( Mark one)
For the transition period from _______________ to ________________
Incorporated pursuant to the Laws of Missouri State
Internal Revenue Service — Employer Identification No. 43-0903811
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 June 30, 2001, UMB Financial Corporation had 21,115,801 shares of common stock outstanding. This is the only class of stock of the Company.
UMB FINANCIAL CORPORATION FORM10-Q INDEX
PART I. Financial Information
Item I. Financial Statements
UMB FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited in thousands) June 30, December 31, ------------------------------ -------------- ASSETS 2001 2000 2000 -------------- -------------- -------------- Loans: Commercial, financial and agricultural $ 1,548,403 $ 1,695,419 $ 1,590,365 Consumer (net of unearned interest) 973,600 1,003,031 1,055,485 Real estate 414,657 359,552 420,430 Leases 7,344 8,283 7,677 Allowance for loan losses (35,758) (31,824) (31,998) -------------- -------------- -------------- Net loans $ 2,908,246 $ 3,034,461 $ 3,041,959 Securities available for sale: U.S. Treasury and agencies $ 2,014,462 $ 1,825,288 $ 2,314,333 State and political subdivisions 61,477 2,138 1,809 Commercial paper and other 472,608 22,880 133,854 -------------- -------------- -------------- Total securities available for sale $ 2,548,547 $ 1,850,306 $ 2,449,996 Securities held to maturity: State and political subdivisions (market value of $618,613, $733,559 and $695,219, respectively) $ 608,681 $ 744,375 $ 695,470 Federal funds and resell agreements 130,456 242,578 161,076 Trading securities and other earning assets 76,432 74,197 80,664 -------------- ------------------------------- Total earning assets $ 6,272,362 $ 5,945,917 $ 6,429,165 Cash and due from banks 551,612 696,995 975,324 Bank premises and equipment, net 237,070 242,605 250,700 Accrued income 66,883 78,215 71,642 Premium on and intangibles of purchased banks 65,627 47,075 43,550 Other assets 89,423 87,171 96,502 -------------- -------------- -------------- Total assets $ 7,282,977 $ 7,097,978 $ 7,866,883 ============== ============== ============== LIABILITIES Deposits: Noninterest-bearing demand $ 1,704,152 $ 1,960,970 $ 2,179,776 Interest-bearing demand and savings 2,553,134 2,274,400 2,551,326 Time deposits under $100,000 815,456 804,326 792,027 Time deposits of $100,000 or more 279,271 322,420 412,075 -------------- -------------- -------------- Total deposits $ 5,352,013 $ 5,362,116 $ 5,935,204 Federal funds and repurchase agreements 878,113 838,131 909,755 Short-term debt 154,703 95,929 72,184 Long-term debt 29,037 28,514 27,041 Accrued expenses and taxes 60,141 41,121 50,981 Other liabilities 66,124 65,605 168,784 -------------- -------------- -------------- Total liabilities $ 6,540,131 $ 6,431,416 $ 7,163,949 -------------- -------------- -------------- SHAREHOLDERS' EQUITY Common stock, $1.00 par value; authorized 33,000,000 shares; issued 26,472,039 shares. $ 26,472 $ 26,472 $ 26,472 Capital surplus 683,231 683,407 683,220 Retained earnings 222,630 173,325 196,705 Accumulated other comprehensive income (loss) 16,896 (13,394) 1,776 Unearned ESOP shares (3,741) (6,242) (4,991) Treasury stock, 5,251,643, 5,099,304 and 5,188,807 shares, at cost, respectively (202,642) (197,006) (200,248) -------------- -------------- -------------- Total shareholders' equity $ 742,846 $ 666,562 $ 702,934 -------------- -------------- -------------- Total liabilities and shareholders' equity $ 7,282,977 $ 7,097,978 $ 7,866,883 ============== ============== ============== See Notes to Consolidated Financial Statements.
