(MARK ONE)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-4887
Incorporated pursuant to the Laws of Missouri State
Internal Revenue Service - Employer Identification No. 43-0903811
1010 Grand Avenue
Kansas City, Missouri 64106
(Address of principal executive offices and Zip Code)
(816) 860-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
At September 30, 2002, UMB Financial Corporation had 22,070,636 shares of common stock outstanding. This is the only class of stock of the Company.
September 30, December 31,
ASSETS 2002 2001 2001
-------------- ------------- --------------
Loans:
Commercial, financial and agricultural $ 1,360,229 $ 1,621,921 $ 1,448,309
Consumer (net of unearned interest) 813,936 966,546 912,373
Real estate 465,728 422,986 445,622
Leases 6,660 7,933 7,454
Allowance for loan losses (37,254) (35,310) (35,637)
-------------- ------------- --------------
Net loans $ 2,609,299 $ 2,984,076 $ 2,778,121
Securities available for sale:
U.S. Treasury and agencies $ 2,393,061 $ 2,127,433 $ 3,421,231
State and political subdivisions 233,756 89,397 133,421
Commercial paper and other 215,882 169,328 424,824
-------------- ------------- --------------
Total securities available for sale $ 2,842,699 $ 2,386,158 $ 3,979,476
Securities held to maturity:
State and political subdivisions (market value-
of $465,193, $595,648 & $553,207 respectively) $ 448,075 $ 580,897 $ 542,447
Federal funds and resell agreements 251,689 95,879 121,845
Trading securities and other earning assets 70,214 79,824 84,962
-------------- ------------- --------------
Total earning assets $ 6,221,976 $ 6,126,834 $ 7,506,851
Cash and due from banks 565,446 617,681 790,672
Bank premises and equipment, net 231,405 241,190 240,656
Accrued income 62,031 67,934 60,661
Goodwill on purchased affiliates 54,761 54,534 52,974
Other Intangibles 7,328 9,332 8,853
Other assets 59,148 119,120 70,265
-------------- ------------- --------------
Total assets $ 7,202,095 $ 7,236,625 $ 8,730,932
============== ============== ==============
LIABILITIES
Deposits:
Noninterest-bearing demand $ 1,763,225 $ 1,974,240 $ 2,087,314
Interest-bearing demand and savings 2,212,556 2,359,272 3,086,825
Time deposits under $100,000 902,879 835,215 870,280
Time deposits of $100,000 or more 258,929 243,557 331,092
-------------- ------------- --------------
Total deposits $ 5,137,589 $ 5,412,284 $ 6,375,511
Federal funds and repurchase agreements 1,000,197 876,222 1,288,638
Short-term debt 160,283 40,047 173,046
Long-term debt 27,281 28,219 27,388
Accrued expenses and taxes 56,432 64,125 55,710
Other liabilities 19,771 52,363 42,062
-------------- ------------- --------------
Total liabilities $ 6,401,553 $ 6,473,260 $ 7,962,355
-------------- ------------- --------------
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; authorized 33,000,000
shares; issued 27,528,365, 26,472,039 and 27,528,365 $ 27,528 $ 26,472 $ 27,528
shares respectively.
Capital surplus 726,376 683,226 726,347
Retained earnings 232,544 235,265 200,780
Accumulated other comprehensive income 25,684 27,607 22,526
Unearned ESOP shares (615) (3,116) (2,491)
Treasury stock, 5,439,415, 5,327,569 and
5,326,917 shares, at cost, respectively (210,975) (206,089) (206,113)
-------------- ------------- --------------
Total shareholders' equity $ 800,542 $ 763,365 $ 768,577
-------------- ------------- --------------
Total liabilities and shareholders' equity $ 7,202,095 $ 7,236,625 $ 8,730,932
============== ============== ==============
See Notes to Consolidated Financial Statements.
