-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BwPqBTo7KDqP+LCF1GOzj2rOYqNcoB2CEwFPqNycPl4z/VxvtYYrkKx7YslQm6N/ qLnbpv97qowYwQppeKk7Wg== 0000950131-98-002049.txt : 19980330 0000950131-98-002049.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950131-98-002049 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UMB FINANCIAL CORP CENTRAL INDEX KEY: 0000101382 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 430903811 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-04887 FILM NUMBER: 98575401 BUSINESS ADDRESS: STREET 1: 1010 GRAND AVE CITY: KANSAS CITY STATE: MO ZIP: 64106 BUSINESS PHONE: 8168607000 MAIL ADDRESS: ZIP: ----- FORMER COMPANY: FORMER CONFORMED NAME: UNITED MISSOURI BANCSHARES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MISSOURI BANCSHARES INC DATE OF NAME CHANGE: 19710915 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1997 [_] 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 28, 1998, the aggregate market value of common stock outstanding held by nonaffiliates of the registrant was approximately $873,893,000 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 28, 1998 Common Stock, $1.00 Par Value 20,440,997 DOCUMENTS INCORPORATED BY REFERENCE Company's 1998 Proxy Statement dated March 12, 1998--Part III - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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..................................... 4 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.............. 5 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 credit card bank, a bank real estate corporation, a reinsurance company, a community development corporation, a consulting company, a data services company and a trust company. The Company's 16 commercial banks are engaged in general commercial banking business entirely in domestic markets. The banks, 11 located in Missouri, one each in Kansas, Illinois, Colorado, Nebraska 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, 1997, is included on page A-48 of the attached Appendix, and is incorporated herein by reference. UMB, U.S.A. n.a. is a credit card bank located in Nebraska. UMB, U.S.A. n.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, 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. 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, 1997, UMB Financial Corporation and subsidiaries employed 4,056 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, 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 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. 1 SUPERVISION AND REGULATION As a bank holding company, the Company and its subsidiaries are subject to extensive regulation. As a consequence of the regulation of the commercial banking business in the United States, the business of the Company is affected by the enactment of federal and state legislation. The Company is regulated by the Federal Reserve Board and is subject to the Bank Holding Company Act of 1956, as amended (the "BHCA"). 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 enactment 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. Banks may also merge across state lines, creating interstate branches. Furthermore, a bank may open new branches in a state in which it does not already have banking operations, if the law of that state does not prohibit de novo branching by an out of state bank or if the state has not "opted out" of interstate branching. As a result of the Interstate Banking Act, the Company has many more opportunities for expansion and has potentially greater competition in its market area from nationwide or regional banks. 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. Four of the commercial banks owned by the Company are national banks and are subject to supervision and examination by the Comptroller of the Currency. UMB, U.S.A. n.a., a credit card bank, is located in the state of Nebraska and is 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 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 banks are chartered under the state banking laws of Missouri and are subject to supervision and regular examination by the Missouri Commissioner of Finance. In addition, the national banks and 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. Information regarding capital adequacy standards of the Federal banking regulators is included on pages A-17, A-18, A-34 and A-35 of the attached Appendix, and is incorporated herein by reference. Information regarding dividend restrictions is on page A-34 of the attached Appendix, incorporated herein by reference. STATISTICAL DISCLOSURE The information required by Guide 3, "Statistical Disclosure by Bank Holding Companies," has been integrated throughout pages A-2 through A-22 of the attached Appendix under the captions of "Five-Year Financial Summary" and "Financial Review," and such information is incorporated herein by reference. 2 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........ 71 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 through January, 1997. Alexander C. Kemper..... 32 President of the Company since January, 1995. President of UMB Bank, n.a. since January, 1994, President and Chief Executive Officer since January, 1996, and as Chairman, President and Chief Executive Officer since January, 1997. Peter J. Genovese....... 51 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. 47 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. ..... 70 Vice Chairman of the Board of the Company since 1993. Vice Chairman of the Board of UMB Bank, n.a. since 1982. Royce M. Hammons........ 52 President and Chief Executive Officer of UMB Oklahoma Bank (a subsidiary of the Company) since 1987. Richard A. Renfro....... 63 President of UMB National Bank of America, Salina, Kansas, (a subsidiary of the Company) since 1986. James A. Sangster....... 43 Divisional Executive Vice President of UMB Bank, n.a. since 1993. Executive Vice President prior thereto. William C. Tempel....... 59 Divisional Executive Vice President of UMB Bank, n.a. since 1997, having previously served as President and Chief Executive Officer of UMB Bank Kansas (a former subsidiary of the Company). Douglas F. Page......... 54 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..... 40 Chief Financial Officer since 1994. Chief Financial Officer of UMB Bank Kansas prior thereto. James C. Thompson....... 55 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........... 53 Executive Vice President of UMB Bank, n.a. since 1985. James D. Matteoni....... 55 Chief Information Officer of UMB Bank, n.a. since 1996. Dennis R. Rilinger...... 50 Divisional Executive Vice President and Chief Legal Officer of UMB Bank, n.a. since 1996. Mark A. Schmidtlein..... 38 Divisional Executive Vice President of UMB Bank, n.a. since 1996. Senior Vice President prior thereto. Dennis L. Triplett...... 51 Divisional Executive Vice President of UMB Bank, n.a. since 1995. Regional Bank President prior thereto.
3 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 available for lease to third parties. The Company's principal law firm and principal accounting firm are leasees. 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, 1997 the Company's affiliate banks operated a total of 16 main banking houses and 129 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 20 additional offices, which circle the metropolitan area. The Company is in the process of constructing an 180,000 square foot operations center in downtown Kansas City, Missouri. This building will house the Company operational and item processing functions as well as management information system. Occupancy is expected in the second quarter of 1999. Additional information with respect to premises and equipment is presented on page A-33 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, 1997. 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, 1997. 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, 1997, the Company had 2,539 shareholders. Dividend and sale prices of stock information, by quarter, for the past two years is contained on page A-22 of the attached Appendix and is hereby incorporated by reference. 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-21 of the attached Appendix and is hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA See the "Five-Year Financial Summary" on page A-2 of the attached Appendix, which is incorporated herein by reference. 4 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See the "Financial Review" on pages A-3 through A-22 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-23 through A-44. Summary of Operating Results by Quarter -- page A-22. 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 1998 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 1998 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 is included in the Company's 1998 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 1998 Proxy Statement under the caption "Stock Beneficially Owned by Directors and Nominees and Executive Officers" and is hereby incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is included in the Company's 1998 Proxy Statement under the caption "Certain Transactions" and is hereby incorporated by reference. 5 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, 1997, 1996 and 1995................................................ A-23 Consolidated Statement of Income for the Three Years Ended December 31, 1997................................. A-24 Consolidated Statement of Cash Flows for the Three Years Ended December 31, 1997................................. A-25 Consolidated Statement of Shareholders' Equity for the Three Years Ended December 31, 1997..................... A-26 Notes to Financial Statements............................ A-27-A-44 Independent Auditors' Report............................. A-45
Condensed financial statements for parent company only may be found on page A-44. 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 The Company did not file a report on Form 8-K during the fourth quarter of 1997. 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 24, 1998 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. Howard R. Fricke* Director ______________________ Howard R. Fricke Newton A. Campbell* Director ______________________ Newton A. Campbell William Terry Fuldner* Director ______________________ William Terry Fuldner Director ______________________ Jack T. Gentry Peter J. Genovese* Director ______________________ Peter J. Genovese
C.N. Hoffman, III* Director ______________________ C.N. Hoffman, III 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. 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
8 Director _______________________________ Herman R. Sutherland Robert W. Plaster* Director _______________________________ Robert W. Plaster Alan W. Rolley* Director _______________________________ Alan W. Rolley E. Jack Webster, Jr.* Director _______________________________ E. Jack Webster, Jr. _______________________________ Director John E. Williams Joseph F. Ruysser* Director _______________________________ Joseph F. Ruysser Thomas D. Sanders* Director _______________________________ Thomas D. Sanders */s/ R. Crosby Kemper - ------------------------------------- R. Crosby Kemper Attorney-in-Fact for each director Date: March 24, 1998 9 UMB FINANCIAL CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGES ----- Consolidated Balance Sheet........................................ A-23 Consolidated Statement of Income.................................. A-24 Consolidated Statement of Cash Flows.............................. A-25 Consolidated Statement of Shareholders' Equity.................... A-26 Notes to Financial Statements..................................... A-27 to A-44 Independent Auditors' Report...................................... A-45 Selected Financial Data ("Five-Year Financial Summary")........... A-2 Management's Discussion and Analysis of Financial Condition and Results of Operations ("Financial Review")............................................. A-3 to A-22
A-1 UMB FINANCIAL CORPORATION FIVE-YEAR FINANCIAL SUMMARY
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS EXCEPT PER SHARE DATA) EARNINGS Interest income......... $ 393,329 $ 372,077 $ 357,055 $ 323,260 $ 283,215 Interest expense........ 171,794 164,581 157,787 136,064 119,718 Net interest income..... 221,535 207,496 199,268 187,196 163,497 Provision for loan loss- es..................... 11,875 10,565 5,090 2,640 3,332 Noninterest income...... 144,883 135,407 117,001 119,102 115,792 Noninterest expense..... 264,742 246,808 233,556 233,259 214,708 Net income.............. 61,704 57,532 52,176 47,814 41,119 AVERAGE BALANCES Assets.................. $6,482,613 $6,137,232 $5,899,169 $6,372,607 $5,766,843 Loans, net of unearned interest............... 2,649,023 2,437,829 2,346,325 2,148,606 1,786,529 Securities*............. 2,538,690 2,487,641 2,382,248 2,844,306 2,729,270 Deposits................ 4,929,799 4,667,956 4,581,349 5,021,401 4,559,551 Long-term debt.......... 48,907 55,349 44,450 50,370 53,522 Shareholders' equity.... 598,631 574,343 597,401 572,446 502,614 YEAR-END BALANCES Assets.................. $7,054,007 $6,511,986 $6,281,328 $6,599,020 $6,528,826 Loans, net of unearned interest............... 2,786,031 2,557,641 2,406,138 2,269,617 2,159,761 Securities*............. 2,884,503 2,706,549 2,694,781 2,660,047 2,979,156 Deposits................ 5,546,997 5,190,534 4,813,683 5,132,834 5,161,729 Long-term debt.......... 44,550 51,350 40,736 46,330 51,529 Shareholders' equity.... 624,236 582,477 575,959 557,306 586,643 PER SHARE DATA Earnings--basic......... $ 3.02 $ 2.75 $ 2.29 $ 2.05 $ 1.93 Earnings--diluted....... 3.01 2.74 2.28 2.04 1.92 Cash dividends.......... 0.76 0.72 0.67 0.63 0.60 Dividend payout ratio... 25.17% 26.18% 29.26% 30.73% 31.09% Book value.............. $ 30.55 $ 28.13 $ 26.78 $ 24.18 $ 24.94 Market price High................... 54.50 39.76 41.05 28.49 30.55 Low.................... 36.19 30.61 24.73 24.32 27.35 Close.................. 54.50 38.57 31.97 25.77 28.10 RATIOS Return on average as- sets................... 0.95% 0.94% 0.88% 0.75% 0.71% Return on average equi- ty..................... 10.31 10.02 8.73 8.35 8.18 Average equity to as- sets................... 9.23 9.36 10.13 8.98 8.72 Total risk-based capital ratio.................. 16.26 15.63 16.16 17.85 18.50
- -------- Per share information restated for 5% stock dividend paid January 2, 1998. * Securities include investment securities and securities available for sale. A-2 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, 1997. 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. These statements are based on current financial and economic data and management's expectations for the future. 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, loan demand, the ability of customers to repay loans, consumer savings habits, employment costs and interest rate changes. OVERVIEW The Company recorded consolidated net income of $61.7 million for the year ended December 31, 1997. This represents a 7.3% increase over 1996 net income of $57.5 million. Net income for 1996 represented a 10.3% increase over 1995 results of $52.2 million. Earnings per share for the year ended December 31, 1997 were $3.02, compared with $2.75 in 1996 and $2.29 in 1995. Earnings per share for 1997 increased 9.8% over 1996 per share earnings, which was a 20.4% increase over 1995. Per share earnings growth outpaced the increase in net income as a result of ongoing common stock repurchases. The Company continues to consider common stock repurchases based on availability, price and alternative use of funds. All share and per share data has been restated to give effect to a 5% stock dividend distributed to shareholders on January 2, 1998. The Company's improvements in earnings for 1997 and 1996 were the result of increases in both net interest income and noninterest income, partially offset by increased operating expenses. In 1996, however, increases in noninterest income drove a larger percentage of the change. In addition, the Company more than doubled the provision for loan losses in 1996, as compared to a 12.4 percent increase in 1997. Return on average assets was 0.95%, 0.94% and 0.88% for each of the years in the three year period ended December 31, 1997, respectively. Return on average shareholders' equity was 10.31% for 1997, 10.02% for 1996 and 8.73% for 1995. The Company's consolidated asset total was $7.1 billion at December 31, 1997, compared to $6.5 billion at year-end 1996 and $6.3 billion at year-end 1995. Average assets for 1997, 1996 and 1995 were $6.5 billion, $6.1 billion and $5.9 billion, respectively. The increase in year-end asset totals as compared to the average for the year, was primarily the result of year-end tax receipts deposited by various state and local government entities. Average totals are more indicative of the Company's asset base on an ongoing basis. Average loans as a percentage of average assets were 40.9% in 1997, 39.7% in 1996 and 39.8% in 1995. Average deposits were $4.9 billion in 1997, $4.7 billion in 1996 and $4.6 billion in 1995. RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income is the Company's primary source of earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on the liabilities. Net interest income is affected by the volumes of interest-earning assets and the related funding sources, the overall mix of these assets and liabilities and the rates paid on each. Table 1 summarizes the changes in net interest income resulting from changes in volume and rates for the prior two years. Net interest margin is calculated as net interest income on a fully tax-equivalent basis (FTE) as a percentage of average earning assets. A critical component of net interest income and related net interest margin is the percentage of earning assets funded by interest-free funding sources. A-3 Net interest income, average balance sheet amounts and the corresponding yields earned and rates paid for the years 1993 through 1997 are presented on pages A-46 and A-47. 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 obligations of state and local governments. 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) --------------------- ---------- ------------------------- 1997 1996 1997 1996 1997 VS. 1996 VOLUME RATE TOTAL ---------- ---------- ---- ---- ------------------------ ------- ------- ------- Change in interest earned on: $2,649,023 $2,437,829 8.95% 9.09% Loans.................. $18,939 $(3,428) $15,511 Securities: 2,166,628 2,169,823 5.87 5.66 Taxable............... (181) 4,373 4,192 372,062 317,818 6.61 6.68 Tax-exempt............ 3,587 (229) 3,358 Federal funds sold and 138,787 185,624 6.07 5.39 resell agreements..... (2,738) 1,151 (1,587) 83,668 69,244 6.13 6.12 Other.................. 884 7 891 ---------- ---------- ---- ---- ------- ------- ------- $5,410,168 $5,180,338 7.43% 7.33% Total................. $20,491 $ 1,874 $22,365 Change in interest incurred on: Interest-bearing $3,353,593 $3,281,783 3.82% 3.75% deposits............... $ 2,720 $ 2,095 $ 4,815 Federal funds purchased and repurchase 800,128 771,522 5.06 4.84 agreements............. 1,414 1,702 3,116 49,473 56,383 6.77 7.21 Other.................. (478) (240) (718) ---------- ---------- ---- ---- ------- ------- ------- $4,203,194 $4,109,688 4.09% 4.00% Total................. $ 3,656 $ 3,557 $ 7,213 ========== ========== ==== ==== ------- ------- ------- Net interest income..... $16,835 $(1,683) $15,152 ======= ======= ======= AVERAGE AVERAGE VOLUME RATE INCREASE (DECREASE) --------------------- ---------- ------------------------- 1996 1995 1996 1995 1996 VS. 1995 VOLUME RATE TOTAL ---------- ---------- ---- ---- ------------------------ ------- ------- ------- Change in interest earned on: $2,437,829 $2,346,325 9.09% 9.33% Loans.................. $ 8,404 $(5,829) $ 2,575 Securities: 2,169,823 2,076,169 5.66 5.32 Taxable............... 5,119 7,215 12,334 317,818 306,079 6.68 6.83 Tax-exempt............ 790 (455) 335 Federal funds sold and 185,624 187,836 5.39 5.86 resell agreements..... (129) (861) (990) 69,244 60,239 6.12 6.19 Other.................. 551 (41) 510 ---------- ---------- ---- ---- ------- ------- ------- $5,180,338 $4,976,648 7.33% 7.34% Total................. $14,735 $ 29 $14,764 Change in interest incurred on: Interest-bearing $3,281,783 $3,244,545 3.75% 3.75% deposits............... $ 1,397 $ 144 $ 1,541 Federal funds purchased and repurchase 771,522 613,862 4.84 5.32 agreements............. 7,835 (3,140) 4,695 56,383 45,570 7.21 7.70 Other.................. 791 (233) 558 ---------- ---------- ---- ---- ------- ------- ------- $4,109,688 $3,903,977 4.00% 4.04% Total................. $10,023 $(3,229) $ 6,794 ========== ========== ==== ==== ------- ------- ------- Net interest income..... $ 4,712 $ 3,258 $ 7,970 ======= ======= =======