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UMB FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited, in thousands) Three Months Six Months Ended June 30, Ended June 30, INTEREST INCOME 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Loans $ 59,214 $ 63,105 $123,140 $121,865 Securities: Taxable interest $ 29,674 $ 29,776 62,252 70,339 Tax-exempt interest 7,177 7,986 14,463 16,000 ------------ ------------ ------------ ------------ Total securities income $ 36,851 $ 37,762 $ 76,715 $ 86,339 Federal funds and resell agreements 1,963 3,957 4,928 5,707 Trading securities and other 949 1,074 2,139 2,231 ------------ ------------ ------------ ------------ Total interest income $ 98,977 $105,898 $206,922 $216,142 ------------ ------------ ------------ ------------ INTEREST EXPENSE Deposits $ 28,510 $ 31,811 $ 62,207 $ 66,825 Federal funds and repurchase agreements 8,553 15,694 20,957 32,371 Short-term debt 847 479 1,852 479 Long-term debt 545 499 1,023 1,047 ------------ ------------ ------------ ------------ Total interest expense $ 38,455 $ 48,483 $ 86,039 $100,722 ------------ ------------ ------------ ------------ Net interest income $ 60,522 $ 57,415 $120,883 $115,420 Provision for loan losses 5,011 2,131 $ 7,974 4,036 ------------ ------------ ------------ ------------ Net interest income after provision $ 55,511 $ 55,284 $112,909 $111,384 ------------ ------------ ------------ ------------ NONINTEREST INCOME Trust income $ 13,495 $ 14,722 $ 27,150 $ 28,850 Securities processing 7,904 4,588 12,089 9,198 Trading and investment banking 5,245 4,717 11,602 9,646 Service charges on deposits 11,963 11,245 26,197 24,441 Other service charges and fees 8,793 8,624 14,874 14,833 Bankcard fees 4,676 3,879 8,765 7,155 Net investment security gains 0 11 21 12 Other 4,551 2,633 7,743 4,696 ------------ ------------ ------------ ------------ Total noninterest income $ 56,627 $ 50,419 $108,441 $ 98,831 ------------ ------------ ------------ ------------ NONINTEREST EXPENSE Salaries and employee benefits $ 50,688 $ 45,276 $ 99,652 $ 90,094 Occupancy, net 6,828 6,090 13,693 12,097 Equipment 12,146 11,525 25,512 22,628 Supplies and services 5,269 5,512 10,832 10,887 Marketing and business development 4,017 5,046 8,224 8,983 Processing fees 4,189 6,122 8,220 9,978 Legal and consulting 1,395 1,411 4,179 2,747 Amortization of premium on purchased banks 1,738 1,815 3,477 3,634 Other 6,111 4,180 11,093 9,334 ------------ ------------ ------------ ------------ Total noninterest expense $ 92,381 $ 86,977 $184,882 $170,382 ------------ ------------ ------------ ------------ Minority interest in loss of consolidated sub. $ 3,747 $ 4,053 $ 11,800 $ 4,994 ------------ ------------ ------------ ------------ Income before income taxes $ 23,504 $ 22,779 $ 48,268 $ 44,827 Income tax provision 6,796 6,121 $ 13,842 $ 11,625 ------------ ------------ ------------ ------------ NET INCOME $ 16,708 $ 16,658 $ 34,426 $ 33,202 ============ ============ ============ ============ PER SHARE DATA Net income - Basic $ 0.79 $ 0.78 $ 1.63 $ 1.55 Net income - Diluted $ 0.79 $ 0.78 $ 1.63 $ 1.55 Dividends $ 0.20 $ 0.20 $ 0.40 $ 0.40 Weighted average shares outstanding 21,113,348 21,303,378 21,126,904 21,365,582 See Notes to Consolidated Financial Statements.
