NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
1.
|
Financial Statement Presentation
|
The consolidated financial statements include the accounts of UMB Financial Corporation and its subsidiaries (collectively,
the Company) after elimination of all intercompany transactions. In the opinion of management of the Company, all adjustments, which were of a normal recurring nature and necessary for a fair presentation of the financial position and results of
operations, have been made. The results of operations and cash flows for the interim periods presented may not be indicative of the results of the full year. The financial statements should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations within this Form 10-Q filing and in conjunction with the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
2.
|
Summary of Significant Accounting Policies
|
The Company is a financial holding company, which offers a wide range of banking and other financial services to its
customers through its branches and offices in the states of Missouri, Kansas, Colorado, Illinois, Oklahoma, Texas, Arizona, Nebraska, Pennsylvania, South Dakota, Indiana, Utah, and Wisconsin. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America 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. A summary of the significant accounting policies
to assist the reader in understanding the financial presentation is listed in the Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Cash and cash equivalents
Amounts due
from the Federal Reserve Bank, which are interest-bearing for all periods presented, and amounts due from certificates of deposits held at other financial institutions are included in interest-bearing due from banks. The amounts due from
certificates of deposit totaled $107.4 million and $23.8 million at June 30, 2014 and June 30, 2013, respectively.
This table
provides a summary of cash and cash equivalents as presented on the Consolidated Statement of Cash Flows as of June 30, 2014 and June 30, 2013
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Due from the Federal Reserve
|
|
$
|
143,641
|
|
|
$
|
583,683
|
|
Cash and due from banks
|
|
|
639,878
|
|
|
|
415,489
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
783,519
|
|
|
$
|
999,172
|
|
|
|
|
|
|
|
|
|
|
Per Share Data
Basic income per share is computed based on the weighted average number of shares of common stock outstanding during each period. Diluted
quarterly per share data includes the dilutive effect of 597,778 and 521,165 shares issuable upon the exercise of options granted by the Company and outstanding at June 30, 2014 and 2013, respectively. Diluted year-to-date income per share
includes the dilutive effect of 626,345 and 473,614 shares issuable upon the exercise of stock options granted by the Company and outstanding at June 30, 2014 and 2013, respectively.
Options issued under employee benefit plans to purchase 253,149 shares of common stock were outstanding at June 30, 2014, but were not
included in the computation of quarter-to-date and year-to-date diluted EPS because the options were anti-dilutive. Options issued under employee benefit plans to purchase 276,931 shares of common stock were outstanding at June 30, 2013, but
were not included in the computation of quarter-to-date and year-to-date diluted EPS because the options were anti-dilutive.
8
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
3.
|
New Accounting Pronouncements
|
Investment Companies
In June 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2013-08, Amendments to the Scope, Measurement, and Disclosure Requirements for investment companies. The amendments changed the assessment of whether an entity is an investment company by requiring an entity to possess certain
fundamental characteristics, while allowing judgment in assessing other typical characteristics. The ASU was effective January 1, 2014, and the Company did not change the status of any subsidiary, or the accounting applied to a subsidiary,
under the new guidelines.
Accounting for Investments in Qualified Affordable Housing Projects
In January 2014, the FASB issued ASU
No. 2014-01, Accounting for Investments in Qualified Affordable Housing Projects. The amendments permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing
projects using the proportional amortization method if certain conditions are met. Regardless of whether the reporting entity chooses to elect the proportional amortization method, this ASU introduces new recurring disclosures about all investments
in qualified affordable housing projects. The ASU is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of this accounting pronouncement will not have a significant impact on the Companys
financial statements or financial statement disclosures.
Reclassification of Residential Real Estate Loans
In January 2014, the FASB issued ASU
No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendment is intended to reduce diversity in practice by clarifying when an in substance repossession or
foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loans such that the loan receivable should be derecognized and the real
stated property recognized. The amendments in this update are effective for interim and annual periods beginning after December 15, 2014. The adoption of this accounting pronouncement will not have a significant impact on the Companys
financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers.
The issuance is part of a joint effort by the FASB and the International Accounting Standards Board (IASB) to enhance financial reporting by creating common revenue recognition guidance for U.S. Generally Accepted Accounting Principles (GAAP) and
International Financial Reporting Standards (IFRS) and, thereby, improving the consistency of requirements, comparability of practices and usefulness of disclosures. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when
it becomes effective. The amendments in this update are effective for interim and annual periods beginning after December 15, 2016. Early application is not permitted. The standard permits the use of either the retrospective or cumulative
effect transition method. The Company is currently evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the
effect of the standard on its ongoing financial reporting.
Repurchase-to-Maturity Transactions
In June 2014, the FASB issued ASU No. 2014-11,
Repurchase-to-Maturity Transactions, Repurchased Financings, and Disclosures. The amendment changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is
consistent with accounting for other repurchase agreements. Additionally, the amendment requires new disclosures on transfers accounted for as sales in transactions that are economically similar to repurchase agreements and requires increased
transparency on collateral pledged in secured borrowings. The amendments in this update are effective for interim and annual periods beginning after December 15, 2014. Early application is not permitted. The Company is currently evaluating the
effect that ASU 2014-11 will have on its consolidated financial statements and related financial statement disclosures.
Stock Compensation
In June
2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide that a Performance Target could be Achieved after the Requisite Service Period. The amendment is intended to reduce
diversity in practice by clarifying that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this update are effective for interim and
annual periods beginning after December 15, 2015 with early adoption permitted. The adoption of this accounting pronouncement will not have a significant impact on the Companys financial statements.
9
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
4.
|
Loans and Allowance for Loan Losses
|
Loan Origination/Risk Management
The Company has certain lending policies and procedures in place that are designed to minimize the level of risk within the loan portfolio.
Diversification of the loan portfolio manages the risk associated with fluctuations in economic conditions. The Company maintains an independent loan review department that reviews and validates the risk assessment on a continual basis. Management
regularly evaluates the results of the loan reviews. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Companys policies and procedures.
Commercial loans are underwritten after evaluating and understanding the borrowers ability to operate profitably and prudently
expand its business. Commercial loans are made based on the identified cash flows of the borrower and on the underlying collateral provided by the borrower. The cash flows of the borrower, however, may not be as expected and the collateral securing
these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. In the case of loans secured by accounts
receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts from its customers. Commercial credit cards are generally unsecured and are underwritten with
criteria similar to commercial loans including an analysis of the borrowers cash flow, available business capital, and overall credit-worthiness of the borrower.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial loans, in addition to those of real
estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is largely dependent
on the successful operation of the property securing the loan or the business conducted on the property securing the loan. The Company requires an appraisal of the collateral be made at origination and on an as-needed basis, in conformity with
current market conditions and regulatory requirements. The underwriting standards address both owner and non-owner occupied real estate.
Construction loans are underwritten using feasibility studies, independent appraisal reviews, sensitivity analysis or absorption and lease
rates and financial analysis of the developers and property owners. Construction loans are based upon estimates of costs and value associated with the complete project. Construction loans often involve the disbursement of substantial funds with
repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term borrowers, sales of developed property or an interim loan commitment
from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their repayment being sensitive to interest rate changes,
governmental regulation of real property, economic conditions, and the availability of long-term financing.
Underwriting standards for
residential real estate and home equity loans are based on the borrowers loan-to-value percentage, collection remedies, ability to repay, and overall credit history.
Consumer loans are underwritten based on the borrowers repayment ability. The Company monitors delinquencies on all of its consumer
loans and leases and periodically reviews the distribution of FICO scores relative to historical periods to monitor credit risk on its credit card loans. The underwriting and review practices combined with the relatively small loan amounts that are
spread across many individual borrowers, minimizes risk. Consumer loans and leases that are 90 days past due or more are considered non-performing.
