Industry
2017 industry median data as reported
by SNL Financial as of February 14, 2018
UMBF
UMB data as of December 31, 2017
+13.8%
Dividend Growth
Full-year 2007 through full-year 2017.
0.83%
Nonperforming Loans To Total Loans
90.2%
Loan-To-Deposit Ratio
+82.5%
Dividend Growth
UMB increased its dividend
5.1 percent in 2017, for a total
10-year increase of 82.5 percent.
0.52%
Nonperforming Loans To Total Loans
We continue to maintain strong
asset quality regardless of the
economic environment.
68.0%
Loan-To-Deposit Ratio
In 2017, deposits increased 3.9 percent,
which allowed us plenty of liquidity to
meet our customers’ needs.
12.20%
Common Equity Tier 1 Capital Ratio
12.95%
Common Equity Tier 1 Capital Ratio
We continue to operate with strong
capital levels.
+38.9%
Net Interest Income Growth
For the past five years ended
December 31, 2017.
+74.6%
Net Interest Income Growth
Our net interest income during the last
five years has been driven by our growing
loan portfolio and our ongoing efforts
to optimize our balance sheet.
Rising to great heights.
Dear fellow shareholders,
2017 was another great year for UMB Financial Corporation.
Lately, I have found myself reflecting on how proud and
honored I am to be at the helm of this fine company, and
how lucky I am to work alongside more than 3,500 associates
who are passionate about delivering the unparalleled customer
experience. Our collective commitment to our customers
also impacts the communities in which we do business,
and ultimately returns value to our shareholders.
For the year ended December 31, 2017, net income
from continuing operations was a record $183.0 million,
or $3.67 per diluted share, an increase of 19.1 percent
compared to $153.6 million, or $3.12 per diluted share,
for the year ended December 31, 2016.
PRIDE
Now, more than ever, it seems like there are heightened
Against the wind, not with it.” I am proud of the
external forces at play in the economic environment.
way UMB has always looked after our customers,
Despite the theatrics that evolve daily in Washington, D.C.,
shareholders, associates and communities.
the global stage or local politics, I am proud that
UMB remains consistent in all economic environments
and weathers whatever comes our way.
We have always been consistent in our underwriting
practices, which in turn has led to an average charge-off
ratio of just 0.32 percent during the past 10 years. In that
Our ability to work together to deliver on our strategy is
same period, we’ve grown average loan balances from
what sets us apart from the competition and helps keep
$3.9 billion in 2007 to $10.8 billion in 2017 for a compound
the company out of the fray. For 105 years, we have remained
true to the guiding principle to do what is right, not what
annual growth rate (CAGR) of 10.8 percent. In contrast,
the industry has grown loan balances at a median
is popular—even when that means we look like contrarians,
CAGR of just 4.3 percent according to SNL Financial.
which can feel uncomfortable. As I consider this principle,
I am extremely proud of our consistently strong track
I am reminded of an ad I saw in the Wall Street Journal
record of growth and quality underwriting. Our customers
in the 1980s that said, and I’ll paraphrase some:
know they can count on us to be nimble, knowledgeable
“Companies rise to great heights the same way kites do.
and flexible—this is our competitive advantage.
UMB.com
UMB FINANCIAL CORPORATION BOARD OF DIRECTORS
“
We believe that with our focus on delivering
operational excellence, continuing to
concentrate on customer intimacy, and living
our brand promise of Count on more, we will
provide the unparalleled customer experience.
“
I am also proud that during the first quarter of 2018,
Finally, in the past 10 years, UMB Bank and several of
we increased our dividend to $0.29 per share from $0.275
the foundations we administer have given more than
per share, continuing our long history of periodic increases
$110 million to the communities in which we operate.
to return value to our shareholders. This 5.5 percent
increase reflects our commitment to our holders
and the confidence we have in our business model.
FOCUS
HONOR
The future is bright for UMB. We believe that with our
focus on delivering operational excellence, continuing
to concentrate on customer intimacy, and living our
I believe UMB has the best people in the business, and it’s
brand promise of Count on more, we will provide the
my privilege to stand shoulder to shoulder with all of our
unparalleled customer experience. Our efforts in 2017
associates. We take our company culture very seriously,
make me honored and proud to be at the helm of UMB
and the passion, dedication and care we express every
Financial Corporation. As our shareholders, I thank you
day is incredible. How we build our culture is important, and
for your continued support, and I look forward to 2018.
doing the right thing by our associates is a big part of that.
To that end, in 2017, we increased the contribution to the
UMB Profit Sharing and employee stock ownership plan
(ESOP) to $4 million—which is more than double what we
contributed in 2016—and we also increased our 401(k) match.
We believe in honoring the communities in which our
associates live and work, and giving back has always been
an integral part of our culture. As such, we made a
$1 million donation to the UMBFC Charitable Foundation.
This contribution will have a profound effect on the
Foundation’s ability to help fund education for the children
Sincerely,
Mariner Kemper
Chairman, UMB Bank, n.a.;
Chairman, President and
of associates through our Count on more scholarship
Chief Executive Officer,
program, and will help fund our new matching gift program
UMB Financial Corporation
that doubles the impact of contributions associates make
February 22, 2018
to their favorite qualified charitable organizations.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:3) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2017
OR
(cid:4) 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: 000-04887
UMB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Missouri
(State or other jurisdiction of incorporation or organization)
43-0903811
(I.R.S. Employer Identification No.)
1010 Grand Boulevard, Kansas City, Missouri
(Address of principal executive offices)
64106
(Zip Code)
(Registrant's telephone number, including area code): (816) 860-7000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $1.00 Par Value
Name of each exchange on which registered
The NASDAQ Global Select Market
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:3) Yes (cid:4) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. (cid:4) Yes (cid:3) No
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. (cid:3) Yes (cid:4) No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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). (cid:3) Yes (cid:4) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (cid:4)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
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
Non-accelerated filer
Emerging growth company
(cid:3)
☐ (Do not check if a smaller reporting company)
☐
Accelerated filer
Smaller reporting 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 Act). (cid:4) Yes (cid:3) No
As of June 30, 2017, the aggregate market value of common stock outstanding held by nonaffiliates of the registrant was approximately
$3,379,666,840 based on the closing price of the registrant’s common stock on the NASDAQ Global Select Market on that date.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Class
Common Stock, $1.00 Par Value
Outstanding at February 15, 2018
50,048,342
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Definitive Proxy Statement on Schedule 14A (“Proxy Statement”) to be delivered to shareholders in connection with the Annual
Meeting of Shareholders to be held on April 24, 2018, are incorporated by reference into Part III of this Annual Report on Form 10-K.
INDEX
PART I....................................................................................................................................................................
ITEM 1. BUSINESS ..............................................................................................................................................
ITEM 1A. RISK FACTORS.................................................................................................................................
ITEM 1B. UNRESOLVED STAFF COMMENTS ............................................................................................
ITEM 2. PROPERTIES........................................................................................................................................
ITEM 3. LEGAL PROCEEDINGS .....................................................................................................................
ITEM 4. MINE SAFETY DISCLOSURES.........................................................................................................
PART II ..................................................................................................................................................................
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES......................................................
ITEM 6. SELECTED FINANCIAL DATA ........................................................................................................
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ........................................................................................................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ...................................................
3
3
10
17
17
17
17
18
18
19
20
46
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................................................................................................... 107
ITEM 9A. CONTROLS AND PROCEDURES.................................................................................................. 107
ITEM 9B. OTHER INFORMATION.................................................................................................................. 110
PART III................................................................................................................................................................. 110
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE....................... 110
ITEM 11. EXECUTIVE COMPENSATION...................................................................................................... 110
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS .......................................................................................... 110
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE ............................................................................................................................................ 111
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................................................. 111
PART IV................................................................................................................................................................. 112
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ....................................................... 112
ITEM 16. FORM 10-K SUMMARY ................................................................................................................... 113
SIGNATURES ....................................................................................................................................................... 114
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT.......................... 115
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT.......................... 116
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 .................................................................... 117
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 .................................................................... 118
ITEM 1. BUSINESS
General
PART I
UMB Financial Corporation (together with its consolidated subsidiaries, unless the context requires otherwise,
the Company) is a financial holding company that is headquartered in Kansas City, Missouri. The Company
provides banking services and asset servicing to its customers in the United States and around the globe.
The Company was organized as a corporation under Missouri law in 1967 and is registered as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the BHCA) and a financial holding company
under the Gramm-Leach-Bliley Act of 1999, as amended (the GLBA). The Company currently owns all of the
outstanding stock of one national bank and several nonbank subsidiaries.
The Company’s national bank, UMB Bank, National Association (the Bank), has its principal office in
Missouri and also has branches in Arizona, Colorado, Illinois, Kansas, Nebraska, Oklahoma, and Texas. The Bank
offers a full complement of banking products and other services to commercial, retail, government, and
correspondent-bank customers, including a wide range of asset-management, trust, bank-card, and cash-management
services.
The Company also owns UMB Fund Services, Inc. (UMBFS), which is a significant nonbank subsidiary and
is located in Milwaukee, Wisconsin, Chadds Ford, Pennsylvania, and Ogden, Utah. UMBFS provides fund
accounting, transfer agency, and other services to mutual fund and alternative-investment groups.
Until November 17, 2017, the Company also owned Scout Investments, Inc. (Scout), which is an institutional
asset-management company that offered domestic and international equity strategies through its Scout Asset
Management Division and fixed income strategies through its Reams Asset Management division. On November 17,
2017, the Company closed on the sale of Scout to Carillon Tower Advisers, Inc., a Florida corporation, for a
purchase price of approximately $172.5 million, after giving effect to customary purchase price adjustments.
On a full-time equivalent basis at December 31, 2017, the Company and its subsidiaries employed 3,570
persons.
Business Segments
The Company’s products and services are grouped into two segments: Bank and Asset Servicing.
These segments and their financial results are described in detail in (i) the section of Management’s
Discussion and Analysis of Financial Condition and Results of Operations entitled Business Segments, which can be
found in Part II, Item 7, pages 32 through 33, of this report and (ii) Note 12, “Business Segment Reporting,” in the
Notes to the Consolidated Financial Statements, which can be found in Part II, Item 8, pages 87 through 89 of this
report.
Competition
The Company faces intense competition in each of its business segments and in all of the markets and
geographic regions that the Company serves. Competition comes from both traditional and non-traditional financial-
services providers, including banks, savings associations, finance companies, investment advisors, asset managers,
mutual funds, private-equity firms, hedge funds, brokerage firms, mortgage-banking companies, credit-card
companies, insurance companies, trust companies, securities processing companies, and credit unions. Recently,
financial-technology (fintech) companies have been partnering more often with financial-services providers to
compete with the Company for lending, payments, and other business. Many competitors may not be subject to the
same kind or degree of supervision and regulation as the Company.
Competition is based on a number of factors. Banking customers are generally influenced by convenience,
rates and pricing, personal experience, quality and availability of products and other services, lending limits,
transaction execution, and reputation. Investment advisory services compete primarily on returns, expenses, third-
party ratings, and the reputation and performance of managers. Asset servicing competes primarily on price, quality
of services, and reputation. The Company and its competitors are all impacted by the overall economy and health of
3
the financial markets. The degree of impact will vary based on the basis of risk of each competitor and their
approach to managing them.
Successfully competing in the Company’s chosen markets and regions also depends on the Company’s ability
to attract, retain, and motivate talented employees, to invest in technology and infrastructure, and to innovate, all the
while effectively managing its expenses. The Company expects that competition will likely intensify in the future.
Government Monetary and Fiscal Policies
In addition to the impact of general economic conditions, the Company’s business, results of operations,
financial condition, capital, liquidity, and prospects are significantly affected by government monetary and fiscal
policies that are announced or implemented in the United States and abroad.
A sizeable influence is exerted, in particular, by the policies of the Board of Governors of the Federal Reserve
System (the FRB), which influences monetary and credit conditions in the economy in pursuit of maximum
employment, stable prices, and moderate long-term interest rates. Among the FRB’s policy tools are (1) open market
operations (that is, purchases or sales of securities in the open market to adjust the supply of reserve balances in
order to achieve targeted federal funds rates or to put pressure on longer-term interest rates in order to achieve more
desirable levels of economic activity and job creation), (2) the discount rate charged on loans by the Federal Reserve
Banks, (3) the level of reserves required to be held by depository institutions against specified deposit liabilities, (4)
the interest paid or charged on balances maintained with the Federal Reserve Banks by depository institutions,
including balances used to satisfy their reserve requirements, and (5) other deposit and loan facilities.
The FRB and its policies have a substantial impact on the availability and demand for loans and deposits, the
rates and other aspects of pricing for loans and deposits, and the conditions in equity, fixed income, currency, and
other markets in which the Company operates. Policies announced or implemented by other central banks around
the world have a meaningful effect as well and sometimes may be coordinated with those of the FRB.
Tax and other fiscal policies, moreover, impact not only general economic conditions but also give rise to
incentives or disincentives that affect how the Company and its customers prioritize objectives, operate businesses,
and deploy resources.
Regulation and Supervision
The Company is subject to regulatory frameworks in the United States at federal, State, and local levels. In
addition, the Company is subject to the direct supervision of various government authorities charged with
overseeing the kinds of financial activities conducted by its business segments.
This section summarizes some pertinent provisions of the principal laws and regulations that apply to the
Company. The descriptions, however, are not complete and are qualified in their entirety by the full text and judicial
or administrative interpretations of those laws and regulations and other laws and regulations that affect the
Company.
Overview
The Company is a bank holding company under the BHCA and a financial holding company under the GLBA.
As a result, the Company—including all of its businesses and operations in the United States and abroad—is subject
to the regulation, supervision, and examination of the FRB and to restrictions on permissible activities. This scheme
of regulation, supervision, and examination is intended primarily for the protection and benefit of depositors and
other customers of the Bank, the Deposit Insurance Fund (the DIF) of the Federal Deposit Insurance Corporation
(the FDIC), the banking and financial systems as a whole, and the broader economy, not for the protection or benefit
of the Company’s shareholders or its non-deposit creditors.
Many of the Company’s subsidiaries are also subject to separate or related forms of regulation, supervision,
and examination, including: (1) the Bank by the Office of the Comptroller of the Currency (the OCC) under the
National Banking Acts, the FDIC under the Federal Deposit Insurance Act (the FDIA), and the Consumer Financial
Protection Bureau (the CFPB) under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-
Frank Act); (2) UMBFS, UMB Distribution Services, LLC, UMB Financial Services, Inc., and Prairie Capital
Management, LLC by the Securities and Exchange Commission (the SEC) and State regulatory authorities under
4
federal and State securities laws, and UMB Distribution Services, LLC and UMB Financial Services, Inc. by the
Financial Industry Regulatory Authority (FINRA); and (3) UMB Insurance, Inc. by State regulatory authorities
under applicable State insurance laws. These schemes, like those overseen by the FRB, are designed to protect
public or private interests that often are not aligned with those of the Company’s shareholders or non-deposit
creditors.
The FRB possesses extensive authorities and powers to regulate the conduct of the Company’s businesses and
operations. If the FRB were to take the position that the Company or any of its subsidiaries have violated any law or
commitment or engaged in any unsafe or unsound practice, formal or informal corrective or enforcement actions
could be taken by the FRB against the Company, its subsidiaries, and institution-affiliated parties (such as directors,
officers, and agents). These enforcement actions could include an imposition of civil monetary penalties and could
directly affect not only the Company, its subsidiaries, and institution-affiliated parties but also the Company’s
counterparties, shareholders, and creditors and its commitments, arrangements, or other dealings with them. The
OCC has similarly expansive authorities and powers over the Bank and its subsidiaries, as does the CFPB over
matters involving consumer financial laws. The SEC, FINRA, and other domestic or foreign government authorities
also have an array of means at their disposal to regulate and enforce matters within their jurisdiction that could
impact the Company’s businesses and operations.
Restrictions on Permissible Activities and Corporate Matters
Bank holding companies and their subsidiaries, under the BHCA, are generally limited to the business of
banking and to closely-related activities that are incidental to banking.
As a bank holding company that has elected to become a financial holding company under the GLBA, the
Company is also able—directly or indirectly through its subsidiaries—to engage in activities that are financial in
nature, that are incidental to a financial activity, or that are complementary to a financial activity and do not pose a
substantial risk to the safety or soundness of depository institutions or the financial system generally. Activities that
are financial in nature include: (1) underwriting, dealing in, or making a market in securities, (2) providing financial,
investment, or economic advisory services, (3) underwriting insurance, and (4) merchant banking.
The Company’s ability to directly or indirectly engage in these banking and financial activities, however, is
subject to conditions and other limits imposed by law or the FRB and, in some cases, requires the approval of the
FRB or other government authorities. These conditions or other limits may arise due to the particular type of activity
or, in other cases, may apply to the Company’s business more generally. An example of the former is the substantial
restrictions on the timing, amount, form, substance, interconnectedness, and management of the Company’s
merchant banking investments. An example of the latter is a condition that, in order for the Company to engage in
broader financial activities, its depository institutions must remain “well capitalized” and “well managed” under
applicable banking laws and must receive at least a “satisfactory” rating under the Community Reinvestment Act
(CRA).
Under amendments to the BHCA promulgated by the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 and the Dodd-Frank Act, the Company may acquire banks outside of its home State of
Missouri, subject to specified limits and may establish new branches in other States to the same extent as banks
chartered in those States. Under the BHCA, however, the Company must procure the prior approval of the FRB and
possibly other government authorities to directly or indirectly acquire ownership or control of five percent or more
of any class of voting securities of, or substantially all of the assets of, an unaffiliated bank, savings association, or
bank holding company. In deciding whether to approve any acquisition or branch, the FRB, the OCC, and other
government authorities will consider public or private interests that may not be aligned with those of the Company’s
shareholders or non-deposit creditors. The FRB also has the power to require the Company to divest any depository
institution that cannot maintain its “well capitalized” or “well managed” status.
The FRB maintains a targeted policy that requires a bank holding company to inform and consult with the
staff of the FRB sufficiently in advance of (1) declaring and paying a dividend that could raise safety and soundness
concerns (for example, a dividend that exceeds earnings in the period for which the dividend is being paid), (2)
redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial
weaknesses, or (3) redeeming or repurchasing common stock or perpetual preferred stock that would result in a net
reduction as of the end of the quarter in the amount of those equity instruments outstanding compared with the
beginning of the quarter in which the redemption or repurchase occurred.
5
Requirements Affecting the Relationships among the Company, Its Subsidiaries, and Other Affiliates
The Company is a legal entity separate and distinct from the Bank, UMBFS, and its other subsidiaries but
receives the vast majority of its revenue in the form of dividends from those subsidiaries. Without the approval of
the OCC, however, dividends payable by the Bank in any calendar year may not exceed the lesser of (1) the current
year’s net income combined with the retained net income of the two preceding years and (2) undivided profits. In
addition, under the Basel III capital-adequacy standards described below under the heading “Capital-Adequacy
Standards,” the Bank is currently required to maintain a capital conservation buffer in excess of its minimum risk-
based capital ratios and will be restricted in declaring and paying dividends whenever the buffer is breached. The
authorities and powers of the FRB, the OCC, and other government authorities to prevent any unsafe or unsound
practice also could be employed to further limit the dividends that the Bank or the Company’s other subsidiaries
may declare and pay to the Company.
The Dodd-Frank Act requires a bank holding company like the Company to serve as a source of financial
strength for its depository-institution subsidiaries and to commit resources to support those subsidiaries in
circumstances when the Company might not otherwise elect to do so. The functional regulator of any nonbank
subsidiary of the Company, however, may prevent that subsidiary from directly or indirectly contributing its
financial support, and if that were to preclude the Company from serving as an adequate source of financial strength,
the FRB may instead require the divestiture of depository-institution subsidiaries and impose operating restrictions
pending such a divestiture.
A number of laws, principally Sections 23A and 23B of the Federal Reserve Act, and the FRB’s Regulation
W, also exist to prevent the Company and its nonbank subsidiaries from taking improper advantage of the benefits
afforded to the Bank as a depository institution, including its access to federal deposit insurance and the discount
window. These laws generally require the Bank and its subsidiaries to deal with the Company and its nonbank
subsidiaries only on market terms and, in addition, impose restrictions on the Bank and its subsidiaries in directly or
indirectly extending credit to or engaging in other covered transactions with the Company or its nonbank
subsidiaries. The Dodd-Frank Act extended the restrictions to derivatives and securities lending transactions and
expanded the restrictions for transactions involving hedge funds or private-equity funds that are owned or sponsored
by the Company or its nonbank subsidiaries.
In addition, under the Volcker Rule, the Company is subject to extensive limits on proprietary trading and on
owning or sponsoring hedge funds and private-equity funds. The limits on proprietary trading are largely directed
toward purchases or sales of financial instruments by a banking entity as principal primarily for the purpose of short-
term resale, a benefit from actual or expected short-term price movements, or the realization of short-term arbitrage
profits. The limits on owning or sponsoring hedge funds and private-equity funds are designed to ensure that
banking entities generally maintain only small positions in managed or advised funds and are not exposed to
significant losses arising directly or indirectly from them. The Volcker Rule also provides for increased capital
charges, quantitative limits, rigorous compliance programs, and other restrictions on permitted proprietary trading
and fund activities, including a prohibition on transactions with a covered fund that would constitute a covered
transaction under Sections 23A and 23B of the Federal Reserve Act.
Additional Requirements under the Dodd-Frank Act
On an annual basis, the Company and the Bank are required under the Dodd-Frank Act to conduct forward-
looking, company-run stress tests as an aid to ensuring that each entity would have sufficient capital to absorb losses
and support operations during adverse economic conditions. Summaries of stress-test results for the Company and
the Bank are expected to be disclosed each year in the fall.
Several additional requirements under the Dodd-Frank Act and related regulations apply by their terms only to
bank holding companies with consolidated assets of $50 billion or more and systemically important nonbank
financial companies. These requirements include enhanced prudential standards, submission to the comprehensive
capital analysis and review, more stringent capital and liquidity requirements, stricter limits on leverage, early
remediation requirements, resolution planning, single-counterparty exposure limits, increased liabilities for
assessments to the FRB and the FDIC, and mandates imposed by the Financial Stability Oversight Council. While
the Company and its subsidiaries are not expressly subject to these requirements, their imposition on global and
super-regional institutions has resulted in heightened supervision of regional institutions like the Company by the
FRB, the OCC, and other government authorities and in a more aggressive use of their extensive authorities and
powers to regulate the Company’s businesses and operations.
6
Capital-Adequacy Standards
The FRB and the OCC have adopted risk-based capital and leverage guidelines that require the capital-to-
assets ratios of bank holding companies and national banks, respectively, to meet specified minimum standards.
The risk-based capital ratios are based on a banking organization’s risk-weighted asset amounts (RWAs),
which are generally determined under the standardized approach applicable to the Company and the Bank by (1)
assigning on-balance-sheet exposures to broad risk-weight categories according to the counterparty or, if relevant,
the guarantor or collateral (with higher risk weights assigned to categories of exposures perceived as representing
greater risk) and (2) multiplying off-balance-sheet exposures by specified credit conversion factors to calculate
credit equivalent amounts and assigning those credit equivalent amounts to the relevant risk-weight categories. The
leverage ratio, in contrast, is based on an institution’s average on-balance-sheet exposures alone.
In July 2013, the FRB and the OCC issued comprehensive revisions to the capital-adequacy standards,
commonly known as Basel III, to which the Company and the Bank began transitioning on January 1, 2015, with
full compliance required by January 1, 2019. Basel III bolsters the quantity and quality of capital required under the
capital-adequacy guidelines, in part, by (1) imposing a minimum common-equity tier 1 risk-based capital ratio of
4.5%, (2) raising the minimum tier 1 risk-based capital ratio to 6.0%, (3) establishing a capital conservation buffer
of common-equity tier 1 capital to RWAs of 2.5%, (4) amending the definition of qualifying capital to be more
conservative, and (5) limiting capital distributions and specified discretionary bonus payments whenever the capital
conservation buffer is breached. Basel III also enhances the risk sensitivity of the standardized approach to
determining a banking organization’s RWAs.
The capital ratios for the Company and the Bank as of December 31, 2017, are set forth below:
UMB Financial Corporation
UMB Bank, n.a.
Tier 1
Leverage Ratio
9.94
8.57
Tier 1
Risk-Based
Capital Ratio
12.95
11.19
Common Equity
Tier 1
Capital Ratio
12.95
11.19
Total
Risk-Based
Capital Ratio
14.04
11.85
These capital-to-assets ratios also play a central role in prompt corrective action (PCA), which is an
enforcement framework used by the federal banking agencies to constrain the activities of banking organizations
based on their levels of regulatory capital. Five categories have been established using thresholds for the total risk-
based capital ratio, the tier 1 risk-based capital ratio, the common-equity tier 1 risk-based capital ratio, and the
leverage ratio: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. While bank holding companies are not subject to the PCA framework, the FRB is
empowered to compel a holding company to take measures—such as the execution of financial or performance
guarantees—when prompt corrective action is required in connection with one of its depository-institution
subsidiaries. At December 31, 2017, the Bank was well capitalized under the PCA framework.
Basel III includes a number of more rigorous provisions applicable only to banking organizations that are
larger or more internationally active than the Company and the Bank. These include, for example, a supplementary
leverage ratio incorporating off-balance-sheet exposures, a liquidity coverage ratio, and a net stable funding ratio.
As with the Dodd-Frank Act, these standards may be informally applied or considered by the FRB and the OCC in
their regulation, supervision, and examination of the Company and the Bank.
Deposit Insurance and Related Matters
The deposits of the Bank are insured by the FDIC in the standard insurance amount of $250 thousand per
depositor for each account ownership category. This insurance is funded through assessments on the Bank and other
insured depository institutions. Under the Dodd-Frank Act, each institution’s assessment base is determined based
on its average consolidated total assets less average tangible equity, and there is a scorecard method for calculating
assessments that combines CAMELS ratings and specified forward-looking financial measures to determine each
institution’s risk to the DIF. The Dodd-Frank Act also requires the FDIC, in setting assessments, to offset the effect
of increasing its reserve for the DIF on institutions with consolidated assets of less than $10 billion. The result of
this revised approach to deposit-insurance assessments is generally an increase in costs, on an absolute or relative
basis, for institutions with consolidated assets of $10 billion or more.
7
If an insured depository institution such as the Bank were to become insolvent or if other specified events
were to occur relating to its financial condition or the propriety of its actions, the FDIC may be appointed as
conservator or receiver for the institution. In that capacity, the FDIC would have the power (1) to transfer assets and
liabilities of the institution to another person or entity without the approval of the institution’s creditors, (2) to
require that its claims process be followed and to enforce statutory or other limits on damages claimed by the
institution’s creditors, (3) to enforce the institution’s contracts or leases according to their terms, (4) to repudiate or
disaffirm the institution’s contracts or leases, (5) to seek to reclaim, recover, or recharacterize transfers of the
institution’s assets or to exercise control over assets in which the institution may claim an interest, (6) to enforce
statutory or other injunctions, and (7) to exercise a wide range of other rights, powers, and authorities, including
those that could impair the rights and interests of all or some of the institution’s creditors. In addition, the
administrative expenses of the conservator or receiver could be afforded priority over all or some of the claims of
the institution’s creditors, and under the FDIA, the claims of depositors (including the FDIC as subrogee of
depositors) would enjoy priority over the claims of the institution’s unsecured creditors.
The FDIA also provides that an insured depository institution can be held liable for any loss incurred or
expected to be incurred by the FDIC in connection with another commonly controlled insured depository institution
that is in default or in danger of default. This cross-guarantee liability is generally superior in right of payment to
claims of the institution’s holding company and its affiliates.
Other Regulatory and Supervisory Matters
As a public company, the Company is subject to the Securities Act of 1933, as amended (the Securities Act),
the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act of 2002, and other
federal and State securities laws. In addition, because the Company’s common stock is listed with The NASDAQ
Stock Market LLC (NASDAQ), the Company is subject to the listing rules of that exchange.
The Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the Bank Secrecy Act),
the USA PATRIOT Act of 2001, and related laws require all financial institutions, including banks and broker-
dealers, to establish a risk-based system of internal controls reasonably designed to prevent money laundering and
the financing of terrorism. These laws include a variety of recordkeeping and reporting requirements (such as
currency and suspicious activity reporting) as well as know-your-customer and due-diligence rules.
Under the CRA, the Bank has a continuing and affirmative obligation to help meet the credit needs of its local
communities—including low- and moderate-income neighborhoods—consistent with safe and sound banking
practices. The CRA does not create specific lending programs but does establish the framework and criteria by
which the OCC regularly assesses the Bank’s record in meeting these credit needs. The Bank’s ratings under the
CRA are taken into account by the FRB and the OCC when considering merger or other specified applications that
the Company or the Bank may submit from time to time.
The Bank is subject as well to a vast array of consumer-protection laws, such as qualified-mortgage and other
mortgage-related rules under the jurisdiction of the CFPB. Lending limits, restrictions on tying arrangements, limits
on permissible interest-rate charges, and other laws governing the conduct of banking or fiduciary activities are also
applicable to the Bank. In addition, the GLBA imposes on the Company and its subsidiaries a number of obligations
relating to financial privacy.
Statistical Disclosure
The information required by Guide 3, “Statistical Disclosure by Bank Holding Companies,” has been included
in Part II, Items 6, 7, and 7A, pages 19 through 52, of this report.
8
Executive Officers of the Registrant. The following are the executive officers of the Company, each of whom
is appointed annually, and there are no arrangements or understandings between any of the executive officers and
any other person pursuant to which such person was elected as an executive officer.
Name
Anthony J. Fischer
Age
59 Mr. Fischer was named the President of UMB Fund Services, Inc. in July
Position with Registrant
Michael D. Hagedorn
2014. Prior to that, he served UMB Fund Services Inc. as an Executive Vice
President in charge of Business Development from March 2013 until June 2014 and
as a Senior Vice President in Business Development from February 2008 through
February 2013.
51 Mr. Hagedorn has served as Vice Chairman of the Company since October 2009 and
was named President and Chief Executive Officer of the Bank in January 2014.
Between March 2005 and January 2014, and then again from October 2015 until
August 2016 on an interim basis, he served as Chief Financial Officer of the
Company. In addition from October 2009 to January 2014, he served as Chief
Administrative Officer of the Company. He previously served as Senior Vice
President and Chief Financial Officer of Wells Fargo, Midwest Banking Group, from
April 2001 to March 2005.
Shannon A. Johnson
38 Ms. Johnson has served as Executive Vice President and Chief Human Resources
J. Mariner Kemper
Kevin M. Macke
Officer of the Company since April of 2015. Ms. Johnson’s previous positions with
the Company include Senior Vice President, Executive Director of Talent
Management and Development, and Senior Vice President, Director of Talent
Management. Ms. Johnson held these positions from May 2011 to April 2015, and
December 2009 to May 2011, respectively.
45 Mr. Kemper has served as the President of the Company since November 2015 and
as the Chairman and Chief Executive Officer of the Company since May 2004. He
served as the Chairman and Chief Executive Officer of the Bank between December
2012 and January 2014, and as the Chairman of UMB Bank Colorado, n.a. (a prior
subsidiary of the Company) between 2000 and 2012. He was President of UMB
Bank Colorado from 1997 to 2000. Mr. Kemper is the brother of Mr. Alexander C.
Kemper, who currently serves on the Company’s Board of Directors.
45 Mr. Macke has served as Executive Vice President and Director of Operations for the
Bank since November 2015. In addition, beginning in January 2014 and ending in
December 2015, Mr. Macke served as the Chief Financial Officer of the Bank. Prior
to this time, Mr. Macke held several other positions within the Company or the Bank,
including Director of Strategic Technology Initiatives with the Bank from November
2010 to January 2014, and Director of Financial Planning and Analysis with the
Company from August 2005 to November 2010.
Jennifer M. Payne
41 Ms. Payne was named as Executive Vice President and Chief Risk Officer of the
Company in January 2016. Prior to this time, she served the Company as Director of
Corporate Risk Services and Director of Corporate Audit Services, from May 2012
to December 2015, and August 2005 to May 2012, respectively.
Ram Shankar
45 Mr. Shankar was named as Executive Vice President and Chief Financial Officer of
the Company effective August 2016. From September 2011 until his employment
with the Company commenced, he worked at First Niagara Financial Group, most
recently serving as managing director where he headed financial planning and
analysis and investor relations. Prior to that, Shankar spent time at FBR Capital
Markets as a senior research analyst and at M&T Bank Corporation in the financial
planning measurement and corporate finance/mergers & acquisitions group.
53 Mr. Pauls has served as Executive Vice President and General Counsel of the
Company and the Bank since June 2016. Mr. Pauls served as interim General
Counsel from April 2016 until his full appointment in June of 2016. He has been
with UMB for over 23 years, having served as a top legal advisor for the Company
and the Bank for over 16 years.
58 Mr. Swett has served as Executive Vice President and Chief Credit Officer of the
Company since January 2011. Prior to this, Mr. Swett was an Executive Vice
President.
John C. Pauls
Christian R. Swett
9
Thomas S. Terry
54 Mr. Terry has served as Executive Vice President and Chief Lending Officer of the
Brian J. Walker
Company since January 2011. Prior to this time, Mr. Terry served as Executive Vice
President. Mr. Terry first joined UMB in 1986, and subsequently joined the
Commercial Lending department in 1987 where he worked as a loan officer until
2011.
46 Mr. Walker has served as Executive Vice President and Chief Accounting Officer of
the Company since June 2007. He previously served as Chief Financial Officer of
the Company from January 2014 to October 2015. From July 2004 to June 2007, he
served as a Certified Public Accountant for KPMG LLP, where he worked primarily
as an auditor for financial institutions.
The Company makes available free of charge on its website at www.umb.com/investor, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, as soon
as reasonably practicable after it electronically files or furnishes such material with or to the SEC. The public may
read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F
Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330.
ITEM 1A. RISK FACTORS
Financial-services companies routinely encounter and address risks and uncertainties. In the following
paragraphs, the Company describes some of the principal risks and uncertainties that could adversely affect its
business, results of operations, financial condition (including capital and liquidity), or prospects or the value of or
return on an investment in the Company. These risks and uncertainties, however, are not the only ones faced by the
Company. Other risks and uncertainties that are not presently known to the Company that it has failed to identify, or
that it currently considers immaterial may adversely affect the Company as well. Except where otherwise noted, the
risk factors address risks and uncertainties that may affect the Company as well as its subsidiaries. These risk factors
should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of
Operations (which can be found in Part II, Item 7 of this report beginning on page 20) and the Notes to the
Consolidated Financial Statements (which can be found in Part II, Item 8 of this report beginning on page 54).
The levels of, or changes in, interest rates could affect the Company’s business or performance. The
Company’s business, results of operations, and financial condition are highly dependent on net interest income,
which is the difference between interest income on earning assets (such as loans and investments) and interest
expense on deposits and borrowings. Net interest income is significantly affected by market interest rates, which in
turn are influenced by monetary and fiscal policies, general economic conditions, the regulatory environment,
competitive pressures, and expectations about future changes in interest rates. The policies and regulations of the
federal government, in general, and the FRB, in particular, have a substantial impact on market interest rates. See
“Government Monetary and Fiscal Policies” in Part I, Item 1 of this report beginning on page 4, which is
incorporated by reference herein. The Company may be adversely affected by policies, regulations, or events that
have the effect of altering the difference between long-term and short-term interest rates (commonly known as the
yield curve), depressing the interest rates associated with its earning assets to levels near the rates associated with its
interest expense, or changing the spreads among different interest-rate indices. The Company’s customers and
counterparties also may be negatively impacted by the levels of, or changes in, interest rates, which could increase
the risk of delinquency or default on obligations to the Company. The levels of, or changes in, interest rates,
moreover, may have an adverse effect on the value of the Company’s investment portfolio, which includes long-
term municipal bonds with fixed interest rates, and other financial instruments, the return on or demand for loans,
the prepayment speed of loans (including, without limitation, the pace of pay-downs expected or forecasted for
commercial real estate and construction loans), the cost or availability of deposits or other funding sources, or the
purchase or sale of investment securities. In addition, a rapid change in interest rates could result in interest expense
increasing faster than interest income because of differences in the maturities of the Company’s assets and liabilities.
Further, if laws impacting taxation and interest rates materially change, or if new laws are enacted, certain of the
Company’s services and products, including municipal bonds, may be subject to less favorable tax treatment or
otherwise adversely impacted. The level of, and changes in, market interest rates—and, as a result, these risks and
uncertainties—are beyond the Company’s control. The dynamics among these risks and uncertainties are also
challenging to assess and manage. For example, while the highly accommodative monetary policy currently adopted
by the FRB may benefit the Company to some degree by spurring economic activity among its customers, such a
policy may ultimately cause the Company more harm by inhibiting its ability to grow or sustain net interest income.
10
See “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” in Part II, Item 7A of this
report beginning on page 46 for a discussion of how the Company monitors and manages interest-rate risk.
Weak or deteriorating economic conditions, more liberal origination or underwriting standards, or
financial or systemic shocks could increase the Company’s credit risk and adversely affect its lending or other
banking businesses and the value of its loans or investment securities. The Company’s business and results of
operations depend significantly on general economic conditions. When those conditions are weak or deteriorating in
any of the markets or regions where the Company operates, its business or performance could be adversely affected.
