UMB Financial Corporation (UMBF) Q3 2012 Earnings Report, Transcript and Summary

Welcome to the UMB Financial Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] The conference is being recorded today on October 24, 2012. I would now like to turn the conference over to Kay McMillan. Please go ahead.

Good morning, everyone, and thank you for joining us for our conference call and webcast regarding our third quarter 2012 financial results. Before we begin, let me remind you that our comments in this conference call contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements rely on a number of assumptions concerning future events and are subject to risks and uncertainties, which could cause actual results to differ materially from those indicated in our statements made during this call. While the management of UMB believes our assumptions are reasonable, UMB cautions that material changes in interest rates, the equity markets, general economic conditions as they relate to the Company's loan and fee-based customers, competition in the financial services industry, the ability to integrate acquisitions, and other risks and uncertainties which are detailed in our filings with the 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 maybe become untrue because of new information, future events or otherwise. By now, we hope most of you on the call had a chance to review our earnings releases, which was issued yesterday. If not, you will find them on our website at umb.com. On the call today are Mariner Kemper, Chairman and Chief Executive Officer; Peter deSilva, President and Chief Operating Officer and Mike Hagedorn, our Chief Financial Officer. The agenda for today's call is as follows. Mariner will provide high level commentary on our results and Mike will review the details of our financials. Then Peter will review key fee income business drivers, and 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 third quarter results. We reported net income of $26.1 million or $0.64 per diluted share. Total revenue for the quarter was a $186.7 million, an increase of 3.7% when compared to the third quarter of 2011. Non-interest income increased 5.3% to a $106.3 million for the quarter and represented 57% of total revenue. The revenue contribution from our fee businesses were due to reliance on spreads, income and advantage especially in this protracted, low interest rate environment. Yesterday in our release we announced an increase in our quarterly cash dividend on $0.01 per share to $0.215 per share payable in December. This 4.9% increase is the sixth since the beginning of 2008 with a total quarterly dividend increase of more than 43% during the same period. The industry recorded a median dividend decrease of 50%. On our first quarter call in April, I shared our core priorities for the year. One of those priorities was a commitment to growth achieved through accelerated fee business, loans and improved sales leverage and maximized efficiency. A few highlights from the quarter included double digit loan growth, an increase of 10.5% over a year ago; an 8.4% increase in trusts and securities processing revenue driven by strong AUM and customer growth in our asset management and servicing business; and an improvement of 2 percentage points in our year-to-date efficiency ratio. Steady momentum in our fee business is paying off from investments we have made and continue to make in people and technology that will position us for the long term. In the third quarter, our salary and benefits expense rose by 5.2% as we have added resources to deal with our growing business needs as well as increased regulatory and compliance requirements. Mike will cover expenses in more detail later in the call, but I would like to point out one area where we are seeing positive results. We have recently launched a new commercial campaign which highlights some of our customers in a series of video detailing how partnerships with UMB have helped grow their businesses. The increased visibility has provided an opportunity for our commercial banking team to build new relationships that are key in continuing our steady loan growth. As I mentioned earlier, we grew average loans balances for the 10th consecutive quarter, posting an increase of 10.5% over the third quarter of 2011 compared to the industry with more than 1,400 regulated depositories that had announced third quarter results as of October 22, reported a median increase in loan balances of just 0.65%. Commercial banking is a core competency at UMB. The C&I loan balances were $2.7 billion at the end of the third quarter, up more than 28% from $2.1 billion a year ago. Competition remains intense for quality loans, however we continue to have an advantage in our low cost funding and exceptional relationship-based customer service. Loan growth continues to come from market share gains. Over the past 12 months, our commercial lending team has added $605 million in new commitments. Commitments at September 30 had increased by nearly 11% and our utilization rate was 28.3% compared to 26.6% in the same period a year ago. We are pleased with this improvement although utilization rates remain lower in the [indiscernible]. Credit quality at UMB remains strong and continues to differentiate us from our peers. Overall, non-performing loans as a percent of total loans were 0.51% and net charge off for the quarter 0.44%. With that I will turn the call over to Mike Hagedorn who will walk you through the financial results in more detail. Mike?

