UMB Financial Corp (UMBFO) 2005 Q3 法說會逐字稿

Greetings ladies and gentlemen and welcome to the UMB Third Quarter Earnings Conference Call. [OPERATOR INSTRUCTIONS]. It is now my pleasure to introduce your host for today's conference Ms. Begonya Klumb, Director of Investor Relations. Thank you. Ms. Klumb, you may begin.

Good afternoon everyone and thank you for joining us today for our first conference call and webcast regarding our financial results for the third quarter of 2005.

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 with could cause actual results to differ materially from those indicated in our statements made during this call.

While management of UMB believes their assumptions are reasonable, UMB cautions that material changes in interests, general economic conditions, competition in the financial services industry and other risks and uncertainties detailed in UMB's 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 are listening to webcast have had a chance to review our earnings released dated October 25th. If not, you will find it on our website at UMB.com.

On the call today are Mariner Kemper, Chairman and Chief Executive Officer of UMB. 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 third quarter results. Following that, Mariner, Mike and Peter will be happy to answer your questions. Now I'll turn the call over to Mariner Kemper, our CEO.

Thank you Begonya and welcome everyone to our first conference call. We've decided to begin this practice as a part of our overall commitment to good corporate governance, fair disclosure and improving transparency. As Begonya mentioned, I will provide a high level overview of our third quarter results, briefly discuss some of our goals and key strategic initiatives and then turn the call over to Mike for financial details.

So to begin, 2005 continues to be a year of growth and we delivered solid financial performance in the third quarter. Earnings increased almost 35% to $0.75 diluted per share up from $0.55 in the prior year third quarter.

Our operating performance was driven by higher net interest income primarily reflecting increased loan balances and securities interest income and higher non-interest income from our fee-based businesses. Also contributing to the earnings increase in the third quarter were net gains from the sales and closures of the number of branch facilities. These improvements were partially offset by a significantly higher effective tax rate in the quarter.

In the third quarter on a year-to-date basis, we have improved our results in 2005 while continuing to invest in our long-term strategies. We believe our financial performance is a reflection of our business strategies which are based on delivering an unparalleled customer experience which in turn translates into higher share of wallet and new customer acquisition.

Ultimately, our goal is to create sustainable growth and improve shareholder returns while we continue to maintain a sound balance sheet and strong capital ratios. We're accomplishing this goal by implementing a number of strategies that include a focus on yield enhancement in our loan and investment portfolio. Second, continued growth in our strong and diverse fee-based businesses. Third, increasing our share of position in selected markets and continuing to improve the effectiveness of our branch network including investing in our retail business. Fourth, strengthening our asset management business and lastly, a strong focus on capital management.

Let me describe a few examples of how we're implementing each of these strategies. The first strategy we focus on yield enhancement and we're steadily making progress by optimizing the mix of our earning assets and liabilities through strong growth in commercial loans while also making strides with our home equity lines of credit, our credit card business and our launch of our small business program.

We plan to maintain our strong demand deposit base which today represents 38% of our total deposits. We also have improving yield by moderately extending the duration of our investment portfolio but without taking undue risks.

Despite a challenging rate environment you're all familiar with our core portfolio average life went from 21 months at the end of 2004 to over 28 months at the end of third quarter. Our core portfolio excludes very short-term discount notes held due to the seasonal fluctuation related to public fund deposits we carry which are expected to flow out of the bank in a relatively shorter period.

Our second strategy I mentioned we continue to grow our strong fee-based businesses which today represent approximately 56% of our total revenues. Our strong fee-based business help offset our lower then industry loan to deposit ratio. Specific areas of focus in this area will include asset management, commercial and corporate services, investment services, healthcare services and many other fee-based services. As an example of our commitment to provide cutting edge products and services we've started this year to provide our investment processing services to hedge funds, excuse me.

Our third strategy is to increase our market share and continue to improve the effectiveness of our branch network including an investment in our retail business. Part of this new strategy is to strengthen our position in current high share markets such as Kansas City. Consistent with this strategy, earlier this month we announced the acquisition of Pulaski Banks Kansas City location which will enable us to consolidate two locations and serve as a larger base of customers with a more efficient facility. The purchase of this bank is expected to close in the first quarter of 2006.

