UMB Financial Corp (UMBF) 2006 Q4 法說會逐字稿

Thank you for standing by and greetings. Ladies and gentlemen, welcome to the UMB fourth-quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session for analysts will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Begonya Klumb, Director Investor Relations. Thank you. Ms. Klumb, you may begin.

Good morning everyone and thank you for joining us for our conference call and webcast regarding our 2006 fourth-quarter and full-year 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 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 to the webcast have had a chance to review our earnings release dated January 23. If not, you will find it on our website at umb.com.

Our earnings release includes both our GAAP based income statement and our reconciliation to the non-GAAP measures discussed in the release and during this call. This reconciliation includes certain pretax adjustments to non-interest income and non-interest expense, the tax affect those adjustments, and adjusted net income. This adjustment comprised net gains and losses related to the sales enclosures of banking facilities, the sale of employee benefit accounts, and charges related to the voluntary separation plan. The reconciliation for these items can also be found on our website at umb.com.

The non-GAAP results are a supplement to the financial statements based upon generally accepted accounting principles. UMB believes this non-GAAP presentation and the elimination of these items is useful in order to focus on what we deem to be a more reliable indicator of ongoing operating performance.

On the call today are Mariner Kemper, Chairman and Chief Executive Officer; Peter deSilva, President and Chief Operating Officer; and Michael Hagedorn, our Chief Financial Officer. The agenda for today's call is as follows. First Mariner will highlight our results and strategies. Then Mike will review the details of our full-year and fourth-quarter results. Peter will follow with a discussion of operating performance against our strategies. Following that we will be happy to answer your questions.

Now I'll turn the call over to Mariner Kemper.

Thanks, Begonya. Happy New Year to everyone and thanks for joining us today. 2006 was another solid year for UMB's growth and improved financial performance. Reported net income totaled $59.8 million or $1.40 per diluted share, a 6.1% increase from $56.3 million or $1.30 per diluted share for 2005. Excluding certain adjustments that Mike will cover in his remarks, adjusted earnings would have increased 16.4%.

Our financial performance in 2006 was mostly driven by margin expansion, loan growth and fee income. And as always, we maintain our high credit quality standards while achieving growth. We're pleased to be one of the few banks in the U.S. that have seen margin expansion in 2006. Despite a challenging yield curve, our margin expanded thanks to the actions we had taken in the past two years to restructure our investment portfolio, improve our balance sheet mix, and focus on loan growth.

As a management team, our goal is to create sustainable growth and improve shareholder returns while maintaining a sound balance sheet and strong capital ratios. We plan to accomplish this goal through continued, consistent and discipline implementation of the growth strategies we've discussed on prior calls.

Our first strategy is to focus on yield enhancement and we continue to make progress by optimizing the mix of our earning assets and liabilities while our loan portfolio continues to grow. In 2006, average loans increased 14.3% and end of period loans increased 11.2%. We ended the year with a record $3.8 billion in loan balances. Loan growth was primarily driven by the commercial, home equity and credit card categories.

In 2006 our home equity loans grew 48%, continuing a strong growth trend. We attribute this growth to a highly competitive product with a 6.75 APR locked in for three years. We have also made the application process easier for customers and implemented a process to close these loans quickly. At the same time, we have maintained our credit quality standards. And thus far we have not experienced a credit loss in this portfolio.

Our end of period deposits grew 6.6% in 2006 due partly to the successful Grab-a-Great-Rate campaign and the acquisition of Mountain States Bank in Denver. Gathering low-cost deposits is a number one challenge for our industry and is a top priority for us in 2007. Our non-interest-bearing deposits as a percentage of total deposits were 36.3% at year end, well above the industry average. We are committed to maintaining the competitive advantage of our low-cost funding structure through both our retail and our payments business.

Our cost of funds significantly increased in 2006 as a result of higher rates following the Fed's tightening cycle; however, we are beginning to see a moderation in funding costs since the Fed left short-term interest rates unchanged. Nevertheless the funding side of the balance sheet will be a challenge for us because of the inverted yield curve and the increasingly competitive deposit gathering environment.