10
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
This table provides a summary of loan classes and an aging of past due loans at June 30,
2014 and December 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
30-89
Days Past
Due and
Accruing
|
|
|
Greater
than 90
Days Past
Due and
Accruing
|
|
|
Non-
Accrual
Loans
|
|
|
Total
Past
Due
|
|
|
Current
|
|
|
Total
Loans
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
29,400
|
|
|
$
|
1,500
|
|
|
$
|
8,461
|
|
|
$
|
39,361
|
|
|
$
|
3,499,888
|
|
|
$
|
3,539,249
|
|
Commercial credit card
|
|
|
275
|
|
|
|
92
|
|
|
|
20
|
|
|
|
387
|
|
|
|
118,488
|
|
|
|
118,875
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
1,965
|
|
|
|
128
|
|
|
|
909
|
|
|
|
3,002
|
|
|
|
228,906
|
|
|
|
231,908
|
|
Real estate commercial
|
|
|
5,784
|
|
|
|
388
|
|
|
|
15,922
|
|
|
|
22,094
|
|
|
|
1,707,280
|
|
|
|
1,729,374
|
|
Real estate residential
|
|
|
3,472
|
|
|
|
13
|
|
|
|
742
|
|
|
|
4,227
|
|
|
|
294,823
|
|
|
|
299,050
|
|
Real estate HELOC
|
|
|
921
|
|
|
|
|
|
|
|
348
|
|
|
|
1,269
|
|
|
|
597,962
|
|
|
|
599,231
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer credit card
|
|
|
2,041
|
|
|
|
2,218
|
|
|
|
669
|
|
|
|
4,928
|
|
|
|
301,122
|
|
|
|
306,050
|
|
Consumer other
|
|
|
8,315
|
|
|
|
183
|
|
|
|
104
|
|
|
|
8,602
|
|
|
|
64,551
|
|
|
|
73,153
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,793
|
|
|
|
23,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
52,173
|
|
|
$
|
4,522
|
|
|
$
|
27,175
|
|
|
$
|
83,870
|
|
|
$
|
6,836,813
|
|
|
$
|
6,920,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
30-89
Days Past
Due and
Accruing
|
|
|
Greater
than 90
Days Past
Due and
Accruing
|
|
|
Non-
Accrual
Loans
|
|
|
Total
Past
Due
|
|
|
Current
|
|
|
Total
Loans
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,107
|
|
|
$
|
135
|
|
|
$
|
8,042
|
|
|
$
|
10,284
|
|
|
$
|
3,291,219
|
|
|
$
|
3,301,503
|
|
Commercial credit card
|
|
|
362
|
|
|
|
82
|
|
|
|
38
|
|
|
|
482
|
|
|
|
102,788
|
|
|
|
103,270
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
186
|
|
|
|
|
|
|
|
934
|
|
|
|
1,120
|
|
|
|
151,755
|
|
|
|
152,875
|
|
Real estate commercial
|
|
|
3,611
|
|
|
|
344
|
|
|
|
19,213
|
|
|
|
23,168
|
|
|
|
1,678,983
|
|
|
|
1,702,151
|
|
Real estate residential
|
|
|
1,257
|
|
|
|
13
|
|
|
|
868
|
|
|
|
2,138
|
|
|
|
287,218
|
|
|
|
289,356
|
|
Real estate HELOC
|
|
|
880
|
|
|
|
6
|
|
|
|
210
|
|
|
|
1,096
|
|
|
|
565,032
|
|
|
|
566,128
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer credit card
|
|
|
3,230
|
|
|
|
2,448
|
|
|
|
1,031
|
|
|
|
6,709
|
|
|
|
311,627
|
|
|
|
318,336
|
|
Consumer other
|
|
|
1,727
|
|
|
|
190
|
|
|
|
370
|
|
|
|
2,287
|
|
|
|
60,625
|
|
|
|
62,912
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,981
|
|
|
|
23,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
13,360
|
|
|
$
|
3,218
|
|
|
$
|
30,706
|
|
|
$
|
47,284
|
|
|
$
|
6,473,228
|
|
|
$
|
6,520,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company sold $31.0 million and $75.0 million of residential real estate and student loans in the secondary
market without recourse during the six-month periods ended June 30, 2014 and June 30, 2013, respectively.
The Company has
ceased the recognition of interest on loans with a carrying value of $27.2 million and $30.7 million at June 30, 2014 and December 31, 2013, respectively. Restructured loans totaled $11.6 million and $12.1 million at June 30, 2014 and
December 31, 2013, respectively. Loans 90 days past due and still accruing interest amounted to $4.5 million and $3.2 million at June 30, 2014 and December 31, 2013, respectively. There was an insignificant amount of interest
recognized on impaired loans during 2014 and 2013.
11
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Companys loan portfolio, management tracks certain credit quality indicators including
trends related to the risk grading of specified classes of loans, net charge-offs, non-performing loans, and general economic conditions.
The Company utilizes a risk grading matrix to assign a rating to each of its commercial, commercial real estate, and construction real estate
loans. The loan rankings are summarized into the following categories: Non-watch list, Watch, Special Mention, and Substandard. Any loan not classified in one of the categories described below is considered to be a Non-watch list loan. The loans in
any of the three categories below are considered to be a criticized loan. A description of the general characteristics of the loan ranking categories is as follows:
|
|
|
Watch
This rating represents credit exposure that presents higher than average risk and warrants greater than routine attention by Company personnel due to conditions affecting the borrower, the
borrowers industry or the economic environment. These conditions have resulted in some degree of uncertainty that results in higher than average credit risk.
|
|
|
|
Special Mention
This rating reflects a potential weakness that deserves managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the asset or the institutions credit position at some future date. The rating is not adversely classified and does not expose an institution to sufficient risk to warrant adverse classification.
|
|
|
|
Substandard
This rating represents an asset inadequately protected by the financial worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified must have a
well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Loans in this category are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected. Loss potential, while
existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. This category may include loans where the collection of full principal and interest is doubtful or remote.
|
All other classes of loans are generally evaluated and monitored based on payment activity. Non-performing loans include restructured loans on
non-accrual and all other non-accrual loans.
12
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
This table provides an analysis of the credit risk profile of each loan class at
June 30, 2014 and December 31, 2013
(in thousands):
Credit Exposure
Credit Risk Profile by Risk Rating
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Real estate- construction
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Non-watch list
|
|
$
|
3,257,277
|
|
|
$
|
3,041,224
|
|
|
$
|
229,401
|
|
|
$
|
151,359
|
|
Watch
|
|
|
96,157
|
|
|
|
110,932
|
|
|
|
1,194
|
|
|
|
210
|
|
Special Mention
|
|
|
94,482
|
|
|
|
78,064
|
|
|
|
19
|
|
|
|
|
|
Substandard
|
|
|
91,333
|
|
|
|
71,283
|
|
|
|
1,294
|
|
|
|
1,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,539,249
|
|
|
$
|
3,301,503
|
|
|
$
|
231,908
|
|
|
$
|
152,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - commercial
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Non-watch list
|
|
$
|
1,610,812
|
|
|
$
|
1,565,894
|
|
Watch
|
|
|
43,955
|
|
|
|
76,647
|
|
Special Mention
|
|
|
30,856
|
|
|
|
19,876
|
|
Substandard
|
|
|
43,751
|
|
|
|
39,734
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,729,374
|
|
|
$
|
1,702,151
|
|
|
|
|
|
|
|
|
|
|
Credit Exposure
Credit Risk Profile Based on Payment Activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial credit card
|
|
|
Real estate- residential
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Performing
|
|
$
|
118,855
|
|
|
$
|
103,232
|
|
|
$
|
298,308
|
|
|
$
|
288,488
|
|
Non-performing
|
|
|
20
|
|
|
|
38
|
|
|
|
742
|
|
|
|
868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,875
|
|
|
$
|
103,270
|
|
|
$
|
299,050
|
|
|
$
|
289,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate - HELOC
|
|
|
Consumer credit card
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Performing
|
|
$
|
598,883
|
|
|
$
|
565,918
|
|
|
$
|
305,381
|
|
|
$
|
317,305
|
|
Non-performing
|
|
|
348
|
|
|
|
210
|
|
|
|
669
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
599,231
|
|
|
$
|
566,128
|
|
|
$
|
306,050
|
|
|
$
|
318,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer - other
|
|
|
Leases
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Performing
|
|
$
|
73,049
|
|
|
$
|
62,542
|
|
|
$
|
23,793
|
|
|
$
|
23,981
|
|
Non-performing
|
|
|
104
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
73,153
|
|
|
$
|
62,912
|
|
|
$
|
23,793
|
|
|
$
|
23,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents
managements judgment of inherent probable losses within the Companys loan portfolio as of the balance sheet date. The allowance is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. Accordingly, the
methodology is based on historical loss trends. The Companys process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for probable loan losses
reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors.
The level of the allowance reflects managements continuing evaluation of industry concentrations, specific credit risks, loan loss
experience, current loan portfolio quality, present economic, political and regulatory conditions and estimated losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific loans; however, the entire
allowance is available for any loan that, in managements judgment, should be charged off. While management utilizes its best judgment and information available, the adequacy of the allowance is dependent upon a variety of factors beyond the
Companys control, including, among other things, the performance of the Companys loan portfolio, the economy, changes in interest rates and changes in the regulatory environment.
