UMB FINANCIAL CORP — Interim / Quarterly Report 2002

10-Q 1 umbfcq602.htm UMBFC 10Q 06-30-2002 UMB Financial Corporation 10Q - June, 2002

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___ to ____ Commission file number 0-4887

UMB FINANCIAL CORPORATION (Exact name of registrant as specified in its charter)

Incorporated pursuant to the Laws of Missouri State

Internal Revenue Service - Employer Identification No. 43-0903811

1 010 Grand Avenue Kansas City, Missouri 64106 (Address of principal executive offices and Zip Code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

At June 30, 2002, UMB Financial Corporation had 22,062,494 shares of common stock outstanding. This is the only class of stock of the Company.

UMB FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited in thousands) June 30, December 31, ASSETS 2002 2001 2001 ------------- ------------- --------------- Loans: Commercial, financial and agricultural $1,427,498 $1,548,403 $1,448,309 Consumer (net of unearned interest) 823,188 973,600 912,373 Real estate 443,278 414,657 445,622 Leases 7,057 7,344 7,454 Allowance for loan losses (38,608) (35,758) (35,637) ------------- ------------- --------------- Net loans $2,662,413 $2,908,246 $2,778,121 Securities available for sale: U.S. Treasury and agencies $2,570,001 $2,014,462 $3,421,231 State and political subdivisions 187,929 61,477 133,421 Commercial paper and other 291,535 472,608 424,824 ------------- ------------- --------------- Total securities available for sale $3,049,465 $2,548,547 $3,979,476 Securities held to maturity: State and political subdivisions (market value of $480,981, $618,613 and $553,207, respectively) $ 466,089 $ 608,681 $ 542,447 Federal funds and resell agreements 147,171 130,456 121,845 Trading securities and other earning assets 79,400 76,432 84,962 ------------- ------------- --------------- Total earning assets $6,404,538 $6,272,362 $7,506,851 Cash and due from banks 496,919 551,612 790,672 Bank premises and equipment, net 232,295 237,070 240,656 Accrued income 57,651 66,883 60,661 Goodwill on purchased affiliates 54,761 55,912 52,974 Other intangibles 7,837 9,715 8,853 Other assets 55,966 89,423 70,265 ------------- ------------- --------------- Total assets $7,309,967 $7,282,977 $8,730,932 ============= ============= =============== LIABILITIES Deposits: Noninterest-bearing demand $1,764,509 $1,704,152 $2,087,314 Interest-bearing demand and savings 2,399,621 2,553,134 3,086,825 Time deposits under $100,000 896,216 815,456 870,280 Time deposits of $100,000 or more 252,634 279,271 331,092 ------------- ------------- --------------- Total deposits $5,312,980 $5,352,013 $6,375,511 Federal funds and repurchase agreements 970,455 878,113 1,288,638 Short-term debt 131,649 154,703 173,046 Long-term debt 28,077 29,037 27,388 Accrued expenses and taxes 55,081 60,141 55,710 Other liabilities 21,162 66,124 42,062 ------------- ------------- --------------- Total liabilities $6,519,404 $6,540,131 $7,962,355 ------------- ------------- --------------- SHAREHOLDERS' EQUITY Common stock, $1.00 par value; authorized 33,000,000 shares; issued 27,528,365, 26,472,039 and 27,528,365 shares respectively. $ 27,528 $ 26,472 $ 27,528 Capital surplus 726,389 683,231 726,347 Retained earnings 225,477 222,630 200,780 Accumulated other comprehensive income 22,907 16,896 22,526 Unearned ESOP shares (1,240) (3,741) (2,491) Treasury stock, 5,429,248, 5,251,643 and 5,326,917 shares, at cost, respectively (210,498) (202,642) (206,113) ------------- ------------- --------------- Total shareholders' equity $ 790,563 $ 742,846 $ 768,577 ------------- ------------- --------------- Total liabilities and shareholders' $7,309,967 $7,282,977 $8,730,932 equity ============= ============= =============== See Notes to Consolidated Financial Statements.