That said, we are committed to growing both sides of the balance sheet to sustain UMB's long-term growth. We also improved yield by extending the average life of our core investment portfolio to 35.3 months at the end of 2006 compared with 30.6 months a year earlier. We accomplished this improvement while maintaining our strong liquidity position.

Overall we have significantly improved margin this year in contrast to others in our industry. Our margin expansion is primarily due to the free fund's contribution combined with earning asset yield expansion. For the year our margin increased 22 basis points. Yield improvement opportunities will continue with $725 million expected to roll off our core investment portfolio and 66% of our loan portfolio repricing over the next 12 months. With stable rates, continued loan growth, improved yield, and strong free fund's contribution, we expect net interest income to continue to be a driver of our profitability.

Our second strategy is to grow our strong fee-based business, which represented approximately 54% of total revenue in 2006. Trust and card service income will continue to be a major driver of growth in fee income. Peter will cover those results in his comments.

Our third strategy is to optimize our distribution network, including continued investment in our retail business. Our branch network stands at 139 branches, reflecting the net effect in 2006 of closing five branches and opening four, including the acquisition of Mountain States Bank. Since 2004, we have closed 15 branches, sold nine and opened nine. The total number of branches went from 154 at the beginning of 2004 to 139 at the end of 2006. While over the same period our deposits have grown by 12%.

We do not see much change in the number of branches in the near term and continually monitor the branch performance to ensure long-term returns are in line with market opportunities. As part of this strategy, we will also continue to make investments to targeted markets where we have identified demographic and business trends that fit our strategy for growth and returns.

Our efforts to reinvigorate our retail franchise are showing results, with primary retail customers growing by 6% year-over-year contributing to this growth with our Grab-a-Great-Rate and HELOC marketing campaigns, as well as the addition of Mountain States Bank customers. The HELOC marketing campaign resulted in almost 1700 new loan accounts and net growth and outstanding balances of more than $56 million in 2006. In addition, our deposit campaign helped us gain more than 2800 customers and more than $240 million in deposits.

Our fourth strategy is to strengthen our asset management business. In 2006 we continued to demonstrate positive results in this area with a 23% increase in total assets under management. The increase was due to both net fund flows in our UMB Scout Funds and an increase in market value. Peter will cover this further in his comments.

Finally our fifth strategy is to focus on capital management. During 2006 we continued to implement a disciplined combination of investment and organic growth and acquisitions as well as return of capital to shareholders in the form of share repurchases and dividend payments.

As we previously reported, we acquired Mountain States Bank in Denver in the third quarter. During 2006 we repurchased 856,966 shares at an average price of $34.75 for a total cost of $29.8 million. We also increased the quarterly dividend by 4% for a total outlay of $22 million or a 37% payout ratio.

Yesterday our Board of Directors increased the quarterly dividend by 7.7% to $0.14 per share, reflecting our commitment to return capital to shareholders. This is the fifth increase in our quarterly dividend since October of 2003, with a total increase over this period of 33%.

These five strategies along with our focus on efficiencies, people, and risk management continue to be our roadmap to drive performance in 2007.

Now I will turn the call over to Michael Hagedorn, our CFO.

Thanks, Mariner, and welcome everyone. First I'll provide a review of the full year and then turn to a few brief remarks regarding the fourth quarter. As Mariner indicated, we reported diluted EPS of $1.40 for the full year, up 6.1% from $1.30 per share in 2005. This was primarily due to higher net interest income that reflected increased loan balances and securities interest income and higher noninterest income primarily from our fee-based businesses.

As we have reported in prior periods, in 2005 there were $9.2 million in net gains recognized related to the sale and closure of Banking Facilities. Additionally there was a net gain of $3.6 million recognized on the sale of employee benefit accounts in 2005 and a charge of $4.4 million for a voluntary separation plan. Excluding the aforementioned adjustments in both years, our 2006 adjustment net income would have increased 16.4% to $59.3 million from $50.9 million in 2005. These adjustments are detailed in our news release in the table reconciling GAAP net income for these items for both years.