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UMB FINANCIAL COPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands) Three Months Ended June 30, ------------------------------------------- 2001 2000 ------------------ ------------------ Operating Activities Net Income $ 34,426 $ 33,202 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 7,974 4,036 Depreciation and amortization 18,438 18,247 Minority interest in net loss of subsidiary (11,800) (4,994) Deferred income taxes (1,338) 357 Net decrease in trading securities 4,232 4,822 Gains on sales of securities available for sale (21) (12) Gains on sales of disposition of interest in subsidiary (1,699) - Amortization of securities premiums, net of discount accretion (9,154) (4,201) Earned ESOP shares 1,250 1,249 Changes in: Accrued income 5,682 (2,675) Accrued expenses and taxes 6,461 4,816 Other, net (12,719) (14,611) ------------------ ------------------ Net cash provided by (used in) operating activities $ 41,732 $ 40,236 ------------------ ------------------ Investing Activities Proceeds from maturities of investment securities $ 86,242 $ 53,015 Proceeds from sales of securities available for sale - 45,557 Proceeds from maturities of securities available for sale 13,674,846 4,980,792 Purchases of investment securities (975) (50,687) Purchases of securities available for sale (13,766,847) (3,721,961) Net (increase) decrease in loans 125,739 (288,540) Net (increase) decrease in fed funds and resell agreements 28,589 (111,859) Investment capital contributed to consolidated subsidiary - 25,000 Purchases of bank premises and equipment (11,923) (17,683) Net change in unsettled securities transactions. (35,832) (6,149) Deconsolidation of subsidiary (390) - Purchase of financial organization, net of cash received (25,839) - Proceeds from sales of bank premises and equipment 290 - ------------------ ------------------ Net cash provided by investing activities $ 79,900 $ 967,485 ------------------ ------------------ Financing Activities Net decrease in demand and savings deposits $ (473,816) $ (258,768) Net decrease in time deposits (109,375) (303,051) Net increase(decrease)in fed funds/repurchase agreements (31,642) (579,232) Net increase in short term borrowings 84,377 95,929 Proceeds from long term debt 3,700 2,615 Repayment of long term debt (1,704) (12,005) Cash dividends (8,501) (8,605) Proceeds from exercise of stock options 176 19 Purchases of treasury stock (2,559) (13,736) ------------------ ------------------ Net cash used in financing activities $ (539,344) $(1,076,834) ------------------ ------------------ Decrease in cash and due from banks $ (423,712) $ (69,113) Cash and due from banks at beginning of year 975,324 766,108 ------------------ ------------------ Cash and due from banks at end of period $ 551,612 $ 696,995 ================== ================== See Notes to Consolidated Financial Statements.
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UMB FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited in thousands) Accumulated Other Common Capital Retained Comprehensive Treasury Unearned Stock Surplus Earnings Income (Loss) Stock ESOP Total ------------------------------------------------------------------------------------------------------ Balance - January 1, 2000 $26,472 $ 683,410 $ 148,728 $ (12,836) $ (183,292) $ (7,491) $ 654,991 Net income - - 33,202 - - - 33,202 Comprehensive income, change in unrealized loss on securities of $613 net of tax benefit of $43 and net of reclassification adj. for gains included in net income of $12. - - - (558) - - (558) --------------- Total comprehensive income 32,644 Cash Dividends - - (8,605) - - - (8,605) Earned ESOP shares - - - - - 1,249 1,249 Purchase of treasury stock - - - - (13,736) - (13,736) Exercise of stock options - (3) - - 22 - 19 ------------------------------------------------------------------------------------------------------ Balance - June 30, 2000 $26,472 $ 683,407 $ 173,325 $ (13,394) $ (197,006) $ (6,242) $ 666,562 ====================================================================================================== Balance - January 1, 2001 $26,472 $ 683,220 $ 196,705 $ 1,776 $ (200,248) $ (4,991) $ 702,934 Net income - - 34,426 - - - 34,426 Comprehensive income, change in unrealized gain of securities of $23,793 net of taxes of $8,652 and net of reclassification adj. for gains included in net income of $21. - - - 15,120 - - 15,120 --------------- Total comprehensive income 49,546 Cash dividends - - (8,501) - - - (8,501) Earned ESOP shares - - - - - 1,250 1,250 Purchase of treasury stock - - - - (2,559) - (2,559) Exercise of stock options - 11 - - 165 - 176 ------------------------------------------------------------------------------------------------------ Balance - June 30, 2001 $26,472 $ 683,231 $ 222,630 $ 16,896 $ (202,642) $ (3,741) $ 742,846 ====================================================================================================== See Notes to Consolidated Financial Statements.
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UMB FINANCIAL CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED JUNE 30, 2001
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 and necessary for a fair presentation of the financial position and results of operations, have been made. The results of operations and cash flows for the interim periods presented may not be indicative for the results of the full year. 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 2000 Annual Report to Shareholders.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 year-to-date earnings per share takes into account the dilutive effect of 19,488 and 23,450 shares issuable under options granted by the Company at June 30, 2001 and 2000, respectively. Diluted quarterly earnings per share takes into account the dilutive effect of 21,324 and 23,643 shares issuable under options granted by the Company for the periods ended June 30, 2001 and June 30, 2000, respectively.