We also continue to invest in increase share and markets with strong growth prospects where we have an establish base and an opportunity for a competitive advantage centered around proven leadership. For example, markets such as Kansas City, St. Louis and Denver with respect to the new markets are Phoenix Arizona Bank is scheduled to open in early November. Our strategy in Phoenix will initially focus on building a strong commercial and small business and wealth management operation.

Also as a part of the strategy we continue to rationalize and work to improve the long-term profitability of our existing branch network which includes adding, maintaining, relocating and in some cases eliminating current branches as we deem appropriate.

During the third quarter we completed the sale of eight branches and closed one other location. We also added one location in Wichita during the quarter. Year-to-date we have sold nine branches and closed four, but just as important we opened two branches resulting in a net of 139 banking centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma and Nebraska.

To further support this effort we have created greater clarity of purpose in our market focus whether it be retail or commercial and we plan to compliment that focus with private banking, asset management and small business development as appropriate.

We have also enhanced our financial rigor and discipline with more robust hurdle rates for branch expansion as well as acquisitions. Finally we continue to consider acquisitions that improve market share and our targeted markets so long as they are near term financially attractive and accretive to EPS.

Also to support our market and branch strategy we continue to invest in our retail business to leverage our strong franchise and our newly enhanced products. As an example, our summer great rate campaign marketing resulted in a more than $368 million in deposits by the end of August and almost 5,000 new customers. Our home equity line of credit promotion campaign successfully generated nearly 700 new loans and approximately 26 million in outstanding balances in the third quarter alone.

Our fourth strategy is to continue to strengthen our asset management business which continues to make positive contributions to our overall performance. In the third quarter we announced the consolidation of our personal trust and brokerage divisions into an investment advisory model based on customer segmentation and open product architecture and hired Leana (ph) Bass, an industry veteran most recently managing director at JP Morgan Asset Management to lead the newly reorganized group.

In addition, we experienced strong in flows into our scout funds with net flow through September 2005 of $658 million more than twice the amount for all of 2004.

Our fifth strategy is to better utilize our capital in the service of increased shareholder returns. An example of this implementation is the strategy - in the strategy was our dividend increase approved yesterday by the Board from $0.22 per share to $0.25 per share or a 13.6% increase. Additional opportunities to achieve this goal may take the form of strategic or accretive acquisitions, dividend increases, and repurchasing stock and in fact we explored opportunities in all three areas during the quarter.

Finally, I want to add that while we're excited about all of our strategies there are two important pillars we build our growth on.

First is the ongoing effort to improve our operating efficiency through improved branch profitability, disciplined control over our costs and other initiatives such as voluntary separation plans and the consolidation of our bond trust operations. As evidence of the focus our efficiency ratio improved to 77.4% in the third quarter from 83% during the same period last year.

The second pillar we build our growth on is our strong commitment to our sound risk management standards by maintaining our strong credit quality balance sheet and capital ratios and instituting corporate governance best practices for fair disclosure, improved transparency and accountability and board independence. Also a new enterprise risk management process supported by a technological innovation is being designed.

Our entire management team is very focused on implementing these strategies and we are all energized by the opportunities and prospects for growth and improved shareholder returns. I'll come back to a few concluding remarks but lets go ahead now with a detailed review of our third quarter financials with our CFO Mike Hagedorn. Mike.

Thanks Mariner and let me add my welcome to everyone. As Mariner said we delivered solid financial performance in the third quarter. Now I'll provide the quarter and year-to-date performance details.

As Mariner indicated we reported diluted EPS of $0.75 for the third quarter up 36.4% from $0.55 in the third quarter of 2004 primarily due to high net interest income reflecting increased loan balances and securities interest income and higher non-interest income from our fee-based businesses.

Net income increased to $16.2 million in the third quarter of 2005 from $12 million in the third quarter of 2004.

Non-interest income included net gains of $4.8 million in the third quarter of 2005 compared to $1.8 million in the third quarter of 2004 related to the sales and closures of banking facilities. Excluding these items in both years our third quarter net income would have increased 20.9%. A table reconciling GAAP net income for these items for both the quarter and year-to-date can be found in our new release which is available on our website.

You'll notice in our news release that our effective tax rate more than doubled in the third quarter to 26.7% which represents the more normalized rate for UMB on a historical basis from 10.4% in the prior year third quarter and we expect this higher more normal rate to continue.