3
Three Months Nine Months
Ended September 30, Ended September 30,
INTEREST INCOME 2002 2001 2002 2001
---------- ---------- ----------- -----------
Loans $ 39,598 $ 54,671 $ 123,596 $ 177,715
Securities:
Taxable interest $ 23,082 $ 30,267 $ 78,714 $ 92,519
Tax-exempt interest 6,605 7,161 20,273 21,624
---------- ---------- ----------- -----------
Total securities income $ 29,687 $ 37,428 $ 98,987 $ 114,143
Federal funds and resell agreements 830 1,467 2,449 6,422
Trading securities and other 727 762 2,105 2,901
---------- ---------- ----------- -----------
Total interest income $ 70,842 $ 94,328 $ 227,137 $ 301,181
---------- ---------- ----------- -----------
INTEREST EXPENSE
Deposits $ 14,378 $ 26,353 $ 47,419 $ 88,560
Federal funds and repurchase
agreements 3,287 6,955 11,543 27,899
Short-term debt 209 645 761 2,497
Long-term debt 478 494 1,408 1,477
---------- ---------- ----------- -----------
Total interest expense $ 18,352 $ 34,447 $ 61,131 $ 120,433
---------- ---------- ----------- -----------
Net interest income $ 52,490 $ 59,881 $ 166,006 $ 180,748
Provision for loan losses 3,949 2,989 10,495 10,963
---------- ---------- ----------- -----------
Net interest income after provision $ 48,541 $ 56,892 $ 155,511 $ 169,785
---------- ---------- ----------- -----------
NONINTEREST INCOME
Trust income $ 10,856 $ 13,924 $ 33,884 $ 41,074
Securities processing 11,835 8,928 35,579 21,017
Trading and investment banking 4,861 5,441 15,955 17,043
Service charges on deposits 14,982 13,487 44,137 39,700
Other service charges and fees 8,101 7,384 23,667 22,258
Bankcard fees 4,829 4,620 13,966 13,385
Net investment security gains 7 1,619 2,477 1,640
Other 1,966 1,752 5,877 9,587
---------- ---------- ----------- -----------
Total noninterest income $ 57,437 $ 57,155 $ 175,542 $ 165,704
---------- ---------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits $ 51,075 $ 49,908 $ 153,641 $ 149,553
Occupancy, net 6,656 6,045 17,792 17,858
Equipment 11,279 11,993 33,438 37,615
Supplies and services 5,800 6,292 18,207 17,124
Marketing and business development 4,125 2,067 11,235 10,422
Processing fees 4,664 4,228 14,281 12,448
Legal and consulting 1,521 1,090 4,506 5,269
Amortization of goodwill on purchased affiliates - 1,524 - 4,337
Amortization of other intangibles 509 412 1,525 1,076
Other 5,820 6,383 16,581 19,214
---------- ---------- ----------- -----------
Total noninterest expense $ 91,449 $ 89,942 $ 271,206 $ 274,916
---------- ---------- ----------- -----------
Minority interest in loss of consolidated sub. $ - $ - $ - $ 11,800
---------- ---------- ----------- -----------
Income before income taxes $ 14,529 $ 24,105 $ 59,847 $ 72,373
Income tax provision 3,044 7,239 14,822 21,081
---------- ---------- ----------- -----------
NET INCOME $ 11,485 $ 16,866 $ 45,025 $ 51,292
========== ========== =========== ===========
PER SHARE DATA
Net income - Basic $ 0.52 $ 0.80 $ 2.04 $ 2.43
Net income - Diluted $ 0.52 $ 0.80 $ 2.03 $ 2.43
Dividends $ 0.20 $ 0.20 $ 0.60 $ 0.60
Weighted average shares outstanding 22,061,791 21,062,904 22,068,643 21,105,336
See Notes to Consolidated Financial Statements.
4
Nine Months Ended
September 30,
--------------- ---------------
2002 2001
--------------- ---------------
Operating Activities
Net Income $ 45,025 $ 51,292
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 10,495 10,963
Depreciation and amortization 24,948 27,637
Minority interest in net loss of subsidiary - (11,800)
Deferred income taxes 869 (2,624)
Net decrease in trading securities and other earning assets 14,748 840
Gains on sales of securities available for sale (2,477) (1,640)
Gains on sales of disposition of interest in subsidiary - (1,699)
Amortization of securities premiums,
net of discount accretion 2,836 (11,983)
Earned ESOP shares 1,876 1,875
Changes in:
Accrued income (1,370) 4,631
Accrued expenses and taxes 2,383 9,703
Other assets and liabilities, net (19,834) (62,690)
--------------- ---------------
Net cash provided by operating activities $ 79,499 $ 14,505
--------------- ---------------
Investing Activities
Proceeds from maturities of investment securities $ 92,985 $ 113,360
Proceeds from sales of securities available for sale 216,717 89,516
Proceeds from maturities of securities available for sale 14,100,894 21,642,649
Purchases of investment securities (160) (975)
Purchases of securities available for sale (13,175,484) (21,639,693)
Net decrease in loans 159,210 46,920
Net (increase) decrease in fed funds and resell agreements (129,844) 63,166
Investment in consolidated subsidiary (1,787) -
Purchases of bank premises and equipment (16,140) (23,321)
Net change in unsettled securities transactions. 2,078 (33,550)
Deconsolidation of subsidiary - (390)
Purchase of financial organization, net of cash received - (26,014)
Proceeds from sales of bank premises and equipment 4,133 305
--------------- ---------------
Net cash provided by investing activities $ 1,252,602 $ 231,973
--------------- ---------------
Financing Activities
Net decrease in demand and savings deposits $(1,198,358) $ (397,590)
Net decrease in time deposits (39,564) (125,330)
Net decrease in fed funds/ repurchase agreements (288,441) (33,533)
Net decrease in short term borrowings (12,763) (30,279)
Proceeds from long term debt 2,400 3,700
Repayment of long term debt (2,507) (2,522)
Cash dividends (13,261) (12,732)
Proceeds from exercise of stock options and sales of
treasury shares 469 632
Purchases of treasury stock (5,302) (6,467)
--------------- ---------------
Net cash used in financing activities $(1,557,327) $ (604,121)
--------------- ---------------
Decrease in cash and due from banks $ (225,226) $ (357,643)
Cash and due from banks at beginning of period 790,672 975,324
--------------- ---------------
Cash and due from banks at end of period $ 565,446 $ 617,681
=============== ===============
See Notes to Consolidated Financial Statements.