Net interest income for the year increased $28.9 million in 2006 or 15.4% over 2005 due primarily to higher average earning assets and improved net interest margin. Net interest margin increased 22 basis points to 3.38% for the year from 3.16% in 2005. This improvement was due to higher earning asset yields and to the contribution of our free funds. The year-over-year yield improvement in our securities portfolio was 106 basis points, finishing the year at 4.36%.

The yield on our loan portfolio also increased 100 basis points to finish at 6.66% for the year. The free funds contribution to our margin increased 89 basis points during 2006, compared to 60 basis points in 2005.

In 2007, $725 million in core portfolio securities should roll off at an average yield of 4.09%. Also approximately 66% of our loan portfolio as of 12-31-'06 is expected to reprice during 2007. As our assets reprice, we expect to see a positive impact on our net interest margin in 2007. The scale of improvement will depend on the yield curve and our purchase decisions.

Noninterest income increased $3.1 million or 1.2% for the year ended December 31, 2006, compared with 2005 due primarily to higher trust and securities processing income and bankcard fees. Bankcard fees were $5.4 million or 16.2% higher in 2006 as greater card activity drove increased interchange fee revenue.

Trust and securities processing fees were up 19.2%. Service charges on deposits declined 7% primarily due to higher earnings credit rates in 2006 compared to 2005. Noninterest expense increased $23.3 million or 6.5% for 2006 compared with 2005 with the most significant increases in equipment, processing fees, salaries, employee benefits, bankcard, marketing, and business development expenses.

Salaries and benefits increased $3.7 million over 2005, although the increase would have been higher after adjusting for the $4.4 million in charges for the voluntary separation plan in 2005. Some of the major items contributing to this increase were a $1.6 million increase for our self-funded insurance plan; a $1.3 million increase in equity based compensation mostly as a result of the implementation of FAS 123(R); a $1.3 million increase in profit-sharing contribution, which we reintroduced after a two-year lapse; and approximately $600,000 related to an increase in our 401(k) company match.

Additional items contributing to the increase were salary increases including the addition of Mountain States Bank employee costs as well as a bonus and commission increase related to higher revenues. All of the aforementioned items are key to our strategy to build the most engaged workforce and to increase associate satisfaction.

Credit quality ratios in 2006 reflected UMB's continued strong commitment to high-quality lending. Nonperforming loans as of December 31, 2006 were $6.6 million or 0.17% of loans compared to $5.4 million or 0.16% in the same period last year. Net loan charge-offs show a positive trend totaling $7 million for 2006 or 0.2% of average loans compared with $7.7 million or 0.25% of average loans last year. Our credit quality remains strong relative to the past several years and to the industry.

In recognition of our credit quality as well as our progress on risk management and profitability, independent credit rating agencies Fitch and S&P have upgraded our company from negative to stable outlook.

Turning to the balance sheet, our solid financial performance for the year was driven primarily by loan growth. At the end of December, loan balances were $3.8 billion, compared with $3.4 billion a year ago. Total end of period loans grew by 11.2% partly driven by a 4.5% increase in commercial loans and a 5.7% increase in credit card balances. Also contributing to the growth was a 34% increase in the real estate category attributable in part to our acquisition of Mountain States Bank and to a 48% growth in home equity balances.

Although we recognize the economy is showing signs of slowing loan demand and we face a highly competitive environment, our current view of the loan pipeline looks strong.

At the ended December, total deposits were $6.3 billion compared with $5.9 billion a year ago, a 6.6% increase. The majority of the deposit increase is attributable to our Grab-a-Great-Rate deposit campaign, which also plays to our retail customer acquisition strategy.

The average loan to deposit ratio continued to increase to 65% in 2006 from 61% the previous year. Our ratio of average loans as a percent of earning assets also continued to increase to 53% for 2006 from 50% in 2005. Return on average equity and return on average assets during 2006 were 7.09% and 0.79% respectively, compared to 6.79% and 0.79% for 2005. Profitability levels in 2005 were positively affected by the net gains detailed in our news release in the table reconciling GAAP net income for these items for both years. Capital ratios remained strong during 2005 with Tier 1 total capital and leveraged ratios at 13.8%, 14.6%, and 9.8% respectively.

