Good morning and welcome to the UMB Financial Fourth Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Kay Gregory of Investor Relations. Please go ahead.

Good morning and welcome to our fourth quarter and full-year 2021 call. Mariner Kemper, President and CEO; and Ram Shankar, CFO, will share a few comments about our results. And Jim Rine, CEO of UMB Bank; and Tom Terry, Chief Credit Officer, will be available for the question-and-answer session. Before we begin, let me remind you that today's presentation contains forward-looking statements, which are subject to assumptions, risks and uncertainties. These risks are included in our SEC filings and are summarized on Slide 42 of our presentation. Actual results may differ from those set forth in forward-looking statements, which speak only as of today. We undertake no obligation to update them except to the extent required by securities laws. All earnings per share metrics discussed on this call are on a diluted share basis. Our presentation materials and press release are available online at investorrelations.umb.com. Now, I'll turn the call over to Mariner Kemper.

Thank you, Kay, and thanks everyone for joining us today. In 2021, we delivered solid operating and financial results with strong growth on both sides of the balance sheet, steady asset quality metrics, and continued momentum in our fee businesses. When many others in our industry struggled to generate meaningful loan growth, we delivered a 12.3% increase in average loans in 2021, excluding PPP, largely through market share gains. We’re positioned to benefit from the anticipated economic expansion, higher interest rates, and continued investments we’re making. In 2022, while others are predicting growth based on a better economic environment, we are confident that we will continue to garner more than our fair share of that growth. There were a few factors that had outsized impacts on our results in the fourth quarter and the full year. We had higher than typical operating expenses, largely driven by higher incentive compensation for the strong business performance we experienced, along with additional charitable contributions in the quarter. Additionally, we saw some variances in software cost and legal and consulting expenses related to the timing of our business investments. We estimate that approximately 10 million of the linked quarter increase in expenses was variable in nature and attributed to the timing of spend. Many of these incremental expenses should reset lower in the first quarter. As we’ve discussed before, we remain focused on delivering positive operating leverage across all environments while we continue to invest prudently in our people and platforms. On the revenue side, in 2020, the gain on our investment in Tattooed Chef and ongoing market-related adjustments impacted year-over-year comparisons. Ram will share more detail on the various drivers shortly, but we expect to generate positive operating leverage in 2022, excluding the impact of PPP, with or without the benefit of higher interest rates. Turning to our fourth quarter results, net income for the quarter was 78.5 million or $1.61 per share. Pre-tax, pre-provision income on an FTE basis was 113.4 million or $2.32 per share. Fourth quarter net interest income was 210.6 million and was relatively flat compared to the third quarter, while we saw positive contributions on the fee income side. Fund services total assets on administration have grown nearly 25% from year-end 2020 to stand at an impressive 419 billion. Custody Assets crossed the 150 billion threshold driven by organic growth. In Specialty Trust & Agency Solutions, we saw a 149% increase in new business in 2021. Our teams continue to garner industry recognition for service and innovative products. In Private Wealth, new asset sales for 2021 increased 17% over the prior year, and we continue to build out and strengthen our family office offering. I'm looking forward to further momentum as we continue to invest in this business. You'll see more detail in the line of business updates in the presentation. Moving to the balance sheet, Slide 24 is a snapshot of our loan portfolio showing the drivers behind the loan growth I mentioned. Average loans for the fourth quarter, excluding PPP balances increased nearly 13% year-over-year and nearly 6% on a linked quarter annualized basis. Asset quality remains strong with net charge-offs of 19 basis points for the quarter and 27 basis points for the full year, consistent with our outlook and our historical averages. Average C&I loans increased 12% on a linked quarter annualized basis as we continue to deepen penetration in our markets. Most of our commercial clients are reporting strong pipelines and backlogs across most industries. In general, these are more positive feelings about the direction of 2022, while customers are keeping an eye on supply chain and labor issues impacting many businesses. Clients have expressed more interest lately in expansion, both organic and through acquisition. In our commercial real estate and construction portfolios, average balances were impacted by payoffs and by typical cycles as completed projects are converted to term loans sold or refinanced in the secondary market. Average residential mortgage balances grew 6.5% from the third quarter, an annualized increase of nearly 26%. Funded mortgage loans for the quarter were 200 hundred, including 55 million in the secondary market. In 2021, we saw a 70% increase in secondary market mortgages, compared to 2020. Total top line loan production, as shown on Slide 25, was very strong, coming in at 1.4 billion for the quarter, a record level for us. Payoffs and paydowns were 5.6% of loans in line with prior quarter. Many of our recent payoffs have been tied to merger and acquisition activity. More clients have been taking advantage of attractive multiples, often partnering with private equity firms and family offices. At the same time, we continue to see financing opportunities coming from some of these same PE firms and family offices. While estimating payoffs can be unpredictable, we continue to see a robust pipeline with opportunities across all verticals in the first quarter. Finally, early in January, we pursued and executed the sale of our small acquired factoring portfolio to an alternative financing company. Ram will discuss the financial impact of the sale of our factoring portfolio in his prepared remarks. Overall, 2021 was a solid year. Like all of us, I'm hopeful we're nearing the final phase of this pandemic, but no matter what issues we may navigate, I'm proud of our team and the resilience they’ve shown in serving our customers and keeping UMB moving forward. We're excited for the opportunities we see ahead of us in 2022. Now, I'll turn it over to Ram for some additional comments.