5
Accumulated
Other
Common Capital Retained Comprehensive Treasury Unearned
Stock Surplus Earnings Income Stock ESOP Total
--------- --------- --------- ------------- ----------- ---------- ---------
Balance - January 1, 2001 $ 26,472 $ 683,220 $ 196,705 $ 1,776 $(200,248) $ (4,991) $ 702,934
Net income - - 51,292 - - - 51,292
Comprehensive income, change in
unrealized gain on securities of
$42,255, net of tax $15,381 and the
reclassification adjustment for gains
included in net income of $1,640 net
tax of $597 - - - 25,831 - - 25,831
---------
Total comprehensive income 77,123
Cash Dividends - - (12,732) - - - (12,732)
Earned ESOP shares - - - - - 1,875 1,875
Purchase of treasury stock - - - - (6,467) - (6,467)
Sale of treasury stock - - - - 15 - 15
Exercise of stock options - 6 - - 611 - 617
--------- --------- --------- ------------- ----------- ---------- ---------
Balance - September 30, 2001 $ 26,472 $ 683,226 $ 235,265 $ 27,607 $(206,089) $ (3,116) $ 763,365
========= ========= ========= ============= =========== ========== =========
Balance - January 1, 2002 $ 27,528 $ 726,347 $ 200,781 $ 22,526 $(206,113) $ (2,491) $ 768,578
Net income - - 45,025 - - - 45,025
Comprehensive income,change in
unrealized gain on securities of
$7,441, net of tax $2,708 and the
reclassification adjustment for gains
included in net income of $2,477 net
of tax $902 - - - 3,158 - - 3,158
Total comprehensive income 48,183
Cash dividends - - (13,262) - - - (13,262)
Earned ESOP shares - - - - - 1,876 1,876
Purchase of treasury stock - - - - (5,302) - (5,302)
Sale of treasury stock - - - - 21 - 21
Exercise of stock options - 29 - - 419 - 448
--------- --------- --------- ------------- ----------- ---------- ---------
Balance - September 30, 2002 $ 27,528 $ 726,376 $ 232,544 $ 25,684 $(210,975) $ (615) $ 800,542
========= ========= ========= ============= =========== ========== =========
See Notes to Consolidated Financial Statements.
6
| Nine Months Ended September 30, |
|||
|---|---|---|---|
| 2002 | 2001 | ||
| Balance January 1 | $ 35,637 | $ 31,998 | |
| Additions: | |||
| Provision for loan losses | 10,495 | 10,963 | |
| ------------- | ------------- | ||
| Total before deductions | 46,132 | 42,961 | |
| ------------- | ------------- | ||
| Deductions: | |||
| Charge-offs | (11,367) | (12,454) | |
| Less recoveries on loans previously charged-off | 2,489 | 4,803 | |
| ------------- | ------------- | ||
| Net charge-offs | (8,878) | (7,651) | |
| ------------- | ------------- | ||
| Balance, September 30 | $ 37,254 | $ 35,310 | |
| ======== | ======== | ||
7
| Three Months Ended September 30, | |||
|---|---|---|---|
| 2002 | 2001 | ||
| Revenues | |||
| Commercial Banking | $ 24,601 | $ 30,177 | |
| Trust and Securities Processing | 22,613 | 24,562 | |
| Investment Banking and Brokerage | 18,604 | 12,406 | |
| Community Banking | 40,752 | 55,882 | |
| Other | 2,240 | 3,469 | |
| Less: Intersegment revenues | (2,832) | (12,494) | |
| ------------------ | ------------------ | ||
| Total | $ 105,978 | $ 114,002 | |
| ========= | ========= | ||
| Net Income (loss) | |||
| Commercial Banking | $ 9,991 | $ 12,240 | |
| Trust and Securities Processing | 5,185 | 5,490 | |
| Investment Banking and Brokerage | 8,069 | 3,972 | |
| Community Banking | (9,495) | (2,355) | |
| Other | (15) | - | |
| Intersegment gain (loss) | (2,250) | (2,481) | |
| ------------------ | ------------------ | ||
| Total | $ 11,485 | $ 16,866 | |
| ========= | ========= | ||
| Total Average Assets | |||
| Commercial Banking | $1,689,548 | $1,530,013 | |
| Trust and Securities Processing | 101,580 | 66,960 | |
| Investment Banking and Brokerage | 3,326,580 | 3,756,859 | |
| Community Banking | 1,978,905 | 2,652,789 | |
| Other | 142,377 | 356,423 | |
| Less: Intersegment assets | (178,487) | (956,685) | |
| ------------------ | ------------------ | ||
| Total | $7,060,503 | $7,406,359 | |
| ========= | ========= | ||
8
9
| For the Three Months Ended | For the Nine Months Ended | |||
|---|---|---|---|---|
| September 30, | September 30, | |||
| 2002 | 2001 | 2002 | 2001 | |
| NET INCOME | ||||
| Reported net income | $11,485 | $16,866 | $45,025 | $51,292 |
| Goodwill amortization | - | 1,524 | - | 4,337 |
| ------------ | ------------ | ------------ | ------------ | |
| Adjusted net income | $11,485 | $18,390 | $45,025 | $55,629 |
| ====== | ====== | ====== | ====== | |
BASIC EARNINGS PER SHARE |