3

UMB FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited in thousands) Three Months Six Months Ended June 30, Ended June 30, INTEREST INCOME 2002 2001 2002 2001 ------------- ------------ ------------ ------------ Loans $ 41,445 $ 59,174 $ 83,998 $123,100 Securities: Taxable interest $ 26,632 $ 29,674 $ 55,632 $ 62,252 Tax-exempt interest 6,705 7,177 13,668 14,463 ------------ ------------ ------------ ------------ Total securities income $ 33,337 $ 36,851 $ 69,300 $ 76,715 Federal funds and resell agreements 592 2,018 1,619 4,955 Trading securities and other 695 949 1,378 2,139 ------------ ------------ ------------ ------------ Total interest income $ 76,069 $ 98,992 $156,295 $206,909 ------------ ------------ ------------ ------------ INTEREST EXPENSE Deposits $ 15,922 $ 28,510 $ 33,041 $ 62,207 Federal funds and repurchase agreements 3,679 8,568 8,256 20,944 Short-term debt 133 847 552 1,852 Long-term debt 465 505 930 983 ------------ ------------ ------------ ------------ Total interest expense $ 20,199 $ 38,430 $ 42,779 $ 85,986 ------------ ------------ ------------ ------------ Net interest income $ 55,870 $ 60,562 $113,516 $120,923 Provision for loan losses 3,440 5,011 6,546 7,974 ------------ ------------ ------------ ------------ Net interest income after provision $ 52,430 $ 55,551 $106,970 $112,949 ------------ ------------ ------------ ------------ NONINTEREST INCOME Trust income $ 10,412 $ 13,495 $ 23,028 $ 27,150 Securities processing 11,367 7,904 23,726 12,089 Trading and investment banking 5,295 5,245 11,094 11,602 Service charges on deposits 11,963 11,245 29,155 26,157 Other service charges and fees 10,318 9,471 15,566 14,874 Bankcard fees 4,736 4,676 9,137 8,765 Net investment security gains 54 - 2,470 21 Other 1,929 4,598 3,911 7,835 ------------ ------------ ------------ ------------ Total noninterest income $ 56,074 $ 56,634 $118,087 $108,493 ------------ ------------ ------------ ------------ NONINTEREST EXPENSE Salaries and employee benefits $ 51,235 $ 50,685 $102,566 $ 99,645 Occupancy, net 5,668 5,843 11,136 11,813 Equipment 10,901 12,203 22,159 25,622 Supplies and services 6,147 5,269 12,407 10,832 Marketing and business development 3,894 4,085 7,110 8,355 Processing fees 4,617 4,189 9,617 8,220 Legal and consulting 1,601 1,394 2,985 4,179 Amortization of goodwill on purchased affiliates - 1,411 - 2,813 Amortization of other intangibles 508 327 1,016 664 Other 5,587 7,022 10,743 12,831 ------------ ------------ ------------ ------------ Total noninterest expense $ 90,158 $ 92,428 $179,739 $184,974 ------------ ------------ ------------ ------------ Minority interest in loss of consolidated sub. $ - $ 3,747 $ - $ 11,800 ------------ ------------ ------------ ------------ Income before income taxes $ 18,346 $ 23,504 $ 45,318 $ 48,268 Income tax provision 4,384 6,796 11,778 13,842 ------------ ------------ ------------ ------------ NET INCOME $ 13,962 $ 16,708 $ 33,540 $ 34,426 ============ ============ ============ ============ PER SHARE DATA Net income - Basic $ 0.63 $ 0.75 $ 1.52 $ 1.55 Net income - Diluted $ 0.63 $ 0.75 $ 1.52 $ 1.55 Dividends $ 0.20 $ 0.18 $ 0.40 $ 0.36 Weighted average shares outstanding 22,055,524 22,163,830 22,072,125 22,176,950 ============ ============ ============ ============ See Notes to Consolidated Financial Statements.

4

UMB FINANCIAL COPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited in thousands) Six Months Ended June 30, --------------------------------------- 2002 2001 ---------------- ----------------- Operating Activities Net Income $ 33,540 $ 34,426 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 6,546 7,974 Depreciation and amortization 15,403 18,438 Minority interest in net loss of subsidiary - (11,800) Deferred income taxes 3,195 (1,338) Net decrease in trading securities and other earning assets 5,562 4,232 Gains on sales of securities available for sale (2,470) (21) Gains on sales of disposition of interest in subsidiary - (1,699) Amortization of securities premiums, net of discount accretion (1,478) (9,154) Earned ESOP shares 1,251 1,250 Changes in: Accrued income 3,010 5,682 Accrued expenses and taxes (4,135) 6,461 Other assets and liabilities, net (9,548) (12,719) ---------------- ----------------- Net cash provided by operating activities $ 50,876 $ 41,732 ---------------- ----------------- Investing Activities Proceeds from maturities of investment securities $ 75,453 $ 86,242 Proceeds from sales of securities available for sale 206,708 - Proceeds from maturities of securities available for sale 11,081,775 13,674,846 Purchases of investment securities (160) (975) Purchases of securities available for sale (10,352,767) (13,766,847) Net decrease in loans 109,162 125,739 Net (increase) decrease in fed funds and resell agreements (25,326) 28,589 Investment in consolidated subsidiary (1,787) - Purchases of bank premises and equipment (7,988) (11,923) Net change in unsettled securities transactions. 789 (35,832) Deconsolidation of subsidiary - (390) Purchase of financial organization, net of cash received - (25,839) Proceeds from sales of bank premises and equipment 4,120 290 ---------------- ----------------- Net cash provided by investing activities $ 1,089,979 $ 73,900 ---------------- ----------------- Financing Activities Net decrease in demand and savings deposits $(1,010,009) $ (473,816) Net decrease in time deposits (52,522) (109,375) Net increase in fed funds/ repurchase agreements (318,183) (31,642) Net increase (decrease) in short term borrowings (41,397) 84,377 Proceeds from long term debt 2,400 3,700 Repayment of long term debt (1,711) (1,704) Cash dividends (8,843) (8,501) Proceeds from exercise of stock options and sales of treasury stock 383 176 Purchases of treasury stock (4,726) (2,559) ---------------- ----------------- Net cash used in financing activities $(1,434,608) $ (539,344) ---------------- ----------------- Decrease in cash and due from banks $ (293,753) $ (423,712) Cash and due from banks at beginning of year 790,672 975,324 ---------------- ----------------- Cash and due from banks at end of period $ 496,919 $ 551,612 ================ ================= See Notes to Consolidated Financial Statements.