Thank you, Mariner. Net interest income was relatively flat compared to the third quarter at 210.6 million as the benefit from solid balance sheet growth was partially offset by changes in asset mix, lower earning asset yields, and reduction in PPP income. We amortized $5.4 million of PPP origination fees into income, and the overall PPP contribution to the fourth quarter net interest income was $6 million, compared to $10.1 million last quarter. At quarter end, our PPP balances stood at 136 million, down from 318 million at September 30. Approximately 3.8 million in unamortized fees remained at the end of the year. Average earning asset yields decreased 16 basis points to 2.49%, due to asset mix changes, including increased liquidity and a $297 million decline in average PPP balances. For the full-year 2021, our factoring portfolio provided approximately 14 million in revenue and had about $10 million in associated costs, so the pre-tax, pre-provision income impact was approximately 4 million. Fourth quarter reported net interest margin fell 15 basis points from the third quarter to 2.37%, driven by additional build-up in liquidity levels, lower reinvestment rates, and core loan mix and repricing. The build-up of excess liquidity accounted for approximately 10 basis points of the linked quarter contraction. For full-year 2021, NIM was 2.50%. Our Fed account, reverse repo and cash balances now comprised 19% of average earning assets, compared to 16% last quarter and just 9% in the fourth quarter of 2020 with a blended yield of 26 basis points. Based on our current expectations for two to three rate hikes in 2022, deposit made us consistent with our experience during the last rate cycle and improved reinvestment rates on our cash flows. We expect that our reported net interest margin has bottomed out and will likely improve from fourth quarter levels, generally in line with the current consensus estimate of 2.4%. While the volatility from PPP loans has subsided, our net interest margin and net interest income will continue to be impacted by excess liquidity levels. Our provision for credit losses for the quarter was 8.5 million, driven almost entirely by our strong loan growth. Excluding PPP loans, our end of period loans increased approximately 900 million from September 30. Our allowance to loans, excluding PPP balances is 1.14%, compared to 1.20% at September 30. Non-interest income for the fourth quarter was 118.8 million, an increase of 10.9 million from the third quarter. Market fluctuations drove a 3.3 million positive variance in the value of our equity investments. We currently have approximately 760,000 shares remaining in our Tattooed Chef position. Derivative income increased 3.2 million from the prior quarter, and deposit service charges increased 1.7 million on a linked quarter basis, largely related to client conversion fees in our healthcare business and corporate service charges. I will note that just about 10% of our deposit service charge line item is related to retail activity. Other drivers to fee income, including growth in both trust and securities processing and bond trading income are shown on Slide 22. Non-interest expense trends are shown on Slide 23. Expense levels for the fourth quarter were above our typical run rate and included a linked quarter increase of 7.3 million in salaries and bonus expense, driven by higher expenses related to business growth and positive business performance. Legal and consulting, as well as marketing spend was higher in the fourth quarter and pertain to the timing of such spend. Software and processing costs increased over the prior quarter and were driven by the implementation of our new and improved private wealth management platform. And as Mariner mentioned, we increased our charitable giving in 2021, and in the fourth quarter, the other expense line included a $2.1 million linked quarter increase in contributions. These year-end gifts to organizations in our markets that support housing needs, small business efforts, and education pushed our giving above the $6 million mark for the full-year 2021. Looking ahead, I'll reiterate that we expect to generate positive operating leverage in 2022, excluding the impact of PPP with or without the benefit of higher interest rates. Our effective tax rate was 20.2% for the fourth quarter and 17.7% for the full-year 2021. For the full-year 2022, we anticipate to approximate 17% to 19%. That concludes our prepared remarks, and I'll now turn it back over to the operator to begin the Q&A portion of the call.

We will now begin the question-and-answer session. And our first question will come from Jared Shaw of Wells Fargo Securities. Please go ahead.

Hi, good morning everybody.

Good morning, Jared.