||||
| Reported earnings per share | $0.52 | $0.80 | $2.04 | $2.43 |
| Goodwill amortization | - | 0.07 | - | 0.21 |
| ====== | ====== | ====== | ====== | |
| Adjusted basic earnings per share | $0.52 | $0.87 | $2.04 | $2.64 |
| ====== | ====== | ====== | ====== | |
| Community Banking | Trust and Securities Processing |
Total | |
|---|---|---|---|
Balances as of January 1, 2002 |
$34,743 |
$18,231 |
$52,974 |
| Goodwill acquired during the period | - | 1,787 | 1,787 |
| ------------ | ------------ | ------------ | |
| Balance as of June 30, 2002 | $34,743 | $20,018 | $54,761 |
| ====== | ====== | ====== |
| As of September 30, 2002 | |||
|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |
| Amortized intangible assets | |||
| Core deposit intangible assets | $ 16,777 | $ 15,901 | $ 876 |
| Other intangible assets | 7,200 | 748 | 6,452 |
| ------------ | ------------ | ------------ | |
| Total | $ 23,977 | $ 16,649 | $ 7,328 |
| ====== | ====== | ====== | |
| For the Three Months Ended | For the Six Months Ended | |||||
|---|---|---|---|---|---|---|
| September 30, | September 30, | |||||
| 2002 | 2001 | 2002 | 2001 | |||
| Aggregate amortization expense | $509 | $412 | $1,525 | $1,076 | ||
| For the year ended December 31, 2002 | $2,032 | |
| For the year ended December 31, 2003 | 1,216 | |
| For the year ended December 31, 2004 | 742 | |
| For the year ended December 31, 2005 | 742 | |
| For the year ended December 31, 2006 | 742 |
10
Nine Months Ended September 30,
2002 2001
Average Average Average Average
Balance Yield/Rate Balance Yield/Rate
----------- ------- ------------- --------
Assets
Loans, net of unearned interest $ 2,674,353 6.21 % $ 2,971,026 8.02 %
Securities:
Taxable $ 3,250,426 3.24 $ 2,371,701 5.22
Tax-exempt 668,141 6.05 671,972 6.23
------------ ------- ------------- --------
Total securities $ 3,918,567 3.72 3,043,673 5.44
Federal funds and resell agreements 185,293 1.77 185,594 4.58
Other earning assets 64,630 4.34 70,451 5.62
------------ ------- ------------- --------
Total earning assets $ 6,842,843 4.65 $ 6,270,744 6.64
Allowance for loan losses (37,143) (33,979)
Other assets 908,747 1,085,995
------------ -------------
Total assets $ 7,714,447 $ 7,322,760
============ =============
Liabilities and Shareholders' Equity
Interest-bearing deposits $ 3,879,922 1.63 % $ 3,622,603 3.27 %
Federal funds and repurchase agreements 1,139,909 1.35 947,880 3.94
Borrowed funds 96,281 3.01 108,745 4.81
------------ ------- ------------- --------
Total interest-bearing liabilities $ 5,116,112 1.60 $ 4,679,228 3.44
Noninterest-bearing demand deposits 1,741,528 1,785,716
Other liabilities 66,804 118,690
Shareholders' equity 790,003 739,126
------------ -------------
Total liabilities and shareholders'
equity $ 7,714,447 $ 7,322,760
============ =============
Net interest spread 3.05 % 3.20 %
Net interest margin 3.45 4.07
11
Three Months Ended Nine Months Ended
September 30, 2002 vs. 2001 September 30, 2002 vs. 2001
---------- ---------- ---------- ---------- ---------- ----------
Volume Rate Total Volume Rate Total
---------- ---------- ---------- ---------- ---------- ----------
Change in interest earned on:
Loans $ (5,265) $ (9,639) $ (14,904) $ (16,560) $ (37,381) $ (53,941)
Securities:
Taxable 1,131 (8,450) (7,319) 27,876 (41,738) (13,862)
Tax-exempt (95) (228) (323) (178) (907) (1,085)
Federal funds sold 155 (792) (637) (10) (3,901) (3,911)
Other 93 (130) (37) (230) (633) (863)
---------- ---------- ---------- ---------- ---------- ----------
Interest income $ (3,981) $ (19,239) $ (23,220) $ 10,898 $ (84,560) $ (73,662)
---------- ---------- ---------- ---------- ---------- ----------
Change in interest paid on:
Interest-bearing deposits $ (1,474) $ (10,499) $ (11,973) $ 5,899 $ (47,040) $ (41,141)
Federal funds purchased 129 (3,798) (3,669) 4,778 (21,141) (16,363)
Borrowed funds (198) (254) (452) (409) (1,334) (1,743)
---------- ---------- ---------- ---------- ---------- ----------
Interest expense $ (1,543) $ (14,551) $ (16,094) $ 10,268 $ (69,515) $ (59,247)
---------- ---------- ---------- ---------- ---------- ----------
Net interest income $ (2,438) $ (4,688) $ (7,126) $ 630 $ (15,045) $ (14,415)
========== ========== ========== ========== ========== ==========
Three Months Ended Nine Months Ended
September 30, September 30,
---------- ---------- ---------- ---------- ---------- ----------
2002 2001 Change 2002 2001 Change
