to the available for sale portfolio, without affecting the
classification or accounting treatment for the remainder of the investment
portfolio.
As a result, the Company reclassified the mortgage-backed securities that
had previously been included in the held to maturity portfolio to available
for sale. The securities included in this reclassification had a book value of
$86.2 million and a market value of $85.2 million. At December 31, 1995, only
securities of state and political subdivisions were classified as held to
maturity.
At December 31, 1995, the Company had total securities of $2.6 billion,
compared to $2.7 billion at year-end 1994. Average securities for 1995 were
$2.4 billion, compared to $2.8 billion for 1994. The decrease in securities
for the year was the result of loan growth and a reduction in deposit totals,
primarily those related to the mutual fund processing business. During 1995
securities represented 47.9% of total average earning assets, compared to
52.8% during 1994.
At December 31, 1995, 88% of the Company's securities were classified as
available for sale, compared to 86% at year-end 1994. At December 31, 1995,
U.S. Treasury obligations represented 72.2% of the available for sale
portfolio. U.S. Agency obligations represented an additional 21.3% of this
classification. At December 31, 1995, securities available for sale had a net
unrealized gain of $5.8 million compared to a net unrealized loss of $57.0
million at year-end 1994. These differences between cost and fair value were
reflected, on an after-tax basis, in the Company's shareholders' equity as a
gain of $3.6 million at December 31, 1995, and a loss of $35.2 million at
year-end 1994. This change is primarily a factor of higher interest rates and
average life of the security portfolio which allows for the regular
reinvestment of maturities at current interest rates.
The average yield on a tax-equivalent basis for the entire security
portfolio was 5.52% during 1995 compared to 4.94% in 1994 and 4.88% in 1993.
The increase in yield during 1995 was the result of higher interest rates
which allowed the Company to reinvest maturities into higher yielding
securities. The average life of the security portfolio was 18 months at
December 31, 1995, and 17 months at year-end 1994. Included in Tables 7 and 8
is an analysis of the cost, fair value and average yield of the Company's
securities available for sale and securities held to maturity.
TABLE 7: SECURITIES AVAILABLE FOR SALE
AMORTIZED FAIR
COST VALUE YIELD
---------- ---------- -----
(IN THOUSANDS)
DECEMBER 31, 1995
U.S. Treasury...................................... $1,679,881 $1,686,316 5.53%
U.S. Agencies...................................... 498,310 498,067 5.77
Mortgage-backed.................................... 147,194 145,781 5.33
Federal Reserve Bank Stock......................... 3,656 3,656
Equity............................................. 1,713 2,741
Other.............................................. 13 13
---------- ----------
Total............................................ $2,330,767 $2,336,574
========== ==========
DECEMBER 31, 1994
U.S. Treasury...................................... $2,197,912 $2,142,417 4.99%
U.S. Agencies...................................... 69,774 69,294 5.77
Mortgage-backed.................................... 57,969 55,477 5.68
Federal Reserve Bank Stock......................... 3,656 3,656
Equity............................................. 2,764 4,248
Other.............................................. 121 121
---------- ----------
Total............................................ $2,332,196 $2,275,213
========== ==========
A-35
TABLE 8: INVESTMENT SECURITIES
YIELD/
AMORTIZED FAIR AVERAGE
COST VALUE MATURITY
--------- -------- -----------
(IN THOUSANDS)
DECEMBER 31, 1995
Due in 1 year or less........................... $ 95,686 $ 95,586 7.65%
Due after 1 year through 5 years................ 168,755 169,800 6.96
Due after 5 years through 10 years.............. 46,917 47,360 7.25
Due after 10 years.............................. 399 427 8.79
-------- --------
Total......................................... $311,757 $313,173 2 yr. 9 mo.
======== ========
DECEMBER 31, 1994
Due in 1 year or less........................... $ 99,081 $ 98,564 6.23%
Due after 1 year through 5 years................ 243,800 235,357 7.35
Due after 5 years through 10 years.............. 41,485 39,270 7.17
Due after 10 years.............................. 468 453 9.01
-------- --------
Total......................................... $384,834 $373,644 2 yr. 5 mo.
======== ========
DECEMBER 31, 1993
Due in 1 year or less........................... $114,942 $114,274 5.80%
Due after 1 year through 5 years................ 134,922 138,462 7.51
Due after 5 years through 10 years.............. 28,544 29,050 7.00
Due after 10 years.............................. 536 560 8.98
-------- --------
Total......................................... $278,944 $282,346 2 yr. 1 mo.