A-4 FTE interest income increased by $22.3 million during 1997 to $402.2 million compared to $379.9 million for 1996. Interest income for 1996 represented a $14.8 million increase over the total for 1995 of $365.1 million. Interest expense in 1997 amounted to $171.8 million, a $7.2 million increase over 1996 expense of $164.6 million. Interest expense in 1996 increased by $6.8 million from 1995 expense of $157.8 million. These changes resulted in an increase in net interest income for 1997 of $15.1 million to $230.4 million compared to $215.3 million for 1996 and $207.3 million in 1995. TABLE 2: ANALYSIS OF NET INTEREST MARGIN
1997 1996 CHANGE ---------- ---------- -------- (IN THOUSANDS) Average earning assets....................... $5,410,169 $5,180,338 $229,831 Interest-bearing liabilities................. 4,203,195 4,109,688 93,507 ---------- ---------- -------- Interest-free funds.......................... $1,206,974 $1,070,650 $136,324 ========== ========== ======== Free funds ratio (free funds to earning as- 22.31% 20.67% 1.64% sets)....................................... ===== ===== ==== Tax-equivalent yield on earning assets....... 7.43% 7.33% 0.10% Cost of interest-bearing liabilities......... 4.09 4.00 0.09 ----- ----- ---- Net interest spread.......................... 3.34% 3.33% 0.01% Benefit of interest-free funds............... 0.92 0.83 0.09 ----- ----- ---- Net interest margin.......................... 4.26% 4.16% 0.10% ===== ===== ====
Average earning assets increased by approximately 4.0% in both 1997 and 1996. These assets totaled $5.4 billion in 1997 compared to $5.2 billion in 1996 and $5.0 billion in 1995. During 1997, average loans increased by 8.7% compared to a 2.1% increase in average investment securities. During 1996, the increase was evenly distributed to both loans and investment securities. The increase in average earning assets for 1997 was funded by an increase in both interest-bearing and noninterest-bearing demand deposits. The increase in 1996 was funded by an increase in federal funds purchased and an increase in deposits. The Company's net interest spread was 3.34% in 1997, 3.33% in 1996 and 3.30% in 1995. Net interest spread is calculated as the difference between the yield earned on earning assets and the rate paid on interest-bearing liabilities. As a result of the change in the earning asset mix and the related funding source, the Company's net interest margin increased to 4.26%, compared to 4.16% in 1996. In 1997, as compared to 1996, loans comprised a higher percentage of earning assets. In addition, non-interest-bearing deposits represented a larger portion of total funding sources. The Company's asset mix and funding costs were relatively unchanged in 1996 as compared to 1995, resulting in a flat net interest margin. During 1997 the yield on loans decreased by 14 basis points as compared with 1996. In comparing 1996 to 1995, the yield on loans decreased by 24 basis points. These decreases were the result of a very competitive loan market, especially for the high quality loans targeted by the Company. The decrease in the yield on loans was offset by an 18 basis point and a 27 basis point increase in the yield on investment securities during 1997 and 1996, respectively. The Company improved the yield on its securities portfolio by reinvesting maturities at a higher yield and changing the mix of securities. The average life of the core investment portfolio was 23 months at December 31, 1997, compared to 25 months and 18 months at year-end 1996 and 1995, respectively. The causes for the increase in net interest income in 1997 from that experienced in 1996 can be seen in the information in Table 1. The majority of the increase in net interest income for 1997 was the result of a volume/mix change in earning assets. Over 90% of the increase in interest income relating to volume changes for 1997 resulted from an increase in loans. During 1997 the yield on earning assets increased 10 basis points from one year earlier. This compares to a 9 basis point increase in the cost of funds for the same period. The increase in net interest income in 1996 as compared to 1995 was significantly affected by both changes in the volume/mix of earning assets and related funding sources and the rates paid on both. A-5 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, the 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 1997 1996 1995 1994 1993 - ------------- ------- ------- ------- ------- ------- (IN THOUSANDS) Commercial.............................. $17,000 $17,300 $16,150 $16,000 $17,500 Consumer................................ 15,400 15,000 13,500 13,400 13,500 Real estate............................. 750 1,000 2,500 2,500 3,000 Agricultural............................ 50 50 450 500 1,000 Leases.................................. 50 50 50 50 50 Unallocated............................. 24 14 35 77 540 ------- ------- ------- ------- ------- Total allowance........................ $33,274 $33,414 $32,685 $32,527 $35,590 ======= ======= ======= ======= =======
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. The Company utilizes a centralized credit administration function which provides information on affiliate bank risk levels, delinquencies, an internal ranking system and overall credit exposure. In addition, loan requests are centrally reviewed to ensure the consistent application of the loan policy and standards. The Company's allowance for loan losses was $33.3 million at December 31, 1997 compared to $33.4 million at year-end 1996 and $32.7 million at year-end 1995. This represents an allowance to total loans of 1.2%, 1.3% and 1.4% as of December 31, 1997, 1996 and 1995, respectively. At December 31, 1997 the allowance for loan losses exceeded total nonperforming loans by $29.2 million. Non-performing loans include nonaccrual loans and restructured loans. The year-end 1997 allowance for loan losses was 277% of net credit losses incurred during 1997. 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, 1997. Significant changes in general economic conditions and in the ability of specific customers to repay loans will impact the level of the provision for loan losses required in future years. The Company recorded a provision for loan losses of $11.9 million during 1997, compared to $10.6 million in 1996 and $5.1 million in 1995. The increase in the loan loss provision in 1997 from the previous year was primarily the result of higher charge-offs related to consumer loans. Several factors specifically contributing to the higher level of charge-offs were an increase in bankruptcy filings and increased losses from indirect automobile paper purchased by the Company. Purchasing guidelines in this area have been adjusted and the rate of losses in this area is expected to decrease. Increased losses associated with the Company's bankcard portfolio also contributed to the higher provision for loan losses in 1997 and was the primary factor for the increase in 1996 over 1995. Losses in this area have increased, as they have for the entire industry, as consumer indebtedness has risen to record levels. Access to multiple credit cards, many with low introductory rates, has fueled A-6 unprecedented levels of consumer debt, which in many instances cannot be supported by the consumer. Predicting and tracking losses in this area has become more difficult as consumers use multiple credit cards to support existing debt. This has resulted in an increase in the instances of consumers taking bankruptcy before their debt has become seriously delinquent. Though the Company's losses in this area have increased, management believes the losses and delinquency levels of the bankcard portfolio will remain below industry averages. The bankcard portfolio represents only 6.6% of the Company's total loans as of December 31, 1997. Bankcard loan delinquencies over 30 days totaled 2.8% of total bankcard loans as of year-end 1997. The Company will continue to closely monitor the bankcard loan portfolio, the related collection efforts and underwriting in order to minimize credit losses. Also contributing to the increase in the 1996 provision for loan losses was uncertainty concerning two of the Company's commercial loans. These loans comprised over 80% of the Company's total nonaccrual loans as of December 31, 1996. The Company did not incur a significant loss on either of these credits. Table 4 presents a five-year summary of the Company's allowance for loan losses. TABLE 4: ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Allowance -- beginning of year................ $ 33,414 $ 32,685 $ 32,527 $ 35,590 $ 24,456 Provision for loan loss- es..................... 11,875 10,565 5,090 2,640 3,332 Allowances of acquired banks.................. -- -- 485 -- 12,076 Charge-offs: Commercial............. $ (2,992) $ (2,668) $ (948) $ (2,833) $ (1,717) Consumer: Bankcard.............. (8,130) (7,592) (5,427) (4,236) (3,983) Other................. (3,103) (1,904) (1,602) (1,018) (836) Real estate............ (98) (171) (113) (182) (578) Agricultural........... (9) -- -- -- (21) ---------- ---------- ---------- ---------- ---------- Total charge-offs... $ (14,332) $ (12,335) $ (8,090) $ (8,269) $ (7,135) Recoveries: Commercial............. $ 268 $ 391 $ 947 $ 573 $ 1,051 Consumer: Bankcard.............. 1,097 1,163 994 1,102 1,144 Other................. 684 532 569 528 469 Real estate............ 117 207 122 118 138 Agricultural........... 151 206 41 245 59 ---------- ---------- ---------- ---------- ---------- Total recoveries.... $ 2,317 $ 2,499 $ 2,673 $ 2,566 $ 2,861 ---------- ---------- ---------- ---------- ---------- Net charge-offs......... $ (12,015) $ (9,836) $ (5,417) $ (5,703) $ (4,274) ---------- ---------- ---------- ---------- ---------- Allowance -- end of year................... $ 33,274 $ 33,414 $ 32,685 $ 32,527 $ 35,590 ========== ========== ========== ========== ========== Average loans, net of unearned interest...... $2,649,023 $2,437,829 $2,346,325 $2,148,606 $1,786,529 Loans at end of year, net of unearned interest............... 2,786,031 2,557,641 2,406,138 2,269,617 2,159,761 Allowance to loans at year-end............... 1.19% 1.31% 1.36% 1.43% 1.65% Allowance as a multiple of net charge-offs..... 2.77x 3.40x 6.03x 5.70x 8.33x Net charge-offs to: Provision for loan losses................ 101.18% 93.10% 106.42% 216.02% 128.27% Average loans.......... 0.45 0.40 0.23 0.27 0.24
A-7 NONINTEREST INCOME A key objective of the Company is the growth of noninterest income 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 provide the opportunity to offer multiple products and services to customers and, therefore, more closely align the customer with the Company. The Company's goal is to offer multiple products and services to its customers, the quality of which will differentiate us from the competition. Fee-based services that have been emphasized include trust and securities processing, securities trading and cash management. Fee income, exclusive of net security and asset gains, as a percent of adjusted operating revenues, was 38.0% in 1997 compared to 36.8% in 1996. Adjusted operating revenues is defined as tax-equivalent net interest income plus noninterest income, excluding net security and asset gains. Noninterest income, exclusive of net security gains and gains on sale of assets, was $141.0 million in 1997 compared to $125.1 million in 1996 and $113.1 million in 1995. This represents a 12.7% increase in 1997 over the prior year, compared to a growth rate of 10.9% during 1996. This growth in 1997 was fueled by a 9.02% increase in trust fees, a 23.9% increase in fees related to securities processing and a 17.5% increase in services charges and fees. The increase in fee income for 1996 was primarily the result of higher fee income from trust services and increases in nondeposit service charges and fees. The Company's most significant source of fee income is generated by the Trust Division. Trust services have long been an identified strength of the Company and are expected to continue to be the primary driver of fee income. The Company offers a full range of trust services including personal and custody services, investment management and employee benefits processing. The Company has created a Private Client Services division which offers full trust and personal banking services to high net worth individuals. Income from trust services totaled $45.3 million in 1997, $41.5 million in 1996 and $35.9 million in 1995. The largest contributor to the increase in trust income for 1997 was from employee benefit services. While the Company has had sustained growth in all of its trust services, the marketing and pricing of employee benefit services were heavily emphasized during 1997. This growth and emphasis is expected to continue in 1998. The increase in trust fees for 1996 was partially the result of a comprehensive review, performed during 1995, of the structure of trust fees and services. Fee revenue in 1997 and 1996 also benefited from the appreciation of assets under management. The aggregate value of managed trust assets was $12.7 billion at December 31, 1997, compared to $10.5 billion at year-end 1996 and $10.0 billion at year-end 1995. The Company's securities processing and custody revenue is primarily related to the mutual fund industry. Revenues from securities processing were $11.8 million in 1997, $9.5 million in 1996 and $10.5 million in 1995. The increase in revenue for 1997 was the result of ongoing efforts to grow this business line by expanding the Company's customer base. The significant growth in the number and size of mutual funds has given the Company more opportunity to develop new customer relationships and has fueled growth for existing customers. The decline in revenue for 1996 primarily resulted from the loss of what was the Company's largest securities processing customer. During 1994, this customer was acquired by a competitor of the Company and as a result, this processing business began to transition away from the Company and was eliminated during the second quarter of 1995. The Company has used this change as an opportunity to diversify the business line by developing new relationships with other customers and therefore be less reliant on one significant customer. Fee revenue in 1996 was also impacted by a change in accounting for services provided by subservicers. Customer fees for these services, approximately $800,000 in 1996, are now paid directly to the subservicer and not recorded as both noninterest income and expense by the Company. Total trust assets under custody were $109.5 billion at December 31, 1997, $97.4 billion at December 31, 1996 and $91.2 billion at December 31, 1995. Fees and service charges on deposit accounts were $36.6 million in 1997, $33.4 million in 1996 and $33.2 million in 1995. The increase in fees for 1997 was primarily related to corporate deposit accounts as a result of new customer relationships and the sale of additional services. The level of compensating balances maintained A-8 by corporate customers and the earnings credit rate applied to the balances also impacts the level of fee income received. Other service charges and fees increased to $21.0 million in 1997 from $15.7 million in 1996 and $11.3 million in 1995. Significant increases were achieved in both 1997 and 1996 as a result of increased sale of cash management services, an increase in fees for home banking services and the expansion of the Company's ATM network to 486 machines at year-end 1997, compared to 348 and 302 at year-end 1996 and 1995, respectively. Bankcard fees were $7.0 million in 1997, $6.3 million in 1996 and $6.8 million in 1995. Trading and investment banking income totaled $13.7 million in 1997, compared to $12.8 million in 1996 and $11.2 million in 1995. The change in 1997 primarily resulted from an increase in retail brokerage activity. The improved results for 1996 over 1995 were the result of an increase in retail sales and increased demand for mortgage-backed security products, which carry a higher profit margin. Other income was $7.2 million in 1997 compared to $15.7 million in 1996 and $6.8 million in 1995. Included in income for 1997 was a $1.6 million gain on the sale of the Company's mortgage servicing rights. The assets of this line of business were sold because it had become a scale-driven commodity product line that the Company did not believe was critical to attracting and maintaining customer relationships. Included in 1996 income was a $9.8 million gain on the sale of the processing rights to the Company's merchant bankcard portfolio. The Company decided to sell this processing because as a volume- driven, commodity-priced product, it was not consistent with the Company's goal to offer value-added products for its customers. Included in other income for 1995 was a $2.5 million gain on the sale of the Company's minority ownership in an unconsolidated subsidiary. NONINTEREST EXPENSE Total 1997 noninterest expense increased 7.3% to $264.7 million compared to 1996 expense of $246.8 million and 1995 expense of $233.6 million. During 1997 the Company continued to experience increases in staffing and other operating costs due to physical, operational and technological expansion efforts. These costs also increased in 1996, as compared to 1995, but were partially offset by a decrease in premiums for deposit insurance. Costs associated with staffing are the largest component of non-interest expense as they approximate 53% of total costs. Salaries and employee benefits expense increased 7.8% to $141.6 million in 1997 compared to $131.4 