Turning to the fourth quarter, earnings of $15.8 million or $0.37 per share diluted increased 5.7% compared to the fourth quarter 2005 of $15 million or $0.35 per share. Net interest income for the fourth quarter of 2006 increased $8.5 million or 17.6% compared to the same period in 2005. This was due primarily to higher average earning assets and an increase in our net interest margin.

Net interest margin was 3.41% in the fourth quarter of 2006 compared to 3.12% in the fourth quarter of 2005, but down from 3.43% in our 2006 third quarter. The sequential trend is due to the seasonal volatility of our tax payment driven public funds which inflate our deposit and repo balances during the fourth quarter and gradually decline during the first and second quarters. These funds are predominantly held in higher yielding accounts resulting in a margin reduction in the fourth quarter. As of December 31, our public funds deposits and repo balances amounted to $1.4 billion, in line with our expectations.

Noninterest income increased $4.1 million or 6.7% over the same period of 2005 due primarily to higher fee income driven by increases in assets managed within our UMB Scout Funds and higher bankcard income. Noninterest expense increased 13.6% or $11.8 million due primarily to an increase in salaries and benefits along with increases in equipment expense and processing fees.

The increase in salary expense was partly due to the increase in base salaries related the acquisition of Mountain States Bank. Other increases were due to higher equity-based compensation expenses mostly attributable to the implementation of FAS 123(R), a higher 401(k) company match, and the accrual for a profit-sharing contribution after a two-year lapse. In addition, the salary increase was partly due to an accrual reversal in the fourth quarter of 2005 of $1.4 million related to the reduction in the expense estimate for our partially self-funded insurance plan as accruals were higher than actual medical claims in 2005.

Equipment expense increased reflecting hardware and software costs associated with major initiatives during the year including web exchange, our payments platform, client link, a customer relationship management system, and an improved umb.com website. Higher processing fees reflected shareholder servicing and administrative fees that correlate directly with higher trust fee income and the increase in assets under management.

With that, I will turn it over to Peter for some additional comments on our operating performance.

Thanks Mike. Good morning everyone. I will spend a few minutes providing some additional details on our growth and operational strategies starting first with our strategy to grow our fee business, which will be essential to our continued growth.

UMB continues to gain momentum in healthcare services. We're committed to maintaining our leadership position in the healthcare space and we believe that rapid account acquisition is crucial to achieving this goal. The number of cards under our HSA and FSA programs grew 234% in 2006 and 73% in the fourth quarter alone. Significant customer wins during the year included Pilot HSA, Ships, Lighthouse 1, LCEF, and BenSoft. At the end of the year, we had more than $64 million in deposits and assets in these accounts.

Our credit card business is a key part of our fee business strategy and it significantly contributed to the fee income during the year. The growth is primarily driven by our commercial credit card program where card holder volume increased 24% over the same period last year. Our investment banking division also contributed to fee income growth this year with a notable increase in our municipal bond underwriting activity. In fact, UMB is now ranked as the 17th largest underwriter of bank qualified municipal bonds as reported by Thomson Financial in its 2006 U.S. Municipals Review.

In 2006, we continued to strengthen our asset management business, another key component of our strategy. Total assets under management increased 23%, surpassing $10 billion for the first time since the sale of the employee benefits division in 2004. Leading this growth was our proprietary family of mutual funds which continues to play a key roll in this strategy. In 2006, our UMB Scout equity and bond funds benefited from strong net flows of $684 million. Additionally we opened our new MidCap fund offering in the fourth quarter.

The other integral part of our asset management strategy is the implementation of an integrated wealth management business model. We're pleased with the results we're achieving from the integration of our wealth management offerings and the synergies we are achieving with private banking. After building our private banking team during the first part of the year, we added $28 million in new credit authorities, $23 million in deposits, and $11 million in new investment business.