---------- ---------- ---------- ---------- ---------- ----------
Average earning assets $ 6,225,390 $ 6,405,321 $ (179,931) $ 6,842,843 $ 6,270,744 $ 572,099
Interest-bearing liabilities 4,563,100 4,786,843 (223,743) 5,116,111 4,679,228 436,883
---------- ---------- ---------- ---------- ---------- ----------
Interest free funds $ 1,662,290 $ 1,618,478 $ 43,812 $ 1,726,732 $ 1,591,516 $ 135,216
========== ========== ========== ========== ========== ==========
Free funds ratio 26.70 % 25.27 % 1.43 % 25.23 % 25.38 % (0.15)%
(free funds to earning assets)
Tax-equivalent yield on earning assets 4.74 % 6.04 % (1.30)% 4.65 % 6.64 % (1.99)%
Cost of interest-bearing liabilities 1.60 2.85 (1.25) 1.60 3.44 (1.84)
---------- ---------- ---------- ---------- ---------- ----------
Net interest spread 3.14 3.19 % (0.05)% 3.05 % 3.20 % (0.15)%
Benefit of interest free funds 0.43 0.72 (0.29) 0.40 0.87 (0.47)
---------- ---------- ---------- ---------- ---------- ----------
Net interest margin 3.57 % 3.91 % (0.34)% 3.45 % 4.07 % (0.62)%
========== ========== ========== ========== ========== ==========
12
The following financial review presents management's discussion and analysis of the consolidated financial condition and results of operations of UMB Financial Corporation (the Company). This review highlights the material changes in the results of operations and changes in financial condition for the period ended September 30, 2002. 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. Results of operations for the periods in this review is not necessarily indicative of results to be attained during any future period.
Forward Looking Statements
Estimates and forward looking statements are included in this review and as such are subject to certain risks, uncertainties and assumptions that are beyond the Company's ability to control or estimate precisely. Forward looking statements are based on current financial and economic data and management's expectations concerning future developments and their effects. Actual results and outcomes could differ materially from management's current expectations, and could cause future results to differ materially from those expressed in the forward looking statements. Factors that could cause material differences in actual operating results include, but are not limited to, the impact of competition; changes in pricing, loan demand, consumer savings habits, employee costs and interest rates; changes in legal or regulatory requirements or restrictions; the ability of customers to repay loans; changes in U.S. or international economic or political conditions, such as inflation or fluctuation in interest or foreign exchange rates; or changes in values of securities traded in the equity markets; and disruptions in operations due to failures of telecommunications systems, utility systems, security clearing systems, or other elements of the financial industry infrastructure. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with the preparation of management's discussion and analysis contained in the Company's annual and quarterly reports, the Company does not intend to review or revise any particular forward-looking statement referenced herein in light of future events.
Results of Operations
The Company earned net income of $11,485,000 for the three months ended September 30, 2002, compared to $16,866,000 for the same period a year earlier. This represents per share earnings of $0.52 for the third quarter of 2002 compared to $0.80 for the third quarter of 2001. For the nine-month period ended September 30, 2002 the Company reported net income of $45,025,000 compared with $51,292,000 for the same period in 2001. Earnings per share for the nine months ended September 30, 2002 were $2.04 compared to $2.43 in the same period for the prior year.
Through May 18, 2001 net interest income and non-interest income and expense included the results of operations of eScout LLC. a majority owned subsidiary of the Company. Due to the terms of the eScout LLC charter document, prior to May 18, 2001, the net results of its operations were eliminated from the Company's financial statements through an entry of minority interest in loss of consolidated subsidiary. On May 18, 2001 the Company reduced its ownership position in eScout LLC. such that the results of eScout LLC are no longer included in the consolidated results of the Company.
