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UMB Financial Corporation (NASDAQ:UMBF)

Q3 2008 Earnings Call Transcript

October 22, 2008 9:30 am ET

Executives

Abby Mayer – Director, IR

Mariner Kemper – Chairman and CEO

Mike Hagedorn – CFO

Peter deSilva – President and COO

Analysts

Charlie Ernst – Sandler O'Neil Asset Management

Peyton Green – FTN Midwest Securities

Christopher McGratty – KBW

Jordan Heimowitz – Philadelphia Financial

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the UMB Financial Corporation third-quarter conference call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator instructions). This conference is being recorded today Wednesday, October 22, 2008. I would now like to turn the conference over to Abby Mayer, Director of Investor Relations. Please go ahead ma'am.

Abby Mayer

Good morning everyone and thank you for joining us for our conference call and webcast regarding our 2008 third-quarter 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 each 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.

Our earnings release includes both our GAAP based income statement and reconciliation to the non-GAAP measures discussed in the release which include certain pre-tax adjustments to noninterest income and noninterest expense, the tax effect of those adjustments and adjusted net income. These adjustments comprise a gain on the sale of our securities transfer product, the majority of which was recognized in the third quarter of 2007 with the final contingent payment recognized during the third quarter of 2008. 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.

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 October 21st. If not, you'll find it 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. First Mariner will highlight our results and strategies. Then Mike will review the details of our third-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 will turn the call over to Mariner Kemper.

Mariner Kemper

Thank you Abby. Welcome everyone and thank you for joining us today. UMB continued to deliver strong net income growth in the third quarter of 2008. Net income totaled $21.8 million or $0.53 per diluted share, a 1.1% increase from $21.5 million or $0.51 per diluted share for the third quarter of 2007. EPS grew 3.9% while the industry average expected EPS growth was a negative 25%. These results reflect the sale of the securities transfer product for which we recorded a $1.1 million gain in the third quarter of 2008 and a $6.5 million gain in the third quarter of 2007. Excluding this transaction, UMB reported net income of $21.1 million or growth of 21.3% over the third quarter of 2007.

These results illustrate that we continue to manage our business focusing on quality in the long-term rather than focusing on short-term earnings. In times like these our time-tested business model allows us to capitalize on our position of strength while others in the industry remain internally focused. This strong financial performance was driven by a 7.8% revenue growth, which was comprised of net interest income growth of 14.3% and noninterest income growth of 2.9%. Excluding the gain on the securities transfer sale, noninterest income grew 10.8% and total revenue grew 12.4%. We continue to be well capitalized, something we believe is important especially in the current environment.

As evidence of this, our Tier 1 leverage and total risk-based capital ratio as of September 30 were 13.9%, 9.5%, and 14.8% respectively. Our credit quality remains solid and our nonperforming loans at 0.16% and net charge-offs at 0.21%. These ratios are strong relative to the industry, which at the end of the second quarter reported average net charge-offs of 0.68% and average nonperforming loans of 1.8%.

The pressure in the financial services industry continues to validate our business model based on our prudent risk-based profile and uncompromised underwriting standards. With a solid foundation in our core and disciplined execution, we believe our performance is evidence that our growth strategies are working.

As a reminder, our first strategy is to focus on yield enhancement. And we continue to make progress optimizing the mix of our earning assets and liabilities. During the third quarter of 2008 end of period loans increased 7% over the same period of 2007 representing the 21 consecutive quarter of year-over-year loan growth.

We ended the quarter with a record $4.2 billion in loan balances, which reflect continued growth in commercial, credit card, and home equity loans. These increases helped to offset the decline due to our decision to run off the indirect auto loan portfolio in August of 2007. As of September 30, 2008, our indirect portfolio balances stood at $329 million, a 46% decrease over September 30, 2007.

Our commercial loan portfolio continued to perform well in the third quarter with a 12% increase in balances over the prior year.

Our credit card portfolio increased nearly 23% year-over-year with all of our segments; consumer, commercial and private-label recording strong double-digit growth in balances.

