Different by Design
2018 LETTER TO SHAREHOLDERS AND FORM 10-K
Industry
2018 industry median data as reported
by S&P Global as of February 12, 2019
UMBF
UMB data as of December 31, 2018
+10.5%
Dividend Growth
Full-year 2008 through full-year 2018.
0.68%
Nonperforming Loans To Total Loans
+78.6%
Dividend Growth
UMB increased its annual dividend 12.5
percent in 2018, the 11th time in the past
10 years, for a total increase of 78.6 per-
cent.
0.35%
Nonperforming Loans To Total Loans
We continue to maintain strong asset quality
regardless of the economic environment.
90.7 %
Loan-To-Deposit Ratio
12.21%
Common Equity Tier 1 Capital Ratio
68.3%
Loan-To-Deposit Ratio
In 2018, average deposits increased
6.6 percent, which provides funding
for our growth.
12.89%
Common Equity Tier 1 Capital Ratio
We continue to operate with strong
capital levels.
+56.8%
Net Interest Income Growth
For the past five years ended
December 31, 2018.
+83.2%
Net Interest Income Growth
Our net interest income during the last five
years has been driven by our growing loan
portfolio, the impact of rising rates and our
ongoing efforts to optimize our balance sheet.
Built to weather all economic cycles.
Dear fellow shareholders,
For UMB Financial Corporation, 2018 was filled with success.
And, whether I am meeting with customers, analysts,
shareholders, or any of our 3,573 associates, my message
remains consistent: UMB stands apart from our competition
by design. Our local decision making allows us to be more
responsive and make faster lending decisions. Along with
that, our customers and prospects have access to UMB’s
decision makers, which deepens relationships.
UNIQUE STRUCTURE, STEADFAST VALUES
With our flat organization, we build solutions tailored
specifically to the needs of our customers and their priorities.
This attention to detail and our agile structure means more—
more time, more efficiency and more connection. We meet
you where you are today, and take you where you want
to be for the future, as financial partners for the long-term.
Because we’re flexible and nimble, we can grow and adjust
with you and your unique needs.
Our delivery is consistent and our values are strong. Our
senior lending team members have been with the bank for
an average of 23 years, and our underwriting philosophy
and credit standards don’t change. You won’t see us chasing
trends, and you can count on us to always do what’s right,
not necessarily what’s popular. These principles have set
us apart from our competition for 106 years—and will
continue to do so in the future.
DIVERSIFIED AND GROWING
Looking at the operating results for the year ended
December 31, 2018, income from continuing operations
was a record $196.3 million, or $3.94 per diluted share,
which is an increase of 7.3 percent compared to
$183.0 million, or $3.67 per diluted share, for the year
ended December 31, 2017. We also celebrated an important
milestone in 2018: surpassing $1 billion in revenue.
Our overall results were impacted in the fourth quarter
by a single $48.1 million factoring relationship charge-off.
While we are disappointed by this loss, we believe this
incident is isolated. And, over our 106-year history, credit
issues have been singular events, most often unrelated to
underwriting. With this experience behind us, we will be
stronger for the long-term.
When compared to the industry over the long-term, we’ve
enjoyed low and relatively steady levels of net charge-offs
(NCO) and non-performing loans (NPL). For the past 10 years,
our annual NCOs have averaged just 0.35 percent of average
loans, and NPLs have averaged just 0.51 percent of loans.
Our loan portfolio is diversified, and we have seen
improvements in overall quality during 2018. Average
loan balances grew 7.0 percent to $11.6 billion for the
year, compared to $10.8 billion in 2017. That 2018 average
balance of $11.6 billion compares to just $4.2 billion for
2008, for a 10-year compound annual growth rate (CAGR)
of 10.7 percent. In contrast, the industry has grown
loan balances at a median CAGR of just 6.6 percent
during the same period, according to S&P Global.
UMB.com
“
Our senior lending team members have
been with the bank for an average of
23 years, and our underwriting philosophy
and credit standards don’t change.
“
In 2018, average deposits increased $1.0 billion to a
As we look past the mid-term elections, and the 2020
total of $17.0 billion. This growth was primarily driven
by marketing campaigns, as well as strong growth in
institutional and commercial deposits.
general election, I believe business conditions have
strengthened but social issues and foreign policy will
take center stage in the next political cycle. It will be
a challenge for our country to manage a mounting
For the full year, we increased our dividend 12.5 percent,
federal debt and potential surge in entitlements.
from $1.04 to $1.17. We have increased our dividend
More than ever, I feel that we continue to move further
11 times in the past 10 years for an increase of 78.6 percent,
and further from the middle as we whipsaw between
compared to 10.5 percent median growth for the industry.
the two parties in search of our next leader. As a
We also announced an accelerated stock repurchase
student of history, I have confidence in our country’s
agreement for $50 million of our outstanding shares,
ability to, much like UMB, weather any storm. Our
which we completed by repurchasing 780,321 shares
forefathers established this country to be resilient.
during the fourth quarter.
Our priorities for use of capital remain organic loan growth,
potentially augmented by bank mergers and acquisitions,
In closing, I would like to thank our associates who
work every day to deliver the unparalleled customer
experience for each other and our customers. It is an
continued interest in consolidation opportunities in our
honor to work alongside them to deliver solutions that
fee businesses, periodic dividend increases, and the
matter and service that means more. We remain fully
opportunistic use of our share buyback authorization.
committed to our communities, and, in the past 10 years,
EYES ON THE FUTURE
I believe UMB has a strong and compelling story. All you
need to do is look at where we’ve been and where we
are going. Even with the built-in factors of regulatory
reform, taxes and the end of an economic cycle, looking
forward, we expect consistency, along with superior credit
quality, diversity of revenue and strong performance in
loan growth. We see opportunities to gain share, both
in underpenetrated markets and varied loan verticals.
UMB Bank and several of the foundations we administer
have given more than $110 million to the communities
in which we operate. And, finally, thank you to our
shareholders for your confidence in our company.
I am grateful for your support and I look forward
to making 2019 another great year for UMB.
Sincerely,
When the market shifts, the reactions to the change make me
smile because some seem surprised that we are nearly at the
Mariner Kemper
Chairman, UMB Bank, n.a.;
end of an economic cycle—almost as if we ended up here by
Chairman, President and
accident. I have been in banking for 26 years, which is a blink
Chief Executive Officer,
of an eye compared to many, but it’s certainly long enough
UMB Financial Corporation
to remember different economic environments. I am proud
of how UMB weathers all cycles, and will continue to do so.
March 1, 2019
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, 2018
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: 001-38481
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 every Interactive Data File required to be submitted 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 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
(cid:3)
(cid:3)
Accelerated filer
Smaller reporting company
Emerging growth company
(cid:3)
(cid:3)
(cid:3)
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. (cid:3)
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, 2018, the aggregate market value of common stock outstanding held by nonaffiliates of the registrant was approximately
$3,442,816,067 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 22, 2019
49,053,206
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 23, 2019, 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
20
21
48
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................................................................................................... 110
ITEM 9A. CONTROLS AND PROCEDURES.................................................................................................. 110
ITEM 9B. OTHER INFORMATION.................................................................................................................. 113
PART III................................................................................................................................................................. 113
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE....................... 113
ITEM 11. EXECUTIVE COMPENSATION...................................................................................................... 113
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS .......................................................................................... 113
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE ............................................................................................................................................ 114
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................................................. 114
PART IV................................................................................................................................................................. 115
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ....................................................... 115
ITEM 16. FORM 10-K SUMMARY ................................................................................................................... 116
SIGNATURES ....................................................................................................................................................... 117
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT..........................
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT..........................
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ....................................................................
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ....................................................................
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
that has offices 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, 2018, the Company and its subsidiaries employed 3,573
persons.
Business Segments
The Company’s products and services are grouped into four segments: Commercial Banking, Institutional
Banking, Personal Banking, and Healthcare Services.
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 33 through 35, 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 89 through 90 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. Increasingly,
financial-technology (fintech) companies are partnering with financial-services providers to compete with the
Company for lending, payments, and other business. Many of the Company’s competitors are not 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,
interest 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
3
of services, and reputation. The Company and its competitors are all impacted to varying degrees by the overall
economy and health of the financial markets.
The Company’s ability to successfully compete in its chosen markets and regions also depends on the its
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—is subject to the regulation, supervision,
and examination of the FRB and to restrictions on permissible activities. This framework 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
4
Management, LLC by the Securities and Exchange Commission (the SEC) and State regulatory authorities under
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 regulatory 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
Under the BHCA, bank holding companies and their subsidiaries 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. Examples of the former are 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 (the FRA), 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 FRA.
Stress Testing and Enhanced Prudential Standards
The Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) was enacted in May
2018, amending requirements previously established in the Dodd-Frank Act, including stress testing and enhanced
prudential standards. Bank holding companies with assets of less than $100 billion, including the Company, are no
longer subject to the requirement to conduct forward-looking, company-run stress testing, including publishing a
summary of results. The Company continues to run internal stress tests as a component of our comprehensive risk
management and capital planning process. In addition, the EGRRCPA increased the statutory asset threshold above
which the Federal Reserve is required to apply enhanced prudential standards from $50 billion to $250 billion
(subject to certain discretion by the Federal Reserve to apply any enhanced prudential standard requirement to any
bank holding company with between $100 billion and $250 billion in total consolidated assets that would otherwise
be exempt under EGRRCPA). The Company remains exempt from applying the enhanced prudential standards.
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.
6
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.
The capital ratios for the Company and the Bank as of December 31, 2018, are set forth below:
UMB Financial Corporation
UMB Bank, n.a.
Tier 1
Leverage Ratio
9.87
8.85
Tier 1
Risk-Based
Capital Ratio
12.89
11.65
Common Equity
Tier 1
Capital Ratio
12.89
11.65
Total
Risk-Based
Capital Ratio
13.95
12.29
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: (1) well capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly
undercapitalized, and (5) 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, 2018, 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.
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 (an acronym that refers to the five components of a bank’s condition that are
addressed: capital adequacy, asset quality, management, earnings, and liquidity) 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.
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.
7
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 20 through 55, of this report.
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
Age
Position with Registrant
Dana H. Abraham
James Cornelius
54 Ms. Abraham has served as the President of Private Wealth Management of the Bank
since September 2018. Prior to that time, Ms. Abraham served at the Bank as the
President of Personal banking from July 2015 to September 2018 and as President of
Private Wealth Management from May 2009 to July 2015.
57 Mr. Cornelius has served as the President of Institutional Banking for the Bank since
June 2015. Prior to this time, he served as the President of Institutional Banking and
Investor services from June 2012 until June 2015.
Shannon A. Johnson
39 Ms. Johnson has served as Executive Vice President and Chief Human Resources
Officer of the Company since April 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.
8
J. Mariner Kemper
Kevin M. Macke
46 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.
46 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.
J. Benjamin Morris
44 Mr. Morris was named the President of UMB Healthcare Services of the Bank in
May 2015. Prior to this time, he served as a Vice President and Business
Development Officer of UMB Healthcare Services. Mr. Morris has worked for the
Bank since February 1998.
Jennifer M. Payne
42 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.
James D. Rine
48 Mr. Rine was named President and Chief Executive Officer of the Bank in October
2018. He served as President of Commercial Banking from December 2017 until
October 2018 and as President of Commercial Banking/Western Region from
October 2016 to December 2017. Prior to this time, Mr. Rine served as the President
of the Kansas City Region since October 2011. Overall, Mr. Rine has over 20 years
of commercial banking experience with the Bank.
Ram Shankar
46 Mr. Shankar was named as Executive Vice President and Chief Financial Officer of
John C. Pauls
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.
54 Mr. Pauls has served as Executive Vice President, General Counsel and Corporate
Secretary 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 24 years, having served as a top legal advisor for the
Company and the Bank for over 17 years.
Thomas S. Terry
55 Mr. Terry has served as Executive Vice President and Chief Lending Officer of the
Brian J. Walker
Abigail Wendel
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.
47 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.
45 Ms. Wendel was named President of Consumer Banking of the Bank in September
2018. She has also served as Chief Strategy Officer for the Company from June
2015 until September 2018, and as the Director of Investor and Government
Relations for the Company from February 2013 through June 2015.
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. These reports can
also be found on the SEC website at www.sec.gov.
9
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 21) and the Notes to the
Consolidated Financial Statements (which can be found in Part II, Item 8 of this report beginning on page 56).
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.
See “Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk” in Part II, Item 7A of this
report beginning on page 49 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
10
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 53 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, 2018, 42.8 percent of the Company’s aggregate loan portfolio—comprised of commercial real-estate
loans (representing 30.5 percent of the aggregate loan portfolio), construction real-estate loans (representing 6.5
percent of the aggregate loan portfolio), and residential real-estate loans (representing 5.8 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, the Company may incur substantial liability 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
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, 2018, the Company’s securities portfolio totaled approximately $7.8 billion, which represented
approximately 33.6 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, 2018,
the weighted average yield of the Company’s securities portfolio was 2.4 percent as compared to 4.8 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 $6.5 billion, or 83.4 percent, of the Company’s investment
11
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.
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
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 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
12
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
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
13
Disclosures About Market Risk—Operational Risk” in Part II, Item 7A of this report beginning on page 55 for a
discussion of how the Company monitors and manages operational risk.
The soundness of other financial institutions could adversely affect us. The soundness of other financial
institutions could adversely affect us. Financial services institutions are interrelated because of trading, clearing,
counterparty and other relationships. We routinely execute transactions with counterparties in the financial services
industry, including brokers and dealers, commercial banks, investment banks, payment processors, and other
institutional clients, which may result in payment obligations to us or to our clients due to products we have
arranged. Many of these transactions expose us to credit and market risk that may cause our counterparty or client to
default. In addition, we are exposed to market risk when the collateral we hold cannot be realized or is liquidated at
prices not sufficient to recover the full amount of the secured obligation. Any losses arising from such occurrences
could materially and adversely affect our business, results of operations or financial condition.
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
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.
14
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 54 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,
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
15
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 46. 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.
We face risks in connection with our strategic undertakings and new business initiatives. We are
engaged, and may in the future engage, in strategic activities including acquisitions, joint ventures, partnerships,
investments or other business growth initiatives or undertakings. There can be no assurance that we will successfully
identify appropriate opportunities, that we will be able to negotiate or finance such activities or that such activities,
if undertaken, will be successful. We are focused on our long-term growth and have undertaken various strategic
activities and business initiatives, some of which may involve activities that are new to us. For example, in the
future we may engage in or focus on new lines of business, financial technologies, and other activities that are
outside of our current product offerings. These new initiatives may subject us to, among other risks, increased
business, reputational and operational risk, as well as more complex legal, regulatory and compliance costs and
16
risks. Our ability to execute strategic activities and new business initiatives successfully will depend on a variety of
factors. These factors likely will vary based on the nature of the activity but may include our success in integrating
an acquired company or a new internally-developed growth initiative into our business, operations, services,
products, personnel and systems, operating effectively with any partner with whom we elect to do business, meeting
applicable regulatory requirements and obtaining applicable regulatory licenses or other approvals, hiring or
retaining key employees, achieving anticipated synergies, meeting management's expectations, actually realizing the
anticipated benefits of the activities, and overall general market conditions. Our ability to address these matters
successfully cannot be assured. In addition, our strategic efforts may divert resources or management's attention
from ongoing business operations and may subject us to additional regulatory scrutiny and potential liability. If we
do not successfully execute a strategic undertaking, it could adversely affect our business, financial condition,
results of operations, reputation or growth prospects.
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 is located at 1010 Grand Boulevard in downtown Kansas City,
Missouri. The building opened in July 1986 and all 250,000 square feet are 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 administrative support functions. Within the 906 Grand building,
approximately 8,000 square feet of space is leased to two small tenants. The 928 Grand building is connected to the
1010 Grand building 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, 2018, the Bank operated a total of 92 banking centers.
UMBFS leases approximately 95,000 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 63 and 81 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 22, 2019, the Company had 2,349 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
2018
Dividend
Book value
Market price:
High
Low
Close
Per Share
2017
Dividend
Book value
Market price:
High
Low
Close
Three Months Ended
March 31 June 30 Sept 30 Dec 31
0.290 $
$
43.96
0.290 $
43.31
0.290 $
44.20
0.300
45.37
78.27
70.71
72.39
82.14
70.06
76.23
80.39
70.16
70.90
73.14
57.00
60.97
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
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 83 through 84 of
this report. Information concerning securities the Company issued under its equity compensation plans is contained
in Item 12, pages 113 through 114 and in Note 11, “Employee Benefits,” in the Notes to the Consolidated Financial
Statements provided in Item 8, pages 85 through 89 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, 2018:
ISSUER PURCHASES OF EQUITY SECURITIES
Period
October 1 - October 31, 2018
November 1 - November 31, 2018
December 1 - December 31, 2018
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
60.58
64.97
59.58
60.49
701,865
928
78,917
781,710
1,023,572
1,022,644
943,727
Total
Number
of Shares
Purchased
701,865 $
928
78,917
781,710 $
On April 25, 2017, the Company announced a plan to repurchase up to two million shares of common stock,
which terminated on April 24, 2018. On April 24, 2018, the Company announced a plan to repurchase up to two
million shares of common stock, which will terminate on April 23, 2019. On October 23, 2018 the Company
entered into an agreement with Bank of America Merrill Lynch (BAML) to repurchase an aggregate of $50.0
million of the Company’s common stock through an accelerated share repurchase agreement (the ASR). The
18
Company repurchased a total of 780,321 shares of its common stock, completing the ASR program in December
2018. The Company has not made any repurchases other than through this plan. Other than purchases pursuant to
the ASR, 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.