======== ========
OTHER EARNING ASSETS
Federal funds transactions essentially are overnight loans between financial
institutions which allow for either the daily investment of excess funds or
borrowing another institution's funds in order to meet short-term liquidity
needs. The net sold position at year-end 1995 was $6.9 million, compared to
$149.6 million for year-end 1994. During 1995 and 1994, the Company was a net
purchaser of federal funds, and this funding source averaged $55.1 million in
1995, compared to $60.1 million during 1994.
The Investment Banking Division of the Company's principal affiliate bank
buys and sells federal funds as agent for nonaffiliated banks. Due to the
agency arrangement, these transactions do not appear on the balance sheet and
averaged $744.9 million in 1995 and $568.6 million in 1994.
The Investment Banking Division also maintains an active securities trading
inventory. The average holdings in the securities trading inventory in 1995
were $60.1 million, compared to $56.5 million in 1994, and were recorded at
market value.
TABLE 9: MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
DECEMBER 31
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
Maturing within 3 months............................ $208,828 $ 95,514 $160,893
After 3 months but within 6......................... 54,454 39,756 29,482
After 6 months but within 12........................ 28,534 27,124 30,099
After 12 months..................................... 32,222 29,085 30,282
-------- -------- --------
Total............................................. $324,038 $191,479 $250,756
======== ======== ========
A-36
DEPOSITS AND BORROWED FUNDS
Interest-bearing liabilities totaled $3.9 billion at December 31, 1995,
compared to $4.4 billion at year-end 1994 and 1993. Average interest-bearing
liabilities were $3.9 billion, $4.3 billion and $3.9 billion during 1995, 1994
and 1993, respectively.
Year-end and average interest-bearing deposits for 1995 were $3.2 billion
compared to year-end and average totals for 1994 of $3.6 billion. Interest-
bearing deposits at year-end 1993 were $3.7 billion and averaged $3.3 billion
for the year. The most significant cause of the decrease during 1995 was a
reduction in deposits related to a large mutual fund processing customer. As
noted previously, the Company's largest processing customer was sold to a
bank, which resulted in the processing business and related balances leaving
the Company. The balances associated with this business varied between $200
and $300 million. Historically, the interest rate paid on these balances was
significantly higher than the Company's average cost of funds. Deposit totals
have also been affected by the flow of funds from the banking system into
mutual funds, including the Company's Scout Funds, which increased by
approximately $200 million during 1995. The primary reason for the increase in
average interest-bearing deposits in 1994 over 1993 was the inclusion of the
Acquired Banks.
Noninterest-bearing demand deposits were $1.6 billion at December 31, 1995
and 1994, compared to $1.5 billion at year-end 1993. Average noninterest-
bearing liabilities for 1995, 1994 and 1993 were $1.3 billion, $1.4 billion
and $1.3 billion, respectively. On average, noninterest-bearing deposits
comprised 29.2% of total deposits for 1995, compared to 28.8% during 1994.
Repurchase agreements averaged $485.9 million in 1995, compared to $498.4
million in 1994. Repurchase agreements are transactions involving investment
funds that are exchanged for securities under an agreement to repurchase the
same or similar issues at an agreed-upon price and date. The Investment
Banking Division buys and sells repurchase agreements as a principal for
nonaffiliated banks. These agreements are reflected on the balance sheet as
both an asset ("resell agreement") and a corresponding liability ("repurchase
agreement"), since such funds are purchased and then sold to approved dealer
banks and primary dealers. The amount of repurchase agreements handled in this
manner averaged $115.0 million in 1995, compared to $232.0 million in 1994. At
December 31, 1995, these totals were $33.9 million, compared to $244.7 million
one year earlier.
At year-end 1995, the Company had repurchase agreements of $639.1 million
for its own funding needs, compared to $416.5 million at December 31, 1994.
The Company's other short-term borrowings consist primarily of U.S. Treasury
demand notes. These demand notes represent treasury tax deposits remitted to
the Federal Reserve Bank other than daily. The rate paid on these funds is
0.25% below the weekly average federal funds rate.
A-37
The Company's long-term borrowings consist of three senior note issues and
some installment notes. The Company's ratio of long-term debt to total
capital, a measure of debt capacity, was 6.54% at December 31, 1995, which
compares very favorably with its peer group. The Company borrowed $25.0
million in 1993 under a medium-term note program to fund the cash portions of
the Kansas bank acquisitions. Of the total, $10.0 million of notes were issued
with a seven-year maturity at 6.81% and $15.0 million of notes were issued
with a 10-year maturity at 7.30%.