Our home equity loans grew 41% continuing a strong trend over the past three years. We increased HELOC loans from 1.1% of our total loan portfolio at the end of 2002 to 8.4% of our loan portfolio at the end of the third quarter of 2008. The credit quality of this portfolio remains excellent. We continue to focus on our existing and prospective customer base within our footprint to generate this growth. We are extremely pleased with the growth in each of our loan segments especially in light of the current environment. And as always we achieved this growth without wavering from our credit underwriting standards.

Turning to deposits, our average deposits increased 14.8% over the same period in 2007 and our end of period deposits growth was 19.6%. Non-interest-bearing deposits were 32.3% of our total average deposits, well above the industry average and grew 7.6% on an average basis quarter-over-quarter. Gathering core deposits is key to our strategy for our deposit franchise. This deposit base provides us with liquidity and competitive advantage in this current marketplace allowing us much flexibility. Our core investment portfolio average life was 32 months at the end of the third quarter of 2008 compared to 37 months at the end of the third quarter of 2007.

Due to the current rate environment, we expect our core investment portfolio average life to become somewhat shorter as we avoid locking in lower rates for longer periods of time.

Our second strategy is to grow our strong fee-based businesses. Non-interest income represented approximately 54% of total revenue in the third quarter of 2008 and grew 2.9% compared to the same period in 2007. On a non-GAAP basis, noninterest income grew 10.8% over the third quarter of 2007. Trust and securities processing income and deposit services charges income drove our fee income growth for the quarter. Peter will discuss that further in his comments.

Our third strategy is to leverage our distribution network. During the quarter we opened one branch leaving our branch network at [inaudible]. Utilizing our branches to drive customer growth we ran a Grab-a-Great-Rate campaign that generated more than $400 million in new deposits. Through this campaign we acquired more than 2000 new core customers and are very pleased with our ability to cross sell into those relationships.

Also important to our distribution network, we expect on our announced acquisition of the Citadel Bank in Colorado Springs in the fourth quarter. Citadel and UMB are a great cultural fit. Citadel’s lending policies are very similar to ours. Additionally, it has a similar deposit composition to ours and the acquisition will allow us to build on our existing distribution and add $82 million in deposits and approximately $25 million in loans to our Colorado Springs franchise.

Given the current market environment, we recognized a unique opportunity to tell our story to the marketplace with a print campaign during the third quarter. The campaign focused on key words such as strong, time-tested, and reliable and tells our customers and noncustomers why in all times it is good to be with UMB.

Our forth strategy is to strengthen our asset management business. During the third quarter, trusts and securities processing income increased 9.1% to $31.5 million. The improvement was primarily driven by increased assets under management and higher revenue from UMB fund services group. Peter will also discuss this later in his comments.

Finally, our fifth strategy is to focus on capital management. Our priorities to this regard have not changed. They're first to invest in growth either through reinvestment in our businesses or through acquisitions that are a good strategic, financial, operational and cultural fit. Citadel is another great example of that fit.

Second, to consider increasing our dividend over time and third, to repurchase stock when it makes sense to do so. To that end in the third quarter we repurchased 26,017 shares at an average price of $54.44 per share for a total cost of $1.4 million. This brings our year-to-date total to 562,851 shares at an average price of $40.11 for a total cost of $22.6 million. Also yesterday the board increased the regular quarterly dividend – cash dividend by 6% taking it to $0.175 per share. This is the eighth increase in our quarterly dividend since July 2003 with a total increase over this period of 75%, a reflection of our earnings performance and strong capital levels.

These five strategies along with our focus on efficiency will continue to drive performance in the remainder of 2008 and beyond. With safety and soundness at our core, we remain committed to growing revenue while managing expense growth and maintaining prudent credit quality standards. Now I will turn it over to Mike Hagedorn, our CFO. Mike.