19
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 21 through
48, 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
2018
2017
2016
2015
2014
$
731,961
121,515
610,446
70,750
401,698
717,800
196,260
$
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
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
$20,999,877
11,606,544
7,413,776
419,768
16,984,547
79,189
2,194,788
$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
$23,351,119
12,181,342
7,848,149
1,047,830
19,281,260
82,671
2,228,470
$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
$
3.98
$
3.72
$
3.15
$
2.05
$
2.03
$
3.94
1.17
29.40%
$
45.37
82.14
57.00
60.97
0.93%
8.94
10.45
13.95
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
20
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, 2018. 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:
•
•
•
•
•
•
•
•
•
•
•
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;
21
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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 changing or stricter 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 capacity to withstand cyber-attacks;
the adequacy of the Company’s corporate governance, risk-management framework, compliance
programs, or internal controls, 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 and
divest assets;
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 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 has focused 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 identified 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 2018,
total revenue increased 3.0 percent, while noninterest expense increased 1.8 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
22
also continues to evaluate core systems and will invest in enhancements that it believes will yield operating
efficiencies.
The second strategic objective is to increase net interest income through profitable loan and deposit growth
and the optimization of the balance sheet. For 2018, we made progress on this strategy, as illustrated by an increase
in net interest income of $51.5 million, or 9.2 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 $762.9
million, or 7.0 percent, from December 31, 2017. The funding for these assets was driven primarily by a 5.1 percent
increase in average interest-bearing liabilities. Net interest margin, on a tax-equivalent basis, increased six basis
points compared to the same period in 2017.
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 positioned the Company to benefit in
periods of growth. Noninterest income decreased $21.9 million, or 5.2 percent, to $401.7 million for the year ended
December 31, 2018, compared to the same period in 2017. This decline was driven by a combination of lower
market-driven revenues in bond trading income, customer and contract re-pricings in our institutional and asset
servicing businesses, as well as an increase in card-based rewards and rebates expense recorded as contra-revenues
in bankcard fees. 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, 2018, noninterest income represented 39.7 percent
of total revenues, as compared to 43.1 percent at December 31, 2017.
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 business growth and
acquisition opportunities. The Company continues to maximize shareholder value through a mix of reinvesting in
organic growth, evaluating acquisition opportunities that complement the Company’s strategies, increasing
dividends over time, and appropriately utilizing a share repurchase program. At December 31, 2018, the Company
had a total risk-based capital ratio of 13.95 percent and $2.2 billion in total shareholders’ equity, an increase of
$46.9 million, or 2.2 percent, compared to total shareholders’ equity at December 31, 2017. The Company
repurchased 1.1 million shares of common stock at an average price of $64.84 per share during 2018 and paid $58.3
million in dividends, which represents a 12.3 percent increase compared to dividends paid during 2017.
Earnings Summary
The Company recorded consolidated income from continuing operations of $196.3 million for the year-ended
December 31, 2018. This represents a 7.3 percent increase over 2017. Income from continuing operations for 2017
was $183.0 million, or an increase of 19.1 percent compared to 2016. Basic earnings per share from continuing
operations for the year ended December 31, 2018, were $3.98 per share compared to $3.72 per share in 2017, an
increase of 7.0 percent. Basic earnings per share from continuing operations were $3.15 per share in 2016, or an
increase of 18.1 percent from 2016 to 2017. Fully diluted earnings per share from continuing operations increased
7.4 percent from 2017 to 2018, and increased 17.6 percent from 2016 to 2017.
The Company’s net interest income increased to $610.4 million in 2018 compared to $558.9 million in 2017
and $495.3 million in 2016. In total, a favorable volume variance coupled with a favorable rate variance, resulted in
a $51.5 million increase in net interest income in 2018, compared to 2017. See Table 2 on page 27. The favorable
volume variance on earning assets was predominantly driven by the increase in average loan balances of $762.9
million, or 7.0 percent, for 2018 compared to the same period in 2017. Net interest margin, on a tax-equivalent
basis, increased to 3.21 percent for 2018, compared to 3.15 percent for the same period in 2017. The Company has
seen an increase in the benefit from interest-free funds compared to 2017. The impact of this benefit increased 15
basis points compared to 2017 and is illustrated on Table 3 on page 28. The magnitude and duration of this impact
will be largely dependent upon the FRB’s policy decisions and market movements. See Table 20 in Item 7A on page
50 for an illustration of the impact of an interest rate increase or decrease on net interest income as of December 31,
2018.
The provision for loan loss totaled $70.8 million for the year-ended December 31, 2018, which is an increase
of $29.8 million, or 72.6 percent, compared to the same period in 2017. This increase was driven primarily by
23
higher provision to cover the loss related to a single factoring credit relationship. See further discussion in
“Provision and Allowance for Loan Losses” on page 28.
The Company had a decrease of $21.9 million, or 5.2 percent, in noninterest income in 2018, as compared to
2017, and an increase of $21.1 million, or 5.2 percent, in 2017, compared to 2016. The decrease in 2018 is
primarily attributable to trading and investment banking, trust and securities processing, bankcard income, gains on
sales of available-for-sale securities, and service charges on deposit accounts. The change in noninterest income in
2018 from 2017, and 2017 from 2016 is illustrated on Table 6 on page 31.
Noninterest expense increased in 2018 by $12.7 million, or 1.8 percent, compared to 2017 and increased by
$38.4 million, or 5.8 percent, in 2017 compared to 2016. The increase in 2018 is primarily driven by increases in
legal and consulting expense, salary and employee benefit expense, and processing fees, offset by a decrease in
other expense. The increase in noninterest expense in 2018 from 2017, and 2017 from 2016 is illustrated on Table 7
on page 32.
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 2018, 2017 and 2016.
Net interest margin, presented in Table 1 on page 25, 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, 2018, 2017 and 2016. Net interest income, average balance sheet
amounts and the corresponding yields earned and rates paid for the years 2016 through 2018 are presented in Table
1 below.
24
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
2018
Interest
Income/
Expense
(1)
Average
Balance
Rate
Earned/
Paid (1)
Average
Balance
2017
Interest
Income/
Expense
(1)
Rate
Earned/
Paid (1)
$11,606.5 $ 559.4
4.82% $10,843.6 $ 461.3
4.25%
3,858.8
3,505.6
7,364.4
178.8
419.8
49.3
19,618.8
(100.9)
396.1
1,085.8
$20,999.8
83.3
94.1
177.4
4.8
7.9
2.5
752.0
2.16
2.68
2.41
2.69
1.88
4.97
3.83
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
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing demand and savings deposits $10,113.3 $
355.3
Time deposits under $250,000
687.4
Time deposits of $250,000 or more
11,156.0
Total interest bearing deposits
79.2
Long-term debt
Federal funds purchased and repurchase
agreements
80.9
3.8
7.4
92.1
4.7
0.80% $ 8,819.4 $
373.6
1.07
1.08
809.5
10,002.5
0.83
76.3
5.93
27.6
2.8
6.0
36.4
3.7
0.31%
0.75
0.74
0.36
4.85
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)
1,559.1
12,794.3
5,828.5
182.2
18,805.0
2,194.8
$20,999.8
24.7
121.5
1.59
0.95
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
$ 630.5
$ 598.4
2.88%
3.21%
2.97%
3.15%
(1)
(2)
(3)
Interest income and yields are stated on a fully tax-equivalent (FTE) basis, using a marginal tax rate of 21%
for 2018, while a rate of 35% was used for 2017 and 2016. 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 $20.0 million, $39.5 million, and $31.0
million in 2018, 2017, and 2016, respectively.
Loan fees are included in interest income. Such fees totaled $17.0 million, $15.4 million, and $13.3 million in
2018, 2017, and 2016, respectively.
Loans on non-accrual are included in the computation of average balances. Interest income on these loans is
also included in loan income.
25
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)
2016
Interest
Income/
Expense (1)
Rate
Earned/
Paid (1)
Average
Balance
$ 9,992.9 $
386.3
3.87%
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
$ 8,267.6 $
601.4
563.7
9,432.7
3.8
81.9
2,005.6
11,524.0
5,906.0
178.9
17,608.9
1,983.7
$ 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
11.4
3.3
3.2
17.9
—
3.2
6.6
27.7
0.14%
0.55
0.57
0.19
—
3.91
0.33
0.24
526.3
2.79%
2.88%
26
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
Average Rate
Increase (Decrease)
2018
2017
2018
2017
2018 vs. 2017
Volume Rate
Total
Change in interest earned on:
$11,606,544 $10,843,642
4.82%
4.25% Loans
$ 33,952 $ 64,098 $ 98,050
3,858,829 3,918,001
3,505,602 3,657,951
2.16
2.68
1.87
3.08
178,801
190,074
2.69
1.95
419,768
49,345
351,293
57,013
19,618,889 19,017,974
1.88
4.97
3.83
1.10
3.28
3.45
11,156,002 10,002,497
0.83
0.36
1,559,149 2,095,111
76,301
$12,794,342 $12,173,909
79,191
1.59
5.93
0.95%
0.85
4.90
0.48%
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
(1,119) 11,327 10,208
992
245
747
(230)
1,338
1,108
870
(264)
4,039
652
33,454 81,595 115,049
3,169
916
4,635 51,112 55,747
(5,483) 12,314
6,831
938
791
147
(701) 64,217 63,516
$ 34,155 $ 17,378 $ 51,533
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
(383)
491
874
1,065 29,226 30,291
$ 33,907 $ 29,683 $ 63,590
27
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
2018
$ 19,618,889
12,794,342
$ 6,824,547
2017
$ 19,017,974
12,173,909
$ 6,844,065
2016
$ 18,256,621
11,524,009
$ 6,732,612
34.79%
3.83%
0.95
2.88%
0.33
3.21%
35.99%
3.45%
0.48
2.97%
0.18
3.15%
36.88%
3.03%
0.24
2.79%
0.09
2.88%
The Company experienced an increase in net interest income of $51.5 million, or 9.2 percent, for the year-
ended December 31, 2018, compared to 2017. This follows an increase of $63.6 million, or 12.8 percent, for the
year-ended December 31, 2017, compared to 2016. Average earning assets for the year ended December 31, 2018
increased by $600.9 million, or 3.2 percent, compared to the same period in 2017. Net interest margin, on a tax-
equivalent basis, increased to 3.21 percent for 2018 compared to 3.15 percent in 2017.
The Company funds a significant portion of its balance sheet with noninterest-bearing demand deposits.
Noninterest-bearing demand deposits represented 34.6 percent, 37.9 percent and 40.2 percent of total outstanding
deposits at December 31, 2018, 2017 and 2016, respectively. As illustrated in Table 3, the impact from these
interest-free funds was 33 basis points in 2018, as compared to 18 basis points in 2017 and nine basis points in 2016.
The Company has experienced an increase in net interest income during 2018 due to a volume variance of
$34.2 million and a rate variance of $17.4 million. The average rate on earning assets during 2018 has increased by
38 basis points, while the average rate on interest-bearing liabilities increased by 47 basis points, resulting in a nine
basis point decrease in spread. The volume of loans has increased from an average of $10.8 billion in 2017 to an
average of $11.6 billion in 2018. 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 2019, approximately $1.1 billion of available for sale securities are expected to have principal
repayments. This includes approximately $272 million which will have principal repayments during the first quarter
of 2018. The available for sale investment portfolio had an average life of 56.8 months, 51.7 months, and 54.3
months as of December 31, 2018, 2017, and 2016, 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
methodology refer to Note 3, “Loans and Allowance for Loan Losses,” in the Notes to the Consolidated Financial
Statements.
28
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
2017
2018
December 31,
2016
$ 80,888 $ 81,156 $ 71,657 $ 63,847 $ 55,349
10,725
9,921
145
$ 103,635 $ 100,604 $ 91,649 $ 81,143 $ 76,140
10,569
9,311
112
9,312
10,083
53
13,664
9,071
12
8,220
8,949
127
2014
2015
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 53 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 decreased as a percentage of total loans to 0.85 percent as of
December 31, 2018, compared to 0.89 percent as of December 31, 2017. The provision for loan loss totaled $70.8
million for the year-ended December 31, 2018, which is an increase of $29.8 million, or 72.6 percent, compared to
the same period in 2017. This increase was driven by higher provision to cover the loss related to a single factoring
credit relationship, which has since entered into bankruptcy, as well as based on the factors noted above. The
provision for loan losses totaled $41.0 million and $32.5 million for the years-ended December 31, 2017 and 2016,
respectively.
29
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:
Provision for loan losses
Average loans
Noninterest Income
$
2018
100,604
70,750
$
2017
2016
91,649
41,000
$
81,143
32,500
$
2015
76,140
15,500
$
2014
74,751
17,000
(64,371)
(27,985)
(12,788)
(5,239)
(7,307)
(8,601)
(1,143)
(3,428)
(77,543)
(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)
6,753
3,522
3,596
1,824
848
1,803
1,802
1,730
1,540
1,728
687
667
518
533
898
44
321
985
966
445
3,382
4,614
6,829
6,561
9,824
(15,611)
(10,497)
(21,994)
(32,045)
(67,719)
76,140
$
81,143
$
91,649
$
100,604
$
103,635
$
$6,974,246
$8,423,997
$ 9,986,151
$10,841,486
$11,604,633
12,178,150
11,280,514
10,540,383
9,430,761
7,465,794
0.85%
0.89%
0.87%
0.86%
1.02%
1.53x
3.14x
4.17x
7.73x
4.88x
95.72%
0.58
78.16%
0.30
67.67%
0.22
67.72%
0.12
91.83%
0.22
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 decreased in 2018 by $21.9 million, or 5.2 percent, compared to
2017 and increased in 2017 by $21.1 million, or 5.2 percent, compared to 2016. The decrease in 2018 is primarily
attributable to trading and investment banking, trust and securities processing, bankcard income, gains on sales of
available-for-sale securities, and service charges on deposit accounts. The increase in 2017 is primarily attributable
to trust and securities processing, brokerage income, other income, and bankcard 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.
30
Table 6
SUMMARY OF NONINTEREST INCOME (in thousands)
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
Other
Total noninterest income
Dollar Change
18-17 17-16 18-17
Year Ended December 31,
2016
2017
2018
$172,163 $176,646 $166,315 $ (4,483) $10,331
15,584 23,183 21,422
84,287 87,680 86,662
4,188
25,807 23,208 17,833
68,520 73,030 68,749
(7,599) 1,761 (32.8)
(3.9)
(3,393) 1,018
(680) (2,216) (34.5)
2,599 5,375 11.2
(6.2)
(4,510) 4,281
1,972
1,292
Percent Change
17-16
(2.5)%
6.2%
8.2
1.2
(52.9)
30.1
6.2
578
4,192
8,509
33,467 33,651 28,833
(184) 4,818
$401,698 $423,562 $402,511 $(21,864) $21,051
(3,614) (4,317) (86.2)
(0.5)
(5.2)%
(50.7)
16.7
5.2%
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 2018 compared to 2017, and in 2017 compared to 2016.
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 decreased by $4.5 million, or 2.5 percent in 2018, compared to 2017, and increased by $10.3
million, or 6.2 percent, in 2017, compared to 2016. During 2018, fee income from fund services fees decrease $7.5
million and wealth management services decreased $1.0 million. These decreases were offset by an increase in
corporate trust income of $4.0 million as compared to 2017. In 2017, fee income from wealth management services
increased $5.3 million, fund administration and custody services increased $3.3 million, and corporate trust revenue
increased $1.7 million, as compared to 2016.
Trading and investment banking income decreased $7.6 million, or 32.8 percent, in 2018 compared to 2017
and increased $1.8 million, or 8.2 percent, in 2017 compared to 2016. The decrease in 2018 compared to 2017 was
driven by decreased bond trading income. Additionally, the Company liquidated seed investments in certain Scout
funds in 2017, causing a decrease in 2018 from 2017, and an increase in 2017 from 2016.
Brokerage fees increased $2.6 million, or 11.2 percent, in 2018 compared to 2017 and increased $5.4 million,
or 30.1 percent, in 2017 compared to 2016 primarily due to an increase in 12b-1 income driven by an increase in
interest rates.
Bankcard fees decreased $4.5 million, or 6.2 percent, in 2018 compared to 2017, and increased $4.3 million,
or 6.2 percent, in 2017 compared to 2016. The decrease in 2018 compared to 2017 was driven by increased rewards
and rebate expense, partially offset by increased interchange revenue. The increase in 2017 compared to 2016 was
driven by increased interchange income.