Thanks, Mariner, and welcome, everyone. First, I will review our company’s financials and then provide a more detailed summary of our 4 business segments. Beginning with the balance sheet, average earning assets increased 8.9% to $12.1 billion. The average balance in our investment portfolio was $6.6 billion, 1.1% higher than the last quarter and 14.5% higher than third quarter year ago. The average yield on securities was 2.13%, a decline of 9 basis points from last quarter and a decline of 24 basis points from the third quarter of 2011. Activity during the third quarter included the roll-out of $355 million in core portfolio securities at an average yield of 2.35%. In turn we purchased $362 million of securities at an average yield of 1.41%. The average life is now 42.57 months up from 35.45 months last quarter. The average life in the third quarter of 2011 was 33.84 months. Changes in the portfolio along with some modifications to our security modeling, inputs and tools lengthened the duration to 38.7 months from 28.29 months in the second quarter. Over the next 3 months, $385 million in core investments with an average yield of 2.24% will cash flow and over the next 12 months $1.4 billion of core investments with an average yield of 2.04% will cash flow. Additionally, 72% of our 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 approximately 50% of the total was invested in mortgage backed securities at the end of the quarter. We continually monitor our amortization risk and have seen only a slight increase in 2012. Our current average book price on this portion of our portfolio is $101.51 as compared to $101.63 at year end 2011. Allowance for loan losses is $71.4 million and allowances as a percent of total loans is now 1.32% compared to 1.53% a year ago. Although our allowance as a percent of loans has decreased, we believe this level is appropriate given the high quality of our loan portfolio and the history of charge-offs. Our coverage ratio is more than 2.6x the amount of non-performing loans while the median industry allowance recorded for the second quarter would coverage just over half of non-performing loans. We remain well capitalized with Tier I, leverage and total risk based capital ratios of 11.69%, 7.15% and 12.62% respectively. Looking at the liability side of the balance sheet, our average deposits increased by 9.7% to $10.4 billion. Average non-interest bearing deposits comprise more than 40% of our total deposits which puts us in the top 3% of the industry according to SNL Financial. Our high percentage of free funds is a competitive advantage and is reflected in our low cost of funds. Our overall cost of funds was 24 basis points for the third quarter versus 36 basis points a year ago. If you factor in free funds this brings the number down to just 15 basis points. Shareholder equity was $1.3 billion, a 10.6% increase from a year ago. Since the beginning of 2008, equity has increased by 45.3%. We have experienced consistent organic growth and equity and have been able to deploy it effectively to make acquisitions. Additionally, total shareholder return from October 2007 to October 2012 was 17%. For the same period returns from the S&P 500 and SNL U.S. Bank Index were 3% and negative 47.7% respectively. Reviewing other financial highlights, return on average assets was 0.79% for the quarter compared to 0.85% in third quarter 2011. Return on average equity for the quarter was 8.12% compared to 8.81% a year ago. Turning to the income statement for the third quarter 2012. Net interest income was $80.4 million, up 1.6% from a year ago and virtually unchanged from second quarter 2012. As I mentioned, average earning asset balances increased by 8.9%. However, the changing mix resulted in a lower overall yield of 2.94% down 27 basis points from 3.21% for the third quarter of 2011. Average net interest margin for the quarter decreased 18 basis points from a year ago to 2.8%. On a linked quarter basis we saw a 2 basis point decline in net interest margin. As Mariner mentioned, non-interest income increased 5.3% from the third quarter of 2011 to $106.3 million. The primary driver of this growth was trust and securities processing revenue which increased 8.4%. This increase was partially offset by lower gains on the sale of securities during the quarter. As a reminder we had security gains of $2.4 million in the third quarter of 2011 compared to gains of only $259,000 in the third quarter of 2011. As you may recall, in the first quarter of this year we made an $8.2 million adjustment in contingent liabilities due to new accounting rules related to the earn-out agreements on some of our acquisitions. We review these liabilities quarterly and determined that there was not a need for a material adjustment in the third quarter. We will continue to monitor these liabilities and you should expect us to have some future adjustments either up or down throughout the earn out period. For the third quarter non-interest expense increased by 4.6% to a $145.9 million. This $6.5 million increase was driven primarily by higher salary and benefits expense of $3.9 million and the recognition of increased marketing and business development of $2.5 million due to the timing of those expenses. As Mariner discussed, part of our ongoing effort to drive growth includes investments in resources such as systems, advertising and business development and people. We believe investments such as these and progress made on our other growth strategies will positively impact our results over the long run. For the third quarter our efficiency ratio was 74.29% virtually unchanged from 74.22% in the third quarter 2011. For the 9 months ended September 30, our efficiency ratio was 72.17% compared to 74% in the same period a year ago. Now let me review the results of our 4 business segments. Looking first at institutional investment management. Net income before tax was $7.6 million, an increase of 58.3% when compared to $4.8 million in the third quarter of 2011. Total non-interest income in this segment increased by 14.8% to $24.8 million and non-interest expense increased by 2.3% to $17.2 million compared to the third quarter a year ago. The pretax profit margin for institutional investment management was 30.7% for the third quarter, improving from 22.2% in the third quarter of 2011. Net income before tax and asset servicing increased by $931,000 or 120.8% to $1.7 million for the quarter. Peter will provide more details on the driver of this segment later in the call. Total non-interest income for the segment increased about 7.8% to $18.3 million and non-interest expense increased by 2.1% to $17 million compared to the third quarter of 2011. The pretax profit margin for asset servicing was 9.1% for the third quarter improving from 4.4% a year ago. In payment solutions, non-interest income increased by 9.8% to $15.4 million and non-interest expense increased by 34% to $17.7 million compared to the third quarter of 2011. The resulting pretax net income was $6.2 million, a reduction of 31.2% from year ago. Expenses and payment solutions include payment processing fees which fluctuate based on transaction volumes. As the total number of credit and debit card accounts grow, the transactions and spending related to these accounts will drive additional processing fees. Also impacting non-interest expense for the segment this quarter were additional salary and benefit expense for newly added sales and operational positions, consulting and legal fees related to new products and services and a timing difference of cash payments and accruals related to advertising initiatives. The pretax profit margin for payment solutions was 23.6% for the third quarter. Finally our fourth segment, the bank, posted net income before tax of $20.8 million for the quarter compared to $21.5 million a year ago, a decrease of 3.4%. Total non-interest income for the segment decreased by 1.1% to $47.9 million. The primary driver of this decrease was the reduced gains on the sale of securities. Net interest income for the segment was up by 2% to $69.1 million. Non-interest expense for the bank increased by 1.3% to $94 million compared to a year ago. The pretax profit margin for the bank was 17.8% for the quarter. With that I will turn the call over to Peter to discuss the drivers behind our business results.