Mike Hagedorn

Thanks, Mariner; and welcome everyone. As Mariner indicated, we reported quarterly earnings of $21.8 million or $0.53 per diluted share for the third quarter, up 1.1% from $21.5 million or $0.51 per share in the same period last year. Excluding the securities transfer gains in each quarter, net income would have been $21.1 million in the third quarter of 2008 and $17.4 million in the third quarter of 2007, an increase of 21.3%.

The key driver of our net income was our ability to effectively manage our funding costs. Net interest income for the quarter increased $8.3 million or 14.3% over the same period in 2007. As rates fell, our interest income declined 9.9%.

However, this decline was more than offset by a 40.6% decrease in our total interest expense leading to the 14.3% increase in our net interest income. Net interest margin increased 9 basis points to 3.57% from 3.48% in the third quarter of 2007. This improvement was primarily due to the lower cost of interest-bearing liabilities.

In the third quarter of 2008, the costs of interest-bearing liabilities decreased to 1.88% compared to 3.51% in the third quarter of 2007, a decline of 163 basis points. This offsets the 111 basis point decrease in average earning asset yields. Due to the declining rate environment, free funds contribution declined to 49 basis points from 92 basis points in the third quarter of 2007.

During the third quarter, $138 million in core portfolio securities rolled off at an average yield of 4.05%. In turn, we purchased $399 million of securities at an average yield of 3.68%. Over the next three months, $157 million of core investments with an average yield of 4.59% will roll off.

Over the next twelve months, $810 million of core investments with an average yield of 4.34% will roll off. In the current lower rate environment, we expect the repricing of these securities to negatively impact our interest income. Nevertheless, thanks to the actions we took over the past three years to lengthen our core investment portfolios average life, we are pleased to have some higher yields locked in for longer periods of time. In addition, 63% of our loan portfolio is expected to reprice through the end of 2009.

Non-interest income increased $2.2 million or 2.9% for the quarter ended September 30, 2008 compared with the same period in 2007. As Mariner mentioned, we had gains in each quarter related to the sale of securities transfer product. Excluding these gains, noninterest income would have increased by 10.8%. The improvement was primarily due to higher trust and securities processing income as well as higher deposit service charges. Trust and securities processing fees were up 9.1% primarily due to an 8.8% increase in fee income from UMB Scout Funds and a 15.1% increase in fund administration and custody services.

Deposit service charges increased $2.3 million or 11.1%. This is the due to the strong core deposit growth compared to the third quarter of 2007.

Non-interest expense increased $8.5 million or 8.3% for the third quarter compared with the same period in 2007. The most significant increases were in compensation expenses and processing fees and were primarily related to revenue increases. Salaries and benefits increased $5.7 million or 11.2% as a result of higher commissions and bonuses as well as equity based compensation and employee benefit costs.

Credit quality ratios in the third quarter of 2008 continue to reflect UMB's continued strong commitment to high-quality lending. Nonperforming loans including non-accrual and restructured loans were $6.9 million as of September 30, 2008 or 0.16% of total loans from $5.7 million or 0.14% for the same period last year.

Net loan charge-offs increased slightly totaling $2.2 million for the third quarter or 0.21% of average loans when annualized compared with $1.9 million or 0.19% of average loans during the same period last year.

Our credit quality continues to remain strong especially when compared to the industry. As of the end of the second quarter, industry average net charge-offs as a percent of total loans were 0.68% more than 3 times our current level. Our provision for loan losses increased to $4.5 million in the third quarter of 2008 from $2.8 million a year earlier. This increase partly reflects the growth experienced in our loan portfolio. Our allowance as a percent of loans increased slightly to 1.19% from 1.17% in the third quarter of 2007.

Now turning to the balance sheet, one of the key performance drivers for the quarter was loan growth. At the end of September, loan balances were $4.2 billion compared with $4.0 billion a year ago. Total end of period loans grew by 7% primarily driven by a 12.1% increase in commercial loans, a 41% increase in home equity loans, and a 22.7% increase in credit card balances.

This growth was offset by a 46% planned decrease in our indirect auto portfolio. As of September 30th, our indirect auto portfolio balance stood at $329 million down from $613 million at September 30, 2007. Again this runoff is part of our yield enhancement strategy that Mariner discussed earlier in his comments.