TABLE 10: ANALYSIS OF AVERAGE DEPOSITS
AMOUNT 1995 1994 1993 1992 1991
- ------ ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Noninterest-bearing de-
mand................... $1,336,804 $1,445,376 $1,273,672 $ 938,322 $ 731,088
Interest-bearing demand
and savings............ 2,059,661 2,365,024 2,092,048 1,559,004 1,274,520
Time deposits under
$100,000............... 963,878 1,003,784 957,677 904,970 930,236
---------- ---------- ---------- ---------- ----------
Total core deposits... $4,360,343 $4,814,184 $4,323,397 $3,402,296 $2,935,844
Time deposits of
$100,000 or more....... 221,006 207,217 236,154 193,348 253,380
---------- ---------- ---------- ---------- ----------
Total deposits........ $4,581,349 $5,021,401 $4,559,551 $3,595,644 $3,189,224
========== ========== ========== ========== ==========
AS A % OF TOTAL DEPOSITS
- ------------------------
Noninterest-bearing de-
mand................... 29.2% 28.8% 27.9% 26.1% 22.9%
Interest-bearing demand
and savings............ 45.0 47.1 45.9 43.3 40.0
Time deposits under 21.0 20.0 21.0 25.2 29.2
$100,000............... ----- ----- ----- ----- -----
Total core deposits... 95.2% 95.9% 94.8% 94.6% 92.1%
Time deposits of 4.8 4.1 5.2 5.4 7.9
$100,000 or more....... ----- ----- ----- ----- -----
Total deposits........ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
TABLE 11: SHORT-TERM DEBT
1995 1994 1993
------------- ------------- -------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
(IN THOUSANDS)
AT YEAR-END
- -----------
Federal funds purchased............. $ 48,400 5.75% $139,800 4.80% $ 26,210 3.03%
Repurchase agreements............... 672,940 3.76 661,203 2.77 598,872 2.91
Other............................... 501 5.02 872 3.71 1,453 2.76
-------- -------- --------
Total............................. $721,841 4.53% $801,875 3.13% $626,535 2.91%
======== ======== ========
AVERAGE FOR THE YEAR
- --------------------
Federal funds purchased............. $127,949 5.77% $166,084 4.04% $ 65,184 2.99%
Repurchase agreements............... 485,913 5.21 498,415 3.68 515,945 2.75
Other............................... 1,121 4.31 994 3.26 1,416 2.08
-------- -------- --------
Total............................. $614,983 5.32% $665,493 3.77% $582,545 2.78%
======== ======== ========
MAXIMUM MONTH-END BALANCE
- -------------------------
Federal funds purchased............. $196,000 $222,000 $134,000
Repurchase agreements............... 727,393 699,216 598,872
Other............................... 2,104 1,975 2,367
-------- -------- --------
Total............................. $925,497 $923,191 $735,239
======== ======== ========
A-38
CAPITAL
The Company places a significant emphasis on the maintenance of strong
capital which helps safeguard our customers' funds, promotes investor
confidence, provides access to funding sources under favorable terms, and
enhances the ability to capitalize on business growth and acquisition
opportunities. Capital is managed for each subsidiary based upon their
respective risks and growth opportunities, as well as regulatory requirements.
At December 31, 1995, shareholders' equity was $576.0 million, compared to
$557.3 million one year earlier. Contributing to this increase was a net
unrealized gain on securities available for sale of $3.6 million, compared to
a net unrealized loss on these securities of $35.2 million at year-end 1994.
In addition, shareholders' equity at December 31, 1995 includes an adjustment
to give effect to the January 2, 1996 purchase of 1,068,533 shares of the
Company's common stock by the Company and its Employee Stock Ownership Plan.
See Common Stock Repurchase Commitment on page A-18 for further details. Also
impacting total shareholders' equity for 1995 was the repurchase of 312,517
shares of Company stock for treasury purposes. This compares to repurchases of
396,984 shares in 1994. During the year, management had the opportunity to
repurchase shares of the Company's stock at a price which, in management's
opinion, would enhance overall shareholder value. Depending on availability,
price and cash flow requirements, management will continue to consider
treasury stock purchases from time to time.
In April, 1994, in order to reduce regulatory expenses, shareholders
approved a reduction in the par value of the Company's common stock from
$12.50 per share to $1.00 per share.