million in 1996 and $122.6 million in 1995. Staffing levels at year-end 1997 were 4,056 compared to 3,843 at the end of 1996. The increase in staff and related expense for 1997 resulted from the expansion of the Company's branch network and the strategic decision to add resources to certain critical areas of the Company. During 1997 the Company continued to increase its technology spending. This spending has included both the upgrade of old legacy systems as well as investments in new delivery and information systems. Some of the initiatives under way at the Company include the conversion of all affiliate banks to a new deposit processing system, a consolidated call center, expanded internet capabilities, an upgrade to the core mainframe computer, new processing and information systems for trust services and the creation of an enterprise data warehouse. As the demand for qualified data processing staff continues to increase due to the limited resources available in the marketplace to address the millennium date change, the Company's costs in this area will continue to increase. During the year the Company also added staffing resources in the trust area, specifically for employee benefit services. Demand for employee benefit services increased significantly during 1997, partially as a result of consolidation in the banking industry. Staffing increases also occurred as a result of additional cash management business, also the result of industry consolidation. Staffing levels and costs were also impacted by the opening of 14 new facilities during 1997. These new locations, which include both full service and grocery store mini-branches, had a year- end staffing of approximately 45. Several factors resulted in the increase in staffing costs for 1996. During 1996, the Company opened and staffed 11 new banking facilities. Staffing levels and costs related to management information systems also increased in 1996, as compared to 1995. Staffing costs for 1996, compared to 1995, were also impacted by the December, 1995 acquisition of a bank in Oklahoma with a staff of approximately 50. This acquisition was accounted for as a purchase transaction. The control of staffing costs has A-9 been and will continue to be an important goal for the Company. Control of these costs must be tempered with a view of the long-term strategy of the Company. The Company will continue to allocate people and resources to those areas that will best benefit the Company in the long term. At the same time, management will strive to gain efficiencies in its existing products, services and processes. Occupancy expense increased to $19.0 million in 1997 from $17.9 million in 1996 and $16.0 million in 1995. Equipment expense increased to $27.7 million in 1997 compared to $24.7 million in 1996 and $22.3 million in 1995. The increases in both 1997 and 1996 occupancy and equipment expense were primarily the result of the expansion efforts noted previously. The Company has not only made investments in new banking facilities, but also in new technology, including network systems, software and operating platforms. Costs in these areas will be managed based on the long-term needs of and benefits to the Company. Expenses for supplies and services increased to $20.4 million, compared to $18.8 million in 1996 and $19.2 million in 1995. The increase in 1997 primarily resulted from higher staffing levels. Courier costs also increased during 1997 due to increased transaction and processing volumes. During 1996, the savings achieved from a new long distance provider partially offset other increases in postage, courier services and paper items. Marketing and business development costs increased in 1997 to $17.7 million from $15.3 million in 1996 and $13.1 million in 1995. The higher costs in both 1997 and 1996 expense were primarily the result of an increase in systemwide advertising and expanded business development activities. During 1997 and 1996, there was significant change in the Company's market due to industry consolidation. During this period of rapid change, management decided it was appropriate to increase spending on both business development activities and advertising. Other operating expenses increased to $23.8 million in 1997, compared to $22.9 million in 1996 and $20.0 million in 1995. The increase in 1997 was driven by higher safekeeping fees related to custody services and increased interchange fees to support home banking products. The increase in 1996 expense resulted from a higher level of purchased data processing services, an increase in legal and professional expenses and a general increase in costs associated with clearinghouse and transaction processing services. Bankcard processing expense totaled $5.5 million in 1997 compared to $7.2 million in 1996 and $5.8 million in 1995. In the first quarter of 1996, the Company sold the servicing rights to its merchant bankcard portfolio and, therefore, no longer received merchant processing discount and fees or incurred the related costs. In order to provide a meaningful and consistent method of presentation, prior period's income related to merchant processing activities was netted against bankcard processing expense. Costs for 1996, therefore, include the results of the merchant bankcard activity prior to the sale of the servicing rights. Expense associated with deposit insurance and regulatory fees increased to $1.9 million in 1997 from $1.3 million in 1996. In 1995, this expense was $7.6 million. The decrease in 1996 was the result of a mid-year reduction in the assessment rate for deposit insurance during 1995. The Company was not significantly affected by special assessments placed on deposit balances acquired through savings institutions. INCOME TAXES Income tax expense totaled $28.1 million in 1997, compared to $28.0 million in 1996 and $25.4 million in 1995. These expense levels equate to effective tax rates of 31.3%, 32.7% and 32.8% for 1997, 1996 and 1995, respectively. The decrease in the effective tax rate for 1997 was primarily the result of an increase in tax exempt securities and a reduction in state and local income taxes. The primary reason for the difference between the Company's effective tax rate and the statuary rate is the effect of nontaxable income, partially offset by nondeductible goodwill amortization. FINANCIAL CONDITION LOANS Loans represent the Company's largest source of interest income. At December 31, 1997 loans amounted to $2.8 billion compared to $2.6 billion in 1996 and $2.4 billion in 1995. Loan totals for 1997 represent an 8.9% A-10 increase over 1996, which had increased 6.3% over year-end 1995 loans. The increase in average loan balances for 1997 was slightly below the increase in year-end totals. Average loan balances for 1997 increased by 8.7% and 1996 average loans increased by 3.9%. Increases in commercial loans totaled $141.5 million, or 11.9%, in 1997. Consumer installment loans increased by $122.9 million, or 16.8%, in 1997. The increase in consumer loans was primarily the result of a higher level of both direct and indirect automobile lending. Although indirect lending has fueled the increase in consumer loans, the Company has and will continue to increase its direct consumer lending. There is a much better opportunity to cross sell other products to a direct loan customer. In addition these loans have a better loss experience than indirect loans. The Parent Company's Credit Administration Department performs timely reviews of loan quality and underwriting procedures in affiliate banks which experienced significant increases in consumer loans. TABLE 5: ANALYSIS OF LOANS BY TYPE
DECEMBER 31 ---------------------------------------------------------- AMOUNT 1997 1996 1995 1994 1993 - ------ ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Commercial.............. $1,325,988 $1,184,443 $1,092,292 $1,066,621 $1,035,159 Agricultural............ 51,392 51,649 60,128 69,206 68,148 Leases.................. 3,991 2,596 2,057 2,157 1,627 Real estate -- commer- cial................... 231,510 258,561 300,493 281,011 280,060 ---------- ---------- ---------- ---------- ---------- Total business-relat- ed................... $1,612,881 $1,497,249 $1,454,970 $1,418,995 $1,384,994 ---------- ---------- ---------- ---------- ---------- Bankcard................ $ 184,726 $ 183,301 $ 201,048 $ 188,374 $ 180,345 Other consumer install- ment................... 854,605 731,661 583,433 500,298 411,037 Real estate -- residen- tial................... 133,819 145,478 167,077 163,554 186,097 ---------- ---------- ---------- ---------- ---------- Total consumer-relat- ed................... $1,173,150 $1,060,440 $ 951,558 $ 852,226 $ 777,479 ---------- ---------- ---------- ---------- ---------- Total loans........... $2,786,031 $2,557,689 $2,406,528 $2,271,221 $2,162,473 Unearned interest....... -- (48) (390) (1,604) (2,712) Allowance for loan loss- es..................... (33,274) (33,414) (32,685) (32,527) (35,590) ---------- ---------- ---------- ---------- ---------- Net loans............. $2,752,757 $2,524,227 $2,373,453 $2,237,090 $2,124,171 ========== ========== ========== ========== ========== AS A % OF TOTAL LOANS - --------------------- Commercial.............. 47.6% 46.3% 45.4% 47.0% 47.9% Agricultural............ 1.9 2.0 2.5 3.0 3.2 Leases.................. 0.1 0.1 0.1 0.1 0.1 Real estate -- commer- 8.3 10.1 12.5 12.4 12.9 cial................... ----- ----- ----- ----- ----- Total business-relat- 57.9% 58.5% 60.5% 62.5% 64.1% ed................... ----- ----- ----- ----- ----- Bankcard................ 6.6% 7.2% 8.4% 8.3% 8.3% Other consumer install- ment................... 30.7 28.6 24.2 22.0 19.0 Real estate -- residen- 4.8 5.7 6.9 7.2 8.6 tial................... ----- ----- ----- ----- ----- Total consumer-relat- 42.1% 41.5% 39.5% 37.5% 35.9% ed................... ----- ----- ----- ----- ----- Total loans........... 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
Included in Table 5 is a five-year breakdown of loans by type. Business- related loans continue to represent the largest segment of the Company's loan portfolio. The focus of the Company and each of its affiliate banks is on the small to medium-sized commercial companies within their respective trade areas. The Company targets customers that will utilize multiple banking services and products. The ownership structure of the Company and the continuity of its management and relationship officers are generally viewed by customers as a significant strength of the Company and benefit to the customer. The Company's goal is to differentiate itself from its large super- regional and national competitors through superior service, attention to detail, customer knowledge and A-11 responsiveness. The Company's size allows it to meet this goal and at the same time offer the wide range of products most customers need. This strategy has worked especially well during a period of bank consolidation and should continue to be a benefit. During both 1997 and 1996, the Company experienced very strong growth in the new markets it entered. There was a definite demand in these markets for bank services delivered with the customer-driven focus that the Company practices. In the near term, the Company has tremendous potential to increase market share as a result of the rapid consolidation of financial institutions throughout the Midwest. The Company will continue to expand its efforts to attract customers that understand and seek the advantages of banking with a Company headquartered in their market. Commercial real estate loans have decreased to $232 million at December 31, 1997 from $259 million at year-end 1996 and $300 million at year-end 1995. As a percentage of total loans, commercial real estate loans now comprise only 8.3% of totals, compared to 10.1% and 12.5% in 1996 and 1995, respectively. Generally, these loans are made for working capital or expansion purposes and are primarily secured by real estate with a maximum loan-to-value of 80%. Many of these properties are owner-occupied and have other collateral or guarantees as security. Bankcard loans have decreased as a percentage of total loans. They comprise only 6.6% of total loans compared to 7.2% in 1996 and 8.4% in 1995. This decrease was the result of increased competition from banking and non-banking card issuers. This competition frequently offers favorable introductory rates in an effort to obtain transfer balances from other cards. The Company has elected not to seek loan volume in such a manner. The Company's credit and underwriting standards have become more strict as more consumers acquire multiple credit cards with revolving balances. LOAN QUALITY The strength of the Company's credit standards is reflected in the credit quality of the loan portfolio. A primary indicator of credit quality and risk management is the level of nonperforming loans. Nonperforming loans include both nonaccrual loans and restructured loans. The Company's nonperforming loans decreased during 1997 to $4.1 million at December 31, 1997, compared to $11.5 million a year earlier. The level of nonperforming loans at year-end 1997 represents 0.15% of total loans compared to 0.45% in 1996 and 0.15% in 1995. The Company's nonperforming loans have not exceeded 0.5% of total loans in any of the last six years. At December 31, 1997, the Company had $2.0 million in other real estate owned. Totals for year-end 1996 and 1995 were $1.6 million and $0.6 million, respectively. Loans past due more than 90 days totaled $7.8 million, $6.7 million and $5.3 million at December 31, 1997, 1996 and 1995, respectively. Bankcard loans represented approximately 24% of these past due totals at December 31, 1997. 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 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. Loan portfolios are also reviewed by the respective regulatory authority of each affiliate bank. 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 less than 10% 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-12 A loan is generally placed on nonaccrual status when payments are past due 90 days or more and/or 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 1997, $185,000 of interest due was not recorded as earned, compared to $983,000 for the prior year. Certain loans are restructured to provide a reduction or deferral of interest or principal due to deterioration in the financial condition of the respective borrowers. Management estimates that approximately $64,000 of additional interest would have been earned in 1997 if the terms of these loans had been performing in accordance with their original contracts. 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 $274,000 of interest due as earned for 1997. The comparative amount for 1996 was $221,000. TABLE 6: LOAN QUALITY
DECEMBER 31 ----------------------------------------- 1997 1996 1995 1994 1993 ------ ------- ------ ------- ------- (IN THOUSANDS) Nonaccrual loans.................... $2,600 $10,953 $2,664 $ 3,131 $ 4,639 Restructured loans.................. 1,520 523 985 2,149 2,553 ------ ------- ------ ------- ------- Total nonperforming loans......... $4,120 $11,476 $3,649 $ 5,280 $ 7,192 Other real estate owned............. 1,968 1,646 626 5,388 7,187 ------ ------- ------ ------- ------- Total nonperforming assets........ $6,088 $13,122 $4,275 $10,668 $14,379 ====== ======= ====== ======= ======= Nonperforming loans as a % of loans. 0.15% 0.45% 0.15% 0.23% 0.33% Allowance as a multiple of nonperforming loans................ 8.08x 2.91x 8.96x 6.16x 4.95x Nonperforming assets as a % of loans plus other real estate owned....... 0.22% 0.51% 0.18% 0.47% 0.66% Loans past due 90 days or more...... $7,752 $ 6,704 $5,270 $ 4,779 $ 6,359 As a % of loans..................... 0.28% 0.26% 0.22% 0.21% 0.29%
SECURITIES The Company's security portfolio provides significant liquidity as a result of the composition and average life of the underlying securities. This liquidity can be used to fund loan growth or to offset the outflow of traditional funding sources. In addition to providing potential liquidity, the security portfolio is used as a tool to manage interest rate sensitivity. The Company's goal in the management of its securities portfolio is to maximize return within the Company's parameters of liquidity goals, interest rate risk and credit risk. Historically, the Company has maintained very high liquidity levels while investing primarily in U.S. Treasury obligations. The security portfolio represents the Company's second largest source of interest income. Securities available for sale and held to maturity comprised 50.0% of earning assets as of December 31, 1997, compared to 50.4% and 51.4% at year-end 1996 and 1995, respectively. Securities totaled $2.9 billion at December 31, 1997, compared to $2.7 billion as of December 31, 1996 and 1995. Loan demand is expected to be the primary factor impacting changes in the level of security holdings. Securities available for sale comprised 84% of the Company's securities portfolio at December 31, 1997, compared to 88% at year-end 1996. This change in the security portfolio mix was the result of an increase in holdings of tax-exempt securities of state and political subdivisions. Only bank-qualified securities of state and political subdivisions are classified as held to maturity. U.S. Treasury obligations comprised 61% of the available for sale portfolio as of December 31, 1997, compared with 73% one year earlier. U.S. Agency obligations represented an additional 28% of this portfolio at year-end 1997, compared with 15% at year-end 1996. In order to improve the yield of the securities portfolio, the Company chose to alter the mix of the portfolio as opposed A-13 to lengthening the average life of the portfolio. The change in the security portfolio mix was achieved while complying with the guidelines of the Company's prudent investment policy. Securities available for sale had a net unrealized gain of $6.2 million at year-end 1997 compared to a net unrealized loss of $2.8 million the preceding year. These amounts are reflected, on an after-tax basis, in the Company's shareholders' equity as an unrealized gain of $3.9 million at year-end 1997 and an unrealized loss of $1.8 million for 1996. The securities portfolio achieved an average yield on a tax-equivalent basis of 5.97% for 1997 compared to 5.79% in 1996 and 5.52% in 1995. The Company was able to increase this yield in 1997 by increasing the holdings of both tax- exempt securities and U.S. Agency securities without extending the average life of the portfolio. The increase in yield during 1996 was primarily achieved by lengthening the average life of the portfolio. The average life of the core securities portfolio was 23 months at December 31, 1997, compared to 25 months and 18 months at year-end 1996 and 1995, respectively. Included in Tables 7 and 8 are analyses of the cost, fair value and average yield of securities available for sale and securities held to maturity. TABLE 7: SECURITIES AVAILABLE FOR SALE