During the third quarter of 2008, average total deposits were $6.5 billion compared with $5.7 billion a year ago, a 14.8% increase. We're particularly pleased with non-interest bearing deposits increasing 7.6% on an average basis.

Return on average equity and return on average assets during the third quarter of 2008 were 9.25% and 1% respectively from 9.7% and 1.09% for the same period in 2007. On a non-GAAP basis those ratios improved significantly in 2008 to 8.96% and 0.9% respectively from 7.85% and 0.88% for the same period in 2007. We remain focused on continuing to increase our profitability metrics.

Finally, for the year-to-date diluted EPS of $1.89 increased 35% compared with $1.40 for the first nine months of 2007. This is based on net income of $77.8 million compared with $58.9 million for the same period last year. Excluding the securities transfer gains in each year as well as the Visa’s gain in the first quarter net income would have been $68.9 million for the first nine months of 2008 and $54.8 million for the first nine months of 2007, an increase of 25.8%.

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

Peter deSilva

Thanks Mike. Good morning everyone. Let me take a moment to provide some additional details on our growth and operational strategies starting with our focus on growing our fee businesses.

A significant strength of ours is that total revenue is split almost evenly between net interest income and noninterest income. This diversification allows us not to be bowing [ph] to the winds of interest rates, equity markets, or exclusively to other market forces.

This quarter, noninterest income accounted for 54% of total revenues. Driving improvement in these businesses continues to be a core strategy. We are pleased to report noninterest income growth of 2.9% during the quarter and 10.8% on a non-GAAP basis.

During the quarter, we continued to add to our position of strength in health care services base. Specifically, we're focused on the administration, custody and card processing for health savings accounts and flexible spending accounts. We're committed to maintaining our leadership position by adding new HSA and FSA savings and investment accounts and their associated debit cards.

The number of accounts grew 56% in the third quarter with deposits and assets increasing 45% compared with the same period last year. At the end of the quarter, we had nearly 832,000 HSA and FSA accounts and nearly $139 million in deposits and investment assets. Additionally, we had $140.3 million in healthcare debit card purchase dollars bringing our year-to-date card purchase volume to $521.4 million. We are pleased with the continued growth of this business segment.

Growing our card businesses is another part of our fee income strategy. A critical element of this effort is to grow our commercial credit card program. Cardholder volume increased 11.1% over the same period last year. Private label purchase volume also showed strong growth for the third quarter of 2008 increasing 20.8% over the same period last year. We continue to focus on growing our commercial and customer credit card programs both organically and through the acquisition of portfolios that fit our credit quality criteria. In keeping with this strategy, we acquired two portfolios in the third quarter which totaled $6.7 million in outstanding balances.

UMB Fund Services continued to report strong double-digit revenue and earnings growth. Noninterest income increased 14.8% for the third quarter of 2008 over the same period in 2007 due in part to deepening relationships with existing customers as well as new customer growth, all resulting in higher fee income. Higher revenue coupled with increased efficiencies and better leverage of existing scale lead to earnings growth of 184% for the third quarter.

I would also like to take a moment to talk our strategy to grow our asset management business. Total assets under management remained relatively flat when compared to the third quarter of 2007 at $10.7 billion. Strong net fund flows of $1.01 billion through the third quarter have allowed us to maintain our assets under management levels despite a 23.8% decrease in the broader equity markets.

Another important part of our asset management strategy has been private banking. Launched in 2007 with 10 client managers, private banking now has almost $90 million in loans and more than $201 million in deposits, almost double the $43 million in loans and $106 million in deposits during the same period last year. And our corporate trust team continues to expand with the opening with our newest office in Indianapolis.

During the quarter we also announced that Tom Chulick was named as Chairman and CEO of UMB St. Louis. Tom joined us about a year ago from Bank of America and has done a wonderful job helping us to grow in that critically important market.

Additionally, our enterprise risk management efforts paid off for us as we had no exposure to Lehman Brothers’ credits or other stressed counterparties.

