Good morning and welcome to the UMB Financial First Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kay Gregory, Investor Relations. Please go ahead.

Welcome, and thank you for joining us. On the call today are Mariner Kemper, President and CEO; and Ram Shankar, CFO. Jim Rine, President and CEO of UMB Bank, will be available for the question-and-answer session. Before we begin, let me remind you that today's presentation contains forward-looking statements, all of which are subject to assumptions, risks and uncertainties. Actual results and other future circumstances or aspirations may differ from those set forth in any forward-looking statement. Details about factors that may cause them to differ is contained in our SEC filings. Forward-looking statements made speak only as of today and we undertake no obligation to update them, except to the extent required by applicable security laws. Our earnings materials are available online at investorrelations.umb.com. Reconciliations of non-GAAP financial measures to the nearest comparable GAAP measures have been included in the release and on Slides 34 and 35 of the supporting materials. All earnings per share metrics discussed on this call are on a diluted share basis. Now, I'll turn the call over to Mariner Kemper.

Thank you, Kay. Thanks, everyone, for your interest in UMB. Highlights for the first quarter include balance sheet growth with average loan balances increasing 2.8% or 11.2% on a linked quarter annualized basis, an average deposit growing by 3%.We earn $1.18 per share on a net income of 57.7 million. I’d like to discuss credit, beginning with a little more color on the fourth quarter charge-off of $48 million on a factoring relationship. While ongoing litigation proceedings still preclude us from sharing certain details, I can confirm that we're pursuing all avenues for recovery, including working with the trustee in the bankruptcy and bringing claims against people who may be liable individually. We conducted an in-depth review of the factoring portfolio and our procedures in that business. When we acquired the factoring business from market financial companies, we also acquired a leadership team with a long track record in the industry. We relied on their capabilities and expertise in managing those credits. We have since removed some of the top leadership within that team and brought on a new credit leader with extensive factoring experience who will work closely with our senior loan committee and within our proven risk management structure. While we made changes to our leadership, controls and procedures, we also identified by remaining credit relationships with characteristics outside the traditional factoring arrangements. At year-end, none of these loans were deemed impaired. Early risk mitigation is at the core of who we are and strive to be UMB. During the first quarter, we made a policy decision to exit these relationships, beginning in the second quarter and continuing over the next few months. Lastly, one of these relationships led to a charge-off of $11 million, reflected in our first quarter results, the remaining four credits represent $80 million…

Thanks, Mariner. For the first quarter, net income was $163.9 million, representing a 1.3% increase on a linked quarter basis. NII was favorably impacted by 4.9% increase in average earning assets, driven both by strong loan growth and investment of excess liquidity and to a lesser extent higher short-term interest rates. These benefits were partially offset by two fewer days in the quarter as well as changes in our liabilities mix. Earning asset yields improved7 basis points from fourth quarter due to improved yields in the AFS Portfolio and favorable loan pricing from higher short-term rates. The cost of interest-bearing liabilities and the total cost of funds increased 13 and 11 basis points respectively, driven by increased borrowing balances related primarily to client repurchase agreements and an increase of 9 basis points in the cost of interest-bearing deposits. Average total deposits increased 3% on a linked quarter basis and our deposit composition is shown on Slide 13.Healthcaredeposits increased 8.1% and represented the largest portion of our linked quarter interest-bearing deposits growth as much of the cyclical growth in these balances occurs in the first quarter but accounts are funded following open enrollment at year-end. Average DDA balances decreased slightly from the fourth quarter when we saw the typical seasonal build-up of cash in our various corporate trust businesses. Non- interest bearing deposits represented 32% of total average deposits for the first quarter. Cycle to date our earning asset yield has expanded by 132 basis points to 4.10% for a 59% cumulative asset beta. During the same period, our total cost of funds rose 81 basis points from 0.13 to 0.94% for 36% cumulative beta. Net interest margin for the quarter was 3.20%, down four basis points from the prior quarter. Margin was negatively impacted by approximately 3 basis points from…

[Operator Instructions] The first question comes from Chris McGratty with KBW. Please go ahead.