Gains on sales of securities available for sale decreased $3.6 million in 2018 compared to 2017 and decreased
by $4.3 million in 2017 compared to 2016. 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.
Other noninterest income decreased $0.2 million, or 0.5 percent, in 2018 compared to 2017 and increased $4.8
million, or 16.7 percent, in 2017 compared to 2016. The decrease from 2017 to 2018 was primarily due to a
decrease in company-owned life insurance income, partially offset by gains on sales of assets.
Noninterest Expense
Noninterest expense increased in 2018 by $12.7 million, or 1.8 percent, compared to 2017 and increased in
2017 by $38.4 million, or 5.8 percent, compared to 2016. The main drivers of the increase from 2017 to 2018 were
legal and consulting expense, salaries and employee benefits expense, processing fees, and equipment expense. The
31
main drivers of the increase from 2016 to 2017 were salaries and employee benefits expense, processing fees, and
equipment expense. Table 7 below summarizes the components of noninterest expense and the respective year-
over-year changes for each category.
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
777
Percent Change
17-16
Dollar Change
18-17 17-16 18-17
Year Ended December 31,
2016
2017
2018
$419,091 $413,830 $390,059 $ 5,261 $23,771
45,239 44,462 44,255
207
75,184 72,008 66,337 3,176 5,671
16,103 17,173 18,535 (1,070) (1,362)
261 13.5
24,372 21,469 21,208 2,903
46,977 42,331 36,005 4,646 6,326 11.0
29,859 23,406 20,801 6,453 2,605 27.6
17,514 19,471 20,757 (1,957) (1,286) (10.1)
6.1%
0.5
8.5
(7.3)
1.2
17.6
12.5
(6.2)
8,695 (1,562) (1,369) (21.3) (15.7)
9.5
8.5
5.8%
12,695 15,527 14,178 (2,832) 1,349 (18.2)
25,002 28,126 25,915 (3,124) 2,211 (11.1)
1.8%
$717,800 $705,129 $666,745 $12,671 $38,384
1.3%
1.7
4.4
(6.2)
5,764
7,326
Salaries and employee benefits expense increased $5.3 million, or 1.3 percent, in 2018 compared to 2017 and
$23.8 million, or 6.1 percent, in 2017 compared to 2016. In 2018, salary and wage expense increased $11.1 million,
or 4.3 percent, and bonus and commission expense increased $1.7 million, or 2.2 percent. These increases were
offset by decreased employee benefit expense of $7.6 million, or 10.1 percent driven by lower deferred
compensation expense. From 2016 to 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.
Equipment expense increased $3.2 million, or 4.4 percent, and $5.7 million, or 8.5 percent in 2018 and 2017,
respectively. This increase is driven by increased computer hardware and software expenses for the ongoing
investments in digital channel and integrated platform solutions to support business growth and the continued
modernization of its core systems in both years.
Processing fees expense increased $4.6 million, or 11.0 percent, in 2018 compared to 2017, and increased $6.3
million, or 17.6 percent, in 2017 compared to 2016. The increases in 2018 and 2017 are primarily driven by
ongoing investments in digital channel and integrated platform solutions to support business growth and the
continued modernization of its core systems.
Legal and consulting expense increased $6.5 million, or 27.6 percent, in 2018 compared to 2017 and $2.6
million, or 12.5 percent, in 2017 compared to 2016. The increase in 2018 was driven by an increase of $5.4 million
in consulting expense and an increase of $1.1 million in legal and professional services expense. 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.
Other noninterest expense decreased $3.1 million, or 11.1 percent, and increased $2.2 million, or 8.5 percent,
in 2018 and 2017, respectively. The decrease in 2018 was driven by lower operational losses compared to 2017.
The increase in 2017 was driven by increased contribution and derivative expense. The increase in 2017 was driven
by increased contribution and derivative expense.
Income Taxes
Income tax expense for continuing operations totaled $27.3 million, $53.4 million and $45.0 million in 2018,
2017 and 2016, respectively. These amounts equate to effective tax rates of 12.2 percent, 22.6 percent, and 22.6
percent for 2018, 2017 and 2016, respectively. The decrease in effective rate from 2017 to 2018 is primarily a result
of the Tax Cuts and Job Act (the Tax Act) which lowered the federal corporate income tax rate to 21 percent from
32
35 percent, effective January 1, 2018. The decrease is also attributable to a discrete tax benefit of $5.1 million
related to 2017 federal provision-to-return adjustments. Of this amount, $5.0 million was due to the remeasurement
of deferred tax assets and liabilities upon completion of the 2017 federal tax return during the fourth quarter of 2018.
As of December 31, 2018, the accounting for the impact of the change in tax rate on deferred tax assets and
liabilities is complete.
For further information on income taxes refer to Note 17, “Income Taxes,” in the Notes to the Consolidated
Financial Statements.
Business Segments
The Company has strategically aligned its operations into the following four reportable segments: Commercial
Banking, Institutional Banking, Personal Banking, and Healthcare Services (collectively, the Business
Segments). 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 three Business Segments: Bank, Institutional
Investment Management, and Asset Servicing. During 2017, the Company sold all of the outstanding stock of
Scout, its institutional investment management subsidiary. As the operations of Scout are included in discontinued
operations, the Company no longer presents such 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
COMMERCIAL BANKING OPERATING RESULTS (in thousands)
Year Ended
December 31,
2018
2017
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Income from continuing operations
63,841
74,931
$ 380,266 $ 353,627 $
32,937
82,221
253,740 250,308
137,616 152,603
34,460
$ 120,792 $ 118,143 $
16,824
Dollar
Change
18-17
26,639
30,904
(7,290)
3,432
(14,987)
(17,636)
2,649
Percent
Change
18-17
7.5%
93.8
(8.9)
1.4
(9.8)
(51.2)
2.2%
For the year ended December 31, 2018, Commercial Banking income from continuing operations increased by
$2.6 million, or 2.2 percent, to $120.8 million compared to the same period in 2017. Net interest income increased
$26.6 million, or 7.5 percent, for the year ended December 31, 2018, compared to the same period in 2017,
primarily driven by strong loan growth, increased interest rates, and earning asset mix changes. Provision for loan
losses increased by $30.9 million as compared to 2017. This increase was driven by higher provision to cover the
loss related to a single factoring credit relationship, which has since entered into bankruptcy, and is consistent with
our methodology, which considers the inherent risk in our loan portfolio, as well as other qualitative factors, such as
macroeconomic conditions, loan growth, loan impairment changes, loan risk grading changes, and net charge-off
levels. Noninterest income decreased $7.3 million, or 8.9 percent, over the same period in 2017 primarily driven by
a decrease of $3.6 million in gains on securities available for sale and a decrease of $3.8 million in company-owned
life insurance income. Noninterest expense increased $3.4 million, or 1.4 percent, to $253.7 million. This increase
is primarily driven by increased salary and benefit expense and processing fees.
33
Table 9
INSTITUTIONAL BANKING OPERATING RESULTS (in thousands)
Year Ended
December 31,
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Income from continuing operations
$
2018
66,585 $
1,335
2017
51,977 $
1,461
173,591 187,003
189,708 184,618
52,901
11,946
40,955 $
49,133
6,007
43,126 $
$
Dollar
Change
18-17
14,608
(126)
(13,412)
5,090
(3,768)
(5,939)
2,171
Percent
Change
18-17
28.1%
(8.6)
(7.2)
2.8
(7.1)
(49.7)
5.3%
For the year ended December 31, 2018, Institutional Banking income from continuing operations increased
$2.2 million, or 5.3 percent, compared to the same period last year. Net interest income increased $14.6 million, or
28.1 percent, compared to the same period last year, due to an increase in funds transfer pricing driven by higher
interest rates. Provision for loan losses remained flat. Noninterest income decreased $13.4 million, or 7.2
percent. Asset servicing income declined $7.5 million primarily driven by the exit of a large asset manager client
that consolidated all of their global service needs to one provider during 2018. Bond trading fees decreased $5.9
million from lower trading volume and deposit service charges decreased $3.9 million due to customer repricing.
Additionally, there was a $1.4 million decrease on income from company-owned life insurance and a decrease of
$0.8 million in bankcard income. These decreases were offset by increases in corporate trust income of $4.0 million
and brokerage fees of $2.4 million. Noninterest expense increased $5.1 million, or 2.8 percent, primarily driven by
an increase of $4.4 million in salary and employee benefits expense primarily from increased salary and
wages. Furniture and equipment expense increased $2.1 million for increases in computer and hardware costs
related to investments for digital and integrated platform solutions to support business growth and the continued
ongoing modernization of the Company’s core systems. These increases were partially offset by a decrease of $2.4
million in processing fees.
Table 10
PERSONAL BANKING OPERATING RESULTS (in thousands)
Year Ended
December 31,
2018
2017
Dollar
Change
18-17
Percent
Change
18-17
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
Income from continuing operations
5,574
$ 125,045 $ 122,304 $
6,602
118,344 118,896
225,406 226,634
7,964
1,798
6,166 $
12,409
1,517
10,892 $
$
2,741
(1,028)
(552)
(1,228)
4,445
(281)
4,726
2.2%
(15.6)
(0.5)
(0.5)
55.8
(15.6)
76.6%
For the year ended December 31, 2018, Personal Banking income from continuing operations increased $4.7
million, or 76.6 percent, compared to the same period last year. Net interest income increased $2.7 million, or 2.2
percent, compared to the same period last year due to increased interest rates. Provision for loan losses declined
$1.0 million, or 15.6 percent, consistent with our methodology, which considers the inherent risk in our loan
portfolio, as well as other qualitative factors, such as macroeconomic conditions, loan growth, loan impairment
changes, loan risk grading changes, and net charge-off levels. Noninterest income was relatively flat for the same
period. Noninterest expense decreased $1.2 million, or 0.5 percent, primarily due to decreased bankcard
administrative expenses of $1.1 million, decreased regulatory expense of $1.1 million, decreased other noninterest
expense of $1.0 million, largely driven by fewer operational losses. These decreases were offset by increased
marketing and business development expense of $1.4 million, driven by advertising expense from the recent deposit
campaigns in the third quarter, and increased salary and employee benefits expense of $0.5 million.
34
Table 11
HEALTHCARE SERVICES OPERATING RESULTS (in thousands)
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income before taxes
Income tax expense
$
Income from continuing operations
$
Year Ended
December 31,
2018
38,550 $
—
34,832
48,946
24,436
2,986
21,450 $
2017
31,005 $
—
35,442
43,569
22,878
5,166
17,712 $
Dollar
Change
18-17
Percent
Change
18-17
7,545
—
(610)
5,377
1,558
(2,180)
3,738
24.3%
—
(1.7)
12.3
6.8
(42.2)
21.1%
For the year ended December 31, 2018, Healthcare Services income from continuing operations increased
$3.7 million, or 21.1 percent, compared to the same period last year. Net interest income increased $7.5 million, or
24.3 percent, compared to the same period last year, due to an increase in number of accounts and deposits, coupled
with increased funds transfer pricing credits on deposits from higher interest rates. The impact of higher interest
rates, increased competitive pressures from traditional and non-traditional participants, and industry consolidation
will likely impact the future levels of net interest income in this segment. Noninterest income declined $0.6 million,
or 1.7 percent, compared to the same period last year, in part driven by increased revenue share with our larger
healthcare partners. This decrease is primarily driven by decreased bankcard fee income of $1.5 million due to
lower interchange and decreased income from company-owned life insurance of $0.4 million, partially offset by
increased service charges on deposit accounts of $1.7 million. Noninterest expense increased $5.4 million, or
12.3 percent, primarily due to increased technology, service, and overhead expenses of $4.3 million and increased
salary and employee benefits expense of $0.6 million, and increased processing fees of $0.4 million.
35
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 $897.6 million, or 8.0 percent, in 2018. This increase was primarily driven by an increase of $675.4
million, or 14.8 percent, in commercial loans, $150.7 million, or 4.2 percent, in commercial real estate loans, and
$74.7 million, or 10.4 percent in construction real estate loans.
Table 12
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
$
$
$
2018
5,228,402
380,738
261,591
166,334
792,565
3,714,280
5,248
10,549,158
707,504
545,721
230,982
144,785
1,628,992
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
$
December 31,
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
$
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
12,178,150
11,280,513
10,540,383
9,430,761
(103,635)
(100,604)
(91,649)
(81,143)
Net loans
Loans held for sale
12,074,515
3,192
11,179,909
1,460
10,448,734
5,279
9,349,618
589
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
7,465,794
(76,140)
7,389,654
624
Net loans and loans held
for sale
$ 12,077,707
$ 11,181,369
$ 10,454,013
$
9,350,207
$
7,390,278
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
42.92%
3.12
2.15
1.37
6.51
30.49
0.04
86.60
5.81
4.48
1.89
1.19
13.37
0.03
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
100.00%
100.00%
100.00%
100.00%
100.00%
36
Included in Table 12 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 86.6 percent and 85.0 percent of
total loans and loans held for sale at the end of 2018 and 2017, respectively.
Commercial loans represent the largest percent of total loans. Commercial loans at December 31, 2018 have
increased $675.4 million, or 14.8 percent, as compared to December 31, 2017, to 42.9 percent of total loans.
Commercial loans represented 40.4 percent of total loans at December 31, 2017.
As a percentage of total loans, commercial real estate and construction real estate loans now comprise 37.0
percent of total loans compared to 37.9 percent in 2017. Commercial real estate loans increased $150.7 million, or
4.2 percent, and construction real estate loans increased $74.7 million, or 10.4 percent, compared to 2017.
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.
Residential real estate increased $68.9 million, or 10.8 percent, and represented 5.8 percent of total loans.
HELOC loans decreased $102.7 million, or 15.8 percent, and represent 4.5 percent of total loans.
Asset based loans increased $44.1 million, or 13.1 percent, and represented 3.1 percent of total loans as of
December 31, 2018. Factoring loans increased $39.9 million, or 18.0 percent, and represented 2.2 percent of total
loans as of December 31, 2018.
Nonaccrual, past due and restructured loans are discussed under “Quantitative and Qualitative Disclosure
about Market Risk – Credit Risk Management” in Item 7A on page 53 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 $7.8 billion as of December 31, 2018 and $7.6 billion as of December 31, 2017 and
comprised 36.3 percent and 37.5 percent of the Company’s earning assets, respectively, as of those dates.
The Company’s AFS securities portfolio comprised 83.4 percent of the Company’s investment securities
portfolio at December 31, 2018, compared to 81.9 percent at year-end 2017. 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 increased from 51.7 months at December 31, 2017 to 56.8 months at December 31, 2018 due to
portfolio mix changes and extension in the portfolio related to slower projected prepayments. 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, 2018. Of this amount, securities with a market value of $1.0 billion at
December 31, 2018 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 $1.2 billion as
of December 31, 2018, a decrease of $90.4 million, or 7.2 percent, from December 31, 2017. The average life of the
HTM portfolio was 6.9 years at December 31, 2018, compared to 7.2 years at December 31, 2017.
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 2.41 percent for 2018, compared to
2.45 percent in 2017, and 2.12 percent in 2016. Securities available for sale had a net unrealized loss of $127.3
million at year-end, compared to a net unrealized loss of $75.4 million the preceding year. This market value change
primarily reflects the impact of a larger portfolio size, longer average life, and rising market interest rates as of
December 31, 2018, compared to December 31, 2017. These amounts are reflected, on an after-tax basis, in the
37
Company’s Accumulated other comprehensive income (loss) in shareholders’ equity, as an unrealized loss of $96.0
million at year-end 2018, compared to an unrealized loss of $44.5 million for 2017. 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 77 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, and municipal securities 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, 2018.
Included in Tables 13 and 14 are analyses of the cost, fair value and average yield (tax-equivalent basis) of
securities available for sale and securities held to maturity.