The Company’s lending and other banking businesses, in particular, are susceptible to weak or deteriorating
economic conditions, which could result in reduced loan demand or utilization rates and at the same time increased
delinquencies or defaults. These kinds of conditions also could dampen the demand for products and other services
in the Company’s investment-management, asset-servicing, insurance, brokerage, or related businesses. Increased
delinquencies or defaults could result as well from the Company adopting—for strategic, competitive, or other
reasons—more liberal origination or underwriting standards for extensions of credit or other dealings with its
customers or counterparties. If delinquencies or defaults on the Company’s loans or investment securities increase,
their value and the income derived from them could be adversely affected, and the Company could incur
administrative and other costs in seeking a recovery on its claims and any collateral. Weak or deteriorating
economic conditions also may negatively impact the market value and liquidity of the Company’s investment
securities, and the Company may be required to record additional impairment charges if investment securities suffer
a decline in value that is determined to be other-than-temporary. In addition, to the extent that loan charge-offs
exceed estimates, an increase to the amount of provision expense related to the allowance for loan losses would
reduce the Company’s income. See “Quantitative and Qualitative Disclosures About Market Risk—Credit Risk
Management” in Part II, Item 7A of this report beginning on page 46 for a discussion of how the Company monitors
and manages credit risk. A financial or systemic shock and a failure of a significant counterparty or a significant
group of counterparties could negatively impact the Company, possibly to a severe degree, due to its role as a
financial intermediary and the interconnectedness of the financial system.
A meaningful part of the Company’s loan portfolio is secured by real estate and, as a result, could be
negatively impacted by deteriorating or volatile real-estate markets or associated environmental liabilities. At
December 31, 2017, 43.7 percent of the Company’s aggregate loan portfolio—comprised of commercial real-estate
loans (representing 31.6 percent of the aggregate loan portfolio), construction real-estate loans (representing 6.4
percent of the aggregate loan portfolio), and residential real-estate loans (representing 5.7 percent of the aggregate
loan portfolio)—was primarily secured by interests in real estate located in the States where the Company operates.
Other credit extended by the Company may be secured in part by real estate as well. Real-estate values in the
markets where this collateral is located may be different from, and in some instances worse than, real-estate values
in other markets or in the United States as a whole and may be affected by general economic conditions and a
variety of other factors outside of the control of the Company or its customers. Any deterioration or volatility in
these real-estate markets could result in increased delinquencies or defaults, could adversely affect the value of the
loans and the income to be derived from them, could give rise to unreimbursed recovery costs, and could reduce the
demand for new or additional credit and related banking products and other services, all to the detriment of the
Company’s business and performance. In addition, if hazardous or toxic substances were found on any real estate
that the Company acquires in foreclosure or otherwise, substantial liability may arise for compliance and
remediation costs, personal injury, or property damage.
Challenging business, economic, or market conditions could adversely affect the Company’s fee-based
banking, investment-management, asset-servicing, or other businesses. The Company’s fee-based banking,
investment-management, asset-servicing, and other businesses are driven by wealth creation in the economy, robust
market activity, monetary and fiscal stability, and positive investor, business, and consumer sentiment. Economic
downturns, market disruptions, high unemployment or underemployment, unsustainable debt levels, depressed real-
estate markets, or other challenging business, economic, or market conditions could adversely affect these
businesses and their results. If the funds or other groups that are clients of UMBFS were to encounter similar
difficulties, UMBFS’s revenue could suffer. The Company’s bank-card revenue is driven primarily by transaction
volumes in business and consumer spending that generate interchange fees, and any of these conditions could
dampen those volumes. Other fee-based banking businesses that could be adversely affected include trading, asset
management, custody, trust, and cash and treasury management.
The Company’s investment-management and asset-servicing businesses could be negatively impacted
by declines in assets under management or administration or by shifts in the mix of assets under management
or administration. The revenues of the Company’s investment-management businesses are highly dependent on
11
advisory fee income. These businesses generally earn higher fees on equity-based or alternative investments and
strategies and lower fees on fixed income investments and strategies. Advisory-fee income may be negatively
impacted by an absolute decline in assets under management or by a shift in the mix of assets under management
from equities or alternatives to fixed income. Such a decline or shift could be caused or influenced by any number of
factors, such as underperformance in absolute or relative terms, loss of key advisers or other talent, changes in
investing preferences or trends, market downturns or volatility, drops in investor confidence, reputational damage,
increased competition, or general economic conditions. Any of these factors also could affect clients of UMBFS,
and if this were to cause a decline in assets under administration at UMBFS or an adverse shift in the mix of those
assets, the performance of UMBFS could suffer.
To the extent that the Company continues to maintain a sizeable portfolio of available-for-sale
investment securities, its income may be adversely affected and its reported equity more volatile. As of
December 31, 2017, the Company’s securities portfolio totaled approximately $7.6 billion, which represented
approximately 35.1 percent of its total assets. Regulatory restrictions and the Company’s investment policies
generally result in the acquisition of securities with lower yields than loans. For the year-ended December 31, 2017,
the weighted average yield of the Company’s securities portfolio was 2.5 percent as compared to 4.3 percent for its
loan portfolio. Accordingly, to the extent that the Company is unable to effectively deploy its funds to originate or
acquire loans or other assets with higher yields than those of its investment securities, the Company’s income may
be negatively impacted. Additionally, approximately $6.3 billion, or 81.9 percent, of the Company’s investment
securities are classified as available for sale and reported at fair value. Unrealized gains or losses on these securities
are excluded from earnings and reported in other comprehensive income, which in turn affects the Company’s
reported equity. As a result, to the extent that the Company continues to maintain a significant portfolio of
available-for-sale securities, its reported equity may experience greater volatility.
The trading volume in the Company’s common stock at times may be low, which could adversely affect
liquidity and stock price. Although the Company’s common stock is listed for trading on the NASDAQ Global
Select Market, the trading volume in the stock may at times be low and, in relative terms, less than that of other
financial-services companies. A public trading market that is deep, liquid, and orderly depends on the presence in
the marketplace of a large number of willing buyers and sellers and narrow bid-ask spreads. These market features,
in turn, depend on a number of factors, such as the individual decisions of investors and general economic and
market conditions, over which the Company has no control. During any period of lower trading volume in the
Company’s common stock, the stock price could be more volatile, and the liquidity of the stock could suffer.
The Company operates in a highly regulated industry, and its business or performance could be
adversely affected by the legal, regulatory and supervisory frameworks applicable to it, changes in those
frameworks, and other legal and regulatory risks and uncertainties. The Company is subject to expansive legal
and regulatory frameworks in the United States—at the federal, State, and local levels—and in the foreign
jurisdictions where its business segments operate. In addition, the Company is subject to the direct supervision of
government authorities charged with overseeing the taxation of domestic companies and the kinds of financial
activities conducted by the Company in its business segments. These legal, regulatory, and supervisory frameworks
are often designed to protect public or private interests that differ from the interests of the Company’s shareholders
or non-deposit creditors. See “Government Monetary and Fiscal Policies” and “Regulation and Supervision” in Part
I, Item 1 of this report beginning on page 4, which is incorporated by reference herein. We believe that government
scrutiny of all financial-services companies has increased, fundamental changes have been made to the banking,
securities, and other laws that govern financial services (with the Dodd-Frank Act and Basel III being two of the
more prominent examples), and a host of related business practices have been reexamined and reshaped. As a result,
the Company expects to continue devoting increased time and resources to risk management, compliance, and
regulatory change management. Risks also exist that government authorities could judge the Company’s business or
other practices as unsafe, unsound, or otherwise unadvisable and bring formal or informal corrective or enforcement
actions against it, including fines or other penalties and directives to change its products or other services. For
practical or other reasons, the Company may not be able to effectively defend itself against these actions, and they in
turn could give rise to litigation by private plaintiffs. Further, if the laws, rules, and regulations materially adversely
affect the Company, including any changes that would negatively impact the tax treatment of the Company, the
Company’s products and services or the Company’s shareholders, the Company may be adversely impacted. All of
these and other regulatory risks and uncertainties could adversely affect the Company’s reputation, business, results
of operations, financial condition, or prospects.
Regulatory or supervisory requirements, future growth, operating results, or strategic plans may
prompt the Company to raise additional capital, but that capital may not be available at all or on favorable
12
terms and, if raised, may be dilutive. The Company is subject to safety-and-soundness and capital-adequacy
standards under applicable law and to the direct supervision of government authorities. See “Regulation and
Supervision” in Part I, Item 1 of this report beginning on page 4. If the Company is not or is at risk of not satisfying
these standards or applicable supervisory requirements—whether due to inadequate operating results that erode
capital, future growth that outpaces the accumulation of capital through earnings, or otherwise—the Company may
be required to raise capital, restrict dividends, or limit originations of certain types of commercial and mortgage
loans. If the Company is required to limit originations of certain types of commercial and mortgage loans, it would
thereby reduce the amount of credit available to borrowers and limit opportunities to earn interest income from the
loan portfolio. The Company also may be compelled to raise capital if regulatory or supervisory requirements
change. In addition, the Company may elect to raise capital for strategic reasons even when it is not required to do
so. The Company’s ability to raise capital on favorable terms or at all will depend on general economic and market
conditions, which are outside of its control, and on the Company’s operating and financial performance.
Accordingly, the Company cannot be assured of its ability to raise capital when needed or on favorable terms. An
inability to raise capital when needed or on favorable terms could damage the performance and value of its business,
prompt regulatory intervention, and harm its reputation, and if the condition were to persist for any appreciable
period of time, its viability as a going concern could be threatened. If the Company is able to raise capital and does
so by issuing common stock or convertible securities, the ownership interest of our existing stockholders could be
diluted, and the market price of our common stock could decline.
The market price of the Company’s common stock could be adversely impacted by banking, antitrust,
or corporate laws that have or are perceived as having an anti-takeover effect. Banking and antitrust laws,
including associated regulatory-approval requirements, impose significant restrictions on the acquisition of direct or
indirect control over any bank holding company, including the Company. Acquisition of ten percent or more of any
class of voting stock of a bank holding company or depository institution, including shares of our common stock,
generally creates a rebuttable presumption that the acquirer “controls” the bank holding company or depository
institution. Also, a bank holding company must obtain the prior approval of the Federal Reserve before, among other
things, acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any bank,
including our bank.
In addition, a non-negotiated acquisition of control over the Company may be inhibited by provisions of the
Company’s restated articles of incorporation and bylaws that have been adopted in conformance with applicable
corporate law, such as the ability to issue shares of preferred stock and to determine the rights, terms, conditions and
privileges of such preferred stock without stockholder approval. If any of these restrictions were to operate or be
perceived as operating to hinder or deter a potential acquirer for the Company, the market price of the Company’s
common stock could suffer.
The Company’s business relies on systems, employees, service providers, and counterparties, and
failures or errors by any of them or other operational risks could adversely affect the Company. The
Company engages in a variety of businesses in diverse markets and relies on systems, employees, service providers,
and counterparties to properly oversee, administer, and process a high volume of transactions. This gives rise to
meaningful operational risk—including the risk of fraud by employees or outside parties, unauthorized access to its
premises or systems, errors in processing, failures of technology, breaches of internal controls or compliance
safeguards, inadequate integration of acquisitions, human error, and breakdowns in business continuity plans.
Significant financial, business, reputational, regulatory, or other harm could come to the Company as a result of
these or related risks and uncertainties. For example, the Company could be negatively impacted if financial,
accounting, data-processing, or other systems were to fail or not fully perform their functions. The Company also
could be adversely affected if key personnel or a significant number of employees were to become unavailable due
to a pandemic, natural disaster, war, act of terrorism, accident, or other reason. These same risks arise as well in
connection with the systems and employees of the service providers and counterparties on whom the Company
depends as well as their own third-party service providers and counterparties. See “Quantitative and Qualitative
Disclosures About Market Risk—Operational Risk” in Part II, Item 7A of this report beginning on page 46 for a
discussion of how the Company monitors and manages operational risk.
Cyber incidents and other security breaches at the Company, at the Company’s service providers or
counterparties, or in the business community or markets may negatively impact the Company’s business or
performance. In the ordinary course of its business, the Company collects, stores, and transmits sensitive,
confidential, or proprietary data and other information, including intellectual property, business information, funds-
transfer instructions, and the personally identifiable information of its customers and employees. The secure
processing, storage, maintenance, and transmission of this information is critical to the Company’s operations and
13
reputation, and if any of this information were mishandled, misused, improperly accessed, lost, or stolen or if the
Company’s operations were disrupted, the Company could suffer significant financial, business, reputational,
regulatory, or other damage. For example, despite security measures, the Company’s information technology and
infrastructure may be breached through cyber-attacks, computer viruses or malware, pretext calls, electronic
phishing, or other means. These risks and uncertainties are rapidly evolving and increasing in complexity, and the
Company’s failure to effectively mitigate them could negatively impact its business and operations.
Service providers and counterparties also present a source of risk to the Company if their own security
measures or other systems or infrastructure were to be breached or otherwise fail. Likewise, a cyber-attack or other
security breach affecting the business community, the markets, or parts of them may cycle or cascade through the
financial system and adversely affect the Company or its service providers or counterparties. Many of these risks
and uncertainties are beyond the Company’s control.
Even when an attempted cyber incident or other security breach is successfully avoided or thwarted, the
Company may need to expend substantial resources in doing so, may be required to take actions that could adversely
affect customer satisfaction or behavior, and may be exposed to reputational damage. If a breach were to occur,
moreover, the Company could be exposed to contractual claims, regulatory actions, and litigation by private
plaintiffs, and would additionally suffer reputational harm. Despite the Company’s efforts to safeguard the integrity
of systems and controls and to manage third-party risk, the Company may not be able to anticipate or implement
effective measures to prevent all security breaches or all risks to the sensitive, confidential, or proprietary
information that it or its service providers or counterparties collect, store, or transmit.
The Company is heavily reliant on technology, and a failure or delay in effectively implementing
technology initiatives or anticipating future technology needs or demands could adversely affect the
Company’s business or performance. Like most financial-services companies, the Company significantly depends
on technology to deliver its products and other services and to otherwise conduct business. To remain
technologically competitive and operationally efficient, the Company invests in system upgrades, new solutions, and
other technology initiatives, including for both internally and externally hosted solutions. Many of these initiatives
have a significant duration, are tied to critical systems, and require substantial internal and external resources.
Although the Company takes steps to mitigate the risks and uncertainties associated with these initiatives, there is no
guarantee that they will be implemented on time, within budget, or without negative operational or customer impact.
The Company also may not succeed in anticipating its future technology needs, the technology demands of its
customers, or the competitive landscape for technology. In addition, the Company relies upon the expertise and
support of service providers to help implement, maintain and/or service certain of its core technology solutions. If
the Company cannot effectively manage these service providers, the service parties fail to materially perform, or the
Company was to falter in any of the other noted areas, its business or performance could be negatively impacted.
Negative publicity outside of the Company’s control, or its failure to successfully manage issues arising
from its conduct or in connection with the financial-services industry generally, could damage the Company’s
reputation and adversely affect its business or performance. The performance and value of the Company’s
business could be negatively impacted by any reputational harm that it may suffer. This harm could arise from
negative publicity outside of its control or its failure to adequately address issues arising from its conduct or in
connection with the financial-services industry generally. Risks to the Company’s reputation could arise in any
number of contexts—for example, cyber incidents and other security breaches, mergers and acquisitions, lending or
investment-management practices, actual or potential conflicts of interest, failures to prevent money laundering,
corporate governance, and unethical behavior and practices committed by competitors in the financial services
industry.
The Company faces intense competition from other financial-services and financial-services technology
companies, and competitive pressures could adversely affect the Company’s business or performance. The
Company faces intense competition in each of its business segments and in all of its markets and geographic regions,
and the Company expects competitive pressures to intensify in the future—especially in light of recent legislative
and regulatory initiatives, technological innovations that alter the barriers to entry, current economic and market
conditions, and government monetary and fiscal policies. Competition with financial-services technology
companies, or technology companies partnering with financial-services companies, may be particularly intense, due
to, among other things, differing regulatory environments. See “Competition” in Part I, Item 1 of this report
beginning on page 3. Competitive pressures may drive the Company to take actions that the Company might
otherwise eschew, such as lowering the interest rates or fees on loans or raising the interest rates on deposits in order
to keep or attract high-quality customers. These pressures also may accelerate actions that the Company might
14
otherwise elect to defer, such as substantial investments in technology or infrastructure. The Company has certain
businesses that utilize wholesale models which can lead to customer concentrations for those businesses that, if
negatively impacted by competitive pressures, could affect the Company’s fee income. Whatever the reason, actions
that the Company takes in response to competition may adversely affect its results of operations and financial
condition. These consequences could be exacerbated if the Company is not successful in introducing new products
and other services, achieving market acceptance of its products and other services, developing and maintaining a
strong customer base, or prudently managing expenses.
The Company’s risk-management and compliance programs or functions may not be effective in
mitigating risk and loss. The Company maintains an enterprise risk-management program that is designed to
identify, quantify, monitor, report, and control the risks that it faces. These include interest-rate risk, credit risk,
liquidity risk, market risk, operational risk, reputational risk, and compliance risk. The Company also maintains a
compliance program to identify, measure, assess, and report on its adherence to applicable law, policies, and
procedures. While the Company assesses and improves these programs on an ongoing basis, there can be no
assurance that its frameworks or models for risk management, compliance, and related controls will effectively
mitigate risk and limit losses in its business. If conditions or circumstances arise that expose flaws or gaps in the
Company’s risk-management or compliance programs or if its controls break down, the performance and value of
the Company’s business could be adversely affected. The Company could be negatively impacted as well if, despite
adequate programs being in place, its risk-management or compliance personnel are ineffective in executing them
and mitigating risk and loss.
Liquidity is essential to the Company and its business or performance could be adversely affected by
constraints in, or increased costs for, funding. The Company defines liquidity as the ability to fund increases in
assets and meet obligations as they come due, all without incurring unacceptable losses. Banks are especially
vulnerable to liquidity risk because of their role in the maturity transformation of demand or short-term deposits into
longer-term loans or other extensions of credit. The Company, like other financial-services companies, relies to a
significant extent on external sources of funding (such as deposits and borrowings) for the liquidity needed to conduct
its business. A number of factors beyond the Company’s control, however, could have a detrimental impact on the
availability or cost of that funding and thus on its liquidity. These include market disruptions, changes in its credit
ratings or the sentiment of its investors, the state of the regulatory environment and monetary and fiscal policies,
declines in the value of its investment securities, the loss of substantial deposits or customer relationships, financial or
systemic shocks, significant counterparty failures, and reputational damage. Unexpected declines or limits on the
dividends declared and paid by the Company’s subsidiaries also could adversely affect its liquidity position. While the
Company’s policies and controls are designed to ensure that it maintains adequate liquidity to conduct its business in
the ordinary course even in a stressed environment, there can be no assurance that its liquidity position will never
become compromised. In such an event, the Company may be required to sell assets at a loss in order to continue its
operations. This could damage the performance and value of its business, prompt regulatory intervention, and harm its
reputation, and if the condition were to persist for any appreciable period of time, its viability as a going concern could
be threatened. See “Quantitative and Qualitative Disclosures About Market Risk—Liquidity Risk” in Part II, Item 7A
of this report beginning on page 46 for a discussion of how the Company monitors and manages liquidity risk.
If the Company’s subsidiaries are unable to make dividend payments or distributions to the Company,
it may be unable to satisfy its obligations to counterparties or creditors or make dividend payments to its
stockholders. The Company is a legal entity separate and distinct from its bank and nonbank subsidiaries and
depends on dividend payments and distributions from those subsidiaries to fund its obligations to counterparties and
creditors and its dividend payments to stockholders. See “Regulation and Supervision—Requirements Affecting the
Relationships among the Company, Its Subsidiaries, and Other Affiliates” in Part I, Item 1 of this report beginning
on page 6. Any of the Company’s subsidiaries, however, may be unable to make dividend payments or distributions
to the Company, including as a result of a deterioration in the subsidiary’s performance, investments in the
subsidiary’s own future growth, or regulatory or supervisory requirements. If any subsidiary were unable to remain
viable as a going concern, moreover, the Company’s right to participate in a distribution of assets would be subject
to the prior claims of the subsidiary’s creditors (including, in the case of the Bank, its depositors and the FDIC).
An inability to attract, retain, or motivate qualified employees could adversely affect the Company’s
business or performance. Skilled employees are the Company’s most important resource, and competition for
talented people is intense. Even though compensation is among the Company’s highest expenses, it may not be able
to locate and hire the best people, keep them with the Company, or properly motivate them to perform at a high
level. Recent scrutiny of compensation practices, especially in the financial-services industry, has made this only
more difficult. In addition, some parts of the Company’s business are particularly dependent on key personnel,
15
including investment management, asset servicing, and commercial lending. If the Company were to lose and find
itself unable to replace these personnel or other skilled employees or if the competition for talent drove its
compensation costs to unsustainable levels, the Company’s business, results of operations, and financial condition
could be negatively impacted.
The Company is subject to a variety of litigation and other proceedings, which could adversely affect its
business or performance. The Company is involved from time to time in a variety of judicial, alternative-dispute,
and other proceedings arising out of its business or operations. The Company establishes reserves for claims when
appropriate under generally accepted accounting principles, but costs often can be incurred in connection with a
matter before any reserve has been created. The Company also maintains insurance policies to mitigate the cost of
litigation and other proceedings, but these policies have deductibles, limits, and exclusions that may diminish their
value or efficacy. Despite the Company’s efforts to appropriately reserve for claims and insure its business and
operations, the actual costs associated with resolving a claim may be substantially higher than amounts reserved or
covered. Substantial legal claims, even if not meritorious, could have a detrimental impact on the Company’s
business, results of operations, and financial condition and could cause reputational harm.
Changes in accounting standards could impact the Company’s financial statements and reported
earnings. Accounting standard-setting bodies, such as the Financial Accounting Standards Board, periodically
change the financial accounting and reporting standards that affect the preparation of the Company’s Consolidated
Financial Statements. These changes are beyond the Company’s control and could have a meaningful impact on its
Consolidated Financial Statements.
The Company’s selection of accounting methods, assumptions, and estimates could impact its financial
statements and reported earnings. To comply with generally accepted accounting principles, management must
sometimes exercise judgment in selecting, determining, and applying accounting methods, assumptions, and
estimates. This can arise, for example, in the determination of the allowance for loan losses, the calculation of
deferred tax assets, the evaluation of goodwill for potential impairments, or the determination of the fair value of
assets or liabilities. Furthermore, accounting methods, assumptions and estimates are part of acquisition purchase
accounting and the calculation of the fair value of assets and liabilities that have been purchased, including credit-
impaired loans. The judgments required of management can involve difficult, subjective, or complex matters with a
high degree of uncertainty, and several different judgments could be reasonable under the circumstances and yet
result in significantly different results being reported. See “Critical Accounting Policies and Estimates” in Part II,
Item 7 of this report beginning on page 44. If management’s judgments are later determined to have been inaccurate,
the Company may experience unexpected losses that could be substantial.
The Company’s ability to successfully make opportunistic mergers and acquisitions is subject to
significant risks, including the risk that government authorities will not provide the requisite approvals, the
risk that integrating acquisitions may be more difficult, costly, or time consuming than expected, and the risk
that the value of acquisitions may be less than anticipated. The Company may make opportunistic acquisitions of
other financial-services companies or businesses from time to time. These acquisitions may be subject to regulatory
approval, and there can be no assurance that the Company will be able to obtain that approval in a timely manner or
at all. Even when the Company is able to obtain regulatory approval, the failure of other closing conditions to be
satisfied or waived could delay the completion of an acquisition for a significant period of time or prevent it from
occurring altogether. Any failure or delay in closing an acquisition could adversely affect the Company’s
reputation, business, results of operations, financial condition, or prospects.
Additionally, acquisitions involve numerous risks and uncertainties, including lower-than-expected
performance or higher-than-expected costs, difficulties related to integration, diversion of management’s attention
from other business activities, changes in relationships with customers or counterparties, and the potential loss of
key employees. An acquisition also could be dilutive to the Company’s current stockholders if preferred stock,
common stock, or securities convertible into preferred stock or common stock were issued to fully or partially pay or
fund the purchase price. The Company, moreover, may not be successful in identifying acquisition candidates,
integrating acquired companies or businesses, or realizing the expected value from acquisitions. There is significant
competition for valuable acquisition targets, and the Company may not be able to acquire other companies or
businesses on attractive terms or at all. There can be no assurance that the Company will pursue future acquisitions,
and the Company’s ability to grow and successfully compete in its markets and regions may be impaired if it
chooses not to pursue or is unable to successfully complete acquisitions.
16
ITEM 1B. UNRESOLVED STAFF COMMENTS
There are no unresolved comments from the staff of the SEC required to be disclosed herein as of the date of
this report.
ITEM 2. PROPERTIES
The Company's headquarters building, the UMB Bank Building, is located at 1010 Grand Boulevard in
downtown Kansas City, Missouri, and opened in July 1986. All 250,000 square feet is occupied by departments and
customer service functions of the Bank, as well as offices of the Company.
Other main facilities of the Bank in downtown Kansas City, Missouri are located at 928 Grand Boulevard
(185,000 square feet); 906 Grand Boulevard (140,000 square feet); and 1008 Oak Street (180,000 square feet). Both
the 928 Grand and 906 Grand buildings house backroom support functions. Approximately 27,000 square feet of
the 928 Grand building is leased to Scout. Additionally, within the 906 Grand building there is 8,000 square feet of
space leased to several small tenants. The 928 Grand building underwent a major renovation during 2004 and 2005.
The 928 Grand building is connected to the UMB Bank Building (1010 Grand) by an enclosed elevated pedestrian
walkway. The 1008 Oak building, which opened during the second quarter of 1999, houses the Company’s
operations and data processing functions.
The Bank leases 52,000 square feet in the Hertz Building located at 2 South Broadway in the heart of the
commercial sector of downtown St. Louis, Missouri. This location has a full-service banking center and is home to
some operational and administrative support functions. The Bank also leases 43,700 square feet on the first,
second, third, and fifth floors of the 1670 Broadway building located in the financial district of downtown Denver,
Colorado. The location has a full-service banking center and is home to additional operational and administrative
support functions.
As of December 31, 2017, the Bank operated a total of 95 banking centers and four wealth management
offices.
UMBFS leases approximately 92,000 square feet at 235 West Galena Street in Milwaukee, Wisconsin, for its
fund services operations headquarters. Additionally, UMBFS leases 37,300 square feet at 2225 Washington
Boulevard in Ogden, Utah, and 6,300 square feet in 223 Wilmington West Chester Pike in Chadds Ford,
Pennsylvania.
Additional information with respect to properties, premises and equipment is presented in Note 1, “Summary
of Significant Accounting Policies,” and Note 8, “Premises and Equipment,” in the Notes to the Consolidated
Financial Statements in Item 8, pages 61 and 80 of this report, and is hereby incorporated by reference herein.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company and its subsidiaries are named defendants in various legal
proceedings. In the opinion of management, after consultation with legal counsel, none of these proceedings are
expected to have a material effect on the financial position, results of operations, or cash flows of the Company.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
17
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Company's common stock is traded on the NASDAQ Global Select Stock Market under the symbol
"UMBF." As of February 15, 2018, the Company had 2,428 shareholders of record. Information regarding the
Company’s common stock for each quarterly period within the two most recent fiscal years is set forth in the table
below.
Per Share
2017
Dividend
Book value
Market price:
High
Low
Close
Per Share
2016
Dividend
Book value
Market price:
High
Low
Close
Three Months Ended
March 31 June 30 Sept 30 Dec 31
0.255 $
$
41.42
0.255 $
40.34
0.255 $
42.15
0.275
43.72
81.55
70.69
75.31
78.67
66.51
74.86
76.98
62.27
74.49
77.72
68.76
71.92
Three Months Ended
March 31 June 30 Sept 30 Dec 31
0.245 $
$
40.44
0.245 $
39.38
0.245 $
40.86
0.255
39.51
53.89
39.55
51.63
58.89
48.49
53.21
61.24
50.60
59.45
81.11
58.71
77.12
Information concerning restrictions on the ability of the Company to pay dividends and the Company's
subsidiaries to transfer funds to the Company is presented in Item 1, page 6 and Note 10, “Regulatory
Requirements,” in the Notes to the Consolidated Financial Statements provided in Item 8, pages 82 through 84 of
this report. Information concerning securities the Company issued under its equity compensation plans is contained
in Item 12, pages 110 through 111 and in Note 11, “Employee Benefits,” in the Notes to the Consolidated Financial
Statements provided in Item 8, pages 84 through 87 of this report.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table provides information about common stock repurchase activity by the Company during the
quarter ended December 31, 2017:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 1 - October 31, 2017
November 1 - November 31, 2017
December 1 - December 31, 2017
Total
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum
Number of Shares
that May Yet
Be Purchased
Under the Plans
or Programs
Average
Price
Paid per
Share
71.91
71.83
73.56
72.76
6
5,790
6,668
12,464
1,848,098
1,842,308
1,835,640
Total
Number
of Shares
Purchased
6 $
5,790
6,668
12,464 $
On April 25, 2017, the Company announced a plan to repurchase up to two million shares of common stock.
This plan will terminate on April 24, 2018. The Company has not made any repurchases other than through this
plan. All open market share purchases under the share repurchase plans are intended to be within the scope of Rule
10b-18 promulgated under the Exchange Act.
18
ITEM 6. SELECTED FINANCIAL DATA
For a discussion of factors that may materially affect the comparability of the information below, please see
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, pages 20 through
46, of this report.
FIVE-YEAR FINANCIAL SUMMARY
(in thousands except per share data)
As of and for the years ended December 31,
$
EARNINGS
Interest income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Net income from continuing operations
2017
2016
2015
2014
2013
$
616,912
57,999
558,913
41,000
423,562
705,129
182,976
$
523,031
27,708
495,323
32,500
402,511
666,745
153,634
$
430,681
18,614
412,067
15,500
370,659
638,938
96,558
$
363,871
13,816
350,055
17,000
368,235
582,472
91,145
348,341
15,072
333,269
17,500
367,260
543,916
105,555
AVERAGE BALANCES
Assets
Loans and loans held for sale
Total investment securities
Interest-bearing due from banks
Deposits
Long-term debt
Shareholders' equity
YEAR-END BALANCES
Assets
Loans and loans held for sale
Total investment securities
Interest-bearing due from banks
Deposits
Long-term debt
Shareholders' equity
PER SHARE DATA
Earnings from continuing operations -
basic
Earnings from continuing operations -
diluted
Cash dividends
Dividend payout ratio
Book value
Market price
High
Low
Close
Return on average assets
Return on average equity
Average equity to average assets
Total risk-based capital ratio
$20,396,428
10,843,642
7,632,965
351,293
15,938,669
76,299
2,080,847
$19,592,685
9,992,874
7,665,012
410,163
15,338,741
81,905
1,983,749
$17,786,442
8,425,107
7,330,246
664,752
14,078,290
58,571
1,805,856
$15,998,893
6,975,338
7,053,837
843,134
12,691,273
6,059
1,599,765
$15,030,762
6,221,318
7,034,542
663,818
11,930,318
4,748
1,337,107
$21,771,583
11,281,973
7,639,543
1,351,760
18,023,000
79,281
2,181,531
$20,682,532
10,545,662
7,690,108
715,823
16,570,614
76,772
1,962,384
$19,094,245
9,431,350
7,568,870
522,877
15,092,752
86,070
1,893,694
$17,500,960
7,466,418
7,285,667
1,539,386
13,616,859
8,810
1,643,758
$16,911,852
6,521,869
7,051,127
2,093,467
13,640,766
5,055
1,506,065
$
3.72
$
3.15
$
2.05
$
2.03
$
2.56
$
3.67
1.04
27.96%
$
43.72
81.55
62.27
71.92
0.90%
8.79
10.20
14.04
3.12
0.99
31.43%
$
39.51
81.11
39.55
77.12
0.78%
7.74
10.12
12.87
2.03
0.95
46.34%
$
38.34
58.84
45.14
46.55
0.54%
5.35
10.15
12.80
2.01
0.91
44.83%
$
36.10
68.27
51.87
56.89
0.57%
5.70
10.00
14.04
2.52
0.87
33.98%
33.30
65.44
43.27
64.28
0.70%
7.89
8.90
14.43
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis highlights the material changes in the results of operations and
changes in financial condition for each of the three years in the period ended December 31, 2017. It should be read
in conjunction with the accompanying Consolidated Financial Statements, Notes to Consolidated Financial
Statements, and other financial statistics appearing elsewhere in this Annual Report on Form 10-K. Results of
operations for the periods included in this review are not necessarily indicative of results to be attained during any
future period.
CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS
From time to time the Company has made, and in the future will make, forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that
they do not relate strictly to historical or current facts. Forward-looking statements often use words such as
“believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast,” “target,” “trend,” “plan,”
“goal,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,”
“would,” or “could.” Forward-looking statements convey the Company’s expectations, intentions, or forecasts about
future events, circumstances, results, or aspirations.
This report, including any information incorporated by reference in this report, contains forward-looking
statements. The Company also may make forward-looking statements in other documents that are filed or furnished
with the SEC. In addition, the Company may make forward-looking statements orally or in writing to investors,
analysts, members of the media, or others.
All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which
may change over time and many of which are beyond the Company’s control. You should not rely on any forward-
looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects,
performance, conditions, or results may differ materially from those set forth in any forward-looking statement.
While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual
results or other future events, circumstances, or aspirations to differ from those in forward-looking statements
include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
local, regional, national, or international business, economic, or political conditions or events;
changes in laws or the regulatory environment, including as a result of recent financial-services and tax
legislation or regulation;
changes in monetary, fiscal, or trade laws or policies, including as a result of actions by central banks or
supranational authorities;
changes in accounting standards or policies;
shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including
changes in market liquidity or volatility or changes in interest or currency rates;
changes in spending, borrowing, or saving by businesses or households;
the Company’s ability to effectively manage capital or liquidity or to effectively attract or deploy
deposits;
changes in any credit rating assigned to the Company or its affiliates;
adverse publicity or other reputational harm to the Company;
changes in the Company’s corporate strategies, the composition of its assets, or the way in which it
funds those assets;
the Company’s ability to develop, maintain, or market products or services or to absorb unanticipated
costs or liabilities associated with those products or services;
20
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the Company’s ability to innovate to anticipate the needs of current or future customers, to successfully
compete in its chosen business lines, to increase or hold market share in changing competitive
environments, or to deal with pricing or other competitive pressures;
changes in the credit, liquidity, or other condition of the Company’s customers, counterparties, or
competitors;
the Company’s ability to effectively deal with economic, business, or market slowdowns or disruptions;
judicial, regulatory, or administrative investigations, proceedings, disputes, or rulings that create
uncertainty for, or are adverse to, the Company or the financial-services industry;
the Company’s ability to address stricter or heightened regulatory or other governmental supervision or
requirements;
the Company’s ability to maintain secure and functional financial, accounting, technology, data
processing, or other operating systems or facilities, including its ability to withstand cyber-attacks;
the adequacy of the Company’s corporate governance, risk-management framework, compliance
programs, or internal control over financial reporting, including its ability to control lapses or
deficiencies in financial reporting or to effectively mitigate or manage operational risk;
the efficacy of the Company’s methods or models in assessing business strategies or opportunities or in
valuing, measuring, monitoring, or managing positions or risk;
the Company’s ability to keep pace with changes in technology that affect the Company or its
customers, counterparties, or competitors;
mergers, acquisitions, or dispositions, including the Company’s ability to integrate acquisitions;
the adequacy of the Company’s succession planning for key executives or other personnel;
the Company’s ability to grow revenue, control expenses, or attract or retain qualified employees;
natural or man-made disasters, calamities, or conflicts, including terrorist events; or
other assumptions, risks, or uncertainties described in the Risk Factors (Item 1A), Management’s
Discussion and Analysis of Financial Condition and Results of Operations (Item 7), or the Notes to the
Consolidated Financial Statements (Item 8) in this Annual Report on Form 10-K or described in any of
the Company’s annual, quarterly or current reports.
Any forward-looking statement made by the Company or on its behalf speaks only as of the date that it was
made. The Company does not undertake to update any forward-looking statement to reflect the impact of events,
circumstances, or results that arise after the date that the statement was made, except as required by applicable
securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature)
that the Company may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or
Current Report on Form 8-K.
Results of Operations
Overview
The Company focuses on the following four core strategic objectives. Management believes these strategic
objectives will guide its efforts to achieve its vision, to deliver the unparalleled customer experience, all the while
seeking to improve net income and strengthen the balance sheet while undertaking prudent risk management.
The first strategic objective is to continuously improve operating efficiencies. The Company focuses on
identifying efficiencies that simplify our organizational and reporting structures, streamline back office functions
and take advantage of synergies and newer technologies among various platforms and distribution networks. The
Company has and expects to continue identifying ongoing efficiencies through the normal course of business that,
when combined with increased revenue, will contribute to improved operating leverage. For 2017, total revenue
increased 9.4 percent, while noninterest expense increased 5.8 percent, as compared to the previous year. As part of
this initiative, the Company continues to invest in technological advances that it believes will help management
drive operating leverage in the future through improved data analysis and automation. The Company also continues
to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies.