Ram, just starting with the deposits, and looking back, first quarter is typically a seasonally tough quarter for you guys, but deposits on EOP were up, and I think you talked about the HSA strength, should we - how much of the growth was kind of temporary related to the public funds and I guess, expectations for kind of deposit growth for Q2 because the size of the balance sheet really is pretty important in terms of NII in margin? Thanks

Different aspects of seasonality to each line of business. I would say about $200 million to $300 million of what you saw in the first quarter was related to public funds, the build-up in the fourth quarter and early part of first quarter and then exit during the latter half of the first quarter. We’re not going to get into specifics on deposit growth outlook, we typically don't do that. But again, those different components that drive seasonality in different lines of businesses.

We don't expect anything unusual on or our deposit growth going forward businesses.

The comment on the COLI and the expense offset, my question was is it a one-to-one offset the tick-up in expenses and the $9 million tick-up in fees or can you just maybe elaborate on that a little bit more?

Yes, it’s pretty much one-to-one. So it’s just - it’s based on market activity to fund our deferred comp program we haven't hedge on the company-owned life insurance side, so the S&P was down 14% in the fourth quarter, we had a negative $4 million hit to both fee income and $4 million in our expenses or favorable expenses and then in the first quarter when the market was up 13%, we had $5 million build the other way. So a positive swing in fee income and so that's why when you exclude that noise from fee income, fee income was up 3% for all the reasons that Mariner talked about.

And maybe one more Mariner on the credit, you lead with discussion of the factoring, the $11 million incremental charge-off, what was the principal on that, is that a similar loss rate then in the 48 in the quarter. And maybe elaborate a little bit more on kind of what you've done over the past three months and I think the message last quarter was that you felt that was isolated but just a little bit more about you’re approving yeah? Thanks.

I guess most of what I had to say is in my prepared remarks, so just adding a little color to it. Our credit management team including myself have been doing this together accompanied for a quarter of century together. And when we acquired Marquette, so the acquired subsidiary in the fourth quarter, we recognized some problems and we spent the last 90 days basically changing out leadership, changing processes, changing procedures in order for it all to come in line with the way we manage risk as a company. And as we wrap up the first quarter, we feel like we have accomplished our goals and brought back company in line with the way we do things as a company.

And so the future growth with the new management, is it - you will kind of let the portfolio run down or will it be a source of growth. And then also just a loss rate on that 11 million will be helpful? Thanks.

Yes, so on the first question I would say that absolutely love the business. I would put in my prepared remarks you will remember I said that we put in a new credit leader. And so we’re absolutely think as one of the biggest and most important commercial banks in our footprint that you need to be in the factoring business. You need to be in the ABL business, you need to be able to provide mezzanine financing to be a full-service commercial bank. So we love the business. We think additives to our company, fully expect continue to grow it and as part of the amount on the credit in the first quarter. I would just say that you know much like the one in the fourth quarter there are proceedings around that to remedy the situation. So I can’t get into a lot of detail around how much of a loss rate there.

The next question comes from Nathan Race with Piper Jaffray. Please go ahead.

Ram just to circle back and it comes from the margin outlook from here I think you were speaking to maybe flat to down from here, is that just a function of the deposit cost increases to your comments maybe not abating as you guys continue to grow the balance sheet and just within that context curious what the weighted average rate on new loan production is relative to that portfolio yield around 5.18 in the quarter?

So it is a combination of multiple factors, right. First thing is as I said it's deposit betas don't stop just because the Fed is on pause. And the other point I made was even though were still being accretive on new buys that on the securities portfolio, the fact that the curve is flattened out and our buy yields are now 40 basis points lower than what we use to buy in the fourth quarter will have some impact on margin going forward. Again it’s accretive but when you're buying at 350 and your margin is 320 that will have some impact on margin. Just on the loan side, no appreciable change in terms of new loan production yields. I made some comments in my prepared comments. We are extending the tenure of our loan book modestly, term debt, so to the extent. Again in that portfolio, I would say the roll on, roll off yields are still positive to what's rolling off.

