Ladies and gentlemen, thank you for standing by. Welcome to the UMB Financial Fourth Quarter 2012 Financial Results conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session and instructions will be provided at that time. [Operator instructions] I would like to remind everyone that this conference call is being recorded today Wednesday, January 23, 2013 at 8:30 AM Central Time. I will now turn the conference over to Ms. Kay McMillan, please go ahead.

Good morning, everyone and thank you for joining us for our conference call and webcast regarding our fourth quarter and full year 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 change 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 SEC, 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 are listening via webcast have had a chance to review our earnings release, which was issued yesterday afternoon. If not, you will find it on our website at www.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 as we talk about our 2012 results. For the fourth quarter we reported total revenue of $189.5 million an increase of 6.9% compared to the fourth quarter of 2011. Net income for the quarter was $21.1 million or $0.52 per diluted share. On a full year basis we achieved record net income and total revenue. For 2012 we generated net income of $122.7 million or $3.04 per diluted share, an increase of 15.3% compared to 2011 on total revenue of $778.2 million. Noninterest income increased 11.8% to $109.3 million for the quarter and represented 57.7% of total revenue. For the full-year noninterest income was $458.1 million an increase of 10.6% and represented nearly 59% of total revenue. This advantage has been more apparent in this protracted low interest rate environment. With rates likely to remain low for the foreseeable future, our net interest margin will continue to be under pressure. While we are focused on improving our loan-to-deposit ratio we'll continue to rely more heavily on growing our fee business. That said I am pleased to report double-digit loan growth once again, making this the 11th consecutive quarter of increased loan growth. Average net loans were $5.4 billion at quarter end, an increase of 11.6% over the fourth quarter of 2011, as stated total loans stood at $5.7 billion at period end. Compared to the industry, the nearly 1,000 regulated depositories that had announced year end quarter results as of January 21st reported a median increase in loan balances of just 1.5%. Commercial banking is a core competency at UMB. C&I loan balances were $2.9 billion at the end of the fourth quarter, up nearly 29% from $2.2 billion a year ago. Over the past 12 months our…

Thanks Mariner and welcome everyone. First I'll review our Company's financials and then provide a more detailed summary of our core business segments. During the fourth quarter our balance sheet grew 10.6% and average earning assets increased 11.4% to $12.8 billion. The average balance in our investment portfolio for the quarter was $6.9 billion, 4.8% higher than last quarter and 15.3% higher than the fourth quarter a year ago. The average yield on securities was 1.96%, a decrease of 17 basis points from last quarter and a decrease of 36 basis points from the fourth quarter of 2011. Activity during the fourth quarter included the roll off of $392 million in core portfolio securities at an average yield of 2.2%. In turn we purchased $672 million of securities at an average yield of 1.35%. The average life is now 39.95 months down from 42.57 months last quarter. The average life in the fourth quarter of 2011 was 28.17 months. Continued changes in the portfolio along with some modifications to our security modeling inputs and tools shortened the duration slightly to 36.96 months from 38.7 months in the third quarter of 2012. Over the next three months $421 million of core investments with an average yield of 1.92% will cash flow and over the next 12 months $1.5 billion of core investments with an average yield of 1.89% will cash flow. Additionally 71% of our total loan portfolio is expected to reprice or mature in the next 12 months. As we have reported the securities mix in our portfolio has shifted and just over 50% of the total was invested in mortgage-backed securities at the end of the quarter. We continually monitor our amortization risk and have not seen any significant changes in our average book price. Allowance for loan losses…

Thanks Mike and good morning everyone. As Mariner mentioned earlier, fees represented nearly 58% of revenue this quarter. This gives us a strong advantage in an industry with the medium level of fee income to total revenue was 17.8% in the third quarter according to SNL Financial. 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 operating segments. Let me first begin with Institutional Investment Management which is comprised of Scout Investments, their equity in fixed income mutual funds and separately managed investment accounts. As we have noted before, Scout is a leading national asset manager supporting multiple distribution channels with high quality investment solutions. Revenue in this segment is driven by average mutual fund and separately managed account assets, net flows and equity and fixed income market performance. To add some context, the S&P 500 decreased 4/10 of 1% and the MSGI EFA [ph] increased 6.6% during the fourth quarter. For the full year 2012 S&P 500 increased 16% and the MSGI EFA [ph] increased by 17.9%. Positive financial markets along with strong performance and net flows combined to contribute to a solid year for Scout. At year end, assets under management stood at $23.5 billion, an increase of 19.6% when compared to year end 2011. Assets in Scout mutual funds closed the period at $11.3 billion. Scout's fixed income separately managed accounts totaled $11.4 billion and Scout's equity separately managed accounts totaled $925 million in assets under management. That level of assets under management was as of December 31 and we’re pleased with the growth that Scout posted in 2012. You may have seen Scout’s recent news release that assets under management has reached a new milestone. Scout recently…

