UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________
Commission file number 0-4887
UMB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Missouri 43-0903811
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1010 Grand Avenue, Kansas City, Missouri 64106
(Address of principal executive offices and Zip Code)
(816) 860-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
At March 31, 2000, UMB Financial Corporation had 21,354,406 shares of common
stock outstanding. This is the only class of stock of the Company.
<PAGE>
UMB FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
As of March 31, 2000 and 1999 (unaudited)and
December 31, 1999 (audited) 3
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (unaudited) 5
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 7-9
Supplemental Financial Data
Average Balances/ Yields and Rates 10
Analysis of Changes in Net Interest Income and Margin 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-15
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
UMB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
-------------------------- ------------
ASSETS 2000 1999 1999
------------ ------------ ------------
Loans:
<S> <C> <C> <C>
Commercial, financial and agricultural $ 1,699,609 $ 1,410,069 $ 1,511,594
Consumer (net of unearned interest) 1,001,258 897,521 981,488
Real estate 350,249 321,343 342,423
Leases 6,375 4,802 5,645
Allowance for loan losses (31,274) (32,847) (31,193)
------------ ------------ ------------
Net loans $ 3,026,217 $ 2,600,888 $ 2,809,957
Securities available for sale:
U.S. Treasury and agencies $ 2,200,478 $ 2,610,772 $ 2,866,361
State and political subdivisions 2,138 2,949 2,914
Commercial paper and other 69,035 237,613 279,860
------------ ------------ ------------
Total securities available for sale $ 2,271,651 $ 2,851,334 $ 3,149,135
Securities held to maturity:
State and political subdivisions $ 744,757 $ 722,338 $ 748,651
------------ ------------ ------------
Total securities held to maturity
(market value of $731,506, $729,953
& $738,170, respectively) $ 744,757 $ 722,338 $ 748,651
Federal funds and resell agreements 74,558 52,017 132,664
Trading securities and other earning assets 68,233 74,620 77,074
------------ ------------ ------------
Total earning assets $ 6,185,416 $ 6,301,197 $ 6,917,481
Cash and due from banks 689,364 628,543 766,108
Bank premises and equipment, net 237,003 213,585 239,535
Accrued income 80,619 77,082 75,540
Premium on and intangibles of purchased banks 48,901 51,608 50,710
Other assets 62,457 74,466 81,947
------------ ------------ ------------
Total assets $ 7,303,760 $ 7,346,481 $ 8,131,321
============ ============ ============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 2,039,586 $ 1,852,497 $ 1,781,141
Interest-bearing demand and savings 2,199,919 2,202,024 2,712,997
Time deposits under $100,000 831,459 857,290 863,426
Time deposits of $100,000 or more 373,192 463,758 566,371
------------ ------------ ------------
Total deposits $ 5,444,156 $ 5,375,569 $ 5,923,935
Federal funds and repurchase agreements 1,076,274 978,171 1,417,363
Short-term debt - 200,380 -
Long-term debt 28,362 42,344 37,904
Accrued expenses and taxes 41,159 51,788 38,131
Other liabilities 55,551 39,703 58,997
------------ ------------ ------------
Total liabilities $ 6,645,502 $ 6,687,955 $ 7,476,330
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; authorized 33,000,000
shares; issued 26,472,039, 24,490,189 and $ 26,472 $ 24,490 $ 26,472
26,472,039 shares respectively
Capital surplus 683,407 608,935 683,410
Retained earnings 160,957 187,354 148,728
Accumulated other comprehensive income (loss) (14,575) 6,746 (12,836)
Unearned ESOP shares (6,867) (9,367) (7,491)
Treasury stock, 4,925,888, 4,189,196 and
4,702,849 shares, at cost, respectively (191,136) (159,632) (183,292)
------------ ------------ ------------
Total shareholders' equity $ 658,258 $ 658,526 $ 654,991
------------ ------------ ------------
Total liabilities & shareholders' equity $ 7,303,760 $ 7,346,481 $ 8,131,321
============ ============ ============
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
3
<PAGE>
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited in thousands)
Three Months
Ended March 31,
INTEREST INCOME 2000 1999
----------- -----------
Loans $ 58,760 $ 51,226
Securities:
Taxable interest $ 40,563 $ 41,676
Tax-exempt interest 8,014 7,680
----------- -----------
Total securities income $ 48,577 $ 49,356