13
Non Interest Income
Lower net interest income was the primary reason for the decline in earnings for both the three months period and nine months period ending September 30, 2002. For the three months ended September 30, 2002, the Company earned net interest income of $52,490,000 compared to $59,881,000 for the third quarter of 2001. On a year-to-date basis, net interest income decreased to $166,006,000 for the first nine months of 2002, compared to $180,748,000 for the same period last year. During both periods the decreases were caused by reduced interest rates and by a reduction in loan volume and corresponding higher amounts of investment securities yielding a lower rate. The company does not currently expect these developments to materially change in the near term. Average loans for the nine months ended September 30, 2002 totaled $2.674 billion (39.1% of total earning assets) compared with $2.971 billion (47.4% of earning assets) one year earlier. The rate earned on average earning assets during the first nine months of 2002 was 181 basis points (1.81%) lower than the rate earned for the first nine months of 2001, resulting in a decrease in net interest rate margin to 3.45% from 4.07% one year earlier. The decrease in the rate on earning assets was partially offset by a 199 basis point (1.99%) decline in the rate paid on interest bearing liabilities, for the nine months ended September 30, 2002. For the three months ended September 30, 2002 the net interest rate margin decreased to 3.57% from 3.91% for the same period in the prior year, as the rate earned on average earning assets decreased 130 basis points (1.30%). For the three months ended September 30, 2002 the decline in the rate paid on interest bearing liabilities decreased 125 basis points (1.25%) from the prior year.
Provision for Loan Losses
The Company's loan loss provision for the third quarter of 2002 was $3,949,000 compared to $2,989,000 for the same period of 2001. The year-to-date loan loss provision for the Company in 2002 was $10,495,000 compared to $10,963,000 for 2001. The Company increased the loan loss provision for the third quarter 2002 $509,000 from the second quarter 2002 to provide for the increase in net loan charge-offs in the third quarter 2002. For the three months ended September 30, 2002 the net loan charge-offs were $5,323,000, compared to $3,437,000 for the same period in 2001. Net loan charge-offs for the first nine months of 2002 were $8,878,000 compared to $7,651,000 for the same period last year. The majority of the net charge-offs in both periods was from commercial, bankcard and consumer loans. The Company will continue to closely monitor its loan positions and related underwriting efforts in order to minimize credit losses.
Non-interest income
Non-interest income totaled $57,437,000 for the third quarter of 2002 compared to $57,155,000 for the same period of 2001. For the first nine months of 2002, non-interest income increased to $175,542,000 from $165,704,000 for the prior year, an increase of 5.9%. One of the primary drivers of the improvement in non-interest income on a year-to-date basis was the increase in securities processing income. The increase in securities processing was associated with the Company's acquisition of UMB Fund Services, Inc. (formerly Sunstone Financial Group, Inc.) in the second quarter of 2001. Despite the acquisition, however, securities processing income was restricted in 2002 due to reduced market values of securities on which this fee income is based. Reduction in the market value of securities also contributed to reduced trust fee income for 2002. Fee income from deposit services and cash management services also increased during the first nine months of 2002.
Non-interest expense
Non-interest expense was $91,449,000 for the three months ended September 30, 2002 compared to $89,942,000 for the same period of 2001, and $271,206,000 for the first nine months of 2002 compared to $274,916,000 for the first nine months of 2001. Staffing for the Company's many growth initiatives, coupled with a tight labor market and increasing medical expenses have contributed to the increase in salaries and employee benefits for the three and nine month periods ended September 30, 2002. Also, processing charges increased in the three and nine months ended September 30, 2002. The adoption of SFAS No.142 at the end of 2001 resulted in the discontinuance of goodwill amortization and caused lower expense in the amounts of $1,524,000 and $4,337,000 for the three and nine months ended September 30, 2002. The prudent management of non-interest expense will continue to be a priority for the Company.
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Financial Condition
Balance Sheet
Total assets at September 30, 2002 were $7.202 billion compared to $7.237 billion at September 30, 2001 and $8.731 billion at December 31, 2001.
| September 30, | December 31, | ||
|---|---|---|---|
| (dollars in thousands) | 2002 | 2001 | 2001 |
| Total Assets | $7,202,095 | $7,236,625 | $8,730,932 |
| Loans, Net of Unearned Interest | 2,609,299 | 2,984,076 | 2,778,121 |
| Total Investment Securities | 3,290,774 | 2,967,055 | 4,521,923 |
| Total Earning Assets | 6,221,976 | 6,126,834 | 7,506,851 |
| Total Deposits | 5,137,589 | 5,412,284 | 6,375,511 |
At September 30, 2002 there was a shift in asset categories, out of loans and into investment securities from September 30, 2001 and December 31, 2001. Uncertainties in the economy, declines in certain lines of credit and reduced loan balances maintained by customers have contributed to the decline in the commercial loan balances. Consumer loan balances have also declined, especially in the indirect auto loans, due primarily to the strong financing incentives offered by auto companies. The decrease of deposit and investment securities balances from year-end totals was caused by the outflow of public funds and commercial deposit balances.