5

UMB FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (unaudited in thousands) Accumulated Other Common Capital Retained Comprehensive Treasury Unearned Stock Surplus Earnings Income Stock ESOP Total Balance - January 1, 2001 $ 26,472 $ 683,220 $ 196,705 $ 1,776 $ (200,248) $ (4,991) $702,934 Net income - - 34,426 - - - 17,718 Comprehensive income, change in unrealized gains on securities of $23,793, net of tax of $8,660 and the reclassification adjustment for gains included in net income of $21 net of tax of $8. - - - 15,120 - - 15,120 ------------ Total comprehensive income 49,546 Cash Dividends - - (8,501) - - - (8,501) Earned ESOP shares - - - - - 1,250 1,250 Purchase of treasury stock - - - - (2,559) - (2,559) Sale of treasury stock - - - - 7 - 7 Exercise of stock options - 11 - - 158 - 158 --------------------------------------------------------------------------------------------- Balance - June 30, 2001 $ 26,472 $ 683,231 $ 222,630 $ 16,896 $ (202,642) $ (3,741) $742,846 ============================================================================================= Balance - January 1, 2002 $ 27,528 $ 726,347 $ 200,780 $ 22,526 $ (206,113) $ (2,491) $768,577 Net income - - 33,540 - - - 33,540 Comprehensive income, change in unrealized gains on securities of $3,162, net of tax of $1,249 and the reclassification adjustment for gains included in net income of $2,470 net of tax of $938. - - - 381 - - 381 ----------- Total comprehensive income 33,921 Cash dividends - - (8,844) - - - (8,844) Earned ESOP shares - - - - - 1,251 1,251 Purchase of treasury stock - - - - (4,726) - (4,726) Sale of treasury stock - - - - 15 - 15 Exercise of stock options - 42 - - 326 - 368 --------------------------------------------------------------------------------------------- Balance - June 30, 2002 $ 27,528 $ 726,389 $ 225,477 $ 22,907 $ (210,498) $ (1,240) $790,563 ============================================================================================= See Notes to Consolidated Financial Statements.

6

UMB FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2002

1. Financial Statement Presentation: The consolidated financial statements include the accounts of UMB Financial Corporation (the Company) and its subsidiaries after elimination of all material 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 for the results of the full year. The financial statements should be read in conjunction with reference to the 2001 Annual Report to Shareholders and the 2001 10K. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates 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 these estimates. 2. Earnings: Earnings per share are based on the weighted average number of shares of common stock outstanding during the interim periods. Diluted year-to-date earnings per share takes into account the dilutive effect of 49,631 and 19,488 shares issuable under options granted by the Company at June 30, 2002 and 2001, respectively. Diluted quarterly earnings per share takes into account the dilutive effect of 64,013 and 21,324 shares issuable under options granted by the Company for the periods ended June 30, 2002 and June 30, 2001, respectively. 3. Allowance for Loan Losses: The following is a summary of the Allowance for Loan Losses for the six months ended June 30, 2002 and 2001 (in thousands) :

At June 30, 2002 the amount of loans that are considered to be impaired under SFAS No. 114 was $18,252,000 compared to $3,891,000 at December 31, 2001 and $5,003,000 at June 30, 2001. At June 30, 2002 all of these loans are on a non-accrual or restructured basis. Included in the impaired loans is $14,590,000 of loans for which the related allowance is $3,032,000. This specific allowance is based on a comparison of the recorded loan value to either an estimate of the present value of the loan's estimated cash flows, its estimated fair value, or the fair value of the collateral securing the loan if the loan is collateral dependent. The remaining $3,662,000 of impaired loans do not have an allowance for loan losses as a result of write-downs and supporting collateral value. At June 30, 2001 there was $1,865,000 of impaired loans with a related allowance of $1,525,000 and $3,138,000 of impaired loans, which did not have an allowance. The average recorded investment in impaired loans during the period ended June 30, 2002 was approximately $10,475,000.