Risk-based capital guidelines established by regulatory agencies set minimum
capital standards based on the level of risk associated with a financial
institution's assets. A financial institution's total capital is required to
equal 8% of risk-weighted assets. At least half of that 8% must consist of
Tier 1 core capital, and the remainder may be Tier 2 supplementary capital.
The risk-based capital guidelines indicate the specific risk weightings by
type of asset. Certain off-balance sheet items (such as standby letters of
credit and binding loan commitments) are multiplied by "credit conversion
factors" to translate them into balance sheet equivalents before assigning
them specific risk weightings. Due to the Company's high level of core capital
and substantial portion of earning assets invested in riskless government
securities, the Tier 1 capital ratio of 15.17% and Total capital ratio of
16.16% substantially exceed the regulatory minimums.
DIVIDENDS
The Company's dividend payout ratio was 29.0% in 1995, compared to 30.5% in
1994 and 31.0% in 1993. On January 2, 1996, the Company distributed a 10%
stock dividend to shareholders. All per share data has been restated to give
effect to this stock dividend for all periods presented.
A-39
TABLE 12: RISK-BASED CAPITAL
The table below computes risk-based capital in accordance with current
regulatory guidelines. These guidelines as of December 31, 1995, excluded net
unrealized gains or losses on securities available for sale from the
computation of regulatory capital and the related risk-based capital ratios.
RISK-WEIGHTED CATEGORY
-----------------------------------------------------
RISK-WEIGHTED ASSETS 0% 20% 50% 100% TOTAL
- -------------------- ---------- ---------- -------- ---------- ----------
(IN THOUSANDS)
Loans:
Residential mortgage... $ -- $ 900 $171,880 $ -- $ 172,780
All other.............. -- 59,017 -- 2,220,729 2,279,746
---------- ---------- -------- ---------- ----------
Total loans.......... $ -- $ 59,917 $171,880 $2,220,729 $2,452,526
Securities available for
sale:
U.S. Treasury.......... $1,679,881 $ -- $ -- $ -- $1,679,881
U.S. agencies and mort-
gage-backed........... 2,631 642,873 -- -- 645,504
Equity securities and
other................. 3,656 369 -- 1,357 5,382
---------- ---------- -------- ---------- ----------
Total securities
available for sale.. $1,686,168 $ 643,242 $ -- $ 1,357 $2,330,767
Investment securities... -- 303,885 7,872 -- 311,757
Trading securities...... 32,799 53,194 -- 18 86,011
Federal funds and resell
agreements............. -- 89,165 -- -- 89,165
Cash and due from banks. 213,139 483,268 -- -- 696,407
All other assets........ -- -- -- 266,834 266,834
---------- ---------- -------- ---------- ----------
Category totals...... $1,932,106 $1,632,671 $179,752 $2,488,938 $6,233,467
---------- ---------- -------- ---------- ----------
Risk-weighted totals.... $ -- $ 326,534 $ 89,876 $2,488,938 $2,905,348
Off-balance-sheet items
(risk-weighted)........ -- 1,543 57 374,124 375,724
---------- ---------- -------- ---------- ----------
Total risk-weighted
assets.............. $ -- $ 328,077 $ 89,933 $2,863,062 $3,281,072
========== ========== ======== ========== ==========
CAPITAL TIER 1 TIER 2 TOTAL
- ------- -------- ---------- ----------
Shareholders' equity.......................... $572,347 $ -- $ 572,347
Minority interest in subsidiaries............. 10 -- 10
Less premium on purchased banks............... (74,739) -- (74,739)
Allowance for loan losses..................... -- 32,685 32,685
-------- ---------- ----------
Total capital............................... $497,618 $ 32,685 $ 530,303
======== ========== ==========
CAPITAL RATIOS
- --------------
Tier 1 capital to risk-weighted assets........ 15.17%
Total capital to risk-weighted assets......... 16.16
Leverage ratio (Tier 1 to total assets less
premium on purchased banks).................. 8.02
A-40
ASSET/LIABILITY MANAGEMENT
INTEREST RATE SENSITIVITY
Due to the nature of the Company's business, some degree of interest rate
risk is inherent and appropriate. Management's objective in this area is to
limit the level of earnings exposure arising from interest rate movements.
This analysis is related to liquidity due to the impact of maturing assets and
liabilities. Many of the Company's financial instruments reprice prior to
maturity.
Interest rate sensitivity is measured by "gaps," which is the difference
between interest earning assets and interest-bearing liabilities which reprice
or mature within a specific time interval. A positive gap indicates that
interest earning assets exceed interest-bearing liabilities within a given
interval. A positive gap position results in increased net interest income
when rates increase and the opposite when rates decline.