Thank you, Mike. Good morning, everyone. As Mariner mentioned earlier, income from our feed businesses represented 57% of revenue this quarter. This gives us a distinct advantage in an industry where the median level of the income was 17.7% in the second quarter according SNL Financial. To provide additional context to our results I would like to discuss the primary drivers of our fee income and highlight some of the developments in each of our operating segments. Let me begin with our institutional investment management segment which is comprised of scout investments, equity and fixed income mutual funds and separately managed investment accounts. Revenue in this segment is driven by mutual fund and separately managed account net flows and equity and fixed income market performance. To add context, the S&P increased 6.4% and the MSCI EAFE index increased 7% for the third quarter. Year-to-date as of September 30, the S&P 500 had increased 16.4% and the MSI EAFE had increased by 10.6%. Scout Investments ended the quarter with $22.6 billion in assets under management. This represents an increase of 18.6% compared to the third quarter of 2011. Assets and Scout mutual funds closed the quarter at $10.5 billion. Scout fixed income separately managed accounts ended the quarter with $11.3 billion in assets under management and Scout equity separately managed accounts totaled $834 million at quarter’s end. According to the investment company institute, the industry continues to realize significant redemptions from equity funds and purchases in the taxable bond funds. In the third quarter domestic equity funds had net outflows of close to $41 billion. International equity funds had more than 7 billion of net outflows and taxable bond funds experienced net inflows of $78 billion. We looked at our flows separated by equity and fixed income across all of the Scout products including the Scout funds and separately managed accounts. Scout equity products posted $51.6 million in net flows for the quarter. The Scout equity mutual funds added $15.4 million with positive flows of $45.6 million in the Scout mid-cap fund and $45 million in the Scout international fund. Scout separately managed equity accounts had net flows of $36.2 million. I’m pleased that our equity flows continue to compare favorable to the industry data I just mentioned. The improvements in the equity market during the quarter positively impacted Scout’s equity assets under management by $703.5 million. Scout’s fixed income products experienced net outflows of $622.9 million for the quarter. The Scout’s fixed income funds had positive inflows of $58.5 million led by the Scout core bond fund. Scout’s fixed income separately managed accounts experienced $681.4 million in net outflows due primarily to the loss of one larger mandate. Market action had a net positive impact of $354 million on our fixed income funds and separately managed accounts during the quarter. Year-to-date Scout investments has achieved $946 million in net flows for an organic growth rate of 4.8%. Scout’s history of strong investment performance and its diversified distribution efforts continue to be the key to growing the business despite sometimes challenging market conditions. The continued growth strategy within Scout investments is to launch targeted new products to round-out our production offering. This past quarter we launched the Scout low duration bond fund. This fund is designed to yield more than money market funds and to be less volatile than longer term bond funds. In addition on October 16, we launched the Scout emerging markets fund which allows investors to capitalize on the potential growth prospects in the overall rise and prosperity of emerging markets. These new funds complement our existing equity and fixed income strategies and allow us to leverage the expertise and talent of the Scout investment team. Our asset servicing segment is comprised of UMB Fund services. The primary drivers of revenue in this segment are new business, transaction volumes in our clients’ funds and accounts and overall asset valuation. Our fees are based on a variety of factors depending on client agreement including basis points on assets administered, transaction fees or per account fees. Asset serviced at the end of the quarter were $150 billion in assets under administration compared to a $147.3 billion at the end of June and $181.1 billion in the third quarter of 2011. New relationships as well as the innovative project products such as our Multiple Series Trust contributed