With respect to enhancing our operating efficiencies, we continue to focus on cost-saving efforts. Our focus and discipline with respect to improving operating efficiency has enabled us to reduce the number of full-time employee equivalents by another 38 to 3453 at the end of 2006. This is despite an increase of 57 physicians related to the acquisitions of Mountain States Bank in the third quarter. Since 2003, FTEs have been reduced by 473 or 12%.

We also continue to see improvements in productivity metrics. During 2006, average loans per FTE increased 12.8% and average deposits per FTE increased 4.4%. While our reported efficiency ratio remained about the same, 79.35% in 2006 compared to 79.18% in 2005, our efficiency ratio in 2005 was favorably affected by the net gains detailed by Mike in his remarks. Thus the underlying trend of our efficiency ratio continued to be positive in 2006.

Finally I am pleased to report that according to the FDIC 2006 marketshare reports that our deposit marketshare in the Kansas City metro area increased 86 basis points to 9.19% from 8.33% in 2005.

With that, I would like to turn it back to Mariner for his concluding remarks.

Thanks Peter. In 2007, our goal continues to be improving value for our shareholders. We are focused on driving growth while maintaining our standards for underwriting and financial strength. While we're coming off of a strong year in 2006, we still see opportunity for improvement in profitability and as always we will continue to evaluate the economic conditions and respond to the any unexpected changes that may occur.

We will be disciplined in implementing our growth strategies. We will continue to appropriately manage our capital while providing funding to enhance the quality of our human resources and the technology systems needed for long-term sustainable growth.

We will continue to evaluate acquisition opportunities, but they have to make sense for UMB strategically, operationally, financially, and most importantly, culturally. Finally, we remain true to our 94-year history of solid values and we will continue our tradition of high-quality credit, liquidity, and long-term relationship management with our customers.

Thank you all for being on the call today and with that I'll turn it back to the conference call operator to open the session for your questions.

(OPERATOR INSTRUCTIONS) Troy Ward, AG Edwards.

Peter, can you just give us a little more color on the HSA side of the business? Can you quantify for us what kind of what that means to you UMB as a whole and how much growth do you think is potentially still there?

Secondarily can you kind of speak to where you are positioned in the market vis-à-vis the competitors and how you are doing in competition with people getting these new accounts?

Why don't we talk about the numbers first. We ended the year with 527,000 total accounts if you include our FSA and HSA business combined. Again over 200% improvement overall. Our strategy in the business has been more of a wholesale strategy, selling through a couple of different parties. One would be large insurers and you've heard about our relationships in that particular regard. Second would be TPAs, third-party administrators make a lot of these decisions or a lot of these recommendations and we are working with them.

Third would be selling directly to large corporate entities. We're learning more and more about this business that some do want to hang off their insurance plans but many others are choosing to go direct with banks and so we want to play in that space as well. And last, which many banks have done with some success, is a direct retail model through the branches which we are developing for 2007 as well. We also have a program with Lighthouse 1 to work through our correspondent bank, so it is a multi-distribution strategy.

In terms of our progress, we are still very encouraged with the business overall. Obviously we're watching the legislation in Washington and the President last evening referenced HSA growth in his speech. So we are still encouraged that the environment will be helpful from an HSA growth standpoint.

As it relates to our competitors, it is becoming increasingly crowded. We know that HSA Bank has the largest market share currently and Wells and U.S. Bank and the other large banks, Bank of America, are playing in this space as well, but we had an early mover advantage. We continue to see our account growth grow substantially and we expect that to continue here into the future.

Can you qualify at all what this means to UMB from I guess an earnings or a profitability standpoint?

No, I don't think at this point we can. I don't want to look forward too much, but I think it is becoming important to us overall.

I would just add, this is Mariner, it is a scale business. We do not have a big investment in it and it is clearly a scale business. So to the extent that it takes off nationally, we will benefit.

Okay, great. Thanks.

Brian Hagler, Kennedy Capital.

Just a few questions. First of all can I get a little bit more color on I guess you said the loan pipeline is fairly strong going into the year. Were there any large paydowns in the fourth quarter that kind of impacted sequential quarter growth?