| Non accrual and Restructured Loans | September 30, | December 31, | |
|---|---|---|---|
| 2002 | 2001 | 2001 | |
| Nonaccrual loans | $19,467,070 | $8,649,909 | $5,375,212 |
| Restructured loans | 3,379,885 | 1,530,301 | 1,903,667 |
| ------------------ | ------------------ | ------------------ | |
| Non-performing loans | $22,846,955 | $10,180,210 | $7,278,879 |
| Foreclosed Properties | |||
| Other real estate owned | 4,989,258 | 6,727,974 | 6,465,636 |
| ------------------ | ------------------ | ------------------ | |
| Total Non-performing assets | $27,836,213 | $16,908,184 | $13,744,515 |
| ========= | ========= | ========= | |
Loans past due 90 days or more |
$ 4,350,312 |
$ 9,858,858 |
$11,031,18 |
| Reserve for Loan Losses | $37,253,736 | $35,310,344 | $35,637,397 |
Ratios |
|||
| Non-performing loans /loans net of unearned | 0.86 % | 0.34 % | 0.26 % |
| Non-performing assets/loans net of unearned | 1.05 | 0.56 | 0.49 |
| Non-performing assets/total assets | 0.39 | 0.24 | 0.16 |
| Loans past due 90 days or more/loans net of unearned | 0.16 | 0.33 | 0.39 |
| Reserve for Loan Losses/ loans net of unearned | 1.41 | 1.17 | 1.27 |
The Company's loan quality remains strong by industry standards. The largest increase in non-accrual loans was primarily due to three commercial credits, for which the Company has already established reserves to cover potential losses. The adequacy of the Company's allowance for loan losses is evaluated based on reserves for specific loans, and reserves on homogeneous groups of loans based on historical loss experience and current loss trends. The Company has a well-diversified loan portfolio with no foreign loans and no significant credit exposure to commercial real estate.
Liquidity
The Company's liquidity position continues to be strong. At September 30, 2002, the Company's average loan to deposit ratio was 47.5% compared to 54.9% at September 30, 2001 and 54.2% at December 31, 2001. At September 30, 2002, the average life of the securities portfolio was 14 months with 54% of the portfolio maturing during the next twelve months. The Company has access to various borrowing markets should there be a need for additional funding.
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Shareholder's Equity
Shareholders' equity totaled $801 million at September 30, 2002 compared to $764 million at September 30, 2001 and $769 million at year-end 2001. During the twelve months ended September 30, 2002 the Company increased its treasury stock holdings by $4.9 million. At September 30, 2002, the net unrealized gain on securities available for sale was $25.7 million, compared to $27.6 million at September 30, 2001 and $22.5 million at December 31, 2001.
The Company's capital position is summarized in the table below and exceeds regulatory requirements.
| Nine Months Ended September 30, |
|||
|---|---|---|---|
| RATIOS | 2002 | 2001 | |
| Return on average assets | 0.78 % | 0.94 % | |
| Return on average equity | 7.62 | 9.28 | |
| Average equity to assets | 10.24 | 10.09 | |
| Tier 1 risk-based capital ratio | 18.41 | 15.59 | |
| Total risk-based capital ratio | 19.37 | 16.41 | |
| Leverage ratio | 10.18 | 8.87 | |
The Company's per share data is summarized in the table below:
| Nine Months Ended September 30, |
||
|---|---|---|
| Per Share Data | 2002 | 2001 |
| Earnings Basic | $ 2.04 | $ 2.43 |
| Earnings Diluted | $ 2.03 | $ 2.43 |
| Cash Dividends | $ 0.60 | $ 0.60 |
| Dividend payout ratio | 29.41 % | 24.69 % |
| Book value | $ 36.27 | $ 36.25 |
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgements, including those related to customers and suppliers, allowance for loan losses, bad debts, investments, financing operations, intangible assets, goodwill and contingencies and litigation. Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates under different assumptions or conditions.
Of the issues that are of a subjective nature, Management believes that its critical accounting policies would be those dealing with the allowance for loan losses and the impairment testing for goodwill and other intangibles. The allowance for loan loss represents management's judgement of the losses inherent in the Company's loan portfolio. The adequacy is reviewed quarterly, considering such items as historical trends, a review of individual loans, current economic conditions, loan growth and characteristics, industry or segment concentration, and other factors. Bank regulatory agencies require that the adequacy of the allowance for loan losses be maintained on a bank-by-bank basis, however the Company uses a centralized credit administration function, which provides information on affiliate bank risk levels, delinquencies, an internal ranking system and bank risk levels. With the new accounting policies regarding the stoppage of goodwill amortization and the classification of intangible assets the Company is also responsible for the impairment testing for write downs of these assets. The Company has developed the methodology for future impairment testing and has already performed its transition testing on the remaining goodwill with impairments noted.