to the year-over-year increase in net income that Mike mentioned earlier in our call. In our payment solution segment, there are number of important business drivers including overall credit and debit card purchase volume and the results in card interchange, HSA deposits, FSA and HSA accounts and ACH wire and check transaction volumes. We group card purchase volume into 4 major categories -- commercial credit, consumer credit, consumer debit and healthcare debit. For the third quarter purchase volume across our entire suite of card products increased 38.6% to a record $1.83 billion when compared to the third quarter of 2011. For the quarter total interchange revenue was $15.4 million a decrease of 2.2% from just a year ago. Spending by our commercial credit card customers increased 9.7% over the same period last year. Purchase volume in this area has grown consistently and commercial credit cards provide the largest portion of our interchanged revenue representing more than 45% of interchange during the third quarter. We continue to develop new relationships, build pipeline strength and look at innovative products and technologies in the payment space. In the second quarter we announced that UMB would introduce a new technology called ePlate, an electronic payment device that allows consumers to choose real time tangible rewards programs. We are pleased that this product was successfully launched on October 11. Moving now to healthcare services. Deposits in our custody accounts stood at $395.8 million at quarter’s end, an increase of 34.6% compared to the third quarter of 2011. Flexible spending arrangements and health savings accounts totaled $2.3 million representing a 12% increase from a year ago. We had another strong quarter in the business with purchase volumes of $448 million, an increase of 13.8% over the same period last year. Interchange revenue from healthcare card purchases increased 18.3% over the last year to $1.8 million. Healthcare services continues to be a reliable, strategic and low cost source of deposits and a growing source of debit part interchange for us. As Mariner mentioned earlier, UMB is known for strong credit quality and the quality of our card portfolio is certainly no exception. Credit card quality remains superior to industry averages and has improved over the past several quarters with delinquency rates dropping to 1.5% from 1.8% a year ago. Total credit card charge-offs were 2.3% of card balances for the third quarter versus 2.7% in the third quarter of 2011. According to Fitch Rating services second quarter 2012 industry credit card charge offs averaged 5.4%, more than doubled our current credit card charge off rate. The final and largest segment I will cover today is our bank represented by commercial banking, consumer banking and asset management. I’m going to cover the highlights of our commercial banking business and the very strong loan growth there. In consumer banking we reported an increase of 10.2% in home equity lines of credit balances which now stand at $564 million. Since 2008 the beginning of the economic crisis, home equity line commitments have increased nearly 60%. Portfolio utilization remains at approximately 49% borrowed. The HELOC delinquency rate was 0.28% in the third quarter compared to an industry average of 2.9% at the end of the second quarter. In small business banking, average deposits increased by 18.1% to $513.8 million and average loan balances increased by 25.5% to $132.7 million when compared to the third quarter of 2011. Our bank asset management business consists of individual wealth management, private banking, corporate trust and banking services which is comprised of bond trading, investment banking and correspondent banking. Assets under management for individuals and institutions stood at $8.7 billion at September 30, an increase of 21.2% from a year ago. Comprising the $8.7 billion is $5.6 billion of assets under management within our investment and wealth management group and $3.1 billion in assets managed by private capital management. Our private banking and wealth advisor teams continue to acquire new clients and deepen relationships with our existing customer base. Private banking loans increased 43% to $221 million when compared to the third quarter of 2011. Private banking continues to be a stronger contributor to the growth of our HELOC portfolio and mortgage product sales. With that let me hand the call back over to Mariner who'll close our prepared remarks and open the line for your questions. Mariner?

