Good day, ladies and gentlemen. Thank you for standing by. Welcome to the UMB Financial Second Quarter 2012 Financial Results Conference Call. Following the presentation, the conference will be opened for questions. [Operator Instructions] This conference is being recorded today, July 25, 2012. I would now like to turn the conference over to Kay McMillan, Director of Investor Relations. Please go ahead, ma’am.

Good morning, everyone, and thank you for joining us for our conference call and webcast regarding our second quarter 2012 financial results. Before we begin, let me remind you that our comments in this conference call contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements rely on a number of assumptions concerning future events and are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated in our statements made during this call. While the management of UMB believes our assumptions are reasonable, UMB cautions that material changes in interest rates, the equity markets, general economic conditions as they relate to the company’s loan and fee-based customers, competition in the financial services industry, the ability to integrate acquisitions, and other risks and uncertainties which are detailed in our filings with the Securities and Exchange Commission may cause actual results to differ materially from those discussed in this call. UMB has no duty to update such statements and undertakes no obligation to update or supplement forward-looking statements that become untrue because of new information, future events, or otherwise. By now, we hope most of you on the call or listening via webcast have had a chance to review our earnings release issued yesterday. If not, you’ll find it on our website at umb.com. On the call today are Mariner Kemper, Chairman and Chief Executive Officer; Peter deSilva, President and Chief Operating Officer; and Mike Hagedorn, our Chief Financial Officer. The agenda for today’s call is as follows. Mariner will provide high level commentary on our results and Mike will review the details of our financials. Then Peter will review key fee income business drivers. Following that, we’ll be happy to answer your questions. Now, I’ll turn the call over to Mariner Kemper.

Thank you, Kay. Welcome everyone and thank you for joining us today. I’m very pleased to talk with you about our second quarter results. We reported net income of $29.2 million, a 10.8% increase over the second quarter of 2011. This equates to $0.72 per diluted share on total revenue of $190.6 million. Non-interest income increased 2.2% to $110.2 million for the quarter and represented 57.8% of total revenue. The strong revenue from our fee businesses means we do not have to rely entirely on spread income to grow the company, an advantage especially in this interest rate environment. On our first quarter call, we announced a realignment of our segments to better reflect how we run the business. As a reminder, those segments are Institutional Investment Management; our Scout Investment business; Asset Servicing, which is UMB Fund Services; Payment Solutions, which is our card business, institutional cash management, and healthcare services businesses; our bank, which is largely comprised of commercial banking, consumer banking, and asset management. Also on the call I shared our priorities for the year. To quickly recap, those 4 priorities are first, a focus on quality through a strong balance sheet, solid credit metrics, low cost funding, and effective risk management; second, an emphasis on diversity in both revenue and earnings; third, a commitment to growth achieved through accelerated fee business, loans, improved sales leverage, and maximized efficiencies; and lastly, an effective deployment of capital. Commercial banking remains the core of everything we do at UMB and is part of our commitment to growth. As such in the second quarter, we increased loan balances for the ninth consecutive quarter. Within commercial banking, C&I loan balances were $2.6 billion, up nearly 31% from just over $2 billion a year ago. Total company net loans at June 30…

Thanks, Mariner, and welcome everyone. First I will review our company financials and then provide a more detailed summary of our four business segments. Picking up where Mariner left off in his discussion of the balance sheet, average earning assets increased 7.4% to $12.2 billion. The average balance in our investment portfolio increased 13.7% to $6.4 million and the average yield on securities fell 24 basis points to 2.2%. Activity during the second quarter included the roll-off of $396 million in core portfolio securities at an average yield of 2.52%. In turn, we purchased $636 million of securities at an average yield of 1.69%. These purchases along with accelerated paydowns of mortgage-backed securities shortened the portfolio duration slightly to 28.29 months. The average life is now 35.45 months, down from 36.06 months in the first quarter of 2012. Over the next 3 months, $382 million of core investments with an average yield of 2.25% will mature. Over the next 12 months, $1.5 billion of core investments with an average yield of 2.29% will mature. Additionally, 73% of our total loan portfolio is expected to re-price or mature in the next 12 months. Allowance for loan losses is $72.7 million and allowance as a percent of total loans is now 1.37% compared to 1.53% a year ago. Although our allowance as a percent of loans has decreased, we believe this level is appropriate given the high quality of our loan portfolio and the history of charge-offs. Our coverage is nearly 2.4x the amount of non-performing loans, while the median industry allowance reported in the first quarter would cover just over 1/2 of non-performing loans. We remain well capitalized with Tier 1 leverage and total risk-based capital ratios of 11.63%, 6.92%, and 12.59% respectively. Looking at the liability side of the balance…