21
The second strategic objective is to increase on net interest income through profitable loan and deposit growth
and the optimization of the balance sheet. For 2017, we made progress on this strategy, as illustrated by an increase
in net interest income of $63.6 million, or 12.8 percent, as compared to the previous year. The Company has shown
increased net interest income through the effects of increased interest rates and volumes, and the mix of average
earning assets and a low cost of funds in its Consolidated Balance Sheets. Average loan balances increased $850.8
million, or 8.5 percent, from December 31, 2016. The funding for these assets was driven primarily by a 5.6 percent
increase in average interest-bearing liabilities. Net interest margin, on a tax-equivalent basis, increased 27 basis
points compared to the same period in 2016.
The third strategic objective is to grow the Company’s revenue from noninterest sources. The Company has
continued to emphasize its diverse operations throughout all economic cycles. This strategy has provided revenue
diversity, helping to reduce the impact of sustained low interest rates and position the Company to benefit in periods
of growth. Noninterest income increased $21.1 million, or 5.2 percent, to $423.6 million for the year ended
December 31, 2017, compared to the same period in 2016. This change is discussed in greater detail below under
Noninterest income. The Company continues to emphasize its asset management, brokerage, bankcard services,
healthcare services, institutional banking, and treasury management businesses. At December 31, 2017, noninterest
income represented 43.1 percent of total revenues, as compared to 44.8 percent at December 31, 2016.
The fourth strategic objective is effective capital management. The Company places a significant emphasis on
maintaining a strong capital position, which management believes promotes investor confidence, provides access to
funding sources under favorable terms, and enhances the Company’s ability to capitalize on organic growth, new
business development, and acquisition opportunities. The Company continues to maximize shareholder value
through a mix of reinvesting in organic growth, evaluating acquisition opportunities that complement the strategies,
increasing dividends over time, and appropriately utilizing a share repurchase program. At December 31, 2017, the
Company had a total risk-based capital ratio of 14.04 percent and $2.2 billion in total shareholders’ equity, an
increase of $219.1 million, or 11.2 percent, compared to total shareholders’ equity at December 31, 2016. The
Company repurchased 217,071 shares of common stock at an average price of $70.37 per share during 2017 and
paid $51.9 million in dividends, which represents a 5.8 percent increase compared to dividends paid during 2016.
Earnings Summary
The Company recorded consolidated income from continuing operations of $183.0 million for the year-ended
December 31, 2017. This represents a 19.1 percent increase over 2016. Income from continuing operations for
2016 was $153.6 million, or an increase of 59.1 percent compared to 2015. Basic earnings per share from
continuing operations for the year ended December 31, 2017, were $3.72 per share compared to $3.15 per share in
2016, an increase of 18.1 percent. Basic earnings per share from continuing operations were $2.05 per share in
2015, or an increase of 53.7 percent from 2015 to 2016. Fully diluted earnings per share from continuing operations
increased 17.6 percent from 2016 to 2017, and increased 53.7 percent from 2015 to 2016.
The Company’s net interest income increased to $558.9 million in 2017 compared to $495.3 million in 2016
and $412.1 million in 2015. In total, a favorable volume variance coupled with a favorable rate variance, resulted in
a $63.6 million increase in net interest income in 2017, compared to 2016. See Table 2 on page 26. The favorable
volume variance on earning assets was predominantly driven by the increase in average loan balances of $850.8
million, or 8.5 percent, for 2017 compared to the same period in 2016. Net interest margin, on a tax-equivalent
basis, increased to 3.15 percent for 2017, compared to 2.88 percent for the same period in 2016. The Company has
seen an increase in the benefit from interest-free funds compared to 2016. The impact of this benefit increased nine
basis points compared to 2016 and is illustrated on Table 3 on page 27. The magnitude and duration of this impact
will be largely dependent upon the FRB’s policy decisions and market movements. See Table 18 in Item 7A on page
48 for an illustration of the impact of an interest rate increase or decrease on net interest income as of December 31,
2017.
The Company had an increase of $21.1 million, or 5.2 percent, in noninterest income in 2017, as compared to
2016, and a $31.9 million, or 8.6 percent, increase in 2016, compared to 2015. The increase in 2017 is primarily
attributable to trust and securities processing, and increases in bank-owned and company-owned life insurance
income, brokerage income, and bankcard income, partially offset by lower gains on sales of available-for-sale
securities and equity earnings on alternative investments. The change in noninterest income in 2017 from 2016, and
2016 from 2015 is illustrated on Table 6 on page 30.
22
Noninterest expense increased in 2017 by $38.4 million, or 5.8 percent, compared to 2016 and increased by
$27.8 million, or 4.4 percent, in 2016 compared to 2015. The increase in 2017 is primarily driven by an increase of
$23.8 million, or 6.1 percent, in salary and employee benefit expense, an increase of $6.3 million, or 17.6 percent, in
processing fees, and an increase of $5.7 million, or 8.5 percent, in equipment expense. The increase in noninterest
expense in 2017 from 2016, and 2016 from 2015 is illustrated on Table 7 on page 31.
Net Interest Income
Net interest income is a significant source of the Company’s earnings and represents the amount by which
interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest earning
assets and the related funding sources, the overall mix of these assets and liabilities, and the interest rates paid on
each affect net interest income. Table 2 summarizes the change in net interest income resulting from changes in
volume and rates for 2017, 2016 and 2015.
Net interest margin, presented in Table 1 on page 24, is calculated as net interest income on a fully tax
equivalent basis (FTE) as a percentage of average earning assets. Net interest income is presented on a tax-
equivalent basis to adjust for the tax-exempt status of earnings from certain loans and investments, which are
primarily obligations of state and local governments. A critical component of net interest income and related net
interest margin is the percentage of earning assets funded by interest-free sources. Table 3 analyzes net interest
margin for the three years ended December 31, 2017, 2016 and 2015. Net interest income, average balance sheet
amounts and the corresponding yields earned and rates paid for the years 2015 through 2017 are presented in Table
1 below.
23
The following table presents, for the periods indicated, the average earning assets and resulting yields, as well
as the average interest-bearing liabilities and resulting yields, expressed in both dollars and rates.
Table 1
THREE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent basis)
(in millions)
ASSETS
Loans and loans held for sale (FTE) (2) (3)
Securities:
Taxable
Tax-exempt (FTE)
Total securities
Federal funds sold and resell agreements
Interest-bearing due from banks
Other earning assets (FTE)
Total earning assets (FTE)
Allowance for loan losses
Cash and due from banks
Other assets
Total assets
2017
Interest
Income/
Expense
(1)
Average
Balance
Rate
Earned/
Paid (1)
Average
Balance
2016
Interest
Income/
Expense
(1)
Rate
Earned/
Paid (1)
$10,843.6 $ 461.3
4.25% $ 9,992.9 $ 386.3
3.87%
3,918.0
3,658.0
7,576.0
190.0
351.3
57.0
19,017.9
(97.2)
379.6
1,096.1
$20,396.4
73.1
112.5
185.6
3.7
3.9
1.9
656.4
1.87
3.08
2.45
1.95
1.10
3.28
3.45
4,545.0
3,077.6
7,622.6
188.5
410.2
42.4
18,256.6
(85.2)
394.7
1,026.5
$19,592.6
73.6
88.3
161.9
2.7
2.3
0.8
554.0
1.62
2.87
2.12
1.44
0.57
1.85
3.03
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing demand and savings deposits $ 8,819.4 $
373.6
Time deposits under $250,000
809.5
Time deposits of $250,000 or more
10,002.5
Total interest bearing deposits
—
76.3
Short-term debt
Long-term debt
Federal funds purchased and repurchase
agreements
27.6
2.8
6.0
36.4
—
3.7
0.31% $ 8,267.6 $
601.4
0.75
0.74
563.7
9,432.7
0.36
3.8
—
81.9
4.85
11.4
3.3
3.2
17.9
—
3.2
0.14%
0.55
0.57
0.19
—
3.91
Total interest bearing liabilities
Noninterest bearing demand deposits
Other
Total
Total shareholders' equity
Total liabilities and shareholders' equity
Net interest income (FTE)
Net interest spread (FTE)
Net interest margin (FTE)
2,095.1
12,173.9
5,936.2
205.5
18,315.6
2,080.8
$20,396.4
17.9
58.0
0.85
0.48
2,005.6
11,524.0
5,906.0
178.9
17,608.9
1,983.7
$19,592.6
6.6
27.7
0.33
0.24
$ 598.4
$ 526.3
2.97%
3.15%
2.79%
2.88%
(1)
(2)
(3)
Interest income and yields are stated on a fully tax-equivalent (FTE) basis, using a marginal tax rate of 35%.
The tax-equivalent interest income and yields give effect to tax-exempt interest income net of the
disallowance of interest expense, for federal income tax purposes related to certain tax-free assets. Rates
earned/paid may not compute to the rates shown due to presentation in millions. The tax-equivalent interest
income totaled $39.5 million, $31.0 million, and $23.8 million in 2017, 2016, and 2015, respectively.
Loan fees are included in interest income. Such fees totaled $15.4 million, $13.3 million, and $11.4 million in
2017, 2016, and 2015, respectively.
Loans on non-accrual are included in the computation of average balances. Interest income on these loans is
also included in loan income.
24
THREE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent basis)
(in millions)
ASSETS
Loans and loans held for sale (FTE) (2) (3)
Securities:
Taxable
Tax-exempt (FTE)
Total securities
Federal funds sold and resell agreements
Interest-bearing due from banks
Other earning assets (FTE)
Total earning assets (FTE)
Allowance for loan losses
Cash and due from banks
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing demand and savings deposits
Time deposits under $250,000
Time deposits of $250,000 or more
Total interest bearing deposits
Short-term debt
Long-term debt
Federal funds purchased and repurchase
agreements
Total interest bearing liabilities
Noninterest bearing demand deposits
Other
Total
Total shareholders' equity
Total liabilities and shareholders' equity
Net interest income (FTE)
Net interest spread (FTE)
Net interest margin (FTE)
2015
Interest
Income/
Expense (1)
Rate
Earned/
Paid (1)
Average
Balance
$ 8,425.1 $
308.3
3.66%
4,823.7
2,473.8
7,297.5
76.1
664.8
32.7
16,496.2
(77.9)
496.4
871.7
$ 17,786.4
$ 7,010.3 $
700.9
439.4
8,150.6
1.9
57.3
1,590.8
9,800.6
5,927.6
252.3
15,980.5
1,805.9
$ 17,786.4
$
75.3
67.3
142.6
0.7
2.4
0.5
454.5
1.56
2.72
1.95
0.92
0.35
1.46
2.75
7.9
3.9
2.5
14.3
—
2.5
1.8
18.6
0.11%
0.56
0.57
0.18
—
4.36
0.11
0.19
435.9
2.56%
2.64%
25
Table 2
RATE-VOLUME ANALYSIS (in thousands)
This analysis attributes changes in net interest income either to changes in average balances or to changes in
average interest rates for earning assets and interest-bearing liabilities. The change in net interest income that is
due to both volume and interest rate has been allocated to volume and interest rate in proportion to the relationship
of the absolute dollar amount of the change in each. All interest rates are presented on a tax-equivalent basis and
give effect to tax-exempt interest income net of the disallowance of interest expense for federal income tax purposes,
related to certain tax-free assets. The loan average balances and rates include nonaccrual loans.
Average Volume
2017
2016
Average Rate
2017
2016
2017 vs. 2016
Volume Rate
Total
Increase (Decrease)
Change in interest earned on:
$10,843,642 $ 9,992,874
4.25%
3.87% Loans
$ 34,405 $ 40,622 $ 75,027
3,918,001 4,545,013
3,657,951 3,077,562
1.87
3.08
1.62
2.87
190,074
188,572
1.95
1.44
351,293
57,013
410,163
42,437
19,017,974 18,256,621
1.10
3.28
3.45
0.57
1.85
3.03
10,002,497 9,432,720
0.36
0.19
2,095,111 2,005,631
85,658
$12,173,909 $11,524,009
76,301
0.85
4.90
0.48%
0.33
3.79
0.24%
Securities:
Taxable
Tax-exempt
Federal funds and resell
agreements
Interest-bearing due from
banks
Trading securities
Total
Change in interest incurred on:
Interest-bearing deposits
Federal funds and repurchase
agreements
Notes payable
Total
Net interest income
(10,884) 10,449
11,542
(435)
4,361 15,903
22
970
992
(378)
265
1,530
864
34,972 58,909 93,881
1,908
599
1,144 17,274 18,418
304 11,078 11,382
491
874
(383)
1,065 29,226 30,291
$ 33,907 $ 29,683 $ 63,590
Average Volume
2016
2015
Average Rate
2016
2015
2016 vs. 2015
Volume Rate
Total
Increase (Decrease)
Change in interest earned on:
$ 9,992,874 $ 8,425,107
3.87%
3.66% Loans
$ 59,847 $ 18,102 $ 77,949
4,545,013 4,823,710
3,077,562 2,473,811
1.62
2.87
1.56
2.72
188,572
76,108
1.44
0.92
410,163
42,437
664,752
32,725
18,256,621 16,496,213
0.57
1.85
3.03
0.35
1.46
2.75
9,432,720 8,150,588
0.19
0.18
2,005,631 1,590,776
59,174
$11,524,009 $ 9,800,538
85,658
0.33
3.79
0.24%
0.11
4.33
0.19%
Securities:
Taxable
Tax-exempt
Federal funds and resell
agreements
Interest-bearing due from
banks
Trading securities
Total
Change in interest incurred on:
Interest-bearing deposits
Federal funds and repurchase
agreements
Notes payable
Total
Net interest income
(4,450)
11,330
2,683
(1,767)
2,588 13,918
1,453
558
2,011
(1,114)
134
(15)
254
67,200 25,150 92,350
1,099
120
2,370
1,297
3,667
573
1,035
3,978
4,739
688
9,094
$ 63,222 $ 20,034 $ 83,256
4,166
(347)
5,116
26
Table 3
ANALYSIS OF NET INTEREST MARGIN (in thousands)
Average earning assets
Interest-bearing liabilities
Interest-free funds
Free funds ratio (interest free funds to average earning assets)
Tax-equivalent yield on earning assets
Cost of interest-bearing liabilities
Net interest spread
Benefit of interest-free funds
Net interest margin
2017
$ 19,017,974
12,173,909
$ 6,844,065
2016
$ 18,256,621
11,524,009
$ 6,732,612
2015
$ 16,496,213
9,800,538
$ 6,695,675
35.99%
3.45%
0.48
2.97%
0.18
3.15%
36.88%
3.03%
0.24
2.79%
0.09
2.88%
40.59%
2.75%
0.19
2.56%
0.08
2.64%
The Company experienced an increase in net interest income of $63.6 million, or 12.8 percent, for the year-
ended December 31, 2017, compared to 2016. This follows an increase of $83.3 million, or 20.2 percent, for the
year-ended December 31, 2016, compared to 2015. Average earning assets for the year ended December 31, 2017
increased by $761.4 million, or 4.2 percent, compared to the same period in 2016. Net interest margin, on a tax-
equivalent basis, increased to 3.15 percent for 2017 compared to 2.88 percent in 2016. As illustrated in Table 2, the
2016 and 2015 increases are primarily due to the favorable volume variances in earning assets driven by the impacts
of the acquisition of Marquette Financial Companies (Marquette) in 2015.
The Company funds a significant portion of its balance sheet with noninterest-bearing demand deposits.
Noninterest-bearing demand deposits represented 37.9 percent, 40.2 percent and 41.8 percent of total outstanding
deposits at December 31, 2017, 2016 and 2015, respectively. As illustrated in Table 3, the impact from these
interest-free funds was 18 basis points in 2017, as compared to nine basis points in 2016 and eight basis points in
2015.
The Company has experienced an increase in net interest income during 2017 due to a volume variance of
$33.9 million and a rate variance of $29.7 million. The average rate on earning assets during 2017 has increased by
42 basis points, while the average rate on interest-bearing liabilities increased by 24 basis points, resulting in an 18
basis point increase in spread. The volume of loans has increased from an average of $10.0 billion in 2016 to an
average of $10.8 billion in 2017. Loan-related earning assets tend to generate a higher spread than those earned in
the Company’s investment portfolio. By design, the Company’s investment portfolio is moderate in duration and
liquid in its composition of assets.
During 2018, approximately $900 million of available for sale securities are expected to have principal
repayments. This includes approximately $243 million which will have principal repayments during the first quarter
of 2018. The available for sale investment portfolio had an average life of 51.7 months, 54.3 months, and 44.8
months as of December 31, 2017, 2016, and 2015, respectively.
Provision and Allowance for Loan Losses
The allowance for loan losses (ALL) represents management’s judgment of the losses inherent in the
Company’s loan portfolio as of the balance sheet date. An analysis is performed quarterly to determine the
appropriate balance of the ALL. The analysis 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. After the balance sheet analysis is performed for the ALL, the provision for loan losses is
computed as the amount required to adjust the ALL to the appropriate level.
Table 4 presents the components of the allowance by loan portfolio segment. The Company manages the
ALL against the risk in the entire loan portfolio and therefore, the allocation of the ALL to a particular loan segment
may change in the future. Management of the Company believes the present ALL is adequate considering the
Company’s loss experience, delinquency trends and current economic conditions. Future economic conditions and
borrowers’ ability to meet their obligations, however, are uncertainties which could affect the Company’s ALL
and/or need to change its current level of provision. For more information on loan portfolio segments and ALL
27
methodology refer to Note 3, “Loans and Allowance for Loan Losses,” in the Notes to the Consolidated Financial
Statements.
Table 4
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES (in thousands)
This table presents an allocation of the allowance for loan losses by loan portfolio segment, which represents the
inherent probable loss derived by both quantitative and qualitative methods. The amounts presented are not
necessarily indicative of actual future charge-offs in any particular category and are subject to change.
Loan Category
Commercial
Real estate
Consumer
Leases
Total allowance
2016
2017
December 31,
2015
$ 81,156 $ 71,657 $ 63,847 $ 55,349 $ 48,886
15,342
10,447
76
$ 100,604 $ 91,649 $ 81,143 $ 76,140 $ 74,751
10,725
9,921
145
9,312
10,083
53
10,569
9,311
112
8,220
8,949
127
2014
2013
Table 5 presents a five-year summary of the Company’s ALL. Also, please see “Quantitative and Qualitative
Disclosures About Market Risk—Credit Risk Management” on page 51 in this report for information relating to
nonaccrual, past due, restructured loans, and other credit risk matters. For more information on loan portfolio
segments and ALL methodology refer to Note 3, “Loans and Allowance for Loan Losses,” in the Notes to the
Consolidated Financial Statements.
As illustrated in Table 5 below, the ALL increased as a percentage of total loans to 0.89 percent as of
December 31, 2017, compared to 0.87 percent as of December 31, 2016. Based on the factors above, the provision
for loan loss totaled $41.0 million for the year-ended December 31, 2017, which is an increase of $8.5 million, or
26.2 percent, compared to the same period in 2016. This provision for loan losses totaled $32.5 million and $15.5
million for the years-ended December 31, 2016 and 2015, respectively.
28
Table 5
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES (in thousands)
Allowance-beginning of year
Provision for loan losses
Charge-offs:
Commercial
Consumer
Credit card
Other
Real estate
Total charge-offs
Recoveries:
Commercial
Consumer
Credit card
Other
Real estate
Total recoveries
Net charge-offs
Allowance-end of year
Average loans, net of unearned interest
Loans at end of year, net of unearned
interest
Allowance to loans at year-end
Allowance as a multiple of net charge-offs
Net charge-offs to:
2017
2016
$
91,649
41,000
$
81,143
32,500
$
2015
76,140
15,500
$
2014
74,751
17,000
$
2013
71,426
17,500
(27,985)
(12,788)
(5,239)
(7,307)
(4,748)
(8,681)
(948)
(992)
(38,606)
(8,436)
(843)
(6,756)
(28,823)
(8,555)
(1,103)
(214)
(15,111)
(10,104)
(1,323)
(259)
(18,993)
(10,531)
(1,600)
(775)
(17,654)
3,522
3,596
1,824
848
867
1,720
1,803
1,802
1,730
1,540
815
687
667
518
533
77
44
321
985
966
3,479
3,382
4,614
6,829
6,561
(14,175)
(15,611)
(10,497)
(21,994)
(32,045)
74,751
$
76,140
$
81,143
$
91,649
$
100,604
$
$6,217,240
$6,974,246
$8,423,997
$ 9,986,151
$10,841,486
11,280,514
10,540,383
9,430,761
7,465,794
6,520,512
0.89%
3.14x
0.87%
4.17x
0.86%
7.73x
1.02%
4.88x
1.15%
5.27x
Provision for loan losses
Average loans
78.16%
0.30
67.67%
0.22
67.72%
0.12
91.83%
0.22
81.00%
0.23
Noninterest Income
A key objective of the Company is the growth of noninterest income to provide a diverse source of revenue
not directly tied to interest rates. Fee-based services are typically non-credit related and are not generally affected
by fluctuations in interest rates. Noninterest income increased in 2017 by $21.1 million, or 5.2 percent, compared to
2016 and increased in 2016 by $31.9 million, or 8.6 percent, compared to 2015. The increase in 2017 is primarily
attributable to trust and securities processing, increase in bank-owned and company-owned life insurance income,
brokerage income, and bankcard income, partially offset by lower gains on sales of available-for-sale securities and
equity earnings on alternative investments. The increase in 2016, compared to 2015, is primarily attributable to
higher equity earnings on alternative investments, increases in bank-owned and company-owned life insurance
income, and brokerage income.
The Company’s fee-based services offer multiple products and services to customers which management
believes will more closely align to the customer’s product demand with the Company. The Company is currently
emphasizing fee-based services including trust and securities processing, bankcard, securities trading & brokerage
and cash & treasury management. Management believes that it can offer these products and services both efficiently
and profitably, as most have common platforms and support structures.
29
Table 6
SUMMARY OF NONINTEREST INCOME (in thousands)
Year Ended December 31,
2015
2016
2017
Dollar Change
17-16 16-15 17-16
Percent Change
16-15
Trust and securities processing
Trading and investment banking
Service charges on deposit accounts
Insurance fees and commissions
Brokerage fees
Bankcard fees
Gains on sales of securities available for
sale, net
Equity (losses) earnings on alternative
investments
Other
Total noninterest income
54
$176,646 $166,315 $166,261 $10,331 $
23,183 21,422 20,218 1,761 1,204
202
87,680 86,662 86,460 1,018
2,530 (2,216) 1,658
23,208 17,833 11,753 5,375 6,080
(462)
73,030 68,749 69,211 4,281
4,188
1,972
6.2% —%
8.2
1.2
6.0
0.2
(52.9) 65.5
51.7
30.1
(0.7)
6.2
4,192
8,509 10,402 (4,317) (1,893)
(50.7) (18.2)
(1,108)
2,695 (12,188) (3,803) 14,883 (>100.0)
33.0
34,759 26,138 16,012 8,621 10,126
$423,562 $402,511 $370,659 $21,051 $31,852
>100.0
63.2
5.2%
8.6%
Noninterest income and the year-over-year changes in noninterest income are summarized in Table 6 above.
The dollar change and percent change columns highlight the respective net increase or decrease in the categories of
noninterest income in 2017 compared to 2016, and in 2016 compared to 2015.
Trust and securities processing income consists of fees earned on personal and corporate trust accounts,
custody of securities services, trust investments and wealth management services, and mutual fund assets servicing.
This income category increased by $10.3 million, or 6.2 percent in 2017, compared to 2016, and was flat in 2016,
compared to 2015. The Company increased fee income from wealth management services by $5.3 million, from
fund administration and custody services by $3.3 million, and corporate trust revenue by $1.7 million in 2017,
compared to 2016.
Brokerage fees increased $5.4 million, or 30.1 percent, in 2017 compared to 2016 and increased $6.1 million,
or 51.7 percent, in 2016 compared to 2015 primarily due to an increase in 12b-1 income driven by an increase in
interest rates.
Bankcard fees increased $4.3 million, or 6.2 percent, in 2017 compared to 2016 and was flat in 2016
compared to 2015. The increase in 2017 compared to 2016 was driven by increased interchange income.
Gains on sales of securities available for sale decreased $4.3 million in 2017 compared to 2016 and decreased
by $1.9 million in 2016 compared to 2015. The Company’s goal in the management of its available-for-sale
securities portfolio is to maximize return within the Company’s parameters of liquidity goals, interest rate risk and
credit risk. This can result in differences from period to period in the amount of realized gains.
Equity (losses) earnings on alternative investments decreased $3.8 million in 2017 compared to 2016 and
increased $14.9 million in 2016 compared to 2015, primarily due to changes in the valuation of the underlying
Prairie Capital Management (PCM) fund investments.
Other noninterest income increased $8.6 million, or 33.0 percent, in 2017 compared to 2016 and increased
$10.1, or 63.2 percent, in 2016 compared to 2015 primarily due to an increase in bank-owned and company-owned
life insurance income and increased derivative income.
Noninterest Expense
Noninterest expense increased in 2017 by $38.4 million, or 5.8 percent, compared to 2016 and increased in
2016 by $27.8 million, or 4.4 percent, compared to 2015. The main drivers of the increase from 2016 to 2017 were
salaries and employee benefits expense, processing fees, and equipment expense. The main drivers of the increase
from 2015 to 2016 were salaries and employee benefits expense, other noninterest expense, and equipment expense,
offset by a decrease in legal and consulting expense. Table 7 below summarizes the components of noninterest
expense and the respective year-over-year changes for each category.
30
Table 7
SUMMARY OF NONINTEREST EXPENSE (in thousands)
Salaries and employee benefits
Occupancy, net
Equipment
Supplies and services
Marketing and business development
Processing fees
Legal and consulting
Bankcard
Amortization of other intangible assets
Regulatory fees
Other
Total noninterest expense
Percent Change
16-15
Dollar Change
17-16 16-15 17-16
Year Ended December 31,
2015
2016
2017
6.1%
$413,830 $390,059 $367,606 $23,771 $22,453
0.5
44,462 44,255 43,274
981
8.5
72,008 66,337 62,571 5,671 3,766
(7.3)
547
17,173 18,535 17,988 (1,362)
1.2
(788)
261
21,469 21,208 21,996
42,331 36,005 36,149 6,326
(144) 17.6
23,406 20,801 26,186 2,605 (5,385) 12.5
19,471 20,757 20,288 (1,286)
8,171 (1,369)
469
(6.2)
524 (15.7)
7,326
8,695
207
15,527 14,178 12,125 1,349 2,053
28,126 25,915 22,584 2,211 3,331
$705,129 $666,745 $638,938 $38,384 $27,807
9.5
8.5
5.8%
6.1%
2.3
6.0
3.0
(3.6)
(0.4)
(20.6)
2.3
6.4
16.9
14.7
4.4%
Salaries and employee benefits expense increased $23.8 million, or 6.1 percent, in 2017 and $22.5 million, or
6.1 percent, in 2016. The increase in both 2017 and 2016 is primarily due to higher employee base salaries, higher
commissions and bonuses, and higher cost of benefits. In 2017, salary and wage expense increased $9.9 million, or
4.0 percent, employee benefit expense increased $9.3 million, or 14.0 percent, and bonus and commission expense
increased $4.6 million, or 6.1 percent. From 2015 to 2016, base salaries increased by $10.7 million, or 4.5 percent,
commissions and bonuses increased by $5.5 million, or 7.9 percent, and employee benefits increased by $6.2
million, or 10.4 percent. Included within bonus and commission expense in 2016 is non-acquisition related expense
of $4.2 million. The Marquette acquisition contributed $8.2 million of increased salary and employee benefits
expense in 2016 since it was the first full year of salary and benefits expense after the Marquette acquisition.
Equipment expense increased $5.7 million, or 8.5 percent and $3.8 million, or 6.0 percent in 2017 and 2016,
respectively. This increase is driven by increased computer hardware and software expenses for investments for
regulatory requirements, cyber security and the ongoing modernization of our core systems in both years.
Processing fees expense increased $6.3 million, or 17.6 percent, in 2017 compared to 2016 and was flat in
2016 compared to 2015. This increase in 2017 is primarily driven by investments for regulatory requirements, cyber
security, and the ongoing modernization of the Company’s core systems.
Legal and consulting expense increased $2.6 million, or 12.5 percent, in 2017 and decreased $5.4 million, or
20.6 percent in 2016. This increase in 2017 was driven by an increase of $1.4 million in consulting expense and an
increase of $1.3 million in legal and professional services expense. The decrease in 2016 was driven by $4.8 million
in legal and consulting expense related to the Marquette acquisition recognized in 2015.
Other noninterest expense increased $2.2 million, or 8.5 percent and increased $3.3 million, or 14.7 percent, in
2017 and 2016, respectively. The increase in 2017 was driven by increased contribution and derivative expense.
The increase in 2016 was primarily driven by an increase of $3.1 million in fair value adjustments to the contingent
consideration liabilities on acquisitions.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the Tax Act). The Tax Act includes numerous changes to existing tax law, including
among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21% effective
January 1, 2018. While the Tax Act is expected to have a significant positive impact on the Company’s after-tax
results, technical corrections or other forthcoming guidance could change how provisions of the Tax Act are
interpreted, which may impact the Company’s effective tax rate and could affect the Company’s deferred tax assets,
tax positions and tax liabilities.
Income tax expense for continuing operations totaled $53.4 million, $45.0 million and $31.7 million in 2017,
2016 and 2015, respectively. These amounts equate to effective tax rates of 22.6 percent, 22.6 percent and 24.7
31
percent for 2017, 2016 and 2015, respectively. The decrease in effective rate from 2015 to 2016 is primarily
attributable to an increase in federal tax credits and a larger portion of income earned from excludable life insurance
policy gains. The effective rate for 2017 remained consistent with 2016 even after taking into consideration the
effective rate impact of the Tax Act. The adverse rate impact of the Tax Act was favorably offset by a larger portion
of income earned from tax-exempt interest and an increase in excess tax benefits associated with stock
compensation. With the adoption of Accounting Standards Update (ASU) No. 2016-09, all excess tax benefits
related to share-based awards were recognized in income tax expense for 2016 and 2017.
The Company calculated its best estimate of the impact of the Tax Act in its year end income tax provision in
accordance with its understanding of the Tax Act and the guidance available as of the date of this filing and as a
result has recorded $3.0 million as additional income tax expense in the fourth quarter of 2017. Given the
complexity of the Tax Act, anticipated technical corrections or other forthcoming guidance, the various state income
tax interpretations and the detailed analysis required, the adjustments reflected in the current and deferred tax
accounts may be subject to further refinement as additional information becomes available and further analysis is
performed.
For further information on income taxes refer to Note 16, “Income Taxes,” in the Notes to the Consolidated
Financial Statements.
Business Segments
The Company has strategically aligned its operations into the following two reportable segments (collectively,
the Business Segments): Bank and Asset Servicing. Senior executive officers regularly evaluate business segment
financial results produced by the Company’s internal reporting system in deciding how to allocate resources and
assess performance for individual Business Segments. Previously, the Company had the following four Business
Segments: Bank, Institutional Investment Management, Asset Servicing, and Payment Solutions. In the first quarter
of 2016, the Company merged the Payments Solutions segment into the Bank segment to better reflect how the core
businesses, products and services are being evaluated by management currently. The Company’s Payment Solutions
leadership structure and financial performance assessments are now included in the Bank segment, and accordingly,
the reportable segments were realigned to reflect these changes. Additionally, in November 2017, the Company
sold all of the outstanding stock of Scout, its institutional investment management subsidiary. As the operations of
Scout are now included in discontinued operations, the Company no longer presents this segment’s operations as
one of its business segments. The management accounting system assigns balance sheet and income statement items
to each Business Segment using methodologies that are refined on an ongoing basis.
Table 8
Bank Operating Results
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Net income
Year Ended
December 31,
2017
2016
41,000
$ 546,000 $ 484,716 $
32,500
328,550 309,889
616,883 582,719
216,667 179,386
40,406
$ 167,145 $ 138,980 $
49,522
Dollar
Change
17-16
61,284
8,500
18,661
34,164
37,281
9,116
28,165
Percent
Change
17-16
12.6%
26.2
6.0
5.9
20.8
22.6
20.3%
Bank net income increased by $28.2 million, or 20.3 percent, to $167.1 million for the year ended
December 31, 2017, compared to the same period in 2016. Net interest income increased $61.3 million, or 12.6
percent, for the year ended December 31, 2017, compared to the same period in 2016, primarily driven by strong
loan growth, a change in the Bank’s earning asset mix, and higher loan yields. Provision for loan losses increased
by $8.5 million to adjust the related ALL to the appropriate level based on the inherent risk in the loan portfolio for
this segment.
32
Noninterest income increased $18.7 million, or 6.0 percent, over the same period in 2016 primarily driven by
the following increases: bank-owned and company-owned life insurance income of $6.6 million, brokerage and
mutual fund income of $5.4 million driven by an increase in 12b-1 fees, wealth management revenue of $5.3
million, card services income of $4.3 million driven by higher interchange and lower rewards costs, corporate trust
income of $1.8 million, higher derivative income of $1.3 million, and deposit service charges of $1.0 million driven
by higher healthcare service charges. These increases were offset by decreases of $4.3 million in gains on securities
available for sale and $3.8 million in equity earnings on alternative investments.
Noninterest expense increased $34.2 million, or 5.9 percent, to $616.9 million for the year ended
December 31, 2017, compared to the same period in 2016. The increase in noninterest expense is due to the
following increases: $19.5 million in technology, service, and overhead expenses due to the ongoing modernization
of our core systems, $10.8 million in salary and benefit expense primarily due to higher deferred compensation
expense and profit sharing expense, $2.9 million in processing fees, $2.5 million in regulatory expense, and $0.9
million in legal and consulting expense. These increases were partially offset by a decrease of $1.0 million in
bankcard expense and a decrease of $1.0 million in amortization expense.
Table 9
Asset Servicing Operating Results
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Net income
Year Ended
December 31,
2017
12,913 $
—
95,012
88,246
19,679
3,848
15,831 $
2016
10,607 $
—
92,622
84,026
19,203
4,549
14,654 $
$
$
Dollar
Change
17-16
Percent
Change
17-16
2,306
—
2,390
4,220
476
(701)
1,177
21.7%
—
2.6
5.0
2.5
(15.4)
8.0%
For the year ended December 31, 2017, Asset Servicing net income increased $1.2 million, or 8.0 percent, to
$15.8 million as compared to the same period in 2016. Net interest income increased $2.3 million compared to the
same period last year due to an increase in deposits, coupled with an overall increase in deposit funds transfer credit.
Noninterest income increased $2.4 million, or 2.6 percent, largely due to increased alternative investment fees. As
of December 31, 2017, assets under administration totaled $206.3 billion compared to $188.7 billion at December
31, 2016 and $185.6 billion at December 31, 2015. For the year ended December 31, 2017, noninterest expense
increased $4.2 million, or 5.0 percent, as compared to the same period last year, primarily due to increases of $3.5
million in salary and benefits expense, $0.3 million in furniture and equipment expense, and $0.3 million in
processing fees expense.
33
Balance Sheet Analysis
Loans and Loans Held For Sale
Loans represent the Company’s largest source of interest income. Loan balances held for investment
increased by $740.1 million, or 7.0 percent, in 2017. This increase was primarily driven by an increase of $397.7
million, or 12.6 percent, in commercial real estate loans, $142.2 million, or 3.2 percent, in commercial loans, $110.7
million, or 49.0 percent in asset-based loans, and $90.2 million, or 16.5 percent in residential real estate loans.
Table 10
ANALYSIS OF LOANS BY TYPE (in thousands)
Commercial
Asset-based
Factoring
Commercial - credit card
Real estate - construction
Real estate - commercial
Leases
Total business-related
Real estate - residential
Real estate - HELOC
Consumer - credit card
Consumer - other
Total consumer-related
Loans before allowance
and loans held for sale
Allowance for loan losses
$
$
$
2017
4,553,040
336,614
221,672
172,291
717,849
3,563,630
23,967
9,589,063
638,591
648,379
252,697
151,783
1,691,450
2016
4,410,806
225,878
139,902
146,735
741,804
3,165,922
39,532
8,870,579
548,350
711,794
270,098
139,562
1,669,804
$
December 31,
2015
4,205,736
219,244
90,686
125,361
416,568
2,662,772
41,857
7,762,224
492,227
729,963
291,570
154,777
1,668,537
$
2014
3,814,009
—
—
115,709
256,006
1,866,301
39,090
6,091,115
319,827
643,586
310,296
100,970
1,374,679
11,280,513
10,540,383
9,430,761
7,465,794
(100,604)
(91,649)
(81,143)
(76,140)
Net loans
Loans held for sale
11,179,909
1,460
10,448,734
5,279
9,349,618
589
7,389,654
624
2013
3,301,503
—
—
103,270
152,875
1,702,151
23,981
5,283,780
289,356
566,128
318,336
62,912
1,236,732
6,520,512
(74,751)
6,445,761
1,357
Net loans and loans held
for sale
$ 11,181,369
$ 10,454,013
$
9,350,207
$
7,390,278
$
6,447,118
As a % of total loans and
loans held for sale
Commercial
Asset-based
Factoring
Commercial - credit card
Real estate – construction
Real estate – commercial
Leases
Total business-related
Real estate - residential
Real estate - HELOC
Consumer - credit card
Consumer - other
Total consumer-related
Loans held for sale
Total loans and loans held
for sale
40.36%
2.98
1.96
1.53
6.36
31.59
0.21
84.99
5.65
5.75
2.24
1.35
14.99
0.02
41.84%
2.14
1.33
1.39
7.03
30.02
0.37
84.12
5.20
6.75
2.56
1.32
15.83
0.05
44.60%
2.32
0.96
1.33
4.42
28.23
0.44
82.30
5.22
7.74
3.09
1.64
17.69
0.01
51.08%
—
—
1.55
3.43
25.00
0.52
81.58
4.28
8.62
4.16
1.35
18.41
0.01
50.63%
—
—
1.58
2.34
26.10
0.37
81.02
4.44
8.68
4.88
0.96
18.96
0.02
100.00%
100.00%
100.00%
100.00%
100.00%
34
Included in Table 10 is a five-year breakdown of loans by type. Business-related loans continue to represent
the largest segment of the Company’s loan portfolio, comprising approximately 85.0 percent and 84.1 percent of
total loans and loans held for sale at the end of 2017 and 2016, respectively.