3. Allowance for Loan Losses:
The following is a summary of the Allowance for Loan Losses for the six months ended June 30, 2001 and 2000 (in thousands):
At June 30, 2001 the amount of loans that are considered to be impaired under SFAS No. 114 was $5,003,000 compared to $10,676,000 at December 31, 2000 and $5,026,000 at June 30, 2000. At June 30, 2001 all of these loans are on a non-accrual or restructured basis. Included in the impaired loans is $1,865,000 of loans for which the related allowance is $1,525,000. 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 $3,138,000 of impaired loans do not have an allowance for loan losses as a result of write-downs and supporting collateral value. At June 30, 2000 there was $2,136,000 of impaired loans with a related allowance of $246,000 and $2,890,000 of impaired loans, which did not have an allowance. The average recorded investment in impaired loans during the period ended June 30, 2001 was approximately $8,618,000.
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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. During 2000, the Company merged several affiliate banks into the lead bank, which changed the manner in which various segments are evaluated and managed. The Company has defined its operations into the following segments:
Commercial Banking: Providing a full range of lending and cash management services to commercial and governmental entities through the commercial division of the Company's lead bank.
Trust and Securities Processing: Providing estate planning, trust, employee benefit, asset management and custodial services to individuals and corporate customers.
Investment Banking and Brokerage: Providing commercial and retail brokerage, investment accounting and safekeeping services to individuals and corporate customers, as well as the Company's treasury function.
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 June 30, 2001 2000 Revenues Commercial Banking $32,194 $30,368 Trust and Securities Processing 21,826 19,545 Investment Banking and Brokerage 9,377 1,005 Community Banking 56,469 61,412 Other 4,069 4,523 Less: Intersegment revenues (11,797) (11,150) _________ _________ Total $112,138 $105,703 ========= ========= Net Income (loss) Commercial Banking $12,969 $11,991 Trust and Securities Processing 4,279 4,752 Investment Banking and Brokerage (44) (3,144) Community Banking (530) 3,004 Other - - Intersegment loss 34 55 _________ _________ Total $ 16,708 $16,658 ========= ========= Total Average Assets Commercial Banking $1,704,886 $1,711,532 Trust and Securities Processing 106,683 97,568 Investment Banking and Brokerage 3,453,237 2,784,780 Community Banking 2,734,022 3,486,458 Other 97,403 15,461 Less: Intersegment assets (836,809) (782,577) _________ _________ Total $7,259,422 $7,313,222 ========= =========
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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" as amended by SFAS No. 137 and No. 138, which deferred the effective date of SFAS No. 133. This Statement 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 Statements are effective for the Company's financial statements after January 1, 2001. The Company has evaluated this Statement and it did not have a significant impact on the consolidated financial statements upon adoption.
In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 140 replaces SFAS 125, which has the same title. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures. Otherwise, SFAS No. 140 carried forward most of the provisions of SFAS No. 125. Certain provisions of SFAS No. 140 relating to pledged collateral, securitized financial assets and retained interest in securitized financial assets were effective for the Company's consolidated financial statements as of December 31, 2000. The remainder of the Statement is effective for transactions occurring after March 31, 2001. The Company has adopted this Statement and does not believe it will have a material impact on its financial statements.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and Other Intangible Assets" (effective on January 1, 2002). SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that goodwill and some intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. The Company is in the process of evaluating the financial statement impact of adoption of SFAS No. 142.
7. EScout.com LLC:
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 banks and 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 or operations of the Company. As of May 2001, the Company sold a portion of its ownership of eScout, reducing it's ownership interest. As a result, the Company's investment in eScout is being accounted for using the equity method from that time.