AMORTIZED COST FAIR VALUE YIELD ---------- ---------- ----- (IN THOUSANDS) DECEMBER 31, 1997 U.S. Treasury...................................... $1,475,537 $1,481,624 5.86% U.S. Agencies...................................... 681,106 680,618 5.83 Mortgage-backed.................................... 248,384 248,892 6.47 State and political subdivisions................... 7,929 7,904 6.02 Commercial paper................................... 6,954 6,954 5.91 Federal Reserve Bank Stock......................... 3,760 3,760 Equity and other................................... 1,887 1,989 ---------- ---------- Total............................................ $2,425,557 $2,431,741 ========== ========== DECEMBER 31, 1996 U.S. Treasury...................................... $1,751,544 $1,749,308 5.79% U.S. Agencies...................................... 359,416 358,184 5.66 Mortgage-backed.................................... 150,462 149,725 5.96 State and political subdivisions................... 2,476 2,464 5.84 Commercial paper................................... 120,707 120,707 5.83 Federal Reserve Bank Stock......................... 3,610 3,610 Equity and other................................... 1,902 3,324 ---------- ---------- Total............................................ $2,390,117 $2,387,322 ========== ==========
A-14 TABLE 8: INVESTMENT SECURITIES
AMORTIZED FAIR YIELD/AVERAGE COST VALUE MATURITY --------- -------- ------------- (IN THOUSANDS) DECEMBER 31, 1997 Due in 1 year or less.......................... $ 71,725 $ 71,742 6.67% Due after 1 year through 5 years............... 251,256 253,710 6.88 Due after 5 years through 10 years............. 129,756 131,268 7.00 Due after 10 years............................. 25 25 9.01 -------- -------- Total........................................ $452,762 $456,745 3 yr. 6 mo. ======== ======== DECEMBER 31, 1996 Due in 1 year or less.......................... $ 53,768 $ 53,657 6.82% Due after 1 year through 5 years............... 194,833 195,403 6.87 Due after 5 years through 10 years............. 70,601 70,438 6.99 Due after 10 years............................. 25 27 9.52 -------- -------- Total........................................ $319,227 $319,525 3 yr. 2 mo. ======== ======== 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. ======== ========
OTHER EARNING ASSETS Federal funds transactions essentially are overnight loans between financial institutions which allow for either 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 1997 was $13.6 million, compared to a net purchased position of $15.0 million for year-end 1996. During 1997 and 1996, the Company was a net purchaser of federal funds, and this funding source averaged $114.9 million in 1997, compared to $99.3 million during 1996. 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 $857.6 million in 1997 and $830.3 million in 1996. At December 31, 1997, the Company had acquired securities under agreements to resell of $57.6 million compared to $58.8 million at year-end 1996. The Company uses these instruments as short-term secured investments, in lieu of selling federal funds, or to acquire securities required for a repurchase agreement. These investments averaged $71.5 million in 1997. The Investment Banking Division also maintains an active securities trading inventory. The average holdings in the securities trading inventory in 1997 were $82.1 million, compared to $69.2 million in 1996, and were recorded at market value. TABLE 9: MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
DECEMBER 31 -------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) Maturing within 3 months............................ $356,604 $283,910 $208,828 After 3 months but within 6......................... 47,822 27,143 54,454 After 6 months but within 12........................ 34,009 43,089 28,534 After 12 months..................................... 29,839 21,985 32,222 -------- -------- -------- Total............................................. $468,274 $376,127 $324,038 ======== ======== ========
A-15 DEPOSITS AND BORROWED FUNDS Deposits represent the Company's primary funding source for its asset base. Deposits are gathered from various sources including commercial customers, individual retail consumers and mutual fund and trust customers. Deposits totaled $5.5 billion at December 31, 1997 compared to $5.2 billion and $4.8 billion at year-end 1996 and 1995, respectively. Deposits averaged $4.9 billion, $4.7 billion and $4.6 billion in 1997, 1996 and 1995, respectively. The increase in average deposits for 1997 was primarily related to commercial and trust customers. In recent years there has been a flow of funds from the banking system to other investment vehicles, including mutual funds. For customers seeking an alternative investment to bank deposits, the Company offers its own mutual fund group, the Scout Funds, as well as various annuity products. Total assets of the Scout Funds were $1.4 billion at December 31, 1997 compared to $1.2 billion one year earlier. In addition, the Company has continued to improve and promote its cash management services in order to attract and retain commercial deposit customers. Noninterest-bearing demand deposits averaged $1.6 billion, $1.4 billion and $1.3 billion during 1997, 1996 and 1995, respectively. These deposits represented 32.0% of average deposits in 1997 compared to 29.7% in 1996 and 29.2% in 1995. The Company's large commercial base of customers provides a significant source of noninterest-bearing deposits. Many of these commercial accounts, though they do not earn interest, receive an earnings credit to offset the cost of other services provided by the Company. Securities sold under agreements to repurchase totaled $715.5 million at December 31, 1997 and $599.2 million at year-end 1996. This liability averaged $617.9 million in 1997 and $606.7 million in 1996. Repurchase agreements are transactions involving the exchange of investment funds, by the customer, for securities by the Company, under an agreement to repurchase the same or similar issues at an agreed-upon price and date. The Company enters into these transactions with its downstream correspondent banks, commercial customers, and various trust, mutual fund and local government relationships. The Company's long-term debt includes three senior note issues totaling $31 million and $0.5 million in installment notes. The senior notes include $25 million borrowed in 1993 under a medium-term program to fund bank acquisitions. Of this total, $10.0 million had an original maturity of seven years at 6.81% and $15.0 million was issued with a ten-year maturity at 7.30%. Also included in long-term debt is the Company's guarantee of a loan incurred in January, 1996 by its Employee Stock Ownership Plan. Principal and interest, at 6.10%, are due quarterly over seven years. The Plan is using Company contributions to service this debt. TABLE 10: ANALYSIS OF AVERAGE DEPOSITS
AMOUNT 1997 1996 1995 1994 1993 - ------ ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Noninterest-bearing de- mand................... $1,576,206 $1,386,173 $1,336,804 $1,445,376 $1,273,672 Interest-bearing demand and savings............ 2,143,869 2,056,681 2,059,661 2,365,024 2,092,048 Time deposits under $100,000............... 898,910 948,626 963,878 1,003,784 957,677 ---------- ---------- ---------- ---------- ---------- Total core deposits... $4,618,985 $4,391,480 $4,360,343 $4,814,184 $4,323,397 Time deposits of $100,000 or more....... 310,814 276,476 221,006 207,217 236,154 ---------- ---------- ---------- ---------- ---------- Total deposits........ $4,929,799 $4,667,956 $4,581,349 $5,021,401 $4,559,551 ========== ========== ========== ========== ========== AS A % OF TOTAL DEPOSITS - ------------------------ Noninterest-bearing de- mand................... 32.0% 29.7% 29.2% 28.8% 27.9% Interest-bearing demand and savings............ 43.5 44.1 45.0 47.1 45.9 Time deposits under $100,000............... 18.2 20.3 21.0 20.0 21.0 ---------- ---------- ---------- ---------- ---------- Total core deposits... 93.7% 94.1% 95.2% 95.9% 94.8% Time deposits of $100,000 or more....... 6.3 5.9 4.8 4.1 5.2 ---------- ---------- ---------- ---------- ---------- Total deposits........ 100.0% 100.0% 100.0% 100.0% 100.0% ========== ========== ========== ========== ==========
A-16 TABLE 11: SHORT-TERM DEBT
1997 1996 1995 ------------- --------------- ------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE -------- ---- ---------- ---- -------- ---- (IN THOUSANDS) AT YEAR-END - ----------- Federal funds purchased........... $ 55 5.45% $ 15,180 6.45% $ 48,400 5.75% Repurchase agreements............. 715,490 4.97 599,215 4.74 672,940 3.76 Other............................. 1,116 4.39 911 4.00 501 5.02 -------- ---------- -------- Total........................... $716,661 4.97% $ 615,306 4.90% $721,841 4.53% ======== ========== ======== AVERAGE FOR THE YEAR - -------------------- Federal funds purchased........... $182,138 5.62% $ 164,796 5.25% $127,949 5.77% Repurchase agreements............. 617,989 4.90 606,726 4.73 485,913 5.21 Other............................. 567 5.91 1,034 4.10 1,121 4.31 -------- ---------- -------- Total........................... $800,694 5.06% $ 772,556 4.84% $614,983 5.32% ======== ========== ======== MAXIMUM MONTH-END BALANCE - ------------------------- Federal funds purchased........... $246,524 $ 300,475 $196,000 Repurchase agreements............. 715,140 771,856 727,393 Other............................. 1,549 2,020 2,104 -------- ---------- -------- Total........................... $963,213 $1,074,351 $925,497 ======== ========== ========
CAPITAL The Company places a significant emphasis on the maintenance of a strong capital position, which helps safeguard our customers' funds, promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company's ability to capitalize on business growth and acquisition opportunities. Capital is managed for each subsidiary based upon its respective risks and growth opportunities, as well as regulatory requirements. Total shareholders' equity was $624.2 million at December 31, 1997 compared to $582.5 million one year earlier. Included as a reduction to shareholders' equity at December 31, 1995 was $46.5 million which represented a commitment to repurchase 1,068,533 shares of common stock. Those shares were acquired by the Company and its ESOP in January, 1996. The shares acquired by the ESOP which have not been allocated to plan participants are included as a reduction to year-end 1997 shareholders' equity. See Common Stock Repurchase Commitment on page A-41 for further details. During each year, management had the opportunity to repurchase shares of the Company's stock at prices which, in management's opinion, would enhance overall shareholder value. As part of the same transaction that generated the above stock repurchase commitment, the Company acquired an additional 512,600 shares of common stock during the first half of 1996. In unrelated transactions during 1996 the Company acquired 268,658 additional shares of common stock. During 1997, the Company acquired 328,335 shares of its common stock. Depending on availability, price and cash flow requirements, management will continue to consider treasury stock purchases. Risk-based capital guidelines established by regulatory agencies establish 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 at least 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 government securities, the Tier 1 capital ratio of 15.35% and Total capital ratio of 16.26% substantially exceed the regulatory minimums. A-17 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 are the differences 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. TABLE 12: RISK-BASED CAPITAL The table below computes risk-based capital in accordance with current regulatory guidelines. These guidelines as of December 31, 1997, 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.. $ -- $ 2,351 $110,490 $ -- $ 112,841 All other............. -- 207,962 -- 2,465,228 2,673,190 ---------- ---------- -------- ---------- ---------- Total loans......... $ -- $ 210,313 $110,490 $2,465,228 $2,786,031 Securities available for sale: U.S. Treasury......... $1,475,537 $ -- $ -- $ -- $1,475,537 U.S. agencies and mortgage-backed...... 1,703 927,787 -- -- 929,490 State and political subdivisions......... -- 7,929 -- -- 7,929 Commercial paper and other................ 3,760 -- -- 8,841 12,601 ---------- ---------- -------- ---------- ---------- Total securities available for sale. $1,481,000 $ 935,716 $ -- $ 8,841 $2,425,557 Investment securities... -- 411,976 40,786 -- 452,762 Trading securities...... 24,053 35,543 -- -- 59,596 Federal funds and resell agreements............. -- 71,213 -- -- 71,213 Cash and due from banks. 160,338 761,914 -- -- 922,252 All other assets........ -- -- -- 304,134 304,134 ---------- ---------- -------- ---------- ---------- Category totals..... $1,665,391 $2,426,675 $151,276 $2,778,203 $7,021,545 ---------- ---------- -------- ---------- ---------- Risk-weighted totals.... $ -- $ 485,335 $ 75,638 $2,778,203 $3,339,176 Off-balance-sheet items (risk-weighted)........ -- 2,953 2 312,173 315,128 ---------- ---------- -------- ---------- ---------- Total risk-weighted assets............. $ -- $ 488,288 $ 75,640 $3,090,376 $3,654,304 ========== ========== ======== ========== ========== CAPITAL TIER 1 TIER 2 TOTAL - ------- -------- ---------- ---------- Shareholders' equity.......................... $620,326 $ -- $ 620,326 Less premium on purchased banks............... (59,552) -- (59,552) Allowance for loan losses..................... -- 33,274 33,274 -------- ---------- ---------- Total capital............................. $560,774 $ 33,274 $ 594,048 ======== ========== ========== CAPITAL RATIOS - -------------- Tier 1 capital to risk-weighted assets........ 15.35% Total capital to risk-weighted assets......... 16.26 Leverage ratio (Tier 1 to total assets less premium on purchased banks).................. 8.02 ==========
A-18 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 13 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, 1998, the Company is in a negative gap position because liabilities maturing or repricing during this time exceed assets. At the one-year period, the Company is in a positive gap position. 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 deposits, approximately 94% of total deposits, tends to lag behind the change in market rates. This lag generally lessens the negative impact of rising interest rates when the Company has more liabilities subject to 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 1997, 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. Due to the limitations of a static gap analysis, the Company also monitors and manages interest rate risk through the use of simulation models. These models allow for input of various factors and assumptions which influence interest rate risk. This method presents a more realistic view of the impact on the Company's earnings resulting from movement in interest rates. TABLE 13: INTEREST RATE SENSITIVITY ANALYSIS
1- 91- 181- DECEMBER 31, 1997 90 DAYS 180 DAYS 365 DAYS TOTAL OVER 365 DAYS TOTAL - ----------------- -------- -------- -------- -------- ------------- -------- (IN MILLIONS) Earning assets Loans................... $1,511.2 $187.7 $265.6 $1,964.5 $ 821.5 $2,786.0 Securities*............. 618.8 198.1 368.5 1,185.4 1,699.1 2,884.5 Federal funds sold and resell agreements...... 71.2 -- -- 71.2 -- 71.2 Other................... 60.5 -- -- 60.5 -- 60.5 -------- ------ ------ -------- -------- -------- Total earning assets.. $2,261.7 $385.8 $634.1 $3,281.6 $2,520.6 $5,802.2 -------- ------ ------ -------- -------- -------- % of total earning as- sets................. 39.0% 6.7% 10.9% 56.6% 43.4% 100.0% -------- ------ ------ -------- -------- -------- Funding sources Interest-bearing demand and savings............ $1,341.2 $ -- $ -- $1,341.2 $ 949.7 $2,290.9 Time deposits........... 576.4 245.4 247.5 1,069.3 280.1 1,349.4 Federal funds purchased and repurchase agree- ments.................. 715.5 -- -- 715.5 -- 715.5 Borrowed funds.......... 1.8 0.6 4.2 6.6 39.1 45.7 Noninterest-bearing sources................ -- -- -- -- 1,400.7 1,400.7 -------- ------ ------ -------- -------- -------- Total funding sources. $2,634.9 $246.0 $251.7 $3,132.6 $2,669.6 $5,802.2 -------- ------ ------ -------- -------- -------- % of total earning as- sets................. 45.4% 4.3% 4.3% 54.0% 46.0% 100.0% -------- ------ ------ -------- -------- -------- Interest sensitivity gap.................... $ (373.2) $139.8 $382.4 $ 149.0 $ (149.0) Cumulative gap.......... (373.2) (233.4) 149.0 149.0 -- As a % of total earn- ing assets........... 6.4% 4.0% 2.6% 2.6% 0.00% Ratio of earning assets to funding sources..... .86 1.57 2.52 1.05 0.94 Cumulative ratio--1997.. .86 .92 1.05 1.05 1.00 - --1996.................. .86 .89 1.00 1.00 1.00 - --1995.................. 1.00 1.05 1.20 1.20 1.00
- -------- * Includes securities available for sale based on scheduled maturity dates. A-19 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 except for limited use of futures contracts to offset interest rate risk on specific securities held in the trading portfolio. TABLE 14: MARKET RISK
NET PORTFOLIO VALUE ---------------------------- RATES IN BASIS POINTS (RATE SHOCK) AMOUNT CHANGE % CHANGE ---------------------------------- ---------- ------- -------- (IN THOUSANDS) 200.......................................... $1,249,817 $57,787 4.85% 100.......................................... 1,226,532 34,502 2.89 Static....................................... 1,192,030 -- -- (100)........................................ 1,165,890 (26,140) (2.19) (200)........................................ 1,139,167 (52,863) (4.43)
The Company's interest rate sensitivity is also monitored by management through the use of a model which internally generates estimates of the change in net portfolio value ("NPV") over a range of instantaneous and sustained interest rate scenarios. NPV is the present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. The assets and liabilities of the Company are comprised primarily of financial instruments which give rise to cash flows. By projecting the timing and amount of future net cash flows, an estimated value of that asset or liability can be determined. Market values of the Company's investment in loans and debt securities fluctuate with movements in market interest rates. Prepayments of principal are closely correlated with interest rates and affect future cash flows. Certain deposits and other borrowings of the Company are also sensitive to interest rate changes. Table 14 sets forth the Company's NPV as of December 31, 1997. Although the NPV measurements provide an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market rates on the Company's net interest income and will differ from actual results. TABLE 15: RATE SENSITIVITY AND MATURITY OF LOANS The following table presents the rate sensitivity of certain loans maturing after 1998, compared with the total loan portfolio as of December 31, 1997. Of the $1,522,037,000 of loans due after 1998, $1,065,500,000 are to individuals for the purchase of residential dwellings and other consumer goods including automobiles. The remaining $456,537,000 is for all other purposes and reflects maturities of $344,842,000 in 1999 through 2002 and $111,695,000 after 2002.