As we end the call today I’d like to share a little of what we’re hearing from our customers. In general our commercial customers are experiencing modest growth and limited acquisition plans, although certain industries such as Energy, Healthcare, and Transportation continue to expand capital spending. Manufacturing, Service sectors seem more cautious pending final determination of the ongoing fiscal matters in Washington and the new healthcare laws. Many are still taking a wait and see approach. Unemployment rates in our larger markets continue to improve and most areas are at early 2009 levels. Home prices have increased in several of our markets specifically in Arizona where prices are 20% higher than a year ago and in Colorado which has seen 8% increase in prices. Despite the drought the agricultural economy continues to be strong. Many of our customers are involved in production agriculture and they’re reporting no substantial increase in operating costs in most categories. We continue to have a strong commercial loan pipeline going into the first quarter and are solidly focused on loan growth. 2013 marks our 100th anniversary. We look forward to celebrating this milestone on April 25th, when we’ll officially open the trading day on the NASDAQ. Please save the date to join us, as we will be hosting an Investor Day in New York to share with you all our vision for our Company. Watch for more details soon. We appreciate your interest in UMB and hope that you find value in listening to our quarterly conference call. With that I’ll turn it back to the operator, who will open the line for your questions. Happy New Year and thanks for being with us.

[Operator instructions] Your first question comes from the line of Chris McGratty from KBW.

This is John Barber filling in for Chris. In your prepared remarks you indicated the margin is likely to be under pressure, but I was just wondering given the strong loan growth you have had over the last few quarters if you think you’ll be able to grow NII in ’13?

John, we continue to feel the pressure. I don’t see that pressure alleviating because of loan growth. We’ll certainly be focused on loan growth but you got to run three times as hard in this environment with interest rates being where they are.

This is Mike. I would say clearly our strategy is to replace the growth you’ve seen in the investment portfolio with loans that obviously have a higher yield. I think the thing to watch will be the growth on the liability side, will that outpace ability to do more loans.

Okay, and excluding the $4 million charge this quarter is this a good run rate for expenses going forward?

Yes so there, there is a noisy quarter as it relates noninterest expense, let me kind of go through a couple of items, I think you should be aware of. As we disclosed the $4.2 million for earn out liability there is also $0.5 million in additional profit sharing that we took as a result of record year and full year earnings that we had. There is also $1.3 million related to the first data resources that both Peter and I talked about, that’s the impact of having that from November to December. It's not a full quarter. And then there were some other purchases of computer equipment in the fourth quarter. So if you combine all that there is about $6.8 million of those types of items that are built into the fourth quarter expense base.

Last question I had, the tax rate this quarter is that a good effective rate for ’13?

Yes so as you look forward to ’13, one of the benefits that we’re going to derive from charter collapse is hopefully an effective lower tax rate. Recently you have seen some increases, if you look back at UMB on the tax rate most of that is the effects of state marginal tax rates going up and also a lower amount of municipal revenue compared to the total, but as we look forward with the charter collapse an increased use of tax credits for various projects that we’re involved in. We think the effective tax rate will go down slightly in 2013. Probably be somewhere in the neighborhood of about 27.2%.

Your next question comes from the line of Matt Olney from Stephens.

To start with, Mariner you mentioned the Dallas LPO office. Can you let us know kind of what types of customers you will be focused on and how is that different from other markets and secondly will you be lending directly to energy borrowers in Dallas?

We expect to really expand into Dallas the same way we expanded in any of our other expansion markets with mostly being commercial borrowers and treasury management clients certainly selling any of our other national products that we can. We do intend to lend into the energy market down there. That’s not new for us. You know we’re already in Oklahoma and Colorado where we lend into those markets and it’s in a obviously a very natural slide into the Dallas market with it being highly dominated by energy. But like any large market as Dallas is there is certainly need for all the other services and manufacturing. So there is a pretty broad based diversified market down there and we fully intend to penetrate across all sectors.