Thanks, Peter. As we end the call today, I would like to share of little of what we are hearing from our customers. In general our customer base continues to be reporting better operating results in last year. However, sales growth has tempered some due to uncertainty surrounding the elections and fiscal policy. Overall clients and prospects are glad we are through 2009 and 2010 and feel things are slowly getting better. They are more comfortable with the pace of the economy. However, they are still taking a wait and see approach. Unemployment rates in our larger markets are improving and in most areas are nearing mid-2008 lows. We continue to have strong commercial loan pipeline growth as we look into the fourth quarter. In early October, the FDIC released its annual deposit share market report. UMB continues to make gains in deposit share growth across our footprint, including maintaining the top bank status in the Kansas City, Metropolitan region with 13.8% of the market share. In the past year 7 of our 12 large markets improved in deposit market share since 2008. UMB deposits have grown faster than metropolitan statistical areas as a whole in 4 of our largest markets Kansas City, Denver, St. Louis and Phoenix. We are incredibly pleased with this performance and all of our associates who have helped us achieve these results. This is the last conference call of 2012 and when we talk again in 2013 we will be celebrating our 100th anniversary. We are incredibly proud of this accomplishment, not only because of the way the world and our company have changed, but because we have stood the test of time in all economic climates. During this management team's tenure we continued our legacy of doing what’s right, not always what’s just popular. We believe this philosophy has served us well and our customers and our shareholders as well. In our most recent decade we have more than doubled net income and total revenue all in a time when our country has experienced an economic crisis that rivals the great depression. We appreciate your interest in UMB and hope that you find this conference call valuable. With that we will turn it over to the operator for your questions. Thank you.