Thanks, Mike. Good morning, everyone. As you’ve seen in our press release, our results continue to demonstrate the long-term value of being a growth oriented organization with a diverse business mix. Fee income represented 57.8% of total revenue this quarter, giving us an advantage in an industry where the median level of fee income was 20.9% in the first quarter according to SNL Financial. As Mariner mentioned, this reduces our reliance on margin in this persistently low interest rate environment. To provide additional context to our results, I’d like to discuss the primary drivers of our fee income and highlight some of the developments in each of our segments. Let me begin with the Institutional Investment Management segment, which is comprised of Scout Investments, equity and fixed income mutual funds, and separately managed investment accounts. Revenue in this segment is driven by mutual fund and separately managed account assets. Net flows, equity and fixed income market performance, and new business contribute to our assets under management. The second quarter was a particularly difficult period for equity markets with both domestic and international indices falling. For the quarter, the S&P 500 was down 2.8% and the MSCI EAFE was down 7.1%. Year-to-date as of June 30, the S&P 500 increased 9.5% and the MSCI EAFE increased 3.4%. Scout ended the quarter with $22.4 billion in assets under management. This represents an increase of just over 8% compared to the second quarter of 2011. Assets in Scout mutual funds closed the quarter at $9.8 billion. Scout’s fixed income separately managed accounts ended the quarter with $12 billion in assets under management and Scout equity separately managed accounts totaled $624 million at quarter’s end. The Scout funds posted $353.9 million in net inflows for the quarter driven by the Mid Cap fund with…

Thank you, Peter. As I referenced in the press release, we are very pleased with this quarter’s results demonstrating growth, discipline, and quality. We believe that our four priorities that focus on quality through a strong balance sheet, solid credit metrics, low cost funding, and effective risk management, and emphasis on diversity in both revenue and earnings and a commitment to growth show that we’re focused on the right things in all types of economic climate. With that, I’ll turn it back over to the conference operator for your questions. Thanks for listening today.

[Operator Instructions] And our first question comes from the line of Chris McGratty from KBW.

Mike or Mariner, the growth numbers have been really nice the last few quarters, maybe you could just talk about pipelines where they are at mid-year and kind of your expectations and is double-digit annualized loan growth still achievable given the economic slowdown?

This is Mariner. Thanks, Chris. I would say that our commercial pipeline remains very strong. It’s -- actually the pipeline itself is up slightly from second quarter as we look into the third quarter so we feel pretty good about where things are going. That pipeline, the strongest areas in the pipeline are Kansas City and believe it or not, Omaha. And looking back over the second quarter, we were seeing that growth from Colorado, Oklahoma, and Kansas City.

Okay. Just a technical modeling question. The tax rate looked a little bit high, Mike, should this be a tax rate we assume going forward or is there something in the numbers that may be a one-timer here?

No, I think it’s -- it’s mainly due to the change in the holdings we have in this portfolio that we can -- that we have today. While municipals are up in total quarter-over-quarter and year-over-year, as a percent of the total they are actually somewhat down and so the tax rate is going to be affected by that. I think what you’re seeing today is probably closer to what we’re going to have on a go -forward basis.

So, 30% -- within 35% or so?

Yes.

Okay. And then last question, the additional segment disclosure is really helpful. It looks like the Payment Solutions margin -- pre-tax margins are pretty strong at 32%. But if just calculating a bank only efficiency ratio, it feels like you got some room here to maybe streamline a little bit of efficiency. Any color you can provide on just the bank itself?

Well, this is Mariner. I mean obviously we’re always working on that. I think our biggest headwind there is trying to put our liquidity to work. We may look relatively low loan-to-deposit ratio and safety and soundness, people still want to put their money with us over other institutions and we’re just having a hard time keeping up with it even though we have had industry-leading loan growth. So well it’s a challenge, it’s an enormous opportunity, and you can see the kind of growth we’ve had. So we hope to -- I think our biggest opportunity really is to put more of our money to work in loans.

Our next question comes from the line of Matt Olney with Stephens.

Mariner, on that last point you just made about the point of excess liquidity, it looks like you did that in 2Q to a large degree. Could we see more deployment of excess liquidity in 3Q?

Well, I tried to address that in the pipeline question. We do maintain a strong pipeline going into the third quarter so we feel good about the loan pipeline. Your guess is as good as mine if our deposits end up outpacing our loan growth, but we are certainly doing everything we can and our pipeline is strong.

Okay. And switching gears over to the asset management business, you mentioned the net flows, it sounds like in aggregate sequentially they were pretty flattish. I think you had some good details in your prepared remarks. You mentioned which funds were positive, but I didn’t catch which funds were actually negative during 2Q sequentially.

Hey, Matt, it’s Peter deSilva. I’ll walk you through that real simply. The equity funds, the mutual funds had $300 million of net inflows; our fixed income funds had $54 million of inflows; and our fixed income separately managed accounts had outflows of $340 million during the quarter for a net of about $13 million positive. And that $340 million fixed income was comprised largely of one large relationship that we lost during the quarter.

Okay. That’s helpful, Peter. And as far as the Institutional Investment Management revenue, it was sequentially down 10%, but I believe the AUM was relatively flattish. So any color as to why the revenue was down in that segment, but the AUM was flattish?

