UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number001-38481

UMB FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Missouri	43-0903811
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

1010 Grand Boulevard, Kansas City, Missouri	64106
(Address of principal executive offices)	(Zip Code)

(Registrant's telephone number, including area code): (816) 860-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☒		Accelerated filer	☐
Non- accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐
			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 25, 2018, UMB Financial Corporation had 49,876,231 shares of common stock outstanding.

UMB FINANCIAL CORPORATION

FORM 10-Q

INDEX

PART I – FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3
CONSOLIDATED BALANCE SHEETS		3
CONSOLIDATED STATEMENTS OF INCOME		4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		6
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY		7
CONSOLIDATED STATEMENTS OF CASH FLOWS		8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		9
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	57
ITEM 4.	CONTROLS AND PROCEDURES	62
PART II - OTHER INFORMATION		63
ITEM 1.	LEGAL PROCEEDINGS	63
ITEM 1A.	RISK FACTORS	63
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	63
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	63
ITEM 4.	MINE SAFETY DISCLOSURES	63
ITEM 5.	OTHER INFORMATION	63
ITEM 6.	EXHIBITS	64
SIGNATURES		65

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UMB FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited, dollars in thousands, except share and per share data)

	September 30,			December 31,
	2018			2017
ASSETS
Loans	$	11,964,724		$	11,280,513
Allowance for loan losses		(101,302	)		(100,604	)
Net loans		11,863,422			11,179,909
Loans held for sale		2,222			1,460
Securities:
Available for sale		5,932,741			6,258,577
Held to maturity (fair value of $1,091,640 and $1,207,447, respectively)		1,199,114			1,261,014
Trading securities		81,159			54,055
Other securities		65,252			65,897
Total investment securities		7,278,266			7,639,543
Federal funds sold and securities purchased under agreements to resell		206,412			191,601
Interest-bearing due from banks		668,990			1,351,760
Cash and due from banks		348,700			392,723
Premises and equipment, net		277,123			275,942
Accrued income		104,012			98,863
Goodwill		180,867			180,867
Other intangibles, net		16,335			20,257
Other assets		516,011			438,658
Total assets	$	21,462,360		$	21,771,583
LIABILITIES
Deposits:
Noninterest-bearing demand	$	5,757,353		$	6,839,171
Interest-bearing demand and savings		10,938,839			9,903,565
Time deposits under $250,000		594,705			547,990
Time deposits of $250,000 or more		445,807			732,274
Total deposits		17,736,704			18,023,000
Federal funds purchased and repurchase agreements		1,192,985			1,260,704
Long-term debt		78,523			79,281
Accrued expenses and taxes		171,548			191,464
Other liabilities		79,136			35,603
Total liabilities		19,258,896			19,590,052
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 80,000,000 shares authorized; 55,056,730    shares issued; and 49,847,139 and 49,894,990 shares outstanding, respectively		55,057			55,057
Capital surplus		1,054,801			1,046,095
Retained earnings		1,477,732			1,338,110
Accumulated other comprehensive loss, net		(155,641	)		(45,525	)
Treasury stock, 5,209,591 and 5,161,740 shares, at cost, respectively		(228,485	)		(212,206	)
Total shareholders' equity		2,203,464			2,181,531
Total liabilities and shareholders' equity	$	21,462,360		$	21,771,583

See Notes to Consolidated Financial Statements.

