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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: DECEMBER 31, 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
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INDEX
ITEM PAGE
---- ----
PART I
1. Business.................................................... 1
2. Properties.................................................. 4
3. Legal Proceedings........................................... 4
4. Submission of Matters to a Vote of Security Holders......... 4
PART II
Market for the Registrant's Common Equity and Related Stock-
5. holder Matters.............................................. 4
6. Selected Financial Data..................................... 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
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* 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