Okay, it's helpful and I guess sticking with the bank segment obviously due to loan growth in the fourth quarter. I guess some of your peers Mariner have talked about the significant closings of some of these loans prior to year end, which is obviously good, but the closings were still strong in 4Q ’12. Some of your peers talk about a softer pipeline heading into the first quarter. So how should we think about your pipeline today versus three months’ ago?

I would say that it -- while we did, also like other banks, see year-end special borrowings related to anticipated tax changes, we see a similar pipeline really going into the first quarter. It remains as strong as it was in the fourth quarter.

Okay and then lastly, you know it looks like the issue with the stock price being down this morning, is on the expense side and then you’ve been very active in reinvesting within some of your core businesses. So strategically do you anticipate a similar reinvestment of your core businesses in future years or are you looking at all to slow down some of your reinvestments in those businesses?

Yes this is Mike, I will take that one. We’re going to constantly invest where we think we can get a proper payoff. So I don’t think that you should think of something stopping or slowing down materially. It depends on the opportunity. That said, scout and the Asset Servicing businesses are in pretty good shape. They are going to need investment but they are in pretty good shape. The bank is probably from a core technology perspective. The place where you’ll see the largest investments.

Okay.

Mostly care and feeding investments, we have closed most of the gaps we have. So it’s just really keeping things healthy.

It will be more technology to Mariners point than say brick and motor as an example.

Yes, but don’t underestimate the burdens being imposed upon us with new regulations, both in terms of technology, in terms of people and in terms of just keeping up with the myriad of regulations that are currently being thrust upon us.

Yes, that’s a great point. Most people think about that compliance cost is showing up on the GL line for compliances. It actually shows up in people.

And tech.

Your next question comes from the line of Peyton Green from Sterne, Agee.

I just wondered if you could comment Mike, I think you mentioned this a little bit later in the prepared remarks, but if you could comment on the expense side. You mentioned that there was over $6 million in lumpiness in the fourth quarter.

Yes, that’s…

I heard the $500,000 in profit sharing and $1.3 million related to First Data, but if you could maybe, I did not catch what the other you know 4.5 or so was related to?

That’s here in our liability.

That's [indiscernible] liability, that was in the prepared remarks.

Okay, and I guess is there, I mean the personnel expense verses the revenue growth. I mean when does that slow down, when do you get leverage from having a lot of people on the ground in ’11 and ’12 versus prior years or with this margin environment are we just not going to see it till rates go up?

Well I think, Peyton, this is Mariner. I mean that is mostly the answer which is we are really seeing leverage on an independent business unit level if you look at the investments we have made in those businesses we are seeing leverage. The pain you're seeing is as you mentioned really at the bank level with margin compression and the persistent low interest rate environment and it's really hard to outgrow that and our best ability to do that is to grow loans and to control expenses at the bank level and we are doing everything we can and are very focused on it.

Okay. Is it with regard to loan pricing? I think couple of quarters ago you were hopeful that pricing was starting to stabilize yet bond yields continued to come down. How would you expect that trend to carry out into the first half of '13.

You know, I wish I knew, Peyton, I wish I could tell you for sure the answer to that because I have talked about feeling like it has flowed down in the past. It has continued to come down a bit. I think part of the reason for our anticipation and then that not coming through is how long we have been in this interest rate environment. The longer we stay in the harder the banks compete for the few limited options we have to put our money to work. And so I would like to think that we're coming to the bottom but it's still highly competitive and the options we have for putting our money to work outside the loan portfolio is still very limited as an industry. So there could be more pressure.

Okay. Maybe to answer it another way. Year over year, how much spread compression did you see in the spread over Libor on your C&I loans?

On the spread to Libor. I have to go back -- I don't have that handy. It's come down -- if I were guessing, I'd say we've seen 25 basis points compression there. I don’t have that at my fingertips. We can talk about contraction across the board but specifically related to Libor...

I think Mariner's guesstimate is pretty close because our net interest margin compression from a year ago was 27 basis points. He said 25 so I think that's probably a pretty good number.

Okay. And then on the chart of consolidation how much of expense savings for the pre-tax side do you hope to get ignoring the lower effective tax rate?

Peyton, I think we'll certainly see some at this point. As of January 1 it's just a legal consolidation. So as we sit here today we're talking basically about compliance and regulatory burden relief as we get in towards the end of the year when we're likely to do the system collapse. We'll have more for you on that later. We have some estimates of our own but they're probably premature to share with you. There's certainly savings there but it's probably too early to guesstimate that estimate for you.

So again, there's no substance attached to that?