We continue to focus on enhancing our operating efficiencies. Revenue growth of 7.8% led to an efficiency ratio of 73.9%. We're pleased with the progress this metric continues to show. Just three years ago in the third quarter of 2005, our efficiency ratio was 80.2%. We also continue to see improvements in our key productivity metrics.

For example, average deposits per FTE and revenue per FTE increased 16.8% and 9.7%, respectively from the same period last year. Our FTEs decreased by 80 to 3,296 at September 30, 2008.

Our operating strategies and focus continued to deliver strong results for UMB. During the third quarter we received numerous favorable trust [inaudible]. Jim Moffett was named a leading contender in the Morningstar International Fund Manager of the Year category for the third time in the last 4 years. Also SmartMoney magazine included UMB in an article that called us, “The envy of the banking industry.” We are honored by these recent recognitions. With that, I'd like to turn it over to Mariner for some concluding remarks. Mariner.

Mariner Kemper

Thanks Peter. As everyone knows we are in unchartered waters economically. We are seeing volatile markets in both the US and abroad. Governments across the globe are intervening in financial systems at unprecedented levels. Despite these difficult times, we demonstrated again this quarter that we built his bank with strong stable operating principles that can take us through all types of conditions in the economy. Our focus is on the long-term rather than on betting on short-term gains. This kept us from being involved in sub prime lending, selling auction-rate securities, speculative commercial real estate development and other short-lived fads that have plagued the industry. Instead, we are out there talking to our customers, growing all of our lines of business and evolving our company to position us as a well diversified financial services company. You can count on UMB because our diversified revenue stream, our unwavering focus on quality and strength, our commitment to proven underwriting standards, our high capital levels, and our strong core deposit franchise, all of which provide us with ample liquidity and flexibility in times like these.

Our time-tested model gives us the capacity to make loans, service our customers’ needs and act on strategic opportunities that will arise. During these times, I want to remind you that you can count on more from us.

Thank you all for being on the call with us today. And with that I will turn it back over the conference call operator and open it up for your questions. Thanks again.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And our first question comes from the line of Charlie Ernst with Sandler O'Neil Asset Management. Please go ahead.

Charlie Ernst – Sandler O'Neil Asset Management

Good morning guys.

Mariner Kemper

Good morning.

Mike Hagedorn

Good morning.

Charlie Ernst – Sandler O'Neil Asset Management

Can you guys add a little bit of color to the trust and securities processing line and just maybe breakout the revenue contribution from the mutual fund business versus the trust business versus the processing business and one other thing is to maybe add a little color as to how the assets in those business lines are priced?

Peter deSilva

Charlie, hi. It is Peter deSilva, good morning. With respect to those businesses we do break them out in our Ks and Qs, but let me give you some general commentary on them. Let me start with our fund servicing business up in Milwaukee. We have had some very, very strong quarters driven by a couple of factors. One, we have seen good new customer growth in that particular part of our business. Secondly, part of our revenue stream is supported by assets and these assets have been growing over the last few months – last few years. We have seen nice growth there as well. In our asset management business it is largely driven by 3 things. It is driven by our assets that we manage in the Scout Funds and we were able to hold those assets this quarter due to very, very strong flows, which is not what we are seeing in the marketplace. It has been driven by our corporate trust business, which has had a very, very strong last 12 months or so and it has been driven by our personal investment business if you will, where we have been picking up business in the local marketplaces. So, I mean, I think all in all, our trust and securities businesses have been performing very, very well. We are seeing some increased cost particularly in our securities processing businesses, where – particularly one client in particular we have has a large international presence and we have had to absorb some cost to support their international activities, but all in all, I think that those businesses have been performing very well and we hope that they will continue to do so.

Charlie Ernst – Sandler O'Neil Asset Management

Is there any color you can give on the breakdown in revenue from the three areas that I mentioned?

Peter deSilva

Not beyond what is in the information you get from us.