Commercial loans represent the largest percent of total loans. Commercial loans at December 31, 2017 have
increased $142.2 million, or 3.2 percent, as compared to December 31, 2016, to 40.4 percent of total loans.
Commercial loans represented 41.8 percent of total loans at December 31, 2016. Despite the Company increasing
its capacity to lend through increased commitments during 2017, commercial line utilization has remained low.
As a percentage of total loans, commercial real estate and construction real estate loans now comprise 37.9
percent of total loans compared to 37.1 percent in 2016. Commercial real estate loans increased $397.7 million, or
12.6 percent, and construction real estate loans decreased $24.0 million, or 3.2 percent, compared to 2016.
Generally, these loans are made for working capital or expansion purposes and are primarily secured by real estate
with a maximum loan-to-value of 80 percent. Most of these properties are owner-occupied and/or have other
collateral or guarantees as security.
Asset based loans increased $110.7 million, or 49.0 percent, and represented 3.0 percent of total loans as of
December 31, 2017. Factoring loans increased $81.8 million, or 58.4 percent, and represented 2.0 percent of total
loans as of December 31, 2017.
Residential real estate increased $90.2 million, or 16.5 percent, and represented 5.7 percent of total loans.
HELOC loans decreased $63.4 million, or 8.9 percent, and represent 5.8 percent of total loans.
Nonaccrual, past due and restructured loans are discussed under “Quantitative and Qualitative Disclosure
about Market Risk – Credit Risk Management” in Item 7A on page 51 of this report.
Investment Securities
The Company’s investment portfolio contains trading, available-for-sale (AFS), and held-to-maturity (HTM)
securities as well as FRB stock, Federal Home Loan Bank (FHLB) stock, and other miscellaneous investments.
Investment securities totaled $7.6 billion as of December 31, 2017 and $7.7 billion as of December 31, 2016 and
comprised 37.5 percent and 40.1 percent of the Company’s earning assets, respectively, as of those dates.
The Company’s AFS securities portfolio comprised 81.9 percent of the Company’s investment securities
portfolio at December 31, 2017, compared to 84.1 percent at year-end 2016. The Company’s AFS securities
portfolio provides liquidity as a result of the composition and average life of the underlying securities. This liquidity
can be used to fund loan growth or to offset the outflow of traditional funding sources. The average life of the AFS
securities portfolio decreased from 54.3 months at December 31, 2016 to 51.7 months at December 31, 2017 due to
portfolio mix changes. In addition to providing a potential source of liquidity, the AFS securities portfolio can be
used as a tool to manage interest rate sensitivity. The Company’s goal in the management of its AFS securities
portfolio is to maximize return within the Company’s parameters of liquidity goals, interest rate risk and credit risk.
Management expects collateral pledging requirements for public funds, loan demand, and deposit funding to
be the primary factors impacting changes in the level of AFS securities. There were $5.7 billion of AFS securities
pledged to secure U.S. Government deposits, other public deposits, certain trust deposits, derivative transactions,
and repurchase agreements at December 31, 2017. Of this amount, securities with a market value of $1.8 billion at
December 31, 2017 were pledged at the Federal Reserve Discount Window but were unencumbered as of that date.
The Company’s HTM securities portfolio consists of private placement bonds, which are issued primarily to
refinance existing revenue bonds in the healthcare and education sectors. The HTM portfolio totaled $1.3 billion as
of December 31, 2017, an increase of $145.1 million, or 13.0 percent, from December 31, 2016. The average life of
the HTM portfolio was 7.2 years at December 31, 2017, compared to 7.4 years at December 31, 2016.
The securities portfolio generates the Company’s second largest component of interest income. The AFS and
HTM securities portfolios achieved an average yield on a tax-equivalent basis of 2.45 percent for 2017, compared to
2.12 percent in 2016, and 1.95 percent in 2015. Securities available for sale had a net unrealized loss of $75.4
million at year-end, compared to a net unrealized loss of $92.4 million the preceding year. This market value change
primarily reflects the impact of a shorter average life offsetting the impact from rising mid-term market interest
rates, as well as relatively unchanged longer-term market interest rates as of December 31, 2017, compared to
35
December 31, 2016. These amounts are reflected, on an after-tax basis, in the Company’s Accumulated other
comprehensive income (loss) in shareholders’ equity, as an unrealized loss of $44.5 million at year-end 2017,
compared to an unrealized loss of $57.2 million for 2016. The AFS securities portfolio contains securities that have
unrealized losses and are not deemed to be other-than-temporarily impaired (see the table of these securities in Note
4, “Securities,” in the Notes to the Consolidated Financial Statements on page 75 of this document). The unrealized
losses in the Company’s investments in direct obligations of 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 December 31, 2017.
Included in Tables 11 and 12 are analyses of the cost, fair value and average yield (tax-equivalent basis) of
securities available for sale and securities held to maturity.
Table 11
SECURITIES AVAILABLE FOR SALE (in thousands)
December 31, 2017
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total
December 31, 2016
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total
December 31, 2015
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total
Amortized Cost Fair Value
38,643
40,092 $
$
14,752
14,762
3,719,369 3,649,243
2,546,517 2,542,673
13,266
6,334,018 $6,258,577
13,278
$
Amortized Cost Fair Value
93,826
95,315 $
$
198,177
198,158
3,773,090 3,711,699
2,425,155 2,395,757
66,875
6,558,715 $6,466,334
66,997
$
Amortized Cost Fair Value
350,354 $ 349,779
$
666,389
667,414
3,598,115 3,572,446
2,116,543 2,138,413
79,922
6,813,011 $6,806,949
80,585
$
December 31, 2017
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
U.S. Treasury Securities
U.S. Agency Securities
Fair
Value
Weighted
Average Yield
Fair
Value
Weighted
Average Yield
$
—
29,223
9,420
—
$ 38,643
1.21
1.48
—
—% $ 14,553
199
—
—
1.28% $ 14,752
1.24%
1.46
—
—
1.24%
36
December 31, 2017
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
December 31, 2017
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
December 31, 2016
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
December 31, 2016
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
December 31, 2016
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
December 31, 2015
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
Fair Value
$
12,823
2,541,152
1,057,436
37,832
$3,649,243
Mortgage-backed
Securities
State and Political
Subdivisions
Weighted
Average Yield
Weighted
Average Yield
2.06%
2.56
2.91
3.44
2.74%
Fair Value
2.87% $ 260,957
1,096,967
2.08
822,801
2.27
3.17
361,948
2.15% $2,542,673
Corporates
Weighted
Average Yield
Fair Value
13,266
$
—
—
—
13,266
$
1.31%
—
—
—
1.31%
U.S. Treasury Securities
U.S. Agency Securities
Weighted
Average Yield
Fair
Value
Weighted
Average Yield
0.72% $ 181,209
16,968
1.21
—
1.48
—
—
0.95% $ 198,177
0.83%
1.31
—
—
0.87%
Mortgage-backed
Securities
State and Political
Subdivisions
Weighted
Average Yield
Weighted
Average Yield
Fair
Value
$ 55,240
29,260
9,326
—
$ 93,826
Fair Value
$
21,906
2,853,678
812,041
24,074
$3,711,699
1.99%
2.46
2.83
3.05
2.62%
Fair Value
3.00% $ 221,261
1,035,482
2.01
853,368
1.98
285,646
3.18
2.02% $2,395,757
Corporates
Weighted
Average Yield
Fair Value
53,205
$
13,670
—
—
66,875
$
1.09%
1.31
—
—
1.13%
U.S. Treasury Securities
U.S. Agency Securities
Weighted
Average Yield
Fair
Value
Weighted
Average Yield
0.59% $ 416,993
246,298
0.85
3,098
—
—
—
0.64% $ 666,389
0.60%
0.92
—
—
0.72%
Fair
Value
$ 284,452
65,327
—
—
$ 349,779
37
December 31, 2015
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
Fair Value
$
43,570
3,130,350
381,369
17,157
$3,572,446
December 31, 2015
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
Table 12
SECURITIES HELD TO MATURITY (in thousands)
December 31, 2017
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due over 10 years
Total
December 31, 2016
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due over 10 years
Total
December 31, 2015
Due in one year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due over 10 years
Total
Mortgage-backed
Securities
State and Political
Subdivisions
Weighted
Average Yield
Weighted
Average Yield
1.69%
2.46
2.92
3.34
2.57%
Fair Value
3.30% $ 296,543
894,275
2.02
866,060
1.99
3.28
81,535
2.03% $2,138,413
Corporates
Weighted
Average Yield
Fair Value
—
$
79,922
—
—
79,922
$
—%
1.11
—
—
1.11%
Weighted
Average
Yield/Average
Maturity
2.11%
2.61
2.29
2.65
2.54%
2.13%
2.66
2.21
2.59
2.48%
2.27%
2.28
2.52
2.00
2.33%
Amortized Cost Fair Value
2,254
2,275 $
$
100,925
100,648
363,123
372,234
741,145
785,857
1,261,014 $1,207,447
$
$
$
$
$
6,077 $
82,650
341,741
685,464
5,135
83,552
347,574
669,766
1,115,932 $1,106,027
17,893
17,265 $
80,047
77,237
384,117
370,631
201,973
209,322
667,106 $ 691,379
38
FEDERAL RESERVE BANK STOCK AND OTHER SECURITIES (in thousands)
Amortized
Cost
Fair
Value
2017
FRB and FHLB stock
Other securities – marketable
Other securities – non-marketable
$
Total Federal Reserve Bank stock and other
$
2016
FRB and FHLB stock
Other securities – marketable
Other securities – non-marketable
$
Total Federal Reserve Bank stock and other
$
2015
FRB and FHLB stock
Other securities – marketable
Other securities – non-marketable
$
Total Federal Reserve Bank stock and other
$
33,262 $
3
26,606
59,871 $
33,262
4,640
27,995
65,897
33,262 $
4
24,272
57,538 $
33,262
9,952
25,092
68,306
33,215 $
5
23,855
57,075 $
33,215
7,164
24,819
65,198
Other marketable and non-marketable securities include PCM 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 $4.6 million at December 31, 2017, compared to $10.0
million at December 31, 2016. The fair value of other non-marketable securities includes the alternative investment
securities fair value of $3.4 million and $2.0 million at December 31, 2017 and December 31, 2016, respectively.
Other Earning Assets
Federal funds transactions essentially are overnight loans between financial institutions, which allow for either
the daily investment of excess funds or the daily borrowing of another institution’s funds in order to meet short-term
liquidity needs. The net borrowed position was $6.2 million at December 31, 2017, and $418.9 million at December
31, 2016.
The Bank buys and sells federal funds as agent for non-affiliated banks. Because the transactions are pursuant
to agency arrangements, these transactions do not appear on the balance sheet and averaged $217.1 million in 2017
and $224.8 million in 2016.
At December 31, 2017, the Company held securities purchased under agreements to resell of $186.5 million
compared to $323.4 million at December 31, 2016. The Company uses these instruments as short-term secured
investments, in lieu of selling federal funds, or to acquire securities required for collateral purposes. Balances will
fluctuate based on the Company’s liquidity and investment decisions as well as the Company’s correspondent bank
borrowing levels. These investments averaged $186.8 million in 2017 and $180.7 million in 2016.
The Company also maintains an active securities trading inventory. The average holdings in the securities
trading inventory in 2017 were $57.0 million, compared to $42.4 million in 2016, and were recorded at market
value. As discussed in “Quantitative and Qualitative Disclosures About Market Risk -- Trading Account” in Part II,
Item 7A on page 50, the Company offsets the trading account securities by the sale of exchange-traded financial
futures contracts, with both the trading account and futures contracts marked to market daily.
Interest-bearing due from banks totaled $1.4 billion as of December 31, 2017 compared to $715.8 million as
of December 31, 2016 and includes amounts due from the FRB and interest-bearing accounts held at other financial
institutions. The amount due from the FRB totaled $1.3 billion and $641.8 million at December 31, 2017 and 2016,
respectively. The increase in the FRB balance from 2016 to 2017 is primarily due to an increase in public fund and
institutional deposit balances. The interest-bearing accounts held at other financial institutions totaled $28.2 million
and $74.0 million at December 31, 2017 and 2016, respectively.
39
Deposits and Borrowed Funds
Deposits represent the Company’s primary funding source for its asset base. In addition to the core deposits
garnered by the Company’s retail branch structure, the Company continues to focus on its cash management
services, as well as its asset management and mutual fund servicing businesses in order to attract and retain
additional core deposits. Deposits totaled $18.0 billion at December 31, 2017 and $16.6 billion at December 31,
2016, an increase of $1.5 billion or 8.8 percent. Deposits averaged $15.9 billion in 2017, and $15.3 billion in 2016.
Noninterest-bearing demand deposits averaged $5.9 billion in 2017 and 2016. These deposits represented
37.2 percent of average deposits in 2017, compared to 38.5 percent in 2016. The Company’s large commercial
customer base provides a significant source of noninterest-bearing deposits. Many of these commercial accounts do
not earn interest; however, they receive an earnings credit to offset the cost of other services provided by the
Company.
Table 13
MATURITIES OF TIME DEPOSITS OF $250,000 OR MORE (in thousands)
Maturing within 3 months
After 3 months but within 6 months
After 6 months but within 12 months
After 12 months
Total
2017
524,173 $
116,491
44,986
46,624
732,274 $
December 31,
2016
295,395 $
111,043
47,664
68,030
522,132 $
$
$
2015
300,729
26,250
55,988
100,945
483,912
Table 14
ANALYSIS OF AVERAGE DEPOSITS (in thousands)
Amount:
Noninterest-bearing demand
Interest-bearing demand and savings
Time deposits under $250,000
Total core deposits
Time deposits of $250,000 or more
Total deposits
As a % of total deposits:
Noninterest-bearing demand
Interest-bearing demand and savings
Time deposits under $250,000
Total core deposits
Time deposits of $250,000 or more
Total deposits
2017
December 31,
2016
2015
$ 5,936,172
8,819,387
373,553
15,129,112
809,557
$ 15,938,669
$ 5,906,021
8,267,634
601,383
14,775,038
563,703
$ 15,338,741
$ 5,927,702
7,010,302
700,916
13,638,920
439,370
$ 14,078,290
37.24%
55.34
2.34
94.92
5.08
100.00%
38.50%
53.90
3.92
96.32
3.68
100.00%
42.11%
49.79
4.98
96.88
3.12
100.00%
Repurchase agreements are transactions involving the exchange of investment funds by the customer for
securities by the Company, under an agreement to repurchase the same issues at an agreed-upon price and date.
Securities sold under agreements to repurchase and federal funds purchased totaled $1.3 billion at December 31,
2017, and $1.9 billion at December 31, 2016. These agreements averaged $2.1 billion in 2017 and $2.0 billion in
2016. The Company enters into these transactions with its downstream correspondent banks, commercial
customers, and various trust, mutual fund, and local government relationships.
The Company is a member bank with the FHLB of Des Moines, and through this relationship, the Company
owns $10.0 million of FHLB stock and has access to additional liquidity and funding sources through FHLB
40
advances. The Company’s borrowing capacity is dependent upon the amount of collateral the Company places at
the FHLB. Based on the collateral pledged, the Company had $2.0 billion of borrowing capacity at the FHLB at
December 31, 2017. As of December 31, 2017, the FHLB had issued three letters of credit totaling $300.0 million
on behalf of the Company to secure public fund deposits, all of which expired in January 2018. The letters of credit
reduced the Company’s borrowing capacity with the FHLB to $1.7 billion as of December 31, 2017. The Company
had no outstanding advances at FHLB Des Moines as of December 31, 2017.
Table 15
SHORT-TERM BORROWINGS (in thousands)
At December 31:
Federal funds purchased
Repurchase agreements
Other
Total
Average for year:
Federal funds purchased
Repurchase agreements
Other
Total
Maximum month-end balance:
Federal funds purchased
Repurchase agreements
Other
2017
2016
2015
Amount
Rate
Amount
Rate
Amount
Rate
11,334
$
1,249,370
—
$1,260,704
1.27% $ 419,843
1,437,094
1.10
—
—
1.10% $1,856,937
0.50% $
0.45
—
66,855
1,751,207
5,009
0.46% $1,823,071
$ 879,857
1,215,254
3
$2,095,114
1.37% $ 439,062
1,566,569
0.76
3,753
—
0.85% $2,009,384
48,318
0.60% $
1,542,459
0.30
0.72
1,853
0.33% $1,592,630
0.19%
0.30
0.98
0.30%
0.28%
0.11
0.98
0.11%
$1,737,252
1,475,361
—
$1,094,017
1,815,830
—
$ 269,379
1,907,468
109,522
Long-term debt totaled $79.3 million at December 31, 2017. The majority of the Company’s long-term debt
was assumed from the acquisition of Marquette and consists of debt obligations payable to four unconsolidated
trusts (Marquette Capital Trust I, Marquette Capital Trust II, Marquette Capital Trust III, and Marquette Capital
Trust IV) that previously issued trust preferred securities. These long-term debt obligations had an aggregate
contractual balance of $103.1 million and had a carrying value of $68.3 million at December 31, 2017. Interest rates
on trust preferred securities are tied to the three-month London Interbank Offered Rate (LIBOR) with spreads
ranging from 133 basis points to 160 basis points, and reset quarterly. The trust preferred securities have maturity
dates ranging from January 2036 to September 2036. For further information on long-term debt refer to Note 9,
“Borrowed Funds,” in the Notes to the Consolidated Financial Statements.
Capital Resources and Liquidity
The Company places a significant emphasis on the maintenance of a strong capital position, which it believes
promotes investor confidence, provides access to funding sources under favorable terms, and enhances the
Company’s ability to capitalize on business growth and acquisition opportunities. Higher levels of liquidity,
however, bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets and
higher expenses for extended liability maturities. The Company manages capital for each subsidiary based upon the
subsidiary’s respective risks and growth opportunities as well as regulatory requirements.
Total shareholders’ equity was $2.2 billion at December 31, 2017, compared to $2.0 billion at December 31,
2016, an increase of $219.1 million or 11.2 percent.
The Company’s Board of Directors (the Board) authorized, at its April 26, 2017 and April 28, 2016 meetings,
the repurchase of up to two million shares of the Company’s common stock during the twelve month periods
following each of the meetings. During 2017 and 2016, the Company acquired 217,071 shares and 323,058 shares
of its common stock, respectively. The Company has not made any repurchases other than through these plans.
Through the Company’s relationship with the FHLB of Des Moines, the Company owns $10.0 million of
FHLB stock and has access to additional liquidity and funding sources through FHLB advances. The Company’s
41
borrowing capacity is dependent upon the amount of collateral the Company places at the FHLB. The Company’s
borrowing capacity with the FHLB was $1.7 billion as of December 31, 2017. The Company had no outstanding
FHLB advances at FHLB of Des Moines as of December 31, 2017.
Risk-based capital guidelines established by regulatory agencies set minimum capital standards based on the
level of risk associated with a financial institution’s assets. The Company has implemented the Basel III regulatory
capital rules adopted by the FRB. Basel III capital rules include a minimum ratio of common equity tier 1 capital to
risk-weighted assets of 4.5 percent and a minimum tier 1 risk-based capital ratio of 6 percent. A financial
institution’s total capital is also required to equal at least 8 percent of risk-weighted assets. At least half of that 8
percent must consist of tier 1 core capital, and the remainder may be tier 2 supplementary capital. The Basel III
regulatory capital rules include transitional periods for various components of the rules that require full compliance
for the Company by January 1, 2019, including a capital conservation buffer requirement of 2.5 percent of risk-
weighted assets for which the transitional period began on January 1, 2016.
The risk-based capital guidelines indicate the specific risk weightings by type of asset. Certain off-balance
sheet items (such as standby letters of credit and binding loan commitments) are multiplied by credit conversion
factors to translate them into balance sheet equivalents before assigning them specific risk weightings. The
Company is also required to maintain a leverage ratio equal to or greater than 4 percent. The leverage ratio is tier 1
core capital to total average assets less goodwill and intangibles. The Company's capital position as of December
31, 2017 is summarized in the table below and exceeded regulatory requirements.
For further discussion of capital and liquidity, see the “Quantitative and Qualitative Disclosures about Market
Risk – Liquidity Risk” in Item 7A on page 52 of this report.
Table 16
RISK-BASED CAPITAL (in thousands)
This table computes risk-based capital in accordance with current regulatory guidelines. These guidelines as
of December 31, 2017, excluded net unrealized gains or losses on securities available for sale from the computation
of regulatory capital and the related risk-based capital ratios.
0%
20%
50%
100%
150%
Total
Risk-Weighted Category
Risk-Weighted Assets
Loans held for sale
Loans and leases
Securities available for sale
Securities held to maturity
Federal funds and resell agreements
Trading securities
Cash and due from banks
All other assets
Category totals
Risk-weighted totals
Off-balance-sheet items (3)
Total risk-weighted assets
$
— $
— $
1,460 $
— $
— $
41,763
11,728
736,136 5,569,192
—
—
18
1,401,107
23,761
15,412
30,174 1,230,840
—
27,114
—
27,302
1,460
789,301 10,271,012 166,709 11,280,513
— 6,334,018
— 1,261,014
5,135
—
—
54,055
— 1,744,483
869,629
—
$2,172,750 $6,019,508 $2,091,429 $11,099,911 $ 166,709 $21,550,307
— 1,203,902 1,045,714 11,099,911 250,064 13,599,591
47,187 2,162,836
17,173 2,088,506
—
— $1,213,872 $1,062,887 $13,188,417 $ 297,251 $15,762,427
13,278
—
—
14,998
—
800,623
5,135
11,925
343,376
17,943
9,970
$
Regulatory Capital
Shareholders’ equity
Less adjustments (1)
Common equity Tier 1/Tier 1 capital
Additional Tier 2 capital (2)
Total capital
Total
$ 2,181,531
(140,027)
2,041,504
171,546
$ 2,213,050
42
Company
Capital ratios
Common Equity Tier 1 capital to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Leverage ratio (Tier 1 capital to total average assets
less adjustments (1))
12.95%
12.95%
14.04%
9.94%
(1) Adjustments include a portion of goodwill and intangibles as well as unrealized gains/losses on available-for-
(2)
sale securities.
Includes the Company’s ALL (inclusive of the reserve for off-balance sheet arrangements) and trust preferred
subordinated notes.
(3) After credit conversion factor and risk weighting is applied.
For further discussion of regulatory capital requirements, see Note 10, “Regulatory Requirements” within the
Notes to Consolidated Financial Statements under Item 8 on pages 82 through 84.
Commitments, Contractual Obligations and Off-balance Sheet Arrangements
The Company’s main off-balance sheet arrangements are loan commitments, commercial and standby letters
of credit, futures contracts and forward exchange contracts, which have maturity dates rather than payment due
dates. These commitments and contingent liabilities are not required to be recorded on the Company’s balance
sheet. Since commitments associated with letters of credit and lending and financing arrangements may expire
unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. See Table 17
below, as well as Note 14, “Commitments, Contingencies and Guarantees” in the Notes to Consolidated Financial
Statements under Item 8 on pages 90 and 91 for detailed information and further discussion of these arrangements.
Management does not anticipate any material losses from its off-balance sheet arrangements.
Table 17
COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
(in thousands)
The table below details the contractual obligations for the Company as of December 31, 2017, and includes
principal payments only. The Company has no capital leases or long-term purchase obligations.
Payments due by Period
Total
Less than 1
year
1-3 years 3-5 years
More than
5 years
Contractual Obligations
Fed funds purchased and repurchase agreements
Long-term debt obligations
Operating lease obligations
Time deposits
Total
79,281
79,028
$1,260,704 $1,260,704 $
1,519
11,163
—
— $
71,440
3,574
31,219
21,085
1,280,264 1,048,898 191,258
—
$2,699,277 $2,322,284 $ 215,917 $ 58,417 $ 102,659
— $
2,748
15,561
40,108
43
Commitments, Contingencies and Guarantees
Commitments to extend credit for loans (excluding
credit card loans)
Commitments to extend credit under credit card
loans
Commercial letters of credit
Standby letters of credit
Forward contracts
Spot foreign exchange contracts
Total
Maturities due by Period
Total
Less than 1
year
1-3 years 3-5 years
More than
5 years
$ 6,689,467 $2,786,683 $1,327,210 $1,039,850 $1,535,724
2,975,507 2,975,507
813
213,611
29,007
628
—
—
75
—
—
$10,011,476 $6,006,249 $1,412,295 $1,057,133 $1,535,799
—
—
17,283
—
—
—
—
85,085
—
—
813
316,054
29,007
628
As of December 31, 2017, our total liabilities for unrecognized tax benefits were $3.8 million. The Company
cannot reasonably estimate the timing of the future payments of these liabilities. Therefore, these liabilities have
been excluded from the table above. See Note 16, “Income Taxes,” in the Notes to the Consolidated Financial
Statements for information regarding the liabilities associated with unrecognized tax benefits.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the
Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP). The preparation of these Consolidated 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 Consolidated Financial Statements and the
reported amounts of revenues and expenses during the reporting period. On an on-going basis, management
evaluates its estimates and judgments, including those related to customers and suppliers, allowance for loan losses,
bad debts, investments, financing operations, long-lived assets, taxes, other contingencies and litigation.
Management bases its estimates and judgments 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
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Under
different assumptions or conditions, actual results may differ from the recorded estimates.
Management believes that the Company’s critical accounting policies are those relating to: the allowance for
loan losses, goodwill and other intangibles, revenue recognition, accounting for uncertainty in income taxes, and fair
value measurements.
Allowance for Loan Losses
The Company’s allowance for loan losses represents management’s judgment of the loan losses inherent in the
loan portfolio. The allowance is reviewed quarterly, considering both quantitative and qualitative factors such as
historical trends, internal ratings, migration analysis, current economic conditions, loan growth and individual
impairment testing.
Larger commercial loans are individually reviewed for potential impairment. For these loans, if management
deems it probable that the borrower cannot meet its contractual obligations with respect to payment or timing such
loans are deemed to be impaired under current accounting standards. Such loans are then reviewed for potential
impairment based on management’s estimate of the borrower’s ability to repay the loan given the availability of cash
flows, collateral and other legal options. Any allowance related to the impairment of an individually impaired loan
is based on the present value of discounted expected future cash flows, the fair value of the underlying collateral, or
the fair value of the loan. Based on this analysis, some loans that are classified as impaired do not have a specific
allowance as the discounted expected future cash flows or the fair value of the underlying collateral exceeds the
Company’s basis in the impaired loan.
The Company also maintains an internal risk grading system for other loans not subject to individual
impairment. An estimate of the inherent loan losses on such risk-graded loans is based on a migration analysis
which computes the net charge-off experience related to each risk category.
44
An estimate of inherent losses is computed on remaining loans based on the type of loan. Each type of loan is
segregated into a pool based on the nature of such loans. This includes remaining commercial loans that have a low
risk grade, as well as other homogenous loans. Homogenous loans include automobile loans, credit card loans and
other consumer loans. Allowances are established for each pool based on the loan type using historical loss rates,
certain statistical measures and loan growth.
An estimate of the total inherent loss is based on the above three computations. From this an adjustment can
be made based on other factors management considers to be important in evaluating the probable losses in the
portfolio such as general economic conditions, loan trends, risk management and loan administration and changes in
internal policies. For more information on loan portfolio segments and ALL methodology refer to Note 3, “Loans
and Allowance for Loan Losses,” in the Notes to the Consolidated Financial Statements.
Goodwill and Other Intangibles
Goodwill is tested for impairment annually as of October 1 and more frequently whenever events or changes
in circumstance indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying
value. To test goodwill for impairment, the Company performs a qualitative assessment of each reporting unit. If
the Company determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely
than not greater than the carrying amount, the quantitative impairment test is not required. Otherwise, the Company
compares the fair value of its reporting units to their carrying amounts to determine if impairment exists and the
amount of impairment loss. An impairment loss is measured as the excess of the carrying value of a reporting unit’s
goodwill over its fair value. As a result of such impairment analysis, the Company did not recognize an impairment
charge in 2017.
For customer-based identifiable intangibles, the Company amortizes the intangibles over their estimated useful
lives of up to 17 years. When facts and circumstances indicate potential impairment of amortizing intangible assets,
the Company evaluates the fair value of the asset and compares it to the carrying value for possible impairment. For
more information see “Goodwill and Other Intangibles” in Note 7 in the Notes to the Consolidated Financial
Statements.
Revenue Recognition
Revenue recognition includes the recording of interest on loans and securities and is recognized based on a
rate multiplied by the principal amount outstanding and also includes the impact of the amortization of related
premiums and discounts. Interest accrual is discontinued when, in the opinion of management, the likelihood of
collection becomes doubtful, or the loan is past due for a period of ninety days or more unless the loan is both well-
secured and in the process of collection. Other noninterest income is recognized as services are performed or
revenue-generating transactions are executed.
Income Taxes
The Company records a provision for income taxes for the anticipated tax consequences of our reported
results of operations using the asset and liability method. Deferred income taxes are recognized by applying enacted
statutory tax rates applicable to future years to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases as well as net operating loss and tax credit carryforwards.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation
allowance for any tax benefits for which future realization is uncertain. Although the Company believes its
assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the
resolution of any tax audits could significantly impact the amounts provided for income taxes in the consolidated
financial statements.
On December 22, 2017, the Tax Act was signed into law making significant changes to the Internal
Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for
tax years beginning after December 31, 2017. The Company estimated its provision for income taxes in accordance
with the Tax Act and guidance available as of the date of this filing and as a result have recorded $3.0 million as
additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted.
45
Accounting for Uncertainty in Income Taxes
The Company is subject to income taxes in the U.S. federal and various state jurisdictions. The calculation of
tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in these
jurisdictions. The Company records the financial statement effects of an income tax position when it is more likely
than not, based on the technical merits, that it will be sustained upon examination. The estimate for any uncertain tax
issue is based on management’s best judgment. These estimates may change as a result of changes in tax laws and
regulations, interpretations of law by taxing authorities, and income tax examinations among other factors. Due to
the complexity of these uncertainties, the ultimate resolution may differ from the current estimate of the tax
liabilities. These differences will be reflected as increases or decreases to Income tax expense in the period in which
they are determined. See the discussion of “Liabilities Associated with Unrecognized Tax Benefits” under Note 16
in the Notes to the Consolidated Financial Statements.
Fair Value Measurements
Fair value is measured in accordance with GAAP, which defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Valuation techniques used to measure fair value include the market approach, income approach and cost
approach. The market approach uses prices or relevant information generated by market transactions involving
identical or comparable assets or liabilities. The income approach involves discounting future amounts to a single
present amount and is based on current market expectations about those future amounts. The cost approach is based
on the amount that currently would be required to replace the service capacity of the asset.
GAAP establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An
instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant
to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that are available at the
measurement date.
Level 2 - Inputs other than quoted prices included within 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; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other
than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or
corroborated by observable market data by correlation or other means.
Level 3 - Unobservable inputs for the asset or liability for which there is little, if any, market activity at the
measurement date. Unobservable inputs reflect assumptions about what market participants would use to price
the asset or liability. The inputs are developed based on the best information available in the circumstances,
which might include the Company’s own financial data such as internally developed pricing models and
discounted cash flow methodologies, as well as instruments for which the fair value determination requires
significant management judgment.
The Company’s fair value measurements involve various valuation techniques and models, which involve
inputs that are observable, when available, and the most significant of which include available-for-sale, trading
securities, and contingent consideration measured at fair value on a recurring basis.
Fair value pricing information obtained from third party data providers and pricing services for investment
securities are reviewed for appropriateness on a periodic basis. The third party service providers are also analyzed
to understand and evaluate the valuation methodologies utilized. This review includes an analysis of current market
prices compared to pricing provided by the third party pricing service to assess the relative accuracy of the data
provided.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Risk Management
Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial
instrument. These changes may be the result of various factors, including interest rates, foreign exchange prices,
46
commodity prices, or equity prices. Financial instruments that are subject to market risk can be classified either as
held for trading or held for purposes other than trading.
The Company is subject to market risk primarily through the effect of changes in interest rates of its assets
held for purposes other than trading. The following discussion of interest rate risk, however, combines instruments
held for trading and instruments held for purposes other than trading because the instruments held for trading
represent such a small portion of the Company’s portfolio that the interest rate risk associated with them is
immaterial.
Interest Rate Risk
In the banking industry, a major risk exposure is changing interest rates. To minimize the effect of interest
rate changes to net interest income and exposure levels to economic losses, the Company manages its exposure to
changes in interest rates through asset and liability management within guidelines established by its Asset Liability
Committee (ALCO) and approved by the Board. The ALCO is responsible for approving and ensuring compliance
with asset/liability management policies, including interest rate exposure. The Company’s primary method for
measuring and analyzing consolidated interest rate risk is the Net Interest Income Simulation Analysis. The
Company also uses a Net Portfolio Value model to measure market value risk under various rate change scenarios
and a gap analysis to measure maturity and repricing relationships between interest-earning assets and interest-
bearing liabilities at specific points in time. On a limited basis, the Company uses hedges such as swaps and futures
contracts to manage interest rate risk on certain loans, trading securities, trust preferred securities, and deposits. See
further information in Note 17 “Derivatives and Hedging Activities” in the Notes to the Company’s Consolidated
Financial Statements.
Overall, the Company attempts to manage interest rate risk by positioning the balance sheet to maximize net
interest income while maintaining an acceptable level of interest rate and credit risk, remaining mindful of the
relationship among profitability, liquidity, interest rate risk and credit risk.
Net Interest Income Modeling
The Company’s primary interest rate risk tool, the Net Interest Income Simulation Analysis, measures interest
rate risk and the effect of interest rate changes on net interest income and net interest margin. This analysis
incorporates all of the Company’s assets and liabilities together with assumptions that reflect the current interest rate
environment. Through these simulations, management estimates the impact on net interest income of a 300 basis
point upward or a 100 basis point downward gradual change (e.g. ramp) and immediate change (e.g. shock) of
market interest rates over a two year period. In ramp scenarios, rates change gradually for a one year period and
remain constant in year two. In shock scenarios, rates change immediately and the change is sustained for the
remainder of the two year scenario horizon. Assumptions are made to project rates for new loans and deposits based
on historical analysis, management outlook and repricing strategies. Asset prepayments and other market risks are
developed from industry estimates of prepayment speeds and other market changes. The results of these simulations
can be significantly influenced by assumptions utilized and management evaluates the sensitivity of the simulation
results on a regular basis.
47
Table 18 shows the net interest income percentage increase or decrease over the next twelve and twenty-four
month periods as of December 31, 2017 and 2016 based on hypothetical changes in interest rates and a constant
sized balance sheet with runoff being replaced.
Table 18
MARKET RISK
Hypothetical change in interest rate – Rate Ramp
Year Two
Year One
December 31,
2017
Percentage
change
December 31,
2016
Percentage
change
December 31,
2017
Percentage
change
December 31,
2016
Percentage
change
1.3%
0.1
(1.1)
—
(1.5)
2.2%
1.2
0.2
—
N/A
7.1%
3.7
0.2
—
(6.0)
7.8%
5.0
2.1
—
N/A
Hypothetical change in interest rate – Rate Shock
Year Two
Year One
December 31,
2017
Percentage
change
December 31,
2016
Percentage
change
December 31,
2017
Percentage
change
December 31,
2016
Percentage
change
6.1%
3.3
0.5
—
(5.3)
7.3%
4.6
2.0
—
N/A
10.5%
5.9
1.4
—
(9.3)
11.7%
7.6
3.5
—
N/A
(basis points)
300
200
100
Static
(100)
(basis points)
300
200
100
Static
(100)
The Company is positioned relatively neutral to changes in interest rates. Net interest income is predicted to
increase in 200 and 300 bps point scenarios and decrease in 100 bps up and 100 bps down scenarios. The increase in
net interest income in rising rate scenarios is due to yields on earning assets increasing more due to changes in
market rates than the cost of paying liabilities is projected to increase. The decrease in net interest income in year
one of the 100 bps scenario is due to liability cost increases outpacing due to changes in market rates earning asset
yield increases. Net interest income in the down 100 bps scenario is lower due to earning asset yields decreasing
more relative to changes in market rates than liability expense. The Company’s ability to price deposits in a rising
rate environment consistent with our history is a key assumption in these scenarios.
Repricing Mismatch Analysis
The Company also evaluates its interest rate sensitivity position in an attempt to maintain a balance between
the amount of interest-bearing assets and interest-bearing liabilities which are expected to mature or reprice at any
point in time. While a traditional repricing mismatch analysis (gap analysis) provides a snapshot of interest rate
risk, it does not take into consideration that assets and liabilities with similar repricing characteristics may not, in
fact, reprice at the same time or the same degree. Also, it does not necessarily predict the impact of changes in
general levels of interest rates on net interest income.