DECEMBER 31, 1997 ----------------- (IN THOUSANDS) Loans due in 1998: Residential homes and consumer goods......................... $ 107,650 All other.................................................... 1,156,344 ---------- Total..................................................... $1,263,994 ---------- Loans due after 1998: Variable interest rate....................................... $ 482,758 Fixed interest rate.......................................... 1,039,279 ---------- Total..................................................... $1,522,037 ---------- Unearned interest and allowance for loan losses............... (33,274) ---------- Net loans................................................. $2,752,757 ==========
A-20 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 payments on and maturities of assets along with $2.4 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. Neither the Parent Company or its subsidiaries are active in the debt market. The traditional funding source for the Company's subsidiary banks has been core deposits. The Parent Company has not issued any debt since 1993 when $25 million of medium-term notes were issued to fund bank acquisitions. These notes are rated A3 by Moody's Investor Service and A- by Standard & Poors. Based upon regular contact with brokerage firms, management is confident in its ability to raise debt or equity capital on favorable terms, should the need arise. 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. The Company's subsidiary banks are subject to various rules, depending on their location and primary regulator, regarding the payment of dividends to the Parent Company. For the most part, all banks can pay dividends at least equal to their current year's earnings without seeking prior regulatory approval. From time to time, approvals have been requested to allow a subsidiary bank to pay a dividend in excess of its current capacity. All such requests have been approved. MILLENNIUM DATE CHANGE Many, if not most, of the computer systems currently in operation worldwide use only two digits to specify the year on a date field. There is a significant risk that these computer systems will recognize the year 2000 as 1900. Such an error could cause the system to stop working or operate in error. The Company, due to the nature of its business, is very reliant on computers and their ability to correctly interpret dates. The inability of the Company's operating systems to properly interpret dates could have a material impact on future operations. The Company has made and will continue to make significant efforts to assess, address and minimize the risks associated with the millennium date change. This includes the establishment of a Year 2000 Project Office to oversee the Company's five-step plan to address this issue. This plan includes: INVENTORY. A complete accounting and assessment of computer systems in use and their year 2000 readiness. SOLUTION PLANNING. A determination of the remedy plan, including modification of existing code, system replacement and contingency plan. RENOVATION. Modifications required to render each system year 2000 compliant. TESTING. Verification that the system is year 2000 compliant. IMPLEMENTATION. Confirmation that the system is functioning as designed. The Company's plan not only addresses the computer code written or maintained internally, but also information supplied or processed by third party vendors. This plan includes monitoring and minimizing the risk posed by third parties, including vendors and customers. The Company's efforts in this area are being monitored by senior management, the Board of Directors and the primary governmental regulators of the Company and its affiliates. The Company's regulators recommend that code modifications be substantially completed and in the testing phase by December 31, 1998. The Company's plan should allow compliance with this recommendation. Management does not anticipate that the cost to complete its plan for addressing the year 2000 problem will have a material impact on future operating results. A-21 TABLE 16: SUMMARY OF OPERATING RESULTS BY QUARTER (UNAUDITED)
THREE MONTHS ENDED ---------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- -------- (IN THOUSANDS EXCEPT PER SHARE DATA) 1997 Interest income............................. $95,325 $97,655 $100,120 $100,229 Interest expense............................ 41,739 42,551 43,804 43,700 ------- ------- -------- -------- Net interest income....................... $53,586 $55,104 $ 56,316 $ 56,529 Provision for loan losses................... 1,925 3,377 2,807 3,766 Noninterest income.......................... 33,553 35,586 37,180 38,564 Noninterest expense......................... 63,061 65,734 68,571 67,376 Income tax provision........................ 7,192 6,801 7,002 7,102 ------- ------- -------- -------- Net income................................ $14,961 $14,778 $ 15,116 $ 16,849 ======= ======= ======== ======== 1996 Interest income............................. $93,419 $91,823 $ 93,390 $ 93,445 Interest expense............................ 41,686 41,154 40,757 40,984 ------- ------- -------- -------- Net interest income....................... $51,733 $50,669 $ 52,633 $ 52,461 Provision for loan losses................... 4,827 1,828 1,821 2,089 Noninterest income.......................... 39,986 32,000 31,191 32,230 Noninterest expense......................... 59,217 59,172 61,291 67,128 Income tax provision........................ 9,679 7,126 6,678 4,515 ------- ------- -------- -------- Net income................................ $17,996 $14,543 $ 14,034 $ 10,959 ======= ======= ======== ======== THREE MONTHS ENDED ---------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------- ------- -------- -------- PER SHARE 1997 Net income -- basic......................... $ 0.73 $ 0.72 $ 0.74 $ 0.82 Net income -- diluted....................... 0.73 0.72 0.74 0.82 Dividend.................................... 0.19 0.19 0.19 0.19 Book value.................................. 28.28 29.10 29.90 30.55 Market price: High....................................... 40.71 41.90 51.67 54.50 Low........................................ 36.19 36.90 40.71 45.00 Close...................................... 37.62 41.07 48.57 54.50 PER SHARE 1996 Net income -- basic......................... $ 0.85 $ 0.69 $ 0.68 $ 0.53 Net income -- diluted....................... 0.85 0.69 0.68 0.53 Dividend.................................... 0.18 0.18 0.18 0.18 Book value.................................. 26.76 26.75 27.35 28.13 Market price: High....................................... 38.32 36.50 36.50 39.76 Low........................................ 30.61 31.30 31.97 35.37 Close...................................... 34.92 33.33 34.47 38.57
- -------- Per share information restated for the 5% stock dividend paid January 2, 1998. A-22 UMB FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS) ASSETS Loans: Commercial, financial and agricultural... $1,377,380 $1,236,092 $1,152,420 Consumer................................. 1,039,331 914,962 784,481 Real estate.............................. 365,329 404,039 467,570 Leases................................... 3,991 2,596 2,057 Unearned interest........................ -- (48) (390) Allowance for loan losses................ (33,274) (33,414) (32,685) ---------- ---------- ---------- Net loans................................ $2,752,757 $2,524,227 $2,373,453 Securities available for sale: U.S. Treasury and agencies............... $2,162,242 $2,107,492 $2,184,383 State and political subdivisions......... 7,904 2,464 -- Mortgage-backed.......................... 248,892 149,725 145,781 Commercial paper and other............... 12,703 127,641 52,860 ---------- ---------- ---------- Total securities available for sale...... $2,431,741 $2,387,322 $2,383,024 Investment securities: State and political subdivisions (market value of $456,745, $319,525 and $313,173, respectively).................. 452,762 319,227 311,757 Federal funds sold........................ 13,638 170 55,300 Securities purchased under agreements to resell................................... 57,575 58,790 33,865 Trading securities and other.............. 60,548 81,383 86,011 ---------- ---------- ---------- Total earning assets..................... $5,769,021 $5,371,119 $5,243,410 Cash and due from banks................... 921,300 771,062 696,407 Bank premises and equipment, net.......... 172,811 152,909 147,576 Accrued income............................ 72,627 72,717 79,087 Premiums on and intangibles of purchased banks.................................... 60,464 67,474 74,739 Other assets.............................. 57,784 76,705 40,109 ---------- ---------- ---------- Total assets............................. $7,054,007 $6,511,986 $6,281,328 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand............... $1,906,627 $1,724,486 $1,636,145 Interest-bearing demand and savings...... 2,290,923 2,171,938 1,875,834 Time deposits under $100,000............. 881,173 917,983 977,666 Time deposits of $100,000 or more........ 468,274 376,127 324,038 ---------- ---------- ---------- Total deposits........................... $5,546,997 $5,190,534 $4,813,683 Federal funds purchased................... 55 15,180 48,400 Securities sold under agreements to repur- chase.................................... 715,490 599,215 672,940 Short-term debt........................... 1,116 911 501 Long-term debt............................ 44,550 51,350 40,736 Accrued expenses and taxes................ 56,735 46,887 63,135 Other liabilities......................... 64,828 25,432 19,493 ---------- ---------- ---------- Total liabilities........................ $6,429,771 $5,929,509 $5,658,888 ---------- ---------- ---------- Common stock repurchase commitment........ $ -- $ -- $ 46,481 ---------- ---------- ---------- Common stock, $1.00 par. Authorized 33,000,000 shares; 24,490,189 shares is- sued..................................... $ 24,490 $ 23,503 $ 22,548 Capital surplus........................... 608,964 558,073 522,892 Retained earnings......................... 137,230 142,947 136,943 Net unrealized gain (loss) on securities available for sale....................... 3,910 (1,755) 3,612 Unearned ESOP shares...................... (12,492) (15,003) -- Treasury stock 3,737,430; 3,424,176; and 1,972,239 shares, at cost, respectively.. (137,866) (125,288) (63,555) Common stock repurchase commitment, 1,068,533 shares at December 31, 1995.............. -- -- (46,481) ---------- ---------- ---------- Total shareholders' equity............... $ 624,236 $ 582,477 $ 575,959 ---------- ---------- ---------- Total liabilities and shareholders' equi- ty...................................... $7,054,007 $6,511,986 $6,281,328 ========== ========== ==========
See Notes to Financial Statements, pages A-27-A-44. A-23 UMB FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 -------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) INTEREST INCOME Loans........................................ $ 236,031 $ 220,568 $ 217,701 Securities available for sale................ 127,074 122,802 110,549 Investment securities: Taxable interest............................ $ 753 $ 904 $ 974 Tax-exempt interest......................... 16,155 13,641 13,276 ---------- ---------- ---------- Total investment securities income.......... $ 16,908 $ 14,545 $ 14,250 Federal funds and resell agreements.......... 8,426 10,013 11,003 Trading securities and other................. 4,890 4,149 3,552 ---------- ---------- ---------- Total interest income....................... $ 393,329 $ 372,077 $ 357,055 ---------- ---------- ---------- INTEREST EXPENSE Deposits..................................... $ 127,950 $ 123,135 $ 121,594 Federal funds and repurchase agreements...... 40,496 37,380 32,685 Short-term debt.............................. 33 42 48 Long-term debt............................... 3,315 4,024 3,460 ---------- ---------- ---------- Total interest expense...................... $ 171,794 $ 164,581 $ 157,787 ---------- ---------- ---------- Net interest income.......................... $ 221,535 $ 207,496 $ 199,268 Provision for loan losses.................... 11,875 10,565 5,090 ---------- ---------- ---------- Net interest income after provision......... $ 209,660 $ 196,931 $ 194,178 ---------- ---------- ---------- NONINTEREST INCOME Trust fees................................... $ 45,279 $ 41,531 $ 35,864 Securities processing........................ 11,753 9,486 10,494 Trading and investment banking............... 13,743 12,790 11,178 Service charges on deposit accounts.......... 36,631 33,368 33,177 Other service charges and fees............... 21,009 15,705 11,272 Bankcard fees................................ 6,996 6,335 6,757 Net security gains........................... 2,275 473 1,416 Other........................................ 7,197 15,719 6,843 ---------- ---------- ---------- Total noninterest income.................... $ 144,883 $ 135,407 $ 117,001 ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and employee benefits............... $ 141,641 $ 131,411 $ 122,556 Occupancy, net............................... 19,004 17,900 15,963 Equipment.................................... 27,718 24,681 22,283 Supplies and services........................ 20,367 18,778 19,165 Bankcard processing.......................... 5,464 7,162 5,781 Marketing and business development........... 17,727 15,298 13,079 FDIC and regulatory fees..................... 1,859 1,309 7,636 Amortization of intangibles of purchased banks....................................... 7,142 7,347 7,120 Other........................................ 23,820 22,922 19,973 ---------- ---------- ---------- Total noninterest expense................... $ 264,742 $ 246,808 $ 233,556 ---------- ---------- ---------- Income before income taxes................... $ 89,801 $ 85,530 $ 77,623 Income tax provision......................... 28,097 27,998 25,447 ---------- ---------- ---------- Net income.................................. $ 61,704 $ 57,532 $ 52,176 ========== ========== ========== Per Share Data Net income--basic............................ $ 3.02 $ 2.75 $ 2.29 Net Income--diluted.......................... 3.01 2.74 2.28 Dividends.................................... $ 0.76 $ 0.72 $ 0.67 Average shares outstanding................... 20,439,975 20,925,544 22,622,923 ========== ========== ==========
See Notes to Financial Statements, pages A-27-A-44. A-24 UMB FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (IN THOUSANDS) OPERATING ACTIVITIES Net income............................. $ 61,704 $ 57,532 $ 52,176 Adjustments to reconcile net income to net cash provided by operating activi- ties: Provision for loan losses.............. 11,875 10,565 5,090 Depreciation and amortization.......... 24,479 23,828 23,436 Deferred income taxes.................. 669 (4,022) (3,955) Net (increase) decrease in trading se- curities.............................. 20,835 4,628 (55,029) Gains on sales of securities available for sale.............................. (2,293) (474) (3,734) Losses on sales of securities avail- able for sale......................... 18 1 2,318 Gain on sale of merchant bankcard processsing rights.................... -- (9,800) -- Earned ESOP shares..................... 2,644 2,220 -- Amortization of securities premium, net of discount accretion............. 14,707 21,983 32,725 Changes in: Accrued income........................ 90 6,370 3,415 Accrued expenses and taxes............ 7,330 (10,603) 20,631 Other, net............................. (95) (129) (678) ----------- ----------- ----------- Net cash provided by operating activ- ities............................... $ 141,963 $ 102,099 $ 76,395 ----------- ----------- ----------- INVESTING ACTIVITIES Proceeds from sales of securities available for sale.................... $ 89,318 $ 10,657 $ 411,351 Proceeds from maturities of: Investment securities.................. 62,622 102,024 112,173 Securities available for sale.......... 1,882,873 1,892,878 1,582,810 Purchases of: Investment securities.................. (198,077) (111,633) (117,406) Securities available for sale.......... (2,018,141) (1,935,820) (1,922,546) Net increase in loans.................. (240,405) (161,339) (93,440) Net (increase) decrease in federal funds sold and resell agreements...... (12,253) 30,205 449,134 Proceeds from sale of merchant bankcard processing rights..................... -- 9,800 -- Purchases of bank premises and equip- ment.................................. (37,399) (22,028) (27,884) Proceeds from sales of bank premises and equipment......................... 124 234 551 Purchases of financial organizations, net of cash received.................. -- -- (11,147) Other, net............................. 56,849 (29,004) 14,728 ----------- ----------- ----------- Net cash provided by (used in) in- vesting activities.................. $ (414,489) $ (214,026) $ 398,324 ----------- ----------- ----------- FINANCING ACTIVITIES Net increase (decrease) in demand and savings deposits...................... $ 301,126 $ 384,445 $ (530,827) Net increase (decrease) in time depos- its................................... 55,337 (7,594) 101,852 Net increase (decrease) in federal funds purchased and repurchase agree- ments................................. 101,150 (106,945) (88,320) Net increase (decrease) in short-term debt.................................. 205 410 (371) Repayments of long-term debt........... (6,800) (6,667) (5,594) Cash dividends......................... (15,598) (15,216) (15,114) Purchases of treasury stock............ (13,001) (62,234) (11,098) Proceeds from issuance of treasury stock................................. 345 383 347 ----------- ----------- ----------- Net cash provided by (used in) fi- nancing activities.................. $ 422,764 $ 186,582 $ (549,125) ----------- ----------- ----------- Increase (decrease) in cash and due from banks.................................. $ 150,238 $ 74,655 $ (74,406) Cash and due from banks at beginning of year................................... 771,062 696,407 770,813 ----------- ----------- ----------- Cash and due from banks at end of year.. $ 921,300 $ 771,062 $ 696,407 =========== =========== =========== Supplemental disclosures: Income taxes paid...................... $ 29,412 $ 33,558 $ 28,717 Total interest paid.................... 160,317 170,521 153,758