We have had a couple in the fourth quarter. We tend to have those on and off in our business and we did have a couple large paydowns in the fourth quarter. I would say they do not represent any type of trend.

Okay, that is helpful. Then just moving on to the margin for '07, do you think that you guys -- I know you said it depends on the yield curve and kind of what your purchase decisions, but do you think the improvement could match '06's improvement or what is your thoughts on that?

Brian, it is Mike. I don't think we're in a position to really say because it really depends upon the interest rate environment and how inverted the curve is. And you've seen movement even since the beginning of December to now that's been 20 to 30 basis points swings and two year and up money.

What I can tell you is that we expect given what we know today and our expectations for interest rates to be able to continue to add to our investment portfolio at yields that are accretive to the overall yield of the portfolio.

Right, and I guess one thing that may be helped me kind of estimate that myself would be can you give me the yield on the $725 million in securities that will be repricing over the next year?

4.09%, and that varies depending on the month. That is the average over that 12 months. There's times during the year where we have larger balances than other months, too. So I guess it's an average, that's what I will tell you.

Okay, and on the 725 million, is that pretty -- evenly throughout the year of is it more weighted to the first half versus the second?

I don't think it is more first half than second but if you look at any one month, next to one another, there would be higher balances one month to the next but no, I don't think it is overly weighted.

Okay, and then can you remind us what the cost save assumption was on the Mountain States acquisition and have you started to realize any of those yet?

This is Mariner. We didn't really get into that publicly in the past. I would tell you that we have executed against the savings dead on that we anticipated. Those were not disclosed, so I do not recall I don't think.

In broad categories, it's people, it's technology expense and operational consolidation that we, as Mariner said, have been successful at to date.

We've met them all.

Well I guess I was just trying to figure out why your equity and assets went from 11% to roughly 9.5 sequentially. But yet your ROE hadn't moved and I was assuming that it's obviously you paid cash for Mountain States and the assets, the denominator got bigger. But I am just -- I was just thinking that you're not getting the return quite yet on the acquisition that will come in over time.

You are right about the numerator and the denominator issue, but remember in the fourth quarter our balance sheet tends to be especially in December and January the highest that it will be throughout the entire year.

We also after acquiring Mountain States, we did not actually convert them until the middle part of December, so some of the staffing things were not done till almost the end of the year and are still being done.

Okay, and on the balance sheet comment, obviously I guess you're talking about the $1.4 billion in public funds, but I guess did you just take that money and invest it in securities temporarily?

They are short-term discount notes, some repos.

Okay. Then lastly for me, Mariner, you mentioned M&A will be kind of part of the ongoing process. Can you just give an outlook on what you are currently seeing and if pricing expectations have come in any?

Certainly. I think this is probably more of an industry answer than it is a UMB answer, but I think clearly it is a very active market. I see the market pricing getting worse not better as it relates to how much premium banks are going to have to pay because we're going through an extended period of high loan to deposit ratios across our industry. And as everyone on the call knows, we are all starved for deposits and aggressively looking for ways to impact that.

I think that is going to drive M&A activity and drive pricing and so that is just kind of I guess a color comment about the industry and certainly the markets that we are interested in are the same markets other banks are interested in, and I would tell you we very actively pursued a high number of opportunities in '06 because of our culture, because of the things I said about things needing to really fit and not just do acquisitions to do them, we have had a hard time finding fits. But we are very interested in acquisition opportunities within our footprint. I think I've used the term before with folks on the call of trying to think more from a penetration perspective and less from an expansion perspective and so we continue to look for -- and it is not just traditional bank type acquisition opportunities. It would be asset management opportunities, HSA opportunities, technology opportunities.

Okay, thanks.

[Robert L. Hawkins Jr.], a private investor.

I will pass, thank you.

(OPERATOR INSTRUCTIONS) Peyton Green, FTN Midwest Securities.

I was just wondering if you could maybe qualify the loan pipeline and what you're seeing, if you are seeing any particular pickup in any region versus another or any particular loan type?