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Quantitative and Qualitative Disclosures about Market Risk.
Due to the nature of the Company's business, a degree of interest rate risk is inherent and appropriate. Interest rate risk is the Company's primary risk. As described in the Company's 2001 Annual Report on Form 10K (to which reference is hereby made), Management attempts to limit the level of exposure arising from interest rate movements, by structuring the Company's balance sheet to provide for the repricing of approximately equal amounts of assets and liabilities within specific time intervals. The Company also uses simulation tools to measure and manage its interest rate risk. The Company does not use off-balance sheet hedges or swaps to manage this risk except for the use of future contracts to offset interest rate risk on specific securities held in its trading portfolio. One tool used by the Company is a model that internally generates estimates of the changes that would occur as of a given date in the net portfolio value (NPV) of interest rate risk sensitive instruments (investment securities, notes, deposits, loans and all other instruments) as a result of a hypothetical change in interest rates on that date. This model is designed to represent as of the respective date selected, the increase or decrease in the fair value of expected cash flows from such instruments that would result from the hypothetical change in interest rates on such date. The following table sets forth for the respective dates indicated, the increase or decrease (as applicable) in NPV, that would be caused by each of the following hypothetical immediate changes in interest rates on such dates: an immediate increase of 200 basis points, an immediate increase of 100 basis points, and an immediate decrease of 100 basis points. The NPV under each hypothetical scenario is projected below as of September 30, 2002, as well as of December 31, 2001. The table includes both instruments entered into for trading purposes, and the instruments entered into for other than trading purposes, since the former represents such a small portion of the company's portfolio that any difference in the interest rate risk associated with it (as compared with the risk associated with instruments entered into for other than trading purposes) is immaterial.
| Net Portfolio Value | ||||
|---|---|---|---|---|
| September 30, 2002 | December 31, 2001 | |||
| Change in Interest Rates | Dollar Change | % Change | Dollar Change | % Change |
| +200 basis point | $205,368 | 18.45 % | $160,564 | 13.19 % |
| +100 basis point | 102,347 | 9.19 % | 92,500 | 7.60 % |
| -100 basis point | (36,047) | (3.24)% | (14,869) | (1.22)% |
| -200 basis point | NA | NA | NA | NA |
The greater positive change in NPV associated with the increase of interest rate scenarios as of September 30, 2002 (as compared with similar increases as of December 31, 2001) is caused mostly by the increase in a positive static gap analysis. Since year-end the Company has seen an increase in interest-earning assets compared to interest-bearing liabilities that reprice within one year.
Qualitative Risks:
The Company's exposure to credit risk is managed through the use of consistent underwriting standards that emphasize "in-market" lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. The credit administration function employs extensive risk management techniques including forecasting, to ensure that loans adhere to corporate policy and problem loans are properly identified. These procedures provide executive management with the information necessary to implement policy adjustments where necessary, and take corrective actions on a proactive basis. For further understanding of non-performing loans and the adequacy of allowance for loan losses please reference the Company's 2001 Annual Report, and management's discussion and analysis of financial condition contained in this 10Q.
Controls and Procedures:
1. Evaluation of Disclosure Controls and Procedures. The undersigned principal executive officer and principal financial officer of UMB Financial Corporation, Inc. conclude that the disclosure controls and procedures of UMB Financial Corporation are effective based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report.
2. Changes in Internal Controls. There have been no significant changes in the internal controls of UMB Financial Corporation or in other factors that could significantly affect these controls subsequent to the date of the evaluation of these controls by the undersigned principal executive officer and principal financial officer of UMB Financial Corporation.
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PART II. Other Information
Item 6. Exhibits and Reports on form 8-K
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
Undersigned hereunto duly authorized.
UMB FINANCIAL CORPORATION
/s/R. Crosby Kemper III
R. Crosby Kemper III
Chairman and Chief Executive Officer
/s/Daniel C. Stevens
Daniel C. Stevens
Chief Financial Officer
Date: November 14, 2002
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I, R. Crosby Kemper III, certify that:
1. I have reviewed this quarterly report as of September 30, 2002 on Form 10-Q of UMB Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
- designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
- evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report September 30, 2002; and
- presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of September 30, 2002;
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
- all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
- any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
Dated: November 14, 2002
/s/ R. Crosby Kemper, III
R. Crosby Kemper III
Chief Executive Officer
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I, Daniel C. Stevens, certify that:
1. I have reviewed this quarterly report as of September 30, 2002 on Form 10-Q of UMB Financial Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
- designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
- evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report September 30, 2002; and
- presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of September 30, 2002;
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
- all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
- any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
Dated: November 14, 2002
/s/ Daniel C. Stevens
Daniel C. Stevens
Chief Financial Officer
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