- -------- Note: Certain noncash transactions regarding guaranteed ESOP debt transactions and common stock subject to repurchase commitment are disclosed in the accompanying financial statements and notes to financial statements. See Notes to Financial Statements, pages A-27-A-44. A-25 UMB FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NET UNREALIZED GAIN (LOSS) ON REPURCHASE COMMON CAPITAL RETAINED SECURITIES TREASURY COMMITMENT/ STOCK SURPLUS EARNINGS AVAILABLE FOR SALE STOCK UNEARNED ESOP ------- -------- -------- ------------------ --------- ------------- (IN THOUSANDS) Balance -- January 1, 1995................... $20,678 $442,606 $182,159 $(35,211) $ (52,926) $ -- Net income.............. -- -- 52,176 -- -- -- Cash dividends ($0.67 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 change in unrealized gain/loss 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) Net income.............. -- -- 57,532 -- -- -- Cash dividends ($0.72 per share)............. -- -- (15,216) -- -- -- Stock dividend (5%)..... 955 35,357 (36,312) -- -- -- Shares purchased by ESOP................... -- -- -- -- -- 16,530 Guaranteed ESOP obliga- tion................... -- -- -- -- -- (17,281) Earned ESOP shares...... -- (58) -- -- -- 2,278 Purchase of treasury stock.................. -- -- -- -- (62,234) 29,951 Exercise of stock op- tions.................. -- (118) -- -- 501 -- Net change in unrealized gain/loss on securities available for sale..... -- -- -- (5,367) -- -- ------- -------- -------- -------- --------- -------- Balance -- December 31, 1996................... $23,503 $558,073 $142,947 $ (1,755) $(125,288) $(15,003) Net income.............. -- -- 61,704 -- -- -- Cash dividends ($0.76 per share)............. -- -- (15,598) -- -- -- Stock dividend (5%)..... 987 50,836 (51,823) -- -- -- Earned ESOP shares...... -- 133 -- -- -- 2,511 Purchase of treasury stock.................. -- -- -- -- (13,001) -- Exercise of stock op- tions.................. -- (78) -- -- 423 -- Net change in unrealized gain/loss on securities available for sale..... -- -- -- 5,665 -- -- ------- -------- -------- -------- --------- -------- Balance -- December 31, 1997................... $24,490 $608,964 $137,230 $ 3,910 $(137,866) $(12,492) ======= ======== ======== ======== ========= ========
See Notes to Financial Statements, pages A-27-A-44. A-26 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 consolidated 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. A loan is considered to be impaired when management believes it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan. If a loan is impaired, the Company records a loss valuation allowance equal to the carrying amount of the loan in excess of the present value of the estimated future cash flows discounted at the loan's effective rate based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Real estate and consumer loans are collectively evaluated for impairment. Commercial loans are evaluated for impairment on a loan-by-loan basis. 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 A-27 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED 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 of noninterest income. 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 most 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 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 5% stock dividend paid January 2, 1998 to the shareholders of record as of December 11, 1997. The 1996 and 1995 Financial Statements have been restated with basic and diluted earnings per share presented pursuant to SFAS 128 "Earnings per Share." Diluted earnings per share takes into account the dilutive effect of 42,460; 31,123 and 29,442 shares issuable under stock options granted by the Company at December 31, 1997, 1996 and 1995, respectively. RECLASSIFICATIONS -- Certain reclassifications were made to the 1996 and 1995 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 FOR TRANSFER AND SERVICING OF FINANCIAL ASSETS -- On January 1, 1995, the Company adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights," which is an amendment to SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." This Statement established accounting standards for originated mortgage servicing rights. The adoption of this statement did not have a significant effect on the Company's financial position or results of operation. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which became effective for the Company for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996. This Statement supersedes SFAS No. 122, "Accounting for Mortgage Servicing Rights." For each servicing contract in existence before January 1, 1997, previously recognized servicing rights and "excess servicing" receivables were combined, net of any previously recognized servicing obligations under that contract, as a servicing asset or liability. The A-28 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED Statement provides that servicing assets and other retained interests in transferred assets be measured by allocating the previous carrying amount between the assets sold, if any, and retained interests, if any, based on their relative fair values at the date of the transfer, and servicing assets and liabilities be subsequently measured by (1) amortization in proportion to and over the period of estimated net servicing income or loss, and (2) assessment for asset impairment or increased obligation based on their fair values. In December 1996, the Financial Accounting Standards Board issued SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125." This Statement defers implementation requirements of SFAS No. 125 relating to repurchase agreements, securities lending and similar transactions until transactions entered into after December 31, 1997. ACCOUNTING FOR STOCK-BASED COMPENSATION -- Effective as of January 1, 1996, SFAS No. 123, "Accounting for Stock-Based Compensation," requires increased disclosure of compensation expense arising from both fixed and performance stock compensation plans. Compensation is 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 is 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 are 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 continues to apply APB Opinion No. 25 in its financial statements and discloses pro forma net income and earnings per share in a footnote to the financial statements, determined as if the Company applied the new method. ACCOUNTING FOR EARNINGS PER SHARE -- In February 1997, the FASB issued SFAS No. 128, "Earnings per Share". The Statement establishes standards for computing and presenting earnings per share ("EPS"). It replaces the presentation of primary EPS with a presentation of basic EPS. The Statement is effective for the Company's financial statements as of December 31, 1997. ACCOUNTING FOR REPORTING COMPREHENSIVE INCOME -- In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." The Statement establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This Statement requires that all items that are to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. This Statement requires that the Company (a) classify items of other comprehensive income by their nature in a financial statement and (b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Statement is effective for the Company's financial statements in 1998. The Company does not anticipate that the implementation of this Statement will have a material impact on the consolidated financial statements. ACCOUNTING FOR DISCLOSURES ABOUT SEGMENTS AND RELATED INFORMATION -- In June 1997, FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". The Statement establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The Statement is effective for the Company's financial statements in 1998. The Company anticipates that the implementation of this Statement may require additional disclosures. A-29 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED 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 was not deemed to be material in relation to the consolidated results of the Company. ALLOWANCES FOR LOAN LOSSES The table below provides an analysis of the allowance for loan losses for the three years ended December 31, 1997 (in thousands):
YEAR ENDED DECEMBER 31 --------------------------- 1997 1996 1995 -------- -------- ------- Allowance -- beginning of year.................... $ 33,414 $ 32,685 $32,527 Allowances of acquired banks...................... -- -- 485 Additions (deductions): Charge-offs...................................... $(14,332) $(12,335) $(8,090) Recoveries....................................... 2,317 2,499 2,673 -------- -------- ------- Net charge-offs................................. $(12,015) $ (9,836) $(5,417) Provision charged to expense...................... 11,875 10,565 5,090 -------- -------- ------- Allowance--end of year............................ $ 33,274 $ 33,414 $32,685 ======== ======== =======
The amount of loans considered to be impaired under SFAS No. 114 was $3,266,000 at December 31, 1997 and $9,325,000 at December 31, 1996. All of the loans were on a nonaccrual basis or had been restructured. Included in the impaired loans, at December 31, 1997 was $1,308,000 of loans for which the related allowance was $417,000. The remaining $1,958,000 of impaired loans did not have an allowance for loan losses as a result of write-downs and supporting collateral value. At December 31, 1996 there was $8,064,000 of impaired loans with a related allowance of $1,203,000, and $1,261,000 of impaired loans which did not have an allowance. The average recorded investment in impaired loans was approximately $7,493,000 during the year ended December 31, 1997 and $8,192,000 during the year ended December 31, 1996. The Company had no material amount recorded as interest income on impaired loans for either year. A-30 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED SECURITIES AVAILABLE FOR SALE The table below provides detailed information for securities available for sale at December 31, 1997, 1996 and 1995 (in thousands):
DECEMBER 31 ------------------------------------------- AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE ---------- ---------- ---------- ---------- 1997 U.S. Treasury....................... $1,475,537 $ 7,539 $(1,452) $1,481,624 U.S. Agencies....................... 681,106 627 (1,115) 680,618 Mortgage-backed..................... 248,384 798 (290) 248,892 State and political subdivisions.... 7,929 4 (29) 7,904 Commercial paper.................... 6,954 -- -- 6,954 Federal Reserve Bank stock.......... 3,760 -- -- 3,760 Equity and other.................... 1,887 102 -- 1,989 ---------- ------- ------- ---------- Total.............................. $2,425,557 $ 9,070 $(2,886) $2,431,741 ========== ======= ======= ========== 1996 U.S. Treasury....................... $1,751,544 $ 4,329 $(6,565) $1,749,308 U.S. Agencies....................... 359,416 127 (1,359) 358,184 Mortgage-backed..................... 150,462 88 (825) 149,725 State and political subdivisions.... 2,476 -- (12) 2,464 Commercial paper.................... 120,707 -- -- 120,707 Federal Reserve Bank stock.......... 3,610 -- -- 3,610 Equity and other.................... 1,902 1,422 -- 3,324 ---------- ------- ------- ---------- Total.............................. $2,390,117 $ 5,966 $(8,761) $2,387,322 ========== ======= ======= ========== 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 Commercial paper.................... 46,450 -- -- 46,450 Federal Reserve Bank stock.......... 3,656 -- -- 3,656 Equity and other.................... 1,726 1,028 -- 2,754 ---------- ------- ------- ---------- Total.............................. $2,377,217 $10,797 $(4,990) $2,383,024 ========== ======= ======= ==========
The following table presents contractual maturity information for securities available for sale at December 31, 1997. 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.................................... $1,061,753 $1,061,322 Due after 1 year through 5 years......................... 1,100,264 1,106,281 Due after 5 years through 10 years....................... 1,795 1,784 Due after 10 years....................................... 760 759 ---------- ---------- Total................................................... $2,164,572 $2,170,146 ---------- ---------- Mortgage-backed securities............................... 248,384 248,892 Commercial paper......................................... 6,954 6,954 Equity securities and other.............................. 5,647 5,749 ---------- ---------- Total securities available for sale..................... $2,425,557 $2,431,741 ========== ==========
A-31 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED Securities available for sale with a market value of $2,278,156,000 at December 31, 1997, $1,832,291,000 at December 31, 1996, and $1,784,018,000 at December 31, 1995, were pledged to secure U.S. Government deposits, other public deposits and certain trust deposits as required by law. During 1997, proceeds from the sales of securities available for sale were $89,318,000 compared to $10,657,000 for 1996. Securities transactions resulted in gross realized gains of $2,293,000 for 1997 and $474,000 for 1996. The gross realized losses were $18,000 for 1997 and $1,000 for 1996. The net unrealized holding gains (losses) on trading securities at December 31, 1997 and 1996, were $193,000 and $(34,000), respectively, and were included in trading and investment banking income. INVESTMENT SECURITIES The table below provides detailed information for investment securities at December 31, 1997, 1996 and 1995 (in thousands):
DECEMBER 31 ---------------------------------------- AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- -------- 1997 State and political subdivisions....... $452,762 $4,514 $ (531) $456,745 ======== ====== ======= ======== 1996 State and political subdivisions....... $319,227 $1,722 $(1,424) $319,525 ======== ====== ======= ======== 1995 State and political subdivisions....... $311,757 $2,435 $(1,019) $313,173 ======== ====== ======= ========
The following table presents contractual maturity information for investment securities at December 31, 1997. 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....................................... $ 71,725 $ 71,742 Due after 1 year through 5 years............................ 251,256 253,710 Due after 5 years through 10 years.......................... 129,756 131,268 Due after 10 years.......................................... 25 25 -------- -------- Total investment securities............................... $452,762 $456,745 ======== ========
There were no sales of investment securities during 1997, 1996 or 1995. Investment securities with a market value of $116,864,000 at December 31, 1997, $50,844,000 at December 31, 1996 and $36,627,000 at December 31, 1995, 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 A-32 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED interest rates and collateral, as those prevailing at the same time for comparable transactions with unrelated parties. In addition, all such loans are current as to repayment terms. For the years 1997, 1996 and 1995, an analysis of activity with respect to such aggregate loans to related parties appears below (in thousands):
YEAR ENDED DECEMBER 31 --------------------------------- 1997 1996 1995 ----------- --------- --------- Balance -- beginning of year................. $ 183,691 $ 178,439 $ 158,330 New loans................................... 1,895,657 892,558 798,688 Repayments.................................. (1,899,030) (887,306) (778,579) ----------- --------- --------- Balance -- end of year....................... $ 180,318 $ 183,691 $ 178,439 =========== ========= =========
BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation, which is computed primarily on accelerated methods. Bank premises are depreciated over 20 to 40 year lives, while equipment is depreciated over lives of 3 to 20 years. Bank premises and equipment consisted of the following (in thousands):
YEAR ENDED DECEMBER 31 ------------------------------- 1997 1996 1995 --------- --------- --------- Land........................................... $ 36,426 $ 33,033 $ 31,975 Buildings and leasehold improvements........... 169,045 154,878 146,411 Equipment...................................... 167,010 149,350 138,558 --------- --------- --------- $ 372,481 $ 337,261 $ 316,944 Accumulated depreciation....................... (199,670) (184,352) (169,368) --------- --------- --------- Bank premises and equipment, net............... $ 172,811 $ 152,909 $ 147,576 ========= ========= =========
Consolidated rental and operating lease expenses were $2,305,000 in 1997, $2,722,000 in 1996, and $2,820,000 in 1995. Minimum rental commitments as of December 31, 1997, for all noncancelable operating leases are: 1998 -- $2,983,000; 1999 -- $2,574,000; 2000 -- $1,696,000; 2001 -- $1,648,000; 2002 - -- $1,526,000; and thereafter $18,714,000. BORROWED FUNDS The components of the Company's short-term and long-term debt were as follows (in thousands):
DECEMBER 31 ----------------------- 1997 1996 1995 ------- ------- ------- SHORT-TERM DEBT U.S. Treasury demand notes and other................... $ 1,116 $ 911 $ 501 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............................ 6,000 9,000 12,000 7.50% notes maturing serially through 1997............. -- 1,546 3,093 8.00% note maturing serially through 2000.............. 461 556 643 ESOP debt guarantee.................................... 13,089 15,248 -- ------- ------- ------- Total long-term debt................................. $44,550 $51,350 $40,736 ------- ------- ------- Total borrowed funds................................. $45,666 $52,261 $41,237 ======= ======= =======
A-33 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED Long-term debt represents direct, unsecured obligations of the parent company and a guarantee by the Company of debt of the Company's ESOP plan. The senior notes due in 2000 and 2003 cannot be redeemed prior to stated maturity. The senior notes due in 1999 require annual redemptions of $3,000,000 which began in 1995. The ESOP installment note, secured by shares of the Company's stock, bears interest at a rate of 6.10% and requires quarterly principal and interest payments of $763,000 through December 31, 2002. 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 $86,063,000 was available for the payment of dividends at December 31, 1997. 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, 1997, was $715,490,000 (with accrued interest payable of $652,000). Of that amount, $29,548,000 represented sales of securities in which the securities were obtained under reverse repurchase agreements ("resell agreements"). The remainder of $685,942,000 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 CARRYING MARKET REPURCHASE INTEREST MATURITY OF THE REPURCHASE LIABILITIES AMOUNT VALUE LIABILITIES RATE - -------------------------------------- -------- -------- ----------- -------- On demand............................... $641,085 $648,264 $585,315 4.76% 2 to 30 days............................ 14,492 14,669 9,750 4.56 31 to 90 days........................... -- -- -- -- Over 90 days............................ 90,167 92,390 90,877 5.24 -------- -------- -------- ---- Total.................................. $745,744 $755,323 $685,942 4.81% ======== ======== ======== ====
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, 1997, approximately $30,863,000 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. Certain affiliate banks maintain reserve balances with the Federal Reserve Bank as required by law. During 1997, this amount averaged $124,016,000. The Company is required to maintain minimum amounts of capital to total "risk weighted" assets, as defined by the banking regulators. At December 31, 1997, 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 15.35% and 16.26%, respectively. The Company's leverage ratio at December 31, 1997, was 8.02%. A-34 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED As of December 31, 1997 the most recent notification from the Office of Comptroller of the Currency categorized the Company's most significant affiliate banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the affiliate banks must maintain total risk-based, Tier 1 risk-based and Tier 1 leverage ratios of 10.0%, 6.0% and 5.0%, respectively. There are no conditions or events since that notification that management believes have changed the affiliate banks' category. Actual capital amounts as well as required and well capitalized Tier 1, Total and Tier 1 Leverage ratios as of December 31 for the Company and its largest banks are as follows:
1997 --------------------------------------------------- TO BE WELL FOR CAPITAL CAPITALIZED UNDER ADEQUACY PROMPT CORRECTIVE ACTUAL PURPOSES ACTION PROVISIONS -------------- -------------- ------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- ----- -------- ----- ---------- -------- (DOLLARS IN THOUSANDS) Tier 1 Capital: UMB Financial Corporation.. $560,774 15.35% $146,172 4.00% $ 219,258 6.00% UMB Bank, n.a.............. 326,296 14.57 89,564 4.00 134,346 6.00 UMB Bank of St. Louis, n.a....................... 65,268 15.23 17,140 4.00 25,711 6.00 Total Capital: UMB Financial Corporation.. 594,048 16.26 292,344 8.00 365,430 10.00 UMB Bank, n.a.............. 343,424 15.34 179,128 8.00 223,910 10.00 UMB Bank of St. Louis, n.a....................... 68,511 15.99 34,281 8.00 42,851 10.00 Tier 1 Leverage: UMB Financial Corporation.. 560,774 8.02 279,778 4.00 349,723 5.00 UMB Bank, n.a.............. 326,296 8.25 158,131 4.00 197,664 5.00 UMB Bank of St. Louis, n.a....................... 65,268 6.79 38,476 4.00 48,096 5.00 1996 --------------------------------------------------- Tier 1 Capital: UMB Financial Corporation.. $516,758 14.68% $140,830 4.00% $ 211,245 6.00% UMB Bank, n.a.............. 239,861 13.05 73,502 4.00 110,253 6.00 UMB Bank of St. Louis, n.a....................... 61,542 17.65 13,944 4.00 20,916 6.00 Total Capital: UMB Financial Corporation.. 550,172 15.63 281,660 8.00 352,075 10.00 UMB Bank, n.a.............. 250,017 13.61 147,003 8.00 183,754 10.00 UMB Bank of St. Louis, n.a....................... 64,610 18.53 27,888 8.00 34,860 10.00 Tier 1 Leverage: UMB Financial Corporation.. 516,758 8.02 257,780 4.00 322,226 5.00 UMB Bank, n.a.............. 239,861 7.37 130,117 4.00 162,646 5.00 UMB Bank of St. Louis, n.a....................... 61,542 8.05 30,614 4.00 38,268 5.00
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 eligible officers and employees of the Company and its subsidiaries. Contributions to these plans for the years 1997, 1996 and 1995 were $4,200,000, $5,000,000, and $5,000,000, respectively. In 1996, the Employee Stock Ownership Plan (ESOP) borrowed $17 million to A-35 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED purchase common stock of the Company. The loan obligation of the ESOP is considered unearned employee benefit expense and, as such, is recorded as a reduction of the Company's shareholders' equity. Both the loan obligation and the unearned benefit expense are reduced by the amount of the loan principal repayments made by the ESOP. The portion of the Company's ESOP contribution which funded principal repayments and the payment of interest expense was recorded accordingly in the consolidated financial statements. 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 $447,000 for 1997 and $266,000 for 1996. 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 receive a partial matching contribution to the qualified 401(k) plan, as amended. As of year-end 1997, the Company has filed to discontinue the pension plan. Liquidation of the funds will occur during 1998. This termination is not anticipated to result in any material gain or loss to the Company. All adjustments necessary to reflect the termination have been charged to net periodic pension expense. All employees previously covered by the pension plan are now eligible to receive a partial matching contribution to the company's 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, 1997 (in thousands):
YEAR ENDED DECEMBER 31 ---------------------- 1997 1996 1995 ------ ------ ------ Service costs--benefits earned during the year.......... $1,036 $1,606 $2,234 Interest cost on projected benefit obligation........... 1,705 2,110 2,330 Actual return on plan assets............................ (1,373) (1,485) (2,130) Net amortization and deferral........................... 1,724 269 (789) ------ ------ ------ Net periodic pension expense.......................... $3,092 $2,500 $1,645 ====== ====== ======
Assumptions used in accounting for the plan were as follows:
1997 1996 1995 ---- ---- ---- Weighted average discount rate................................ 7.00% 7.00% 7.00% Rate of increase in future compensation levels................ N/A 3.81 4.25 Expected long-term rate of return on assets................... 8.00 8.00 8.00
A-36 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED The following table sets forth the pension plan's funded status, using valuation dates of September 30, 1997, 1996 and 1995 (in thousands):
1997 1996 1995 -------- -------- -------- Actuarial present value of benefit obligation: Vested benefits................................. $(23,309) $(23,126) $(26,588) Nonvested benefits.............................. (2,292) (2,118) (1,008) -------- -------- -------- Accumulated benefit obligation.................. $(25,601) $(25,244) $(27,596) Additional benefits based on estimated future salary levels.................................. -- (6,723) (7,738) -------- -------- -------- Projected benefit obligation................... $(25,601) $(31,967) $(35,334) Plan assets at fair value, primarily U.S. obliga- tions........................................... 25,234 28,598 31,109 -------- -------- -------- Projected benefit obligation in excess of plan assets.......................................... $ (367) $ (3,369) $ (4,225) Unrecognized net loss from past experience dif- ferent from that assumed........................ 198 6,502 11,268 Prior service cost not yet recognized in net pe- riodic pension cost............................. 169 666 327 Unrecognized net transition asset being recog- nized over 10.66 years.......................... -- (707) (1,778) -------- -------- -------- Prepaid pension cost included in other assets.... $ -- $ 3,092 $ 5,592 ======== ======== ========
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. 40% of the options are exercisable two years from the date of the grant and are thereafter exercisable in 20% increments annually, or for such periods or vesting increments 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, 1997, is summarized in the following table:
NUMBER OF OPTION PRICE WEIGHTED AVERAGE STOCK OPTIONS UNDER THE 1992 PLAN SHARES PER SHARE PRICE PER SHARE - --------------------------------- --------- ---------------- ---------------- Outstanding -- January 1, 1995...... 53,896 $25.91 to $30.81 $27.77 Granted............................ 24,946 36.07 to 39.68 36.48 Canceled........................... (3,784) 26.07 to 30.81 27.47 ------- ---------------- ------ Outstanding -- December 31, 1995.... 75,058 $25.91 to $39.68 $30.67 Granted............................ 27,649 35.04 to 38.54 35.40 Canceled........................... (3,201) 26.07 to 36.08 30.16 ------- ---------------- ------ Outstanding -- December 31, 1996.... 99,506 $25.91 to $39.68 $32.00 Granted............................ 32,080 49.88 to 55.37 50.63 Canceled........................... (1,241) 25.95 to 36.07 33.92 Exercised.......................... (4,616) 25.95 to 35.91 30.00 ------- ---------------- ------ Outstanding -- December 31, 1997.... 125,729 $25.91 to $55.37 $36.82 ------- ---------------- ------ Exercisable -- December 31, 1997.... 42,366 $25.91 to $39.68 $29.67 ======= ================ ======
All figures have been restated to reflect the 5% stock dividend paid January 2, 1998. A-37 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, 1997, is summarized in the following table:
NUMBER OF OPTION PRICE WEIGHTED AVERAGE STOCK OPTIONS UNDER THE 1981 PLAN SHARES PER SHARE PRICE PER SHARE - --------------------------------- --------- ---------------- ---------------- Outstanding -- January 1, 1995...... 102,881 $15.45 to $26.56 $18.90 Canceled........................... (20,287) 15.47 to 24.14 18.02 Exercised.......................... (7,348) 15.45 to 19.49 17.09 ------- ---------------- ------ Outstanding -- December 31, 1995.... 75,246 $17.49 to $26.56 $19.44 Canceled........................... (1,255) 17.49 to 21.65 19.30 Exercised.......................... (19,651) 17.49 to 26.56 19.51 ------- ---------------- ------ Outstanding -- December 31, 1996.... 54,340 $17.49 to $24.14 $19.43 Exercised.......................... (11,164) 17.49 to 21.66 20.40 ------- ---------------- ------ Outstanding -- December 31, 1997.... 43,176 $17.52 to $24.14 $19.62 ------- ---------------- ------ Exercisable -- December 31, 1997.... 43,176 $17.52 to $24.14 $19.62 ======= ================ ======
All figures have been restated to reflect the 5% stock dividend paid January 2, 1998.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------- -------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED NUMBER REMAINING AVERAGE NUMBER AVERAGE RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE ---------------- ----------- ----------- -------- ----------- -------- $17.52 to $17.53 8,010 1 years $17.53 8,010 $17.53 21.59 to 21.67 13,249 2 years 21.63 13,249 21.63 17.68 to 17.74 16,928 3 years 17.71 16,928 17.71 24.14 to 24.14 4,989 4 years 24.14 4,989 24.14 27.69 to 27.82 9,800 5 years 27.75 9,800 27.75 27.89 to 30.81 15,656 6 years 28.66 12,525 28.66 25.91 to 28.67 17,784 7 years 26.63 10,670 26.63 35.86 to 39.68 23,428 8 years 36.50 9,371 36.50 34.95 to 38.54 26,981 9 years 35.41 -- -- 49.88 to 55.37 32,080 10 years 50.63 -- -- ------- ------ 168,905 85,542 ======= ======
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation costs for the Company's plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been respectively, $61,573 and $3.01 for the year ended December 31, 1997, $57,351 and $2.88 for the year ended December 31, 1996 and $52,004 and $2.40 for the year ended December 31, 1995. A-38 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED For options granted during the year ended December 31, 1997, the estimated fair value of options granted using the Black-Scholes pricing model under the Company's plans was based on a weighted average risk-free interest rate of 6.08%, expected option life of 8.75 years, expected volatility of 16.00% and an expected dividend yield of 1.42%. For options granted during the year ended December 31, 1996, the estimated fair value of options granted under the Company's plans was based on a weighted average risk-free interest rate of 6.47%, expected option life of 8.59 years, expected volatility of 15.00% and an expected dividend yield of 1.92%. For options granted during the year ended December 31, 1995, the estimated fair value of options granted under the Company's plans was based on a weighted average risk-free interest rate of 5.84%, expected option life of 8.60 years, expected volatility of 15.00% and an expected dividend yield of 1.92%. COMMON STOCK The following table summarizes the share transactions for the three years ended December 31, 1997:
SHARES SHARES SHARES IN SUBJECT TO ISSUED TREASURY REPURCHASE ---------- ---------- ---------- Balance -- January 1, 1995................... 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 share repurchase commitment.......... -- -- (1,068,533) ---------- ---------- ---------- Balance -- December 31, 1995................. 22,547,521 (1,972,239) (1,068,533) Stock dividend (5%)......................... 955,563 -- -- Purchase of treasury stock.................. -- (1,469,791) 688,533 Issued in stock options..................... -- 17,854 -- Shares purchased by ESOP.................... -- -- 380,000 ---------- ---------- ---------- Balance -- December 31, 1996................. 23,503,084 (3,424,176) -- Stock dividend (5%)......................... 987,105 -- -- Purchase of treasury stock.................. -- (328,335) -- Issued in stock options..................... -- 15,081 -- ---------- ---------- ---------- Balance -- December 31, 1997................. 24,490,189 (3,737,430) -- ========== ========== ==========
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 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. The Company controls the credit risk of its futures contracts through credit approvals, limits and monitoring procedures. A-39 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED 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 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. Open futures contract positions averaged $59.0 million and $50.1 million during the years ended December 31, 1997 and 1996, respectively. Net futures activity resulted in losses of $1.2 million for 1997 and gains of $0.6 million for 1996. 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 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. During 1997 contracts to purchase and to sell foreign currency averaged approximately $2.4 million, compared to $3.4 million during 1996. The gain or loss on these foreign exchange contracts for 1997 and 1996 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, Oklahoma and Illinois. At December 31, 1997, the Company did not have any significant credit concentrations in any particular industry. A-40 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED 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 ---------------------------- 1997 1996 1995 ---------- -------- -------- (IN THOUSANDS) Financial instruments whose contract amounts rep- resent credit risk: Commitments to extend credit for loans (exclud- ing credit card loans)......................... $1,226,141 $943,895 $637,696 Commitments to extend credit under credit card loans.......................................... 786,456 815,367 850,006 Commercial letters of credit.................... 18,593 8,466 14,864 Standby letters of credit....................... 72,293 68,634 69,492 Financial instruments whose notional or contract amounts exceed the amount of credit risk: Futures contracts............................... $ 46,900 $ 54,600 $ 59,100 Foreign exchange contracts...................... -- 6,041 4,519
COMMON STOCK REPURCHASE COMMITMENT On December 14, 1995, the Company and its Employee Stock Option 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 stockholders' equity. The remaining 512,600 common shares were purchased by the Company in equal installments in March and June of 1996. INCOME TAXES Income taxes as set forth below produce effective federal income tax rates of 30.80% in 1997, 31.10% in 1996, and 30.77% in 1995. 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 ------------------------ 1997 1996 1995 ------- ------- ------- Federal Currently payable..................................... $27,277 $29,148 $26,885 Deferred.............................................. 184 (3,180) (3,698) ------- ------- ------- Total federal tax provision......................... $27,461 $25,968 $23,187 State Currently payable..................................... $ 151 $ 2,872 $ 2,517 Deferred.............................................. 485 (842) (257) ------- ------- ------- Total state tax provision........................... $ 636 $ 2,030 $ 2,260 ------- ------- ------- Total tax provision................................... $28,097 $27,998 $25,447 ======= ======= =======
A-41 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED 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 ------------------------- 1997 1996 1995 ------- ------- ------- Provision at statutory rate......................... $31,430 $29,936 $27,168 Tax-exempt interest income.......................... (6,487) (5,660) (5,698) Disallowed interest expense......................... 807 695 642 State and local income taxes, net of federal tax benefits........................................... 414 1,320 1,470 Amortization of intangibles of purchased banks...... 1,926 1,945 1,877 Other............................................... 7 (238) (12) ------- ------- ------- Total tax provision............................... $28,097 $27,998 $25,447 ======= ======= =======
Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. Temporary differences which comprise a significant portion of deferred tax assets and liabilities at December 31, 1997, 1996 and 1995 were as follows (in thousands):
1997 1996 1995 -------- -------- -------- Deferred tax liabilities Net unrealized gain of securities available for sale............................................ $ 2,276 $ -- $ 2,195 Asset revaluations on purchased banks............ 5,228 6,098 6,981 Depreciation..................................... 7,615 6,463 5,262 Pension.......................................... -- 1,153 2,106 Insurance........................................ 64 51 1 Tax allowance for loan losses.................... 57 100 346 Miscellaneous.................................... 375 290 93 -------- -------- -------- Total deferred tax liabilities................. $ 15,615 $ 14,155 $ 16,984 -------- -------- -------- Deferred tax assets Net unrealized loss on securities available for sale............................................ $ -- $ (1,041) $ -- Allowance for loan losses........................ (12,422) (12,848) (12,390) Nondeductible accruals........................... (1,814) (2,288) -- Miscellaneous.................................... (931) (1,517) (875) -------- -------- -------- Total deferred tax assets...................... $(15,167) $(17,694) $(13,265) -------- -------- -------- Net deferred tax liability (asset)............... $ 448 $ (3,539) $ 3,719 ======== ======== ========
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments: 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. A-42 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED 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, 1997, 1996 and 1995. 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. 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 or 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, 1997, 1996, and 1995 are as follows (in millions):
1997 1996 1995 ------------------ ------------------ ------------------ CARRYING FAIR CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- -------- -------- Financial assets: Cash and short-term in- vestments............. $ 992.5 $ 992.5 $ 830.0 $ 830.0 $ 785.6 $ 785.6 Securities available for sale.............. 2,431.7 2,431.7 2,387.3 2,387.3 2,383.0 2,383.0 Investment securities.. 452.8 456.7 319.2 319.5 311.8 313.2 Trading securities..... 60.5 60.5 81.4 81.4 86.0 86.0 Loans.................. $2,786.1 $2,771.1 $2,557.6 $2,537.1 $2,406.1 $2,391.8 Less: allowance for loan losses........... (33.3) -- (33.4) -- (32.7) -- -------- -------- -------- -------- -------- -------- Net loans............. $2,752.8 $2,771.1 $2,524.2 $2,537.1 $2,373.4 $2,391.8 -------- -------- -------- -------- -------- -------- Total financial as- sets................. $6,690.3 $6,712.5 $6,142.1 $6,155.3 $5,939.8 $5,959.6 ======== ======== ======== ======== ======== ======== Financial liabilities: Demand and savings de- posits................ $4,197.6 $4,197.6 $3,896.4 $3,896.4 $3,512.0 $3,512.0 Time deposits.......... 1,349.5 1,340.9 1,294.1 1,291.9 1,301.7 1,299.9 Federal funds and re- purchase.............. 715.5 715.5 614.4 614.4 721.4 721.4 Short-term debt........ 1.0 1.0 .9 .9 .5 .5 Long-term debt......... 44.6 42.4 51.4 47.1 40.7 39.0 -------- -------- -------- -------- -------- -------- Total financial lia- bilities............. $6,308.2 $6,297.4 $5,857.2 $5,850.7 $5,576.3 $5,572.8 ======== ======== ======== ======== ======== ========