Federal funds and resell agreements 1,870 615
Trading securities and other 1,157 686
----------- -----------
Total interest income $110,364 $101,883
----------- -----------
INTEREST EXPENSE
Deposits $ 35,014 $ 32,056
Federal funds and repurchase
agreements 16,677 12,040
Short-term debt - 50
Long-term debt 548 694
----------- -----------
Total interest expense $ 52,239 $ 44,840
----------- -----------
Net interest income $ 58,125 $ 57,043
Provision for loan losses 1,905 2,487
----------- -----------
Net interest income after provision $ 56,220 $ 54,556
----------- -----------
NONINTEREST INCOME
Trust income $ 14,128 $ 12,849
Securities processing 4,610 3,411
Trading and investment banking 4,929 5,780
Service charges on deposits 12,478 11,376
Other service charges and fees 6,927 6,225
Bankcard fees 1,678 1,158
Net investment security gains 1 11
Other 1,943 1,705
----------- -----------
Total noninterest income $ 46,694 $ 42,515
----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits $ 44,818 $ 40,553
Occupancy, net 6,007 5,338
Equipment 11,103 8,470
Supplies and services 5,375 5,635
Marketing and business development 3,937 3,867
Processing fees 2,927 2,591
Legal and consulting 1,336 1,814
Amortization of premium on purchased banks 1,819 1,771
Other 4,485 4,060
----------- -----------
Total noninterest expense $ 81,807 $ 74,099
----------- -----------
Minority interest in loss of consolidated sub. $ 941 $ -
----------- -----------
Income before income taxes $ 22,048 $ 22,972
Income tax provision 5,504 6,555
----------- -----------
NET INCOME $ 16,544 $ 16,417
=========== ===========
PER SHARE DATA
Net income - Basic $ 0.77 $ 0.74
Net income - Diluted $ 0.77 $ 0.74
Dividends $ 0.20 $ 0.18
Weighted average shares outstanding 21,427,786 22,136,564
[FN]
See Notes to Consolidated Financial Statements.
</FN>
4
<PAGE>
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
2000 1999
------------ -----------
Operating Activities
<S> <C> <C>
Net Income $ 16,544 $ 16,417
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 1,905 2,487
Depreciation and amortization 9,239 6,204
Deferred income taxes 1,545 (410)
Net (increase) decrease in trading securities 10,786 (38,620)
Gains on sales of securities available for sale (1) (11)
Amortization of securities premiums,
net of discount accretion (7,211) (10,712)
Earned ESOP shares 624 625
Changes in:
Accrued income (5,079) (7,037)
Accrued expenses and taxes 11,222 3,515
Other, net 6,929 (19,843)
------------ -----------
Net cash provided by (used in) operating activities $ 46,503 $ (47,385)
------------ -----------
Investing Activities
Proceeds from maturities of investment securities $ 23,933 $ 18,212
Proceeds from sales of securities available for sale 100 34,290
Proceeds from maturities of securities available for sale 3,639,713 3,499,436
Purchases of investment securities (21,020) (39,315)
Purchases of securities available for sale (2,756,509) (3,331,268)
Net increase in loans (218,165) (77,408)
Net decrease in fed funds and resell agreements 56,161 9,352
Purchases of bank premises and equipment (4,888) (11,824)
------------ -----------
Net cash provided by investing activities $ 719,325 $ 101,475
------------ -----------
Financing Activities
Net decrease in demand and savings deposits $(254,633) $(369,367)
Net decrease in time deposits (225,146) (151,868)
Net increase (decrease) in fed funds/ repurchase agreements (341,089) 55,952
Net increase in short term borrowings - 200,349
Proceeds from long term debt 1,750 3,900
Repayment of long term debt (11,292) (709)
Cash dividends (4,315) (4,068)
Proceeds from exercise of stock options 17 69
Purchases of treasury stock (7,864) (10,337)
------------ -----------
Net cash used in financing activities $(842,572) $(276,079)
------------ -----------
Decrease in cash and due from banks $ (76,744) $(221,989)
Cash and due from banks at beginning of year 766,108 850,532
------------ -----------
Cash and due from banks at end of period $ 689,364 $ 628,543
============ ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
5
<PAGE>
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Common Capital Retained Comprehensive Treasury Unearned
Stock Surplus Earnings Income (Loss) Stock ESOP Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1999 $24,490 $ 608,934 $ 175,005 $ 13,693 $ (149,363) $ (9,992) $ 662,767
Net income - - 16,417 - - - 16,417
Comprehensive income,net of tax
Unrealized loss on securities of
$6,958 net of reclassification adj.