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UMB FINANCIAL CORPORATION AVERAGE BALANCES/YIELDS AND RATES (tax-equivalent basis) (unaudited in thousands) Six Months Ended June 31, 2001 2000 Average Average Average Average Assets Balance Yield/Rate Balance Yield/Rate ---------------------------- --------------------------- Loans, net of unearned interest $ 2,998,099 8.31 % $ 2,963,807 8.31 % Securities: Taxable $ 2,264,599 5.54 $ 2,413,065 5.86 Tax-exempt 671,132 6.35 744,934 6.38 ---------------------------- --------------------------- Total securities $ 2,935,731 5.73 $ 3,157,999 5.98 Federal funds and resell agreements 194,543 5.11 180,307 6.37 Other earning assets 77,476 5.88 75,605 6.44 ---------------------------- --------------------------- Total earning assets $ 6,205,849 6.96 $ 6,377,717 7.08 Allowance for loan losses (33,237) (31,326) Other assets 1,115,261 1,202,872 ---------------- --------------- Total assets $ 7,287,873 $ 7,549,264 ================ =============== Liabilities and Shareholders' Equity Interest-bearing deposits $ 3,567,305 3.52 % $ 3,567,885 3.77 % Federal funds and repurchase agreements 948,411 4.46 1,200,194 5.42 Borrowed funds 108,927 5.32 48,057 6.39 ---------------------------- --------------------------- Total interest-bearing liabilities $ 4,624,643 3.75 $ 4,816,136 4.21 Noninterest-bearing demand deposits 1,814,683 1,967,523 Other liabilities 117,199 103,510 Shareholders' equity 731,348 662,095 ---------------- --------------- Total liabilities and shareholders' equity $ 7,287,873 $ 7,549,264 ================ =============== Net interest spread 3.21 % 2.87 % Net interest margin 4.16 3.91
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UMB FINANCIAL CORPORATION ANALYSIS OF CHANGES IN NET INTEREST INCOME AND MARGIN (tax-equivalent basis) (unaudited in thousands) ANALYSIS OF CHANGES IN NET INTEREST INCOME Three Months Ended Six Months Ended June 30, 2001 vs. 2000 June 30, 2001 vs. 2000 ---------------------------------------- ---------------------------------------- Volume Rate Total Volume Rate Total Change in interest earned on: Loans $(1,672) $(2,532) $(4,204) $ 1,099 $ (142) $ 957 Securities: Taxable 3,352 (3,454) (102) (4,295) (3,792) (8,087) Tax-exempt (1,136) (116) (1,252) (2,389) (107) (2,496) Federal funds sold (706) (1,021) (1,727) 419 (1,198) (779) Other 54 (248) (194) 57 (221) (164) ---------- ----------- ----------- ---------- ----------- ----------- Interest income $ (108) $(7,371) $ (7,479) $(5,109) $(5,460) $10,569 ---------- ----------- ----------- ---------- ----------- ----------- Change in interest paid on: Interest-bearing deposits $ 1,341 $(4,642) $ (3,301) $ (11) $(4,607) $(4,618) Federal funds purchased (2,523) (4,618) (7,141) (6,167) (5,247) (11,414) Borrowed funds 675 (261) 414 1,640 (291) 1,349 ----------- ------------ ----------- ---------- ----------- ----------- Interest expense $ (507) $(9,521) $(10,028) $(4,538) $(10,145) $(14,683) ----------- ------------ ----------- ---------- ----------- ----------- Net interest income $ 399 $ 2,150 $ 2,549 $ (571) $ 4,685 $ 4,114 =========== ============ =========== =========== ============ =========== ANALYSIS OF NET INTEREST MARGIN Three Months Ended Three Months Ended March 31, March 31, --------------------------------------- ----------------------------------------- 2001 2000 Change 2001 2000 Change Average earning assets $ 6,157,899 6,125,253 $ 32,646 $ 6,205,849 $ 6,377,718 $ (171,869) Interest-bearing liabilities 4,600,918 4,605,314 (4,396) 4,624,643 4,816,136 (191,493) ------------- ---------- ------------ ------------ ---------- ------------ Interest free funds $ 1,556,981 1,519,939 $ 37,042 $ 1,581,206 1,561,582 $ 19,624 ============ =========== ============ ============ =========== ============ Free funds ratio 25.28 % 24.81 % 0.47 % 25.48 % 24.49 % 0.99 % (free funds to earning assets) Tax-equivalent yield on earning assets 6.70 % 7.22 % (0.52)% 6.96 % 7.08 % (0.12)% Cost of interest-bearing liabilities 3.36 4.23 (0.87) 3.75 4.21 (0.46) ----------- ----------- ------------ ------------ ---------- ------------ Net interest spread 3.34 % 2.99 % 0.35 % 3.21 % 2.87 % 0.34 % Benefit of interest free funds 0.85 1.05 (0.20) 0.95 1.04 (0.09) ------------- ----------- ------------ ------------ ---------- ------------ Net interest margin 4.19 % 4.04 % 0.15 % 4.16 % 3.91 % 0.25 % ============= =========== ============ ============ =========== ============
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UMB FINANCIAL CORPORATIONMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONSFOR THE SIX MONTHS ENDED JUNE 30, 2001
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 June 30, 2001. 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 $16,708,000 for the three months ended June 30, 2001, compared to $16,658,000 for the same period a year earlier. This represents per share earnings of $0.79 for the second quarter of 2001 compared to $0.78 for the second quarter of 2000. For the six-month period ended June 30, 2001 the Company reported net income of $34,426,000, compared with $33,202,000 for the same period in 2000. Earnings per share for the six months ended June 30, 2001 were $1.63, compared to $1.55 for the same period of the prior year, an increase of 5.16%.