The Companys allowance for loan losses consists of specific valuation allowances and general valuation allowances based on historical
loan loss experience for similar loans with similar characteristics and trends, general economic conditions and other qualitative risk factors both internal and external to the Company.
The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of impaired loans. Loans are
classified based on an internal risk grading process that evaluates the obligors ability to repay, the underlying collateral, if any, and the economic environment and industry in which the borrower operates. When a loan is considered impaired,
the loan is analyzed to determine the need, if any, to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrowers ability to repay amounts owed,
collateral deficiencies, the relative risk ranking of the loan and economic conditions affecting the borrowers industry.
General
valuation allowances are calculated based on the historical loss experience of specific types of loans including an evaluation of the time span and volume of the actual charge-off. The Company calculates historical loss ratios for pools of similar
loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are updated based on actual charge-off experience. A valuation allowance is
established for each pool of similar loans based upon the product of the historical loss ratio, time span to charge-off, and the total dollar amount of the loans in the pool. The Companys pools of similar loans include similarly risk-graded
groups of commercial loans, commercial real estate loans, commercial credit card, home equity loans, consumer real estate loans and consumer and other loans. The Company also considers a loan migration analysis for criticized loans. This analysis
includes an assessment of the probability that a loan will move to a loss position based on its risk rating. The consumer credit card pool is evaluated based on delinquencies and credit scores. In addition, a portion of the allowance is determined
by a review of qualitative factors by Management.
14
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
ALLOWANCE FOR LOAN LOSSES AND RECORDED INVESTMENT IN LOANS
This table provides a rollforward of the allowance for loan losses by portfolio segment for the three and six months ended June 30,
2014
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014
|
|
|
|
Commercial
|
|
|
Real estate
|
|
|
Consumer
|
|
|
Leases
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
48,363
|
|
|
$
|
16,091
|
|
|
$
|
10,984
|
|
|
$
|
76
|
|
|
$
|
75,514
|
|
Charge-offs
|
|
|
(1,476
|
)
|
|
|
(55
|
)
|
|
|
(3,048
|
)
|
|
|
|
|
|
|
(4,579
|
)
|
Recoveries
|
|
|
201
|
|
|
|
8
|
|
|
|
658
|
|
|
|
|
|
|
|
867
|
|
Provision
|
|
|
5,345
|
|
|
|
(1,827
|
)
|
|
|
1,480
|
|
|
|
2
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
52,433
|
|
|
$
|
14,217
|
|
|
$
|
10,074
|
|
|
$
|
78
|
|
|
$
|
76,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014
|
|
|
|
Commercial
|
|
|
Real estate
|
|
|
Consumer
|
|
|
Leases
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
48,886
|
|
|
$
|
15,342
|
|
|
$
|
10,447
|
|
|
$
|
76
|
|
|
$
|
74,751
|
|
Charge-offs
|
|
|
(2,947
|
)
|
|
|
(181
|
)
|
|
|
(6,136
|
)
|
|
|
|
|
|
|
(9,264
|
)
|
Recoveries
|
|
|
268
|
|
|
|
17
|
|
|
|
1,530
|
|
|
|
|
|
|
|
1,815
|
|
Provision
|
|
|
6,226
|
|
|
|
(961
|
)
|
|
|
4,233
|
|
|
|
2
|
|
|
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
52,433
|
|
|
$
|
14,217
|
|
|
$
|
10,074
|
|
|
$
|
78
|
|
|
$
|
76,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
2,497
|
|
|
$
|
1,118
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,615
|
|
Ending Balance: collectively evaluated for impairment
|
|
|
49,936
|
|
|
|
13,099
|
|
|
|
10,074
|
|
|
|
78
|
|
|
|
73,187
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: loans
|
|
$
|
3,658,124
|
|
|
$
|
2,859,563
|
|
|
$
|
379,203
|
|
|
$
|
23,793
|
|
|
$
|
6,920,683
|
|
Ending Balance: individually evaluated for impairment
|
|
|
14,517
|
|
|
|
12,407
|
|
|
|
1
|
|
|
|
|
|
|
|
26,925
|
|
Ending Balance: collectively evaluated for impairment
|
|
|
3,643,607
|
|
|
|
2,847,156
|
|
|
|
379,202
|
|
|
|
23,793
|
|
|
|
6,893,758
|
|
15
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
This table provides a rollforward of the allowance for loan losses by portfolio segment for
the three and six months ended June 30, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2013
|
|
|
|
Commercial
|
|
|
Real estate
|
|
|
Consumer
|
|
|
Leases
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
43,345
|
|
|
$
|
14,946
|
|
|
$
|
11,529
|
|
|
$
|
61
|
|
|
$
|
69,881
|
|
Charge-offs
|
|
|
(941
|
)
|
|
|
(176
|
)
|
|
|
(2,968
|
)
|
|
|
|
|
|
|
(4,085
|
)
|
Recoveries
|
|
|
141
|
|
|
|
7
|
|
|
|
703
|
|
|
|
|
|
|
|
851
|
|
Provision
|
|
|
2,563
|
|
|
|
1,519
|
|
|
|
904
|
|
|
|
14
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
45,108
|
|
|
$
|
16,296
|
|
|
$
|
10,168
|
|
|
$
|
75
|
|
|
$
|
71,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013
|
|
|
|
Commercial
|
|
|
Real estate
|
|
|
Consumer
|
|
|
Leases
|
|
|
Total
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
43,390
|
|
|
$
|
15,506
|
|
|
$
|
12,470
|
|
|
$
|
60
|
|
|
$
|
71,426
|
|
Charge-offs
|
|
|
(2,423
|
)
|
|
|
(371
|
)
|
|
|
(6,139
|
)
|
|
|
|
|
|
|
(8,933
|
)
|
Recoveries
|
|
|
515
|
|
|
|
16
|
|
|
|
1,623
|
|
|
|
|
|
|
|
2,154
|
|
Provision
|
|
|
3,626
|
|
|
|
1,145
|
|
|
|
2,214
|
|
|
|
15
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
45,108
|
|
|
$
|
16,296
|
|
|
$
|
10,168
|
|
|
$
|
75
|
|
|
$
|
71,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: individually evaluated for impairment
|
|
$
|
2,727
|
|
|
$
|
483
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,210
|
|
Ending Balance: collectively evaluated for impairment
|
|
|
42,381
|
|
|
|
15,813
|
|
|
|
10,168
|
|
|
|
75
|
|
|
|
68,437
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance: loans
|
|
$
|
3,443,175
|
|
|
$
|
2,495,294
|
|
|
$
|
374,202
|
|
|
$
|
26,250
|
|
|
$
|
6,338,921
|
|
Ending Balance: individually evaluated for impairment
|
|
|
14,326
|
|
|
|
10,465
|
|
|
|
31
|
|
|
|
|
|
|
|
24,822
|
|
Ending Balance: collectively evaluated for impairment
|
|
|
3,428,849
|
|
|
|
2,484,829
|
|
|
|
374,171
|
|
|
|
26,250
|
|
|
|
6,314,099
|
|
16
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Impaired Loans
This table provides an analysis of impaired loans by class at June 30, 2014 and December 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
with No
Allowance
|
|
|
Recorded
Investment
with
Allowance
|
|
|
Total
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
17,703
|
|
|
$
|
4,740
|
|
|
$
|
9,777
|
|
|
$
|
14,517
|
|
|
$
|
2,497
|
|
|
$
|
14,624
|
|
Commercial credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
1,399
|
|
|
|
786
|
|
|
|
123
|
|
|
|
909
|
|
|
|
98
|
|
|
|
921
|
|
Real estate commercial
|
|
|
12,772
|
|
|
|
7,138
|
|
|
|
3,384
|
|
|
|
10,522
|
|
|
|
1,020
|
|
|
|
12,223
|
|
Real estate residential
|
|
|
1,151
|
|
|
|
976
|
|
|
|
|
|
|
|
976
|
|
|
|
|
|
|
|
1,024
|
|
Real estate HELOC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,026
|
|
|
$
|
13,641
|
|
|
$
|
13,284
|
|
|
$
|
26,925
|
|
|
$
|
3,615
|
|
|
$
|
28,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Unpaid
Principal
Balance
|
|
|
Recorded
Investment
with No
Allowance
|
|
|
Recorded
Investment
with
Allowance
|
|
|
Total
Recorded
Investment
|
|
|
Related
Allowance
|
|
|
Average
Recorded
Investment
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
17,227
|
|
|
$
|
3,228
|
|
|
$
|
11,407
|
|
|
$
|
14,635
|
|
|
$
|
2,882
|
|
|
$
|
14,791
|
|
Commercial credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
1,408
|
|
|
|
810
|
|
|
|
123
|
|
|
|
933
|
|
|
|
|
|
|
|
1,186
|
|
Real estate commercial
|
|
|
14,686
|
|
|
|
5,305
|
|
|
|
8,218
|
|
|
|
13,523
|
|
|
|
94
|
|
|
|
10,506
|
|
Real estate residential
|
|
|
1,317
|
|
|
|
1,087
|
|
|
|
|
|
|
|
1,087
|
|
|
|
1,276
|
|
|
|
1,122
|
|
Real estate HELOC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other
|
|
|
12
|
|
|
|
11
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
34
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,650
|
|
|
$
|
10,441
|
|
|
$
|
19,748
|
|
|
$
|
30,189
|
|
|
$
|
4,252
|
|
|
$
|
27,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Troubled Debt Restructurings
A loan modification is considered a troubled debt restructuring (TDR) when a concession had been granted to a debtor experiencing financial
difficulties. The Companys modifications generally include interest rate adjustments, principal reductions, and amortization and maturity date extensions. These modifications allow the debtor short-term cash relief to allow them to improve
their financial condition. The Companys restructured loans are individually evaluated for impairment and evaluated as part of the allowance for loan loss as described above in the Allowance for Loan Losses section of this note.