[Operator Instructions] Our first question comes from the line of Chris McGratty with KBW.

Peter, can you review those numbers in fixed income outflows. I think -- correct if I’m wrong, this is the same event that you talked about last quarter. I just wanted to make sure that was not a separate loss of a client and I know you would love to delve into a little bit more of the details and financial impact.

Let me do both sides of this Chris, you have everything at your fingertips. On the equity side we had inflows of $15.4 million in the funds, $36.2 million in mandates for equity, for a total of $51.6 million and then we have positive market action of $703 million. On the fixed income side, our funds contributed $58.5 million of net inflows, the mandates we did to have outflows of $681.4 million and we had positive market action of $354 million on the fixed income side. We did have one larger mandate that we lost during the quarter. It was a 20-year customer of ours who changed their strategy from core to LDI and as a consequence, through a consultant, picked another manager. That’s going to happen from time to time in the business and the one client we lost was about 80% of the overall net outflows in the fixed income mandate category.

In this quarter’s results, do they state the full impact from the loss or should we see another kind of revenue potential impact next quarter?

Chris, I think you’re trying to link that to the second quarter which was a custody, they are 2 different things. Yes 2 different events, one it was in our custody business as Mike mentioned and this was an actual money management mandate that shifted to another manager.

On that note can you review the custody impact one more time?

Sure we had one large custody client that chose to exit UMB in the second quarter, converted around June of the year. This was a long term client that deviates upon pricing ultimately. We just couldn’t compete with Bank of New York for this event with our competitor and they chose to go to the lowest cost provider and that’s not our strategy. Our strategy is to be a boutique provider to, price reasonably and competitively but not always be the lowest price necessarily in the business and it also was a legacy client and a client that was a single product only. It was just custody and today we really go after in the UMB fund services area, we go out to customers between 0 and $10 billion of assets and this was probably our core customer, it was a legacy client. We got beat on price and as a consequence it went to another provider.

That's helpful, taking a step back, is there a I guess how are you thinking about these 2 separate events as it relates to the whole strategies. Obviously there's a little bit of a concern given the negative headlines but just maybe help frame how you guys are positioned going forward.

We win a lot more business than we lose. We do lose from time to time. As I said the custody won obviously is of concern but it was a unique situation with a legacy client, it was strictly on price and we wouldn’t compete that business today necessarily. In the money management business, you know we are going to win some, we are going to lose some. This was, as I mentioned, a long term client with a new consultant that chose a different strategy and ultimately chose to exit. So I don’t think there is anything symptomatic here. Our performance was stellar in this particular portfolio but they decided to choose another provider.

We bust the trends in the industry in both categories. We have had better fund flow performance than the industry has on the fund flow steady and the custody piece really was an outliner. This is not a traditional piece of business for us and our business continues to perform as we expect it to.

Mike on the tax rate, what should we be using going forward. I think it was off a little bit this quarter.

28.5%. The slight changes in the tax rate are the function of municipal revenue, representing a lot, I shouldn’t say lot, somewhat lower amounts of total interest income that has changed in the portfolio have occurred and there have been some minor tweaks to state tax rates as well for several strategies that we have but 28.5 is a good number.

[Operator Instructions] Our next question is from the line of Matt Olney with Stephens Investment Bank.

In the payment solution segment of data, it looks like revenue was down, expenses were up sequentially. I think Mike mentioned the timing difference of the few initiatives. Can you give us any more details as far as your investments in this business and what this could potentially mean for revenue and what kind of timing drag are we talking about?

Yes, the key thing as you pointed out and as we stated in the call is the expenses in this business and we are making investments in payment solutions. One of those that we can talk about because it is public is dynamics and you can go out and check that out on the web. There are several press releases as well that will explain exactly what dynamics is but that is part of the investments that we are making in payment solutions. Also keep in mind, I made comments that we had timing in the third quarter relating to business development and advertising initiatives and I pointed that out when I talked about the segments that payment solutions is the place where we have that and that’s where that cost is showing. So it's really those 2 things.

Okay, and then I guess staying in that same theme and payment solutions, your mix of purchase volume continues to evolve. Can you kind of give us some more details as to what that mix is today versus a year ago and then the second part of that question would be how has that mix affected the overall interchange margin today versus a year ago?