And got it and changing gears and maybe just thinking about the trajectory of credit loss and all provision going forward. I appreciate the charge-offs within factoring probably won’t repeat on what you get. New leadership within that group going forward, so just any thoughts on just how you’re thinking about the trajectory the provision from here. And I did notice that you know Chris has passed by trends did take higher sequential in the quarter, so just curious within that context as well how we should think about the provision going forward?

So on provision expense I would say that generally speaking you should expect our provision expense to normalize to historical levels, because we expect our underwriting practices to be the same as they always been, so that should normalize. And then I would say, as it relates to the increase in ranks credit, that is, if you look at the longer term tenure of that chart, you will see that it kind of goes up and down, bump along. So there’s really nothing, no that’s unnatural or unique or unusual there, if you really look at the doubtful line at the bottom that what you should pay attention to. We have a very low migration historically and expect to have low migration going forward.

The next question comes from David Long with Raymond James. Please go ahead.

In the non-interest income, total there obviously are some moving parts, but a nice move upwards, nonetheless even excluding some of the noise. Do you guys feel like the fourth quarter may have been the trough in net interest income for UMB?

I love that question, I said that - I said something about that in the fourth quarter that we were excited to see the momentum building in our non-interest income again. If you look back couple events, as I talked about in the fourth quarter around getting passed selling the scout. And as we talked in the past getting past to the loss of a large client in our fund services that was related to a consolidation of a global business really unrelated to how the business is performing. And so getting past those two things as we look into the end of the first quarter, we are seeing as Ram just mentioned a minutes ago, outside of the COLI numbers. We are seeing non-interest income growth again. It’s really coming from all across the board. Our institutional businesses are really seeing strides, corporate trust we continue to consolidate on a national basis. Our corporate trust business, as the national banks marginalize their efforts because they're not big in any one of the banks and we continue to consolidate against that. We’re excited about that and our aviation and corporate trust business within that is seeing nice momentum, really across all of our institutional business lines. Fee, our service charge income is up, our credit card income is up. We’re seeing nice production on the card business, which I might ask.

This is Jim Rine. We are also seeing growth in our card business, our commercial card business we seen steady growth, double-digit growth in our card business, commercial card as well as we’re finally seeing growth in our consumer card business again, as we’ve been reinvesting in that product. So as Mariner said, we’re feeling very good about our fee income.

Yes, so we definitely I think you use the right term trough, we got a new baseline and we’re seeing growth from there again and we’re very excited about that momentum.

And then as a follow-up, then the second question I had is related to the repurchase authorization from last night. Do you guys intend to act on that or what would cause you or in what situation would you be inclined to aggressively act on that?

Well, we have been approving that on an annual basis now for some time and it really is designed to give us the flexibility. And so from there, I would just say we monitor all of our use of capital options of which at the top of that is to invest in growth. And if we can't find opportunities to invest in growth we then look at other uses of capital of which a buyback is one of those possibilities.

The next question comes from Gordon McGuire with Stephens Inc. Please go ahead.

Maybe just to start on the loan growth, the production this quarter was pretty impressive particularly in the C&I. Can you talk about the drivers through that what segments saw the best production across the bank. And then maybe specifically I noticed the ramp in Texas was pretty accelerated this quarter, is there anything to call out there?

Well, this is Jim Rine. Thank you for the question. We’ve seen growth and really that’s not set in just one particular industry, we’re seeing it across the board but several of the larger C&I loans we have done have been acquisition loans, purchase of new companies were either existing customers are selling or folks are acquiring a new company but our growth is really been our penetration market penetration. Kansas City is the only market that we’re in where we have the dominant market share. And so we have upside potential in each one of our major metro market for future growth. Texas being a prime example it is our position. And with the economy being as strong as it is in Texas, and the team we made investment bankers in Texas and as we've made that investment, we’re seeing the fruits of other efforts come on board.

Any specific segments you're hiring in out of Texas?

We have built out - we have made investments in our energy team which is very small but small but mighty. And then we have built out our real estate team but traditionally we've invested in C&I bankers that are more middle market to upper middle market that handle the traditional working capital construction, manufacturing distributing clients that have been our traditional bread-and-butter.