7

UMB FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2002

1. Segment Reporting: Public enterprises are required to report certain information concerning operating segments in annual and interim financial statements. Operating segments are considered to be components of an enterprise for which separate financial information is available and evaluated regularly by key decision-makers for purposes of allocating resources and assessing performance. During 2000, the Company merged several affiliate banks into the lead bank, which changed the manner in which various segments are evaluated and managed. The Company has defined its operations into the following segments: Commercial Banking: Providing a full range of lending and cash management services to commercial and governmental entities through the commercial division of the Company's lead bank. Trust and Securities Processing: Providing estate planning, trust, employee benefit, asset management and custodial services to individuals and corporate customers. Investment Banking and Brokerage: Providing commercial and retail brokerage, investment accounting and safekeeping services to individuals and corporate customers, as well as the Company's treasury function. Community Banking: Providing a full range of banking services to retail and corporate customers through the Company's affiliate banks' and branch network. Other: The Other category consists primarily of Overhead and Support departments of the Company. The net revenues and expenses of these departments are allocated to the other segments of the organization in the Company's periodic segment reporting. Reported segment revenues, net income and average assets include revenue and expense distributions for services performed for other segments within the Company as well as balances due from other segments within the Company. Such intercompany transactions and balances are eliminated in the Company's consolidated financial statements. The table below lists selected financial information by business segment (in thousands):

8

UMB FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2002

1. Commitments and Contingencies: In the normal course of business, the Company and its subsidiaries are named defendants in various lawsuits and counterclaims. In the opinion of management, after consultation with legal counsel, none of the suits will have a materially adverse effect on the financial position or results of the Company. 6. New Accounting Pronouncements: In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and Other Intangible Assets" (effective on January 1, 2002). SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that goodwill and some intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. The Company has discontinued the amortization of goodwill and has evaluated goodwill for impairment and did not record an impairment charge on the Company's consolidated financial statements. The FASB also recently issued SFAS No. 143, "Accounting for Asset Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." These statements are effective on January 1, 2003 and January 1, 2002 respectively. Implementation of these Statements has not and is not expected to have a material effect on the Company's consolidated financial statements. The FASB also recently issued SFAS No. 145, "Rescission of FASB Statements No. 4,44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections." This statement is effective for financial statements issued after May 15, 2002. Implementation of this Statement has not and is not expected to have a material effect on the Company's consolidated financial statements. 7. EScout LLC: During the first quarter of 2000, the Company's lead bank formed a subsidiary under the name eScout.com LLC (eScout), minority interests in which were acquired by several outside investors. eScout's function is to serve as an electronic commerce network for UMB's commercial customers, correspondent banks and their commercial customers, and other banks and small businesses. According to the terms of eScout's operating agreement any initial operating losses are to be allocated to the outside minority investors. Therefore results of eScout's start up and initial operations are not anticipated to have a material impact on the results or operations of the Company. On May 18, 2001, the Company sold a portion of its ownership of eScout, reducing its ownership interest. As a result, the Company's investment in eScout is being accounted for using the equity method from that time.

9

UMB FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2002

1. Goodwill and other intangibles The effect of the cessation of goodwill amortization, pursuant to SFAS No. 142, is summarized below for the three and six months ended June 30, 2002 and 2001. (In thousands)

Changes in the carrying amount of goodwill for the six months ended June 30, 2002, by operating segment, are as follows: (in thousands)

Following are the intangible assets that continue to be subject to amortization: (in thousands)

Estimated amortization expense on future years:

10

UMB FINANCIAL CORPORATION AVERAGE BALANCES/YIELDS AND RATES (tax-equivalent basis) (unaudited in thousands) Six Months Ended June 30, 2002 2001 Average Average Average Average Assets Balance Yield/Rate Balance Yield/Rate Loans, net of unearned interest $ 2,703,952 6.29 % $ 2,998,099 8.31 % Securities: Taxable $ 3,535,856 3.17 $ 2,264,599 5.84 Tax-exempt 668,574 6.15 671,132 6.35 --------------------------- -------------------------- Total securities $ 4,204,430 3.65 $ 2,935,731 5.73 Federal funds and resell agreements 184,101 1.77 194,543 5.11 Other earning assets 64,655 4.34 77,476 5.88 --------------------------- -------------------------- Total earning assets $ 7,157,138 4.60 $ 6,205,849 6.96 Allowance for loan losses (36,718) (33,237) Other assets 927,419 1,115,261 --------------- ------------- Total assets $ 8,047,839 $ 7,287,873 =============== ============= Liabilities and Shareholders' Equity Interest-bearing deposits $ 4,067,319 1.64 % $ 3,567,305 3.52 % Federal funds and repurchase agreements 1,229,720 1.35 948,411 4.46 Borrowed funds 100,161 2.98 108,927 5.32 --------------------------- -------------------------- Total interest-bearing liabilities $ 5,397,200 1.60 $ 4,624,643 3.75 Noninterest-bearing demand deposits 1,800,926 1,814,683 Other liabilities 66,122 117,199 Shareholders' equity 783,591 731,348 --------------- ------------- Total liabilities and $ 8,047,839 $ 7,287,873 shareholders' equity =============== ============= Net interest spread 3.00 % 3.21 % Net interest margin 3.40 4.16

11

UMB FINANCIAL CORPORATION ANALYSIS OF CHANGES IN NET INTEREST INCOME AND MARGIN (tax-equivalent basis) (in thousands) ANALYSIS OF CHANGES IN NET INTEREST INCOME Three Months Ended Six Months Ended June 30, 2002 vs. 2001 June 30, 2002 vs. 2001 Volume Rate Total Volume Rate Total ------------ ------------ ------------ ------------ ------------ ------------ Change in interest earned on: Loans $ (5,746) $ (11,936) $ (17,682) $ (11,268) $ (27,808) $ (39,076) Securities: Taxable 10,552 (13,594) (3,042) 26,464 (33,084) (6,620) Tax-exempt (114) (431) (545) (81) (680) (761) Federal funds sold (427) (999) (1,426) (253) (3,083) (3,336) Other (110) (196) (306) (336) (532) (868) ------------ ------------ ------------ ------------ ------------ ------------ Interest income $ 4,155 $ (27,156) $ (23,001) $ 14,526 $ (65,187) $ (50,661) ------------ ------------ ------------ ------------ ------------ ------------ Change in interest paid on: Interest-bearing deposits $ 2,628 $ (15,216) $ (12,588) $ 7,751 $ (36,917) $ (29,166) Federal funds purchased 1,438 (6,327) (4,889) 4,920 (17,608) (12,688) Borrowed funds (553) (201) (754) (213) (1,140) (1,353) ------------ ------------ ------------ ------------ ------------ ------------ Interest expense $ 3,513 $ (21,744) $ (18,231) $ 12,458 $ (55,665) $ (43,207) ------------ ------------ ------------ ------------ ------------ ------------ Net interest income $ 642 $ (5,412) $ (4,770) $ 2,068 $ (9,522) $ (7,454) ============ ============ ============ ============ ============ ============ ANALYSIS OF NET INTEREST MARGIN Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 2002 2001 Change 2002 2001 Change ------------ ------------ ------------ ------------ ------------ ------------ Average earning assets $ 6,815,018 $ 6,167,303 $ 647,715 $ 7,157,138 $ 6,205,849 $ 951,289 Average interest-bearing liabilities 5,087,025 4,601,692 845,333 5,397,200 4,624,643 772,557 ------------ ------------ ------------ ------------ ------------ ------------ Interest free funds $ 1,727,993 $ 1,565,611 $ 162,382 $ 1,759,938 $ 1,581,206 $ 178,732 ============ ============ ============ ============ ============ ============ Free funds ratio 25.36% 25.39% (0.03)% 24.59% 25.48% (0.89)% (free funds to earning assets) Tax-equivalent yield on earning assets 4.68% 6.67% (1.99)% 4.60% 6.96% (2.36)% Cost of interest-bearing liabilities 1.59 3.35 (1.76) 1.60 3.75 (2.15) ------------ ------------ ------------ ------------ ------------ ------------ Net interest spread 3.09% 3.32% (0.23)% 3.00% 3.21% (0.21)% Benefit of interest free funds 0.40 0.85 (0.45) 0.40 0.95 (0.55) ------------ ------------ ------------ ------------ ------------ ------------ Net interest margin 3.49% 4.16% (0.67)% 3.40% 4 16% (0.76)% ============ ============ ============ ============ ============ ============