The Company had $395 thousand in commitments to lend to borrowers with loan modifications classified as TDRs as of June 30, 2014.
The Company made no TDRs in the last 12 months that had payment defaults for the three or six-month periods ended June 30, 2014.
This table provides a summary of loans restructured by class during the three and six months ended June 30, 2014
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014
|
|
|
Six Months Ended June 30, 2014
|
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
1
|
|
|
$
|
469
|
|
|
$
|
469
|
|
Commercial credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential
|
|
|
3
|
|
|
|
210
|
|
|
|
234
|
|
|
|
3
|
|
|
|
210
|
|
|
|
234
|
|
Real estate HELOC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
|
$
|
210
|
|
|
$
|
234
|
|
|
|
4
|
|
|
$
|
679
|
|
|
$
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
This table provides a summary of loans restructured by class for the three and six months
ended June 30, 2013
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2013
|
|
|
Six Months Ended June 30, 2013
|
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Number
of
Contracts
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
1
|
|
|
$
|
658
|
|
|
$
|
596
|
|
|
|
2
|
|
|
$
|
1,128
|
|
|
$
|
1,067
|
|
Commercial credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
937
|
|
|
|
936
|
|
Real estate residential
|
|
|
1
|
|
|
|
425
|
|
|
|
425
|
|
|
|
1
|
|
|
|
425
|
|
|
|
425
|
|
Real estate HELOC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer credit card
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2
|
|
|
$
|
1,083
|
|
|
$
|
1,021
|
|
|
|
4
|
|
|
$
|
2,490
|
|
|
$
|
2,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Securities Available for Sale
This table provides detailed information about securities available for sale at June 30, 2014 and December 31, 2013
(in
thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
U.S. Treasury
|
|
$
|
466,423
|
|
|
$
|
820
|
|
|
$
|
(568
|
)
|
|
$
|
466,675
|
|
U.S. Agencies
|
|
|
968,580
|
|
|
|
1,778
|
|
|
|
(992
|
)
|
|
|
969,366
|
|
Mortgage-backed
|
|
|
3,180,331
|
|
|
|
31,755
|
|
|
|
(23,881
|
)
|
|
|
3,188,205
|
|
State and political subdivisions
|
|
|
1,924,561
|
|
|
|
27,721
|
|
|
|
(8,920
|
)
|
|
|
1,943,362
|
|
Corporates
|
|
|
133,706
|
|
|
|
13
|
|
|
|
(704
|
)
|
|
|
133,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,673,601
|
|
|
$
|
62,087
|
|
|
$
|
(35,065
|
)
|
|
$
|
6,700,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
U.S. Treasury
|
|
$
|
110,789
|
|
|
$
|
284
|
|
|
$
|
(873
|
)
|
|
$
|
110,200
|
|
U.S. Agencies
|
|
|
1,258,176
|
|
|
|
2,793
|
|
|
|
(3,306
|
)
|
|
|
1,257,663
|
|
Mortgage-backed
|
|
|
2,984,963
|
|
|
|
23,942
|
|
|
|
(64,339
|
)
|
|
|
2,944,566
|
|
State and political subdivisions
|
|
|
2,003,509
|
|
|
|
23,493
|
|
|
|
(31,756
|
)
|
|
|
1,995,246
|
|
Corporates
|
|
|
457,275
|
|
|
|
902
|
|
|
|
(3,441
|
)
|
|
|
454,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,814,712
|
|
|
$
|
51,414
|
|
|
$
|
(103,715
|
)
|
|
$
|
6,762,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents contractual maturity information for securities available for sale at
June 30, 2014
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in 1 year or less
|
|
$
|
406,525
|
|
|
$
|
408,703
|
|
Due after 1 year through 5 years
|
|
|
2,249,226
|
|
|
|
2,263,974
|
|
Due after 5 years through 10 years
|
|
|
705,537
|
|
|
|
711,189
|
|
Due after 10 years
|
|
|
131,982
|
|
|
|
128,552
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,493,270
|
|
|
|
3,512,418
|
|
Mortgage-backed securities
|
|
|
3,180,331
|
|
|
|
3,188,205
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
6,673,601
|
|
|
$
|
6,700,623
|
|
|
|
|
|
|
|
|
|
|
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.
For the six months ended June 30,
2014, proceeds from the sales of securities available for sale were $409.8 million compared to $609.5 million for the same period in 2013. Securities transactions resulted in gross realized gains of $4.1 million and $7.6 million for the six months
ended June 30, 2014 and 2013. The gross realized losses for the six months ended June 30, 2014 and 2013 were $11 thousand and $220 thousand, respectively.
Securities available for sale with a market value of $5.0 billion at June 30, 2014, and $5.9 billion at December 31, 2013, were
pledged to secure U.S. Government deposits, other public deposits, certain trust deposits as required by law, and other potential borrowings. Of this amount, securities with a market value of $1.4 billion at June 30, 2014 and $1.7 billion at
December 31, 2013 were pledged at the Federal Reserve Discount Window but were unencumbered as of those dates.
20
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
The following table shows the Companys available for sale investments gross
unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2014 and December 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
Description of Securities
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
U.S. Treasury
|
|
$
|
157,697
|
|
|
$
|
(128
|
)
|
|
$
|
29,524
|
|
|
$
|
(440
|
)
|
|
$
|
187,221
|
|
|
$
|
(568
|
)
|
U.S. Agencies
|
|
|
249,308
|
|
|
|
(242
|
)
|
|
|
123,824
|
|
|
|
(750
|
)
|
|
|
373,132
|
|
|
|
(992
|
)
|
Mortgage-backed
|
|
|
859,667
|
|
|
|
(14,316
|
)
|
|
|
482,338
|
|
|
|
(9,565
|
)
|
|
|
1,342,005
|
|
|
|
(23,881
|
)
|
State and political subdivisions
|
|
|
131,485
|
|
|
|
(429
|
)
|
|
|
375,917
|
|
|
|
(8,491
|
)
|
|
|
507,402
|
|
|
|
(8,920
|
)
|
Corporates
|
|
|
37,856
|
|
|
|
(114
|
)
|
|
|
86,833
|
|
|
|
(590
|
)
|
|
|
124,689
|
|
|
|
(704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily-impaired debt securities available for sale
|
|
$
|
1,436,013
|
|
|
$
|
(15,229
|
)
|
|
$
|
1,098,436
|
|
|
$
|
(19,836
|
)
|
|
$
|
2,534,449
|
|
|
$
|
(35,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
Description of Securities
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Unrealized
Losses
|
|
U.S. Treasury
|
|
$
|
39,822
|
|
|
$
|
(873
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
39,822
|
|
|
$
|
(873
|
)
|
U.S. Agencies
|
|
|
675,509
|
|
|
|
(3,130
|
)
|
|
|
9,824
|
|
|
|
(176
|
)
|
|
|
685,333
|
|
|
|
(3,306
|
)
|
Mortgage-backed
|
|
|
1,945,964
|
|
|
|
(60,719
|
)
|
|
|
89,147
|
|
|
|
(3,620
|
)
|
|
|
2,035,111
|
|
|
|
(64,339
|
)
|
State and political subdivisions
|
|
|
662,225
|
|
|
|
(25,064
|
)
|
|
|
87,061
|
|
|
|
(6,692
|
)
|
|
|
749,286
|
|
|
|
(31,756
|
)
|
Corporates
|
|
|
271,834
|
|
|
|
(2,458
|
)
|
|
|
41,522
|
|
|
|
(983
|
)
|
|
|
313,356
|
|
|
|
(3,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily-impaired debt securities available for sale
|
|
$
|
3,595,354
|
|
|
$
|
(92,244
|
)
|
|
$
|
227,554
|
|
|
$
|
(11,471
|
)
|
|
$
|
3,822,908
|
|
|
$
|
(103,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses in the Companys investments in U.S. treasury obligations, U.S. government
agencies, federal agency mortgage-backed securities, municipal securities, and corporates were caused by changes in interest rates. The Company does not have the intent to sell these securities and does not believe it is more likely than not that
the Company will be required to sell these securities before a recovery of fair value. The Company expects to recover its cost basis in the securities and does not consider these investments to be other-than-temporarily impaired at June 30,
2014.