The lower than normal tax rate last year reflected higher tax-exempt income as a percent of our total income and higher tax credits. The lower percent of tax-exempt income alone caused the tax rate to increase 3.8% with the absence of tax credits accounting for the balance of the effective rate increase.

Excluding the gains on the sales of branches our improvement in third quarter earnings was driven by several factors including an increase in net interest income of $3.5 million or 7.7% primarily due to a 19.3% in our loan balances.

Loan interest income increased 37.7% to $48.1 million but a 10.5% increase in securities interest income also contributed to this improvement. Net interest margin increased to 3.26% for the quarter from 3.23% in the prior year third quarter although it was relatively flat compared to the second quarter of 2005. The sequential trend is due to several factors.

First, our third quarter margin reflected the effect of two rate hikes by the Federal Reserve which had a larger and immediate impact on our short-term liabilities while our assets will take time to re-price.

Second, our recent promotions increased the yield on our interest bearing deposits. As our investment portfolio assets re-price $1.1 billion over the next 12 months we would expect to see a positive impact on our net interest margin.

Whether the Fed pauses or continues to increase rates, management believes UMB's net interest margin will improve but there will continue to be a lag between the re-pricing characteristics of our earning assets compared to our funding sources.

Non-interest income of $64.7 million increased 13.6% in the third quarter or 8.7% if you exclude the pre-tax net gains from the sale and closures of branches. This improvement reflects primarily higher trust in securities processing fees up 9.4% and higher service charges on deposits up 11.4%.

Our investment, corporate and banking services groups continue to support our growth by delivering competitive services to our private and public accounts including strong inflows into our scout fund family. The growth and deposit service charges is mostly the result of re-pricing our fees for non-sufficient funds beginning the third quarter of 2004.

Non-interest expense increased $3 million or 3.5% to $89.9 million as a result of higher processing fees, bank card expenses and losses on deposit accounts. The increase in processing fees was driven by the increase in distribution charges to our mutual funds. Bank card expenses were higher due to higher customer rebates while losses on deposit accounts were higher due primarily to the new decision making process for non-sufficient funds.

Our overhead expenses increased modestly in the quarter. Compared with the third quarter last year salaries and employee benefits increased a modest 1.2%. This was due to the higher cost of the incentive compensation plans put in place in 2005 as well as the higher costs of several strategic hirings which offset our lower headcount year-over-year.

The credit quality ratios in the third quarter reflect UMB's continuing strong commitment to high quality lending. Net loan charge-offs for the third quarter of 2005 totaled $1.5 million compared with $1.56 million in the same quarter last year.

Non-performing assets as of September 30, 2005 totaled $6.1 million or .18% of loans compared to $9.6 million or .34% in the same period last year.

For the year-to-date diluted earnings per share of $1.91 increase 33.6% compared to $1.43 for the first nine months of 2004. This is based on net income of $41.4 million compared to $31.2 in the third quarter of 2004. Non-interest income for year to date in 2005 included net dues of 8.8 million primarily related to the sales and closures of banking facilities and 2.8 million of income recognized from the final earn out payment from the 2004 sale of employee benefit accounts.

Non-interest expense for the year-to-date in 2005 include a one-time charge of approximately 4.4 million due to the implementation of a voluntary separation plan in the first quarter of 2005 which resulted in a one-time charge of approximately 4.4 million recognized in the first and second quarters of 2005 and included 102 employees who accepted the offer.

Primarily due to the implementation of this plan full-time equivalent employees totaled 3,447 as of September 30, 2005, a 4.5% reduction from the same period last year. For the comparable 2004 nine month period non-interest income included a $1.8 million gain recognized on the sale of a parking lot in downtown Kansas City. Excluding one-time items in both years our net income would have increased 22.9% year-over-year.

Turning to the balance sheet. As we have already mentioned our solid financial performance in the third quarter was driven primarily by loan growth. At the end of September loan balances were 3.37 billion compared to 2.82 billion a year ago. Loan growth of 19.3% was driven by our commercial loan growth with a 33.5% increase compared with the prior year.

We attribute the strong growth to the incentive compensation plans implemented for commercial loan officers earlier this year as well as a renewed focus on sales throughout the organization. Loan growth also reflects an increase in home equity line of credit balances of $25.7 million during the third quarter of 2005 to a total of $120.4 million at September 30th driven by a successful marketing campaign.