Not at this point.

Okay. And then the First Data business. How is that going to help your scale in that business and what was the revenue contribution for that given the expenses of about $1.3 million.

For the fourth quarter, I remember it wasn’t a full fourth quarter because that business came over on November 1. We estimate that at about $1.5 million in revenue and there is a revenue share component of that that runs for about 2 years and so we won't realize the full operating leverage on this business at least until 2 years when that revenue share is no longer part of the equation.

Peyton, this is Peter. In terms of the strategic imperative to do it, we picked up some of the largest broker-dealers in the country. I can't give you their names but trust me, they're the 3, 4, 5 largest broker-dealers in the country. It was a piece of business FDR [ph] had for a long time and it just wasn't strategic to them any longer. For us it is strategic. We're trying to build scale in the payments business in a whole bunch of different ways and this gave us immediate scale or added scale to our already pretty impressive business in providing check and ACH processing. But the real opportunity here isn't about providing check and ACH processing for these large DDs [ph]. It's really about penetrating those households more deeply with our credit card products, with our debit card products, with our new e-play [ph] products and other products that we brought to market recently. And so we really want -- a lot of these broker-dealers are getting rid of their banks. Many of them started to go into banking. They realized the regulatory burdens and the capital requirements were something they didn't want to deal with. So as a consequence, our strategic positioning really is to be their bank partner allowing them to provide banking services while we handle all the real administrative and legal and risk and compliance issues related to banking.

Your next question comes from the line of James Helman [ph] from [indiscernible].

Thanks for taking my question. Actually I have 2. The first one would be if you could just comment on the loan loss provision going forward. You thought the provision has been bleeding down a bit over time. I just note what should we expect the trend to be going forward. Will you be maintaining it or will you be allowing it to continue to bleed down?

This is Mariner. Obviously there are many variables that go into that calculation and so it's hard to answer that directly because as you're well aware from following the industry it ties to credit quality, roll off of certain types of quality, loan growth, etc. So as the year unfolds it has to do with the size of our portfolio, how the portfolio performs and what bad credit history rolls off, our history, etc. So as long as our quality holds up we are likely to be able to maintain levels, I guess, if that's helpful, but it's really hard to give you anything much more concrete.

Alright. Well it's a loan loss reserve to loans having fallen over the course of the year from 145 bps to 130. Should we expect to see that continue to drop?

Well that has dropped mostly because of our quality continues to improve and loan growth. So, whether it drops much more, hard to tell, but as long as credit quality stays strong as it has been, we certainly won’t have to increase at higher levels.

Alright, though, as you open up new loan production offices in new markets doesn't that lead to some requirement to maintain the loan loss reserve at a certain level of loans?

I don’t believe that's the case. No. It's just about totals.

No. I mean GAAP requires us to measure the inherent loss at a point in time and so you can't necessarily say that because you're making loans, for instance in Texas, that it absolutely has to go up. I mean reasonably speaking, probably will, because you're going to increase loan balances but it doesn't necessarily mean that it has to go up.

Yes, it'll be because of totals, not because of markets.

Correct.

Okay. One quick question on the investor portfolio side. With your taxable securities yielding a little more than 150 basis points right now, in this environment do you think you can maintain that? What's the marginal return on your taxable investments going forward?

Yes. I'm going to answer that one. This is Mike. I think you should think about that question differently. We think about that more about the percentage of what asset class we have in the investment portfolio. And so maintaining some level of diversification in the portfolio, assuming that there's availability, and let's be honest. Right now the market has limited availability in some of the classes that are out there. We really like the municipal market. It's been a good class for us. I think you will continue to see us hold a large portion of our investment portfolio in that but it wouldn't make sense for us to have that become say greater than half of portfolio or the vast majority of the portfolio, just from a diversification strategy. So it isn't so much about the yield from a taxable basis as it is about what we have available in the market and keeping a certain mix in the portfolio.

All right. So with that said, since taxable is going to remain a relatively large percentage of the portfolio for just diversification purposes, what would you say is the likelihood that we are going to see that 156 basis points move down going forward in the current interest rate environment?

Tell me what pre-payment fees would be in the MBS portfolio, and I can answer that. The pressure is clearly down, or the bias is down.

Okay, and what sort of tenor do you expect that you would be comfortable with in the taxable portfolio, please.