48
Table 19 is a static gap analysis, which presents the Company’s assets and liabilities, based on their repricing
or maturity characteristics and reflecting principal amortization. Table 20 presents the break-out of fixed and
variable rate loans by repricing or maturity characteristics for each loan class.
Table 19
INTEREST RATE SENSITIVITY ANALYSIS (in millions)
December 31, 2017 Earning assets
Loans
Securities
Federal funds sold and resell
agreements
Other
Total earning assets
% of total earning assets
Funding sources
Interest-bearing demand and
savings
Time deposits
Federal funds purchased and
repurchase agreements
Borrowed funds
Noninterest-bearing sources
Total funding sources
% of total earning assets
Interest sensitivity gap
Cumulative gap
1-90
Days
91-180
Days
181-365
Days
Total
1-5
Years
Over 5
Years
Total
$6,453.6
387.9
$
466.8
279.4
$
701.5
460.8
$ 7,621.9
1,128.1
$2,852.8
3,613.4
$
807.3
2,844.0
$11,282.0
7,585.5
191.6
1,405.0
$8,438.1
$
41.2%
—
0.8
747.0
—
—
$ 1,162.3
191.6
1,405.8
$10,347.4
—
—
$6,466.2
—
—
$ 3,651.3
191.6
1,405.8
$20,464.9
3.7%
5.7%
50.6%
31.6%
17.8%
100.0%
$1,854.0
639.6
$ 1,390.4
215.6
$ 2,780.7
193.7
$ 6,025.1
1,048.9
$ 316.6
216.0
$ 3,561.9
15.4
$ 9,903.6
1,280.3
1,260.7
68.3
4,775.9
$8,598.5
—
—
93.8
$ 1,699.8
—
0.2
173.2
$ 3,147.8
1,260.7
68.5
5,042.9
$13,446.1
—
2.4
472.7
$1,007.7
—
8.4
2,425.4
$ 6,011.1
1,260.7
79.3
7,941.0
$20,464.9
42.0%
8.3%
15.4%
65.7%
4.9%
29.4%
100.0%
$ (160.4)
(160.4)
$ (952.8)
(1,113.2)
$(1,985.5)
(3,098.7)
$ (3,098.7)
(3,098.7)
$5,458.5
2,359.8
$(2,359.8)
—
—%
As a % of total earning assets
(0.8)%
(5.4)%
(15.1)%
(15.1)%
11.6%
Ratio of earning assets to
funding sources
Cumulative ratio of earning assets
to funding sources
2017
2016
0.98
0.44
0.37
0.77
6.42
0.61
0.98
0.88
0.89
0.83
0.77
0.74
0.77
0.74
1.16
1.11
1.00
1.00
49
Table 20
Maturities and Sensitivities to Changes in Interest Rates
This table details loan maturities by variable and fixed rates as of December 31, 2017 (in thousands):
Due after
one year
through
five
years
Due in one
year or less
Due after
five years
Total
$3,097,719 $
334,979
217,649
172,291
649,782
1,087,408
24,965
427,717
(174,384)
91,294
23,967
5,953,387
75,728 $
—
—
—
12,167
151,590
98,106
213,349
—
8
—
550,948
—
—
—
691
2,560 $ 3,176,007
334,979
217,649
172,291
662,640
19,950 1,258,948
157,955
34,884
641,459
393
(174,384)
—
91,302
—
23,967
—
58,478 6,562,813
—
—
—
16,519
860,174
3,456
—
—
23,758
71,364 1,377,033
445,495
1,635
(1,821)
4,023
4,023
—
—
14,932
55,209
673,758 1,243,029 387,895 2,304,682
482,096
146,041 270,539
65,516
6,920
974
4,068
1,878
427,081
—
427,044
37
60,481
1,502
35,485
23,494
—
—
—
—
1,668,500 2,301,867 748,793 4,719,160
$7,621,887 $2,852,815 $ 807,271 $11,281,973
Variable Rate
Commercial
Asset-based
Factoring
Commercial – Credit Card
Real Estate – Construction
Real Estate – Commercial
Real Estate – Residential
Real Estate – HELOC
Consumer – Credit Card
Consumer – Other
Leases
Total variable rate loans
Fixed Rate
Commercial
Asset-based
Factoring
Commercial – Credit Card
Real Estate – Construction
Real Estate – Commercial
Real Estate – Residential
Real Estate – HELOC
Consumer – Credit Card
Consumer – Other
Leases
Total fixed rate loans
Total loans and loans held for sale
Trading Account
The Bank carries taxable governmental securities in a trading account that is maintained in accordance with
Board-approved policy and procedures. The policy limits the amount and type of securities that can be carried in the
trading account and requires compliance with any limits under applicable law and regulations, and mandates the use
of a value-at-risk methodology to manage price volatility risks within financial parameters. The risk associated with
the carrying of trading securities is offset by the sale of exchange-traded financial futures contracts, with both the
trading account and futures contracts marked to market daily. This account had a balance of $54.1 million as of
December 31, 2017, compared to $39.5 million as of December 31, 2016.
The Company is subject to market risk primarily through the effect of changes in interest rates of its assets
held for purposes other than trading. The discussion in Table 19 above of interest rate risk, however, combines
instruments held for trading and instruments held for purposes other than trading, because the instruments held for
trading represent such a small portion of the Company’s portfolio that the interest rate risk associated with them is
immaterial.
50
Other Market Risk
The Company has minimal foreign currency risk as a result of foreign exchange contracts. See Note 10,
“Commitments, Contingencies and Guarantees” in the Notes to the Consolidated Financial Statements.
Credit Risk Management
Credit risk represents the risk that a customer or counterparty may not perform in accordance with contractual
terms. The Company utilizes a centralized credit administration function, which provides information on the Bank’s
risk levels, delinquencies, an internal ranking system and overall credit exposure. Loan requests are centrally
reviewed to ensure the consistent application of the loan policy and standards. In addition, the Company has an
internal loan review staff that operates independently of the Bank. This review team performs periodic
examinations of the bank’s loans for credit quality, documentation and loan administration. The respective
regulatory authority of the Bank also reviews loan portfolios.
A primary indicator of credit quality and risk management is the level of nonperforming loans. Nonperforming
loans include both nonaccrual loans and restructured loans on nonaccrual. The Company’s nonperforming loans
decreased $11.1 million to $59.1 million at December 31, 2017, compared to December 31, 2016. This decrease was
primarily driven by the migration of two non-energy commercial credits during the third quarter of 2016. There was an
immaterial amount of interest recognized on nonperforming loans during 2017, 2016, and 2015.
The Company had $1.5 million and $0.2 million of other real estate owned as of December 31, 2017 and
2016, respectively. Loans past due more than 90 days totaled $3.1 million as of December 31, 2017, compared to
$3.4 million as of December 31, 2016.
A loan is generally placed on nonaccrual status when payments are past due 90 days or more and/or when
management has considerable doubt about the borrower’s ability to repay on the terms originally contracted. The
accrual of interest is discontinued and recorded thereafter only when actually received in cash.
Certain loans are restructured to provide a reduction or deferral of interest or principal due to deterioration in
the financial condition of the respective borrowers. The Company had $41.0 million of restructured loans at
December 31, 2017 and $52.5 million at December 31, 2016.
Table 21
LOAN QUALITY (in thousands)
Nonaccrual loans
Restructured loans on nonaccrual
Total non-performing loans
Other real estate owned
Total non-performing assets
Loans past due 90 days or more
Restructured loans accruing
Allowance for loans losses
Ratios
2017
$ 37,731
21,411
59,142
1,501
$ 60,643
2016
$ 41,765
28,494
70,259
194
$ 70,453
December 31,
2015
$ 45,589
15,563
61,152
3,307
$ 64,459
2014
$ 18,660
8,722
27,382
394
$ 27,776
2013
$ 19,305
11,401
30,706
1,288
$ 31,994
3,091
$
19,603
100,604
3,365
$
24,013
91,649
7,324
$
21,029
81,143
$
3,830
583
76,140
$
3,218
665
74,751
Non-performing loans as a % of loans
Non-performing assets as a % of loans
plus other real estate owned
Non-performing assets as a % of total assets
Loans past due 90 days or more as a % of loans
Allowance for Loan Losses as a % of loans
Allowance for Loan Losses as a multiple of
non-performing loans
0.52%
0.67%
0.65%
0.37%
0.49%
0.54
0.28
0.03
0.89
0.67
0.34
0.03
0.87
0.68
0.34
0.08
0.86
0.37
0.16
0.05
1.02
0.49
0.19
0.05
1.15
1.70x
1.30x
1.33x
2.78x
2.43x
51
Liquidity Risk
Liquidity represents the Company’s ability to meet financial commitments through the maturity and sale of
existing assets or availability of additional funds. The Company believes that the most important factor in the
preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable
supply of core deposits and wholesale funds. Ultimately, the Company believes public confidence is generated
through profitable operations, sound credit quality and a strong capital position. The primary source of liquidity for
the Company is regularly scheduled payments on and maturity of assets, which include $6.3 billion of high-quality
securities available for sale. The liquidity of the Company and the Bank is also enhanced by its activity in the
federal funds market and by its core deposits. Additionally, management believes it can raise debt or equity capital
on favorable terms in the future, should the need arise.
Another factor affecting liquidity is the amount of deposits and customer repurchase agreements that have
pledging requirements. All customer repurchase agreements require collateral in the form of a security. The U.S.
Government, other public entities, and certain trust depositors require the Company to pledge securities if their
deposit balances are greater than the FDIC-insured deposit limitations. These pledging requirements affect liquidity
risk in that the related security cannot otherwise be disposed due to the pledging restriction. At December 31, 2017,
$5.7 billion, or 91.3 percent, of the securities available-for-sale were pledged or used as collateral, compared to $5.7
billion, or 88.6 percent, at December 31, 2016. However of these amounts, securities with a market value of $1.8
billion at both December 31, 2017 and December 31, 2016, were pledged at the Federal Reserve Discount Window
but were unencumbered as of those dates.
The Company also has other commercial commitments that may impact liquidity. These commitments
include unused commitments to extend credit, standby letters of credit and financial guarantees, and commercial
letters of credit. The total amount of these commercial commitments at December 31, 2017 was $10.0 billion.
Since many of these commitments expire without being drawn upon, the total amount of these commercial
commitments does not necessarily represent the future cash requirements of the Company.
The Company’s cash requirements consist primarily of dividends to shareholders, debt service, operating
expenses, and treasury stock purchases. Management fees and dividends received from bank and non-bank
subsidiaries traditionally have been sufficient to satisfy these requirements and are expected to be sufficient in the
future. The Bank is subject to various rules regarding payment of dividends to the Company. For the most part, the
Bank can pay dividends at least equal to its current year’s earnings without seeking prior regulatory approval. The
Company also uses cash to inject capital into the Bank and its non-Bank subsidiaries to maintain adequate capital as
well as to fund strategic initiatives.
To enhance general working capital needs, the Company has a revolving line of credit with Wells Fargo Bank,
N.A. which allows the Company to borrow up to $50.0 million for general working capital purposes. The interest
rate applied to borrowed balances will be at the Company’s option, either 1.00 percent above LIBOR or 1.75 percent
below the prime rate on the date of an advance. The Company pays a 0.3 percent unused commitment fee for
unused portions of the line of credit. The Company had no advances outstanding at December 31, 2017.
The Company is a member bank of the FHLB. The Company owns $10.0 million of FHLB stock and has
access to additional liquidity and funding sources through FHLB advances. The Company has access to borrow up
to $1.7 billion through advances at the FHLB of Des Moines, but had no outstanding FHLB Des Moines advances as
of December 31, 2017.
Operational Risk
Operational risk generally refers to the risk of loss resulting from the Company’s operations, including those
operations performed for the Company by third parties. This would include but is not limited to the risk of fraud by
employees or persons outside the Company, the execution of unauthorized transactions by employees or others,
errors relating to transaction processing, breaches of the internal control system and compliance requirements, and
unplanned interruptions in service. This risk of loss also includes the potential legal or regulatory actions that could
arise as a result of an operational deficiency, or as a result of noncompliance with applicable regulatory standards.
Included in the legal and regulatory issues with which the Company must comply are a number of rules resulting
from the enactment of the Sarbanes-Oxley Act of 2002, as amended.
52
The Company operates in many markets and relies on the ability of its employees and systems to properly
process a high number of transactions. In the event of a breakdown in internal control systems, improper operation
of systems or improper employee actions, the Company could suffer financial loss, face regulatory action and suffer
damage to its reputation. In order to address this risk, management maintains a system of internal controls with the
objective of providing proper transaction authorization and execution, safeguarding of assets from misuse or theft,
and ensuring the reliability of financial and other data.
The Company maintains systems of internal controls that provide management with timely and accurate
information about the Company’s operations. These systems have been designed to manage operational risk at
appropriate levels given the Company’s financial strength, the environment in which it operates, and considering
factors such as competition and regulation. The Company has also established procedures that are designed to
ensure that policies relating to conduct, ethics and business practices are followed on a uniform basis. In certain
cases, the Company has experienced losses from operational risk. Such losses have included the effects of
operational errors that the Company has discovered and included as expense in the statement of income. While
there can be no assurance that the Company will not suffer such losses in the future, management continually
monitors and works to improve its internal controls, systems and corporate-wide processes and procedures.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
UMB Financial Corporation and Subsidiaries:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of UMB Financial Corporation and subsidiaries (the
Company) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2017, and the related notes (collectively, the consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 22, 2018 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
Kansas City, Missouri
February 22, 2018
54
UMB FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share data)
ASSETS
Loans
Allowance for loan losses
Net loans
Loans held for sale
Securities:
Available for sale
Held to maturity (fair value of $1,207,447 and $1,106,027, respectively)
Trading securities
Other securities
Total investment securities
Federal funds sold and securities purchased under agreements to resell
Interest-bearing due from banks
Cash and due from banks
Premises and equipment, net
Accrued income
Goodwill
Other intangibles, net
Other assets
Discontinued Assets
Total assets
LIABILITIES
Deposits:
Noninterest-bearing demand
Interest-bearing demand and savings
Time deposits under $250,000
Time deposits of $250,000 or more
Total deposits
Federal funds purchased and repurchase agreements
Long-term debt
Accrued expenses and taxes
Other liabilities
Total liabilities
December 31,
2017
2016
$
11,280,513 $
(100,604)
11,179,909
1,460
6,258,577
1,261,014
54,055
65,897
7,639,543
191,601
1,351,760
392,723
275,942
98,863
180,867
20,257
438,658
—
$
21,771,583 $
$
6,839,171 $
9,903,565
547,990
732,274
18,023,000
1,260,704
79,281
191,464
35,603
19,590,052
10,540,383
(91,649)
10,448,734
5,279
6,466,334
1,115,932
39,536
68,306
7,690,108
324,327
715,823
422,117
289,007
99,045
180,867
26,630
425,205
55,390
20,682,532
6,654,584
8,780,309
613,589
522,132
16,570,614
1,856,937
76,772
172,967
42,858
18,720,148
SHAREHOLDERS’ EQUITY
Common stock, $1.00 par value; 80,000,000 shares authorized, 55,056,730
shares issued and 49,894,990 and 49,673,056 shares outstanding,
respectively
Capital surplus
Retained earnings
Accumulated other comprehensive loss, net
Treasury stock, 5,161,740 and 5,383,674 shares, at cost, respectively
Total shareholders' equity
Total liabilities and shareholders' equity
$
55,057
1,046,095
1,338,110
(45,525)
(212,206)
2,181,531
21,771,583 $
55,057
1,033,419
1,142,887
(57,542)
(211,437)
1,962,384
20,682,532
See Notes to Consolidated Financial Statements.
55
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share and per share data)
INTEREST INCOME
Loans
Securities:
Taxable interest
Tax-exempt interest
Total securities income
Federal funds and resell agreements
Interest-bearing due from banks
Trading securities
Total interest income
INTEREST EXPENSE
Deposits
Federal funds and repurchase agreements
Other
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Trust and securities processing
Trading and investment banking
Service charges on deposit accounts
Insurance fees and commissions
Brokerage fees
Bankcard fees
Gains on sales of securities available for sale, net
Equity (losses) earnings on alternative investments
Other
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Occupancy, net
Equipment
Supplies and services
Marketing and business development
Processing fees
Legal and consulting
Bankcard
Amortization of other intangible assets
Regulatory fees
Other
Total noninterest expense
Income before income taxes
Income tax expense
Income from continuing operations
Discontinued Operations
Income from discontinued operations before taxes
Income tax expense
Income from discontinued operations
NET INCOME
Year Ended December 31,
2016
2015
2017
$
461,301 $
386,274 $
308,325
75,327
43,598
118,925
697
2,356
378
430,681
14,269
1,785
2,560
18,614
412,067
15,500
396,567
166,261
20,218
86,460
2,530
11,753
69,211
10,402
(12,188)
16,012
370,659
367,606
43,274
62,571
17,988
21,996
36,149
26,186
20,288
8,171
12,125
22,584
638,938
128,288
31,730
96,558
30,997
11,482
19,515
116,073
73,125
73,419
146,544
3,700
3,871
1,496
616,912
36,354
17,906
3,739
57,999
558,913
41,000
517,913
176,646
23,183
87,680
1,972
23,208
73,030
4,192
(1,108)
34,759
423,562
413,830
44,462
72,008
17,173
21,469
42,331
23,406
19,471
7,326
15,527
28,126
705,129
236,346
53,370
182,976
73,560
57,516
131,076
2,708
2,341
632
523,031
17,936
6,524
3,248
27,708
495,323
32,500
462,823
166,315
21,422
86,662
4,188
17,833
68,749
8,509
2,695
26,138
402,511
390,059
44,255
66,337
18,535
21,208
36,005
20,801
20,757
8,695
14,178
25,915
666,745
198,589
44,955
153,634
101,226
37,097
64,129
247,105 $
8,415
3,248
5,167
158,801 $
$
56
PER SHARE DATA
Basic:
Income from continuing operations
Income from discontinued operations
Net income – basic
Diluted:
Income from continuing operations
Income from discontinued operations
Net income - diluted
Weighted average shares outstanding – basic
Weighted average shares outstanding – diluted
See Notes to Consolidated Financial Statements.
$
3.72 $
1.30
5.02
3.15 $
0.10
3.25
2.05
0.41
2.46
3.67
1.29
4.96
49,223,661
49,839,290
3.12
0.10
3.22
48,828,313
49,277,055
2.03
0.41
2.44
47,126,252
47,579,334
57
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Net income
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Year Ended December 31,
2016
158,801 $
2017
247,105 $
2015
116,073
$
Change in unrealized holding gains (losses), net
Less: Reclassifications adjustment for net gains included
in net income
Change in unrealized gains (losses) on securities during the period
Change in unrealized losses on derivative hedges
Income tax (expense) benefit
Other comprehensive income (loss)
Comprehensive income
$
21,139
(77,794)
(13,393)
(4,192)
16,947
(1,050)
(3,880)
12,017
259,122 $
(8,509)
(86,303)
(516)
32,995
(53,824)
104,977 $
(10,402)
(23,795)
(10)
9,081
(14,724)
101,349
See Notes to Consolidated Financial Statements.
58
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
Accumulated
Other
Comprehensive
Income (Loss)
Balance January 1, 2015
Total comprehensive income
Dividends ($0.95 per share)
Purchase of treasury stock
Issuance of equity awards
Recognition of equity based compensation
Net tax benefit related to equity compensation
plans
Sale of treasury stock
Exercise of stock options
Common stock issuance for acquisition
Balance December 31, 2015
Total comprehensive income
Dividends ($0.99 per share)
Purchase of treasury stock
Issuance of equity awards
Recognition of equity based compensation
Sale of treasury stock
Exercise of stock options
Cumulative effect adjustment (1)
Balance December 31, 2016
Total comprehensive income
Dividends ($1.04 per share)
Purchase of treasury stock
Issuance of equity awards
Recognition of equity based compensation
Sale of treasury stock
Exercise of stock options
Balance December 31, 2017
Common
Stock
Retained
Capital
Earnings
Surplus
$ 55,057 $ 894,602 $ 963,911 $
116,073
(45,994)
—
—
—
—
—
(3,278)
10,292
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,011)
11,306
480
3,417
1,338
—
944
—
611
—
4,083
—
112,635
$ 55,057 $1,019,889 $1,033,990 $
158,801
(49,048)
—
—
—
—
—
(856)
$ 55,057 $1,033,419 $1,142,887 $
247,105
(51,882)
—
—
—
—
—
$ 55,057 $1,046,095 $1,338,110 $
—
—
—
(2,871)
12,844
608
2,095
—
—
—
—
—
—
—
Treasury
Stock Total
11,006 $(280,818) $1,643,758
101,349
(14,724)
(45,994)
—
(8,457)
—
459
—
10,292
—
—
—
(8,457)
3,737
—
—
—
—
—
—
—
(16,367)
3,440
—
616
12,398
—
944
—
1,056
445
10,550
6,467
179,737
67,102
(3,718) $(211,524) $1,893,694
104,977
(53,824)
(49,048)
—
(16,367)
—
429
—
11,306
—
1,096
—
15,815
—
482
—
(57,542) $(211,437) $1,962,384
259,122
12,017
—
(51,882)
—
—
(15,276)
—
(15,276)
472
—
3,343
12,844
—
—
1,120
—
512
12,747
—
10,652
(45,525) $(212,206) $2,181,531
(1) Related to the adoption of Accounting Standards Update No. 2016-09. See Note 2, New Accounting
Pronouncements, for further detail.
See Notes to Consolidated Financial Statements.
59
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
2017
Year Ended December 31,
2016
2015
$
247,105 $
158,801 $
116,073
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Net accretion of premiums and discounts from acquisition
Depreciation and amortization
Deferred income tax expense (benefit)
Net (increase) decrease in trading securities and other earning assets
Gains on sales of securities available for sale, net
Gains on sales of assets
Amortization of securities premiums, net of discount accretion
Originations of loans held for sale
Gains on sales of loans held for sale, net
Proceeds from sales of loans held for sale
Equity based compensation
Net tax benefit related to equity compensation plans
Changes in:
Accrued income
Accrued expenses and taxes
Other assets and liabilities, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity
Proceeds from sales of securities available for sale
Proceeds from maturities of securities available for sale
Purchases of securities held to maturity
Purchases of securities available for sale
Net increase in loans
Net decrease (increase) in fed funds sold and resell agreements
Net cash activity from acquisitions and divestitures
Net decrease in interest bearing balances due from other financial institutions
Purchases of premises and equipment
Proceeds from sales of premises and equipment
Purchases of bank-owned and company-owned life insurance
Proceeds from bank-owned life insurance death benefit
Net cash used in investing activities
FINANCING ACTIVITIES
Net increase in demand and savings deposits
Net increase (decrease) in time deposits
Net (decrease) increase in fed funds purchased and repurchase agreements
Net decrease in short-term debt
Proceeds from long-term debt
Repayment of long-term debt
Payment of contingent consideration on acquisitions
Cash dividends paid
Proceeds from exercise of stock options and sales of treasury shares
Purchases of treasury stock
Net cash provided by financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures:
Income taxes paid
Total interest paid
Transactions related to Marquette acquisition
Assets acquired
Liabilities assumed
See Notes to Consolidated Financial Statements.
$
$
60
41,000
(1,906)
54,875
59,738
(10,805)
(4,192)
(103,346)
48,101
(65,163)
(1,561)
70,543
13,316
3,612
(9,201)
(40,806)
25,216
326,526
87,595
578,517
1,198,834
(236,832)
(1,585,395)
(770,727)
132,726
164,561
45,752
(36,447)
3,037
(62,800)
2,601
(478,578)
32,500
(2,303)
54,556
2,756
(12,420)
(8,509)
(762)
54,467
(92,438)
(1,774)
89,522
11,735
1,073
(8,918)
14,112
4,042
296,440
48,539
951,264
1,792,357
(500,682)
(2,546,028)
(1,129,026)
(150,700)
—
88,009
(50,841)
1,760
(7,095)
—
(1,502,443)
1,307,843
144,543
(596,233)
—
3,003
(1,524)
—
(51,876)
13,867
(15,276)
804,347
652,295
1,063,967
1,716,262 $
1,598,026
(119,315)
38,875
(5,000)
1,500
(11,703)
(3,031)
(49,038)
16,911
(16,367)
1,450,858
244,855
819,112
1,063,967 $
15,500
(2,727)
52,751
(4,848)
10,258
(10,402)
(98)
57,301
(96,324)
(1,331)
97,690
10,751
944
(7,075)
(4,503)
(22,055)
211,905
59,775
946,045
1,200,178
(451,350)
(1,923,747)
(988,434)
(45,190)
95,351
34,473
(53,760)
1,069
(204,647)
—
(1,330,237)
894,667
(352,622)
(207,070)
(112,133)
2,500
(10,816)
(21,494)
(45,967)
11,606
(8,457)
150,214
(968,118)
1,787,230
819,112
45,749 $
56,820
44,076 $
27,999
47,086
17,812
—
—
—
—
1,312,174
1,151,025
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UMB Financial Corporation is a bank 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, Minnesota, California,
and Wisconsin. The preparation of consolidated financial statements in conformity with GAAP 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 consolidated financial statements. These estimates
and assumptions also impact reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Following is a summary of the more significant accounting policies to assist the
reader in understanding the financial presentation.
Consolidation
The Company and its wholly owned subsidiaries are included in the Consolidated Financial Statements
(references hereinafter to the “Company” in these Notes to Consolidated Financial Statements include wholly owned
subsidiaries). Intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition
Interest on loans and securities is recognized based on rate times the principal amount outstanding. This
includes the impact of amortization of premiums and discounts. Interest accrual is discontinued when, in the
opinion of management, the likelihood of collection becomes doubtful. Other noninterest income is recognized as
services are performed or revenue-generating transactions are executed.
Cash and cash equivalents
Cash and cash equivalents include Cash and due from banks and amounts due from the FRB. Cash on hand,
cash items in the process of collection, and amounts due from correspondent banks are included in Cash and due
from banks. Amounts due from the FRB are interest-bearing for all periods presented and are included in the
Interest-bearing due from banks line on the Company’s Consolidated Balance Sheets.
This table provides a summary of cash and cash equivalents as presented on the Consolidated Statements of
Cash Flows as of December 31, 2017 and 2016 (in thousands):
Due from the FRB
Cash and due from banks
Cash and cash equivalents at end of year
December 31,
2017
2016
$ 1,323,539 $ 641,850
422,117
$ 1,716,262 $ 1,063,967
392,723
Also included in the Interest-bearing due from banks line, but not considered cash and cash equivalents are
interest-bearing accounts held at other financial institutions, which totaled $28.2 million and $74.0 million at
December 31, 2017 and 2016, respectively.
Loans and Loans Held for Sale
Loans are classified by the portfolio segments of commercial, real estate, consumer, and leases. The portfolio
segments are further disaggregated into the loan classes of commercial, asset-based, factoring, commercial credit
card, real estate – construction, real estate – commercial, real estate – residential, real estate – HELOC, consumer –
credit card, consumer – other, and leases.
A loan is considered to be impaired when management believes it is probable that it will be unable to collect
all principal and interest due according to the contractual terms of the loan. If a loan is impaired, the Company
records a valuation allowance equal to the carrying amount of the loan in excess of the present value of the
estimated future cash flows discounted at the loan’s effective rate, based on the loan’s observable market price or the
fair value of the collateral if the loan is collateral dependent.
61
A loan is accounted for as a troubled debt restructuring when a concession had been granted to a debtor
experiencing financial difficulties. The Company’s modifications generally include interest rate adjustments, and
amortization and maturity date extensions. These modifications allow the debtor short-term cash relief to allow
them to improve their financial condition. Restructured loans are individually evaluated for impairment as part of
the allowance for loan loss analysis.
Loans, including those that are considered to be impaired and restructured, are evaluated regularly by
management. Loans are considered delinquent when payment has not been received within 30 days of its
contractual due date. Loans are placed on non-accrual status when the collection of interest or principal is 90 days
or more past due, unless the loan is adequately secured and in the process of collection. When a loan is placed on
non-accrual status, any interest previously accrued but not collected is reversed against current income. Loans may
be returned to accrual status when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured. Interest payments received on non-accrual loans are applied to principal
unless the remaining principal balance has been determined to be fully collectible.
The adequacy of the allowance for loan losses is based on management’s continuing evaluation of the
pertinent factors underlying the quality of the loan portfolio, including actual loan loss experience, current economic
conditions, detailed analysis of individual loans for which full collectability may not be assured, determination of
the existence and realizable value of the collateral and guarantees securing such loans. The actual losses,
notwithstanding such considerations, however, could differ from the amounts estimated by management.
The Company maintains a reserve, separate from the allowance for loan losses, to address the risk of loss
associated with loan contingencies, which is included in the Accrued expenses and taxes line item in the
Consolidated Balance Sheets. In order to maintain the reserve for off-balance sheet items at an appropriate level, a
provision to increase or reduce the reserve is included in the Company’s Consolidated Statements of Income. The
level of the reserve will be adjusted as needed to maintain the reserve at a specified level in relation to contingent
loan risk. The risk of loss arising from un-funded loan commitments has been assessed by dividing the
contingencies into pools of similar loan commitments and by applying two factors to each pool. The gross amount
of contingent exposure is first multiplied by a potential use factor to estimate the degree to which the unused
commitments might reasonably be expected to be used in a time of high usage. The resultant figure is then
multiplied by a factor to estimate the risk of loss assuming funding of these loans. The potential loss estimates for
each segment of the portfolio are added to arrive at a total potential loss estimate that is used to set the reserve.
Purchased loans are recorded at estimated fair value at the acquisition date with no carryover of the related
allowance. Purchased loans are segregated between those considered to be performing, non-purchased credit
impaired loans (Non-PCI), and those with evidence of credit deterioration, purchased credit impaired loans (PCI).
Purchased loans are considered impaired if there is evidence of credit deterioration and if it is probable, at
acquisition, that all contractually required payments will not be collected.
Loans held for sale are carried at the lower of aggregate cost or market value. Loan fees (net of certain direct
loan origination costs) on loans held for sale are deferred until the related loans are sold or repaid. Gains or losses on
loan sales are recognized at the time of sale and determined using the specific identification method.
Securities
Debt securities available for sale principally include U.S. Treasury and agency securities, Government
Sponsored Entity (GSE) mortgage-backed securities, certain securities of state and political subdivisions, and
corporates. Securities classified as available for sale are measured at fair value. Unrealized holding gains and losses
are excluded from earnings and reported in Accumulated other comprehensive income (loss) (AOCI) until realized.
Realized gains and losses on sales are computed by the specific identification method at the time of disposition and
are shown separately as a component of noninterest income.
Securities held to maturity are carried at amortized historical cost based on management’s intention, and the
Company’s ability to hold them to maturity. The Company classifies certain securities of state and political
subdivisions as held to maturity.
Trading securities, acquired for subsequent sale to customers, are carried at fair value. Market adjustments,
fees and gains or losses on the sale of trading securities are considered to be a normal part of operations and are
included in trading and investment banking income.
62
Equity-method investments
The Company accounts for certain other investments using equity-method accounting. For non-marketable
equity-method investments, the Company’s proportionate share of the income or loss is recognized on a one-quarter
lag. When transparency in pricing exists, other investments are considered marketable equity-method investments.
For marketable equity-method investments, the Company recognizes its proportionate share of income or loss as of
the date of the Company’s Consolidated Financial Statements.
Goodwill and Other Intangibles
Goodwill is tested for impairment annually and more frequently whenever events or changes in circumstances
indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. To test
goodwill for impairment, the Company performs a qualitative assessment of each reporting unit. If the Company
determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not greater
than the carrying amount, the quantitative impairment test is not required. Otherwise, the Company compares the
fair value of its reporting units to their carrying amounts to determine if an impairment exists and the amount of
impairment loss. An impairment loss is measured as the excess of the carrying value of a reporting unit’s goodwill
over its fair value. As a result of such impairment analysis, the Company has not recognized an impairment charge.
No goodwill impairments were recognized in 2017, 2016, or 2015. Other intangible assets are amortized over
a period of up to 17 years and are evaluated for impairment when events or circumstances dictate. No intangible
asset impairments were recognized in 2017, 2016, or 2015. The Company does not have any indefinite lived
intangible assets.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation, which is computed primarily on the
straight line method. Premises are depreciated over 15 to 40 year lives, while equipment is depreciated over lives of
3 to 20 years. Gains and losses from the sale of Premises and equipment are included in Other noninterest income
and Other noninterest expense, respectively.
Impairment of Long-Lived Assets
Long-lived assets, including Premises and equipment, are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset or group of assets may not be recoverable. The
impairment review includes a comparison of future cash flows expected to be generated by the asset or group of
assets to their current carrying value. If the carrying value of the asset or group of assets exceeds expected cash
flows (undiscounted and without interest charges), an impairment loss is recognized to the extent the carrying value
exceeds fair value. No impairments were recognized in 2017, 2016, or 2015.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements. Under this method, deferred tax assets and liabilities are measured based on the differences
between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the periods
in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment date. The provision for deferred income
taxes represents the change in the deferred income tax accounts during the year excluding the tax effect of the
change in net unrealized gain (loss) on securities available for sale.
The Company records deferred tax assets to the extent these assets will more likely than not be realized. All
available evidence is considered in making such determination, including future reversals of existing taxable
temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A
valuation allowance is recorded for the portion of deferred tax assets that do not meet the more-likely-than-not
threshold, and any changes to the valuation allowance are recorded in income tax expense.
The Company records the financial statement effects of an income tax position when it is more likely than not,
based on the technical merits, that it will be sustained upon examination. A tax position that meets the more-likely-
63
than-not recognition threshold is measured and recorded as the largest amount of tax benefit that is greater than 50
percent likely of being realized upon ultimate settlement with a taxing authority. Previously recognized tax positions
are derecognized in the first period in which it is no longer more likely than not that the tax position will be
sustained. The benefit associated with previously unrecognized tax positions are generally recognized in the first
period in which the more-likely-than-not threshold is met at the reporting date, the tax matter is ultimately settled
through negotiation or litigation or when the related statute of limitations for the relevant taxing authority to
examine and challenge the tax position has expired. The recognition, derecognition and measurement of tax
positions are based on management’s best judgment given the facts, circumstance and information available at the
balance sheet date.
The Company recognizes accrued interest related to unrecognized tax benefits in interest expense and
penalties in other noninterest expense. Accrued interest and penalties are included within the related liability lines
in the Consolidated Balance Sheets. For the year ended December 31, 2017, the Company has recognized an
immaterial amount in interest and penalties related to the unrecognized tax benefits.
Derivatives
The Company records all derivatives on the Consolidated Balance Sheets at fair value. The accounting for
changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has
elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging
relationship has satisfied the criteria necessary to apply hedge accounting. Currently, four of the Company’s
derivatives are designated in qualifying hedging relationships. However, the remainder of the Company’s
derivatives are not designated in qualifying hedging relationships, as the derivatives are not used to manage risks
within the Company’s assets or liabilities. All changes in fair value of the Company’s non-designated derivatives are
recognized directly in earnings. Changes in fair value of the Company’s fair value hedges are recognized directly in
earnings. The effective portion of changes in fair value of the Company’s cash flow hedges are recognized in
AOCI. The ineffective portion of changes in fair value of the cash flow hedges is recognized directly in earnings.
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 year-to-date income per share includes the dilutive effect of 615,629,
448,742, and 453,082 shares issuable upon the exercise of stock options and nonvested restricted shares granted by
the Company that were outstanding at December 31, 2017, 2016, and 2015, respectively.
Options issued under employee benefit plans to purchase 149,413, 390,503, and 455,998 shares of common
stock were outstanding at December 31, 2017, 2016, and 2015, respectively, but were not included in the
computation of diluted earnings per share because the options were anti-dilutive.
Accounting for Stock-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity
instruments based on the fair value of the award on the date of the grant. The grant date fair value is estimated using
either an option-pricing model which is consistent with the terms of the award or an observed market price, if such a
price exists. Such cost is generally recognized over the vesting period during which an employee is required to
provide service in exchange for the award and, in some cases, when performance metrics are met. The Company
accounts for forfeitures of stock-based compensation on an actual basis as they occur.
2. NEW ACCOUNTING PRONOUNCEMENTS
Revenue Recognition In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09,
“Revenue from Contracts with Customers.” The ASU will replace most existing revenue recognition guidance in
U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, which deferred the
effective date of ASU No. 2014-09 to annual reporting periods that begin after December 15, 2017. In March,
April, and May 2016, the FASB issued implementation amendments to the May 2014 ASU (collectively, the
amended guidance). The amended guidance affects any entity that enters into contracts with customers to transfer
goods and services, unless those contracts are within the scope of other standards. The amended guidance
specifically excludes interest income, as well as other revenues associated with financial assets and liabilities,
including loans, leases, securities, and derivatives. The amended guidance permits the use of either the full
64
retrospective approach or a modified retrospective approach. The Company plans to adopt the amended guidance
using the modified retrospective approach on January 1, 2018. The Company has assessed its revenue streams and
identified those contracts that are specifically excluded from the scope of the amended guidance and those that may
be subject to the amended guidance. Subsequent to this initial scoping, the Company selected a representative
sample of contracts from the in-scope revenue streams for review under the amended guidance (key contracts).