Management attempts to structure the balance sheet to provide for the
repricing of approximately equal amounts of assets and liabilities within
specific time intervals. Table 15 is a static gap analysis which presents the
Company's assets and liabilities based on their repricing or maturity
characteristics. This analysis shows that for the 180-day interval beginning
January 1, 1996, the Company is in a positive gap position because assets
maturing or repricing during this time exceed liabilities. This compares to a
negative cumulative gap at this interval one year earlier. At the one-year
period the Company has a positive cumulative gap as the ratio of earning
assets to paying liabilities is 1.20%, compared to 1.12% at December 31, 1994.
In management's opinion the static gap report tends to overstate the
interest rate risk of the Company due to certain factors which are not
measured on a static or snapshot analysis. A static gap analysis assumes that
all liabilities reprice based on their contractual term. However, the effect
of rate increases on core retail deposits, approximately 95.2% of total
deposits, tends to lag the change in market rates. This lag generally lessens
the negative impact of rising interest rates when the Company has more
liabilities repricing than assets. In addition, a static analysis ignores the
impact of changes in the mix and volume of interest-bearing assets and
liabilities. During 1995, the Company's loans increased as a percentage of
total earning assets and noninterest-bearing demand deposit accounts
represented a larger component of total funding sources.
The Company will continue to manage its interest rate risk using static gap
analysis along with other tools which help measure the impact of various
interest rate scenarios. The Company does not use off-balance-sheet hedges or
swaps to manage this risk.
TABLE 13: RATE SENSITIVITY AND MATURITY OF LOANS
The following table presents the rate sensitivity of certain loans maturing
after 1996, compared with the total loan portfolio as of December 31, 1995. Of
the $1,396,342,000 of loans due after 1996, $825,036,000 are to individuals
for the purchase of residential dwellings and other consumer goods. The
remaining $571,306,000 is for all other purposes and reflects maturities of
$492,527,000 in 1997 through 2000 and $78,779,000 after 2000.
DECEMBER 31, 1995
-----------------
(IN THOUSANDS)
Loans due in 1996:
Residential homes and consumer goods......................... $ 126,522
All other.................................................... 930,052
----------
Total..................................................... $1,056,574
Loans due after 1996:
Variable interest rate....................................... $ 572,345
Fixed interest rate.......................................... 823,997
----------
Total..................................................... $1,396,342
Unearned interest and allowance for loan losses............... (33,075)
----------
Net loans.................................................. $2,419,841
==========
A-41
TABLE 14: INTEREST RATE SENSITIVITY ANALYSIS
1-90
DECEMBER 31, 1995 DAYS 91-180 DAYS 181-365 DAYS TOTAL OVER 365 DAYS TOTAL
----------------- -------- ----------- ------------ -------- ------------- --------
(IN MILLIONS)
Earning assets
Loans................... $1,375.4 $200.2 $237.3 $1,812.9 $ 639.6 $2,452.5
Securities*............. 719.8 197.0 441.7 1,358.5 1,289.8 2,648.3
Federal funds sold and
resell agreements...... 89.2 -- -- 89.2 -- 89.2
Other................... 85.9 -- -- 85.9 0.1 86.0
-------- ------ ------ -------- -------- --------
Total earning assets.. $2,270.3 $397.2 $679.0 $3,346.5 $1,929.5 $5,276.0
-------- ------ ------ -------- -------- --------
% of total earning as-
sets................. 43.0% 7.5% 12.9% 63.4% 36.6% 100.0%
-------- ------ ------ -------- -------- --------
Funding sources
Interest-bearing demand
and savings............ $1,072.0 $ -- $ -- $1,072.0 $ 805.0 $1,877.0
Time deposits........... 470.0 264.1 249.1 983.2 318.5 1,301.7
Federal funds purchased
and repurchase agree-
ments.................. 721.3 -- -- 721.3 -- 721.3
Borrowed funds.......... 0.7 4.5 -- 5.2 36.0 41.2
Noninterest-bearing
sources................ -- -- -- -- 1,334.8 1,334.8
-------- ------ ------ -------- -------- --------
Total funding sources. $2,264.0 $268.6 $249.1 $2,781.7 $2,494.3 $5,276.0
-------- ------ ------ -------- -------- --------
% of total earning as-
sets................. 42.9% 5.1% 4.7% 52.7% 47.3% 100.0%
-------- ------ ------ -------- -------- --------
Interest sensitivity
gap.................... $ 6.3 $128.6 $429.9 $ 564.8 $ (564.8)
Cumulative gap.......... 6.3 134.9 564.8 564.8 --
As a % of total earning
assets................. 0.1% 2.6% 10.7% 10.7% --%
Ratio of earning assets
to funding sources..... 1.00 1.48 2.73 1.20 0.77
Cumulative ratio --
1995................... 1.00 1.05 1.20 1.20 1.00
-- 1994.......... 0.89 0.95 1.12 1.12 1.00
-- 1993.......... 0.78 0.85 1.02 1.02 1.00
- --------
* Includes securities available for sale based on scheduled maturity dates.