3

UMB FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(unaudited, dollars in thousands, except share and per share data)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2018		2017			2018			2017
INTEREST INCOME
Loans	$	143,947	$	119,132		$	405,231		$	338,416
Securities:
Taxable interest		20,263		17,720			60,566			55,351
Tax-exempt interest		18,281		18,893			55,274			54,372
Total securities income		38,544		36,613			115,840			109,723
Federal funds and resell agreements		665		1,008			2,455			2,638
Interest-bearing due from banks		1,513		753			4,149			1,884
Trading securities		428		389			1,567			1,135
Total interest income		185,097		157,895			529,242			453,796
INTEREST EXPENSE
Deposits		25,792		10,181			57,961			23,982
Federal funds and repurchase agreements		7,524		5,811			18,922			14,274
Other		1,291		1,045			3,721			2,973
Total interest expense		34,607		17,037			80,604			41,229
Net interest income		150,490		140,858			448,638			412,567
Provision for loan losses		5,750		11,500			22,750			35,000
Net interest income after provision for loan losses		144,740		129,358			425,888			377,567
NONINTEREST INCOME
Trust and securities processing		43,425		45,060			130,272			132,412
Trading and investment banking		3,711		4,453			12,465			18,168
Service charges on deposit accounts		20,927		21,510			63,554			66,316
Insurance fees and commissions		339		425			980			1,584
Brokerage fees		6,402		5,815			19,046			17,081
Bankcard fees		16,838		17,427			52,145			55,413
Gain on sales of securities available for sale, net		211		2,390			578			4,138
Other		9,032		7,226			27,659			22,417
Total noninterest income		100,885		104,306			306,699			317,529
NONINTEREST EXPENSE
Salaries and employee benefits		102,956		99,749			315,099			306,174
Occupancy, net		11,628		11,285			33,394			33,314
Equipment		18,533		17,880			56,201			53,318
Supplies and services		4,528		4,076			12,434			12,962
Marketing and business development		6,671		5,056			17,889			14,929
Processing fees		12,331		11,151			35,029			31,093
Legal and consulting		8,470		5,844			18,774			17,361
Bankcard		4,407		5,130			13,198			15,066
Amortization of other intangible assets		1,385		1,715			4,432			5,685
Regulatory fees		3,337		3,798			10,014			11,702
Other		6,139		6,137			17,015			20,966
Total noninterest expense		180,385		171,821			533,479			522,570
Income before income taxes		65,240		61,843			199,108			172,526
Income tax expense		7,391		12,971			28,302			36,907
Income from continuing operations		57,849		48,872			170,806			135,619
Discontinued Operations
Loss from discontinued operations before income taxes		—		(1,030	)		(917	)		(722	)
Income tax benefit		—		(300	)		(170	)		(247	)
Loss from discontinued operations		—		(730	)		(747	)		(475	)
NET INCOME	$	57,849	$	48,142		$	170,059		$	135,144

4

PER SHARE DATA
Basic:
Income from continuing operations	$	1.17	$	0.99		$	3.45		$	2.76
Loss from discontinued operations		—		(0.01	)		(0.01	)		(0.01	)
Net income – basic		1.17		0.98			3.44			2.75
Diluted:
Income from continuing operations		1.16		0.98			3.41			2.72
Loss from discontinued operations		—		(0.01	)		(0.01	)		(0.01	)
Net income - diluted		1.16		0.97			3.40			2.71
Dividends		0.290		0.255			0.870			0.765
Weighted average shares outstanding - basic		49,473,157		49,283,322			49,482,087			49,221,629
Weighted average shares outstanding - diluted		49,912,084		49,833,141			49,952,984			49,838,619

See Notes to Consolidated Financial Statements.

5

UMB FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited, dollars in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net income	$	57,849		$	48,142		$	170,059		$	135,144
Other comprehensive (loss) income, net of tax:
Unrealized gains and losses on debt securities:
Change in unrealized holding gains and losses, net		(36,331	)		5,064			(133,013	)		62,646
Less: Reclassification adjustment for gains included in net income		(211	)		(2,390	)		(578	)		(4,138	)
Change in unrealized gains and losses on debt securities during the period		(36,542	)		2,674			(133,591	)		58,508
Change in unrealized gains and losses on derivative hedges		1,162			(169	)		4,274			(1,080	)
Income tax benefit (expense)		8,698			(1,548	)		32,250			(22,554	)
Other comprehensive (loss) income before reclassifications		(26,682	)		957			(97,067	)		34,874
Amounts reclassified from accumulated other comprehensive income(1)(2)		—			—			(13,049	)		—
Net current-period other comprehensive (loss) income		(26,682	)		957			(110,116	)		34,874
Comprehensive income	$	31,167		$	49,099		$	59,943		$	170,018

(1) See Note 3, “New Accounting Pronouncements,” for discussion of the Company’s adoption of Accounting Standards Update (ASU) No. 2016-01.