Table 13
SECURITIES AVAILABLE FOR SALE (in thousands)
December 31, 2018
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Total
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, 2018
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
Amortized Cost Fair Value
248,494 $ 247,130
$
199
3,914,289 3,812,211
2,507,107 2,483,260
6,670,090 $6,542,800
200
$
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
$
U.S. Treasury Securities
U.S. Agency Securities
Weighted
Average Yield
Fair
Value
Weighted
Average Yield
2.66% $
2.08
1.48
—
2.49% $
199
—
—
—
199
1.46%
—
—
—
1.46%
Fair
Value
$ 184,916
52,874
9,340
—
$ 247,130
38
December 31, 2018
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, 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
Mortgage-backed
Securities
State and Political
Subdivisions
Weighted
Average Yield
Weighted
Average Yield
Fair Value
$
32,859
2,756,639
983,288
39,425
$3,812,211
Fair Value
2.26% $ 349,303
877,224
2.27
699,227
2.80
3.49
557,506
2.42% $2,483,260
1.97%
2.24
2.48
3.66
2.59%
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%
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
2.27
822,801
361,948
3.17
2.15% $2,542,673
Corporates
Weighted
Average Yield
Fair Value
13,266
$
—
—
—
13,266
$
1.31%
—
—
—
1.31%
Fair Value
$
12,823
2,541,152
1,057,436
37,832
$3,649,243
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%
Fair
Value
$ 55,240
29,260
9,326
—
$ 93,826
Mortgage-backed
Securities
State and Political
Subdivisions
Weighted
Average Yield
Weighted
Average Yield
Fair Value
3.00% $ 221,261
1,035,482
2.01
853,368
1.98
3.18
285,646
2.02% $2,395,757
1.99%
2.46
2.83
3.05
2.62%
Fair Value
21,906
$
2,853,678
812,041
24,074
$3,711,699
39
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
Table 14
SECURITIES HELD TO MATURITY (in thousands)
December 31, 2018
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, 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
Corporates
Weighted
Average Yield
Fair Value
53,205
$
13,670
—
—
66,875
$
1.09%
1.31
—
—
1.13%
Weighted
Average
Yield/Average
Maturity
2.02%
2.64
2.38
2.74
2.61%
2.11%
2.61
2.29
2.65
2.54%
2.13%
2.66
2.21
2.59
2.48%
Amortized Cost Fair Value
3,395
3,386 $
$
107,641
115,162
357,381
380,108
602,115
671,990
1,170,646 $1,070,532
$
$
$
$
$
2,275 $
100,648
372,234
785,857
2,254
100,925
363,123
741,145
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
40
FEDERAL RESERVE BANK STOCK AND OTHER SECURITIES (in thousands)
2018
FRB and FHLB stock
Other securities – marketable
Other securities – non-marketable
Total Federal Reserve Bank stock and other
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
Amortized
Cost
Fair
Value
$
$
$
$
$
$
33,262 $
—
32,011
65,273 $
33,262
4,385
36,045
73,692
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
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 $4.4 million at December 31, 2018, compared to $4.6 million
at December 31, 2017. The fair value of other non-marketable securities includes the alternative investment
securities fair value of $5.8 million and $3.4 million at December 31, 2018 and December 31, 2017, 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 both December 31, 2018 and December 31, 2017.
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 $171.3 million in 2018
and $217.1 million in 2017.
At December 31, 2018, the Company held securities purchased under agreements to resell of $626.5 million
compared to $186.5 million at December 31, 2017. 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 $172.1 million in 2018 and $186.8 million in 2017.
The Company also maintains an active securities trading inventory. The average holdings in the securities
trading inventory in 2018 were $49.3 million, compared to $57.0 million in 2017, and were recorded at fair market
value. As discussed in “Quantitative and Qualitative Disclosures About Market Risk -- Trading Account” in Part II,
Item 7A on page 52, 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 $1.0 billion as of December 31, 2018 compared to $1.4 billion as of
December 31, 2017 and includes amounts due from the FRB and interest-bearing accounts held at other financial
institutions. The amount due from the FRB averaged $396.0 million and $303.8 million during December 31, 2018
and 2017, respectively. The increase in the FRB balance from 2017 to 2018 is primarily due to an increase in public
fund and institutional deposit balances. The interest-bearing accounts held at other financial institutions totaled
$18.8 million and $28.2 million at December 31, 2018 and 2017, respectively.
41
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 $19.3 billion at December 31, 2018 and $18.0 billion at December 31,
2017, an increase of $1.3 billion or 7.0 percent. Deposits averaged $17.0 billion in 2018, and $15.9 billion in 2017.
Noninterest-bearing demand deposits averaged $5.8 billion in 2018 and $5.9 billion in 2017. These deposits
represented 34.3 percent of average deposits in 2018, compared to 37.2 percent in 2017. 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 15
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
2018
426,912 $
34,880
35,918
55,134
552,844 $
December 31,
2017
524,173 $
116,491
44,986
46,624
732,274 $
$
$
2016
295,395
111,043
47,664
68,030
522,132
Table 16
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
2018
December 31,
2017
2016
$ 5,828,545
10,113,263
355,344
16,297,152
687,395
$ 16,984,547
$ 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
34.32%
59.54
2.09
95.95
4.05
100.00%
37.24%
55.34
2.34
94.92
5.08
100.00%
38.50%
53.90
3.92
96.32
3.68
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 $1.5 billion at December 31,
2018, and $1.3 billion at December 31, 2017. These agreements averaged $1.6 billion in 2018 and $2.1 billion in
2017. 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
42
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 $814.6 million of borrowing capacity at the FHLB at
December 31, 2018. The Company had no outstanding advances at FHLB Des Moines as of December 31, 2018.
Table 17
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
2018
2017
2016
Amount
Rate
Amount
Rate
Amount
Rate
$
6,679
1,512,241
—
$1,518,920
2.42% $
2.08
—
11,334
1,249,370
—
2.09% $1,260,704
1.27% $ 419,843
1,437,094
1.10
—
—
1.10% $1,856,937
$ 301,503
1,257,646
3
$1,559,152
2.54% $ 879,857
1,215,254
1.53
3
—
1.59% $2,095,114
1.37% $ 439,062
1,566,569
0.76
3,753
—
0.85% $2,009,384
0.50%
0.45
—
0.46%
0.60%
0.30
0.72
0.33%
$ 631,578
1,512,241
—
$1,737,252
1,475,361
—
$1,094,017
1,815,830
—
Long-term debt totaled $82.7 million at December 31, 2018. 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 $69.3 million at December 31, 2018. 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 increased $46.9 million, or 2.2 percent to $2.2 billion at December 31, 2018 as
compared to December 31, 2017.
The Company’s Board of Directors (the Board) authorized, at its April 24, 2018 and April 25, 2017 meetings,
the repurchase of up to two million shares of the Company’s common stock during the twelve months following
each meeting (each a Repurchase Authorization). During 2018 and 2017, the Company acquired 1,136,594 shares
and 217,071 shares, respectively, of its common stock pursuant to the applicable Repurchase Authorization. During
2018, the Company entered into an agreement with Bank of America Merrill Lynch (BAML) to repurchase an
aggregate of $50.0 million of the Company’s common stock through an accelerated share repurchase agreement (the
ASR). Under the ASR, the Company repurchased a total of 780,321 shares. The final settlement of the transactions
under the ASR occurred in December 2018. The ASR was entered into pursuant to the April 24, 2018 Repurchase
Authorization and the Company has not made any repurchase of its securities other than pursuant to the Repurchase
Authorizations.
43
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
borrowing capacity is dependent upon the amount of collateral the Company places at the FHLB. The Company’s
borrowing capacity with the FHLB was $814.6 million as of December 31, 2018. The Company had no outstanding
FHLB advances at FHLB of Des Moines as of December 31, 2018.
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. 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, 2018 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 54 of this report.
Table 18
RISK-BASED CAPITAL (in thousands)
This table computes risk-based capital in accordance with current regulatory guidelines. These guidelines as
of December 31, 2018, 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
$
— $
3,192 $
— $
— $
44,973
10,306
854,518 5,805,835
—
—
—
1,110,255
23,530
9,737
28,524 1,142,122
—
37,974
—
26,343
— $
748,112 11,325,733
—
—
—
19,261
—
902,604
3,192
49,027 12,178,151
— 6,670,090
— 1,170,646
—
500
61,011
—
— 1,692,952
971,911
—
$1,998,609 $6,485,739 $1,967,480 $12,247,598 $ 49,027 $22,748,453
73,541 14,602,027
983,740 12,247,598
— 1,297,148
—
— 2,020,399
28,280 1,987,242
4,877
— $1,302,025 $1,012,020 $14,234,840 $ 73,541 $16,622,426
500
3,776
582,697
19,434
$
Regulatory Capital
Shareholders’ equity
Less adjustments (1)
Common equity Tier 1/Tier 1 capital
Additional Tier 2 capital (2)
Total capital
Total
$ 2,228,470
(86,001)
2,142,469
175,676
$ 2,318,145
44
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))
12.89%
12.89%
13.95%
9.87%
(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 83 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 19
below, as well as Note 15, “Commitments, Contingencies and Guarantees” in the Notes to Consolidated Financial
Statements under Item 8 on pages 94 through 96 for detailed information and further discussion of these
arrangements. Management does not anticipate any material losses from its off-balance sheet arrangements.
Table 19
COMMITMENTS, CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
(in thousands)
The table below details the contractual obligations for the Company as of December 31, 2018, 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
$1,518,920 $1,518,920 $
2,180
12,257
—
71,646
82,671
27,092
74,362
1,146,748
—
$2,822,701 $2,397,202 $ 277,030 $ 49,731 $ 98,738
— $
6,607
20,478
863,845 249,945
— $
2,238
14,535
32,958
45
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
$ 6,870,451 $3,045,082 $1,828,048 $1,052,059 $ 945,262
3,152,439 3,152,439
1,892
202,274
29,796
11,183
—
—
8,967
—
—
$10,364,676 $6,442,666 $1,911,848 $1,055,933 $ 954,229
—
—
83,800
—
—
1,892
298,915
29,796
11,183
—
—
3,874
—
—
As of December 31, 2018, our total liabilities for unrecognized tax benefits were $4.9 million. The Company
cannot reasonably estimate the settlement of these liabilities. Therefore, these liabilities have been excluded from
the table above. See Note 17, “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 risk ratings, migration analysis, concentrations of credit, 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.
46
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.
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 2018.
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 when performance obligations are
satisfied.
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 tax 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.
47
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 17
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 and trading
securities 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,
48
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 18 “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.
49
Table 20 shows the net interest income percentage increase or decrease over the next twelve and twenty-four
month periods as of December 31, 2018 and 2017 based on hypothetical changes in interest rates and a constant
sized balance sheet with runoff being replaced.
Table 20
MARKET RISK
Hypothetical change in interest rate – Rate Ramp
Year Two
Year One
December 31,
2018
Percentage
change
December 31,
2017
Percentage
change
December 31,
2018
Percentage
change
December 31,
2017
Percentage
change
5.2%
3.1
1.0
—
(3.4)
1.3%
0.1
(1.1)
—
(1.5)
11.5%
6.9
2.3
—
(6.4)
7.1%
3.7
0.2
—
(6.0)
Hypothetical change in interest rate – Rate Shock
Year Two
Year One
December 31,
2018
Percentage
change
December 31,
2017
Percentage
change
December 31,
2018
Percentage
change
December 31,
2017
Percentage
change
11.9%
7.6
3.3
—
(6.2)
6.1%
3.3
0.5
—
(5.3)
13.8%
8.5
3.1
—
(7.5)
10.5%
5.9
1.4
—
(9.3)
(basis points)
300
200
100
Static
(100)
(basis points)
300
200
100
Static
(100)
The Company is positioned slightly asset sensitive to changes in interest rates. Net interest income is
predicted to increase in all upward rate scenarios and decrease in 100 bps down scenario. 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. 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.
50
Table 21 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 22 presents the break-out of fixed and
variable rate loans by repricing or maturity characteristics for each loan class.
Table 21
INTEREST RATE SENSITIVITY ANALYSIS (in millions)
1-90
Days
91-180
Days
181-365
Days
Total
1-5
Years
Over 5
Years
Total
December 31, 2018 Earning
assets
Loans
Securities
Federal funds sold and
resell agreements
Other
Total earning assets
% of total earning
assets
$ 7,280.3
1,556.6
$
$
410.7
252.0
645.8
648.2
$ 8,336.8
2,456.8
$3,077.4
2,760.4
$
767.1
2,569.9
$12,181.3
7,787.1
627.0
1,108.9
$10,572.8
$
—
—
662.7
—
—
$ 1,294.0
627.0
1,108.9
$12,529.5
—
—
$5,837.8
—
—
$ 3,337.0
627.0
1,108.9
$21,704.3
48.7%
3.0%
6.0%
57.7%
26.9%
15.4%
100.0%
Funding sources
Interest-bearing demand
and savings
Time deposits
Federal funds purchased
and repurchase agreements 1,518.9
Borrowed funds
69.4
Noninterest-bearing
sources
$ 2,040.2
582.4
4,323.5
$ 8,534.4
Total funding sources
% of total earning
assets
$ 1,529.8
118.8
$ 3,059.7
162.6
$ 6,629.7
863.8
$ 393.9
268.5
$ 4,430.8
14.4
$11,454.4
1,146.7
—
—
—
0.2
1,518.9
69.6
—
3.1
—
10.0
1,518.9
82.7
86.9
$ 1,735.5
161.5
$ 3,384.0
4,571.9
$13,653.9
875.5
$1,541.0
2,054.2
$ 6,509.4
7,501.6
$21,704.3
39.3%
8.0%
15.6%
62.9%
7.1%
100.0%
30.0%
$(3,172.4)
—
Interest sensitivity gap
Cumulative gap
$ 2,038.4
2,038.4
$(1,072.8) $(2,090.0)
(1,124.4)
965.6
$ (1,124.4)
(1,124.4)
$4,296.8
3,172.4
As a % of total earning
assets
Ratio of earning assets to
funding sources
Cumulative ratio of
earning assets to
funding sources
2018
2017
9.4%
4.4%
(5.2)%
(5.2)%
14.6%
—%
1.24
0.38
0.38
0.92
3.79
0.51
1.24
0.98
1.09
0.89
0.92
0.77
0.92
0.77
1.21
1.16
1.00
1.00
51
Table 22
Maturities and Sensitivities to Changes in Interest Rates
This table details loan maturities by variable and fixed rates as of December 31, 2018 (in thousands):
Due after
one year
through
five
years
Due in one
year or less
Due after
five years
Total
$3,675,481 $ 147,350 $
—
—
—
15,814
176,820
104,507
195,157
8,727
163
—
648,538
378,045
261,591
166,334
677,627
1,301,346
29,905
320,920
222,255
94,932
5,248
7,133,684
—
—
—
783
8,017 $ 3,830,848
378,045
261,591
166,334
694,224
26,322 1,504,488
171,100
36,688
516,737
660
230,982
—
95,095
—
5,248
—
72,470 7,854,692
—
—
—
25,301
891,791
2,693
—
—
59,788
67,792 1,397,554
437,971
2,693
—
—
—
—
—
13,252
98,341
641,569 1,282,982 285,241 2,209,792
539,596
155,684 304,939
28,984
10,399
14,235
—
—
—
49,690
990
21,719
—
—
—
1,203,096 2,428,892 694,662 4,326,650
$8,336,780 $3,077,430 $ 767,132 $12,181,342
78,973
4,350
—
26,981
—
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 $61.0 million as of
December 31, 2018, compared to $54.1 million as of December 31, 2017.
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 21 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.
52
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 $16.1 million to $43.0 million at December 31, 2018, compared to December 31, 2017. This decrease was
primarily driven by five credits of approximately $3 million each from three different industries which were charged
off during 2017. There was an immaterial amount of interest recognized on nonperforming loans during 2018, 2017,
and 2016.
The Company had $3.3 million and $1.5 million of other real estate owned as of December 31, 2018 and
2017, respectively. Loans past due more than 90 days and still accruing interest totaled $6.0 million as of December
31, 2018, compared to $3.1 million as of December 31, 2017.
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 $21.1 million of restructured loans at
December 31, 2018 and $41.0 million at December 31, 2017.
During 2018, the Company had net charge-offs of $67.7 million, an increase of $22.1 million as compared to
the same period in 2017. This increase is largely attributable to a $48.1 million loss recognized on a single factoring
credit relationship, which has since entered into bankruptcy.
53
Table 23
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
2018
$ 22,376
20,642
43,018
3,338
$ 46,356
2017
$ 37,731
21,411
59,142
1,501
$ 60,643
December 31,
2016
$ 41,765
28,494
70,259
194
$ 70,453
2015
$ 45,589
15,563
61,152
3,307
$ 64,459
2014
$ 18,660
8,722
27,382
394
$ 27,776
$
6,009
411
103,635
$
3,091
19,603
100,604
$
3,365
24,013
91,649
$
7,324
21,029
81,143
$
3,830
583
76,140
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
0.35%
0.52%
0.67%
0.65%
0.37%
0.38
0.20
0.05
0.85
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
2.41x
1.70x
1.30x
1.33x
2.78x
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 $6.5 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, 2018,
$5.7 billion, or 87.1 percent, of the securities available-for-sale were pledged or used as collateral, compared to $5.7
billion, or 91.3 percent, at December 31, 2017. However of these amounts, securities with a market value of $1.0
billion at December 31, 2018 and $1.8 billion at December 31, 2017, 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, 2018 was $10.3 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
54
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, 2018.
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 $814.6 million through advances at the FHLB of Des Moines, but had no outstanding FHLB Des Moines
advances as of December 31, 2018.
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.
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.
55
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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2018, 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, 2018, 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 March 1, 2019 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
March 1, 2019
56
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 $1,070,532 and $1,207,447, 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
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,
2018
2017
12,178,150 $
(103,635)
12,074,515
3,192
6,542,800
1,170,646
61,011
73,692
7,848,149
627,001
1,047,830
645,123
283,879
110,168
180,867
15,003
515,392
23,351,119 $
6,680,070 $
11,454,442
593,904
552,844
19,281,260
1,518,920
82,671
177,731
62,067
21,122,649
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
SHAREHOLDERS’ EQUITY
Common stock, $1.00 par value; 80,000,000 shares authorized, 55,056,730
shares issued and 49,117,222 and 49,894,990 shares outstanding,
respectively
Capital surplus
Retained earnings
Accumulated other comprehensive loss, net
Treasury stock, 5,939,508 and 5,161,740 shares, at cost, respectively
Total shareholders' equity
Total liabilities and shareholders' equity
$
55,057
1,054,601
1,488,421
(95,782)
(273,827)
2,228,470
23,351,119 $
55,057
1,046,095
1,338,110
(45,525)
(212,206)
2,181,531
21,771,583
See Notes to Consolidated Financial Statements.