Upon completion of the review of the key contracts, the Company grouped the remaining contracts based on the
conclusions reached through the key contract review and evaluated specific contracts that could not be grouped.
Based on the evaluation of key contracts performed, the adoption of this accounting pronouncement is not expected
to have a significant impact on the Company’s Consolidated Financial Statements. The Company continues to
evaluate the impact the amended guidance will have on its related disclosures.
Financial Instruments In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of
Financial Assets and Financial Liabilities.” The amendment is intended to address certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. The amendments in this update are effective for
interim and annual periods beginning after December 15, 2017. The standard requires the use of the cumulative
effect transition method as of the beginning of the year of adoption. Except for certain provisions, early adoption is
not permitted. The adoption of this accounting pronouncement is not expected to have a significant impact on the
Company’s Consolidated Financial Statements.
Leases In February 2016, the FASB issued ASU No. 2016-02, “Leases.” The amendment changes the accounting
treatment of leases, in that lessees will recognize most leases on-balance sheet. This will increase reported assets and
liabilities, as lessees will be required to recognize a right-of-use asset along with a lease liability, measured on a
discounted basis. Lessees are allowed to account for short-term leases (those with a term of twelve months or less)
off-balance sheet. The amendments in this update are effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. The standard requires the use of the modified retrospective
transition method. Early adoption is permitted. The Company is currently evaluating the impact that this standard
will have on its Consolidated Financial Statements.
Extinguishments of Liabilities In March 2016, the FASB issued ASU No. 2016-04, “Recognition of Breakage for
Certain Prepaid Stored-Value Products.” The amendment is intended to reduce the diversity in practice related to the
recognition of breakage. Breakage refers to the portion of a prepaid stored-value product, such as a gift card, that
goes unused wholly or partially for an indefinite period of time. This amendment requires that breakage be
accounted for consistent with the breakage guidance within ASU No. 2014-09, “Revenue from Contracts with
Customers.” The amendments in this update are effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The standard permits the use of either the modified retrospective
or full retrospective transition method. The Company will adopt ASU No. 2016-04 in conjunction with its adoption
of ASU No. 2014-09. The adoption of this accounting pronouncement is not expected to have a significant impact
on the Company’s Consolidated Financial Statements.
Equity-Based Compensation In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee
Share-Based Payment Accounting.” The amendment is part of the FASB’s simplification initiative and is intended
to simplify the accounting around share-based payment award transactions. The amendments include changing the
recording of excess tax benefits from being recognized as a part of surplus capital to being charged directly to the
income statement, changing the classification of excess tax benefits within the statement of cash flows, and allowing
companies to account for forfeitures on an actual basis, as well as tax withholding changes. The amendment requires
different transition methods for various components of the standard. The amendments in this update were effective
for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early
adoption was permitted.
In September 2016, the Company early adopted ASU No. 2016-09 with an effective date of January 1, 2016. As part
of the adoption of this standard, the Company made an accounting policy election to account for forfeitures on an
actual basis and discontinue the use of an estimated forfeiture approach. Additionally, the Company selected the
retrospective transition method for the reclassification of the “Net tax benefit related to equity compensation plans”
from the financing section to the operating section of the Company’s Consolidated Statement of Cash Flows. Upon
adoption, the Company recorded a cumulative effect adjustment to the Company’s Consolidated Balance Sheets of
$482 thousand as an increase to the opening balance of total equity.
Credit Losses In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial
Instruments.” This update replaces the current incurred loss methodology for recognizing credit losses with a current
65
expected credit loss model, which requires the measurement of all expected credit losses for financial assets held at
the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This
amendment broadens the information that an entity must consider in developing its expected credit loss estimates.
Additionally, the update amends the accounting for credit losses for available-for-sale debt securities and purchased
financial assets with a more-than-insignificant amount of credit deterioration since origination. This update requires
enhanced disclosures to help investors and other financial statement users better understand significant estimates and
judgments used in estimating credit losses, as well as the credit quality and underwriting standards of a company’s
loan portfolio. The amendments in this update are effective for fiscal years beginning after December 15, 2019,
including interim periods within those fiscal years. Early adoption in fiscal years beginning after December 15,
2018 is permitted. The amendment requires the use of the modified retrospective approach for adoption. The
Company is currently evaluating the impact that this standard will have on its Consolidated Financial Statements.
Statement of Cash Flows In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Receipts and
Cash Payments.” This amendment adds to and clarifies existing guidance regarding the classification of certain cash
receipts and payments in the statement of cash flows with the intent of reducing diversity in practice with respect to
eight types of cash flows. The amendments in this update require full retrospective adoption and are effective for
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of
this standard is not expected to have a significant impact on the Company’s Consolidated Statement of Cash Flows.
Goodwill and Other Intangibles In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for
Goodwill Impairment.” The amendment eliminates Step 2 from the goodwill impairment test. The amendment also
eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative
test and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this
update were adopted on October 1, 2017. The adoption of this accounting pronouncement had no impact on the
Company’s Consolidated Financial Statements.
Derivatives and Hedging In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting
for Hedging Activities.” The purpose of this updated guidance is to better align financial reporting for hedging
activities with the economic objectives of those activities. The amendments in this update are effective for fiscal
years beginning after December 15, 2018, with early adoption, including adoption in an interim period,
permitted. The standard requires the modified retrospective transition approach as of the date of adoption. The
Company plans to early adopt ASU 2017-12 as of January 1, 2018. While the Company continues to assess all
potential impacts of the standard, we currently expect adoption to have an immaterial impact on the Consolidated
Financial Statements.
3. 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. Authority levels are established for the extension of credit to ensure consistency throughout
the Company. It is necessary that policies, processes and practices implemented to control the risks of individual
credit transactions and portfolio segments are sound and adhered to. The Company maintains an independent loan
review department that reviews and validates the credit risk program 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 Company’s policies and procedures.
Commercial loans are underwritten after evaluating and understanding the borrower’s 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 borrower’s cash flow, available business capital, and overall credit-
worthiness of the borrower.
66
Asset-based loans are offered primarily in the form of revolving lines of credit to commercial borrowers that
do not generally qualify for traditional bank financing. Asset-based loans are underwritten based primarily upon the
value of the collateral pledged to secure the loan, rather than on the borrower’s general financial condition as
traditionally reflected by cash flow, balance sheet strength, operating results, and credit bureau ratings. The
Company utilizes pre-loan due diligence techniques, monitoring disciplines, and loan management practices
common within the asset-based lending industry to underwrite and manage loans with these borrowers.
Factoring loans provide working capital through the purchase and/or financing of accounts receivable to
borrowers in the transportation industry and to commercial borrowers that do not generally qualify for traditional
bank financing.
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, 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 borrower’s loan-to-
value percentage, collection remedies, and overall credit history.
Consumer loans are underwritten based on the borrower’s 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.
Credit risk is a potential loss resulting from nonpayment of either the primary or secondary exposure. Credit
risk is mitigated with formal risk management practices and a thorough initial credit-granting process including
consistent underwriting standards and approval process. Control factors or techniques to minimize credit risk
include knowing the client, understanding total exposure, analyzing the client and debtor’s financial capacity, and
monitoring the client’s activities. Credit risk and portions of the portfolio risk are managed through concentration
considerations, average risk ratings, and other aggregate characteristics.
67
Loan Aging Analysis
This table provides a summary of loan classes and an aging of past due loans at December 31, 2017 and 2016
(in thousands):
December 31, 2017
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
Asset-based
Factoring
Commercial – credit card
Real estate:
Real estate – construction
Real estate – commercial
Real estate – residential
Real estate – HELOC
Consumer:
Consumer – credit card
Consumer – other
Leases
Total loans
Commercial:
Commercial
Asset-based
Factoring
Commercial – credit card
Real estate:
Real estate – construction
Real estate – commercial
Real estate – residential
Real estate – HELOC
Consumer:
Consumer – credit card
Consumer – other
Leases
Total loans
$ 11,216 $
—
—
387
6,666
832
791
1,254
2,155
835
—
$ 24,136 $
672 $ 38,644 $ 50,532 $ 4,502,508 $ 4,553,040
336,614
—
221,672
—
172,291
79
336,614
221,672
171,825
—
—
466
—
—
—
243
93
7,002
717,849
— 16,115 16,947 3,546,683 3,563,630
638,591
—
648,379
—
636,871
644,112
929
3,013
1,720
4,267
710,847
2,057
40
—
252,697
4,524
151,783
911
23,967
—
3,091 $ 59,142 $ 86,369 $11,194,144 $11,280,513
248,173
150,872
23,967
312
36
—
December 31, 2016
30-89
Days Past
Due and
Accruing
Greater
than 90
Days Past
Due and
Accruing
Non-
Accrual
Loans
Total
Past Due
PCI
Loans
Current
Total
Loans
$
3,285 $
—
—
612
3
1,303
1,034
588
49 $ 35,777 $ 39,111 $
—
—
—
—
—
—
630
8
10
— $ 4,371,695 $ 4,410,806
225,878
—
139,902
—
146,735
—
225,878
139,902
146,105
—
184
181
1,004 16,423 18,730
2,384
1,344
5,324
4,736
6
—
—
741,620
741,804
3,147,192 3,165,922
548,350
711,794
545,966
706,470
—
—
2,228
1,061
—
$ 10,114 $
2,115
4,818
475
181 11,315 12,557
—
—
—
3,365 $ 70,259 $ 83,738 $
270,098
265,280
—
139,562
126,205
800
39,532
39,532
—
800 $10,455,845 $10,540,383
Loans are considered past due or delinquent when the contractual principal or interest due in accordance with
the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Non-accrual loans
include troubled debt restructurings on non-accrual status. Loan delinquency for all loans is shown in the tables
above at December 31, 2017 and December 31, 2016, respectively.
The Company had total PCI loans from its acquisition of Marquette of $800 thousand as of December 31,
2016. The PCI loans are accounted for in accordance with ASC Topic 310-30, Loans and Debt Securities Purchased
68
with Deteriorated Credit Quality. All of the PCI loans were considered to be performing based on payment activity
as of December 31, 2016. Of this amount, $713 thousand were current with their payment terms and $87 thousand
were between 30-89 days past due.
The Company sold residential real estate loans with proceeds of $70.5 million, $89.5 million, and $97.7
million in the secondary market without recourse during the periods ended December 31, 2017, 2016, and 2015,
respectively.
The Company has ceased the recognition of interest on loans with a carrying value of $59.1 million and $70.3
million at December 31, 2017 and 2016, respectively. Restructured loans totaled $41.0 million and $52.5 million at
December 31, 2017 and 2016, respectively. Loans 90 days past due and still accruing interest amounted to $3.1
million and $3.4 million at December 31, 2017 and 2016, respectively. There was an immaterial amount of interest
recognized on impaired loans during 2017, 2016, and 2015.
Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Company’s 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. A description of the general characteristics of the loan ranking
categories is as follows:
(cid:129) 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
Borrower’s industry or the economic environment. These conditions have resulted in some degree of
uncertainty that results in higher than average credit risk.
(cid:129)
(cid:129)
Special Mention – This rating reflects a potential weakness that deserves management’s close attention.
If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for
the asset or the institution’s 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 current sound 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 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.
69
This table provides an analysis of the credit risk profile of each loan class excluded from ASC 310-30, Loans
and Debt Securities Purchased with Deteriorated Credit Quality, at December 31, 2017 and December 31, 2016 (in
thousands):
Credit Exposure
Credit Risk Profile by Risk Rating
Originated and Non-PCI Loans
Commercial
Asset-based
Factoring
Non-watch list
Watch
Special Mention
Substandard
Total
Non-watch list
Watch
Special Mention
Substandard
Total
December 31,
2017
December 31,
2016
$ 4,048,238 $ 4,043,704 $
99,815
32,240
235,047
$ 4,553,040 $ 4,410,806 $
162,788
106,638
235,376
December 31,
2017
306,899 $
—
29,715
—
336,614 $
December 31,
2016
198,695 $
—
24,809
2,374
225,878 $
December 31,
2017
220,795 $
—
47
830
221,672 $
December 31,
2016
139,358
—
129
415
139,902
$
December 31,
2017
Real estate – commercial
Real estate – construction
December 31,
2017
716,830 $
631
—
388
717,849 $
December 31,
2016
741,022 $ 3,434,982 $ 3,071,804
43,015
5,140
45,963
741,804 $ 3,563,630 $ 3,165,922
50,715
35,940
41,993
December 31,
2016
149
—
633
$
Credit Exposure
Credit Risk Profile Based on Payment Activity
Originated and Non-PCI Loans
Performing
Non-performing
Total
Performing
Non-performing
Total
Commercial – credit card Real estate – residential
December 31,
2017
172,291 $
—
172,291 $
December 31,
2016
146,727 $
8
146,735 $
December 31,
2017
637,662 $
929
638,591 $
December 31,
2016
547,006 $
1,344
548,350 $
Real estate – HELOC
December 31,
2017
645,366 $
3,013
648,379 $
December 31,
2016
707,058
4,736
711,794
$
$
Consumer – other
Leases
Consumer – credit card
December 31,
December 31,
2016
2017
269,623 $
252,385 $
475
312
270,098 $
252,697 $
$
$
December 31,
2017
151,747 $
36
151,783 $
December 31,
2016
127,447 $
11,315
138,762 $
December 31,
2017
December 31,
2016
23,967 $
—
23,967 $
39,532
—
39,532
Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense,
which represents management’s judgment of inherent probable losses within the Company’s 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 Company’s 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.
70
The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific
credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory
conditions and unidentified 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 management’s 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 Company’s control, including, among other things, the
performance of the Company’s loan portfolio, the economy, changes in interest rates and changes in the regulatory
environment.
The Company’s 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 obligor’s 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 borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk ranking of the loan
and economic conditions affecting the borrower’s 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 Company’s
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.
Generally, the unsecured portion of a commercial or commercial real estate loan is charged-off when, after
analyzing the borrower’s financial condition, it is determined that the borrower is incapable of servicing the
debt, little or no prospect for near term improvement exists, and no realistic and significant strengthening action is
pending. For collateral dependent commercial or commercial real estate loans, an analysis is completed regarding
the Company’s collateral position to determine if the amounts due from the borrower are in excess of the calculated
current fair value of the collateral. Specific allocations of the allowance for loan losses are made for any collateral
deficiency. If a collateral deficiency is ultimately deemed to be uncollectible, the amount is charged-off. Revolving
commercial loans (such as commercial credit cards) which are past due 90 cumulative days are classified as a loss
and charged off.
Generally, a consumer loan, or a portion thereof, is charged-off in accordance with regulatory guidelines
which provide that such loans be charged-off when the Company becomes aware of the loss, such as from a
triggering event that may include but is not limited to new information about a borrower’s intent and ability to repay
the loan, bankruptcy, fraud, or death. However, the charge-off timeframe should not exceed the specified
delinquency time frames, which state that closed-end retail loans (such as real estate mortgages, home equity loans
and consumer installment loans) that become past due 120 cumulative days and open-end retail loans (such as home
equity lines of credit and consumer credit cards) that become past due 180 cumulative days are classified as a loss
and charged-off.
71
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 year ended
December 31, 2017 (in thousands):
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending Balance
Ending Balance: individually evaluated for
impairment
Ending Balance: collectively evaluated for
impairment
Loans:
Ending Balance: loans
Ending Balance: individually evaluated for
impairment
Ending Balance: collectively evaluated for
impairment
Year Ended December 31, 2017
Commercial Real estate Consumer Leases
Total
$
$
$
71,657 $
(27,985)
3,522
33,962
81,156 $
9,311 $
10,569 $
(9,629)
(992)
2,073
966
(1,231)
8,328
9,312 $ 10,083 $
112 $
—
—
(59)
53 $
91,649
(38,606)
6,561
41,000
100,604
6,605 $
78 $
— $
— $
6,683
74,551
9,234
10,083
53
93,921
$ 5,283,617 $5,568,449 $ 404,480 $ 23,967 $11,280,513
61,820
12,956
—
—
74,776
5,221,797 5,555,493 404,480
23,967 11,205,737
This table provides a rollforward of the allowance for loan losses by portfolio segment for the year ended
December 31, 2016 (in thousands):
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending Balance
Ending Balance: individually evaluated for
impairment
Ending Balance: collectively evaluated for
impairment
Ending Balance: PCI Loans
Loans:
Ending Balance: loans
Ending Balance: individually evaluated for
impairment
Ending Balance: collectively evaluated for
impairment
Ending Balance: PCI Loans
Year Ended December 31, 2016
Commercial Real estate Consumer Leases
Total
$
$
$
63,847 $
(12,788)
3,596
17,002
71,657 $
8,220 $
(6,756)
985
8,120
10,569 $
8,949 $
(9,279)
2,248
7,393
9,311 $
127 $
—
—
(15)
112 $
81,143
(28,823)
6,829
32,500
91,649
7,866 $
68 $
— $
— $
7,934
63,791
—
10,501
—
9,311
—
112
—
83,715
—
$ 4,923,321 $5,167,870 $ 409,660 $ 39,532 $10,540,383
74,351
13,314
—
—
87,665
4,848,970 5,154,556 408,860
800
—
—
39,532 10,451,918
800
—
72
This table provides a rollforward of the allowance for loan losses by portfolio segment for the year ended
December 31, 2015 (in thousands):
Allowance for loan losses:
Beginning balance
Charge-offs
Recoveries
Provision
Ending Balance
Ending Balance: individually evaluated for
impairment
Ending Balance: collectively evaluated for
impairment
Ending Balance: PCI Loans
Loans:
Ending Balance: loans
Ending Balance: individually evaluated for
impairment
Ending Balance: collectively evaluated for
impairment
Ending Balance: PCI Loans
Impaired Loans
Commercial Real estate Consumer Leases
Total
Year Ended December 31, 2015
$
$
$
55,349 $
(5,239)
1,824
11,913
63,847 $
10,725 $
(214)
321
(2,612)
8,220 $
9,921 $
(9,658)
2,469
6,217
8,949 $
145 $
—
—
(18)
127 $
76,140
(15,111)
4,614
15,500
81,143
5,668 $
196 $
— $
— $
5,864
58,179
—
8,024
—
8,949
—
127
—
75,279
—
$ 4,641,027 $4,301,530 $ 446,347 $ 41,857 $9,430,761
68,004
7,747
2,574
—
78,325
4,573,023 4,292,728 441,772
2,001
1,055
—
41,857 9,349,380
3,056
—
This table provides an analysis of impaired loans by class for the year ended December 31, 2017 (in
thousands):
Recorded
Investment
with No
Allowance
As of December 31, 2017
Recorded
Investment
with
Allowance
Total
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Commercial:
Commercial
Asset-based
Factoring
Commercial – credit card
Real estate:
Real estate – construction
Real estate – commercial
Real estate – residential
Real estate – HELOC
Consumer:
Consumer – credit card
Consumer – other
Leases
Total
$ 84,749 $
—
830
—
44,525 $
—
—
—
16,465 $
—
830
—
60,990 $
—
830
—
6,299 $
—
306
—
108
16,284
427
—
93
7,968
321
—
—
4,477
97
—
93
12,445
418
—
—
3
75
—
—
—
—
$102,398 $
—
—
—
52,907 $
—
—
—
21,869 $
—
—
—
74,776 $
—
—
—
6,683 $
65,385
—
207
—
148
10,506
221
—
—
8
—
76,475
73
This table provides an analysis of impaired loans by class for the year ended December 31, 2016 (in
thousands):
Commercial:
Commercial
Asset-based
Factoring
Commercial – credit card
Real estate:
Real estate – construction
Real estate – commercial
Real estate – residential
Real estate – HELOC
Consumer:
Consumer – credit card
Consumer – other
Leases
Total
Unpaid
Principal
Balance
Recorded
Investment
with No
Allowance
As of December 31, 2016
Recorded
Investment
with
Allowance
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
$ 80,405 $
—
—
—
43,260 $
—
—
—
31,091 $
—
—
—
74,351 $
—
—
—
7,866 $
—
—
—
69,776
—
—
—
510
18,107
231
—
181
12,303
230
—
113
487
—
—
294
12,790
230
—
68
—
—
—
405
8,956
520
79
—
—
—
$ 99,253 $
—
—
—
55,974 $
—
—
—
31,691 $
—
—
—
87,665 $
—
—
—
7,934 $
—
1,981
—
81,717
This table provides an analysis of impaired loans by class for the year ended December 31, 2015 (in
thousands):
Unpaid
Principal
Balance
Recorded
Investment
with No
Allowance
As of December 31, 2015
Recorded
Investment
with
Allowance
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
$ 72,739 $
—
—
—
40,648 $
—
—
—
27,356 $
—
—
—
68,004 $
—
—
—
5,668 $
—
—
—
41,394
—
—
—
782
7,117
1,054
214
331
4,891
939
193
118
1,275
—
—
449
6,166
939
193
42
154
—
—
802
7,768
1,433
162
—
2,574
—
$ 84,480 $
—
2,574
—
49,576 $
—
—
—
28,749 $
—
2,574
—
78,325 $
—
—
—
5,864 $
—
1,795
—
53,354
Commercial:
Commercial
Asset-based
Factoring
Commercial – credit card
Real estate:
Real estate – construction
Real estate – commercial
Real estate – residential
Real estate – HELOC
Consumer:
Consumer – credit card
Consumer – other
Leases
Total
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 Company’s 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 Company’s 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.
74
The Company had $3.1 million and $0.8 million in commitments to lend to borrowers with loan modifications
classified as TDRs as of December 31, 2017 and December 31, 2016, respectively. The Company monitors loan
payments on an on-going basis to determine if a loan is considered to have a payment default. Determination of
payment default involves analyzing the economic conditions that exist for each customer and their ability to
generate positive cash flows during the loan term. During the year ended December 31, 2017, there were no TDRs
with payment defaults. There was an immaterial amount of interest recognized on loans classified as TDRs during
2017 and 2016.
For the year ended December 31, 2017, the Company had one residential real estate TDR with a pre-
modification loan balance of $97 thousand and a post-modification loan balance of $98 thousand, and one
commercial TDR with a pre- and post-modification loan balance of $7.2 million. For the year ended December 31,
2016, the Company had three commercial TDRs with pre- and post-modification balances totaling $24.8 million.
4. SECURITIES
Securities Available for Sale
This table provides detailed information about securities available for sale at December 31, 2017 and 2016
(in thousands):
Gross
Gross
2017
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total
2016
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total
Amortized Unrealized Unrealized
Gains
Losses
Fair
Value
(1,449) $
(10)
— $
—
1,914
11,965
—
38,643
14,752
(72,040) 3,649,243
(15,809) 2,542,673
13,266
13,879 $ (89,320) $6,258,577
(12)
Gross
Gross
Amortized Unrealized Unrealized
Gains
Losses
Fair
Value
$
Cost
40,092 $
14,762
3,719,369
2,546,517
13,278
$6,334,018 $
$
Cost
95,315 $
198,158
3,773,090
2,425,155
66,997
$6,558,715 $
(1,526) $
(48)
37 $
67
7,069
7,391
5
93,826
198,177
(68,460) 3,711,699
(36,789) 2,395,757
66,875
14,569 $ (106,950) $6,466,334
(127)
The following table presents contractual maturity information for securities available for sale at
December 31, 2017 (in thousands):
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total
Mortgage-backed securities
Total securities available for sale
Amortized
Cost
Fair
Value
834,047
363,166
$ 288,991 $ 288,776
1,128,445 1,126,389
832,221
361,948
2,614,649 2,609,334
3,719,369 3,649,243
$ 6,334,018 $ 6,258,577
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.
Proceeds from the sales of securities available for sale were $578.5 million, $951.3 million, and $946.0
million for 2017, 2016, and 2015, respectively. Securities transactions resulted in gross realized gains of $4.2
75
million for 2017, $8.5 million for 2016, and $10.5 million for 2015. The gross realized losses were $10 thousand for
2017, $1 thousand for 2016, and $100 thousand for 2015.
Securities available for sale with a fair value of $5.7 billion at both December 31, 2017 and December 31,
2016, were pledged to secure U.S. Government deposits, other public deposits, certain trust deposits, derivative
transactions, and repurchase agreements. Of this amount, securities with a fair value of $1.8 billion at both
December 31, 2017 and December 31, 2016 were pledged at the Federal Reserve Discount Window but were
unencumbered as of those dates.
The following table shows the Company’s 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 December 31, 2017 and 2016 (in thousands).
Less than 12 months 12 months or more
Total
2017
Description of Securities
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total temporarily-impaired debt securities
available for sale
2016
Description of Securities
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total temporarily-impaired debt securities
available for sale
Fair Value
Fair Value
Fair Value
Unrealized
Losses
Unrealized
Losses
Unrealized
Losses
$
9,851 $
14,553
1,990,006
1,076,930
13,266
(64) $
(10)
28,792 $
—
(19,980) 1,562,333
376,560
—
(7,325)
(12)
(1,385) $
—
38,643 $
14,553
(52,060) 3,552,339
(8,484) 1,453,490
13,266
—
(1,449)
(10)
(72,040)
(15,809)
(12)
$3,104,606 $ (27,391) $1,967,685 $ (61,929) $5,072,291 $ (89,320)
Less than 12 months
12 months or more
Total
Fair Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
48,678 $
103,979
2,735,868
1,748,922
41,966
(1,526) $
(34)
— $
9,989
(55,035) 269,637
8,565
(36,639)
(90) 17,982
— $
(14)
48,678 $
113,968
(13,425) 3,005,505
(150) 1,757,487
59,948
(37)
(1,526)
(48)
(68,460)
(36,789)
(127)
$4,679,413 $ (93,324) $306,173 $ (13,626) $4,985,586 $ (106,950)
The unrealized losses in the Company’s investments in U.S. treasury obligations, U.S. government agencies,
GSE mortgage-backed securities, municipal securities, and corporates were caused by changes in the interest rate
environment. 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 amortized cost. The
Company expects to recover its cost basis in the securities and does not consider these investments to be other-than-
temporarily impaired at December 31, 2017.
76
Securities Held to Maturity
The following table shows the Company’s held to maturity investments’ amortized cost, fair value, and gross
unrealized gains and losses at December 31, 2017 and net unrealized gains, aggregated by maturity category, at
December 31, 2016, respectively (in thousands).
Gross
Gross
2017
State and political subdivisions:
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total state and political subdivisions
2016
State and political subdivisions:
Due in 1 year or less
Due after 1 year through 5 years
Due after 5 years through 10 years
Due after 10 years
Total state and political subdivisions
Amortized Unrealized Unrealized
Cost
Gains
Losses
Fair
Value
$
2,275 $
100,648
372,234
785,857
$1,261,014 $
2,254
(24) $
3 $
100,925
(2,834)
3,111
363,123
(14,117)
5,006
6,952
741,145
(51,664)
15,072 $ (68,639) $1,207,447
Gross
Gross
Amortized Unrealized Unrealized
Cost
Gains
Losses
Fair
Value
$
6,077 $
82,650
341,741
685,464
$1,115,932 $
5,135
(947) $
5 $
83,552
(1,474)
2,376
347,574
(3,021)
8,854
669,766
(31,415)
15,717
26,952 $ (36,857) $1,106,027
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 2017, 2016, or 2015.
The unrealized losses in the Company’s held to maturity portfolio were caused by changes in the interest rate
environment. The underlying bonds are subject to a risk-ranking process similar to the Company’s loan portfolio
and evaluated for impairment if deemed necessary. 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 amortized cost. The Company expects to recover its cost basis in the securities and does not consider
these investments to be other-than-temporarily impaired as of December 31, 2017.
Trading Securities
The net unrealized gains on trading securities at December 31, 2017, 2016, and 2015 were $188 thousand,
$233 thousand, and $8 thousand, respectively. Net unrealized gains/losses are included in trading and investment
banking income on the Consolidated Statements of Income.
77
Other Securities
The table below provides detailed information for Federal Reserve Bank stock and Federal Home Loan Bank
stock and other securities at December 31, 2017 and 2016 (in thousands):
Gross
Gross
Amortized Unrealized Unrealized
Gains
Losses
Fair
Value
2017
FRB and FHLB stock
Other securities – marketable
Other securities – non-marketable
$
Total Federal Reserve Bank stock and other
$
Cost
33,262 $
3
26,606
59,871 $
— $
4,637
1,389
6,026 $
— $
—
—
— $
33,262
4,640
27,995
65,897
Gross
Gross
Amortized Unrealized Unrealized
Gains
Losses
Fair
Value
2016
FRB and FHLB stock
Other securities – marketable
Other securities – non-marketable
$
Total Federal Reserve Bank stock and other
$
Cost
33,262 $
4
24,272
57,538 $
— $
9,948
820
10,768 $
— $
—
—
— $
33,262
9,952
25,092
68,306
Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock
is mainly tied to the level of borrowings from the FHLB. These holdings are carried at cost. Other marketable and
non-marketable securities include PCM 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 $4.6 million at December 31, 2017 and $10.0 million at December 31, 2016. The fair value
of other non-marketable securities includes alternative investment securities of $3.4 million at December 31, 2017
and $2.0 million at December 31, 2016. Unrealized gains or losses on alternative investments are recognized in the
Equity (losses) earnings on alternative investments line of the Company’s Consolidated Statements of Income.
5. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Company regularly enters into agreements for the purchase of securities with simultaneous agreements to
resell (resell agreements). The agreements permit the Company to sell or repledge these securities. Resell
agreements were $186.5 million and $323.4 million at December 31, 2017 and 2016, respectively. The Company
obtains possession of collateral with a market value equal to or in excess of the principal amount loaned under resell
agreements.
6. LOANS TO OFFICERS AND DIRECTORS
Certain executive officers and directors of the Company and the Bank, including companies in which those
persons are principal holders of equity securities or are general partners, borrow in the normal course of business
from the Bank. All such loans have been made on substantially the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable transactions with unrelated parties. In addition, all
such loans are current as to repayment terms. In 2016, the composition of the Bank board of directors changed, with
membership of the Bank board mirroring membership of the Company’s board. This change resulted in a significant
reduction of the number of loans to officers and directors, totaling $501.4 million for the year-ended December 31,
2016. During the year ended December 31, 2017, changes in the composition of the Bank board of directors resulted
in a reduction of $101.0 million in the reportable loans to officers and directors.
78
For the years 2017 and 2016, an analysis of activity with respect to such aggregate loans to related parties
appears below (in thousands):
Balance – beginning of year
New loans
Repayments
Reduction due to change in reportable loans
Balance – end of year
Year Ended December 31,
2017
2016
$ 321,392 $ 710,085
125,868
(13,148)
(501,413)
$ 187,662 $ 321,392
61,697
(94,378)
(101,049)
7. GOODWILL AND OTHER INTANGIBLES
Changes in the carrying amount of goodwill for the years ended December 31, 2017 and December 31, 2016
by operating segment are as follows (in thousands):
Balances as of January 1, 2017
Discontinued assets
Balances as of December 31, 2017
Balances as of January 1, 2016
Acquisition of Marquette
Discontinued assets
Balances as of December 31, 2016
Institutional
Investment
Management
Asset
Servicing
Total
47,529 $
(47,529)
— $
19,476 $ 228,396
(47,529)
19,476 $ 180,867
—
Bank
$ 161,391 $
—
$ 161,391 $
$ 161,341 $
50
—
$ 161,391 $
47,529 $
—
(47,529)
— $
19,476 $ 228,346
50
(47,529)
19,476 $ 180,867
—
—
Following are the intangible assets that continue to be subject to amortization as of December 31, 2017 and
2016 (in thousands):
As of December 31, 2017
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amounts
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amounts
Core
Deposit
Intangible
Assets
$ 50,059 $
42,209
7,850 $
$
Customer
Relationships
71,342 $
58,935
12,407 $
Other
Intangible
Assets
Total
3,254 $124,655
3,254 104,398
— $ 20,257
As of December 31, 2016
Core
Deposit
Intangible
Assets
$ 47,527 $
39,040
8,487 $
$
Customer
Relationships
74,243 $
56,352
17,891 $
Other
Intangible
Assets
Total
3,254 $125,024
3,002 98,394
252 $ 26,630
79
Amortization expense for the years ended December 31, 2017, 2016, and 2015 was $7.3 million, $8.7 million
and $8.2 million, respectively. The following table discloses the estimated amortization expense of intangible assets
in future years (in thousands):
For the year ending December 31, 2018
For the year ending December 31, 2019
For the year ending December 31, 2020
For the year ending December 31, 2021
For the year ending December 31, 2022
8. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following (in thousands):
$
5,713
4,714
3,759
2,755
1,815
December 31,
Land
Buildings and leasehold improvements
Equipment
Software
Total
Accumulated depreciation
Accumulated amortization
Premises and equipment, net
$
2017
46,415 $
328,384
148,425
186,269
709,493
(300,103)
(133,448)
2016
45,634
325,510
150,955
178,527
700,626
(288,956)
(122,663)
$ 275,942 $ 289,007
Premises and equipment depreciation and amortization expenses were $45.6 million in 2017, $41.9 million in
2016, and $40.2 million in 2015. Rental and operating lease expenses were $14.8 million in 2017, $14.6 million in
2016, and $14.1 million in 2015.
Minimum future rental commitments as of December 31, 2017, for all non-cancelable operating leases are as
follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
$
$
11,163
10,892
10,193
8,044
7,517
31,219
79,028
80
9. BORROWED FUNDS
The components of the Company's short-term and long-term debt are as follows (in thousands):
Long-term debt:
Trust Preferred Securities:
Marquette Capital Trust I subordinated debentures 2.69% due 2036
Marquette Capital Trust II subordinated debentures 2.69% due 2036
Marquette Capital Trust III subordinated debentures 3.17% due 2036
Marquette Capital Trust IV subordinated debentures 2.92% due 2036
Kansas Equity Fund IV, L.P. 0% due 2017
Kansas Equity Fund V, L.P. 0% due 2017
Kansas Equity Fund VI, L.P. 0% due 2017
Kansas Equity Fund IX, L.P. 0% due 2023
Kansas Equity Fund X, L.P. 0% due 2021
Kansas City Equity Fund 2009, L.L.C. 0% due 2017
St. Louis Equity Fund 2007 L.L.C. 0% due 2019
St. Louis Equity Fund 2009 L.L.C. 0% due 2017
St. Louis Equity Fund 2012 L.L.C. 0% due 2020
St. Louis Equity Fund 2013 L.L.C. 0% due 2021
St. Louis Equity Fund 2014 L.L.C. 0% due 2022
St. Louis Equity Fund 2015, L.L.C. 0% due 2023
MHEG Community Fund 41, L.P. 0% due 2024
MHEG Community Fund 43, L.P. 0% due 2026
MHEG Community Fund 45, L.P. 0% due 2027
MHEG Community Fund 47, L.P. 0% due 2028
MHEG Community Fund 49, L.P. 0% due 2034
Total long-term debt
Total borrowed funds
December 31,
2017
2016
16,636
17,285
6,804
27,560
—
—
—
133
207
—
13
—
163
859
1,209
759
680
1,165
1,353
1,485
2,970
79,281
79,281 $
16,356
17,020
6,705
27,174
2
7
23
202
272
10
13
95
243
1,168
1,507
908
815
1,362
1,409
1,481
—
76,772
76,772
$
Aggregate annual repayments of long-term debt at December 31, 2017, are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
$
$
1,519
1,678
1,896
1,565
1,183
71,440
79,281
The Company assumed long-term debt obligations with an aggregate balance of $103.1 million and an
aggregate fair value of $65.5 million as of the acquisition date of May 31, 2015, payable to four unconsolidated
trusts (Marquette Capital Trust I, Marquette Capital Trust II, Marquette Capital Trust III, and Marquette Capital
Trust IV) that previously issued trust preferred securities. Interest rates on trust preferred securities are tied to the
three-month LIBOR rate with spreads ranging from 133 basis points to 160 basis points and reset quarterly. The
trust preferred securities have maturity dates ranging from January 2036 to September 2036.
The Company is a member bank of the FHLB of Des Moines. Through this relationship, the Company
purchased $10.0 million of FHLB stock and has access to additional liquidity and funding sources through FHLB
advances. The Company’s borrowing capacity is dependent upon the amount of collateral the Company places at
the FHLB. As of December 31, 2017, the FHLB had issued three 30-day letters of credit totaling $300.0 million on
behalf of the Company to secure public fund deposits, all of which expired in January 2018. The letters of credit
reduced the Company’s borrowing capacity with the FHLB from $2.0 billion to $1.7 billion as of December 31,
2017. The Company had no outstanding FHLB advances at FHLB of Des Moines as of December 31, 2017.
81
The Company has a revolving line of credit with Wells Fargo Bank, N.A. which allows the Company to
borrow up to $50.0 million for general working capital purposes. The interest rate applied to borrowed balances will
be at the Company’s option either 1.00 percent above LIBOR or 1.75 percent below the prime rate on the date of an
advance. The Company pays 0.3 percent unused commitment fee for unused portions of the line of credit. The
Company currently has no outstanding balance on this line of credit.
The Company enters into sales of securities with simultaneous agreements to repurchase (repurchase
agreements). The Company utilizes repurchase agreements to facilitate the needs of customers and to facilitate
secured short-term funding needs. Repurchase agreements are stated at the amount of cash received in connection
with the transaction. The Company monitors collateral levels on a continuous basis and may be required to provide
additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under
repurchase agreements are maintained with the Company’s safekeeping agents. The amounts received under these
agreements represent short-term borrowings. The amount outstanding at December 31, 2017, was $1.2 billion (with
accrued interest payable of $197 thousand). The amount outstanding at December 31, 2016, was $1.4 billion (with
accrued interest payable of $80 thousand).