12

UMB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002

The following financial review presents management's discussion and analysis of the consolidated financial condition and results of operations of UMB Financial Corporation (the Company). This review highlights the material changes in the results of operations and changes in financial condition for the period ended June 30, 2002. It should be read in conjunction with the accompanying consolidated financial statements, notes to financial statements and other financial statistics appearing elsewhere in this report. Forward Looking Statements Estimates and forward looking statements are included in this review and as such are subject to certain risks, uncertainties and assumptions that are beyond the Company's ability to control or estimate precisely. These statements are based on current financial and economic data and management's expectations concerning future developments and their effects. Actual results could differ materially from management's current expectations. Factors that could cause material differences in actual operating results include, but are not limited to, the impact of competition; changes in pricing, loan demand, consumer savings habits, employee costs and interest rates; the ability of customers to repay loans; changes in U.S. or international economic or political conditions, such as inflation or fluctuation in interest or foreign exchange rates; disruptions in operations due to failures of telecommunications systems, utility systems, security clearing systems, or other elements of the financial industry infrastructure. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with the preparation of management's discussion and analysis contained in the Company's annual and quarterly reports, the Company does not intend to review or revise any particular forward-looking statement referenced herein in light of future events. Summary The Company earned net income of $13,962,000 for the three months ended June 30, 2002, compared to $16,708,000 for the same period a year earlier. This represents per share earnings of $0.63 for the second quarter of 2002 compared to $0.75 for the second quarter of 2001. For the six-month period ended June 30, 2002 the Company reported net income of $33,540,000 compared with $34,426,000 for the same period in 2001. Earnings per share for the six months ended June 30, 2002 were $1.52, compared to $1.55 for the same period for the prior year. The decline in earnings during both the three month period and six month period ending June 30, 2002 was primarily driven by lower net interest income. This was in large part caused by numerous interest rate decreases during 2001 and by decreases in average loan balances. Noninterest income for the first six months of 2002 was 8.8 percent greater than during the same period the previous year. The primary drivers for this improvement were increases in fees related to security sales, deposit service charges and security processing income. Increases in noninterest income were driven both by traditional business lines and as a result of the 2001 acquisitions of UMB Fund Services, Inc. (formerly known as Sunstone Financial Group, Inc.) and a corporate trust portfolio. The Company's noninterest expense decreased for both the three-month period and the six-month period ended June 30, 2002, compared with comparable periods in 2001. Included in this reduction of expense was the discontinuance of goodwill amortization, consistent with adoption of Statement of Accounting Standards No. 142 at the end of 2001, as well as good expense control. Through May 18, 2001 net interest income and non-interest income and expense include the results of operations of eScout LLC, a majority-owned subsidiary of the Company. Due to the terms of the eScout LLC charter document, the net results of its operations were eliminated from the Company's financial statements through an entry of minority interest in loss of consolidated subsidiary. On May 18, 2001, the Company reduced its ownership position in eScout LLC. such that the results of eScout LLC are no longer included in the consolidated results of the Company.