for losses included in net income
of $11. - - - (6,947) - - (6,947)
-----------
Total comprehensive income 9,470
Cash Dividends - - (4,068) - - - (4,068)
Earned ESOP shares - - - - - 625 625
Purchase of treasury stock - - - - (10,337) - (10,337)
Exercise of stock options - 1 - - 68 - 69
------------------------------------------------------------------------------------
Balance - March 31, 1999 $24,490 $ 608,935 $ 187,354 $ 6,746 $ (159,632) $ (9,367) $ 658,526
====================================================================================
Balance - January 1, 2000 $26,472 $ 683,410 $ 148,728 $(12,836) $ (183,292) $ (7,491) $ 654,991
Net income - - 16,544 - - - 16,544
Comprehensive income,net of tax
Unrealized loss on securities of
$1,740 net of reclassification adj.
for gains included in net income
of $1. - - - (1,739) - - (1,739)
-----------
Total comprehensive income 14,805
Cash dividends - - (4,315) - - - (4,315)
Earned ESOP shares - - - - - 624 624
Purchase of treasury stock - - - - (7,864) - (7,864)
Exercise of stock options - (3) - - 20 - 17
------------------------------------------------------------------------------------
Balance - March 31, 2000 $26,472 $ 683,407 $ 160,957 $(14,575) $ (191,136) $ (6,867) $ 658,258
====================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
6
<PAGE>
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
1. Financial Statement Presentation:
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all material
intercompany transactions. In the opinion of management of the
Company, all adjustments, which were of a normal recurring nature,
necessary for a fair presentation of the financial position and
results of operations, have been made. The financial statements should
be read in conjunction with the Management's Discussion and Analysis
of Financial Condition and results of Operations and with reference to
the 1999 Annual Report to Shareholders.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. These estimates and assumptions also impact
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
2. Earnings:
Earnings per share are based on the weighted average number of shares
of common stock outstanding during the interim periods. Diluted
earnings per share takes into account the dilutive effect of 23,298
and 34,470 shares issuable under options granted by the Company at
March 31, 2000 and 1999, respectively.
3. Allowance for Loan Losses:
The following is a summary of the Allowance for Loan Losses for the
three months ended March 31, 2000 and 1999 (in thousands):
Three Months Ended March 31,
2000 1999
---------------- ---------------
Balance January 1 $31,193 $33,169
Additions:
Provision for loan losses 1,905 2,487
---------------- ---------------
Total Before Deductions 33,098 35,656
Deductions:
Charge-offs (2,683) (3,504)
Less recoveries on loans
previously charged-off 859 695
---------------- ---------------
Net charge-offs (1,824) (2,809)
---------------- ---------------
Balance, March 31 $31,274 $32,847
================ ===============
At March 31, 2000 the amount of loans that are considered to be
impaired under SFAS No. 114 was $4,553,000 compared to $4,809,000 at
December 31, 1999 and $10,484,000 at March 31, 1999. At March 31, 2000
all of these loans are on a non-accrual or restructured basis.
Included in the impaired loans is $1,756,000 of loans for which the
related allowance is $245,000. This specific allowance is based on a
comparison of the recorded loan value to either an estimate of the
present value of the loan's estimated cash flows, its estimated fair
value, or the fair value of the collateral securing the loan if the
loan is collateral dependent. The remaining $2,797,000 of impaired
loans do not have an allowance for loan losses as a result of
write-downs and supporting collateral value. The average recorded
investment in impaired loans during the period ended March 31, 2000
was approximately $4,681,000.
7
<PAGE>
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
4. Segment Reporting:
Public enterprises are required to report certain information
concerning operating segments in annual and interim financial
statements. Operating segments are considered to be components of an
enterprise for which separate financial information is available and
evaluated regularly by key decision-makers for purposes of allocating
resources and assessing performance. The Company has defined its
operations into the following segments:
Commercial Banking: Providing a full range of lending and cash
management services to commercial and governmental entities
through the commercial division of the Company's lead bank.
Trustand Securities Processing: Providing estate planning, trust,
employee benefit, asset management and custodial services to
individuals and corporate customers.
Investment Banking and Brokerage: Providing commercial and retail
brokerage, investment accounting and safekeeping services to
individuals and corporate customers.