The carrying amounts and market values of the securities and the related repurchase liabilities and weighted
average interest rates of the repurchase liabilities (grouped by maturity of the repurchase agreements) were as
follows as of December 31, 2017 (in thousands):
Securities Market
Value
As of December 31, 2017
Repurchase
Liabilities
Weighted Average
Interest Rate
Maturity of the Repurchase Liabilities
On Demand
2 to 30 days
Over 90 Days
Total
$
$
1,004 $
1,233,478
—
1,234,482 $
1,000
1,248,370
—
1,249,370
2.49%
1.10
—
1.10%
The table below presents the remaining contractual maturities of repurchase agreements outstanding at
December 31, 2017, in addition to the various types of marketable securities that have been pledged as collateral
for these borrowings (in thousands).
As of December 31, 2017
Repurchase agreements, secured by:
U.S. Treasury
U.S. Agency
Total repurchase agreements
$
Remaining Contractual Maturities of the Agreements
On Demand 2-29 days Over 90 Days
Total
$
— $
14,743 $
1,000 1,233,627
1,000 $ 1,248,370 $
14,743
— $
— 1,234,627
— $ 1,249,370
10. REGULATORY REQUIREMENTS
Payment of dividends by the Bank to the parent company is subject to various regulatory restrictions. For
national banks, the governing regulatory agency must approve the declaration of any dividends generally in excess
of the sum of net income for that year and retained net income for the preceding two years.
The Bank maintains a reserve balance with the FRB as required by law. During 2017, this amount averaged
$303.8 million, compared to $297.4 million in 2016.
In July 2013, the FRB approved a final rule to implement in the United States the Basel III regulatory capital
reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act.
The final rule included a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a
common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rule also adjusted the
methodology for calculating risk-weighted assets to enhance risk sensitivity. Beginning January 1, 2015, the
Company was required to be compliant with revised minimum regulatory capital ratios and began the transitional
period for definitions of regulatory capital and regulatory capital adjustments and deductions established under the
final rule. Compliance with the risk-weighted asset calculations was required on January 1, 2015 and the Company
is in compliance with the increased capital standards.
82
At December 31, 2017, the Company is required to have minimum common equity tier 1, tier 1, and total
capital ratios of 4.5%, 6.0% and 8.0%, respectively. The Company’s actual ratios at that date were 12.95%, 12.95%
and 14.04%, respectively. The Company is required to have a minimum leverage ratio of 4.0%, and the leverage
ratio at December 31, 2017, was 9.94%.
As of December 31, 2017, the most recent notification from the OCC categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized as well-capitalized the Bank must
maintain total risk-based, tier 1 risk-based, common equity tier 1, and tier 1 leverage ratios of 10.0%, 8.0%, 6.5%,
and 5.0%, respectively. There are no conditions or events that have occurred since the receipt of the most recent
notification that management believes have changed the Bank’s categorization.
In addition, under amendments to the BHCA introduced by the Dodd-Frank Act and commonly known as the
Volcker Rule, the Company and its subsidiaries are subject to extensive limits on proprietary trading and on owning
or sponsoring hedge funds and private-equity funds. The limits on proprietary trading are largely focused on
purchases or sales of financial instruments by a banking entity as principal primarily for the purpose of short-term
resale, benefitting from actual or expected short-term price movements, or realizing short-term arbitrage profits. The
limits on owning or sponsoring hedge funds and private-equity funds are designed to ensure that banking entities
generally maintain only small positions in managed or advised funds and are not exposed to significant losses
arising directly or indirectly from them. The Volcker Rule also provides for increased capital charges, quantitative
limits, rigorous compliance programs, and other restrictions on permitted proprietary trading and fund activities,
including a prohibition on transactions with a covered fund that would constitute a covered transaction under
Sections 23A and 23B of the Federal Reserve Act. The fund activities of the Company and its subsidiaries are in
conformance with the Volcker Rule, which became effective July 21, 2015.
83
Actual capital amounts as well as required and well-capitalized common equity tier 1, tier 1, total and tier 1
leverage ratios as of December 31, 2017 and 2016 for the Company and the Bank are as follows (in thousands):
2017
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount
Ratio
Common Equity Tier 1 Capital:
UMB Financial Corporation
UMB Bank, n. a.
Tier 1 Capital:
UMB Financial Corporation
UMB Bank, n. a.
Total Capital:
UMB Financial Corporation
UMB Bank, n. a.
Tier 1 Leverage:
UMB Financial Corporation
UMB Bank, n. a.
Common Equity Tier 1 Capital:
UMB Financial Corporation
UMB Bank, n. a.
Tier 1 Capital:
UMB Financial Corporation
UMB Bank, n. a.
Total Capital:
UMB Financial Corporation
UMB Bank, n. a.
Tier 1 Leverage:
UMB Financial Corporation
UMB Bank, n. a.
11. EMPLOYEE BENEFITS
$2,041,504 12.95% $ 709,309
704,062
1,750,297 11.19
4.50% $
4.50
N/A N/A%
1,016,979
6.50
2,041,504 12.95
1,750,297 11.19
945,746
938,750
6.00
6.00
N/A N/A
8.00
1,251,666
2,213,050 14.04
1,853,558 11.85
1,260,994
1,251,666
8.00
8.00
N/A N/A
1,564,583 10.00
2,041,504
1,750,297
9.94
8.57
821,527
816,859
4.00
4.00
N/A N/A
5.00
1,021,073
2016
$1,789,581 11.80% $ 682,428
676,357
1,613,024 10.73
4.50% $
4.50
N/A N/A%
976,960
6.50
1,789,581 11.80
1,613,024 10.73
909,903
901,809
6.00
6.00
N/A N/A
8.00
1,202,412
1,951,078 12.87
1,707,265 11.36
1,213,205
1,202,412
8.00
8.00
N/A N/A
1,503,016 10.00
1,789,581
1,613,024
9.09
8.24
787,604
782,638
4.00
4.00
N/A N/A
5.00
978,297
The Company has a discretionary noncontributory profit sharing plan, which features an employee stock
ownership plan. This plan is for the benefit of substantially all eligible officers and employees of the Company and
its subsidiaries. The Company has accrued and anticipates making a discretionary payment of $4.0 million in March
2018, for 2017. A $1.5 million contribution was paid in 2017, for 2016. A $1.5 million contribution was paid in
2016, for 2015.
The Company has a qualified 401(k) profit sharing plan that permits participants to make contributions by
salary deduction. The Company made a matching contribution to this plan of $6.7 million in 2017, for 2016 and
$6.4 million in 2016, for 2015. The Company anticipates making a matching contribution of $7.2 million in March
2018, for 2017.
The Company recognized $2.5 million, $2.1 million, and $2.2 million in expense related to outstanding stock
options and $10.4 million, $9.2 million, and $8.1 million in expense related to outstanding restricted stock grants for
the years ended December 31, 2017, 2016, and 2015, respectively. The Company had $4.7 million of unrecognized
compensation expense related to the outstanding options and $17.3 million of unrecognized compensation expense
related to outstanding restricted stock grants at December 31, 2017.
84
2002 Incentive Stock Option Plan
On April 18, 2002, the shareholders of the Company approved the 2002 Incentive Stock Options Plan (the
2002 Plan), which provides incentive options to certain key employees to receive up to 2 million common shares of
the Company. All options that are issued under the 2002 Plan terminate after 10 years (except for any option
granted to a person holding more than 10 percent of the Company’s stock, in which case the option terminates after
five years). All options issued prior to 2005, under the 2002 Plan, could not be exercised until at least four years and
11 months after the date they are granted. Options issued in 2006, 2007, and 2008 under the 2002 Plan, have a
vesting schedule of 50 percent after three years; 75 percent after four years and 100 percent after four years and 11
months. Except under circumstances of death, disability or certain retirements, the options cannot be exercised after
the grantee has left the employment of the Company or its subsidiaries. The exercise period for an option may be
accelerated upon the optionee’s qualified disability, retirement or death. All options expire at the end of the exercise
period. Options are granted at exercise prices of no less than 100 percent of the fair market value of the underlying
shares based on the fair value of the option at date of grant. On January 25, 2011, the Board amended and froze the
2002 Plan such that no shares of Company stock shall thereafter be available for grants under the 2002 Plan.
Existing awards granted under the 2002 Plan will continue in accordance with their terms under the 2002 Plan. The
2002 Plan expired without modification on April 17, 2012.
The table below discloses the information relating to option activity in 2017, under the 2002 Plan:
Stock Options Under the 2002 Plan
Outstanding - December 31, 2016
Granted
Expired
Exercised
Outstanding - December 31, 2017
Exercisable - December 31, 2017
Number
of Shares
Weighted
Average Price
Per Share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
91,461 $
—
(4,304)
(55,471)
31,686 $
31,686 $
39.63
—
38.65
38.96
40.93
40.93
0.9 $
0.9 $
981,949
981,949
No options were granted under the 2002 Plan during 2017, 2016, or 2015. The total intrinsic value of options
exercised during the year ended December 31, 2017, 2016, and 2015 was $2.0 million, $2.3 million, and $1.1
million, respectively. As of December 31, 2017, there was no unrecognized compensation cost related to the
nonvested options.
Long-Term Incentive Compensation Plan
At the April 26, 2005, shareholders’ meeting, the shareholders of the Company approved the UMB Financial
Corporation Long-Term Incentive Compensation Plan (LTIP) which became effective as of January 1, 2005. The
LTIP permits the issuance to selected officers of the Company service-based restricted stock grants, performance-
based restricted stock grants and non-qualified stock options. Service-based restricted stock grants contain a service
requirement. The performance-based restricted grants contain performance and service requirements. The non-
qualified stock option grants contain a service requirement.
At the April 23, 2013 shareholders’ meeting, the shareholders of the Company approved amendments to the
LTIP Plan, including increasing the number of shares of the Company’s stock reserved for issuance under the Plan
from 5.25 million shares to 7.44 million shares. Additionally, the shareholders approved increasing the maximum
benefits any one eligible employee may receive under the plan during any one fiscal year from $1 million to $2
million taking into account the value of all stock options and restricted stock received.
The service-based restricted stock grants contain a service requirement with varying vesting schedules. The
majority of these grants issued prior to 2016 utilize a vesting schedule in which 50 percent of the shares vest after
three years of service, 75 percent after four years of service and 100 percent after five years of service. The majority
of these grants issued in 2016 and beyond utilize a vesting schedule in which 50 percent of the shares vest after two
years of service, 75 percent after three years of service and 100 percent after four years of service. Certain other
85
grants utilize vesting schedules in which the grants vest ratably over the requisite service period or contain a three-
year cliff vesting.
The performance-based restricted stock grants contain a service and a performance requirement. The
performance requirement is based on a predetermined performance requirement over a three year period. The
service requirement portion is a three year cliff vesting. If the performance requirement is not met, the participants
do not receive the shares.
The dividends on service and performance-based restricted stock grants are treated as two separate
transactions. First, cash dividends are paid on the restricted stock. Those cash dividends are then paid to purchase
additional shares of restricted stock. Dividends earned as additional shares of restricted stock have the same terms
as the associated grant. The dividends paid on the stock are recorded as a reduction to retained earnings (similar to
all dividend transactions).
The table below discloses the status of the service-based restricted shares during 2017:
Service-Based Restricted Stock
Nonvested - December 31, 2016
Granted
Canceled
Vested
Nonvested - December 31, 2017
Number
of Shares
Weighted
Average Grant
Date Fair Value
524,515 $
100,671
(25,244)
(129,809)
470,133 $
50.74
75.00
55.85
51.72
55.39
As of December 31, 2017, there was $14.2 million of unrecognized compensation cost related to the
nonvested shares. The cost is expected to be recognized over a period of 2.3 years. Total fair value of shares vested
during the year ended December 31, 2017, 2016, and 2015 was $9.9 million, $7.4 million, and $7.2 million,
respectively.
The table below discloses the status of the performance-based restricted shares during 2017:
Performance-Based Restricted Stock
Nonvested - December 31, 2016
Granted
Canceled
Vested
Nonvested - December 31, 2017
Number
of Shares
Weighted
Average Grant
Date Fair Value
118,686 $
42,078
(6,942)
(18,608)
135,214 $
50.67
75.25
54.20
57.40
57.22
As of December 31, 2017, there was $3.1 million of unrecognized compensation cost related to the nonvested
shares. The cost is expected to be recognized over a period of 1.7 years. Total fair value of shares vested during the
years ended December 31, 2017, 2016 and 2015, was $1.4 million, $1.0 million and $1.9 million, respectively.
The non-qualified stock options carry a service requirement and grants issued prior to 2016 will vest 50
percent after three years, 75 percent after four years and 100 percent after five years, while grants issued in 2016 and
beyond will vest 50 percent after two years, 75 percent after three years and 100 percent after four years.
86
The table below discloses the information relating to non-qualified option activity in 2017 under the LTIP:
Number of
Shares
Weighted
Average Price
Per Share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
Stock Options Under the LTIP
Outstanding - December 31, 2016
Granted
Canceled
Expired
Exercised
Outstanding - December 31, 2017
Exercisable - December 31, 2017
1,163,849 $
151,279
(18,291)
(678)
(248,698)
1,047,461 $
345,811 $
47.10
75.25
53.22
49.97
42.57
52.13
44.89
6.4 $ 20,722,166
9,348,718
4.0 $
The Company uses the Black-Scholes pricing model to determine the fair value of its options. The
assumptions for stock-based awards in the past three years utilized in the model are shown in the table below.
Black-Scholes pricing model:
Weighted average fair value of the granted
option
Weighted average risk-free interest rate
Expected option life in years
Expected volatility
Expected dividend yield
2017
2016
2015
$
17.88
$
1.29%
6.25
24.41%
2.03%
9.90
$
1.30%
6.25
25.71%
2.02%
11.95
1.62%
6.25
26.73%
1.74%
The expected option life is derived from historical exercise patterns and represents the amount of time that
options granted are expected to be outstanding. The expected volatility is based on historical volatilities of the
Company’s stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.
The weighted average grant-date fair value of options granted during the years 2017, 2016, and 2015 was
$17.88, $9.90, and $11.95, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2017, 2016 and 2015, was $8.1 million, $5.8 million and $2.6 million, respectively. As of December
31, 2017, there was $4.7 million of unrecognized compensation cost related to the nonvested options. The cost is
expected to be recognized over a period of 2.4 years.
Cash received from options exercised under all share based compensation plans was $12.7 million, $15.8
million, and $10.5 million for the years ended December 31, 2017, 2016, and 2015, respectively. The tax benefit
realized for stock options exercised was $3.6 million and $1.1 million for the years ended December 31, 2017 and
2016, respectively. The 2016 and 2017 tax benefits were recognized in the Company’s Consolidated Statements of
Income due to the Company’s adoption of ASU No. 2016-09 with an effective date of January 1, 2016. See further
discussion of this ASU in Note 2, “New Accounting Pronouncements.” The tax benefit realized for stock options
exercised in 2015 was $0.9 million, which was recognized in the Company’s Consolidated Statements of Changes in
Shareholder’s Equity.
The Company has no specific policy to repurchase common shares to mitigate the dilutive impact of options;
however, the Company has historically made adequate discretionary repurchases of common shares in an amount
that exceeds stock option exercise activity. See a description of the Company’s share repurchase plan in Note 13,
“Common Stock and Earnings Per Share,” in the Notes to the Consolidated Financial Statements provided in Item 8,
page 89 of this report.
12. BUSINESS SEGMENT REPORTING
The Company has strategically aligned its operations into the following two reportable segments (collectively,
“Business Segments”): Bank and Asset Servicing. Senior executive officers regularly evaluate business segment
87
financial results produced by the Company’s internal reporting system in deciding how to allocate resources and
assess performance for individual Business Segments. Previously, the Company had the following four Business
Segments: Bank, Institutional Investment Management, Asset Servicing, and Payment Solutions. In the first quarter
of 2016, the Company merged the Payment Solutions segment into the Bank segment to better reflect how the core
businesses, products and services are being evaluated by management currently. The Company’s Payment Solutions
leadership structure and financial performance assessments are now included in the Bank segment, and accordingly,
the reportable segments were realigned to reflect these changes. Additionally, during 2017, the Company sold all of
the outstanding stock of Scout, its institutional investment management subsidiary. As the operations of Scout are
now included in discontinued operations, the Company no longer presents this segment’s operations as one of its
business segments. The Company’s reportable segments include certain corporate overhead, technology and service
costs that are allocated based on methodologies that are applied consistently between periods. For comparability
purposes, amounts in all periods are based on methodologies in effect at December 31, 2017. Previously reported
results have been reclassified in this filing to conform to the current organizational structure.
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 Company’s branches, call center, internet banking, and ATM network. Services include
traditional commercial and consumer banking, treasury management, leasing, foreign exchange, consumer and
commercial credit and debit card, prepaid debit card solutions, healthcare services, institutional cash management,
merchant bankcard, wealth management, brokerage, insurance, capital markets, investment banking, corporate trust,
and correspondent banking.
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.
BUSINESS SEGMENT INFORMATION
Segment financial results were as follows (in thousands):
Year Ended December 31, 2017
Asset
$
Bank
546,000 $
41,000
328,550
616,883
216,667
49,522
$
167,145 $
$19,612,450 $
Servicing
Total
558,913
12,913 $
41,000
—
423,562
95,012
705,129
88,246
236,346
19,679
53,370
3,848
15,831 $
182,976
783,550 $20,396,000
Year Ended December 31, 2016
Asset
$
Servicing
Bank
484,716 $
32,500
309,889
582,719
179,386
40,406
138,980 $
Total
495,323
32,500
402,511
666,745
198,589
44,955
153,634
$
$18,371,950 $ 1,221,050 $19,593,000
10,607 $
—
92,622
84,026
19,203
4,549
14,654 $
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Income from continuing operations
Average assets
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Income from continuing operations
Average assets
88
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Income from continuing operations
Average assets
Year Ended December 31, 2015
Asset
$
Bank
406,884 $
15,500
274,376
555,962
109,798
26,651
$
83,147 $
$16,801,000 $
Servicing
Total
412,067
5,183 $
15,500
—
370,659
96,283
638,938
82,976
128,288
18,490
31,730
5,079
13,411 $
96,558
985,000 $17,786,000
13. COMMON STOCK AND EARNINGS PER SHARE
The following table summarizes the share transactions for the three years ended December 31, 2017 (in
thousands, except for share data):
Balance December 31, 2014
Common stock issuance for acquisition
Purchase of Treasury Stock
Sale of Treasury Stock
Issued for stock options & restricted stock
Balance December 31, 2015
Purchase of Treasury Stock
Sale of Treasury Stock
Issued for stock options & restricted stock
Balance December 31, 2016
Purchase of Treasury Stock
Sale of Treasury Stock
Issued for stock options & restricted stock
Balance December 31, 2017
Shares
Issued
Shares in
Treasury
55,056,730 (9,524,542)
— 3,470,478
(225,894)
—
19,695
—
—
599,899
55,056,730 (5,660,364)
(399,677)
—
21,036
—
—
655,331
55,056,730 (5,383,674)
(245,982)
—
14,908
—
—
453,008
55,056,730 (5,161,740)
As noted in the table above, in 2015, the Company issued 3.5 million shares to the owners of Marquette for
the purchase of all of the outstanding shares of Marquette. The owners of Marquette as of the close of business on
the acquisition date of May 31, 2015 received 9.2295 shares of the Company’s common stock for each share of
Marquette common stock owned on that date. The market value of the shares of the Company’s common stock
issued at the effective time of the merger was approximately $179.7 million, based on the closing price of the
Company’s stock of $51.79 per share on May 29, 2015.
The Board approved a plan to repurchase up to 2 million shares of common stock annually at its 2015, 2016
and 2017 meetings. All open market share purchases under the share repurchase plans are intended to be within the
scope of Rule 10b-18 promulgated under the Exchange Act. Rule 10b-18 provides a safe harbor for purchases in a
given day if the Company satisfies the manner, timing and volume conditions of the rule when purchasing its own
common shares. The Company has not made any repurchases other than through these plans.
Basic earnings per share are computed by dividing income available to common shareholders by the weighted
average number of shares outstanding during the year. Diluted earnings per share gives effect to all potential
common shares that were outstanding during the year.
89
The shares used in the calculation of basic and diluted earnings per share, are shown below:
For the Years Ended December 31,
2015
2016
2017
Weighted average basic common shares outstanding 49,223,661 48,828,313 47,126,252
Dilutive effect of stock options and restricted stock
453,082
Weighted average diluted common shares
outstanding
49,839,290 49,277,055 47,579,334
448,742
615,629
14. COMMITMENTS, CONTINGENCIES AND GUARANTEES
In the normal course of business, the Company is a party to financial instruments with off-balance-sheet risk
in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, commercial letters of credit, standby letters of
credit, and futures contracts. These instruments involve, to varying degrees, elements of credit and interest rate risk
in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amount of those
instruments reflects the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial
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.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the agreement. These conditions generally include, but are not limited to, each customer
being current as to repayment terms of existing loans and no deterioration in the customer’s financial condition.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.
The interest rate is generally a variable rate. If the commitment has a fixed interest rate, the rate is generally not set
until such time as credit is extended. For credit card customers, the Company has the right to change or terminate
terms or conditions of the credit card account at any time. Since a large portion of the commitments and unused
credit card lines are never actually drawn upon, the total commitment amount does not necessarily represent future
cash requirements. The Company evaluates each customer’s creditworthiness on an individual basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s
credit evaluation. Collateral pledged by customers varies but may include accounts receivable, inventory, real
estate, plant and equipment, stock, securities and certificates of deposit.
Commercial letters of credit are issued specifically to facilitate trade or commerce. Under the terms of a
commercial letter of credit, as a general rule, drafts will be drawn when the underlying transaction is consummated
as intended.
Standby letters of credit are conditional commitments issued by the Company payable upon the non-
performance of a customer’s obligation to a third party. The Company issues standby letters of credit for terms
ranging from three months to six years. The Company generally requires the customer to pledge collateral to
support the letter of credit. The maximum liability to the Company under standby letters of credit at December 31,
2017 and 2016, was $316.1 million and $376.6 million, respectively. As of December 31, 2017 and 2016, standby
letters of credit totaling $42.5 million and $67.4 million, respectively, were with related parties to the Company.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan
facilities. The Company holds collateral supporting those commitments when deemed necessary. Collateral varies
but may include such items as those described for commitments to extend credit.
Futures contracts are contracts for delayed delivery of securities or money market instruments in which the
seller agrees to make delivery at a specified future date, of a specified instrument, at a specified yield. Risks arise
from the possible inability of counterparties to meet the terms of their contracts and from movement in securities
values and interest rates. Instruments used in trading activities are carried at market value and gains and losses on
futures contracts are settled in cash daily. Any changes in the market value are recognized in trading and investment
banking income.
90
The Company uses contracts to offset interest rate risk on specific securities held in the trading portfolio. As
of December 31, 2017 and 2016, there were no notional amounts outstanding for these contracts. There were no
open futures contract positions during the year ended December 31, 2017. Open futures contract positions average
notional amount was $0.4 million during the year ended December 31, 2016. Net futures activity resulted in losses
of $6 thousand and of $142 thousand and gains of $35 thousand for 2017, 2016, and 2015, respectively. The
Company controls the credit risk of its futures contracts through credit approvals, limits and monitoring procedures.
The Company also enters into foreign exchange contracts on a limited basis. For operating purposes, the
Company maintains certain balances in foreign banks. Foreign exchange contracts are purchased on a monthly basis
to avoid foreign exchange risk on these foreign balances. The Company will also enter into foreign exchange
contracts to facilitate foreign exchange needs of customers. The Company will enter into a contract to buy or sell a
foreign currency at a future date only as part of a contract to sell or buy the foreign currency at the same future date
to a customer. During 2017, contracts to purchase and to sell foreign currency averaged approximately $36.8
million compared to $40.5 million during 2016. The net gains on these foreign exchange contracts for 2017, 2016
and 2015 were $1.9 million, $1.6 million and $1.8 million, respectively.
With respect to group concentrations of credit risk, most of the Company’s business activity is with customers
in the states of Missouri, Kansas, Colorado, Oklahoma, Nebraska, Arizona, Illinois, and Texas. At December 31,
2017, the Company did not have any significant credit concentrations in any particular industry.
The following table summarizes the Company’s off-balance sheet financial instruments as described above.
Commitments to extend credit for loans (excluding credit card loans) $
Commitments to extend credit under credit card loans
Commercial letters of credit
Standby letters of credit
Forward contracts
Spot foreign exchange contracts
Contract or Notional Amount
December 31,
2017
6,689,467 $
2,975,507
813
316,054
29,007
628
2016
6,471,404
2,798,433
1,098
376,617
49,352
3,725
15. DIVESTITURES AND ACQUISITIONS
On November 17, 2017, the Company closed the previously announced sale of all of the outstanding stock of
Scout, its institutional investment management subsidiary, for $172.5 million in cash, which remains subject to
customary post-closing purchase adjustments. The gain recorded on the disposal of Scout was $103.6 million. The
Company plans to use the proceeds from the transaction for general corporate purposes and to support its continued
organic growth in the commercial, consumer, private wealth, institutional banking, healthcare, and asset servicing
businesses.
This table summarizes the components of income from discontinued operations, net of taxes, for the years
ended December 31, 2017, 2016, and 2015 presented in the Consolidated Statements of Income (in thousands):
For the years ended December 31,
2016
2015
2017
Total noninterest income
Total noninterest expense
(Loss) income from discontinued operations
Gain on the disposal of discontinued operations
Total income from discontinued operations
Income tax expense
$
Net income on discontinued operations
$
63,416 $
65,834
(2,418)
103,644
101,226
37,097
64,129 $
73,564 $
65,149
8,415
—
8,415
3,248
5,167 $
95,795
64,798
30,997
—
30,997
11,482
19,515
91
The discontinued assets of Scout included on the Consolidated Balance Sheets are as follows (in thousands):
Goodwill
Other intangibles, net
Discontinued assets – goodwill and other intangibles, net
$
$
— $
—
— $
47,529
7,861
55,390
December 31,
2017
December 31,
2016
The components of net cash provided by operating and investing activities of discontinued operations included
in the Consolidated Statements of Cash Flows are as follows (in thousands):
For the years ended December 31,
2016
2015
2017
Income from discontinued operations
Gain on the disposal of discontinued operations
Depreciation and amortization
Net cash (used in) provided by operating activities of
discontinued operations
$
64,129 $
(103,644)
1,647
5,167 $
—
3,596
19,515
—
3,919
$
(37,868) $
8,763 $
23,434
Proceeds on disposal of discontinued operations
Net cash provided by investing activities of discontinued
operations
$
$
167,183 $
— $
167,183 $
— $
—
—
On May 31, 2015, the Company acquired all of the outstanding common shares of Marquette. Marquette was
a privately-held financial services company with a portfolio of businesses and operated thirteen branches in Arizona
and Texas, two national commercial specialty-lending businesses focused on asset-based lending and accounts
receivable factoring, as well as an asset-management firm. As of the close of trading on the acquisition date of May
31, 2015, the beneficial owners of Marquette received 9.2295 shares of the Company’s common stock for each share
of Marquette common stock owned at that date (approximately 3.47 million shares total). The market value of the
Company’s common stock issued at the effective time of the merger was approximately $179.7 million, based on the
closing stock price of the Company’s common stock of $51.79 per share on May 29, 2015. The transaction was
accounted for using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business
Combinations. Accordingly, the purchase price was allocated based on the estimated fair market values of the assets
and liabilities acquired.
92
The following table summarizes the net assets acquired (at fair value) and consideration transferred for
Marquette (in thousands, except for per share data):
Assets
Loans
Investment securities
Cash and due from banks
Premises and equipment, net
Identifiable intangible assets
Other assets
Total assets acquired
Liabilities
Noninterest-bearing deposits
Interest-bearing deposits
Short-term debt
Long-term debt
Other liabilities
Total liabilities assumed
Net identifiable assets acquired
Preliminary goodwill
Net assets acquired
Consideration:
Company's common shares issued
Purchase price per share of the Company's common
stock
Fair value of total consideration transferred
Fair Value
May 31, 2015
$
$
980,404
177,694
95,351
11,508
14,881
32,336
1,312,174
226,161
708,675
112,133
89,971
14,135
1,151,075
161,099
18,638
179,737
3,470
$
$
51.79
179,737
In the acquisition, the Company purchased $980.4 million of loans at fair value. All non-performing loans and
select other classified loan relationships considered by management to be credit impaired are accounted for pursuant
to ASC Topic 310-30, as previously discussed within Note 3, “Loans and Allowance for Loan Losses.”
The Company assumed long-term debt obligations with an aggregate balance of $103.1 million and an
aggregate fair value of $65.5 million as of the acquisition date of May 31, 2015 payable to four unconsolidated trusts
(Marquette Capital Trust I, Marquette Capital Trust II, Marquette Capital Trust III, and Marquette Capital Trust IV)
that previously issued trust preferred securities. The interest rate on the trust preferred securities issued by
Marquette Capital Trust II was fixed at 6.30 percent until January 2016, and is reset each quarter at a variable rate
tied to the three-month LIBOR plus 133 basis points thereafter. Interest rates on trust preferred securities issued by
the remaining three trusts are tied to the three-month LIBOR rate with spreads ranging from 133 basis points to 160
basis points and reset quarterly. The trust preferred securities have maturity dates ranging from January 2036 to
September 2036.
The amount of goodwill arising from the acquisition reflects the Company’s increased market share and
related synergies that are expected to result from combining the operations of UMB and Marquette. All of the
goodwill was assigned to the Bank segment. In accordance with ASC 350, Intangibles-Goodwill and Other,
goodwill will not be amortized but will be subject to at least an annual impairment test. As the Company acquired
tax deductible goodwill in excess of the amount reported in the Consolidated Financial Statements, the goodwill is
expected to be deductible for tax purposes. The fair value of the acquired identifiable intangible assets of $14.9
million was comprised of a core deposit intangible of $11.0 million, customer lists of $2.9 million and non-compete
agreements of $1.0 million.
The results of Marquette are included in the results of the Company subsequent to May 31, 2015. For the year
ended December 31, 2016, acquisition expenses recognized in Noninterest expense in the Company’s Consolidated
Statements of Income totaled $4.8 million. This total included $896 thousand of severance in Salaries and employee
benefits and $1.7 million in Legal and consulting fees. For the year ended December 31, 2015, acquisition expenses
93
recognized in Noninterest expense totaled $9.8 million. This total included $2.4 million of severance in Salaries and
employee benefits and $4.8 million in Legal and consulting fees.
16. INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act ("the Tax Act”). The Tax Act includes numerous changes to existing tax law, including
among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21% effective
January 1, 2018. The Company recognized the income tax effects of the Tax Act in its 2017 financial statements.
The changes included in the Tax Act are broad and complex. Given the complexity of the Tax Act and the detailed
analysis required, the adjustments reflected in the current and deferred tax accounts may be subject to further
refinement as additional information becomes available and further analysis performed. Upon completion of our
2017 U.S. income tax return in 2018 we may identify additional remeasurement adjustments to our recorded
deferred tax liabilities. We will continue to assess our provision for income taxes as further guidance is issued, but
do not currently anticipate significant revisions will be necessary.
Income taxes on continuing operations produce effective income tax rates of 22.6 percent in 2017, 22.6
percent in 2016, and 24.7 percent in 2015. These percentages are computed by dividing income tax expense by
Income from continuing operations before income taxes.
Income tax expense from continuing operations includes the following components (in thousands):
Year Ended December 31,
2016
2015
2017
Current tax
Federal
State
Total current tax (benefit) expense
Deferred tax
Federal
State
Total deferred tax expense (benefit)
Total tax expense
$
(8,260) $
1,889
(6,371)
41,860 $
1,570
43,430
29,622
2,753
32,375
57,851
1,890
59,741
53,370 $
1,145
380
1,525
44,955 $
301
(946)
(645)
31,730
$
Income taxes from discontinued operations produce effective income tax rates of 36.6 percent in 2017, 38.6
percent in 2016, and 37.0 percent in 2015. These percentages are computed by dividing income tax expense by
Income from discontinued operations before income taxes.
Income tax expense from discontinued operations includes the following components (in thousands):
Current tax
Federal
State
Total current tax expense (benefit)
Deferred tax
Federal
State
Total deferred tax (benefit) expense
Total tax expense
Year Ended December 31,
2016
2015
2017
$
$
35,169 $
1,930
37,099
260
(262)
(2)
37,097 $
1,759 $
258
2,017
1,187
44
1,231
3,248 $
14,847
838
15,685
(3,998)
(205)
(4,203)
11,482
94
The reconciliation between the income tax expense and the amount computed by applying the statutory federal
tax rate of 35% to income from continuing operations before income taxes is as follows (in thousands):
Statutory federal income tax expense
Tax-exempt interest income
Tax-exempt life insurance related income
Equity-based compensation
State and local income taxes, net of federal tax benefits
Federal tax credits, net of amortization of LIHTC(1) investments
Impacts related to the 2017 Tax Act
Other
Total tax expense
(1)
Low income housing tax credits
Year Ended December 31,
2016
2015
2017
$
$
82,721 $
(25,697)
(5,769)
(3,297)
2,439
(1,119)
2,997
1,095
53,370 $
69,506 $
(20,196)
(3,405)
(1,095)
1,365
(2,480)
—
1,260
44,955 $
44,901
(15,405)
(932)
—
1,399
(688)
—
2,455
31,730
In preparing its tax returns, the Company is required to interpret tax laws and regulations to determine its
taxable income. Periodically, the Company is subject to examinations by various taxing authorities that may give
rise to differing interpretations of these laws. The Company is not in the examination process with any tax
jurisdictions at December 31, 2017. However, upon examination, agreement of tax liabilities between the Company
and the multiple tax jurisdictions in which the Company files tax returns may ultimately be different.
Deferred income taxes result from differences between the carrying value of assets and liabilities measured for
financial reporting and the tax basis of assets and liabilities for income tax return purposes.
The significant components of deferred tax assets and liabilities are reflected in the following table (in
thousands):
Deferred tax assets:
Net unrealized loss on securities available for sale
Loans, principally due to allowance for loan losses
Equity-based compensation
Accrued expenses
Miscellaneous
Total deferred tax assets before valuation allowance
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Real Estate Investment Trust dividend
Land, buildings and equipment
Original issue discount
Partnership investments
Trust preferred securities
Intangibles
Miscellaneous
Total deferred tax liabilities
Net deferred tax (liability) asset
December 31,
2017
2016
18,023 $
23,646
4,975
17,248
3,762
67,654
(3,498)
64,156
(32,591)
(17,783)
(2,580)
(1,005)
(7,202)
(5,769)
(3,117)
(70,047)
(5,891) $
34,998
40,564
7,824
37,263
4,587
125,236
(2,860)
122,376
—
(31,335)
(4,507)
(3,776)
(13,780)
(3,623)
(7,148)
(64,169)
58,207
$
$
The Company had various state net operating loss carryforwards of approximately $0.8 million as of
December 31, 2017. These net operating losses expire at various times between 2018 and 2037. The Company has
a full valuation allowance for these state net operating losses as they are not expected to be realized. In addition, the
Company has a valuation allowance of $2.7 million to reduce certain other state deferred tax assets to the amount of
tax benefit management believes it will more likely than not realize.
95
The net deferred tax liability at December 31, 2017 is included in the Accrued expenses and taxes line of the
Company’s Consolidated Balance Sheets while the net deferred tax asset at December 31, 2016 is included in the
Other assets line of the Company’s Consolidated Balance Sheets. The Company remeasured the deferred tax assets
and liabilities at the newly enacted statutory tax rate of 21 percent in accordance with the Tax Act.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states.
With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by
tax authorities for tax years prior to 2014 in the jurisdictions in which it files.
Liabilities Associated With Unrecognized Tax Benefits
The gross amount of unrecognized tax benefits totaled $3.8 million and $4.4 million at December 31, 2017
and 2016, respectively. The total amount of unrecognized tax benefits, net of associated deferred tax benefit, that
would impact the effective tax rate, if recognized, would be $3.0 million and $3.5 million at December 31, 2017 and
December 31, 2016, respectively. The unrecognized tax benefits relate to state tax positions that have a
corresponding federal tax benefit. While it is expected that the amount of unrecognized tax benefits will change in
the next twelve months, the Company does not expect this change to have a material adverse impact on the financial
condition, results of operations, or cash flows of the Company.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Unrecognized tax benefits - opening balance
Gross increases - tax positions in prior period
Gross decreases - tax positions in prior period
Gross increases - current-period tax positions
Lapse of statute of limitations
Unrecognized tax benefits - ending balance
December 31,
2017
2016
$
$
4,375 $
323
—
228
(1,080)
3,846 $
4,680
—
(269)
924
(960)
4,375
17. 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 values of which are determined by
interest rates. The Company’s derivative financial instruments are used to manage differences in the amount,
timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments
principally related to certain fixed rate assets and liabilities. 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 Company’s 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 Consolidated Balance Sheets
The table below presents the fair value of the Company’s derivative financial instruments as of December 31,
2017 and 2016. The Company’s derivative assets and derivative liabilities are located within Other Assets and
Other Liabilities, respectively, on the Company’s Consolidated Balance Sheets.