Securities Held to Maturity
The table below provides detailed information for securities held to maturity at June 30, 2014 and December 31, 2013
(in
thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
State and political subdivisions
|
|
$
|
238,799
|
|
|
$
|
30,892
|
|
|
$
|
|
|
|
$
|
269,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
$
|
209,770
|
|
|
$
|
21,740
|
|
|
$
|
|
|
|
$
|
231,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
The following table presents contractual maturity information for securities held to maturity
at June 30, 2014
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
Due in 1 year or less
|
|
$
|
61
|
|
|
$
|
69
|
|
Due after 1 year through 5 years
|
|
|
28,051
|
|
|
|
31,680
|
|
Due after 5 years through 10 years
|
|
|
97,997
|
|
|
|
110,674
|
|
Due after 10 years
|
|
|
112,690
|
|
|
|
127,268
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
238,799
|
|
|
$
|
269,691
|
|
|
|
|
|
|
|
|
|
|
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.
There were no sales of securities held to maturity during the first six
months of 2014 or 2013.
Trading Securities
The net unrealized gains on trading securities at June 30, 2014 and June 30, 2013 were $41 thousand and $788 thousand, respectively,
and were included in trading and investment banking income on the consolidated statements of income.
Federal Reserve Bank Stock and Other Securities
The table below provides detailed information for Federal Reserve Bank stock and other securities at June 30, 2014 and
December 31, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2014
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Federal Reserve Bank stock
|
|
$
|
16,279
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,279
|
|
Other securities marketable
|
|
|
|
|
|
|
20,020
|
|
|
|
|
|
|
|
20,020
|
|
Other securities non-marketable
|
|
|
28,638
|
|
|
|
2,590
|
|
|
|
|
|
|
|
31,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Federal Reserve Bank stock and other
|
|
$
|
44,917
|
|
|
$
|
22,610
|
|
|
$
|
|
|
|
$
|
67,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank stock
|
|
$
|
16,279
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,279
|
|
Other securities marketable
|
|
|
20
|
|
|
|
16,612
|
|
|
|
|
|
|
|
16,632
|
|
Other securities non-marketable
|
|
|
17,139
|
|
|
|
432
|
|
|
|
|
|
|
|
17,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Federal Reserve Bank stock and other
|
|
$
|
33,438
|
|
|
$
|
17,044
|
|
|
$
|
|
|
|
$
|
50,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank stock is based on the capital structure of the investing bank and is carried at cost.
Other marketable and non-marketable securities include Prairie Capital Management alternative investments in hedge funds and private equity funds, which are accounted for as equity-method investments. The fair value of other marketable securities
includes alternative investment securities of $20.0 million at June 30, 2014 and $16.6 million at December 31, 2013. The fair value of other non-marketable securities includes alternative investment securities of $7.2 million at
June 30, 2014 and $4.7 million at December 31, 2013. Unrealized gains or losses on alternative investments are recognized in the Equity Earnings on Alternative Investments line of the Companys Consolidated Statements of Income.
22
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
6.
|
Goodwill and Other Intangibles
|
Changes in the carrying amount of goodwill for the periods ended June 30, 2014 and December 31,
2013 by reportable segment are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
|
|
|
Institutional
Investment
Management
|
|
|
Asset
Servicing
|
|
|
Total
|
|
Balances as of January 1, 2013
|
|
$
|
142,753
|
|
|
$
|
47,529
|
|
|
$
|
19,476
|
|
|
$
|
209,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2013
|
|
$
|
142,753
|
|
|
$
|
47,529
|
|
|
$
|
19,476
|
|
|
$
|
209,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 1, 2014
|
|
$
|
142,753
|
|
|
$
|
47,529
|
|
|
$
|
19,476
|
|
|
$
|
209,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of June 30, 2014
|
|
$
|
142,753
|
|
|
$
|
47,529
|
|
|
$
|
19,476
|
|
|
$
|
209,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following are the finite-lived intangible assets that continue to be subject to amortization as of
June 30, 2014 and December 31, 2013
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2014
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Core deposit intangible assets
|
|
$
|
36,497
|
|
|
$
|
32,217
|
|
|
$
|
4,280
|
|
Customer relationships
|
|
|
104,440
|
|
|
|
59,582
|
|
|
|
44,858
|
|
Other intangible assets
|
|
|
3,247
|
|
|
|
2,497
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
144,184
|
|
|
$
|
94,296
|
|
|
$
|
49,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
Core deposit intangible assets
|
|
$
|
36,497
|
|
|
$
|
31,674
|
|
|
$
|
4,823
|
|
Customer relationships
|
|
|
103,960
|
|
|
|
54,062
|
|
|
|
49,898
|
|
Other intangible assets
|
|
|
3,247
|
|
|
|
2,383
|
|
|
|
864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
143,704
|
|
|
$
|
88,119
|
|
|
$
|
55,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is the aggregate amortization expense recognized in each period
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Aggregate amortization expense
|
|
$
|
3,074
|
|
|
$
|
3,354
|
|
|
$
|
6,176
|
|
|
$
|
6,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated amortization expense of intangible assets on future years
(in thousands)
:
|
|
|
|
|
For the six months ending December 31, 2014
|
|
$
|
6,009
|
|
For the year ending December 31, 2015
|
|
|
9,619
|
|
For the year ending December 31, 2016
|
|
|
8,410
|
|
For the year ending December 31, 2017
|
|
|
7,167
|
|
For the year ending December 31, 2018
|
|
|
4,976
|
|
23
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
7.
|
Commitments, Contingencies and Guarantees
|
In the normal course of business, the Company is 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, futures contracts,
forward foreign exchange contracts and spot foreign exchange contracts. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet. The contract or
notional amount of those instruments reflects the extent of involvement the Company has in particular classes of financial instruments. Many of the commitments expire without being drawn upon, therefore, the total amount of these commitments does
not necessarily represent the future cash requirements of the Company.
The Companys exposure to credit loss in the event of
nonperformance by the counterparty to the financial instruments 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 following
table summarizes the Companys off-balance sheet financial instruments.
Contract or Notional Amount
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Commitments to extend credit for loans (excluding credit card loans)
|
|
$
|
2,736,970
|
|
|
$
|
2,690,268
|
|
Commitments to extend credit under credit card loans
|
|
|
2,305,790
|
|
|
|
2,215,278
|
|
Commercial letters of credit
|
|
|
1,842
|
|
|
|
5,949
|
|
Standby letters of credit
|
|
|
385,704
|
|
|
|
356,054
|
|
Forward foreign exchange contracts
|
|
|
29,645
|
|
|
|
21,525
|
|
Spot foreign exchange contracts
|
|
|
1,010
|
|
|
|
8,001
|
|
On March 28, 2014, the Company received objections to its calculation of an earn-out amount owed to the
sellers of Prairie Capital Management, LLC (PCM) and a related incentive bonus calculation. The sellers, which include current employees of PCM, claimed that certain unrealized gains on equity method investments managed by PCM should have been
included in the Companys calculations, which are governed by the asset purchase agreement. For the three month period ended March 31, 2014, the Company had accrued $15 million of contingency reserve expense related to this dispute. On
June 30, 2014, the Company entered into a settlement agreement ,which amends and supersedes certain portions of the original PCM asset purchase agreement, dated June 27, 2010, that relate to the subject of the objections raised by the
sellers of PCM. During the three-month period ended June 30, 2014, an additional $5.3 million of contingency reserve expense was recorded due to increases in value of the equity method investments upon which the settlement is based. Cash
payments totaling $6.0 million were made on June 30, 2014 for this liability, resulting in a remaining liability as of June 30, 2014, of $14.3M. As part of the agreement, final settlement payments will be made in the third quarter of 2015.