13

UMB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002

Results of Operations For the three months ended June 30, 2002, the Company earned net interest income of $55,870,000 compared to $60,562,000 for the second quarter of 2001. On a year-to-date basis, net interest income decreased to $113,516,000 for the first six months of 2002, compared to $120,923,000 for the same period last year. During both periods the decreases were caused by reduced interest rates and by a reduction in loan volume and corresponding higher amounts of investment securities yielding a lower rate. Average loans for the six months ended June 30, 2002 totaled $2.704 billion (37.8% of total earning assets) compared with $2.998 billion (48.3% of earning assets) one year earlier. The rate earned on average earning assets during the first six months of 2002 was 236 basis points lower than the rate earned for the first six months of 2001, resulting in a decrease in net interest margin to 3.40% from 4.16% one year earlier. The decrease in the rate on earning assets was partially offset by a 215 basis point decline in the rate paid on interest bearing liabilities, for the six months ended June 30, 2002. For the three months ended June 30, 2002 net interest margin decreased to 3.49% from 4.16% for the same period in the prior year, as the rate earned on average earning assets decreased 199 basis points. For the three months ended June 30, 2002 the decline in the rate paid on interest bearing liabilities decreased 176 basis points from the prior year. The Company's loan loss provision for the second quarter of 2002 was $3,440,000 compared to $5,011,000 for the same period of 2001. The year-to-date loan loss provision for the Company in 2002 was $6,546,000 compared to $7,974,000 for 2001. While the Company has seen an increase in non-accrual loans it has been able to decrease the loan loss provision due to decreasing net loan charge-offs for the six months ended June 30, 2002 and declining loan balances. For the three months ended June 30, 2002 the net loan charge-offs were $1,682,000, compared to $1,465,000 for the same period in 2001. Net loan charge-offs for the first six months of 2002 were $3,575,000 compared to $4,214,000 for the same period last year. The majority of the net charge-offs in both periods was from bankcard and consumer loans. The Company will continue to closely monitor its loan positions and related underwriting efforts in order to minimize credit losses. Non-interest income totaled $56,074,000 for the second quarter of 2002 compared to $56,634,000 for the same period of 2001. For the first six months of 2002, non-interest income increased to $118,087,000 from $108,493,000 for the prior year, an increase of 8.8%. One of the primary drivers of the improvement in non-interest income on a year-to-date basis was the increase in securities processing income. The increase in securities processing was associated with the Company's acquisition of UMB Fund Services, Inc. (formerly Sunstone Financial Group, Inc.) in the second quarter of 2001. Despite the acquisition, however, securities processing income was restricted in 2002 due to reduced market values of securities on which this fee income is based. Reduction in the market value of securities also contributed to reduced trust fee income for 2002. Fee income from deposit services and cash management services also increased during the first half of 2002. Non-interest expense was $90,158,000 for the three months ended June 30, 2002 compared to $92,428,000 for the same period of 2001, and $179,739,000 for the first six months of 2002 compared to $184,974,000 for the first six months of 2001. The decrease in noninterest expense in both periods was caused in large part by the adoption of a new accounting principle, which resulted in a discontinuance of goodwill amortization. Staffing for the Company's many growth initiatives, coupled with a tight labor market and increasing medical expenses have contributed to the increase in salaries and employee benefits for the three and six month periods ended June 30, 2002. Also contributing to increased non-interest expenses were increased processing charges. The prudent management of non-interest expense will continue to be a priority for the Company.

14

UMB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002

Financial Condition Total assets at June 30, 2002 were $7.310 billion compared to $7.283 billion at June 30, 2001 and $8.731 billion at December 31, 2001. Moreover, there was a shift in asset categories, out of loans and into investment securities. Loans, net of unearned interest, decreased to $2.701 billion as of June 30, 2002 compared to $2.944 billion at June 30, 2001 and $2.814 billion at December 31, 2001. Uncertainties in the economy and declines in certain lines of credit have contributed to the decline in the commercial loan balances. Consumer loan balances have also declined, especially in the indirect auto loans, due to the strong financing incentives offered by auto companies. Total investment securities increased to $3.516 billion as of June 30, 2002 compared to $3.157 billion at June 30, 2001 and decreased from $4.522 billion at December 31, 2001. Total deposits decreased to $5.313 billion at June 30, 2002 compared to $5.352 billion at June 30, 2001 and $6.376 billion at December 31, 2001. The decrease of deposit and investment securities balances from year-end totals was caused by the outflow of public funds and commercial balances. Non accrual and restructured loans totaled $21,276,000 (0.79% of loans) at June 30, 2002 compared to $6,533,000 (0.22% of loans) at June 30, 2001, and $7,279,000 (0.26% of loans) at December 31, 2001. Loans past due 90 days or more were $10,451,000 (0.39% of loans) at June 30, 2002, compared to $6,955,000 (0.23% of loans) at June 30, 2001. The Company's loan quality remains strong by industry standards. The largest increase in non-accrual loans was to one commercial credit, for which the Company has already established reserves to cover potential losses. At June 30, 2002 the Company's allowance for loan losses was $38,608,000 (1.43% of outstanding loans) compared to $35,758,000 (1.22% of outstanding loans) at June 30, 2001. The adequacy of the Company's allowance for loan losses is evaluated based on reserves for specific loans, and reserves on homogeneous groups of loans based on historical loss experience and current loss trends. The Company has a well-diversified loan portfolio with no foreign loans and no significant credit exposure to commercial real estate. The Company's liquidity position continues to be strong. At June 30, 2002, the Company's average loan to deposit ratio was 45.9% compared to 55.5% at June 30, 2001. At June 30, 2002, the average life of the securities portfolio was 14 months with 54% of the portfolio maturing during the next twelve months. The Company has access to various borrowing markets should there be a need for additional funding. Shareholders' equity totaled $791 million at June 30, 2002 compared to $743 million at June 30, 2001 and $769 million at year-end 2001. During the twelve months ended June 30, 2002 the Company increased its treasury stock holdings by $7.9 million. At June 30, 2002, the net unrealized gain on securities available for sale was $22.9 million, compared to $16.9 million at June 30, 2001 and $22.5 million at December 31, 2001. The Company's capital position is summarized in the table below and exceeds regulatory requirements.