I'm not going to give you a specific number because we don't give guidance but I would say that we do look at the rates and the yields, based upon our expectation for the likelihood of those securities will be around for a period of time and if we don't feel like we're being paid for that risk, then we won't buy that security. So if that's what you're getting at, that is absolutely part of the equation but I'm not going to give you guidance on where that threshold is.

I'm not sure whether you're asking whether we're -- how comfortable we are holding munis, at what level, if that's part of your question. We're very comfortable with the municipal market, if that's part of your question.

It's MBS.

Yes, he was talking about taxable, non-taxable and so.

[Operator instructions] Your next question comes from the line of John Rudith [ph] from Think Partners.

Just quick question on the -- you mentioned, I guess so far in January, you had -- you won one large mandate and did you say whether that was on the equity side or fixed income side or?

It's a mid-cap mandate, it's on the equity side -- it's a separately managed account that was funded early in 2013.

Okay, okay. And then Mike, back -- just a little follow-up again, I guess on expenses, the First Data expenses, where did those expenses primarily go through -- the $1.3 million?

I was waiting for that question. The vast majority of First Data expenses are people. We acquired 73 people and while there may be a little bit of technology, obviously because you have to run the shop and a little bit of properties related expenses. The vast majority is in the personnel pass line.

It's all in the Payment Solutions segment.

Yes.

Okay, so I mean this -- sort of this -- I guess, because I think the focus for a lot of people and maybe to say it a different way, is really the quarter-over-quarter increase in salary expense. So if you sort of started at $83 million where you came in for the quarter. If you back out the profit sharing of $0.5 million and then you back out the $1.3 million of First Data, that kind of gets you down to $81 million. And that's sort of like an $81 million over $78.8 million in the third quarter. Is that sort of the right way to look at it?

That's the right way to do it. We'll let you do the math, but yes, that's the right way to do it.

Okay. And then I guess just my one additional question would be that, call it $2 million increase. Is there anything in there that would be non-reoccurring or should I assume, that that's just added cost going forward.

Given the things I've already talked about that were in the fourth quarter, I think there are some parts of that, obviously. But in the personnel cost line, specifically, no I think you should think about that as your run rate.

Because I think in the press release you've mentioned higher benefits expense, was there anything sort of elevated this quarter as it relates to benefits?

Well, we talked about profit sharing, the other thing is, we're a self-insured insurance program here at UMB and so, our ability to increase our accrual for that self-insured insurance program is really based upon loss rates and claims and so it can ebb and flow any quarter.

Okay. I'm sorry I didn't mean insurance, so okay that helps.

Next we have a follow-up question from the line of Peyton Green from Sterne Agee.

Yes. I was just wondering of the timing and the nature of the contingent payments on the acquisitions that you've done and did JD Clark roll off in '12?

Yes. So the last payment that we will make for earn outs for JD Clark will be in April of this year, 2013. And I can actually tell you the other ones too, if I can find the right page, I knew it's there, there we go. The last payment related to PCM will be in 20, will be in the third quarter of 2015. And the last payment related to Reams, the payment is actually -- will be calculated 2015, but will most likely occur in the first quarter of 2016.

Okay. And we'd be done with the accruals by the end of '15.

Yes. Correct. The accrual adjustments, yes.

And I would tell this much, Peyton, the way the accounting works on this, as you get closer to the last date that you make the payment the certainty of those payments would become more certain than they are today.

Okay. And how much of that was cash flow change versus discount rate change.

Well, most of the discount rate was taken in the first quarter of 2012. So not so much discount rate, more of a factor. Now we're really going to get complicated here, I could go really deep into this and then Mariner will give me the hook. When you're calculating the fair value on a discounted cash flow model and you're dropping off the last year that you just paid, the remaining years tend to be higher based upon the modeling that was done at the time we purchased, assuming that these businesses are still doing really well. And all three of them are doing very well, especially on a bottom line basis. We will continue to see larger cash flow projections and that will drive higher earn-out liabilities.

Okay. I guess, maybe my memory's still unclear but I thought there was a cap to the contingent liabilities, is there not, on the earn out?

No, no.

Okay, all right.

The good news is they are obviously based on performance. You know, I mean so that this bodes well for the future, theoretically, right?

Sure.

We get that it feels bad that there's a hit to the income statement but that means that obviously the expectations for these businesses is better and that's good for shareholders.

There are no further questions at this time, please continue.

Thank you, very much for your interest in UMB today, this call can be accessed, via a replay at our website beginning in about two hours, and it will run through February 6th. 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 concludes the conference call for today, thanks for participating you may now disconnect your lines.