LIQUIDITY
Liquidity represents the Company's ability to meet financial commitments
through the maturity and sale of existing assets or availability of additional
funds. The primary source of liquidity for the Company is regularly scheduled
maturities of assets along with $2.3 billion of high-quality securities
available for sale. The liquidity of the Company and its affiliate banks is
also enhanced by its activity in the federal funds market and by its core
deposits.
The parent company's cash requirements consist primarily of dividends to
shareholders, debt service and treasury stock purchases. Management fees and
dividends received from subsidiary banks traditionally have been sufficient to
satisfy these requirements and are expected to be in the future. On January 2,
1996, the Company acquired 688,533 shares of its common stock at a price of
$43.50 per share. The purchase was funded with existing working capital. Also
on January 2, 1996, the Company's Employee Stock Ownership Plan acquired
380,000 shares of the Company's common stock. This purchase was funded by a
seven-year, fixed rate loan, which is guaranteed by the Company. The Company
also has agreed to acquire an additional 256,300 shares in both March and June
of 1996 at a price of $43.50 per share. The Company intends to fund these
purchases with working capital.
A-42
TABLE 15: SUMMARY OF OPERATING RESULTS BY QUARTER (UNAUDITED)
THREE MONTHS ENDED
---------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(IN THOUSANDS EXCEPT PER SHARE
DATA)
1995
Interest income.............................. $88,574 $88,862 $88,560 $91,059
Interest expense............................. 40,426 39,208 38,689 39,464
------- ------- ------- -------
Net interest income........................ $48,148 $49,654 $49,871 $51,595
Provision for loan losses.................... 926 925 1,181 2,058
Noninterest income........................... 35,696 36,195 34,544 37,543
Noninterest expense.......................... 63,724 67,090 64,765 64,954
Income tax provision......................... 6,339 5,739 6,189 7,180
------- ------- ------- -------
Net income................................. $12,855 $12,095 $12,280 $14,946
======= ======= ======= =======
1994
Interest income.............................. $76,119 $80,089 $82,306 $84,746
Interest expense............................. 30,886 33,036 35,197 36,945
------- ------- ------- -------
Net interest income........................ $45,233 $47,053 $47,109 $47,801
Provision for loan losses.................... 382 516 861 881
Noninterest income........................... 35,742 35,088 35,100 35,815
Noninterest expense.......................... 61,509 64,410 64,450 65,533
Income tax provision......................... 5,737 6,107 5,647 5,094
------- ------- ------- -------
Net income................................. $13,347 $11,108 $11,251 $12,108
======= ======= ======= =======
THREE MONTHS ENDED
---------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
PER SHARE 1995
Net income................................... $ 0.62 $ 0.58 $ 0.59 $ 0.73
Dividend..................................... 0.18 0.18 0.18 0.18
Book value................................... 28.01 29.05 29.59 29.53
Market price:
High........................................ 28.64 33.41 38.64 45.25
Low......................................... 27.27 27.27 32.50 33.00
Close....................................... 27.27 33.18 38.64 35.25
PER SHARE 1994
Net income................................... $ 0.63 $ 0.53 $ 0.54 $ 0.59
Dividend..................................... 0.16 0.16 0.18 0.18
Book value................................... 27.05 26.80 26.95 26.66
Market price:
High........................................ 31.41 31.36 30.91 30.23
Low......................................... 28.93 29.14 29.55 26.82
Close....................................... 29.75 30.68 29.55 28.41
- --------
Per share information restated for the 10% stock dividend paid January 2, 1996.