96
This table provides a summary of the fair value of the Company’s derivative assets and liabilities as of
December 31, 2017 and December 31, 2016 (in thousands):
Fair Value
Interest Rate Products:
Derivative Assets
December 31,
2017
2016
Derivative Liabilities
December 31,
2017
2016
Derivatives not designated as hedging instruments $
Derivatives designated as hedging instruments
Total
$
10,116 $
33
10,149 $
10,555 $
318
10,873 $
7,326 $
1,580
8,906 $
10,581
748
11,329
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its fixed rate assets and liabilities due to
changes in the benchmark interest rate, LIBOR. Interest rate swaps designated as fair value hedges involve either
making fixed rate payments to a counterparty in exchange for the Company receiving variable rate payments, or
making variable rate payments to a counterparty in exchange for the Company receiving fixed rate payments, over
the life of the agreements without the exchange of the underlying notional amount. As of December 31, 2017, the
Company had two interest rate swaps with a notional amount of $15.5 million that were designated as fair value
hedges of interest rate risk associated with the Company’s fixed rate loan assets and brokered time deposits.
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 year ended December 31, 2017, the Company recognized net gains of $4 thousand in
other noninterest expense related to hedge ineffectiveness and net gains of $5 thousand during the year ended
December 31, 2016.
Cash Flow Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its variable-rate liabilities due to changes in
the benchmark interest rate, LIBOR. Interest rate swaps designated as cash flow hedges involve the receipt of
variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the
agreements without exchange of the underlying notional amount. As of December 31, 2017, the Company had two
interest rate swaps with a notional amount of $51.5 million that were designated as cash flow hedges of interest rate
risk associated with the Company’s variable rate subordinated debentures issued by Marquette Capital Trusts III and
IV. For derivatives designated and that qualify as cash flow hedges, the effective portion of changes in fair value is
recorded in AOCI and is subsequently reclassified into earnings in the period that the hedged forecasted transaction
affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly into
earnings 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. During the years ended December 31, 2017 and 2016, the Company
recognized net losses of $1.1 million and $0.5 million, respectively, in AOCI for the effective portion of the change
in fair value of these cash flow hedges. During the years ended December 31, 2017 and 2016, the Company did not
record any hedge ineffectiveness in earnings. Amounts reported in AOCI related to derivatives will be reclassified
to Interest expense as interest payments are received or paid on the Company’s derivatives. The Company does not
expect to reclassify any amounts from AOCI to Interest expense during the next 12 months as the Company’s
derivatives are effective after December 2018. As of December 31, 2017, the Company is hedging its exposure to
the variability in future cash flows for forecasted transactions over a maximum period of 18.75 years.
Non-designated Hedges
The remainder of the Company’s 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, which the Company implemented in 2010. 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 hedge accounting requirements, changes in the fair value of both the customer swaps and the
97
offsetting swaps are recognized directly in earnings. As of December 31, 2017, the Company had 80 interest rate
swaps with an aggregate notional amount of $931.2 million related to this program. During the years ended
December 31, 2017 and 2016, the Company recognized net losses of $579 thousand and net gains of $195 thousand,
respectively, related to changes in the fair value of these swaps.
Effect of Derivative Instruments on the Consolidated Statements of Income and Consolidated Statements of
Comprehensive Income
This table provides a summary of the amount of gain or loss recognized in other noninterest expense in the
Consolidated Statements of Income related to the Company’s derivative asset and liability as of December 31, 2017
and December 31, 2016 (in thousands):
Amount of Gain (Loss) Recognized
For the Year Ended
December 31,
2016
2017
2015
Interest Rate Products
Derivatives not designated as hedging instruments
Total
Interest Rate Products
Derivatives designated as fair value hedging instruments
Fair value adjustments on derivatives
Fair value adjustments on hedged items
Total
$
$
$
$
(579) $
(579) $
195 $
195 $
(110)
(110)
(189) $
193
4 $
(181) $
186
5 $
(234)
234
—
This table provides a summary of the amount of loss recognized in AOCI in the Consolidated Statements of
Comprehensive Income related to the Company’s derivative asset and liability as of December 31, 2017 and
December 31, 2016 (in thousands):
Derivatives in Cash Flow Hedging Relationships
Interest rate products
Derivatives designed as cash flow hedging instruments
Total
Amount of Loss Recognized in Other
Comprehensive Income on Derivatives
(Effective Portion)
For the Year Ended
December 31,
2016
2015
2017
$
$
(1,050) $
(1,050) $
(516) $
(516) $
(10)
(10)
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 December 31, 2017, the termination value of derivatives in a net liability position, which includes
accrued interest, related to these agreements was $7.4 million. The Company has minimum collateral posting
thresholds with certain of its derivative counterparties. As of December 31, 2017 the Company had posted $1.6
million of collateral. If the Company had breached any of these provisions at December 31, 2017, it could have been
required to settle its obligations under the agreements at the termination value.
18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents information about the Company’s assets measured at fair value on a recurring
basis as of December 31, 2017, and indicates the fair value hierarchy of the valuation techniques utilized by the
Company to determine such fair value.
98
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 and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016 (in
thousands):
Description
Assets
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Trading - other
Trading securities
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Available for sale securities
Company-owned life insurance
Bank-owned life insurance
Derivatives
Total
Liabilities
Deferred compensation
Derivatives
Securities sold not yet purchased
Total
Fair Value Measurement at Reporting Date Using
December 31,
2017
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
18 $
9,976
1,949
27,114
1,885
13,113
54,055
38,643
14,752
3,649,243
2,542,673
13,266
6,258,577
53,577
265,823
10,149
6,642,181 $
50,963 $
8,906
4,130
63,999 $
18 $
—
—
—
1,885
12,434
14,337
38,643
—
—
—
13,266
51,909
—
—
—
66,246 $
50,963 $
—
—
50,963 $
— $
9,976
1,949
27,114
—
679
39,718
—
14,752
3,649,243
2,542,673
—
6,206,668
53,577
265,823
10,149
6,575,935 $
— $
8,906
4,130
13,036 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
99
Description
Assets
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Trading - other
Trading securities
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Available for sale securities
Company-owned life insurance
Bank-owned life insurance
Derivatives
Total
Liabilities
Deferred compensation
Derivatives
Total
Fair Value Measurement at Reporting Date Using
December 31,
2016
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
— $
1,306
313
9,295
28,622
39,536
93,826
198,177
3,711,699
2,395,757
66,875
6,466,334
41,333
209,686
10,873
$ 6,767,762 $
$
$
42,797 $
11,329
54,126 $
— $
—
—
—
28,495
28,495
93,826
—
—
—
66,875
160,701
—
—
—
189,196 $
42,797 $
—
42,797 $
— $
1,306
313
9,295
127
11,041
—
198,177
3,711,699
2,395,757
—
6,305,633
41,333
209,686
10,873
6,578,566 $
— $
11,329
11,329 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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:
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 value is estimated using quoted market prices
for similar securities.
Securities Available for Sale 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. Prices
are provided by third-party pricing services and are based on observable market inputs. On an annual basis, the
Company compares a sample of these prices to other independent sources for the same securities. Additionally,
throughout the year if securities are sold, comparisons are made between the pricing services prices and the market
prices at which the securities were sold. Variances are analyzed, and, if appropriate, additional research is
conducted with the third-party pricing services. Based on this research, the pricing services may affirm or revise
their quoted price. No significant adjustments have been made to the prices provided by the pricing services. The
pricing services also provide documentation on an ongoing basis that includes reference data, inputs and
methodology by asset class, which is reviewed to ensure that security placement within the fair value hierarchy is
appropriate.
Company-owned Life Insurance Fair value is equal to the cash surrender value of the life insurance policies.
Bank-owned Life Insurance Fair value is equal to the cash surrender value of the life insurance policies.
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 counterparty’s nonperformance risk in the fair value measurements.
100
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.
Securities sold not yet purchased 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. Prices are provided by third-party pricing services and are based on observable market inputs.
Assets measured at fair value on a non-recurring basis as of December 31, 2017 and 2016 (in thousands):
Fair Value Measurement at December 31, 2017 Using
December 31,
2017
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
15,186 $
1,488
16,674 $
— $
—
— $
— $
—
— $
15,186 $
1,488
16,674 $
Total Gains
Recognized
During the
Twelve Months
Ended
December 31
1,251
13
1,264
Fair Value Measurement at December 31, 2016 Using
December 31,
2016
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
23,757 $
89
23,846 $
— $
—
— $
— $
—
— $
23,757 $
89
23,846 $
Total (Losses)
Recognized
During the
Twelve Months
Ended
December 31
(2,070)
—
(2,070)
Description
Impaired loans
Other real estate owned
Total
Description
Impaired loans
Other real estate owned
Total
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 write-downs that are based on the external appraisal value of the underlying collateral. 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. 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 Company’s property management group and the Company’s 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, third-
party price opinions, or internally developed pricing methods and those measurements are classified as Level 3.
Goodwill Valuation of goodwill to determine impairment is performed annually, or more frequently if there is
an event or circumstance that would indicate impairment may have occurred. The process involves calculations to
101
determine the fair value of each reporting unit on a stand-alone basis. A combination of formulas using current
market multiples, based on recent sales of financial institutions within the Company’s geographic marketplace, is
used to estimate the fair value of each reporting unit. That fair value is compared to the carrying amount of the
reporting unit, including its recorded goodwill. Impairment is considered to have occurred if the fair value of the
reporting unit is lower than the carrying amount of the reporting unit. The fair value of the Company’s common
stock relative to its computed book value per share is also considered as part of the overall evaluation. These
measurements are classified as Level 3.
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 Company’s financial instruments at December 31, 2017 and 2016 are as
follows (in thousands):
Fair Value Measurement at December 31, 2017 Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Carrying
Amount
Significant
Unobservable
Inputs (Level 3)
Total Estimated
Fair Value
FINANCIAL ASSETS
Cash and short-term investments $ 1,936,084 $
6,258,577
Securities available for sale
1,261,014
Securities held to maturity
54,055
Trading securities
Other securities
65,897
Loans (exclusive of allowance for
loan loss)
Derivatives
11,281,973
10,149
FINANCIAL LIABILITIES
Demand and savings deposits
Time deposits
Other borrowings
Long-term debt
Derivatives
16,742,736
1,280,264
1,260,704
79,281
8,906
OFF-BALANCE SHEET
ARRANGEMENTS
Commitments to extend credit for
loans
Commercial letters of credit
Standby letters of credit
1,749,618 $
186,466 $
51,909 6,206,668
— 1,207,447
39,718
65,897
14,337
—
— 11,318,764
10,149
—
16,742,736
—
— 1,280,264
11,334 1,249,370
79,496
8,906
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
1,936,084
6,258,577
1,207,447
54,055
65,897
11,318,764
10,149
16,742,736
1,280,264
1,260,704
79,496
8,906
6,654
136
2,514
102
Fair Value Measurement at December 31, 2016 Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Carrying
Amount
Significant
Unobservable Inputs
(Level 3)
Total Estimated
Fair Value
FINANCIAL ASSETS
Cash and short-term investments $ 1,462,267 $
6,466,334
Securities available for sale
1,115,932
Securities held to maturity
39,536
Trading securities
Other securities
68,306
Loans (exclusive of allowance
for loan loss)
Derivatives
10,545,662
10,873
FINANCIAL LIABILITIES
Demand and savings deposits
Time deposits
Other borrowings
Long-term debt
Derivatives
15,434,893
1,135,721
1,856,937
76,772
11,329
OFF-BALANCE SHEET
ARRANGEMENTS
Commitments to extend credit
for loans
Commercial letters of credit
Standby letters of credit
1,138,850 $
323,417 $
160,701 6,305,633
— 1,106,068
11,041
68,306
28,495
—
— 10,572,292
10,873
—
15,434,893
—
— 1,135,721
419,843 1,437,094
77,025
11,329
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
1,462,267
6,466,334
1,106,068
39,536
68,306
10,572,292
10,873
15,434,893
1,135,721
1,856,937
77,025
11,329
5,604
142
2,527
Cash and short-term investments The carrying amounts of cash and due from banks, federal funds sold and
resell agreements are reasonable estimates of their fair values.
Securities held to maturity Fair value of held-to-maturity securities are estimated by discounting the future
cash flows using current market rates.
Other securities Amount consists of FRB and FHLB stock held by the Company, PCM equity-method
investments, and other miscellaneous investments. The fair value of FRB and FHLB 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 or FHLB. The fair value of PCM 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
Company’s proportionate share of the income or loss is recognized on a one-quarter lag based on the valuation of
the underlying investments.
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 are based on quoted market prices for similar
instruments or estimated using discounting the future cash flow analysis. The discount rates used are estimated using
comparable market rates for similar types of instruments adjusted to be commensurate with the credit risk, overhead
costs, and optionality of such instruments.
Demand and savings deposits The fair value of demand deposits and savings accounts is the amount payable
on demand at December 31, 2017 and 2016.
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.
Other borrowings The carrying amounts of federal funds purchased, repurchase agreements and other short-
term debt are reasonable estimates of their fair value because of the short-term nature of their maturities.
103
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 Company’s consolidated financial position.
19. PARENT COMPANY FINANCIAL INFORMATION
UMB FINANCIAL CORPORATION
BALANCE SHEETS (in thousands)
December 31,
2017
2016
149,145
$ 1,815,953 $ 1,662,326
214,633
1,965,098 1,876,959
5,011
65,254
90,759
$ 2,299,280 $ 2,037,983
5,011
260,621
68,550
$
68,285 $
49,464
117,749
67,256
8,343
75,599
2,181,531 1,962,384
$ 2,299,280 $ 2,037,983
ASSETS
Investment in subsidiaries:
Banks
Non-banks
Total investment in subsidiaries
Goodwill on purchased affiliates
Cash
Securities available for sale and other
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt
Accrued expenses and other
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
104
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands)
Year Ended December 31,
2016
2015
2017
$
55,000 $
43,691
10,390
109,081
47,000 $
40,579
4,207
91,786
43,716
18,652
62,368
38,198
20,436
58,634
27,913
42,212
891
71,016
41,019
22,051
63,070
46,713
(1,202)
33,152
(3,903)
7,946
(4,703)
47,915
37,055
12,649
(5,812)
140,873 119,551
(2,972)
182,976 153,634
5,167
95,942
(12,033)
96,558
19,515
$ 247,105 $ 158,801 $ 116,073
(14,724)
$ 259,122 $ 104,977 $ 101,349
(53,824)
64,129
12,017
INCOME
Dividends and income received from subsidiaries
Service fees from subsidiaries
Other
Total income
EXPENSE
Salaries and employee benefits
Other
Total expense
Income before income taxes and equity in
undistributed earnings of subsidiaries
Income tax benefit
Income before equity in undistributed earnings of
subsidiaries
Equity in undistributed earnings of subsidiaries:
Banks
Non-Banks
Income from continuing operations
Income from discontinued operations
Net income
Other comprehensive income (loss)
Comprehensive income
105
STATEMENTS OF CASH FLOWS (in thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in earnings of subsidiaries
Dividends received from subsidiaries
Depreciation and amortization
Equity based compensation
Net tax benefit related to equity compensation
plans
Gains on sales of assets
Changes in other assets and liabilities, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Net capital investment in subsidiaries
Net cash activity from divestitures and acquisitions
Net (increase) decrease in securities available for
sale
Net cash (used in) provided by investing
activities
FINANCING ACTIVITIES
Cash dividends paid
Proceeds from exercise of stock options and sales of
treasury stock
Purchases of treasury stock
Net cash used in financing activities
Net decrease in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2016
2015
2017
$ 247,105 $ 158,801 $ 116,073
(146,367) (163,993) (128,601)
27,913
332
10,751
96,391
424
13,316
54,000
457
11,735
3,612
(103,715)
5,424
116,190
1,073
—
(11,717)
50,356
944
—
220
27,632
(37,474)
168,361
(10,006)
—
(16,513)
24,962
1,575
(1,034)
211
132,462
(11,040)
8,660
(51,876)
(49,038)
(45,967)
13,867
(15,276)
(53,285)
195,367
65,254
$ 260,621 $
16,911
(16,367)
(48,494)
(9,178)
74,432
65,254 $
11,606
(8,457)
(42,818)
(6,526)
80,958
74,432
20. SUMMARY OF OPERATING RESULTS BY QUARTER (unaudited) (in thousands except per share data)
2017
Interest income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income tax expense
Net income from continuing operations
Three Months Ended
June 30
13,817
17,037
10,375
Sept 30 Dec 31
March 31
$ 144,690 $ 151,211 $ 157,895 $ 163,116
16,770
134,315 137,394 140,858 146,346
6,000
102,917 110,306 104,306 106,033
173,810 176,939 171,821 182,559
16,463
47,357
12,971
48,872 $
12,446
41,976 $
11,490
44,771 $
11,500
14,500
9,000
$
106
2016
Interest income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income tax expense
March 31 (1) June 30 (1) Sept 30 Dec 31
$
6,687
6,194
7,273
124,086 $ 127,897 $ 132,038 $ 139,010
7,554
117,892 121,210 124,765 131,456
7,500
5,000
13,000
7,000
98,230
97,965 102,774 103,542
165,268 168,419 165,211 167,847
10,939
11,240
43,400
34,349 $
10,674
39,422 $
12,102
36,463 $
Net income from continuing operations
$
Per Share
2017
Net income from continuing operations - basic
Net income from continuing operations - diluted
Dividend
Book value
March 31
$
0.85 $
0.84
0.255
40.34
Three Months Ended
June 30
Sept 30 Dec 31
0.91 $
0.90
0.255
41.42
0.99 $
0.98
0.255
42.15
0.96
0.95
0.275
43.72
Per Share
2016
Net income from continuing operations - basic
Net income from continuing operations - diluted
Dividend
Book value
March 31 (1) June 30 (1) Sept 30 Dec 31
0.75 $
$
0.74
0.245
40.44
0.81 $
0.80
0.245
40.86
0.70 $
0.70
0.245
39.38
0.89
0.87
0.255
39.51
(1) During the third quarter of 2016, the Company early adopted ASU No. 2016-09 with an effective date of
January 1, 2016. As part of the adoption of this standard, the Company made an accounting policy election to
account for stock compensation forfeitures on an actual basis and discontinue the use of an estimated
forfeiture approach. This change required a modified retrospective adoption, via a cumulative effect
adjustment and recasting of first quarter and second quarter 2016 operating results. The impact of this
adoption was an increase to net income of $158 thousand and $220 thousand for the first and second quarters,
respectively. Additionally, basic and diluted net income per share increased $0.01 for both periods.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures At the end of the period covered by this Annual Report on Form 10-K,
the Company’s Chief Executive Officer and Chief Financial Officer have each evaluated the effectiveness of the
Company’s “Disclosure Controls and Procedures” (as defined in Rule 13a-15(e) of the Exchange Act) and have
concluded that the Company’s Disclosure Controls and Procedures were effective as of the end of the period
covered by this Annual Report on Form 10-K.
Management’s Report on Internal Control Over Financial Reporting Management of the Company is
responsible for establishing and maintaining adequate “internal control over financial reporting,” as such term is
defined in Rule 13a-15(f) promulgated under the Exchange Act. Under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer of the Company, and effected by the
Board, management and other personnel, an evaluation of the effectiveness of internal control over financial reporting
was conducted based on the criteria established by the Committee of Sponsoring Organizations of the Treadway
Commission's Internal Control - Integrated Framework (2013). Because this assessment was conducted to meet the
reporting requirements of Section 112 of the Federal Deposit Insurance Corporation Improvement Act (FDICIA), it
included controls over the preparation of the schedules equivalent to the basic financial statements in accordance with
the instructions for the Consolidated Financial Statements for Bank Holding Companies (Form FR Y-9C).
107
Based on the evaluation under the framework in Internal Control - Integrated Framework (2013), the
Company’s Chief Executive Officer and Chief Financial Officer have each concluded that internal control over
financial reporting was effective at the end of the period covered by this Annual Report on Form 10-K. KPMG
LLP, the independent registered public accounting firm that audited the financial statements included within this
report, has issued an attestation report on the effectiveness of internal control over financial reporting at the end of
the period covered by this report. KPMG LLP's attestation report is set forth below.
Changes in Internal Control Over Financial Reporting No change in the Company’s internal control over
financial reporting occurred during the last quarter of the period covered by this Annual Report on Form 10-K that
has materially affected, or is reasonably likely to materially affect, the Company’s internal control over finanical
reporting.
108
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
UMB Financial Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited UMB Financial Corporation’s (the Company) internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related
consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated
financial statements), and our report dated February 22, 2018 expressed an unqualified opinion on those
consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitation of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because management’s assessment and our audit were
conducted to also meet the reporting requirements of Section 112 of the Federal Deposit Insurance Corporation
Improvement Act (FDICIA), management’s assessment and our audit of the Company’s internal control over
financial reporting included controls over the preparation of the schedules equivalent to the basic financial
statements in accordance with the instructions to the Consolidated Financial Statements for Bank Holding
Companies (Form FR Y-9 C). A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ KPMG LLP
Kansas City, Missouri
February 22, 2018
109
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item relating to executive officers is included in Part I of this Annual Report
on Form 10-K (pages 9 and 10) under the caption "Executive Officers of the Registrants."
The information required by this item regarding Directors is incorporated herein by reference to information to
be included under the caption "Proposal #1: Election of Directors" of the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on April 24, 2018 (the 2018 Annual Meeting of Shareholders), which
will be provided to shareholders within 120 days after December 31, 2017.
The information required by this item regarding the Audit Committee and the Audit Committee financial
experts is incorporated herein by reference to information to be included under the caption "Corporate Governance –
Committees of the Board of Directors – Audit Committee" of the Company's Proxy Statement for the 2018 Annual
Meeting of Shareholders, which will be provided to shareholders within 120 days after December 31, 2017.
The information required by this item concerning Section 16(a) beneficial ownership reporting compliance is
incorporated herein by reference to information to be included under the caption "Stock Ownership – Section 16(a)
Beneficial Ownership Reporting Compliance" of the Company's Proxy Statement for the 2018 Annual Meeting of
Shareholders, which will be provided to shareholders within 120 days after December 31, 2017.
The Company has adopted a code of ethics that applies to all directors, officers and employees, including its
chief executive officer, chief financial officer and chief accounting officer. You can find the Company's code of
ethics on its website by going to the following address: www.umb.com/aboutumb/investorrelations. The Company
will post on its website any amendments or waivers to its code of ethics that are required to be disclosed under the
rules of either the SEC or NASDAQ. A copy of the code of ethics will be provided, at no charge, to any person
requesting the same, by written notice sent to the Company's Corporate Secretary, 6th floor, 1010 Grand Blvd.,
Kansas City, Missouri 64106.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to information to be included under
the Executive Compensation sections of the Company's Proxy Statement for the 2018 Annual Meeting of
Shareholders, which will be provided to shareholders within 120 days after December 31, 2017.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security Ownership of Certain Beneficial Owners
The information required by this item is incorporated herein by reference to the Company's 2018 Proxy
Statement to information to be included under the caption "Stock Ownership - Principal Shareholders," which will
be provided to shareholders within 120 days after December 31, 2017.
Security Ownership of Management
The information required by this item is incorporated herein by reference to the Company's Proxy Statement
for the 2018 Annual Meeting of Shareholders, which will be provided to shareholders within 120 days after
December 31, 2017, under the caption "Stock Ownership – Stock Owned by Directors, Nominees, and Executive
Officers."
110
The following table summarizes shares authorized for issuance under the Company’s equity compensation
plans.
Plan Category
Equity compensation plans approved by security
holders
2002 Incentive Stock Option Plan
2005 Long Term Incentive Plan
Equity compensation plans not approved by security
holders
Total
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
31,686 $
1,047,461
None
1,079,147 $
40.93
52.13
None
51.81
None
4,697,966
None
4,697,966
For additional information concerning the Company’s equity compensation plans, see Note 11, “Employee
Benefits,” in the Notes to the Consolidated Financial Statements provided in Item 8, pages 84 through 87 of this
report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is incorporated herein by reference to the information to be provided
under the captions “Corporate Governance – Transactions with Related Persons”, “Corporate Governance – The
Board of Directors – Independent Directors” and “Corporate Governance – Committees of the Board of Directors”
of the Company's Proxy Statement for the 2018 Annual Meeting of Shareholders, which will be provided to
shareholders within 120 days after December 31, 2017.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the information to be provided
under the caption "Proposal #3: Ratification of the Corporate Audit Committee’s Engagement of KPMG LLP as
UMB’s Independent Public Accounting Firm for 2018” of the Company's Proxy Statement for the 2018 Annual
Meeting of Shareholders, which will be provided to shareholders within 120 days after December 31, 2017.
111
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements and Financial Statement Schedules
PART IV
The following Consolidated Financial Statements of the Company are included in item 8 of this Annual
Report on Form 10-K.
Consolidated Balance Sheets as of December 31, 2017 and 2016 .......................................................
Consolidated Statements of Income for the Three Years Ended December 31, 2017 ..........................
Consolidated Statements of Comprehensive Income for the Three Years Ended December 31, 2017....
Consolidated Statements of Changes in Shareholders' Equity for the Three Years Ended
December 31, 2017 ...............................................................................................................................
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2017 ...................
Notes to Consolidated Financial Statements.........................................................................................
Independent Auditors' Report ...............................................................................................................
55
56
58
59
60
61
54
Condensed Consolidated Financial Statements for the parent company only may be found in Item 8 above. All
other schedules have been omitted because the required information is presented in the Consolidated Financial
Statements or in the notes thereto, the amounts involved are not significant or the required subject matter is not
applicable.
Exhibits
The following Exhibit Index lists the Exhibits to Form 10-K:
3.1
3.2
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2006 and filed with the Commission on May 9, 2006).
Bylaws, amended as of October 28, 2014 (incorporated by reference to Exhibit 3.1 to the Company’s
Current Report on Form 8-K and filed with the Commission on November 3, 2014).
Description of the capital stock included in the Registration Statement on Form S-3 (incorporated by
referenced to the Registration Statement on Form S-3 dated April 5, 2016 and filed with the Commission
on April 5, 2016).
2002 Incentive Stock Option Plan, amended and restated as of April 22, 2008 (incorporated by reference
to Appendix B of the Company’s Proxy Statement for the Company’s April 22, 2008 Annual Meeting
filed with the Commission on March 17, 2008).
UMB Financial Corporation Long-Term Incentive Compensation Plan amended and restated as of April
23, 2013 (incorporated by reference to Appendix A of the Company’s Proxy Statement for the
Company’s April 23, 2013 Annual Meeting filed with the Commission on March 13, 2013).
Deferred Compensation Plan, dated as of December 1, 2008 filed herewith.
UMBF 2005 Short-Term Incentive Plan (incorporated by reference to Exhibit 10.7 to the Company’s
Form 10-K for December 31, 2004 and filed with the Commission on March 14, 2005).
Scout Investments Retention and Annual Performance Program (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed with the Commission on December 12, 2012).
Annual Variable Pay Plan Scout Investments/Leadership, January 1, 2014 – December 31, 2014 for
Andrew Iseman (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K filed with the Commission on February 14, 2014).
Form of 2016 Performance-Based Restricted Stock Award Agreement for the UMB Financial
Corporation Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to the
Company’s Quarterly Report on Form 10Q filed with the Commission on August 2, 2016).
Form of 2016 Service-Based Restricted Stock Award Agreement for the UMB Financial Corporation
Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10Q filed with the Commission on August 2, 2016).
112
10.9
10.10
10.11
10.12
21.1
23.1
24.1
31.1
31.2
32.1
32.2
Form of 2016 Stock Option Award Agreement for the UMB Financial Corporation Long-Term Incentive
Compensation Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10Q filed with the Commission on August 2, 2016).
Employment Offer Letter for Ram Shankar (incorporated by reference to Exhibit 99.3 to the Company’s
Current Report on Form 8-K filed with the Commission on July 26, 2016).
Relocation Assistance Agreement for Ram Shankar (incorporated by reference to Exhibit 99.4 to the
Company’s Current Report on Form 8-K filed with the Commission on July 26, 2016).
Retention Agreement dated April 19, 2017, by and between UMB Financial Corporation and Andrew
Iseman (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated
April 19, 2017 and filed with the Commission on April 20, 2017).
Subsidiaries of the Registrant filed herewith.
Consent of Independent Auditors – KPMG LLP filed herewith.
Power of Attorney filed herewith.
CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith.
CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith.
CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act filed herewith.
CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act filed herewith.
101.INS XBRL Instance filed herewith.
101.SCH XBRL Taxonomy Extension Schema filed herewith.
101.CAL XBRL Taxonomy Extension Calculation filed herewith.
101.DEF XBRL Taxonomy Extension Definition filed herewith.
101.LAB XBRL Taxonomy Extension Labels filed herewith.
101.PRE XBRL Taxonomy Extension Presentation filed herewith.
ITEM 16. FORM 10-K SUMMARY
None.
113
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, as of February 22, 2018.
SIGNATURES
UMB FINANCIAL CORPORATION
/s/ J. Mariner Kemper
J. Mariner Kemper
Chairman of the Board,
Chief Executive Officer
/s/ Ram Shankar
Ram Shankar
Chief Financial Officer
/s/ Brian J. Walker
Brian J. Walker
Chief Accounting Officer
Date: February 22, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities on the date indicated.
Robin C. Beery
Robin C. Beery
Greg M. Graves
Greg M. Graves
Gordon E. Lansford
Gordon E. Lansford
Kris A. Robbins
Kris A. Robbins
Dylan E. Taylor
Dylan E. Taylor
Leroy J. Williams
Leroy J. Williams
Director
Director
Director
Director
Director
Director
Kevin C. Gallagher
Kevin C. Gallagher
Alexander C. Kemper
Alexander C. Kemper
Timothy R. Murphy
Timothy R. Murphy
L. Joshua Sosland
L. Joshua Sosland
Paul Uhlmann III
Paul Uhlmann III
Director
Director
Director
Director
Director
/s/ J. Mariner Kemper
J. Mariner Kemper
Attorney-in-Fact for each
director
Director, Chairman of the
Board, Chief Executive Officer
114
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, J. Mariner Kemper, certify that:
1. I have reviewed this Annual Report on Form 10-K of UMB Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 22, 2018
/s/ J. Mariner Kemper
J. Mariner Kemper
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Ram Shankar, certify that:
1. I have reviewed this Annual Report on Form 10-K of UMB Financial Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: February 22, 2018
/s/ Ram Shankar
Ram Shankar
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of UMB Financial Corporation (the Company) for the
year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, J. Mariner Kemper, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: February 22, 2018
/s/ J. Mariner Kemper
J. Mariner Kemper
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to UMB Financial
Corporation and will be retained by UMB Financial Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of UMB Financial Corporation (the Company) for the
year ended December 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the
Report), I, Ram Shankar, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1)
2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Dated: February 22, 2018
/s/ Ram Shankar
Ram Shankar
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to UMB Financial
Corporation and will be retained by UMB Financial Corporation and furnished to the Securities and Exchange
Commission or its staff upon request.
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UMB FINANCIAL CORPORATION BOARD OF DIRECTORS
Robin C. Beery 2,4,5
Consultant,
Investment Industry Executive
Timothy R. Murphy 3,4
Chairman and
Chief Executive Officer,
Murphy-Hoffman Company
K.C. Gallagher 2,5
Chairman,
Gallagher Industries, LLC;
Chief Executive Officer,
Little Pub Holdings, LLC
Gregory M. Graves 3
Retired,
Burns and McDonnell
Engineering Company, Inc.
Michael D. Hagedorn 1
President and
Chief Executive Officer,
UMB Bank, n.a.; Vice Chairman,
UMB Financial Corporation
Alexander C. Kemper
Chairman and
Chief Executive Officer,
C2FO
Mariner Kemper
Chairman, UMB Bank, n.a.;
Chairman, President and
Chief Executive Officer,
UMB Financial Corporation
Gordon Lansford III 3,5
President and
Chief Executive Officer,
J.E. Dunn Construction
Group, Inc.
Kris A. Robbins 2,5
Principal,
KARobbins, LLC
L. Joshua Sosland 2,3
President,
Sosland Companies, Inc.
Dylan Taylor 2,4
President,
Colliers International
Paul Uhlmann III 3,4
President and
Chief Executive Officer,
The Uhlmann Company
Leroy J. Williams, Jr. 2,4
Chief Executive Officer,
CyberTek IQ
Thomas J. Wood III 1
Investor
To view a full list of UMB’s advisory
boards, visit UMB.com/AdvisoryBoards
1Advisory Director 2Risk Committee 3Corporate Governance & Nominating Committee 4Compensation Committee 5Corporate Audit Committee
UMB.com
Finally, in the past 10 years, UMB Bank and several of
the foundations we administer have given more than
$110 million to the communities in which we operate.
FOCUS
The future is bright for UMB. We believe that with our
focus on delivering operational excellence, continuing
to concentrate on customer intimacy, and living our
brand promise of Count on more, we will provide the
unparalleled customer experience. Our efforts in 2017
make me honored and proud to be at the helm of UMB
Financial Corporation. As our shareholders, I thank you
for your continued support, and I look forward to 2018.
Sincerely,
Mariner Kemper
Chairman, UMB Bank, n.a.;
Chairman, President and
Chief Executive Officer,
UMB Financial Corporation
February 22, 2018
SELECTED FINANCIAL HIGHLIGHTS
Five-Year Total Return
UMBF vs. SNL US Banks Index and S&P 500
$ 250
$ 200
$ 150
$100
12
$149
$137
$132
13
$153
$151
$134
14
$156
$153
$112
15
$233
$208
$178
$197
$188
$171
16
17
UMBF SNL US BANKS S&P 500
This summarizes the cumulative return experienced by UMBF shareholders for the years 2013 through 2017,
compared to the S&P 500 Stock Index and the SNL US Banks Index. In all cases, the return assumes a
reinvestment of dividends. Source: SNL Financial
Return On Average Assets
Return On Average Equity
Percentage
Percentage
Diluted Earnings Per Share
Dollars
.92%
.89%
10.0%
9.8%
.81%
.75%
.65%
8.0%
7.5%
6.4%
$3.20
$3.22
$3.04
$2.65
$2.44
Dividends Paid Per Share
Dollars
UMBF Total Assets
Under Management
Billions of Dollars
$1.04
$41.4
$.99
$.95
$42.8
$40.9
$40.0
$.91
$.87
$32.3
250
200
200
150
150
100
12
13
14
15
16
12
13
14
15
16
12
13
14
15
16
13
14
15
12
16
100
50
13
17
14
15
16
Risk-Based Capital Ratios
14.04%
12.95%
12.95%
9.94%
8.0%
6.0%
4.5%
4.0%
Common
Equity Tier 1
Capital
Tier 1
Capital
Total
Capital
Tier 1
Leverage
Regulatory Minimum UMB
1.0
0.8
0.6
0.4
0.2
0.0
10
8
6
4
2
0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1.2
1.0
0.8
0.6
0.4
0.2
0.0
50
40
30
20
10
15
12
9
6
3
CORPORATE INFORMATION
UMB Financial Corporation (NASDAQ: UMBF) Credit Ratings as of February 14, 2018
Credit Ratings
Long-term Issuer
Short-term / Commercial Paper
Bank Individual
Bank Support
Credit Ratings (Subsidiaries)
UMB Bank, National Association
Certificate of Deposit
Bank Individual
Bank Support
S&P
A- / Negative
Fitch
A / Stable
A-2
-
-
S&P
-
-
-
F1
a
5
Fitch
A+
a
5
Notice of Annual Meeting
Tuesday, April 24, 2018
UMB Financial Corporation
1010 Grand Boulevard
Kansas City, MO 64106
Transfer Agent
Computershare Trust
Company, n.a.
P.O. Box 43078
Providence, RI 02940-3078
800.884.4225
UMB Financial Corporation
1010 Grand Boulevard
P.O. Box 419226
Kansas City, MO 64141-6226
UMBFinancial.com
Stock Quotation Symbol
UMBF
NASDAQ OMX
Investor Relations
Kay Gregory
Senior Vice President,
Director of Investor Relations
Financial Information
Ram Shankar
Chief Financial Officer,
UMB Financial Corporation
To contact us, please call
816.860.7000 or 800.821.2171
For other inquiries
Marketing Communication
Marketing@UMB.com
Cautionary Notice About Forward-Looking Statements
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they
do not relate strictly to historical or current facts. All forward-looking statements are subject to assumptions, risks, and uncertainties, which may change over time and many of which
are beyond our control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Our actual future objectives, strategies, plans, prospects,
performance, condition, or results may differ materially from those set forth in any forward-looking statement. Some of the factors that may cause actual results or other future events,
circumstances, or aspirations to differ from those in forward-looking statements are described in our Annual Report on Form 10-K for the year ended December 31, 2017, our subsequent
Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, or other applicable documents that are filed or furnished with the Securities and Exchange Commission (SEC). Any
forward-looking statement made by us or on our behalf speaks only as of the date that it was made. We do not undertake to update any forward-looking statement to reflect the impact
of events, circumstances, or results that arise after the date that the statement was made. You, however, should consult further disclosures (including disclosures of a forward-looking
nature) that we may make in any subsequent Quarterly Report on Form 10-Q, Current Report on Form 8-K, or other applicable document that is filed or furnished with the SEC.
UMB.com