This contingency reserve is included in the Other liabilities line on the Companys Consolidated Balance Sheet and the Contingency reserve line on Companys Consolidated Statements of Income.
8.
|
Business Segment Reporting
|
The Company has strategically aligned its operations into the following four reportable segments (collectively, Business
Segments): Bank, Payment Solutions, Institutional Investment Management, and Asset Servicing. Business segment financial results produced by the Companys internal management reporting system are evaluated regularly by senior executive officers
in deciding how to allocate resources and assess performance for individual Business Segments. The management reporting system assigns balance sheet and income statement items to each business segment using methodologies that are refined on an
ongoing basis. For comparability purposes, amounts in all periods presented are based on methodologies in effect at June 30, 2014. Previously reported results have been reclassified to conform to the current organizational structure.
24
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
The following summaries provide information about the activities of each segment:
The
Bank
provides a full range of banking services to commercial, retail, government and correspondent bank customers through the
Companys branches, call center, internet banking, and ATM network. Services include traditional commercial and consumer banking, treasury management, leasing, foreign exchange, merchant bankcard, wealth management, brokerage, insurance,
capital markets, investment banking, corporate trust, and correspondent banking.
Payment Solutions
provides consumer and
commercial credit and debit card, prepaid debit card solutions, healthcare services, and institutional cash management. Healthcare services include health savings account and flexible savings account products for healthcare providers, third-party
administrators and large employers.
Institutional Investment Management
provides equity and fixed income investment strategies in
the intermediary and institutional markets via mutual funds, traditional separate accounts and sub-advisory relationships.
Asset
Servicing
provides services to the asset management industry, supporting a range of investment products, including mutual funds, alternative investments and managed accounts. Services include fund administration, fund accounting, investor
services, transfer agency, distribution, marketing, custody, alternative investment services, and collective and multiple-series trust services.
25
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Business Segment Information
Segment financial results were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2014
|
|
|
|
Bank
|
|
|
Payment
Solutions
|
|
|
Institutional
Investment
Management
|
|
|
Asset
Servicing
|
|
|
Total
|
|
Net interest income
|
|
$
|
72,481
|
|
|
$
|
12,390
|
|
|
$
|
(1
|
)
|
|
$
|
1,300
|
|
|
$
|
86,170
|
|
Provision for loan losses
|
|
|
2,686
|
|
|
|
2,314
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Noninterest income
|
|
|
56,006
|
|
|
|
21,219
|
|
|
|
33,999
|
|
|
|
22,777
|
|
|
|
134,001
|
|
Noninterest expense
|
|
|
100,928
|
|
|
|
24,603
|
|
|
|
22,111
|
|
|
|
18,869
|
|
|
|
166,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
24,873
|
|
|
|
6,692
|
|
|
|
11,887
|
|
|
|
5,208
|
|
|
|
48,660
|
|
Income tax expense
|
|
|
7,211
|
|
|
|
1,910
|
|
|
|
3,375
|
|
|
|
1,492
|
|
|
|
13,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,662
|
|
|
$
|
4,782
|
|
|
$
|
8,512
|
|
|
$
|
3,716
|
|
|
$
|
34,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets
|
|
$
|
12,008,000
|
|
|
$
|
2,148,000
|
|
|
$
|
69,000
|
|
|
$
|
1,393,000
|
|
|
$
|
15,618,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2013
|
|
|
|
Bank
|
|
|
Payment
Solutions
|
|
|
Institutional
Investment
Management
|
|
|
Asset
Servicing
|
|
|
Total
|
|
Net interest income
|
|
$
|
70,558
|
|
|
$
|
11,192
|
|
|
$
|
(10
|
)
|
|
$
|
587
|
|
|
$
|
82,327
|
|
Provision for loan losses
|
|
|
1,628
|
|
|
|
3,372
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
Noninterest income
|
|
|
46,436
|
|
|
|
18,640
|
|
|
|
29,155
|
|
|
|
19,354
|
|
|
|
113,585
|
|
Noninterest expense
|
|
|
92,540
|
|
|
|
21,850
|
|
|
|
18,856
|
|
|
|
17,065
|
|
|
|
150,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
22,826
|
|
|
|
4,610
|
|
|
|
10,289
|
|
|
|
2,876
|
|
|
|
40,601
|
|
Income tax expense
|
|
|
6,035
|
|
|
|
1,203
|
|
|
|
2,708
|
|
|
|
726
|
|
|
|
10,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,791
|
|
|
$
|
3,407
|
|
|
$
|
7,581
|
|
|
$
|
2,150
|
|
|
$
|
29,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets
|
|
$
|
11,201,000
|
|
|
$
|
1,793,000
|
|
|
$
|
80,000
|
|
|
$
|
1,801,000
|
|
|
$
|
14,875,000
|
|
26
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2014
|
|
|
|
Bank
|
|
|
Payment
Solutions
|
|
|
Institutional
Investment
Management
|
|
|
Asset
Servicing
|
|
|
Total
|
|
Net interest income
|
|
$
|
143,602
|
|
|
$
|
24,778
|
|
|
$
|
(3
|
)
|
|
$
|
3,238
|
|
|
$
|
171,615
|
|
Provision for loan losses
|
|
|
5,112
|
|
|
|
4,388
|
|
|
|
|
|
|
|
|
|
|
|
9,500
|
|
Noninterest income
|
|
|
103,425
|
|
|
|
41,453
|
|
|
|
68,094
|
|
|
|
43,993
|
|
|
|
256,965
|
|
Noninterest expense
|
|
|
208,671
|
|
|
|
45,631
|
|
|
|
47,998
|
|
|
|
36,452
|
|
|
|
338,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
33,244
|
|
|
|
16,212
|
|
|
|
20,093
|
|
|
|
10,779
|
|
|
|
80,328
|
|
Income tax expense
|
|
|
9,242
|
|
|
|
4,485
|
|
|
|
5,523
|
|
|
|
2,993
|
|
|
|
22,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,002
|
|
|
$
|
11,727
|
|
|
$
|
14,570
|
|
|
$
|
7,786
|
|
|
$
|
58,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets
|
|
$
|
12,204,000
|
|
|
$
|
2,023,000
|
|
|
$
|
71,000
|
|
|
$
|
1,767,000
|
|
|
$
|
16,065,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013
|
|
|
|
Bank
|
|
|
Payment
Solutions
|
|
|
Institutional
Investment
Management
|
|
|
Asset
Servicing
|
|
|
Total
|
|
Net interest income
|
|
$
|
137,818
|
|
|
$
|
22,740
|
|
|
$
|
(10
|
)
|
|
$
|
1,262
|
|
|
$
|
161,810
|
|
Provision for loan losses
|
|
|
1,937
|
|
|
|
5,063
|
|
|
|
|
|
|
|
|
|
|
|
7,000
|
|
Noninterest income
|
|
|
99,184
|
|
|
|
38,077
|
|
|
|
57,708
|
|
|
|
39,632
|
|
|
|
234,601
|
|
Noninterest expense
|
|
|
184,076
|
|
|
|
41,968
|
|
|
|
37,700
|
|
|
|
36,945
|
|
|
|
300,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
50,989
|
|
|
|
13,786
|
|
|
|
19,998
|
|
|
|
3,949
|
|
|
|
88,722
|
|
Income tax expense
|
|
|
13,740
|
|
|
|
3,737
|
|
|
|
5,376
|
|
|
|
999
|
|
|
|
23,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,249
|
|
|
$
|
10,049
|
|
|
$
|
14,622
|
|
|
$
|
2,950
|
|
|
$
|
64,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average assets
|
|
$
|
11,294,000
|
|
|
$
|
1,726,000
|
|
|
$
|
78,000
|
|
|
$
|
1,731,000
|
|
|
$
|
14,829,000
|
|
27
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
9.
|
Derivatives and Hedging Activities
|
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its
exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and
duration of its assets and liabilities. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts,
the value of which are determined by interest rates. The Companys derivative financial instruments are used to manage differences in the amount, timing, and duration of the Companys known or expected cash receipts and its known or
expected cash payments principally related to certain fixed rate assets. The Company also has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk of
the Companys assets or liabilities. The Company has entered into an offsetting position for each of these derivative instruments with a matching instrument from another financial institution in order to minimize its net risk exposure resulting
from such transactions.
Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the fair value of the Companys derivative financial instruments as of June 30, 2014 and December 31,
2013. The Companys derivative asset and derivative liability are located within Other assets and Other liabilities, respectively, on the Companys Consolidated Balance Sheet.
This table provides a summary of the fair value of the Companys derivative assets and liabilities as of June 30, 2014 and
December 31, 2013
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
Fair value
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Interest Rate Products:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
$
|
4,831
|
|
|
$
|
2,442
|
|
|
$
|
4,787
|
|
|
$
|
2,346
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
76
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,831
|
|
|
$
|
2,518
|
|
|
$
|
4,947
|
|
|
$
|
2,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in the benchmark interest rate, LIBOR.
Interest rate swaps designated as fair value hedges involve making fixed-rate payments to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional
amount. As of June 30, 2014, the Company had one interest rate swap with a notional amount of $6.8 million that was designated as a fair value hedge of interest rate risk associated with the Companys fixed rate loan assets.
Designated Hedges
For derivatives
designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the
hedged items in the same line item as the offsetting loss or gain on the related derivatives. During the three and six months ended June 30, 2014, the Company recognized net losses of $8 thousand and $18 thousand, respectively, in other
noninterest expense related to hedge ineffectiveness.
28
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Non-designated Hedges
The remainder of the Companys derivatives are not designated in qualifying hedging relationships. Derivatives not designated as hedges
are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps
are simultaneously offset by interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not
meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of June 30, 2014, the Company had twenty-six interest rate swaps with an
aggregate notional amount of $343.5 million related to this program. During the three and six months ended June 30, 2014, the Company recognized $31 thousand of net gains and $52 thousand of net losses, respectively, related to changes in fair
value of these swaps. During the three and six months ended June 30, 2013, the Company recognized net gains of $48 thousand and $154 thousand, respectively, related to changes in the fair value of these swaps.
Effect of Derivative Instruments on the Income Statement
This table provides a summary of the amount of gain (loss) recognized in other non-interest expense in the Consolidated Statements of Income
related to the Companys derivative asset and liability for the three and six months ended as of June 30, 2014 and June 30, 2013
(in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
|
|
|
|
Interest Rate Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
$
|
31
|
|
|
$
|
48
|
|
|
$
|
(52
|
)
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31
|
|
|
$
|
48
|
|
|
$
|
(52
|
)
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments on derivatives
|
|
$
|
(116
|
)
|
|
$
|
|
|
|
$
|
(235
|
)
|
|
$
|
|
|
Fair value adjustments on hedged items
|
|
|
108
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(8
|
)
|
|
$
|
|
|
|
$
|
(18
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-risk-related Contingent Features
The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its
indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.
As of June 30, 2014 the termination value of derivatives in a net liability position, which includes accrued interest, related to these
agreements was $0.8 million. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and has not yet reached its minimum collateral posting threshold under these agreements. If the Company had breached any
of these provisions at June 30, 2014, it could have been required to settle its obligations under the agreements at the termination value.
29
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
10.
|
Fair Value Measurements
|
The following table presents information about the Companys assets measured at fair value on a recurring basis as of
June 30, 2014, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets and liabilities that the Company has the
ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar
assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable
inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the hierarchy. In such
cases, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Assets measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at June 30, 2014
|
|
Description
|
|
June 30,
2014
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
400
|
|
|
$
|
400
|
|
|
$
|
|
|
|
$
|
|
|
U.S. Agencies
|
|
|
260
|
|
|
|
|
|
|
|
260
|
|
|
|
|
|
Mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and political subdivisions
|
|
|
7,494
|
|
|
|
|
|
|
|
7,494
|
|
|
|
|
|
Trading - other
|
|
|
18,330
|
|
|
|
18,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
26,484
|
|
|
|
18,730
|
|
|
|
7,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
|
466,675
|
|
|
|
466,675
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
|
969,366
|
|
|
|
|
|
|
|
969,366
|
|
|
|
|
|
Mortgage-backed
|
|
|
3,188,205
|
|
|
|
|
|
|
|
3,188,205
|
|
|
|
|
|
State and political subdivisions
|
|
|
1,943,362
|
|
|
|
|
|
|
|
1,943,362
|
|
|
|
|
|
Corporates
|
|
|
133,015
|
|
|
|
133,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
6,700,623
|
|
|
|
599,690
|
|
|
|
6,100,933
|
|
|
|
|
|
Company-owned life insurance
|
|
|
20,452
|
|
|
|
|
|
|
|
20,452
|
|
|
|
|
|
Derivatives
|
|
|
4,831
|
|
|
|
|
|
|
|
4,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,752,390
|
|
|
$
|
618,420
|
|
|
$
|
6,133,970
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
|
25,377
|
|
|
|
25,377
|
|
|
|
|
|
|
|
|
|
Contingent consideration liability
|
|
|
52,027
|
|
|
|
|
|
|
|
|
|
|
|
52,027
|
|
Derivatives
|
|
|
4,947
|
|
|
|
|
|
|
|
4,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
82,351
|
|
|
$
|
25,377
|
|
|
$
|
4,947
|
|
|
$
|
52,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2013
|
|
Description
|
|
December 31,
2013
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
$
|
400
|
|
|
$
|
400
|
|
|
$
|
|
|
|
$
|
|
|
U.S. Agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed
|
|
|
515
|
|
|
|
|
|
|
|
515
|
|
|
|
|
|
State and political subdivisions
|
|
|
3,072
|
|
|
|
|
|
|
|
3,072
|
|
|
|
|
|
Trading - other
|
|
|
24,477
|
|
|
|
24,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities
|
|
|
28,464
|
|
|
|
24,877
|
|
|
|
3,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
|
|
|
110,200
|
|
|
|
110,200
|
|
|
|
|
|
|
|
|
|
U.S. Agencies
|
|
|
1,257,663
|
|
|
|
|
|
|
|
1,257,663
|
|
|
|
|
|
Mortgage-backed
|
|
|
2,944,566
|
|
|
|
|
|
|
|
2,944,566
|
|
|
|
|
|
State and political subdivisions
|
|
|
1,995,246
|
|
|
|
|
|
|
|
1,995,246
|
|
|
|
|
|
Corporates
|
|
|
454,736
|
|
|
|
454,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities
|
|
|
6,762,411
|
|
|
|
564,936
|
|
|
|
6,197,475
|
|
|
|
|
|
Company-owned life insurance
|
|
|
19,619
|
|
|
|
|
|
|
|
19,619
|
|
|
|
|
|
Derivatives
|
|
|
2,518
|
|
|
|
|
|
|
|
2,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,813,012
|
|
|
$
|
589,813
|
|
|
$
|
6,223,199
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
19,825
|
|
|
$
|
19,825
|
|
|
$
|
|
|
|
$
|
|
|
Contingent consideration liability
|
|
|
46,201
|
|
|
|
|
|
|
|
|
|
|
|
46,201
|
|
Derivatives
|
|
|
2,346
|
|
|
|
|
|
|
|
2,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,372
|
|
|
$
|
19,825
|
|
|
$
|
2,346
|
|
|
$
|
46,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the beginning and ending balances of the contingent consideration liability for
the six months ended June 30, 2014 (
in thousands
):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Beginning Balance
|
|
$
|
46,201
|
|
|
$
|
51,163
|
|
Contingency reserve
|
|
|
14,272
|
|
|
|
|
|
Payment of contingent considerations on acquisitions
|
|
|
(13,725
|
)
|
|
|
(16,171
|
)
|
Income from fair value adjustments
|
|
|
|
|
|
|
(138
|
)
|
Expense from fair value adjustments
|
|
|
5,279
|
|
|
|
3,329
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
52,027
|
|
|
$
|
38,183
|
|
|
|
|
|
|
|
|
|
|
During the six month period ended June 30, 2014, the Company recorded contingency reserve expense of
$20.3 million in its Consolidated Statement of Income related to the resolution of the PCM dispute. On June 30, 2014, the Company made a payment of $6.0 million, reducing the remaining contingency reserve to $14.3 million. The settlement
agreement amends the original asset purchase agreement dated June 27, 2010, and subsequent to the settlement, the remaining contingency reserve liability has been included in the table above as additional contingent consideration recorded at
fair value.