Community Banking: Providing a full range of banking services to
retail and corporate customers through the Company's affiliate
banks' and branch network.
Other: The Other category consists primarily of Overhead and Support
departments of the Company. The net revenues and expenses of
these departments are allocated to the other segments of the
organization in the Company's periodic segment reporting.
Reported segment revenues, net income and average assets include
revenue and expense distributions for services performed for other
segments within the Company as well as balances due from other
segments within the Company. Such intercompany transactions and
balances are eliminated in the Company's consolidated financial
statements.
The table below lists selected financial information by business
segment (in thousands):
Three Months Ended March 31,
2000 1999
------------- -------------
Revenues
Commercial Banking $ 28,828 $ 19,808
Trust and Securities Processing 19,203 16,358
Investment Banking and Brokerage 4,482 10,319
Community Banking 55,654 51,942
Other 6,198 4,699
Less: Intersegment revenues (11,451) (6,055)
------- -------
Total $ 102,914 $ 97,071
Net Income (loss)
Commercial Banking $ 11,115 $ 8,394
Trust and Securities Processing 4,741 3,698
Investment Banking and Brokerage (1,265) 2,123
Community Banking 2,228 4,526
Other - -
Less: Intersegment income (275) (2,324)
------- ------
Total $ 16,544 $16,417
Total Average Assets
Commercial Banking $2,145,897 $1,552,335
Trust and Securities Processing 23,046 16,460
Investment Banking and Brokerage 2,449,404 2,031,223
Community Banking 3,312,705 3,939,933
Other 436,869 419,375
Less: Intersegment assets (582,615) (424,726)
--------- ---------
Total $7,785,306 $7,534,600
========== ==========
8
<PAGE>
UMB FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
5. Commitments and Contingencies:
In the normal course of business, the Company and its subsidiaries are
named defendants in various lawsuits and counterclaims. In the opinion
of management, after consultation with legal counsel, none of the
suits will have a materially adverse effect on the financial position
or results of the Company
6. New Accounting Pronouncements:
In June, 1998, The Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities." In June, 1999, the Financial Accounting Standards Board
issued SFAS No. 137 which deferred the effective date of SFAS No. 133.
This standard requires entities to recognize all derivatives as either
assets or liabilities in its financial statements and to measure such
instruments at their fair value. The Statement is effective for the
Company's financial statements for the fiscal year beginning January
1, 2001. The Company is in the process of evaluating the potential
impact of the new Statement.
7. New Subsidiary:
During the first quarter of 2000, the Company's lead bank formed a
subsidiary under the name eScout.com LLC (eScout), minority interests
in which were acquired by several outside investors. eScout's function
is to serve as an electronic commerce network for UMB's commercial
customers, correspondent banks and their commercial customers, and
other small businesses. According to the terms of eScout's operating
agreement any initial operating losses are to be allocated to the
outside minority investors. Therefore results of eScout's start up and
initial operations are not anticipated to have a material impact on
the results of operations of the Company.
9
<PAGE>
UMB FINANCIAL CORPORATION
AVERAGE BALANCES/YIELDS AND RATES
(tax-equivalent basis) (in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
Average Average Average Average
Assets Balance Yield/Rate Balance Yield/Rate
------------------------ -----------------------
------------------------ -----------------------
<S> <C> <C> <C> <C>
Loans, net of unearned interest $ 2,873,033 8.25 % $ 2,563,121 8.13 %
Securities:
Taxable $ 2,796,531 5.83 $ 3,137,134 5.39
Tax-exempt 746,972 6.38 714,961 6.35
------------------------ -----------------------
Total securities $ 3,543,503 5.95 $ 3,852,095 5.57
Federal funds and resell agreements 132,144 5.69 53,081 4.70
Other earning assets 81,504 5.82 56,502 5.27
------------------------ -----------------------
Total earning assets $ 6,630,184 6.94 $ 6,524,799 6.57
Allowance for loan losses (31,161) (33,011)
Other assets 1,186,283 1,042,812
-------------- ------------
Total assets $ 7,785,306 $ 7,534,600
============== ============
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 3,705,580 3.80 % $ 3,764,306 3.45 %
Federal funds and repurchase agreements 1,287,880 5.21 1,150,596 4.24
Borrowed funds 33,498 6.58 43,218 6.98