57
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
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
(Loss) income from discontinued operations before taxes
Income tax (benefit) expense
(Loss) income from discontinued operations
NET INCOME
Year Ended December 31,
2017
2016
2018
$
559,351 $
461,301 $
386,274
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
28,833
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
8,415
3,248
5,167
158,801
83,333
74,411
157,744
4,808
7,910
2,148
731,961
92,101
24,737
4,677
121,515
610,446
70,750
539,696
172,163
15,584
84,287
1,292
25,807
68,520
578
33,467
401,698
419,091
45,239
75,184
16,103
24,372
46,977
29,859
17,514
5,764
12,695
25,002
717,800
223,594
27,334
196,260
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
33,651
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
(917)
(170)
(747)
195,513 $
101,226
37,097
64,129
247,105 $
$
58
PER SHARE DATA
Basic:
Income from continuing operations
(Loss) income from discontinued operations
Net income – basic
Diluted:
Income from continuing operations
(Loss) income from discontinued operations
Net income - diluted
Weighted average shares outstanding – basic
Weighted average shares outstanding – diluted
See Notes to Consolidated Financial Statements.
$
3.98 $
(0.01)
3.97
3.72 $
1.30
5.02
3.15
0.10
3.25
3.94
(0.01)
3.93
49,334,937
49,770,737
3.67
1.29
4.96
49,223,661
49,839,290
3.12
0.10
3.22
48,828,313
49,277,055
59
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
Net income
Other comprehensive (loss) income, net of tax:
Unrealized gains and losses on debt securities:
Year Ended December 31,
2017
247,105 $
2018
195,513 $
2016
158,801
$
Change in unrealized holding gains and losses, net
Less: Reclassification adjustment for net gains included in
net income
(51,271)
21,139
(77,794)
(578)
(4,192)
(8,509)
Change in unrealized gains and losses on debt securities during
the period
Change in unrealized gains and losses on derivative hedges
Income tax benefit (expense)
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive
income(1)(2)
Net current-period other comprehensive (loss) income
Comprehensive income
(51,849)
1,906
12,735
(37,208)
16,947
(1,050)
(3,880)
12,017
(13,049)
(50,257)
145,256 $
—
12,017
259,122 $
$
(86,303)
(516)
32,995
(53,824)
—
(53,824)
104,977
(1) See Note 2, “New Accounting Pronouncements,” for discussions of the Company’s adoption of Accounting
Standards Update (ASU) No. 2016-01.
(2) See Note 2, “New Accounting Pronouncements,” for discussion of the Company’s adoption of ASU No. 2018-
02.
See Notes to Consolidated Financial Statements.
60
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands, except per share data)
Balance January 1, 2016
Total comprehensive income (loss)
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
Total comprehensive income (loss)
Reclassification of certain tax effects (2)
Dividends ($1.17 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 adjustments (3)
Balance December 31, 2018
Accumulated
Other
Comprehensive
Loss
Common
Stock
—
—
—
—
—
—
—
—
—
—
—
(3,011)
11,306
480
3,417
1,338
Retained
Capital
Earnings
Surplus
$ 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 $
195,513
12,917
(58,264)
—
—
—
—
—
145
$ 55,057 $1,054,601 $1,488,421 $
—
—
—
(2,807)
(2,004)
10,579
524
2,214
—
—
—
—
(2,871)
12,844
608
2,095
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Treasury
Stock Total
—
—
(16,367)
3,440
—
616
12,398
—
(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
145,256
(50,257)
—
12,917
(58,264)
—
(76,507)
—
495
—
10,579
—
1,062
—
11,256
—
145
—
(95,782) $(273,827) $2,228,470
—
—
—
(73,700)
2,499
—
538
9,042
—
(1) Related to the adoption of ASU No. 2016-09. See Note 2, “New Accounting Pronouncements,” for further
detail.
(2) Related to the adoption of ASU No. 2018-02. See Note 2, “New Accounting Pronouncements,” for further
detail.
(3) Related to the adoption of ASU Nos. 2016-01 and 2017-12. See Note 2, “New Accounting Pronouncements,”
for further detail.
See Notes to Consolidated Financial Statements.
61
UMB FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
2018
Year Ended December 31,
2017
2016
$
195,513 $
247,105 $
158,801
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 (benefit) expense
Net increase 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 (increase) decrease 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 (decrease) increase in time deposits
Net increase (decrease) 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
(Decrease) increase 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
See Notes to Consolidated Financial Statements.
$
$
62
70,750
(398)
53,116
(20,261)
(9,889)
(578)
(2,721)
43,773
(59,687)
(1,183)
59,138
11,074
2,364
(11,305)
(13,747)
(18,862)
297,097
114,550
95,525
1,017,230
(33,158)
(1,486,578)
(970,399)
(435,400)
(8,907)
9,389
(57,940)
5,379
—
16
(1,750,293)
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)
1,402,119
(129,159)
258,216
—
4,000
(1,653)
—
(58,279)
12,318
(76,507)
1,411,055
(42,141)
1,716,262
1,674,121 $
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 $
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)
1,598,026
(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
63,127 $
115,163
45,749 $
56,820
44,076
27,999
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
when performance obligations are satisfied.
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, 2018 and 2017 (in thousands):
Due from the FRB
Cash and due from banks
Cash and cash equivalents at end of year
December 31,
2018
2017
$ 1,028,998 $ 1,323,539
392,723
$ 1,674,121 $ 1,716,262
645,123
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 $18.8 million and $28.2 million at
December 31, 2018 and 2017, 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.
63
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. Debt 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.
64
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 2018, 2017, or 2016. 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 2018, 2017, or 2016. 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 2018, 2017, or 2016.
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 are not more-likely-than-not to be realized,
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-
65
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
reporting 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, 2018, 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, three 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. Changes in fair value of the Company’s cash flow hedges are recognized in AOCI.
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 435,800,
615,629, and 448,742 shares issuable upon the exercise of stock options and nonvested restricted shares granted by
the Company that were outstanding at December 31, 2018, 2017, and 2016, respectively.
Options issued under employee benefit plans to purchase 125,765, 149,413, and 390,503 shares of common
stock were outstanding at December 31, 2018, 2017, and 2016, 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. For stock options and restricted stock and
service-based restricted stock unit awards, 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. For performance-
based restricted stock unit awards, the grant date fair value is based on the quoted price of our common stock on the
grant date less the present value of expected dividends not received during the vesting period. 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 replaced most existing revenue recognition guidance in U.S.
GAAP when it became 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
66
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 retrospective approach or a
modified retrospective approach. The Company adopted the amended guidance using the modified retrospective
approach on January 1, 2018. The adoption of this guidance had no impact on the Company’s Consolidated
Financial Statements, except for additional financial statement disclosures. See Note 13, “Revenue Recognition” for
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 were adopted on
January 1, 2018. Upon adoption, the Company recorded a cumulative effect adjustment to the Company’s
Consolidated Balance Sheets of $132 thousand as an increase to the opening balance of total shareholders’ equity.
Leases In February 2016, the FASB issued ASU No. 2016-02, “Leases.” In January and July 2018, the FASB issued
implementation amendments to the February 2016 ASU (collectively, the amended guidance). The amended
guidance 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 amended guidance
allows an entity to choose either the effective date, or the beginning of the earliest comparative period presented in
the financial statements, as its date of initial application. Early adoption is permitted. The Company will adopt the
amended guidance on January 1, 2019 and use the effective date as the date of initial application. The Company
does not anticipate that there will be a cumulative effect adjustment made to retained earnings as a result of adopting
the amended guidance. The most significant effects of the adoption of this guidance will be additional financial
statement disclosures. The Company expects to record a right-of-use asset of approximately $58 million and a lease
liability of approximately $63 million to its Consolidated Balance Sheets as of January 1, 2019.
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 were adopted January 1, 2018 in conjunction with the adoption of ASU
No. 2014-09, and the adoption had no 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
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.
67
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. The amendments in
this update were adopted on January 1, 2018 and did not have an 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,
and require the modified retrospective transition approach as of the date of adoption. The Company early adopted
ASU 2017-12 with an effective date of January 1, 2018. Upon adoption, the Company recorded a cumulative effect
adjustment to the Company’s Consolidated Balance Sheets of $13 thousand as an increase to the opening balance of
total shareholders’ equity.
Comprehensive Income In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive Income.” Under existing U.S. GAAP, the effects of changes in tax
rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which
the law was enacted. When deferred tax balances related to items originally recorded in AOCI are adjusted, certain
tax effects become stranded in AOCI. This amendment allows a reclassification from AOCI to retained earnings for
stranded tax effects resulting from the Tax Cuts and Jobs Act (the Tax Act), and requires certain disclosures about
stranded tax effects. The amendments in this update are effective for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years. Early adoption, including adoption in any interim period, is
permitted. The Company early adopted ASU 2018-02 using a security-by-security approach with an effective date
of January 1, 2018. Upon adoption, the Company reclassified stranded tax effects totaling $12.9 million from AOCI
to retained earnings.
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
68
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.
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.
69
Loan Aging Analysis
This table provides a summary of loan classes and an aging of past due loans at December 31, 2018 and 2017
(in thousands):
December 31, 2018
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
$
5,717 $
—
—
490
—
7,385
246
764
2,022
199
—
16,823 $
$
133 $ 27,060 $ 32,910 $ 5,195,492 $ 5,228,402
380,738
—
261,591
—
166,334
90
380,738
261,591
165,754
—
—
580
—
—
—
—
—
—
792,565
90 11,662 19,137 3,695,143 3,714,280
707,504
545,721
702,701
542,181
4,803
3,540
807
2,776
792,565
3,750
—
1,945
1
—
230,982
4,615
144,785
265
5,248
—
6,009 $ 43,018 $ 65,850 $12,112,300 $12,178,150
226,367
144,520
5,248
648
65
—
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
$ 11,216 $
—
—
387
672 $ 38,644 $ 50,532 $ 4,502,508 $ 4,553,040
336,614
—
—
221,672
—
—
172,291
466
79
336,614
221,672
171,825
—
—
—
6,666
832
791
1,254
243
—
—
—
93
16,115
929
3,013
717,849
710,847
7,002
16,947 3,546,683 3,563,630
638,591
636,871
1,720
648,379
644,112
4,267
2,155
835
—
$ 24,136 $
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
—
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
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, 2018 and December 31, 2017, respectively.
70
The Company sold residential real estate loans with proceeds of $59.1 million, $70.5 million, and $89.5
million in the secondary market without recourse during the periods ended December 31, 2018, 2017, and 2016,
respectively.
The Company has ceased the recognition of interest on loans with a carrying value of $43.0 million and $59.1
million at December 31, 2018 and 2017, respectively. Restructured loans totaled $21.1 million and $41.0 million at
December 31, 2018 and 2017, respectively. Loans 90 days past due and still accruing interest amounted to $6.0
million and $3.1 million at December 31, 2018 and 2017, respectively. There was an immaterial amount of interest
recognized on impaired loans during 2018, 2017, and 2016.
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:
• 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.
•
•
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.
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, 2018 and December 31, 2017 (in
thousands):
Credit Exposure
Credit Risk Profile by Risk Rating
Commercial
Asset-based
Factoring
Non-watch list
Watch
Special Mention
Substandard
Total
December 31,
2018
December 31,
2017
$ 4,788,234 $ 4,048,238 $
162,788
106,638
235,376
$ 5,228,402 $ 4,553,040 $
192,653
55,927
191,588
December 31,
2018
296,719 $
—
84,019
—
380,738 $
December 31,
2017
306,899 $
—
29,715
—
336,614 $
December 31,
2018
260,727 $
—
864
—
261,591 $
December 31,
2017
220,795
—
47
830
221,672
71
Non-watch list
Watch
Special Mention
Substandard
Total
$
December 31,
2018
Real estate – commercial
Real estate – construction
December 31,
2018
792,256 $
204
—
105
792,565 $
December 31,
2017
716,830 $ 3,551,537 $ 3,434,982
50,715
35,940
41,993
717,849 $ 3,714,280 $ 3,563,630
64,998
32,826
64,919
December 31,
2017
631
—
388
$
Credit Exposure
Credit Risk Profile Based on Payment Activity
Performing
Non-performing
Total
Performing
Non-performing
Total
Commercial – credit card Real estate – residential
December 31,
2018
166,334 $
—
166,334 $
December 31,
2017
172,291 $
—
172,291 $
December 31,
2018
706,697 $
807
707,504 $
December 31,
2017
637,662 $
929
638,591 $
Real estate – HELOC
December 31,
2018
542,945 $
2,776
545,721 $
December 31,
2017
645,366
3,013
648,379
$
$
Consumer – other
Leases
Consumer – credit card
December 31,
December 31,
2017
2018
252,385 $
230,334 $
312
648
252,697 $
230,982 $
$
$
December 31,
2018
144,720 $
65
144,785 $
December 31,
2017
151,747 $
36
151,783 $
December 31,
2018
December 31,
2017
5,248 $
—
5,248 $
23,967
—
23,967
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.
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
72
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, including concentrations of credit, current economic conditions, and loan growth.
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.
73
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, 2018 (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, 2018
Commercial Real estate Consumer Leases
Total
$
$
$
81,156 $
(64,371)
6,753
57,350
80,888 $
9,312 $ 10,083 $
(9,744)
(3,428)
2,626
445
6,106
7,335
9,071 $
13,664 $
53 $
—
—
(41)
12 $
100,604
(77,543)
9,824
70,750
103,635
4,605 $
106 $
— $
— $
4,711
76,283
13,558
9,071
12
98,924
$ 6,037,065 $5,760,070 $ 375,767 $
5,248 $12,178,150
31,006
8,233
—
—
39,239
6,006,059 5,751,837 375,767
5,248 12,138,911
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
74
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
Impaired 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
—
This table provides an analysis of impaired loans by class for the year ended December 31, 2018 (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, 2018
Recorded
Investment
with
Allowance
Total
Recorded
Investment
Related
Allowance
Average
Recorded
Investment
$ 40,402 $
—
—
—
16,470 $
—
—
—
14,536 $
—
—
—
31,006 $
—
—
—
4,605 $
—
—
—
—
10,856
304
—
—
7,776
197
—
—
165
95
—
—
7,941
292
—
—
28
78
—
—
—
—
$ 51,562 $
—
—
—
24,443 $
—
—
—
14,796 $
—
—
—
39,239 $
—
—
—
4,711 $
43,335
—
275
—
55
11,279
303
—
—
—
—
55,247
75
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
This table provides an analysis of impaired loans by class for the year ended December 31, 2016 (in
thousands):
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
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.
76
The Company had no commitments to lend to borrowers with loan modifications classified as TDRs as of
December 31, 2018, but did have $3.1 million in commitments to lend to borrowers with loan modifications
classified as TDRs as of December 31, 2017. 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, 2018, there were no TDRs with payment defaults. There was an
immaterial amount of interest recognized on loans classified as TDRs during 2018 and 2017.
For the year ended December 31, 2018, the Company had three commercial TDRs with pre- and post-
modification loan balances of $6.7 million, and one residential real estate TDR with a pre-modification loan balance
of $93 thousand and a post-modification loan balance of $92 thousand. For the year ended December 31, 2017, the
Company had one commercial TDR with a pre- and post-modification loan balance of $7.2 million, and one
residential real estate TDR with a pre-modification loan balance of $97 thousand and a post-modification loan
balance of $98 thousand.
4. SECURITIES
Securities Available for Sale
This table provides detailed information about securities available for sale at December 31, 2018 and 2017
(in thousands):
Gross
Gross
2018
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Total
2017
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Corporates
Total
Amortized Unrealized Unrealized
Gains
Losses
Fair
Value
Cost
$ 248,494 $
200
3,914,289
2,507,107
$6,670,090 $
(1)
192 $
—
(1,556) $ 247,130
199
6,145 (108,223) 3,812,211
7,643
(31,490) 2,483,260
13,980 $ (141,270) $6,542,800
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 $
(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)
The following table presents contractual maturity information for securities available for sale at
December 31, 2018 (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
936,651
723,908
560,492
$ 534,750 $ 534,418
930,098
708,567
557,506
2,755,801 2,730,589
3,914,289 3,812,211
$ 6,670,090 $ 6,542,800
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 $95.5 million, $578.5 million, and $951.3 million
for 2018, 2017, and 2016, respectively. Securities transactions resulted in gross realized gains of $581 thousand for
77
2018, $4.2 million for 2017, and $8.5 million for 2016. The gross realized losses were $3 thousand for 2018, $10
thousand for 2017, and $1 thousand for 2016.