Mike Hagedorn

Yes, Charles this is Mike. Not beyond the Q, which will put fund services separate and put the asset management together. I think what your question is, can you tell me what is personal trust and what are fund services? And all we provide is what is in the Q.

Mariner Kemper

For color, obviously the institutional money management, our mutual fund business is really driven – is driving most of that growth.

Charlie Ernst – Sandler O'Neil Asset Management

Okay, and then the securities processing business, how do you price that business. Is there a lag?

Mike Hagedorn

I am not quite sure I understand the question as it relates to what?

Charlie Ernst – Sandler O'Neil Asset Management

You are pricing off of assets under custody, right?

Mike Hagedorn

Yes, generally speaking it is an asset based fee based upon assets under custody.

Charlie Ernst – Sandler O'Neil Asset Management

And so is that sort of a real time pricing or does the pricing lag the market?

Mike Hagedorn

No, it does not lag the market. It is adjusted daily.

Charlie Ernst – Sandler O'Neil Asset Management

Adjust daily.

Mike Hagedorn

[inaudible] move around.

Charlie Ernst – Sandler O'Neil Asset Management

Okay great. That is what I was looking for. Thank you.

Operator

(Operator instructions) And our next question comes from the line of Peyton Green with FTN Midwest Securities. Please go ahead.

Peyton Green – FTN Midwest Securities

Good morning. I had a couple of questions for you. I was wondering if you could comment a little bit on the recent cut by the Fed and also what effect that might have on your repricing assets over the next quarter or two and is there any way to get your interest-bearing deposit cost down compared to the repricing that occurred in the third quarter. I guess how much of the lack of movement in the third quarter was due to promotional pricing versus normal customer deposits that you just took on?

Mariner Kemper

You know, obviously we’re going to have margin pressure through our assets repricing and we’ve done a lot that what we can do with our deposits. There’s some left to do, but you know there is a – we will see continued margin pressure.

Peyton Green – FTN Midwest Securities

Okay.

Mariner Kemper

Mike if you want to add. We do have, you know, on the asset side, you know, we obviously have a big home equity portfolio and a credit card portfolio, those have floors in them. Our commercial loans will reprice certainly and I don’t know if there is anything more he wants to add to that. Mike you want to add.

Mike Hagedorn

Yes. Maybe two things. I think there are some additional floors that come up now with commercial loans as well. So when there is a chance to reprice, that’s a new aspect and you know, at the beginning of next year we will have the opportunity to reprice some of our current campaigns and that should help somewhat as well. We are in the process of rerunning all of our models to not only account for the recent Fed cut, but also the expectation that there maybe some additional Fed cuts as well.

Peyton Green – FTN Midwest Securities

Okay. And then separately, the loan growth was quite strong. If I guess it would be back [inaudible] around 15% year-over-year and how much of that was existing customers that utilize lines and how much of it was additional business with existing customers that maybe is not related to line utilization and then how much of it was just new customers that UMB has been banging on the doors and finally got the business.

Mariner Kemper

It’s a good mix really of all of the above, but mostly from new customers. We had a – you know, we have had a wonderful time out there selling. Our team has been able to focus on selling while others are internally focused. It has been an opportunity and we see it continuing that way for market share grab.

Peyton Green – FTN Midwest Securities

Okay. Is there anything you’re doing differently or is it just your standards or your standards or just the market’s move more towards them?

Mariner Kemper

No, we are doing the same thing day in and day out, blocking and tackling.

Peyton Green – FTN Midwest Securities

Okay great. Thank you very much.

Operator

And our next question comes from the line of Christopher McGratty with KBW. Please go ahead.

Christopher McGratty – KBW

Good morning.

Mariner Kemper

Good morning.

Mike Hagedorn

Good morning.

Christopher McGratty – KBW

I was wondering you could discuss a little bit in more detail your near-term expectations for the margin. I think the fourth and the first quarter are typically impacted by the public fund flows and I was wondering if you can quantify if you expect similar declines I guess in the margin over the next couple of quarters as we have seen, maybe in similar years. Thank you.