------------------------ -----------------------
Total interest-bearing liabilities $ 5,026,958 4.18 $ 4,958,120 3.67
Noninterest-bearing demand deposits 1,993,847 1,842,468
Other liabilities 106,882 68,734
Shareholders' equity 657,619 665,278
-------------- ------------
Total liabilities & shareholders'eqty $ 7,785,306 $ 7,534,600
============== ============
Net interest spread 2.76 % 2.90 %
Net interest margin 3.77 3.78
</TABLE>
10
<PAGE>
UMB FINANCIAL CORPORATION
ANALYSIS OF CHANGES IN NET INTEREST INCOME AND MARGIN
(tax-equivalent basis) (in thousands)
ANALYSIS OF CHANGES IN NET INTEREST INCOME
Three Months Ended
March 31, 2000 vs. 1999
------------------------------------------
Volume Rate Total
------------------------------------------
Change in interest earned on:
Loans $ 6,732 $ 810 $ 7,542
Securities:
Taxable (4,579) 3,466 (1,113)
Tax-exempt 592 62 654
Federal funds sold 1,099 156 1,255
Other 360 86 446
------------ ----------- ------------
Interest income $ 4,204 $ 4,580 $ 8,784
------------ ----------- ------------
Change in interest paid on:
Interest-bearing deposits $ (475) $ 3,433 $ 2,958
Federal funds purchased 1,597 3,040 4,637
Borrowed funds (156) (40) (196)
------------ ----------- ------------
Interest expense $ 966 $ 6,433 $ 7,399
------------ ----------- ------------
Net interest income $ 3,238 $ (1,853) $ 1,385
============ ============ ============
ANALYSIS OF NET INTEREST MARGIN
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000
---------------------------------------------------
2000 1999 Change
---------------------------------------------------
<S> <C> <C> <C>
Average earning assets $ 6,630,184 $ 6,524,799 $ 105,385
Interest-bearing liabilities 5,026,958 4,958,120 68,838
--------------- --------------- --------------
Interest free funds $ 1,603,226 $ 1,566,679 $ 36,547
=============== =============== ==============
Free funds ratio 24.18 % 24.01 % 0.17 %
(free funds to earning assets)
Tax-equivalent yield on earning assets 6.94 % 6.57 % 0.37 %
Cost of interest-bearing liabilities 4.18 3.67 0.51
--------------- --------------- --------------
Net interest spread 2.76 % 2.90 % (0.14)%
Benefit of interest free funds 1.01 0.88 0.13
--------------- --------------- --------------
Net interest margin 3.77 % 3.78 % (0.01)%
=============== =============== ==============
</TABLE>
11
<PAGE>
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
The following financial review presents management's discussion and analysis of
the consolidated financial condition and results of operations of UMB Financial
Corporation (the Company). This review highlights the major factors affecting
results of operations and any significant changes in financial condition for the
period ended March 31, 2000. It should be read in conjunction with the
accompanying consolidated financial statements, notes to financial statements
and other financial statistics appearing elsewhere in this report.
Estimates and forward looking statements are included in this review and as such
are subject to certain risks, uncertainties and assumptions that are beyond the
Company's ability to control or estimate precisely. These statements are based
on current financial and economic data and management's expectations concerning
future developments and their effects. Actual results could differ materially
from management's current expectations. Factors that could cause material
differences in actual operating results include, but are not limited to, the
impact of competition; changes in pricing, loan demand, consumer savings habits,
employee costs and interest rates; the ability of customers to repay loans;
changes in U.S. or international economic or political conditions, such as
inflation or fluctuation in interest or foreign exchange rates; disruptions in
operations due to failures of telecommunications systems, utility systems,
security clearing systems, or other elements of the financial industry
infrastructure. While the Company periodically reassesses material trends and
uncertainties affecting the Company's results of operations and financial
condition in connection with the preparation of management's discussion and
analysis contained in the Company's annual and quarterly reports, the Company
does not intend to review or revise any particular forward-looking statement
referenced herein in light of future events.
Summary
The Company earned net income of $16,544,000 for the three months ended March
31, 2000, compared to $16,417,000 for the same period a year earlier. This
represents per share earnings of $0.77 for the first quarter of 2000 compared to
$0.74 for the first quarter of 1999, an increase of 4.1 percent.