Matt, this is Peter here. Those numbers are, I will give you in a rough numbers here. So we look at it in 5 dimensions. Consumer credit has been relatively flat from a purchase volume standpoint, consumer credit grew almost 10% on a year-over-year basis. Consumer debit was up 6.5, healthcare was up almost 14% and institutional cash management was up 704% because we won a big, big piece of business earlier in the year. So the mix is shifting around a little bit, commercial credit is still the biggest contributor, almost 45% of our interchanged revenue comes from commercial credit, interchange from healthcare is a little lower than you might expect because we have to negotiate a lot of these arrangements with partners. We generally go to market in a partnership model there and institutional cash management, you have to be a little bit careful, this large one that when we won because we are been paid a fee as opposed to an interchange rate. But generally speaking, I would say the strongest parts of the portfolio right now are commercial credit, healthcare and some of these large broker dealers that we are doing card business for.

And then lastly it sounds like you have been selling a few of your non-core branches, in what looks like some non-mature markets. Could we see more of that or it's just 1 or 2 of those in the past.

This is something that’s sort of an ongoing process I think really any bank is going through or should be going through as local economies change and such so we will always be looking at our branch network. What’s happening in local economies, coupled with what the regulatory environment is, we have to make sure that our branch networks and our retail banking network is efficient so we are constantly evaluating and revaluating that. So can’t make any commitments to what will look like but you can expect that our branch network will shift and evolve over time.

And our next question comes from the line of Peyton Green with Sterne Agee.

I was wondering if you give some color on the loan pipeline and how it looked or how it looks now going into the fourth quarter and maybe anecdotally how customer behavior has changed. And then secondly bank card fees were down late quarter. I was just wondering if you can comment maybe on why they were down.

Yes on the loan pipeline I would say that the pipeline maintains the same level of strength as last quarter when we had this call. Some of what -- link quarter base is some of what we expected to happen to the third quarter we believe has pushed into the fourth quarter. So along with having a strong pipeline we think some of that is pushed into the fourth quarter in general. So things generally are the same, most of it as I mentioned in the call is still market share gains. You don’t see a whole lot of economic activity driving the pipeline but we do continue to see a very strong showing as it relates to gaining market share in all of our regions really and sentiment from the customers as I mentioned in the call, performance is slightly better but there is a great deal really of uncertainty around the fiscal cliff and the election. People are sitting on the cash and but that’s generally the sentiment. On the bank card side, I think that’s really mostly just consumer behavior for the most part. And maybe some others, Peter you might have more color.

Yes, a couple of thoughts Peyton if you look year-over-year, we were down 2.2% on a link quarter basis, we were down 1.2%. The major driver there as Mariner said 3 months in a row if you look at the industry data, total purchase volume has been down across the country as consumers retrench and I think Mariner talked about some of the uncertainties in the economy. So some of it is definitely consumer spending. The other is some seasonality that we have more seasonality this year than we have had in the past that are healthcare debit business, you will see that pick-up here as we go into the fourth quarter and people rush to the finish lines of December but a little bit more seasonality in that business this year.

So you are expecting to bounce back in the fourth quarter being seasonally stronger quarter, is that fair enough?

I think you’re referring to the enrollment season for health is that what you’re referring?

There are 2 things, there is enrollment for sure but there is also utilization as the old use it or lose it on the FSA card and it's still in force and we always see some seasonal uptick in the fourth quarter.

And as then as our business grows, that seasonality will grow within our portfolio.

Okay and then the last question would be, certainly it's been a good year on the execution front. I mean how do you view strategically, are you seeing more opportunities to expand the company through acquisition or organic opportunity is better at the margin.

Well, as we have been saying recently you know we do want to maintain our flexibility to look at opportunities in an opportunistic fashion but we are really more focused on making sure that all of the investments we have already made perform and that we execute on the investments that we have made. We think there is a tremendous opportunity, we think our strategy is working and don’t see any changes to the strategy that we set forth and our seem most of them, all of the businesses that we are focused on have you know are hitting stride so we feel pretty good about all of it.

And I’m showing there are no further questions. I will turn the call back to management for closing remarks.

Thank you very much for your interest in UMB today. This call can be accessed via replay at our website beginning in about 2 hours and will run through November 7. 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.

Ladies and gentlemen, this concludes our conference for today. If you would like to listen to the replay of the call you can dial (303) 590-3030 or 1 (800) 406-7325 with the access code of 4568203. We thank you for your participation. You may now disconnect.