(2) See Note 3, “New Accounting Pronouncements,” for discussion of the Company’s adoption of ASU No. 2018-02.

See Notes to Consolidated Financial Statements.

6

UMB FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited, dollars in thousands, except per share data)

	Common Stock		Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance - January 1, 2017	$	55,057	$	1,033,419		$	1,142,887		$	(57,542	)	$	(211,437	)	$	1,962,384
Total comprehensive income		—		—			135,144			34,874			—			170,018
Dividends ($0.765 per share)		—		—			(38,166	)		—			—			(38,166	)
Purchase of treasury stock		—		—			—			—			(14,369	)		(14,369	)
Issuance of equity awards		—		(3,364	)		—			—			3,835			471
Recognition of equity-based compensation		—		9,576			—			—			—			9,576
Sale of treasury stock		—		468			—			—			381			849
Exercise of stock options		—		1,923			—			—			8,857			10,780
Balance - September 30, 2017	$	55,057	$	1,042,022		$	1,239,865		$	(22,668	)	$	(212,733	)	$	2,101,543
Balance - January 1, 2018	$	55,057	$	1,046,095		$	1,338,110		$	(45,525	)	$	(212,206	)	$	2,181,531
Total comprehensive income (loss)		—		—			170,059			(110,116	)		—			59,943
Reclassification of certain tax effects(1)		—		—			12,917			—			—			12,917
Dividends ($0.870 per share)		—		—			(43,499	)		—			—			(43,499	)
Purchase of treasury stock		—		—			—			—			(26,417	)		(26,417	)
Issuance of equity awards		—		(2,004	)		—			—			2,499			495
Recognition of equity-based compensation		—		8,469			—			—			—			8,469
Sale of treasury stock		—		409			—			—			406			815
Exercise of stock options		—		1,832			—			—			7,233			9,065
Cumulative effect adjustments(2)		—		—			145			—			—			145
Balance - September 30, 2018	$	55,057	$	1,054,801		$	1,477,732		$	(155,641	)	$	(228,485	)	$	2,203,464

(1) Related to the adoption of ASU No. 2018-02. See Note 3, “New Accounting Pronouncements,” for further detail.

(2) Related to the adoption of ASU Nos. 2016-01 and 2017-12. See Note 3, “New Accounting Pronouncements,” for further detail.

See Notes to Consolidated Financial Statements.

7

UMB FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, dollars in thousands)

	For the Nine Months Ended
	September 30,
	2018			2017
OPERATING ACTIVITIES
Net income	$	170,059		$	135,144
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		22,750			35,000
Net accretion of premiums and discounts from acquisition		(193	)		(1,810	)
Depreciation and amortization		39,781			41,538
Deferred income tax (benefit) expense		(22,535	)		1,555
Net increase in trading securities and other earning assets		(29,583	)		(17,680	)
Gains on sales of securities available for sale, net		(578	)		(4,138	)
Gains on sales of assets		(157	)		(484	)
Amortization of securities premiums, net of discount accretion		33,906			36,571
Originations of loans held for sale		(40,836	)		(53,207	)
Gains on sales of loans held for sale, net		(966	)		(1,188	)
Proceeds from sales of loans held for sale		41,040			55,149
Equity-based compensation		8,964			10,047
Net tax benefit related to equity compensation plans		2,241			3,149
Changes in:
Accrued income		(5,149	)		(4,031	)
Accrued expenses and taxes		(19,916	)		21,011
Other assets and liabilities, net		25,258			(12,336	)
Net cash provided by operating activities		224,086			244,290
INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity		81,670			64,079
Proceeds from sales of securities available for sale		95,525			573,062
Proceeds from maturities of securities available for sale		825,504			1,005,585
Purchases of securities held to maturity		(20,159	)