The Company's improved performance has been driven by loan growth, increases in
non-interest income and improved credit quality, which allowed for a reduction
in the provision for loan losses. During the first quarter of 2000, non-interest
income increased by nearly 10 percent over the first quarter of 1999. This
improvement was fueled by increases in trust fees, income from securities
processing and fees related to cash management. The Company's operating expenses
increased by 10.4 percent from the first quarter of 1999. Most of this increase
was driven by costs associated with capital investments and growth initiatives
implemented during 1999. Net interest income and non-interest income and expense
include the results of operations of eScout.com, LLC, a majority-owned
subsidiary of the Company. Due to the terms of the LLC agreement, the net
results of operations of this subsidiary are reflected as minority interest in
loss of consolidated subsidiary.
The Board of Directors of the Company has authorized the purchase of up to one
million shares of the Company's stock during 2000, such purchases to be on such
terms and conditions as management may deem appropriate. The purchases may be
made, from time to time, in both open market and privately negotiated
transactions.
12
<PAGE>
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Results of Operations For the three months ended March 31, 2000, the Company
earned net interest income of $58,125,000 compared to $57,043,000 for the first
quarter of 1999. The Company achieved only a minimal increase in net interest
income in spite of the growth in loan totals. The recent increases in interest
rates have temporarily squeezed the Company's net interest margin because on a
short-term basis, many of the Company's liabilities reprice sooner than its
assets. However, on an annual basis, the Company should benefit from the
interest rate increases as a result of the liquidity of its $3 billion
securities portfolio. While the yearly average earning assets increased, the
Company's net interest margin decreased to 3.77% compared to 3.78% for the same
period of 1999. The yield on the Company's investment portfolio for 2000 also
increased from the same period a year earlier, however the average balance on
investment securities decreased.
The Company's loan loss provision for the first quarter of 2000 was $1,905,000
compared to $2,487,000 for the same period of 1999. The decrease in provision
for loan loss was due to a combination of decreases in net loan charge-offs and
a decrease in non-performing loans. Net loan charge-offs in the first three
months of 2000 were $1,824,000 compared to $2,809,000 for the same period last
year. The majority of the charge-offs in both periods was from Bankcard and
consumer loans. The Company will continue to closely monitor its loan positions
and related underwriting efforts in order to minimize credit losses.
Non-interest income totaled $46,694,000 for the first quarter of 2000 compared
to $42,515,000 for the same period of 1999, an increase of 9.8%. Nearly all
categories of fee income, other than trading and investment banking, experienced
double-digit growth for the quarter. The largest areas of increases were from
trust and securities processing, which showed a combined increase of more than
15% from the same period one year earlier. Fee income from deposit services,
cash management services and bankcard fees also increased as the Company
continued its efforts to grow these revenue sources, which do not carry the
credit and interest rate risk of interest-based revenue.
Non-interest expense was $81,807,000 for the three months ended March 31, 2000
compared to $74,099,000 for the same period of 1999. The major factors driving
the increase in the Company's non-interest expense were higher staffing costs
and an increase in equipment related expenses. Staffing for the Company's many
growth initiatives, coupled with a tight labor market, have contributed to the
increase in salaries and employee benefits. Equipment expense also increased as
a result of technology and conversion costs related to the replacement and
upgrades of core operating systems. The benefits of the new initiatives and
upgrades implemented in 1999 are partially underway and should be more fully
realized throughout the year. By comparison, operating costs for the three
months ended March 31, 2000 increased by only 2.6 percent over costs during the
fourth quarter of 1999. The prudent management on non-interest expense will
continue to be a priority for the Company.
13
<PAGE>
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Financial Condition
Total assets at March 31, 2000 were $7.304 billion compared to $7.346 billion at
March 31, 1999 and $8.131 billion at December 31, 1999. Loans, net of unearned
interest, increased to $3.057 billion as of March 31, 2000 compared to $2.634
billion at March 31, 1999 and $2.841 billion at December 31, 1999. This increase
in loans reflects the Company's continuing efforts to expand loan growth despite
a very competitive loan market in which the Company operates. Total investment
securities decreased to $3.016 billion as of March 31, 2000 compared to $3.574
billion at March 31, 1999 and $3.898 billion at December 31, 1999. During the
quarter ended March 31, 2000, the investment securities portfolio provided the
primary source of funding for the increase in loans. Total deposits increased to
$5.444 billion at March 31, 2000 compared to $5.376 billion at March 31, 1999,
and decreased from $5.924 billion at December 31, 1999. The deposit balances
have increased marginally from the prior year. The decrease from year-end totals
reflects the outflow of public funds balances on deposit at December 31, 1999.