And then going back to the loan yields, Ram I think you had mentioned that the new production was still accretive to the portfolio, but the repricing this quarter up seven basis points was below what you see in the past four quarters anything there that would have muted that to think about.

Yes, look at it was what LIBOR rates do. Yes, last quarter if you look at what LIBOR moved versus this quarter so that explains largely the difference between the 24 basis points pickup in loan yields. Last quarter I also talked about some elevated fees in our pre-24 margin. So just a clarification on the first part of your comment the accretive yields are relative to roll-offs versus the portfolio. It's still true both ways but I just clarified my comments from earlier.

And then last thing from me, with the elevated deferred comp do you expect the efficiency this quarter to be the high watermark for the year and any color you could give just on efficiency trends over time?

Well, we have not been giving guidance on exactly what are targets are there what we have been consistent about is saying that we can do better over the long haul. And putting one quarter against the next quarter aside based on what might happen from one quarter to the next long-term trends, we should be able to improve our efficiency ratio from here.

The next question comes from John Rodis with FIG Partners. Please go ahead.

Ram just on the securities portfolio, so you sit here at about 8.2 billion would you expect sort of the keep that level over the next quarter or two. I know there is going to be buying and selling and runoff and stuff but around 8 billion plus or minus?

Yes generally, let me bifurcate the two conversations right. So we have the held to maturity bonds there are to be average at 1.2 billion. We don't see any big movements plus or minus from a policy perspective. And then just on the AFS both that the treasury team here manages, yes for the near term I would expect that to be closer to 6.8 billion that we are at right now.

A follow up - did you say the tax rate 15% to 17%?

For the full year that’s correct.

For the full year, okay. And then just one other question Ram on the swing in deferred comp so it sounds like for the first quarter it was a $5 million expense is that right?

Correct.

Okay.

Compared to a negative for last quarter it's completely neutralized - it’s the same thing every quarter it’s based on what's happening in the market and the income and expenses just basically watch each other out almost on a quarterly basis.

No, I get it, thanks Mariner. No I guess what I was trying to look at it is just looking at expenses so reported 190 million. I guess if we back that 5 million out get to 185 million is that sort of the right way to think about sort of core expenses going and sort of a growth rate of that going forward?

Yes generally there are pluses and minuses right. So one of the other comments I said that’s typically to the first quarter for all of us is FICA and medical expenses spike up $9 million. So while that will recede into second and third quarters, some of the investments spend that Mariner talked about will come through the expenses, but you generally thinking about it right John.

And then one final question from me, just on fee income obviously some positive trends and like you said your investments are starting to payoff. Just specifically within brokerage was that more a function of stronger market in the first quarter or anything else specific going on there?

Mostly market-based.

Yes, it's relatively small growth but we have added new business as well but it was market-based.

[Operator Instructions] The next question is a follow-up from Chris McGratty with KBW. Please go ahead.

Just wanted to ask about M&A given the capital levels, and kind of prospects for transactions - bank transactions may what you're seeing and kind of appetites for deals?

Yes, so I would say that generally speaking as we sit here today some of the same themes would exist which is that we are actively pursuing bolt-on opportunities within our fee based businesses. Those seem to be the most likely things to be able to come together given the environment and the environment meaning banks given where they've been trading. Looking backwards as sort of put us - had put us out of the market. Now our expectation as we look forward given a slowing GDP and the Fed rates environment changing is that boardroom conversations might change and expectations might moderate for sellers. And that might give us more opportunity coming into the next nine and 12 months for more robust conversations then we've been able to have. So we would still like to be able to find a bank transaction to do and those conversations we have not really seen that those rocks turnover quite yet, but it would be my expectation that boardroom conversations would change a little bit over the next 9 and 12 months given the environmental changes.

And size in expectation a few billion kind of maybe the parameters and markets?

We don’t have any specific guidance to give on that, but the last deal we did felt great and that was couple of 3 billion that felt like something that is something we can digest easily. So that's helpful.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, and thanks for joining us today. This call can be access via replay at our website, and as always, you can contact UMB Investor Relations at 816-860-7106 with any follow-up questions. Again, we appreciate your interest and time. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.