A-43
UMB FINANCIAL CORPORATION
FIVE-YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES
1995 1994
---------------------------- ----------------------------
(IN MILLIONS)
(UNAUDITED)
INTEREST RATE INTEREST RATE
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1)
-------- ---------- ------- -------- ---------- -------
ASSETS
Loans, net of unearned
interest (FTE) (2)..... $2,346.3 $218.9 9.33% $2,148.6 $173.1 8.06%
Securities:
Taxable................ $2,076.1 $110.6 5.32 $2,555.2 $122.0 4.77
Tax-exempt (FTE)....... 306.1 20.9 6.83 289.1 18.5 6.41
-------- ------ ---- -------- ------ ----
Total securities...... $2,382.2 $131.5 5.52 $2,844.3 $140.5 4.94
Federal funds sold and
resell agreements...... 187.9 11.0 5.86 338.0 13.6 4.03
Other earning assets
(FTE).................. 60.2 3.7 6.19 56.5 3.2 5.65
-------- ------ ---- -------- ------ ----
Total earning assets
(FTE)................ $4,976.6 $365.1 7.34 $5,387.4 $330.4 6.13
Allowance for loan
losses................. (32.1) (34.2)
Cash and due from banks. 616.9 675.3
Other assets............ 337.8 344.1
-------- --------
Total assets.......... $5,899.2 $6,372.6
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing demand
and savings deposits... $2,059.7 $ 61.3 2.98% $2,365.0 $ 58.6 2.48%
Time deposits under
$100,000............... 963.8 49.0 5.08 1,003.8 40.8 4.06
Time deposits of
$100,000 or more....... 221.0 11.3 5.12 207.2 7.6 3.62
-------- ------ ---- -------- ------ ----
Total interest-bearing
deposits............. $3,244.5 $121.6 3.75 $3,576.0 $107.0 2.99
Short-term borrowings... 1.1 -- 4.31 1.0 -- 3.26
Long-term debt.......... 44.5 3.5 7.79 50.4 4.0 7.97
Federal funds purchased
and repurchase
agreements............. 613.9 32.7 5.32 664.5 25.1 3.77
-------- ------ ---- -------- ------ ----
Total interest-bearing
liabilities.......... $3,904.0 $157.8 4.04 $4,291.9 $136.1 3.17
Noninterest-bearing
demand deposits........ 1,336.8 1,445.4
Other liabilities....... 61.0 62.9
-------- --------
Total................. $5,301.8 $5,800.2
-------- --------
Total shareholders'
equity................. $ 597.4 572.4
-------- --------
Total liabilities and
shareholders' equity. $5,899.2 $6,372.6
======== ========
------ ------
Net interest income
(FTE).................. $207.3 $194.3
====== ======
Net interest spread..... 3.30% 2.96%
Net interest margin..... 4.17 3.61
- --------
(1) Interest income and yields are stated on a fully tax-equivalent (FTE)
basis, using a rate of 34% for 1991 through 1992 and 35% for 1993 through
1995. The tax-equivalent interest income and yields give effect to the
disallowance of interest expense, for federal income tax purposes, related
to certain tax-free assets. Rates earned/paid may not compute to the rates
shown due to presentation in millions.
(2) Loan fees and income from loans on nonaccrual status are included in loan
income.
A-44
1993 1992 1991 AVERAGE
--------------------------------------------------------- ---------------------------- BALANCE
FIVE-
YEAR
INTEREST RATE INTEREST RATE INTEREST RATE COMPOUND
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ GROWTH
BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1) BALANCE EXPENSE(1) PAID(1) RATE
-------- ---------- ------- -------- ---------- ------- -------- ---------- ------- --------
$1,786.5 $144.0 8.06% $1,337.3 $120.8 9.03% $1,356.1 $145.8 10.75% 11.70%
$2,468.8 $116.0 4.70 $1,868.6 $102.5 5.48 $1,530.9 $114.8 7.50 8.22
260.5 17.0 6.53 240.5 17.8 7.41 285.8 24.3 8.49 6.28
-------- ------ ---- -------- ------ ---- -------- ------ ----- ------