Non accrual and restructured loans totaled $5,642,000, 0.18% of loans, at March
31, 2000 compared to $11,755,000, 0.45% of loans, at March 31, 1999, and
$6,292,000 at December 31, 1999, 0.22% of loans. Loans past due 90 days or more
were $7,081,000, 0.23% of loans at March 31, 2000, compared to $5,885,000, 0.22%
of loans at March 31, 1999, and $4,998,000 at December 31,1999, 0.18% of loans.
The Company's loan quality remains strong by industry standards. The total
non-performing loans and loans past due 90 days or more were less than 1.0% of
total loans. At March 31, 2000 the Company's allowance for loan losses was
$31,274,000 or 1.02% of outstanding loans. The adequacy of the Company's
allowance for loan losses is evaluated based on reserves for specific loans, and
reserves on homogeneous groups of loans based on historical loss experience and
current loss trends. The Company has a well-diversified loan portfolio with no
foreign loans and no significant credit exposure to commercial real estate.
14
<PAGE>
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
Liquidity and Capital Resources
The Company's liquidity position continues to be strong. At March 31, 2000, the
Company's average loan to deposit ratio was 50.4% compared to 45.7% at March 31,
1999. At March 31, 2000, the average life of the securities portfolio was 34
months with 36% of the portfolio maturing during the next twelve months. The
Company has access to various borrowing markets should there be a need for
additional funding.
Shareholders' equity totaled $658 million at March 31, 2000 compared to $659
million at March 31, 1999 and $655 million at year-end 1999. During the twelve
months ended March 31, 2000 the Company increased its treasury stock holdings by
$31.5 million. Management will continue to consider treasury stock purchases
depending on price, availability and alternative use of funds. At March 31,
2000, the net unrealized loss on securities available for sale was $14.6
million, compared to net an unrealized gain of $6.7 million at March 31, 1999
and compared to an unrealized loss of $12.8 million at December 31, 1999.
The Company will continue to manage its interest rate risk using static gap
analysis along with other tools that help measure the impact of various interest
rate scenarios. One of these tools is a model that internally generates
estimates of the change in net portfolio value (NPV). NPV is the present value
of expected cash flows from assets, liabilities and off-balance sheet contracts.
By projecting the timing and amount of future net cash flows an estimated value
of that asset or liability can be determined. The following table sets forth the
Company's NPV as of March 31, 2000.
Net Portfolio Value
Rates in
Basis Points Dollar Percentage
(Rate Shock) Amount Change Change
-------------- ------------- ----------- ---------------
200 $1,500,785 $(23,443) (1.51)%
100 1,519,149 (4,727) (0.30)%
Static 1,523,787 - -%
(100) 1,473,921 (50,823) (3.27)%
(200) 1,420,301 (105,472) (6.79)%
The Company's capital position is summarized in the table below and exceeds
regulatory requirements.
Three Months Ended
March 31,
RATIOS 2000 1999
- ------ ---------- -----------
Return on average assets 0.85 % 0.88 %
Return on average equity 10.12 10.01
Average equity to assets 8.45 8.83
Tier 1 risk-based capital ratio 15.15 15.75
Total risk-based capital ratio 15.91 16.61
Leverage ratio 8.02 8.39
Per Share Data
- ---------------
Earnings Basic $ 0.77 $ 0.74
Earnings Diluted $ 0.77 $ 0.74
Cash Dividends $ 0.20 $ 0.18
Dividend payout ratio 25.97 % 24.32 %
Book value $ 30.83 $ 29.84
15
<PAGE>
UMB FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
PART II. Other Information
Item 6. Exhibits and Reports on form 8-K
a) The following exhibit is filed herewith:
27-Article 9 of Regulation S-X Financial Data Schedule for
March 31, 2000 Form 10-Q.
b) Reports on Form 8-K:
The Company filed one report on Form 8-K during the quarter ended
March 31, 2000, announcing several changes in the Company's
management structure.
16
<PAGE>
UMB FINANCIAL CORPORATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned hereunto duly authorized.
UMB FINANCIAL CORPORATION
- -------------------------
/s/R. Crosby Kemper
- ----------------------
R. Crosby Kemper
Chairman
/s/Timothy M. Connealy
- ----------------------
Timothy M. Connealy
Chief Financial Officer
Date: May 12, 2000
17
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