The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1997, 1996 and 1995. 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-43 UMB FINANCIAL CORPORATION NOTES TO FINANCIAL STATEMENTS -- CONTINUED PARENT COMPANY FINANCIAL INFORMATION
DECEMBER 31 ---------------------------- 1997 1996 1995 -------- -------- -------- (IN THOUSANDS) BALANCE SHEET Assets: Investment in subsidiaries: Banks........................................... $633,224 $585,925 $589,846 Non-banks....................................... 7,387 8,675 8,692 -------- -------- -------- Total investment in subsidiaries.............. $640,611 $594,600 $598,538 Premiums on purchased banks..................... 9,991 11,258 12,768 Securities available for sale and other......... 23,499 33,348 69,349 -------- -------- -------- Total assets.................................. $674,101 $639,206 $680,655 ======== ======== ======== Liabilities and Shareholders' Equity: Dividends payable............................... $ 4,012 $ 3,869 $ 3,789 Long-term debt.................................. 44,550 50,794 40,093 Accrued expenses and other...................... 1,303 2,066 14,333 -------- -------- -------- Total......................................... $ 49,865 $ 56,729 $ 58,215 Common stock repurchase commitment.............. -- -- 46,481 Shareholders' equity............................ 624,236 582,477 575,959 -------- -------- -------- Total liabilities and shareholders' equity.... $674,101 $639,206 $680,655 ======== ======== ======== STATEMENT OF INCOME Income: Dividends and income received from affiliate banks.......................................... $ 32,593 $ 58,503 $ 53,114 Service fees from subsidiaries.................. 10,310 9,433 9,790 Net security gains.............................. 2,246 45 426 Other........................................... 706 510 762 -------- -------- -------- Total income.................................. $ 45,855 $ 68,491 $ 64,092 -------- -------- -------- Expense: Salaries and employee benefits.................. $ 4,375 $ 3,852 $ 3,834 Interest on notes payable: Affiliate bank.................................. -- -- 21 Other........................................... 3,277 3,972 3,399 Services from affiliate banks................... 671 652 654 Other........................................... 13,250 12,185 11,149 -------- -------- -------- Total expense................................. $ 21,573 $ 20,661 $ 19,057 -------- -------- -------- Income before income taxes and equity in undis- tributed earnings of subsidiaries.............. $ 24,282 $ 47,830 $ 45,035 Income tax benefit.............................. (2,164) (2,836) (2,356) -------- -------- -------- Income before equity in undistributed earnings of subsidiaries................................ $ 26,446 $ 50,666 $ 47,391 Equity in undistributed earnings of subsidiar- ies: Banks........................................... 35,409 6,883 5,031 Non-banks....................................... (151) (17) (246) -------- -------- -------- Net income.................................... $ 61,704 $ 57,532 $ 52,176 ======== ======== ======== STATEMENT OF CASH FLOWS Operating Activities: Net income...................................... $ 61,704 $ 57,532 $ 52,176 Equity in earnings of subsidiaries.............. (66,958) (64,350) (57,899) Gains from sales of securities available for sale........................................... (2,246) (45) (426) Earned ESOP shares.............................. 2,644 2,220 -- Other........................................... 5,206 (14,225) 477 -------- -------- -------- Net cash provided by (used in) operating ac- tivities..................................... $ 350 $(18,868) $ (5,672) -------- -------- -------- Investing Activities: Proceeds from sales of securities available for sale........................................... $ 3,022 $ 96 $ 1,665 Proceeds from maturities of securities held to maturity....................................... 22,049 47,455 12,650 Purchases of securities available for sale...... (7,071) (15,026) (60,096) Net (increase) decrease in repurchase agree- ments.......................................... (8,120) 7,500 (4,000) Net capital investment in affiliate banks....... (3,981) 5,211 32,778 Dividends received from subsidiaries............ 31,700 57,484 53,114 Net capital expenditures for premises and equip- ment........................................... (320) (34) (80) -------- -------- -------- Net cash provided by investing activities..... $ 37,279 $102,686 $ 36,031 ======== ======== ======== Financing Activities: Repayments of long-term debt.................... $ (6,704) $ (6,580) $ (5,436) Cash dividends paid............................. (15,598) (15,216) (15,114) Net purchase of treasury stock.................. (12,656) (61,851) (10,751) -------- -------- -------- Net cash used in financing activities......... $(34,958) $(83,647) $(31,301) -------- -------- -------- Net increase (decrease) in cash.................. $ 2,671 $ 171 $ (942) ======== ======== ========
A-44 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, 1997, 1996 and 1995, 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, 1997, 1996 and 1995, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Kansas City, Missouri January 22, 1998 A-45 UMB FINANCIAL CORPORATION FIVE-YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES
1997 1996 ------------------------------ ----------------------------- RATE INTEREST RATE INTEREST EARNED/ AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ PAID BALANCE EXPENSE (1) PAID (1) BALANCE EXPENSE (1) (1) -------- ----------- -------- -------- ---------- ------- (IN MILLIONS) (UNAUDITED) ASSETS Loans, net of unearned interest (FTE) (2)..... $2,649.0 $237.0 8.95% $2,437.8 $221.5 9.09% Securities: Taxable................ $2,166.6 $127.1 5.87 $2,169.8 $122.9 5.66 Tax-exempt (FTE)....... 372.1 24.6 6.61 317.8 21.2 6.68 -------- ------ ---- -------- ------ ---- Total securities...... $2,538.7 $151.7 5.97 $2,487.6 $144.1 5.79 Federal funds sold and resell agreements...... 138.8 8.4 6.07 185.6 10.0 5.39 Other earning assets (FTE).................. 83.7 5.1 6.13 69.3 4.3 6.12 -------- ------ ---- -------- ------ ---- Total earning assets (FTE)................ $5,410.2 $402.2 7.43 $5,180.3 $379.9 7.33 Allowance for loan loss- es..................... (32.9) (34.0) Cash and due from banks. 724.8 646.5 Other assets............ 380.5 344.4 -------- -------- Total assets.......... $6,482.6 $6,137.2 ======== ======== LIABILITIES AND SHARE- HOLDERS' EQUITY Interest-bearing demand and savings deposits... $2,143.9 $ 65.8 3.07% $2,056.7 $ 59.8 2.91% Time deposits under $100,000............... 898.9 46.7 5.20 948.6 49.3 5.21 Time deposits of $100,000 or more....... 310.8 15.4 4.95 276.5 14.0 5.05 -------- ------ ---- -------- ------ ---- Total interest-bearing deposits............. $3,353.6 $127.9 3.82 $3,281.8 $123.1 3.75 Short-term borrowings... 0.6 -- 5.91 1.0 -- 4.10 Long-term debt.......... 48.9 3.4 6.78 55.4 4.0 7.27 Federal funds purchased and repurchase agree- ments.................. 800.1 40.5 5.06 771.5 37.5 4.84 -------- ------ ---- -------- ------ ---- Total interest-bearing liabilities.......... $4,203.2 $171.8 4.09 $4,109.7 $164.6 4.00 Noninterest-bearing de- mand deposits.......... 1,576.2 1,386.2 Other................... 104.6 67.0 -------- -------- Total................. $5,884.0 $5,562.9 -------- -------- Total shareholders' eq- uity................... $ 598.6 $ 574.3 -------- -------- Total liabilities and shareholders' equity. $6,482.6 $6,137.2 ======== ======== Net interest income (FTE).................. $230.4 $215.3 Net interest spread..... 3.34% 3.33% Net interest margin..... 4.26 4.16
- -------- (1) Interest income and yields are stated on a fully tax-equivalent (FTE) basis, using a rate of 35% for 1993 through 1997. 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-46
1995 1994 1993 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 -------- ---------- ------- -------- ---------- ------- -------- ---------- ------- -------- $2,346.3 $218.9 9.33% $2,148.6 $173.1 8.06% $1,786.5 $144.0 8.06% 14.65% $2,076.1 $110.6 5.32 $2,555.2 $122.0 4.77 $2,468.8 $116.0 4.70 3.00 306.1 20.9 6.83 289.1 18.5 6.41 260.5 17.0 6.53 9.12 -------- ------ ---- -------- ------ ---- -------- ------ ---- ------ $2,382.2 $131.5 5.52 $2,844.3 $140.5 4.94 $2,729.3 $133.0 4.88 3.78 187.9 11.0 5.86 338.0 13.6 4.03 320.4 9.9 3.09 (19.29) 60.2 3.7 6.19 56.5 3.2 5.65 58.1 3.1 5.24 3.49 -------- ------ ---- -------- ------ ---- -------- ------ ---- ------ $4,976.6 $365.1 7.34 $5,387.4 $330.4 6.13 $4,894.3 $290.0 5.92 6.64 (32.1) (34.2) (31.9) 4.74 616.9 675.3 604.4 7.96 337.8 344.1 300.0 10.33 -------- -------- -------- ------ $5,899.2 $6,372.6 $5,766.8 7.00% ======== ======== ======== ====== $2,059.7 $ 61.3 2.98% $2,365.0 $ 58.6 2.48% $2,092.1 $ 50.9 2.43% 6.58% 963.8 49.0 5.08 1,003.8 40.8 4.06 957.7 41.4 4.32 (0.14) 221.0 11.3 5.12 207.2 7.6 3.62 236.1 6.8 2.91 9.96 -------- ------ ---- -------- ------ ---- -------- ------ ---- ------ $3,244.5 $121.6 3.75 $3,576.0 $107.0 2.99 $3,285.9 $ 99.1 3.02 4.76 1.1 -- 4.31 1.0 -- 3.26 1.4 -- 2.08 (53.73) 44.5 3.5 7.79 50.4 4.0 7.97 53.5 4.4 8.23 3.59 613.9 32.7 5.32 664.5 25.1 3.77 581.1 16.2 2.78 9.38 -------- ------ ---- -------- ------ ---- -------- ------ ---- ------ $3,904.0 $157.8 4.04 $4,291.9 $136.1 3.17 $3,921.9 $119.7 3.05 5.36 1,336.8 1,445.4 1,273.7 10.93 61.0 62.9 68.6 11.39 -------- -------- -------- ------ $5,301.8 $5,800.2 $5,264.2 6.79 -------- -------- -------- ------ $ 597.4 $ 572.4 $ 502.6 9.17 -------- -------- -------- ------ $5,899.2 $6,372.6 $5,766.8 7.00% ======== ======== ======== ====== $207.3 $194.3 $170.3 3.30% 2.96% 2.87% 4.17 3.61 3.48
A-47 UMB FINANCIAL CORPORATION SELECTED FINANCIAL DATA OF AFFILIATE BANKS
DECEMBER 31, 1997 --------------------------------------------------------- LOANS NUMBER OF TOTAL NET OF TOTAL SHAREHOLDERS' LOCATIONS ASSETS UNEARNED DEPOSITS EQUITY ---------- ---------- ---------- ---------- ------------- (IN THOUSANDS) WESTERN MISSOURI UMB Bank, n.a. (Kansas City).................. 57 $3,984,167 $1,638,202 $3,205,522 $361,422 UMB Bank, Cass County (Peculiar)............. 1 32,333 8,153 24,818 2,693 UMB Bank, Northwest (St. Joseph)................ 9 166,121 50,105 148,319 14,242 EASTERN MISSOURI AND ILLINOIS UMB Bank of St. Louis, n.a.................... 21 $ 963,751 $ 329,919 $ 656,194 $ 66,017 UMB Bank, Northeast (Monroe City).......... 2 65,044 37,758 53,301 5,834 UMB First State Bank of Morrisonville (Illinois)............. 1 15,789 4,276 14,652 1,017 SOUTHWESTERN MISSOURI UMB Bank, Southwest (Springfield).......... 13 $ 375,044 $ 183,712 $ 275,869 $ 24,472 UMB Bank, Warsaw........ 3 62,320 23,398 47,166 5,420 CENTRAL MISSOURI UMB Bank, Boonville..... 2 $ 40,783 $ 14,837 $ 33,186 $ 3,669 UMB Bank, Jefferson City................... 1 53,392 33,465 32,960 4,430 UMB Bank, North Central (Brookfield)........... 4 80,825 28,196 53,537 6,825 UMB Bank, Warrensburg... 4 103,794 24,192 88,284 8,739 COLORADO UMB Bank Colorado....... 10 $ 284,283 $ 138,121 $ 237,281 $ 22,979 KANSAS UMB National Bank of America................ 13 $ 832,983 $ 149,418 $ 681,926 $ 61,910 NEBRASKA UMB Bank Omaha, n.a..... 1 $ 10,252 $ 7,966 $ 4,055 $ 5,046 OKLAHOMA UMB Oklahoma Bank....... 3 $ 145,634 $ 91,950 $ 96,996 $ 16,463 BANKING-RELATED SUBSIDIARIES UMB Properties, Inc..... UMB Community Development Corporation............ UMB Banc Leasing Corporation............ UMB, U.S.A. n.a......... UMB Scout Brokerage Services, Inc.......... UMB Scout Insurance Company................ UMB Capital Corporation. United Missouri Insurance Company...... United Missouri Trust Company of New York.... UMB Consulting Services, Inc.................... UMB Data Corporation....
A-48 EX-11 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 TO FORM 10-K UMB FINANCIAL CORPORATION Computation of Earnings Per Share
1997 1996 1995 ---- ---- ---- Net income divided by $61,704,000 $57,532,000 $52,176,000 Weighted average shares outstanding 20,439,975 20,925,544 22,622,923 Basic earnings per share $3.02 $2.75 $2.29
EX-12 3 STATEMENT RE: COMPUTATION OF RATIOS EXHIBIT 12 TO FORM 10-K UMB FINANCIAL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Income before income taxes and change in accounting principle 89,801 85,530 77,623 70,399 61,249 Add Portion of rents representative of the interest factor 761 817 940 840 977 Interest on indebtedness other than deposits 43,844 41,446 36,193 29,106 20,591 Amortization of debt expense 65 65 65 48 51 ------------------------------------------- Income as adjusted excluding interest on deposits 134,471 127,858 114,821 100,393 82,868 Add interest on deposits 127,950 123,135 121,594 106,958 99,127 ------------------------------------------- Income as adjusted including interest on deposits 262,421 250,993 236,415 207,351 181,995 =========================================== Fixed charges Interest on indebtedness other than deposits 43,844 41,446 36,193 29,106 20,591 Portion of rents representative of the interest factor 761 817 940 840 977 Amortization of debt expense 65 65 65 48 51 ------------------------------------------- Fixed charges excluding interest on deposits 44,670 42,328 37,198 29,994 21,619 Interest on deposits 127,950 123,135 121,594 106,958 99,127 ------------------------------------------- Fixed charges including interest on deposits 172,620 165,463 158,792 136,952 120,746 =========================================== Ratio of earnings to fixed charges Excluding interest on deposits 3.01 3.02 3.09 3.36 3.83 ==== ==== ==== ==== ==== Including interest on deposits 1.52 1.52 1.49 1.51 1.51 ==== ==== ==== ==== ====
EX-21 4 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 TO FORM 10-K UMB FINANCIAL CORPORATION Subsidiaries of the Registrant Subsidiary Jurisdiction of ---------- Organization --------------- Western Missouri Banks UMB Bank, n.a. (Kansas City) U.S. UMB Bank, Cass County (Peculiar) Missouri UMB Bank Northwest (St. Joseph) Missouri Eastern Missouri and Illinois Banks UMB Bank of St. Louis, n.a. U.S. UMB Bank, Northwest (Monroe City) Missouri UMB First State Bank of Morrisonville (Illinois) Illinois Southwestern Missouri Banks UMB Bank, Southwest (Springfield) Missouri UMB Bank, Warsaw Missouri Central Missouri Banks UMB Bank, Boonville Missouri UMB Bank, Jefferson City Missouri UMB Bank, North Central (Brookfield) Missouri UMB Bank, Warrensburg Missouri Colorado Bank UMB Bank Colorado Colorado Kansas Bank UMB National Bank of America U.S. Nebraska Bank UMB Bank Omaha, n.a. U.S. Oklahoma Bank UMB Oklahoma Bank Oklahoma Banking-Related Subsidiaries UMB Community Development Corporation Missouri UMB Consulting Services Inc. Missouri UMB Data Corporation Missouri UMB Properties, Inc. Missouri UMB, U.S.A. Nebraska UMB Missouri Insurance Company Arizona Tiered Bank Holding Companies Valley Bank Holding Co. Colorado First Sooner Bancshares, Inc. Oklahoma EX-23 5 CONSENT OF DELOITTE & TOUCHE LLP EXHIBIT 23 TO FORM 10-K UMB FINANCIAL CORPORATION INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in this Registration Statement of UMB Financial Corporation and subsidiaries on Form S-8 of our report dated January 22, 1998, appearing in the Annual Report on Form 10-K of UMB Financial Corporation and subsidiaries for the year ended December 31, 1997. /s/ DELOITTE & TOUCHE LLP Kansas City, Missouri March 24, 1998 EX-24 6 POWERS OF ATTORNEY EXHIBIT 24 TO FORM 10-K UMB FINANCIAL CORPORATION POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints R. Crosby Kemper, David D. Miller and Timothy M. Connealy his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to file this report the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto such attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing required and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 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 in the capacities and on the dates indicated.
SIGNATURE AND NAME CAPACITY DATE - -------------------- ---------- ------ /s/ PAUL D. BARTLETT, JR. Director January 22, 1998 - ----------------------------- Paul D. Bartlett, Jr. /s/ THOMAS E. BEAL Director January 22, 1998 - ----------------------------- Thomas E. Beal Director - ----------------------------- H. Alan Bell /s/ DAVID R. BRADLEY Director January 22, 1998 - ----------------------------- David R. Bradley /s/ NEWTON A. CAMPBELL Director January 22, 1998 - ----------------------------- Newton A. Campbell /s/ TIMOTHY M. CONNEALY Chief Financial Officer January 22, 1998 - ----------------------------- Timothy M. Connealy /s/ HOWARD R. FRICKE Director January 22, 1998 - ----------------------------- Howard R. Fricke /s/ WILLIAM TERRY FULDNER Director January 22, 1998 - ----------------------------- William Terry Fuldner /s/ PETER J. GENOVESE Director, January 22, 1998 - ----------------------------- Vice Chairman Peter J. Genovese Director - ----------------------------- Jack T. Gentry /s/ C. N. HOFFMAN, III Director January 22, 1998 - ----------------------------- C. N. Hoffman, III /s/ ALEXANDER C. KEMPER Director, January 22, 1998 - ----------------------------- President Alexander C. Kemper /s/ R. CROSBY KEMPER Director, Chairman January 22, 1998 - ----------------------------- Chief Executive Officer R. Crosby Kemper
/s/ R. CROSBY KEMPER III Director, January 22, 1998 - ----------------------------- Vice Chairman R. Crosby Kemper III /s/ DANIEL N. LEAGUE, JR. Director January 22, 1998 - ----------------------------- Daniel N. League, Jr. Director - ----------------------------- William J. McKenna Director - ----------------------------- Roy E. Mayes /s/ JOHN H. MIZE, JR. Director January 22, 1998 - ----------------------------- John H. Mize, Jr. /s/ MARY LYNN OLIVER Director January 22, 1998 - ----------------------------- Mary Lynn Oliver /s/ W. L. ORSCHELN Director January 22, 1998 - ----------------------------- W. L. Orscheln /s/ ROBERT W. PLASTER Director January 22, 1998 - ----------------------------- Robert W. Plaster /s/ ALAN W. ROLLEY Director January 22, 1998 - ----------------------------- Alan W. Rolley /s/ JOSEPH F. RUYSSER Director January 22, 1998 - ----------------------------- Joseph F. Ruysser /s/ THOMAS D. SANDERS Director January 22, 1998 - ----------------------------- Thomas D. Sanders Director - ----------------------------- Herman R. Sutherland /s/ E. JACK WEBSTER Director January 22, 1998 - ----------------------------- E. Jack Webster Director - ----------------------------- John E. Williams
EX-27 7 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1997 DEC-31-1997 921,300 3,640,370 71,213 60,548 2,431,741 452,762 456,745 2,786,031 33,274 7,054,007 5,546,997 1,116 121,563 44,550 24,490 0 0 599,746 7,054,007 236,031 148,872 8,426 393,329 127,950 171,794 221,535 11,875 2,275 264,742 89,801 89,801 0 0 61,704 3.02 3.01 4.26 2,600 7,752 1,520 0 33,414 14,332 2,317 33,274 33,274 0 0
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