Total deposits grew 4.8% from the prior year partially due to the highly successful grab a great rate marketing campaign which Mariner previously described. The average loan to deposit ratio continued to increase to 63.9% for the third quarter of 2005 from 58.5% in the same period last year. Our ratio of average loans as a percent of earning assets also continued to increase to 52.1% for the third quarter of 2005 from 47.9% in the third quarter of 2004.

Return on average equity and return on average assets increased during the third quarter of 2005 to 7.71% and 0.91% compared to 5.85% and 0.71 respectively during the same period last year. Capital ratios remained strong during the third quarter with Tier 1 total capital and leverage ratios at 17.09%, 17.97% and 11.28% respectively. On a year-to-date basis our dividend payout ratio was 34.6% and as previously mentioned the Board approved yesterday a 13.6% increase in our dividends.

With that I'll turn it back to Mariner for some concluding remarks and then we'll take some questions. Mariner.

Thanks Mike. I want to conclude my formal remarks by commenting on our commitment to enhancing our strong sales and relationship culture. UMB is a highly relationship driven enterprise that relies heavily on our associates to differentiate us from our competition. Our people are the most important assets and we believe that we have the best team in the business by far.

That's not to say that we can't improve and we certainly will and that comes from having the right people trained in the right place in the right jobs with a keen focus on providing the unparalleled customer experience. So as we engage and empower our associates we improve our customer experience and drive growth.

Peter, Mike and I and our entire management team are focused on building and aligning our organization that is recognized for delivering the unparalleled customer experience. That is our shared vision for the future and with that I'd like to turn it back over to the conference call operator to open up the session for questions. We appreciate you all being here with us today.

[OPERATOR INSTRUCTIONS]. Our first question comes from the line of Joe Steven of Steven(ph) Capital. Please state your question.

Good afternoon guys.

Good afternoon.

Two questions. First one was on the deposit side. You're not interest bearing. You actually grew at a pretty healthy rate in sort of an environment where a lot of other banks are having a little bit tougher time growing their NIB's so just sort of a global question. Can you talk about that and is this just related to your calling on the loan side that's question number one and question number two has to deal with really your liquidity. A lot of the banks are complaining about how tough the deposit market is and obviously with your loan to deposit ratio at a much lower level how do you guys feel that - how competitive do you think you have to be in the market especially as a -- a lot of new banks starting up and things like this and so where will you guys potentially move that loan to deposit ratio over time? Thanks guys.

Thank you. That's a great question. We've always had a very strong demand deposit base and a couple of factors play into that. We've been a very strong public fund bank and we've also been a very strong treasury management bank. And because of both of those things the balances that corporations, institutions and public entities carry with us are very strong typically and we've had a success with that this year. The loan to deposit ratio question I would answer like this. We don't want to give guidance as it relates to our loan to deposit ratio. We think a healthy organization is an organization that's growing its loans at as great a clip as they can along with the deposits. An organization that can't grow its deposits ends up with a high loan to deposit ratio in a way they don't want to. So we feel like the healthier our franchise is has to do with growing our deposits as strongly and effectively as we are our loan growth.

Okay. Thank you guys.

Thank you.

Our next question comes from the line of Peyton Green of FTN Midwest.

Good afternoon.

Hi Peyton.

A couple of questions. One kind of on the number side of things. I mean as you look at the loan re-pricing opportunity that naturally occurs on the variable rate component of your loan portfolio and then also the volume that you're now putting on which is I guess over $270 million in the second quarter and now about $170 million in the third quarter. How do you think the balance sheet is setup to respond to that over the next couple of quarters? And then secondly when you factor in the grab a great rate program is that something you intend to do regularly or is it occasionally to kind of get the troops rallied around getting deposits? And if you could comment on what you expect for the seasonal deposit flow into the fourth quarter. Thanks.

Hi Peyton. It's Michael. I'll take the first part and obviously we're not going to given guidance on what we expect the number to be whether it be a percentage or certain dollar amount but certainly we feel like our balance sheet is strongly positioned for growth in the interest rate environment that's expected right now whether it be the loan portfolio or the investment portfolio.