$2,729.3 $133.0 4.88 $2,109.1 $120.3 5.70 $1,816.7 $139.1 7.66 7.96
320.4 9.9 3.09 405.3 14.7 3.63 314.7 17.6 5.58 (13.15)
58.1 3.1 5.24 70.5 4.5 6.42 73.7 5.2 7.08 11.99
-------- ------ ---- -------- ------ ---- -------- ------ ----- ------
$4,894.3 $290.0 5.92 $3,922.2 $260.3 6.63 $3,561.2 $307.7 8.64 7.99
(31.9) (26.1) (26.2) 3.65
604.4 494.1 404.1 8.99
300.0 232.8 223.5 11.35
-------- -------- -------- ------
$5,766.8 $4,623.0 $4,162.6 8.30%
======== ======== ======== ======
$2,092.1 $ 50.9 2.43% $1,559.0 $ 51.1 3.28% $1,274.5 $ 63.6 4.99% 13.25%
957.7 41.4 4.32 905.0 44.8 4.95 930.2 63.6 6.83 2.51
236.1 6.8 2.91 193.3 7.1 3.69 253.4 15.0 5.92 (14.58)
-------- ------ ---- -------- ------ ---- -------- ------ ----- ------
$3,285.9 $ 99.1 3.02 $2,657.3 $103.0 3.88 $2,458.1 $142.2 5.78 5.84
1.4 -- 2.08 28.3 1.0 3.66 38.6 2.2 5.77 (49.58)
53.5 4.4 8.23 41.0 3.6 8.65 46.3 4.0 8.67 (2.86)
581.1 16.2 2.78 511.1 16.2 3.17 460.8 23.3 5.06 15.58
-------- ------ ---- -------- ------ ---- -------- ------ ----- ------
$3,921.9 $119.7 3.05 $3,237.7 $123.8 3.82 $3,003.8 $171.7 5.72 6.67
1,273.7 938.3 731.1 12.32
68.6 61.0 72.1 .83
-------- -------- -------- ------
$5,264.2 $4,237.0 $3,807.0 7.85
-------- -------- -------- ------
$ 502.6 $ 386.0 $ 355.6 12.71
-------- -------- -------- ------
$5,766.8 $4,623.0 $4,162.6 8.30%
======== ======== ======== ======
------ ------ ------
$170.3 $136.5 $136.0
====== ====== ======
2.87% 2.81% 2.92%
3.48 3.48 3.82
A-45
UMB FINANCIAL CORPORATION
SELECTED FINANCIAL DATA OF AFFILIATE BANKS
DECEMBER 31, 1995
--------------------------------------------------------
LOANS
NUMBER OF TOTAL NET OF TOTAL SHAREHOLDERS'
LOCATIONS ASSETS UNEARNED DEPOSITS EQUITY
--------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
WESTERN MISSOURI
UMB Bank, n.a. (Kansas
City).................. 30 $2,931,553 $1,126,574 $2,350,211 $241,443
UMB Bank, Cass County
(Peculiar)............. 1 29,442 9,197 25,723 2,394
UMB Bank, Northwest (St.
Joseph)................ 9 173,259 36,553 147,493 12,967
EASTERN MISSOURI AND IL-
LINOIS
UMB Bank of St. Louis,
n.a.................... 19 $ 777,441 $ 339,612 $ 580,230 $ 63,205
UMB Bank, Northeast
(Monroe City).......... 2 62,556 24,258 48,124 5,049
UMB First State Bank of
Morrisonville
(Illinois)............. 1 10,423 1,387 9,339 980
SOUTHWESTERN MISSOURI
UMB Bank, Southwest
(Springfield).......... 9 $ 355,346 $ 137,944 $ 241,852 $ 22,517
UMB Bank, Warsaw........ 3 65,836 20,158 49,339 8,295
CENTRAL MISSOURI
UMB Bank, Boonville..... 2 $ 42,202 $ 14,908 $ 32,594 $ 3,887
UMB Bank, Jefferson
City................... 1 71,677 30,035 59,267 3,850
UMB Bank, North Central
(Brookfield)........... 4 83,220 21,626 58,917 6,262
UMB Bank, Warrensburg... 4 103,036 24,032 90,063 7,803
COLORADO
UMB Bank Colorado....... 8 $ 214,687 $ 110,833 $ 188,099 $ 19,348
KANSAS
UMB Bank Kansas......... 17 $ 791,072 $ 250,222 $ 537,972 $101,060
UMB National Bank of
America................ 13 432,191 160,492 359,276 56,827
OKLAHOMA
UMB Oklahoma Bank....... 3 $ 139,053 $ 50,112 $ 111,678 $ 16,125
BANKING-RELATED SUBSIDI-
ARIES
UMB Properties, Inc.....
UMB Community
Development
Corporation............
United Missouri Banc
Leasing Corporation....
United Missouri Bank,
U.S.A..................
Scout Brokerage Servic-
es, Inc................
United Missouri Capital
Corporation............
United Missouri Insur-
ance Company...........
UMB Mortgage Company....
United Missouri Trust
Company of New York....
UMB Consulting Services,
Inc....................
UMB Data Corporation....
A-46