What I would say about our pipeline is that we don't see anything in the economy as it stands today that would make '07 look any different than '06. Customers' demand seems to remain strong today and we feel pretty good about our prospects in '07. Certainly if things change in the economic environment within our footprint we will adjust for that, but right now things look pretty good.

Okay, then separately I think you all doubled the amount of stock that you repurchased in '06 versus '05. And I was just wondering what your appetite is in thinking about that or what drove your decision to be particularly active in the fourth quarter versus prior quarters?

In the fourth quarter it was largely because a couple of opportunities came at the right time and at the right price. I know that is probably not what you're looking for, but it was opportunity based at the right time. As far as '05/'06, as we have talked before about trying to be more active with capital management, it is one leg of a three-legged stool. We continue to evaluate every quarter both acquisition opportunities, dividend payments and repurchase opportunity. It is part of an overall strategy, but we don't look at it in a vacuum.

Okay, then I guess entering into '06, you're particularly optimistic about reengaging your employees and really boosting production on both the loan and deposit side. How would you feel today looking forward into '07? Do you feel like the employees have basically bought off on what you're trying to do and are executing it? Or is there still a bit of movement that is needed in that area to really get the execution where you want it?

I would tell you that I think if any company told you that they had completed the process of engaging all of their associates at the highest level they would be lying to you. But I would tell you that our associate base is engaged, enthusiastic. These are great times for our company. The energy level at UMB is -- I have been here 12 years -- that is just my full-time work -- after all my college years. I would say that I have never felt better about the energy in the company.

A combination of all the things we have done in the past few years with incentive compensation, this year with the profit-sharing, a higher level of communication, a higher level of empowerment, it is a great time within the company and there is always room for improvement. But I don't if you want to add to that?

I think just to validate that a little bit, we do an employee survey and for the third year running we saw significant double-digit increases in our employee satisfaction, which really I think validates what Mariner was talking about.

Okay, then one separate question I guess in terms of the wealth management business, I think you had one key management addition and also one departure early this month. And I was just wondering if you could characterize what the issue there was on the securities processes business?

No issues at all. In fact Pat Dunkerley joined us from Victory Capital management to launch our MidCap fund and at the end of the year we're sitting with about $15 million. We have high expectations for what Pat will be able to do for us there. David Bagby, a longtime UMB employee as happens in the investment business just chose to go on his own and start his own firm and we wish him well. We're delighted with the continuity we've been able to achieve with Jason Votruba and Adrianne. They are still on the fund and they do wonderful work for us and I think as long as we have continuity, we're going to be fine.

The sales in that fund, the small cap product, have actually held up very, very nicely. We have not seen any significant defections with the part departure of the manager.

No, no, I was talking more about (indiscernible) Vince.

I'm sorry. I thought you were talking about our investment business. Vince did leave us on January 11 after five years of helping us build the business. Vince chose to go pursue other paths and I don't know if you know this but he was living in Philadelphia and traveling to Milwaukee and parts unknown in the country every week. More importantly, we're just delighted to have John Zader join us. John comes to us from Jefferson Wells International and after a long, long, illustrious career with U.S. Bank, he lives in Milwaukee and will be really close to our associates and our customers and we have high expectations for his contributions over the coming years.

Okay, great. All right. Thank you very much.

Thanks, Peyton. Thanks for your interest. Thank you all. We'll wait one more minute for anybody else.

(OPERATOR INSTRUCTIONS). Ms. Klumb, at this time I'm showing no additional questions in the queue.

All right, we'll end the call then. Thank you very much for your interest in UMB. The call can be accessed via a replay at our website beginning in about two hours and it will run through March 24. As always, you can contact me at UMB Investor Relations with any follow-up questions by calling 816-860-7906. Again, we appreciate your interest and time.

This does conclude today's conference. Again, if you'd like to listen to a replay of today's conference call in its entirety, you can do so by dialing 303-590-3000 or 800-405-2236 using the pass code 11080411. (OPERATOR INSTRUCTIONS). Thank you for using AT&T conferencing. You may now disconnect and have a pleasant day.