The Company's improved performance was aided by a 4.7% increase in net interest income for the year. Net interest margin increased to 4.16% for the six-month period ended June 30, 2001 compared to 3.91% for the same period in 2000. Declining interest rates during the first half of 2001 benefited the Company's net interest margin, as the decrease in the cost of funds outpaced the interest rate reductions on loans and securities. Net interest margin was also positively impacted by a change in the Company's asset mix. For the first half of 2001, on average, loans comprised 48.3% of total earning assets as compared with 46.5% for the first half of 2000. Also contributing to the Company's earnings growth was an increase in non-interest income. For the first six months of 2001, non-interest income increased $9.6 million or 9.7%. This improvement was fueled by increases in trading and investment banking activities, as well as higher fees from bankcard services. The Company's operating expenses increased by 8.5 percent for the first six months of 2001. Through May 2001 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 eliminated through minority interest in loss of consolidated subsidiary. In May 2001, the Company reduced its ownership position in eScout.com LLC. Subsequent to the reduction in ownership, the results of eScout.com are no longer included in the consolidated results of the Company.
During the quarter, the Company completed two acquisitions, which should allow for continued growth of fee based income. The Company acquired Sunstone Financial Group, a provider of administrative and back-office services to mutual funds. In a separate transaction, the Company nearly doubled the size of its corporate trust business through the acquisition of a corporate trust portfolio managed in St Louis, Mo. These two acquisitions were recorded as a purchase and funded with existing working capital.
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Results of Operations
For the three months ended June 30, 2001, the Company earned net interest income of $60,522,000 compared to $57,415,000 for the second quarter of 2000. On a year-to-date basis, net interest income increased to $120,883,000 for the first six months of 2001, compared to $115,420,000 for the same period last year. The Company achieved increases in net interest income as a result of both sustained loan growth and more favorable interest rates. Declining interest rates during the first half of 2001 benefited the Company's net interest margin, as the decrease in the cost of funds outpaced the interest rate reductions on loans and securities. Net interest margin was also positively impacted by a change in the Company's asset mix. For the first half of 2001, on average, loans comprised 48.3% of total earning assets as compared with 46.5% for the first half of 2000. Average loans for the six months ended June 30, 2001, totaled $2.998 billion, compared with $2,964 billion one year earlier. These factors allowed the Company to achieve a net interest margin of 4.16% compared to 3.77% one year earlier. The yield on the Company's investment portfolio for 2001 decreased by 25 basis points, but was more than offset by a 46 basis point reduction in cost of funds.
The Company's loan loss provision for the second quarter of 2001 was $5,011,000 compared to $2,131,000 for the same period of 2000. The year-to-date loan loss provision for the Company in 2001 was $7,974,000 compared to $4,036,000 for 2000. The increase in the provision for loan loss was due to the Company's concerns of uncertainties in the economy. For the three months ended June 30, 2001 the net loan charge-offs were $1,456,000, compared to $1,581,000 for the same period in 2000. Net loan charge-offs for the first six months of 2001 were $4,214,000 compared to $3,405,000 for the same period last year. The majority of the net 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 $56,627,000 for the second quarter of 2001 compared to $50,419,000 for the same period of 2000, an increase of 12.3%. For the first six months of 2001, non-interest income increased to $108,441,000 from $98,831,000 for the prior year, an increase of 9.7%. Nearly all categories of fee income experienced growth for the quarter and year-to-date. On a year-to-date basis the largest areas of increases were from trading and investment banking and bankcard fees, which both showed increases of over 20% from the same period one year earlier. Trust and securities processing income has been aided by the recent acquisition of Sunstone Financial Group. Fee income from deposit services and cash management services 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 $92,381,000 for the three months ended June 30, 2001 compared to $86,977,000 for the same period of 2000. For the first six months of 2001 non-interest expense was $184,882,000 compared to $170,382,000 for the first six months of 2000. 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 prior years are partially underway and should be more fully realized throughout the year. Increases also occurred in occupancy, and legal and consulting. The Company's non-interest expense has been impacted by its e-commerce subsidiary, eScout.com LLC. Due to the terms of the LLC agreement, the net results of operations of this subsidiary are consolidated in the Company's operating expenses and the eliminated through minority interest in loss of consolidated subsidiary. The prudent management of non-interest expense will continue to be a priority for the Company.