Maybe, Ram, you've said on the margin, 2.4%, was that for full-year 2022 or is that for the first quarter?

That's a full year number. That’s what consensus has it. So, when I gave guidance relative to the consensus for 2022. Obviously, a lot of factors, Jared, will impact the outlook for margin. As I said, you can see Slide 21, you can see how that has grown both in magnitude and as a proportion of our earning assets. So, a lot of factors will play into margin, but at this point based on our outlook for rates, 240-ish.

Okay, all right. And then, it's great to see the loan growth this quarter. Can you give a little color on what you're seeing with the C&I utilization rates? And then looking at going forward, as those begin to normalize what type of benefit could you get from just a more normal utilization rate? And then the expected impact of paydowns over the next few quarters, do you think that that moderates?

Yes. Hey, Jared, it’s Mariner. I would say that utilization rates, they fluctuate quite a bit, within one or two points one way or the other, particularly during COVID. This is the period we're in, it’s hard to really tell where it should be settling out. From third quarter to fourth quarter, for example, it went the other way, and these last two quarters, it went up slightly. So, I think this pandemic period is kind of hard to come up with an adjusted number. So, I hesitate to give you what that normalized number should be right now. Pre-COVID, things were bumping around 30%. So, you do with that what you will, but on loan growth and payoffs and paydowns, as we have historically given you a good look into the next quarter, we try not to do too much guidance beyond the coming quarter. The pipeline for the coming quarter looks the strongest it has been looking. Fourth quarter 2021 was the best gross production quarter we've had at almost 1.4 billion in gross production. So, we're pretty bullish about the trajectory and the successes we’re having there. As far as payoffs and paydowns go, I think we're running in the 5% range right now, high-fives in the fourth quarter. I think as long as rates are low, as they have been, that's going to push cap rates low, and the secondary market opportunities will remain strong. Obviously, we're all predicting rates to come up, which should moderate payoffs and paydowns over 2022 as rates increase. We'll have to see; rates coming up are still going to be at all-time lows. I think the market is going to remain very strong even with rates coming up, but it should certainly moderate sales and paydowns.

Okay. Thanks. And maybe just the final one for me. When we look at the 10 million of expenses that you called out, sort of quarter-over-quarter as we go into the first quarter, can you give us a little color on what could potentially be staying around, what some of the puts and takes are? Should we expect that most of that 10 million is able to roll off?

Well, the way we're thinking about that 10 million is related, a good majority of that was related to production. So, if we continue to have very strong production, you will see, theoretically see more bonus and commission compensation. Certainly, the charitable contributions were elevated based on our success last year. So, I guess, again, if we are toward the end of the year, if we're having great success, we would consider giving back to our community at an elevated level like we did last year.

Okay. Thank you.

I would add, Jared, on the loan growth front. I think what happened in the fourth quarter storyline was actually a little muted because of the payoff activity at the end of the third quarter. So, I think our actual growth story in the fourth quarter is better than it looks based on end-of-period loans versus what the averages were due to the starting point from elevated payoff levels at the end of the third quarter.

Great. Thanks.

The next question comes from Nathan Race of Piper Sandler. Please go ahead.

Yes. Hi everyone. Good morning.

Good morning, Nathan.

Question on deposits, obviously really significant end-of-period deposit growth. So, just curious, do you expect those deposits to largely remain on balance sheet as we start this year, and just any kind of updated thoughts on just the trajectory of the massive deposit inflows that you guys have seen, which obviously can provide significant benefit as the Fed raises short-term rates with all the liquidity that you guys still have?

Sure. I’d say, it's a story of many points here, right. You’ve got what's happened over the pandemic and all of the stimulus money that's come in. That’s something we’re all trying to figure out how long that sticks around. That's part of it. For us specifically in the fourth quarter moving into the first quarter, as you’re well aware, we built some public fund dollars and some large institutional dollars, kind of year-end activity dollars, so to speak, and that will lead out over the first quarter. We don't know exactly how far down, but if history is any judge, it could be around 600 million or so over the first quarter on the public fund side that would roll back out.

Nathan, this is Ram, I would say, for us, like we’ve said in the past, I would not focus on end-of-period balances on both the loan side and the deposit side, particularly on the deposit side. If you look at between September 30 and December 31, our deposit balances in the period increased by 4.5 billion, a lot of it attributed to what Mariner indicated between public funds and some institutional. So, we have seen some receiving of those deposits. I would focus more on the average side just because, again, depending on which day the year ends or the quarter ends, we could see an inflow of deposits.

On the loan side, we did have very strong generation activity in the fourth quarter. The average deal in that case is a little misleading to the upside positive for us, which is the opposite of the story for the deposits.