15

UMB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002

Critical Accounting Policies and Estimates Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgements, including those related to customers and suppliers, allowance for loan losses, bad debts, investments, financing operations, intangible assets, goodwill and contingencies and litigation. Management bases its estimates and judgements on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates under different assumptions or conditions. Of the issues that are of a subjective nature, Management believes that the only items for a critical accounting policy would be the allowance for loan losses and the impairment testing for goodwill and other intangibles. The allowance for loan loss represents management's judgement of the losses inherent in the Company's loan portfolio. The adequacy is reviewed quarterly, considering such items as historical trends, a review of individual loans, current and projected economic conditions, loan growth and characteristics, industry or segment concentration, and other factors. Bank regulatory agencies require that the adequacy of the allowance for loan losses be maintained on a bank-by-bank basis, however the Company uses a centralized credit administration function, which provides information on affiliate bank risk levels, delinquencies, an internal ranking system and bank risk levels. With the new accounting policies regarding the stoppage of goodwill amortization and the classification of intangible assets the Company is also responsible for the impairment testing for write downs of these assets. The Company has developed the methodology for future impairment testing and has already performed this testing on the remaining goodwill with no adjustments to the assets needed. Quantitative and Qualitative Disclosures about Market Risk. Due to the nature of the Company's business, a degree of interest rate risk is inherent and appropriate. As described in the Company's 2001 Annual Report on Form 10K (to which reference is hereby made), Management attempts to limit the level of exposure arising from interest rate movements, by structuring the Company's balance sheet to provide for the repricing of approximately equal amounts of assets and liabilities within specific time intervals. The Company also uses simulation tools to measure and manage its interest rate risk. The Company does not use off-balance sheet hedges or swaps to manage this risk except for the use of future contracts to offset interest rate risk on specific securities held in its trading portfolio. One tool used by the Company is a model that internally generates estimates of the changes in the net portfolio value (NPV) of interest rate risk sensitive instruments (investment securities, notes, deposits, loans and all other instruments) resulting from selected scenario changes in interest rates. By projecting the timing and amounts of future net cash flows, an estimated value of that asset or liability can be determined. The following table sets forth such changes in NPV, assuming each of the following changes in interest rates: an immediate increase of 200 basis points, an immediate increase of 100 basis points, and an immediate decrease of 100 basis points. The NPV under each scenario is projected below as of June 30, 2002, as well as of December 31, 2001.

16

UMB FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002

The greater positive change in NPV associated with the increase of interest rate scenarios as of June 30, 2002 (as compared with similar increases as of December 31, 2001) is caused mostly by the increase in a positive static gap analysis. Since year-end the Company has seen an increase in interest-earning assets compared to interest-bearing liabilities that reprice within one year. Qualitative Risks: The Company's exposure to credit risk is managed through the use of consistent underwriting standards that emphasize "in-market" lending while avoiding highly leveraged transactions as well as excessive industry and other concentrations. The credit administration function employs extensive risk management techniques including forecasting, to ensure that loans adhere to corporate policy and problem loans are properly identified. These procedures provide executive management with the information necessary to implement policy adjustments where necessary, and take corrective actions on a proactive basis. For further understanding of non-performing loans and the adequacy of allowance for loan losses please reference the Company's 2001 Annual Report, and management's discussion and analysis of financial condition contained in this 10Q.

17

UMB FINANCIAL CORPORATION FORM 10Q OTHER INFORMATION

PART II. Other Information

Item 4: Submission of Matters to a Vote of Security Holders

UMB Financial Corporation held its annual meeting of shareholders on April 18, 2002. Proxies for the meeting were solicited pursuant to Regulation 14 of the Securities Exchange Act of 1934, and there was no solicitation in opposition to the management's nominees listed in the proxy statement. At that meeting shareholders approved the following management proposals: 1. Election of Class II Directors

1. Ratification of Board of Directors' selection of Deloitte and Touche LLP to serve as the Company's independent auditors and to examine and audit the consolidated financial statements of the Company for fiscal year 2002.

1. Approval of the UMB Financial Corporation 2002 Incentive Stock Option Plan

Item 6. Exhibits and Reports on form 8-K

1. The following exhibits are filed herewith: 99a CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99b CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
2. Reports on Form 8-K: An 8-K report was filed on April 29,2002 detailing the Board of Directors authorization for the purchase of treasury stock up to one million shares.

18

UMB FINANCIAL CORPORATION FORM 10-Q SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the Undersigned hereunto duly authorized. UMB FINANCIAL CORPORATION /s/R, Crosby Kemper III R. Crosby Kemper III Chairman and Chief Executive Officer /s/Daniel C. Stevens Daniel C. Stevens Chief Financial Officer Date: August 14, 2002

19