Securities available for sale with a fair value of $5.7 billion at both December 31, 2018 and December 31,
2017, 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 $1.0 billion at December 31,
2018 and $1.8 billion at December 31, 2017 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, 2018 and 2017 (in thousands).
Less than 12 months 12 months or more
Total
2018
Description of Securities
U.S. Treasury
U.S. Agencies
Mortgage-backed
State and political subdivisions
Total temporarily-impaired debt securities
available for sale
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
Fair
Value
Unrealized
Losses
Fair Value
Fair Value
Unrealized
Losses
Unrealized
Losses
$ 18,775 $
—
228,406
371,394
(4) $
—
38,552 $
199
(1,556)
(1)
(1,256) 3,007,233 (106,967) 3,235,639 (108,223)
(31,490)
(1,490) 1,419,875
(30,000) 1,791,269
(1,552) $
(1)
57,327 $
199
$618,575 $
(2,750) $4,465,859 $ (138,520) $5,084,434 $ (141,270)
Less than 12 months 12 months or more
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
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)
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, 2018.
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, 2018 and net unrealized gains, aggregated by maturity category, at
December 31, 2017, respectively (in thousands).
Gross
Gross
2018
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
$
3,386 $
115,162
380,108
671,990
$1,170,646 $
3,395
(29) $
38 $
107,641
(7,988)
467
357,381
(24,621)
1,894
2,163
602,115
(72,038)
4,562 $ (104,676) $1,070,532
78
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
Gross
Gross
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
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 2018, 2017, or 2016.
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, 2018.
Trading Securities
The net unrealized loss on trading securities at December 31, 2018 was $18 thousand. The net unrealized
gains on trading securities at December 31, 2017 and 2016 were $188 thousand and $233 thousand, respectively.
Net unrealized gains/losses are included in trading and investment banking income on the Consolidated Statements
of Income. Securities sold not yet purchased totaled $27.2 million and $4.1 million at December 31, 2018 and 2017,
respectively, and are classified within the Other liabilities line of the Company’s Consolidated Balance Sheets.
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, 2018 and 2017 (in thousands):
Gross
Gross
Amortized Unrealized Unrealized
Gains
Losses
Fair
Value
2018
FRB and FHLB stock
Other securities – marketable
Other securities – non-marketable
$
Total Federal Reserve Bank stock and other
$
Cost
33,262 $
—
32,011
65,273 $
— $
4,385
4,034
8,419 $
— $
—
—
— $
33,262
4,385
36,045
73,692
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
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
79
investment securities of $4.4 million at December 31, 2018 and $4.6 million at December 31, 2017. The fair value
of other non-marketable securities includes alternative investment securities of $5.8 million at December 31, 2018
and $3.4 million at December 31, 2017. Unrealized gains or losses on alternative investments are recognized in the
Other noninterest income 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 $626.5 million and $186.5 million at December 31, 2018 and 2017, 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. 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.
For the years 2018 and 2017, 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,
2018
2017
$ 187,662 $ 321,392
61,697
83,978
(94,378)
(14,065)
—
(101,049)
$ 257,575 $ 187,662
7. GOODWILL AND OTHER INTANGIBLES
Changes in the carrying amount of goodwill for the years ended December 31, 2018 and December 31, 2017
by operating segment are as follows (in thousands):
Balances as of January 1, 2018
Balances as of December 31, 2018
Balances as of January 1, 2017
Discontinued assets
Balances as of December 31, 2017
Commercial
Banking
Institutional
Banking
Personal
Banking
Healthcare
Services Total
$
$
$
$
59,419 $
59,419 $
51,332 $ 70,116 $
51,332 $ 70,116 $
— $ 180,867
— $ 180,867
59,419 $
—
59,419 $
98,861 $ 70,116 $
(47,529)
—
51,332 $ 70,116 $
— $ 228,396
—
(47,529)
— $ 180,867
80
Following are the intangible assets that continue to be subject to amortization as of December 31, 2018 and
2017 (in thousands):
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amounts
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amounts
As of December 31, 2018
Core
Deposit
Intangible
Assets
Customer
Relationships
Total
$
$
50,059 $
44,998
5,061 $
71,852 $ 121,911
61,910 106,908
15,003
9,942 $
As of December 31, 2017
Core
Deposit
Intangible
Assets
Customer
Relationships
Total
$
$
50,059 $
42,209
7,850 $
71,342 $ 121,401
58,935 101,144
20,257
12,407 $
Amortization expense for the years ended December 31, 2018, 2017, and 2016 was $5.8 million, $7.3 million
and $8.7 million, respectively. The following table discloses the estimated amortization expense of intangible assets
in future years (in thousands):
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
For the year ending December 31, 2023
8. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following (in thousands):
$
4,785
3,830
2,825
1,886
1,167
December 31,
Land
Buildings and leasehold improvements
Equipment
Software
Total
Accumulated depreciation
Accumulated amortization
Premises and equipment, net
$
2018
44,580 $
344,267
159,717
209,877
758,441
(320,476)
(154,086)
2017
46,415
328,384
148,425
186,269
709,493
(300,103)
(133,448)
$ 283,879 $ 275,942
Premises and equipment depreciation and amortization expenses were $47.4 million in 2018, $45.6 million in
2017, and $41.9 million in 2016. Rental and operating lease expenses were $14.8 million in 2018, $14.8 million in
2017, and $14.6 million in 2016.
81
Minimum future rental commitments as of December 31, 2018, for all non-cancelable operating leases are as
follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
$
$
12,257
11,592
8,886
8,078
6,457
27,092
74,362
9. BORROWED FUNDS
The components of the Company's long-term debt are as follows (in thousands):
Trust Preferred Securities:
Marquette Capital Trust I subordinated debentures 3.77% due 2036
Marquette Capital Trust II subordinated debentures 3.77% due 2036
Marquette Capital Trust III subordinated debentures 4.32% due 2036
Marquette Capital Trust IV subordinated debentures 4.39% due 2036
$
Kansas Equity Fund IX, L.P. 0% due 2023
Kansas Equity Fund X, L.P. 0% due 2021
St. Louis Equity Fund 2007 L.L.C. 0% due 2019
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
MHEG Community Fund 50, L.P. 0% due 2035
Open Prairie Rural Opportunities Fund, L.P. 0% due 2022
Total long-term debt
$
December 31,
2018
2017
16,914 $
17,548
6,906
27,960
64
141
13
84
562
912
604
545
979
1,174
1,414
2,951
2,970
930
82,671 $
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
Aggregate annual repayments of long-term debt at December 31, 2018, are as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
$
$
2,180
3,801
2,806
1,349
889
71,646
82,671
The Company assumed long-term debt obligations 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 $69.3 million as
of December 31, 2018. 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.
82
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. The Company’s borrowing capacity with the FHLB was $814.6 million as of December 31, 2018. The
Company had no outstanding FHLB advances at FHLB of Des Moines as of December 31, 2018.
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, 2018, was $1.5 billion (with
accrued interest payable of $174 thousand). The amount outstanding at December 31, 2017, was $1.2 billion (with
accrued interest payable of $197 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, 2018 (in thousands):
Securities Fair
Market Value
As of December 31, 2018
Repurchase
Liabilities
Weighted Average
Interest Rate
Maturity of the Repurchase Liabilities
2 to 30 days
Over 90 Days
Total
$
$
1,529,683 $
251
1,529,934 $
1,511,991
250
1,512,241
2.08%
0.03
2.08%
The table below presents the remaining contractual maturities of repurchase agreements outstanding at
December 31, 2018, in addition to the various types of marketable securities that have been pledged as collateral
for these borrowings (in thousands).
Repurchase agreements, secured by:
U.S. Treasury
U.S. Agency
Total repurchase agreements
10. REGULATORY REQUIREMENTS
As of December 31, 2018
Remaining Contractual Maturities of the
Agreements
Over 90 Days
Total
2-29 days
$
$
181,531 $
1,330,460
1,511,991 $
— $
250
250 $
181,531
1,330,710
1,512,241
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 2018, this amount averaged
$396.0 million, compared to $303.8 million in 2017.
At December 31, 2018, 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 12.89%, 12.89%
83
and 13.95%, respectively. The Company is required to have a minimum leverage ratio of 4.0%, and the leverage
ratio at December 31, 2018, was 9.87%.
As of December 31, 2018, 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.
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, 2018 and 2017 for the Company and the Bank are as follows (in thousands):
2018
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.
$2,142,469 12.89% $ 748,009
742,322
1,921,615 11.65
4.50% $
4.50
N/A N/A%
1,072,243
6.50
2,142,469 12.89
1,921,615 11.65
997,346
989,763
6.00
6.00
N/A N/A
8.00
1,319,683
2,318,145 13.95
2,027,962 12.29
1,329,794
1,319,683
8.00
8.00
N/A N/A
1,649,604 10.00
2,142,469
1,921,615
9.87
8.85
867,879
868,916
4.00
4.00
N/A N/A
5.00
1,086,145
2017
$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
84
11. EMPLOYEE BENEFITS
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 $1.5 million in March
2019, for 2018. A $4.0 million contribution was paid in 2018, for 2017. A $1.5 million contribution was paid in
2017, for 2016.
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 $6.8 million in 2018, for 2017 and
$6.7 million in 2017, for 2016. In 2018, the Company changed the timing of matching contributions from annually
to every pay period. As a result, the Company made matching contributions to the plan of $9.1 million in 2018 for
current year activity, and anticipates making an additional matching contribution of $0.1 million in January 2019,
for 2018.
The Company recognized $1.5 million, $2.5 million, and $2.1 million in expense related to outstanding stock
options and $8.2 million, $10.4 million, and $9.2 million in expense related to outstanding restricted stock and
restricted stock unit grants for the years ended December 31, 2018, 2017, and 2016, respectively. The Company had
$2.2 million of unrecognized compensation expense related to the outstanding options and $14.8 million of
unrecognized compensation expense related to outstanding restricted stock and restricted stock unit grants at
December 31, 2018.
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 2018, under the 2002 Plan:
Stock Options Under the 2002 Plan
Outstanding - December 31, 2017
Granted
Expired
Exercised
Outstanding - December 31, 2018
Exercisable - December 31, 2018
Number
of Shares
Weighted
Average Price
Per Share
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic Value
31,686 $
—
(938)
(30,748)
— $
— $
40.93
—
40.93
40.93
—
—
— $
— $
—
—
No options were granted under the 2002 Plan during 2018, 2017, or 2016. The total intrinsic value of options
exercised during the year ended December 31, 2018, 2017, and 2016 was $0.9 million, $2.0 million, and $2.3
million, respectively. As of December 31, 2018, there was no unrecognized compensation cost related to the
nonvested options.
85
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
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 2018:
Service-Based Restricted Stock
Nonvested - December 31, 2017
Granted
Canceled
Vested
Nonvested - December 31, 2018
Number
of Shares
Weighted
Average Grant
Date Fair Value
470,133 $
136,170
(45,591)
(195,425)
365,287 $
55.39
72.30
59.96
50.22
63.89
As of December 31, 2018, there was $13.9 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, 2018, 2017, and 2016 was $14.5 million, $9.9 million, and $7.4 million,
respectively.
86
The table below discloses the status of the performance-based restricted shares during 2018:
Performance-Based Restricted Stock
Nonvested - December 31, 2017
Granted
Canceled
Vested
Nonvested - December 31, 2018
Number
of Shares
Weighted
Average Grant
Date Fair Value
135,214 $
—
(24,872)
(34,128)
76,214 $
57.22
—
57.79
51.42
59.62
As of December 31, 2018, there was $0.9 million of unrecognized compensation cost related to the nonvested
shares. The cost is expected to be recognized over a period of 1.0 years. Total fair value of shares vested during the
years ended December 31, 2018, 2017 and 2016, was $2.6 million, $1.4 million and $1.0 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.
The table below discloses the information relating to non-qualified option activity in 2018 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, 2017
Granted
Canceled
Expired
Exercised
Outstanding - December 31, 2018
Exercisable - December 31, 2018
1,047,461 $
—
(76,530)
(1,929)
(215,358)
753,644 $
421,802 $
52.13
—
58.05
52.57
46.42
53.16
47.71
5.6 $
4.5 $
5,882,568
5,593,676
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
2018
2017
2016
$
— $
—
—
—
—
17.88
$
1.29%
6.25
24.41%
2.03%
9.90
1.30%
6.25
25.71%
2.02%
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.
There were no options granted during 2018. The weighted average grant-date fair value of options granted
during the years 2017 and 2016 was $17.88 and $9.90, respectively. The total intrinsic value of options exercised
during the years ended December 31, 2018, 2017, and 2016, was $6.1 million, $8.1 million and $5.8 million,
respectively. As of December 31, 2018, there was $2.2 million of unrecognized compensation cost related to the
nonvested options. The cost is expected to be recognized over a period of 1.6 years.
87
Cash received from options exercised under all share based compensation plans was $11.3 million, $12.7
million, and $15.8 million for the years ended December 31, 2018, 2017, and 2016, respectively. The tax benefit
realized for stock options exercised was $2.4 million, $3.6 million, and $1.1 million for the years ended December
31, 2018, 2017, and 2016, respectively.
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 14,
“Common Stock and Earnings Per Share,” in the Notes to the Consolidated Financial Statements provided in Item 8,
page 94 of this report.
Omnibus Incentive Compensation Plan
At the April 24, 2018 shareholders’ meeting, the shareholders of the Company approved the UMB Financial
Corporation Omnibus Incentive Compensation Plan (OICP) which became effective as of April 24, 2018. The OICP
permits the issuance to key employees of the Company various types of awards, including stock options, restricted
stock and restricted stock units, performance awards and other stock-based awards. In 2018, stock-based
compensation under the OICP was issued in the form of restricted stock awards, restricted stock units and
performance stock units. Restricted stock awards do not contain a service or performance requirement and were
vested immediately upon grant. Service-based restricted stock unit awards contain a service requirement and the
performance-based restricted stock unit awards contain performance and service requirements. The number of
shares of the Company’s stock reserved for issuance under the Plan is 5.40 million shares. The maximum benefits
any one eligible employee may receive under the Plan during any one fiscal year is $1 million.
The service-based restricted stock unit awards are payable in shares of stock and contain a service requirement
with either a two year cliff vesting or a three year graded vesting schedule in which 50 percent of the units vest after
two years of service and the remaining 50 percent vest after three years of service.
The performance-based restricted stock unit awards are payable in shares of stock and contain a service and a
performance requirement. The performance requirement is based on two predetermined performance requirements
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-based restricted stock grants and service-based restricted stock units are treated as
two separate transactions. First, cash dividends are paid on the restricted stock or stock units. Those cash dividends
are then paid to purchase additional shares of restricted stock or stock units. Dividends earned as additional shares
of restricted stock or stock units 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). Dividends are not paid on
performance-based restricted stock units.
The table below discloses the status of the restricted stock awards during 2018:
Service Based Restricted Stock Under the OICP
Nonvested - December 31, 2017
Granted
Canceled
Vested
Nonvested - December 31, 2018
Number of
Shares
Weighted
Average Price
Per Share
— $
240
—
(240)
— $
—
74.24
—
74.24
—
As of December 31, 2018, there was no unrecognized compensation cost related to the restricted stock awards.
Total fair value of shares vested during the year ended December 31, 2018, was $18 thousand.
88
The table below discloses the status of the service-based restricted stock units during 2018:
Service Based Restricted Stock Units Under the OICP
Nonvested - December 31, 2017
Granted
Canceled
Vested
Nonvested - December 31, 2018
Number of
Units
Weighted
Average Price
Per Unit
— $
14,257
—
—
14,257 $
—
71.98
—
—
71.98
As of December 31, 2018, there was $0.9 million of unrecognized compensation cost related to the nonvested
units. The cost is expected to be recognized over a period of 2.6 years. There were no units vested during 2018.
The table below discloses the status of the performance-based restricted stock units during 2018:
Performance Based Restricted Stock Units Under the OICP
Nonvested - December 31, 2017
Granted
Canceled
Vested
Nonvested - December 31, 2018
Number of
Units
Weighted
Average Price
Per Unit
— $
45,030
(6,015)
—
39,015 $
—
76.68
76.68
—
76.68
As of December 31, 2018, there was $2.3 million of unrecognized compensation cost related to the nonvested
units. The cost is expected to be recognized over a period of 2.0 years. There were no units vested during 2018.
12. BUSINESS SEGMENT REPORTING
The Company has strategically aligned its operations into the following four reportable segments: Commercial
Banking, Institutional Banking, Personal Banking, and Healthcare Services (collectively, the Business Segments).
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 three Business Segments: Bank, Institutional Investment Management,
and Asset Servicing. During 2017, the Company sold all of the outstanding stock of Scout, its institutional
investment management subsidiary. As the operations of Scout are included in discontinued operations, the
Company no longer presents such operations as one of its business segments. The Company’s reportable Business
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, 2018. 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:
Commercial Banking serves the commercial lending and leasing, capital markets, and treasury management
needs of the Company’s mid-market businesses and governmental entities by offering various products and services.
Such services include commercial loans, commercial credit cards, letters of credit, loan syndication services,
consultative services, and a variety of financial options for companies that need non-traditional banking services.