Yes, the AUM was actually down about $283 million due to that market -- market action I was describing a bit ago here. So average assets were down, be careful about when we give you a point in time number, a June 30 number, those assets move around throughout the quarter. Of course we get paid on a daily basis based upon average daily assets and those average daily assets were lower than the ending assets for the quarter. And that’s the main driver plus we had market impact of almost $700 million throughout the quarter based upon the EAFE being down 7% and the S&P being down 3%. So really it’s a function of average assets being down more during the quarter than the point in time at June 30.

Okay. That’s helpful. And then lastly, bank card fees very impressive in 2Q, can you give us any color as to kind of what was the driver behind this? Is there any seasonality there or is that a pretty good run rate going forward?

Nothing extraordinary going on. Our health care debit has been very, very strong and that gives some seasonality in that, but that’s been very, very strong. Our outstanding loans were flat so there was no major drivers there. Purchase volume is the big thing, it was up another 11.4% on a linked quarter basis and up significantly over the last year. And so really it comes down to putting more volume through the pipe and we’ve been able to do that for most of our card products.

Okay. And then one more question if I can. Just looking at the 3 non-bank segments, you got the Institutional Investment Management, the Asset Servicing, and Payment Solutions. It looked like all three had showed some good positive operating leverage last quarter, in fact it was year-over-year. But it looks like the operating leverage was not near as good in 2Q, do you have any other thoughts on that as to why that would be?

Yes, I mean there are different reasons for the three different segments. In Scout, I think or Institutional Investment Management really was flat flows and asset deterioration based upon volatile market. Fund services, it was the pricing pressure on the one large client that we ultimately lost. And I would want to point out that losing a client is never a good thing, but we do remain disciplined on pricing. And there is a point at which we will let our relationship go if pricing gets too irrational and in this case, we believe pricing got a little bit too irrational and so we allowed it to leave us. In the Payments business, as we discussed, the Durbin Amendment continues to be a challenge for us as we go forward. So different reasons for different segments in terms of why they might have been down sequentially.

However -- this is Mariner. I would add that the pipelines remained very good in the new business, looks very good in those businesses.

There’s nothing fundamentally wrong with the businesses, it’s just a little bit of seasonality and some pricing pressure that we’ve been adjusting to.

[Operator Instructions] And our next question comes from the line of David Long with Raymond James.

A couple of things. Looking at the credit quality, obviously you guys have very clean credit, relative to peers, but the non-accruals and restructures were up about $5 million. Was there any -- was that driven by a particular loan or any particular type of geographies or anything that I should be thinking about there?

Yes. I mean non-performing loans were up about 9 basis points from 0.33% and it’s about 2 or 3 for commercial credits that make up most of that. And I would focus you more on the relativity on the balance sheet, 57% of charge-offs still remain coming from our credit card book. And while we have a couple of credits that have gone into the non-performing, remember the -- on a percent basis, we’re still in the 50 basis point range and C&I loans still represent on charge-offs less than $3 million of total. So we had 31% growth in commercial loans sitting at $2.6 billion and on a year-to-date basis, we charged off less than $3 million. So just keep that in mind when you think about the quality of our commercial loan footprint.

Great, thanks for the color there. And then switching to the non-banking businesses, the asset management and the securities processing, when we’re thinking about the timing of revenue, how should we think about that? Is that business -- is it based on assets under management and assets under administration of the prior quarter-end or if you guys use average daily valuation or prior month and how is that business priced?

It’s bit of a mix. So in the fund, investment management business, it’s daily AUM. It floats up and down -- our fees float up and down based on the AUM at the end of the day. In our fund services business, we have different contracts; sometimes it’s at quarter-end, sometimes it’s at month-end, sometimes it’s average daily assets. So they really float around a little bit. It’d be hard for me to describe it more better than that, I think that’s the best I can describe it.

Got you, perfect. And then you talked about the single client that you lost, let me just make sure I understand that correctly. It sounds like it was a custody-only client in the servicing business and it just back handled numbers come as may be a $90 billion relationship, is that right?

It is roughly $80 billion at the time of its departure. It was a legacy client that we had had for 50-plus years. And again, we went to into an RFP process and priced at what we thought was a fair return for us and ultimately we got outpriced and the business has moved.

Okay. Then just that last thing on that, you mentioned going to an RFP process, was it the services that they were wanting, was it simply just to stick with the custody only, or were they looking to expand the relationship?

Yes. It was custody only, which made it hyper aggressive in terms of fees. This particular client insources most of their administration, their accounting, and such and so they were strictly looking for another bank custody provider, which made it very, very difficult to compete on price and we again chose to price it at a level we were comfortable with and that wasn’t good enough to win in the end.

I might add that this client is outsized from our hyper business that we’re actually after that we tend to win. So it was the business segment that we’re really after, which is a smaller client, we priced very strongly and win most of the business we go after.

Thank you. I’m showing no further questions at this time. I would like to turn the call back to Kay McMillan for any closing remarks.

Thank you very much for your interest in UMB for being on our call today. This call can be accessed via a replay at our website beginning in about 2 hours and it will run through August 8. And as always, you can contact UMB Investor Relations with any follow-up questions by calling 816-860-7106. Again, we appreciate your interest and time. Thank you.

Ladies and gentlemen, this does conclude today’s conference call. Thank you for your participation and you may now disconnect.