Mike Hagedorn

Yes. This is Mike. I’ll answer that one. I think you can expect what you’ve seen in the previous years from UMB and that is that clearly the balances come in and we don’t expect different outstanding balances this time than what we’ve seen in last couple of years and I think you can expect a similar impact on our margin as you’ve seen in the previous years as well. And I think that the biggest issue we face bringing in those funds as you know the ability of the markets to invest those funds with investments that have a positive spread and some of the markets have significant dislocation. We think we have a plan built for that, but it is something that we’re currently clearly working on.

Christopher McGratty – KBW

Okay great. And I guess my second question just on some of your fee-based revenues that are tied more to on the market and the economies. I wonder if you can just give a broad-based outlook on some of your – some of these line items such as trust trading, card. I was wondering if you’ve seen any softening given the recent weakness in the market.

Peter deSilva

It is Peter again. No I think as you know there are driven by market forces that we don’t control. Our revenues float up and down along with markets if you will, and we will be holding to that to some extent. So nothing specific other than you understand as assets grow and assets shrink, we get paid on basis points, and so there is some growth or some shrinkage in those revenues.

Christopher McGratty – KBW

Thank you.

Operator

Thank you. Our next question comes from the line of Jordan Heimowitz with Philadelphia Financial. Please go ahead.

Jordan Heimowitz – Philadelphia Financial

Hi guys. I’m sorry. I’m just confused because I’m pretty new to the company, but the – it says you said that the margin usually goes up in the fourth quarter historically and last quarter – I am sorry down in the fourth quarter, but last year went up like 7 or 8 basis points. So are you assuming about the same number in the fourth quarter, you’re assuming it will be down? Can you help me you know understand what you think, or if you just don’t do it that way, 50 basis points of cuts [inaudible] will impact the margin how much?

Mike Hagedorn

Yes. This is Mike. Of course, we’re not going to give guidance on any specific numbers, but I think in our comments you can tell that the margin is going to be under pressure. It’s not just because of the dollars are going to come in in the fourth quarter related to public funds. It’s also related to the interest rate cut that has happened as well. Historically, when public funds come in, the balance sheet goes up and the margin goes down slightly. And so, I think we probably would expect something similar to that to happen again.

Jordan Heimowitz – Philadelphia Financial

Okay, so last year’s improvement was an anomaly.

Mike Hagedorn

Well, It’s a whole mixed bag. I mean it’s what we’re able to invest the funds in when they come in, and as you know investment yields – short-term investment yields are down and they were up more last year than they are this year. So it’s a myriad of things. Last year, the difference between last year and this year would basically come down to what we’re able to invest those funds in when they come in, and certainly short-term investments are down this year, so.

Jordan Heimowitz – Philadelphia Financial

Okay, and how much is 50 basis points negatively impact you all else being equal?

Mike Hagedorn

Yes, we’re not going to give guidance on some specific number that 50 basis points equals x number of reduction in margin or increase in margin.

Mariner Kemper

You know –

Jordan Heimowitz – Philadelphia Financial

We doubt you have to do that in the GAAP table.

Mike Hagedorn

It’ll be in the Q and as far as interest rate sensitivity, yes.

Mariner Kemper

And Jordan, given the fact that you’re new to the company, we’d love to have Abby reach out to you and give you a little update on the company.

Jordan Heimowitz – Philadelphia Financial

Yes, I would like that very much actually.

Mariner Kemper

Yes, we will do that.

Jordan Heimowitz – Philadelphia Financial

Okay.

Operator

Thank you and I do not show any further questions at this time. Please continue.

Abby Mayer

Thank you very much for your interest in UMB. The call can be accessed via a replay at our website beginning at about 2 hours and it will run through November 5th. And as always you can contact UMB Investor Relations with any follow-up questions by calling 816-860-1685. Again, we appreciate your interest and time.

Operator

Ladies and gentlemen, this concludes the UMB Financial Corporation third quarter conference call. You may now disconnect. Thank you for using ACT conferencing.

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Source: UMB Financial Corporation Q3 2008 Earnings Call Transcript

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