Capital markets services include asset-based financing, asset securitization, equity and mezzanine financing,
factoring, private and public placement of senior debt, as well as merger and acquisition consulting. Treasury
management services include depository services, account reconciliation services, electronic fund transfer services,
controlled disbursements, lockbox services, and remote deposit capture services.
Institutional Banking is a combination of banking services, fund services, and asset management services
provided to institutional clients. This segment also provides mutual fund cash management, international payments,
89
corporate trust and escrow services, as well as correspondent banking and investment banking. Products and
services include bond trading transactions, cash letter collections, investment portfolio accounting and safekeeping,
reporting for asset/liability management, and Federal funds transactions. Institutional Banking also includes
UMBFS, which provides fund administration and accounting, investor services and transfer agency, marketing and
distribution, custody, and alternative investment services.
Personal Banking combines consumer services and asset management provided to personal clients. This
segment combines the Company’s consumer bank with the individual investment and wealth management solutions.
The range of services offered to UMB clients varies from a basic checking account to estate planning and trust
services. Products and services include the Company’s bank branches, call center, internet banking and ATM
network, deposit accounts, retail credit cards, private banking, installment loans, home equity lines of credit,
residential mortgages, small business loans, brokerage services, and insurance services in addition to a full spectrum
of investment advisory, trust, and custody services.
Healthcare Services provides healthcare payment solutions including custodial services for health savings
accounts (HSAs) and private label, multipurpose debit cards to insurance carriers, third-party administrators,
software companies, employers, and financial institutions.
BUSINESS SEGMENT INFORMATION
Segment financial results were as follows (in thousands):
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
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income (loss) before taxes
Income tax expense (benefit)
Income (loss) from continuing operations
Average assets
$
Healthcare
Services
Institutional
Banking
Commercial
Banking
380,266 $
63,841
74,931
253,740
137,616
16,824
120,792 $
Year Ended December 31, 2018
Personal
Banking
66,585 $ 125,045 $
5,574
1,335
118,344
173,591
225,406
189,708
12,409
49,133
1,517
6,007
10,892 $
43,126 $
Total
610,446
70,750
401,698
717,800
223,594
27,334
196,260
$
$ 9,856,000 $ 3,995,000 $4,959,000 $2,190,000 $21,000,000
38,550 $
—
34,832
48,946
24,436
2,986
21,450 $
$
Healthcare
Services
Institutional
Banking
Commercial
Banking
353,627 $
32,937
82,221
250,308
152,603
34,460
118,143 $
Year Ended December 31, 2017
Personal
Banking
51,977 $ 122,304 $
6,602
1,461
118,896
187,003
226,634
184,618
7,964
52,901
1,798
11,946
6,166 $
40,955 $
Total
558,913
41,000
423,562
705,129
236,346
53,370
$
182,976
$ 9,717,000 $ 3,622,000 $5,160,000 $1,897,000 $20,396,000
31,005 $
—
35,442
43,569
22,878
5,166
17,712 $
$
Healthcare
Services
Institutional
Banking
Commercial
Banking
308,852 $
22,730
76,756
227,161
135,717
30,722
104,995 $
Year Ended December 31, 2016
Personal
Banking
39,272 $ 122,896 $
9,360
121,250
236,808
(2,022)
(458)
(1,564) $
Total
495,323
32,500
402,511
666,745
198,589
44,955
$
153,634
$ 8,683,000 $ 4,199,000 $5,216,000 $1,495,000 $19,593,000
24,303 $
— $
32,962 $
37,237 $
20,028
4,534
15,494 $
410
171,543
165,539
44,866
10,157
34,709 $
90
13. REVENUE RECOGNITION
As of January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers –
ASC 606 and all subsequent ASUs that modified ASC 606. The Company has elected to apply the ASU and all
related ASUs using the modified retrospective approach. The implementation of the guidance had no material
impact on the measurement or recognition of revenue of either current or prior periods.
The following is a description of the principal activities from which the Company generates revenue that are
within the scope of ASC 606:
Trust and securities processing - 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 and alternative asset servicing. The performance obligations related to this revenue include items such
as performing full bond trustee service administration, investment advisory services, custody and record-keeping
services, and fund administrative and accounting services. These fees are part of long-term contractual agreements
and the performance obligations are satisfied upon completion of service and fees are generally a fixed flat monthly
rate or based on a percentage of the account’s market value per the contract with the customer. These fees are
primarily recorded within the Company’s Institutional and Personal Banking segments.
Trading and investment banking - Trading and investment banking income consists of income earned related
to the Company’s trading securities portfolio, including futures hedging, dividends, bond underwriting, and other
securities incomes. The vast majority of this revenue is recognized in accordance with ASC 320, Debt and Equity
Securities, and is out of the scope of ASC 606. A portion of trading and investment banking represents fees earned
for management fees, commissions, and underwriting of corporate bond issuances. The performance obligations
related to these fees include reviewing the credit worthiness of the customer, ensuring appropriate regulatory
approval and participating in due diligence. The fees are fixed per the bond prospectus and the performance
obligations are satisfied upon registration approval of the bonds by the applicable regulatory agencies. Revenue is
recognized at the point in time upon completion of service and when approval is granted by the regulators.
Service charges on deposits - Service charges on deposit accounts represent monthly analysis fees recognized
for the services related to customer deposit accounts, including account maintenance and depository transactions
processing fees. Commercial Banking and Institutional Banking depository accounts charge fees in accordance with
the customer’s pricing schedule while Personal Banking account holders are generally charged a flat service fee per
month. Deposit service charges for the Healthcare Services segment are priced according to either standard pricing
schedules with individual account holders or according to service agreements between the Company and employer
groups or third party administrators. The Company satisfies the performance obligation related to providing
depository accounts monthly as transactions are processed and deposit service charge revenue is recorded monthly.
These fees are recognized within all Business Segments.
Insurance fees and commissions – Insurance fees and commissions includes all insurance-related fees earned,
including commissions for individual life, variable life, group life, health, group health, fixed annuity, and variable
annuity insurance contracts. The performance obligations related to these revenues primarily represent the
placement of insurance policies with the insurance company partners. The fees are based on the contracts with
insurance company partners and the performance obligations are satisfied when the terms of the policy have been
agreed to and the insurance policy becomes effective.
Brokerage fees – Brokerage fees represent income earned related to providing brokerage transaction services,
including commissions on equity and commodity trades, and fees for investment management, advisory and
administration. The performance obligations related to transaction services are executing the specified trade and are
priced according to the customer’s fee schedule. Such income is recognized at a point in time as the trade occurs
and the performance obligation is fulfilled. The performance obligations related to investment management,
advisory and administration include allocating customer assets across a wide range of mutual funds and other
investments, on-going account monitoring and re-balancing of the portfolio. These performance obligations are
satisfied over time and the related revenue is calculated monthly based on the assets under management of each
customer. All material performance obligations are satisfied as of the end of each accounting period.
91
Bankcard fees – Bankcard fees primarily represent income earned from interchange revenue from MasterCard
and Visa for the Company’s processing of debit, credit, HSA, and flexible spending account transactions.
Additionally, the Company earns income and incentives related to various referrals of customers to card programs.
The performance obligation for interchange revenue is the processing of each transaction through the Company’s
access to the banking system. This performance obligation is completed for each individual transaction and income
is recognized per transaction in accordance with interchange rates established by MasterCard and Visa. The
performance obligations for various referral and incentive programs include either referring customers to certain
card products or issuing exclusively branded cards for certain customer segments. The pricing of these incentive
and referral programs are in accordance with the agreement with the individual card partner. These performance
obligations are completed as the referrals are made or over a period of time when the Company is exclusively
issuing branded cards. For the years ended December 31, 2018, 2017 and 2016, the Company also has
approximately $36.0 million, $27.8 million, and $29.0 million of expense, respectively, recorded within the
Bankcard fees line on the Company’s Consolidated Income Statements related to rebates and rewards programs that
are outside of the scope of ASC 606. All material performance obligations are satisfied as of the end of each
accounting period.
Gains on sales of securities available for sale, net – In the regular course of business, the Company recognizes
gains on the sale of available for sale securities. These gains are recognized in accordance with ASC 320, Debt and
Equity Securities, and are outside of the scope of ASC 606.
Other income – The Company recognizes other miscellaneous income through a variety of other revenue
streams, the most material of which include letter of credit fees, certain loan origination fees, gains on the sale of
assets, gains and losses on equity-method investments, derivative income, and bank-owned and company-owned life
insurance income. These revenue streams are outside of the scope of ASC 606 and are recognized in accordance
with the applicable U.S. GAAP. The remainder of Other income is primarily earned through transactions with
personal banking customers, including wire transfer service charges, stop payment charges, and fees for items like
money orders and cashier’s checks. The performance obligations of these types of fees are satisfied as transactions
are completed and revenue is recognized upon transaction execution according to established fee schedules with the
customers.
The Company had no material contract assets, contract liabilities, or remaining performance obligations as of
December 31, 2018. Total receivables from revenue recognized under the scope of ASC 606 were $52.2 million and
$53.5 million as of December 31, 2018 and December 31, 2017, respectively. These receivables are included as part
of the Other assets line on the Company’s Consolidated Balance Sheets.
The following tables depict the disaggregation of revenue according to revenue stream and Business Segment
for the three years ended December 31, 2018, 2017, and 2016. As stated in Note 12, “Business Segment Reporting,”
for comparability purposes, amounts in all periods are based on methodologies in effect at December 31, 2018 and
previously reported results have been reclassified in this filing to confirm to the current organizational structure.
Disaggregated revenue is as follows (in thousands):
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
Other
Total Noninterest income
$
Year Ended December 31, 2018
Commercial
Banking
Institutional
Banking
Personal
Banking
Healthcare
Services
Revenue
(Expense)
out of
Scope of
ASC 606 Total
$
— $
—
30,313
—
194
59,596
—
107,236 $ 64,927 $
—
25,174 11,551
1,292
—
17,026
8,587
5,816 22,080
— $
— $172,163
— 15,584 15,584
126 84,287
1,292
—
— 25,807
16,264 (35,236) 68,520
17,123
—
—
—
2,660
92,763 $
—
618
—
7,273
155,870 $115,710 $
92
—
578
578
743 22,173 33,467
3,225 $401,698
34,130 $
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
Other
Total Noninterest income
$
Year Ended December 31, 2017
Commercial
Banking
Institutional
Banking
Personal
Banking
Healthcare
Services
Revenue
(Expense)
out of
Scope of
ASC 606 Total
$
— $
—
31,251
—
160
53,239
712
110,237 $ 66,409 $
—
29,043 11,818
1,972
—
8,415
14,630
6,176 22,918
— $176,646
— $
— 22,471 23,183
114 87,680
—
1,972
— 23,208
17,791 (27,094) 73,030
15,454
—
3
—
2,354
87,004 $
—
601
—
3,708
161,399 $115,240 $
—
4,192
4,192
399 26,589 33,651
33,647 $ 26,272 $423,562
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
Other
Total Noninterest income
$
Year Ended December 31, 2016
Commercial
Banking
Institutional
Banking
Personal
Banking
Healthcare
Services
Revenue
(Expense)
out of
Scope of
ASC 606 Total
$
7 $
—
33,009
—
221
47,839
—
105,130 $ 61,178 $
—
28,484 12,213
4,188
—
9,100
8,494
2,912 27,255
— $
— $166,315
— 21,422 21,422
206 86,662
4,188
—
— 17,833
18,677 (27,934) 68,749
12,750
—
18
—
2,563
83,639 $
—
708
—
3,289
146,334 $116,617 $
—
8,509
8,509
160 22,113 28,833
31,605 $ 24,316 $402,511
93
14. COMMON STOCK AND EARNINGS PER SHARE
The following table summarizes the share transactions for the three years ended December 31, 2018 (in
thousands, except for share data):
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
Accelerated Share Repurchase Program
Purchase of Treasury Stock
Sale of Treasury Stock
Issued for stock options & restricted stock
Balance December 31, 2018
Shares
Issued
Shares in
Treasury
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)
(780,321)
—
(401,038)
—
—
14,631
388,960
—
55,056,730 (5,939,508)
The Board authorized the repurchase of up to 2 million shares of common stock annually at its 2016, 2017 and
2018 meetings. During 2018, the Company entered into an agreement with BAML to repurchase an aggregate of
$50.0 million of the Company’s common stock through an ASR. Under the ASR, the Company repurchased a total
of 780,321 shares. The final settlement of the transactions under the ASR occurred in December 2018. Other than
purchases pursuant to the ASR, all share purchases pursuant to the Repurchase Authorizations 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 repurchase of its securities other than pursuant
to the Repurchase Authorizations.
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.
The shares used in the calculation of basic and diluted earnings per share, are shown below:
Weighted average basic common shares outstanding
Dilutive effect of stock options and restricted stock
Weighted average diluted common shares outstanding
For the Years Ended December 31,
2016
2017
2018
49,334,937 49,223,661 48,828,313
448,742
49,277,055
49,770,737 49,839,290
615,629
435,800
15. 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
94
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,
2018 and 2017, was $298.9 million and $316.1 million, respectively. As of December 31, 2018 and 2017, standby
letters of credit totaling $36.5 million and $42.5 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.
The Company uses contracts to offset interest rate risk on specific securities held in the trading portfolio. As
of December 31, 2018 and 2017, there were no notional amounts outstanding for these contracts. There were no
open futures contract positions during the year ended December 31, 2018 or 2017. There was no net futures activity
for the year ended December 31, 2018. Net futures activity resulted in losses of $6 thousand and $142 thousand for
2017 and 2016, 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 2018, contracts to purchase and to sell foreign currency averaged approximately $23.9
million compared to $36.8 million during 2017. The net gains on these foreign exchange contracts for 2018, 2017
and 2016 were $2.1 million, $1.9 million and $1.6 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,
2018, the Company did not have any significant credit concentrations in any particular industry.
95
The following table summarizes the Company’s off-balance sheet financial instruments as described above (in
thousands):
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,
2018
6,870,451 $
3,152,439
1,892
298,915
29,796
11,183
2017
6,689,467
2,975,507
813
316,054
29,007
628
16. DIVESTITURES
On November 17, 2017, the Company closed the sale of all of the outstanding stock of Scout, its institutional
investment management subsidiary, for $172.5 million in cash, which was subject to customary post-closing
purchase adjustments. The gain recorded on the disposal of Scout was $103.6 million.
This table summarizes the components of income from discontinued operations, net of taxes, for the years ended
December 31, 2018, 2017, and 2016 presented in the Consolidated Statements of Income (in thousands):
For the years ended December 31,
2017
2016
2018
Total noninterest income
Total noninterest expense
(Loss) income from discontinued operations
Gain on the disposal of discontinued operations
Total (loss) income from discontinued operations
Income tax (benefit) expense
$
Net (loss) income on discontinued operations
$
— $
917
(917)
—
(917)
(170)
(747) $
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
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,
2017
2016
2018
(Loss) 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
Proceeds on disposal of discontinued operations
Net cash provided by investing activities of discontinued
operations
$
$
$
$
(747) $
—
—
64,129 $
(103,644)
1,647
5,167
—
3,596
(747) $
(37,868) $
8,763
— $
167,183 $
— $
167,183 $
—
—
17. 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,
and upon completion of the 2017 tax return, recorded a favorable provision-to-return adjustment in its 2018 financial
96
statements. As of December 31, 2018, we consider the accounting for the effects of the rate change on our deferred
tax balances to be complete.
Income taxes on continuing operations produce effective income tax rates of 12.2 percent in 2018, 22.6
percent in 2017, and 22.6 percent in 2016. 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):
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,
2017
2016
2018
$
$
43,027 $
4,568
47,595
(8,260) $
1,889
(6,371)
(19,355)
(906)
(20,261)
27,334 $
57,851
1,890
59,741
53,370 $
41,860
1,570
43,430
1,145
380
1,525
44,955
Income taxes from discontinued operations produce effective income tax rates of 18.5 percent in 2018, 36.6
percent in 2017, and 38.6 percent in 2016. 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 (benefit) expense
Deferred tax
Federal
State
Total deferred tax (benefit) expense
Total tax (benefit) expense
Year Ended December 31,
2017
2016
2018
$
$
(154) $
(16)
(170)
—
—
—
(170) $
35,169 $
1,930
37,099
260
(262)
(2)
37,097 $
1,759
258
2,017
1,187
44
1,231
3,248
The reconciliation between the income tax expense and the amount computed by applying the statutory federal
tax rate of 21% for 2018 and 35% for 2017 and 2016 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
Meals, entertainment and related expenses
State and local income taxes, net of federal tax benefits
Impacts related to the 2017 Tax Act
Equity-based compensation
Federal tax credits, net of amortization of LIHTC(1) investments
Other
Total tax expense
(1)
Low income housing tax credits
97
Year Ended December 31,
2017
2016
2018
$
$
46,955 $
(15,525)
(1,744)
1,547
2,767
(4,974)
(2,364)
(1,135)
1,807
27,334 $
82,721 $
(25,697)
(5,769)
1,380
2,439
2,997
(3,297)
(1,119)
(285)
53,370 $
69,506
(20,196)
(3,405)
1,323
1,365
—
(1,095)
(2,480)
(63)
44,955
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. 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. The Company
is in the examination process with the Internal Revenue Service for tax years 2014 and 2015 and with one state
taxing authority for tax years 2015 and 2016. The Company believes the aggregate amount of any additional
liabilities that may result from these examinations, if any, will not have a material adverse effect on the financial
condition, results of operations, or cash flows of the Company.