13
Financial Condition
Total assets at June 30, 2001 were $7.283 billion compared to $7.098 billion at June 30, 2000 and $7.867 billion at December 31, 2000. Loans, net of unearned interest, decreased to $2.944 billion as of June 30, 2001 compared to $3.066 billion at June 30, 2000 and $3.074 billion at December 31, 2000. While loans decreased on an actual basis, average loans increased slightly over the same period of the prior year. This increase in average loans reflects the Company's continuing efforts to expand loan growth despite a very competitive loan market in which the Company operates. Total investment securities increased to $3.157 billion as of June 30, 2001 compared to $2.595 billion at June 30, 2000 and $3.145 billion at December 31, 2000. Total deposits decreased to $5.352 billion at June 30, 2001 compared to $5.362 billion at June 30, 2000 and $5.935 billion at December 31, 2000. The decrease of deposit balances from year-end totals reflects the outflow of public funds and commercial balances.
Non accrual and restructured loans totaled $6,533,000, 0.22% of loans, at June 30, 2001 compared to $6,922,000, 0.23% of loans, at June 30, 2000, and $11,511,000 at December 31, 2000, 0.37% of loans. Loans past due 90 days or more were $6,955,000, 0.24% of loans at June 30, 2001, compared to $14,278,000, 0.47% of loans at June 30, 2000, and $7,680,000 at December 31,2000, 0.25% 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 June 30, 2000 the Company's allowance for loan losses was $35,758,000 or 1.21% 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
Liquidity and Capital Resources
The Company's liquidity position continues to be strong. At June 30, 2001, the Company's average loan to deposit ratio was 55.7% compared to 53.5% at June 30, 2000. At June 30, 2001, the average life of the securities portfolio was 16 months with 48% 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 $743 million at June 30, 2001 compared to $667 million at June 30, 2000 and $703 million at year-end 2000. During the twelve months ended June 30, 2001 the Company increased its treasury stock holdings by $6.3 million. Management will continue to consider treasury stock purchases depending on price, availability and alternative use of funds. At June 30, 2001, the net unrealized gain on securities available for sale was $16.9 million, compared to a net unrealized loss of $13.4 million at June 30, 2000 and an unrealized gain of $1.8 million at December 31, 2000.
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 June 30, 2001.
Net Portfolio Value Dollar Percentage Amount Change Change 200 $1,322,169 $68,748 5.48% 100 1,296,471 43,050 3.43% Static 1,253,421 - -% (100) 1,172,773 (80,648) (6.43)% (200) 1,085,210 (168,211) (13.42)%
The Company's capital position is summarized in the table below and exceeds regulatory requirements.
Six Months Ended June 30, RATIOS 2001 2000 Return on average assets 0.95 % 0.89 % Return on average equity 9.49 10.08 Average equity to assets 10.03 8.79 Tier 1 risk-based capital ratio 14.75 15.71 Total risk-based capital ratio 15.55 16.47 Leverage ratio 9.18 8.98 Per Share Data Earnings Basic $ 1.63 $ 1.55 Earnings Diluted $ 1.63 $ 1.55 Cash Dividends $ 0.40 $ 0.40 Dividend payout ratio 26.63 % 25.81 % Book value $ 35.18 $ 31.44
15
PART II. Other Information
Item 6. Exhibits and Reports on form 8-K
a) The following exhibit is filed herewith: None.
b) Reports on Form 8-K: The Company filed two reports on Form 8-K during the quarter ended June 30, 2001. The first report was filed on May 9, 2001 regarding the Company's purchase of Sunstone Financial Group, Inc. The other report was filed on May 10, 2001 when the Company announced the completion of the acquisition of State Street Bank and Trust Company of Missouri, N. A.
UMB FINANCIAL CORPORATIONFORM 10-QSIGNATURES
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 IIIR. Crosby Kemper IIIChairman and Chief Executive Officer
/s/Daniel C. StevensDaniel C. StevensChief Financial Officer
Date: August 13, 2001