31
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
The following table presents certain quantitative information about the significant
unobservable input used in the fair value measurement for the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
Description
|
|
Valuation Techniques
|
|
Significant
Unobservable Inputs
|
|
Range
|
Liabilities
|
|
|
|
|
|
|
Contingent consideration liability
|
|
Discounted cash flows
|
|
Revenue growth percentage
|
|
1% - 98%
|
An increase in the revenue growth percentage may result in a significantly higher estimated fair value of the
contingent consideration liability. Alternatively, a decrease in the revenue growth percentage may result in a significantly lower estimated fair value of the contingent consideration liability.
Valuation methods for instruments measured at fair value on a recurring basis
The following methods and assumptions were used to estimate the fair value of each class of financial instruments measured on a recurring
basis:
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), 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.
Company-owned Life
Insurance
Fair values are based on quoted market prices or dealer quotes with adjustments for dividends, capital gains, and administrative charges.
Derivatives
Fair values are determined using valuation techniques including discounted cash flow analysis on the expected cash flows of
each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, foreign exchange rates, and implied volatilities. The
Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterpartys nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative
contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Deferred Compensation
Fair values are based on quoted market prices or dealer quotes.
Contingent Consideration
The fair value of contingent consideration liabilities are derived from a discounted cash flow model of future
contingent payments. The valuation of these liabilities are estimated by a collaborative effort of the Companys mergers and acquisitions group, business unit management, and the corporate accounting group. These groups report primarily to the
Companys Chief Financial Officer and Chief Executive Officer. These future contingent payments are calculated based on estimates of future income and expense from each acquisition. These estimated cash flows are projected by the business unit
management and reviewed by the mergers and acquisitions group. To obtain a current valuation of these projected cash flows, an expected present value technique is utilized to calculate a discount rate. The cash flow projections and discount rates
are reviewed quarterly and updated as market conditions necessitate. Potential valuation adjustments are made as future income and expense projections for each acquisition are made which affect the calculation of the related contingent consideration
payment. These adjustments are recorded through noninterest income and expense.
32
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Assets measured at fair value on a non-recurring basis as of June 30, 2014 and
December 31, 2013
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at June 30, 2014
|
|
Description
|
|
June 30, 2014
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Gains
(Losses)
Recognized
During the Six
Months Ended
June 30
|
|
Impaired loans
|
|
$
|
9,669
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,669
|
|
|
$
|
637
|
|
Other real estate owned
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,874
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,874
|
|
|
$
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2013
|
|
Description
|
|
December 31,
2013
|
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Gains
(Losses)
Recognized
During the
Twelve Months
Ended
December 31
|
|
Impaired loans
|
|
$
|
15,496
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,496
|
|
|
$
|
(2,496
|
)
|
Other real estate owned
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
329
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,825
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,825
|
|
|
$
|
(2,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation methods for instruments measured at fair value on a nonrecurring basis
The following methods and assumptions were used to estimate the fair value of each class of financial instruments measured on a non-recurring
basis:
Impaired loans
While the overall loan portfolio is not carried at fair value, adjustments are recorded on certain loans to
reflect partial write-downs that are based on the value of the underlying collateral. In determining the value of real estate collateral, the Director of Property Management, who reports to the Chief Administrative Officer, obtains external
appraisals. The external appraisals are generally based on recent sales of comparable properties which are then adjusted for the unique characteristics of the property being valued. Upon receiving the external appraisal, the Companys appraisal
department led by the Chief Appraiser who reports to the Chief Credit Officer review the appraisal to determine if the appraisal is a reasonable basis for the value of the property based upon historical experience and detailed knowledge of the
specific property and location. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists within the
Companys property management group and the Companys credit department. The valuation of the impaired loans is reviewed on a quarterly basis. Because many of these inputs are not observable, the measurements are classified as
Level 3.
Other real estate owned
Other real estate owned consists of loan collateral which has been repossessed through
foreclosure. This collateral is comprised of commercial and residential real estate and other non-real estate property, including auto, recreational and marine vehicles. Other real estate owned is recorded as held for sale initially at the lower of
the loan balance or fair value of the collateral. The initial valuation of the foreclosed property is obtained through an appraisal process similar to the process described in the impaired loans paragraph above. Subsequent to foreclosure, valuations
are reviewed quarterly and updated periodically, and the assets may be marked down further, reflecting a new cost basis. Fair value measurements may be based upon appraisals or third-party price opinions and, accordingly, those measurements may be
classified as Level 2. Other fair value measurements may be based on internally developed pricing methods, and those measurements may be classified as Level 3.
33
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
Fair value disclosures require disclosure of the fair value of financial assets and financial
liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The estimated fair value of the Companys financial instruments at
June 30, 2014 and December 31, 2013 are as follows
(in millions)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at June 30, 2014
|
|
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Estimated
Fair Value
|
|
FINANCIAL ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
$
|
238.8
|
|
|
$
|
|
|
|
$
|
269.7
|
|
|
$
|
|
|
|
$
|
269.7
|
|
Federal Reserve Bank and other stock
|
|
|
67.5
|
|
|
|
|
|
|
|
67.5
|
|
|
|
|
|
|
|
67.5
|
|
Loans (exclusive of allowance for loan loss)
|
|
|
6,923.8
|
|
|
|
|
|
|
|
6,937.5
|
|
|
|
|
|
|
|
6,937.5
|
|
FINANCIAL LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
1,020.0
|
|
|
|
|
|
|
|
1,019.5
|
|
|
|
|
|
|
|
1,019.5
|
|
Long-term debt
|
|
|
5.7
|
|
|
|
|
|
|
|
5.9
|
|
|
|
|
|
|
|
5.9
|
|
OFF-BALANCE SHEET ARRANGEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit for loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
Commercial letters of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Standby letters of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2013
|
|
|
|
Carrying
Amount
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
Estimated
Fair Value
|
|
FINANCIAL ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity
|
|
$
|
209.8
|
|
|
$
|
|
|
|
$
|
231.5
|
|
|
$
|
|
|
|
$
|
231.5
|
|
Federal Reserve Bank and other stock
|
|
|
50.5
|
|
|
|
|
|
|
|
50.5
|
|
|
|
|
|
|
|
50.5
|
|
Loans (exclusive of allowance for loan loss)
|
|
|
6,521.9
|
|
|
|
|
|
|
|
6,571.6
|
|
|
|
|
|
|
|
6,571.6
|
|
FINANCIAL LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
1,449.6
|
|
|
|
|
|
|
|
1,449.4
|
|
|
|
|
|
|
|
1,449.4
|
|
Long-term debt
|
|
|
5.1
|
|
|
|
|
|
|
|
4.5
|
|
|
|
|
|
|
|
4.5
|
|
OFF-BALANCE SHEET ARRANGEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments to extend credit for loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
Commercial letters of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.1
|
|
Standby letters of credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.0
|
|
The fair values of cash and short-term investments, demand and savings deposits, federal funds and repurchase
agreements, and short-term debt approximate the carrying values.
Securities Held to Maturity
Fair value of held-to-maturity
securities are estimated by discounting the future cash flows using the current rates at which similar investments would be made to borrowers with similar credit ratings and for the same remaining maturities.
Federal Reserve Bank and Other
Amount consists of Federal Reserve Bank stock held by the Bank, Prairie Capital Management equity-method
investments, and other miscellaneous investments. The fair value of Federal Reserve Bank stock is considered to be the carrying value as no readily determinable market exists for these investments because they can only be redeemed with the FRB. The
fair value of Prairie Capital Management marketable equity-method investments are based on quoted market prices used to estimate the value of the underlying investment. For non-marketable equity-method investments, the Companys proportionate
share of the income or loss is recognized on a one-quarter lag based on the valuation of the underlying investment(s).
34
UMB FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2014 (UNAUDITED)
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.
Time Deposits
The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the
rates that are currently offered for deposits of similar remaining maturities.
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 loan commitments and letters of credit are 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 on these instruments nor their fair value at year-end are significant to the Companys consolidated financial position.
The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2014 and
December 31, 2013. 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 consolidated financial statements
since those dates and, therefore, current estimates of fair value may differ significantly from the amount presented herein.
35