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 asset (liability)
December 31,
2018
2017
$
$
31,260 $
25,104
5,167
21,090
3,810
86,431
(2,150)
84,281
—
(28,383)
(3,002)
(3,369)
(8,374)
(10,071)
(3,935)
(57,134)
27,147 $
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)
The Company had various state net operating loss carryforwards of approximately $1.2 million as of
December 31, 2018. These net operating losses expire at various times between 2019 and 2038. The Company has
a full valuation allowance for a majority of these state net operating losses as they are not expected to be realized. In
addition, the Company has a valuation allowance of $1.0 million to reduce certain other state deferred tax assets to
the amount of tax benefit management believes it will more likely than not realize.
The net deferred tax asset at December 31, 2018 is included in the Other assets line of the Company’s
Consolidated Balance Sheets while 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.
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 $4.9 million and $3.8 million at December 31, 2018
and 2017, 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 $3.8 million and $3.0 million at December 31, 2018 and
December 31, 2017, respectively. The unrecognized tax benefits relate to state tax positions that have a
98
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 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,
2018
2017
$
$
3,846 $
—
(1,373)
2,874
(488)
4,859 $
4,375
323
—
228
(1,080)
3,846
18. 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,
2018 and 2017. The Company’s derivative assets and derivative liabilities are located within Other Assets and
Other Liabilities, respectively, on the Company’s Consolidated Balance Sheets.
Derivatives fair values are determined using valuation techniques including discounted cash flow analysis on
the expected cash flows from 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. In adjusting the fair value of its derivatives 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.
This table provides a summary of the fair value of the Company’s derivative assets and liabilities as of
December 31, 2018 and December 31, 2017 (in thousands):
Fair Value
Interest Rate Products:
Derivatives not designated as hedging instruments $
Derivatives designated as hedging instruments
Total
$
99
Derivative Assets
December 31,
Derivative Liabilities
December 31,
2018
2017
2018
2017
9,339 $
—
9,339 $
10,116 $
33
10,149 $
5,498 $
15
5,513 $
7,326
1,580
8,906
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, 2018, the
Company had one interest rate swap with a notional amount of $5.6 million that was designated as a fair value hedge
of interest rate risk associated with the Company’s fixed rate loan assets.
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.
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, 2018, 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 change in fair value is recorded in AOCI
and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects 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 expects to reclassify $13 thousand from AOCI to
Interest expense during the next 12 months. As of December 31, 2018, the Company is hedging its exposure to the
variability in future cash flows for forecasted transactions over a maximum period of 17.72 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. 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 offsetting swaps are recognized directly
in earnings. As of December 31, 2018, the Company had 110 interest rate swaps with an aggregate notional amount
of $1.3 billion related to this program.
100
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 for the years ended December 31, 2018, 2017, and 2016 related to the
Company’s derivative assets and liabilities (in thousands):
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
$
$
$
$
Amount of Gain (Loss) Recognized
For the Year Ended December 31,
2016
2017
2018
(94) $
(94) $
(579) $
(579) $
195
195
59 $
(58)
1 $
(189) $
193
4 $
(181)
186
5
This table provides a summary of the amount of gain or loss recognized in AOCI in the Consolidated
Statements of Comprehensive Income for the years ended December 31, 2018, 2017, and 2016 related to the
Company’s derivative assets and liabilities (in thousands):
Derivatives in Cash Flow Hedging Relationships
Interest rate products
Derivatives designated as cash flow hedging instruments
Total
Amount of Gain (Loss) Recognized in Other
Comprehensive Income on Derivatives
For the Year Ended December 31,
2016
2017
2018
$
$
1,906 $
1,906 $
(1,050) $
(1,050) $
(516)
(516)
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, 2018, the termination value of derivatives in a net liability position, which includes
accrued interest, related to these agreements was $2.2 million. The Company has minimum collateral posting
thresholds with certain of its derivative counterparties. As of December 31, 2018 the Company had posted $2.6
million of collateral. If the Company had breached any of these provisions at December 31, 2018, it could have been
required to settle its obligations under the agreements at the termination value.
19. 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, 2018, and indicates the fair value hierarchy of the valuation techniques utilized by the
Company to determine such fair value.
Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets and
liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other
than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 2 inputs include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted
prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at
commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations
where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair
value may fall into different levels of the hierarchy. In such cases, the fair value is determined based on the lowest
level input that is significant to the fair value measurement in its entirety.
101
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017 (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
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 December 31, 2018 Using
December 31,
2018
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
$
$
— $
3,063
713
37,974
7,125
12,136
61,011
247,130
199
3,812,211
2,483,260
6,542,800
54,152
273,553
9,339
6,940,855 $
50,063 $
5,513
27,238
82,814 $
— $
—
—
—
7,125
12,136
19,261
247,130
—
—
—
247,130
—
—
—
266,391 $
50,063 $
—
—
50,063 $
— $
3,063
713
37,974
—
—
41,750
—
199
3,812,211
2,483,260
6,295,670
54,152
273,553
9,339
6,674,464 $
— $
5,513
27,238
32,751 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
102
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 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)
$
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 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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
103
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.
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.
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, 2018 and 2017 (in thousands):
Fair Value Measurement at December 31, 2018 Using
December 31,
2018
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
$
$
10,085 $
3,132
13,217 $
— $
—
— $
— $
—
— $
10,085 $
3,132
13,217 $
Total Gains
Recognized
During the
Twelve Months
Ended
December 31
1,972
6
1,978
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
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.
104
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
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, 2018 and 2017 are as
follows (in thousands):
Fair Value Measurement at December 31, 2018 Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Unobservable
Inputs (Level
3)
Carrying
Amount
Total Estimated
Fair Value
1,693,453 $
626,501 $
247,130 6,295,670
— 1,070,532
41,750
73,692
19,261
—
— 12,190,599
9,339
—
18,134,512
—
— 1,146,748
6,679 1,512,241
82,818
5,513
—
—
— $
—
—
—
—
—
—
—
—
—
—
—
2,319,954
6,542,800
1,070,532
61,011
73,692
12,190,599
9,339
18,134,512
1,146,748
1,518,920
82,818
5,513
5,425
115
2,658
FINANCIAL ASSETS
Cash and short-term investments
Securities available for sale
Securities held to maturity
Trading securities
Other securities
Loans (exclusive of allowance for loan
loss)
Derivatives
FINANCIAL LIABILITIES
Demand and savings deposits
Time deposits
Other borrowings
Long-term debt
Derivatives
OFF-BALANCE SHEET
ARRANGEMENTS
$ 2,319,954 $
6,542,800
1,170,646
61,011
73,692
12,181,342
9,339
18,134,512
1,146,748
1,518,920
82,671
5,513
Commitments to extend credit for loans
Commercial letters of credit
Standby letters of credit
105
Fair Value Measurement at December 31, 2017 Using
Significant
Other
Observable
Inputs
(Level 2)
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant
Unobservable
Inputs (Level
3)
Total Estimated
Fair Value
Carrying
Amount
$ 1,936,084 $
6,258,577
1,261,014
54,055
65,897
11,281,973
10,149
16,742,736
1,280,264
1,260,704
79,281
8,906
FINANCIAL ASSETS
Cash and short-term investments
Securities available for sale
Securities held to maturity
Trading securities
Other securities
Loans (exclusive of allowance for
loan loss)
Derivatives
FINANCIAL LIABILITIES
Demand and savings deposits
Time deposits
Other borrowings
Long-term debt
Derivatives
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
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, 2018 and 2017.
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.
106
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.
20. PARENT COMPANY FINANCIAL INFORMATION
UMB FINANCIAL CORPORATION
BALANCE SHEETS (in thousands)
December 31,
2018
2017
156,529
$ 1,934,082 $ 1,815,953
149,145
2,090,611 1,965,098
5,011
260,621
68,550
$ 2,344,185 $ 2,299,280
5,011
165,771
82,792
$
69,329 $
46,386
115,715
68,285
49,464
117,749
2,228,470 2,181,531
$ 2,344,185 $ 2,299,280
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
107
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (in thousands)
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
(Loss) income from discontinued operations
Net income
Other comprehensive (loss) income
Comprehensive income
Year Ended December 31,
2017
2016
2018
$
47,250 $
50,858
651
98,759
55,000 $
43,691
10,390
109,081
46,707
19,149
65,856
43,716
18,652
62,368
47,000
40,579
4,207
91,786
38,198
20,436
58,634
32,903
(4,432)
46,713
(1,202)
33,152
(3,903)
37,335
47,915
37,055
156,771
2,154
196,260
(747)
195,513 $
(50,257)
145,256 $
140,873
(5,812)
182,976
64,129
247,105 $
12,017
259,122 $
119,551
(2,972)
153,634
5,167
158,801
(53,824)
104,977
$
$
108
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 decrease (increase) 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) increase in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Year Ended December 31,
2017
2016
2018
$ 195,513 $ 247,105 $ 158,801
(206,175) (146,367) (163,993)
54,000
457
11,735
96,391
424
13,316
47,250
486
11,073
2,364
3,612
— (103,715)
(5,994)
5,424
44,517 116,190
1,073
—
(11,717)
50,356
(17,961)
(37,474)
— 168,361
(10,006)
—
1,062
1,575
(1,034)
(16,899) 132,462
(11,040)
(58,279)
(51,876)
(49,038)
12,318
(76,507)
(122,468)
13,867
(15,276)
(53,285)
(94,850) 195,367
260,621
65,254
$ 165,771 $ 260,621 $
16,911
(16,367)
(48,494)
(9,178)
74,432
65,254
21. SUMMARY OF OPERATING RESULTS BY QUARTER (unaudited) (in thousands except per share data)
2018
Interest income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income tax expense (benefit)
Net income from continuing operations
Three Months Ended
June 30
19,743
26,254
34,607
Sept 30 Dec 31
March 31
$ 167,665 $ 176,480 $ 185,097 $ 202,719
40,911
147,922 150,226 150,490 161,808
48,000
5,750
94,999
105,525 100,289 100,885
175,876 177,218 180,385 184,321
(968)
25,454
7,391
57,849 $
10,873
55,424 $
10,038
57,533 $
10,000
7,000
$
109
2017
Interest income
Interest expense
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
Income tax expense
Net income from continuing operations
10,375
13,817
17,037
June 30
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 $
11,490
44,771 $
12,446
41,976 $
11,500
14,500
9,000
$
Per Share
2018
Net income from continuing operations - basic
Net income from continuing operations - diluted
Dividend
Book value
March 31
$
1.16 $
1.15
0.290
43.31
Three Months Ended
June 30
Sept 30 Dec 31
1.12 $
1.11
0.290
43.96
1.17 $
1.16
0.290
44.20
0.52
0.52
0.300
45.37
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
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
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 of its inherent limitations, internal control over financial reporting may not prevent or detect all
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. In addition, given the Company’s size, operations and footprint, lapses or deficiencies in
internal controls may occur from time to time.
Based on the evaluation under the framework in Internal Control - Integrated Framework (2013),
management (with the participation of the Company’s Chief Executive Officer and Chief Financial Officer) under
the oversight of the Board of Directors, has 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
110
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 During the fourth quarter of 2018, the Company
identified a material weakness in internal control related to the identification of impaired loans within the factoring
portfolio resulting from the lack of experience of factoring credit personnel related to a specialized factoring
relationship and ineffective monitoring of those circumstances within the factoring portfolio. As a result of this
material weakness, a single factoring credit was not identified as impaired, and therefore was not evaluated for
potential impairment, on a timely basis. The borrower subsequently entered into bankruptcy. Based primarily on
preliminary, non-binding bids for the purchase of the assets of the borrower in the bankruptcy, the Company
determined to charge off the entire $48.1 million exposure related to this factoring relationship during the fourth
quarter.
After a review of the factoring portfolios by the Chief Risk Officer and Loan Review Personnel, the Company
determined that there were no additional impaired loans other than the one previously identified. The Company
implemented measures to remediate the material weakness, including the following changes to internal controls:
• We implemented quarterly targeted reviews of the factoring portfolio by Loan Review Personnel,
• We increased credit administration’s (i) oversight of the factoring portfolio and (ii) supervision of
personnel responsible for servicing the factoring portfolio, and
• We assessed the personnel responsible for servicing factoring relationships and made changes
necessary to ensure they are experienced, qualified credit managers who consistently apply Company
policies and practices designed to monitor and evaluate the factoring portfolio.
Following the implementation of the measures described above, management concluded that the material
weakness was remediated and the Company’s internal control over financial reporting was effective as of December
31, 2018.
Other than the above, there were no other changes 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 financial reporting.
111
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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes (collectively, the consolidated
financial statements), and our report dated March 1, 2019 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. 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
March 1, 2019
112
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 8 and 9) 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 23, 2019 (the 2019 Annual Meeting of Shareholders), which
will be provided to shareholders within 120 days after December 31, 2018.
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 2019 Annual
Meeting of Shareholders, which will be provided to shareholders within 120 days after December 31, 2018.
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 2019 Annual Meeting of
Shareholders, which will be provided to shareholders within 120 days after December 31, 2018.
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 2019 Annual Meeting of
Shareholders, which will be provided to shareholders within 120 days after December 31, 2018.
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 2019 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, 2018.
Security Ownership of Management
The information required by this item is incorporated herein by reference to the Company's Proxy Statement
for the 2019 Annual Meeting of Shareholders, which will be provided to shareholders within 120 days after
December 31, 2018, under the caption "Stock Ownership – Stock Owned by Directors, Nominees, and Executive
Officers."
113
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
2018 Omnibus Incentive Compensation 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)
— $
735,644
None
None
735,644 $
—
53.16
None
None
53.16
None
None
3,031,084
None
3,031,084
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 85 through 89 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 2019 Annual Meeting of Shareholders, which will be provided to
shareholders within 120 days after December 31, 2018.
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 2019” of the Company's Proxy Statement for the 2019 Annual
Meeting of Shareholders, which will be provided to shareholders within 120 days after December 31, 2018.
114
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, 2018 and 2017
Consolidated Statements of Income for the Three Years Ended December 31, 2018
Consolidated Statements of Comprehensive Income for the Three Years Ended December 31, 2018
Consolidated Statements of Changes in Shareholders' Equity for the Three Years Ended December 31, 2018
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2018
Notes to Consolidated Financial Statements
Independent Auditors' Report
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
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
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 3.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and filed with the Commission on
August 2, 2016).
Description of the capital stock included in the Registration Statement on Form 8-A (incorporated by
reference to the Registration Statement on Form 8-A dated May 1, 2018 and filed with the Commission
on May 1, 2018).
Description of the capital stock included in the Registration Statement on Form S-3 (incorporated by
reference 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 (incorporated by reference to Exhibit 10.3 to
the Company’s Form 10-K for December 31, 2017 and filed with the Commission on February 22, 2018).
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).
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).
115
10.7
10.8
10.9
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).
UMBF Omnibus Incentive Compensation Plan (incorporated by reference to Appendix A of the
Company’s Proxy Statement for the Company’s April 24, 2018 Annual Meeting filed with the
Commission on March 13, 2018).
Agreement and Release between the Bank and Michael Hagedorn, filed herewith.
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.
116
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 March 1, 2019.
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: March 1, 2019
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
117
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: March 1, 2019
/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: March 1, 2019
/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, 2018, 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: March 1, 2019
/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, 2018, 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: March 1, 2019
/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.
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
SELECTED FINANCIAL HIGHLIGHTS
Five-Year Total Return
UMBF vs. SNL US Banks Index and S&P 500
$200
$150
$100
$50
13
$144
$129
$126
$170
$157
$119
$150
$141
$103
16
17
18
$114
$112
$90
14
$115
$114
$75
15
UMBF SNL US BANKS S&P 500
This summarizes the cumulative return experienced by UMBF shareholders for the years 2014 through 2018,
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: S&P Global
Dividends Paid Per Share
Dollars
$1.17
$1.04
$.99
$.95
$.91
Risk-Based Capital Ratios
13.95%
12.89%
12.89%
9.87%
8.0%
6.0%
4.5%
4.0%
14
15
16
17
18
Common
Equity Tier 1
Capital
Tier 1
Capital
Total
Capital
Tier 1
Leverage
Regulatory Minimum UMB
CORPORATE INFORMATION
UMB Financial Corporation (NASDAQ: UMBF) Credit Ratings as of February 12, 2019
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 / Negative
A-2
-
-
S&P
-
-
-
F1
a
5
Fitch
A+
a
5
Notice of Annual Meeting
Tuesday, April 23, 2019
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
UMB.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, 2018, 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
Structured to withstand
all economic environments
Guided by our principles
for more than a century
Designed to be a different
kind of financial institution
UMB.COM