You know Mike two just comments that you can drive our own results from. You mentioned that we have $1.1 billion re-pricing.

Correct.

You know where the market has been and what's happening in the marketplace so you can draw your own conclusions with that. And on the loan side the growth rate just in the loans alone you can see the effect that that will have and then draw your own conclusions there.

This is Peter. On grab a great rate we had great success with that, bringing in $368 million. I think it proved that our retail franchise has a tremendous value to this company. In terms of repeating things like that we are committed to be in the retail business. We are --certainly know we have to be competitive to be in that business so I think you can expect from time to time that we're going to be very competitive in the market place and ensuring we get our fair share of the deposit activity. But that's not enough. Just getting the deposits is not enough. We have to grow the base. We have to cross-sell deeper into the base and that's part of the unparalleled customer experience that Mariner described so that we can keep these customers and not just have them jumping around from us to somebody else.

Peyton, we spent a little bit of time talking about this but as you look back on our focus on investing in our retail business there's several components. You've got to have the right facilities. You've got to have the right people and you've got to have the right products. We spent a great deal of time in the fourth quarter last year enhancing our product set, pricing and packaging it the way the market perceives it competitive and so that ties in with what we're doing on the deposit gathering side of it. Without the right loan products and the rest of the products gathering the deposits doesn't do us any good.

Okay. And then I guess with respect to the branch rationalization you indicated that you all have sold nine and been close to a few others. Where do you think you are in that process and is there a range that we should expect in '06 in terms of repositioning or closing or opening new offices? Thanks.

Peyton, I apologize but we can't give any guidance on that. Thank you for your questions though.

Thanks.

Okay great. Thank you.

Our next question comes from the line of John Rutas (ph) of Stifel Nicholas. Please state your question.

Good afternoon guys.

Good afternoon.

Can you just talk about - obviously your commercial loan growth has been fairly strong this year. Can you talk a little bit about what markets is that coming from? And then I guess on top of that can you talk a little bit about what your average - or what sort of credits are you seeing? What are the average terms you're seeing? What sort of size are you seeing? Kind of something like that?

Thanks John. This is Mariner. I would say that it's coming across our entire footprint. We've been focused on investing in quality people and in sending them appropriately. As Mike mentioned we've rolled out an incentive compensation plan in January, one we have never had for our commercial group. And as far as size goes it's all over the board but I would say we're a middle market - largely a middle market commercial oriented bank so I hope that answers your question. And Peter was going to add to that.

Just a couple of thoughts on that. I think Mariner is exactly right. It's coming from across our franchise. There are three things we've done deliberately. One is hire more and better people and get them on the street. Two is aligning incentive comp so there interests are aligned with the company's interest and three very modestly tweak our credit parameters. This is not about a credit parameter change in a wholesale sense but we certainly have tweaked those a little bit as we've looked to grow the loans.

Not related to quality but more related to the types of credits that we'll do correct.

Can you kind of give an example.

Transactional real estate loans, cash flow loans, some things that we haven't done in the past to open the door.

I think we're more willing to look at a very high quality transactional opportunity today than we may have been in the past and that gives us an opportunity to get our foot in the door if it's a good credit and we'll cross-sell into that over time.

Investment real estate that kind of thing.

And when you're doing these loans are you requiring a deposit relationship or are you at least asking for it I assume?

We sure want it and we try to get it every time but again we would do some transactional loans without it.

We are certainly an organization focused on organic growth and the relationship - profitable relationship is a deep relationship so we're focused on it but we understand that sometimes you've got to crack the door.

Okay. One other question. You talked a little bit about the Arizona bank and you said you planned to open it in early November. Are some of the costs associated with that they're already in the third quarter?

Well -- it's been an LPO so there really will not be any - very minor additional costs. It's -- we've got the people on the ground already. People are hired and the only additional expenses are building outs and doing a little FF&E, some drywall, that kind of thing.

Okay thanks guys.

You bet.

Thank you.

Our next question comes from the line of Troy Ward of A.G. Edwards. Please state your question.

Thank you. Good afternoon gentlemen.

Hi Troy.

Could you -- I know you had a very successful voluntary separation plan that really should continue to contribute to your efficiency but can you give us a little color on what other opportunities on the expense side or what procedures you may have at your disposal that could continue to improve your efficiency?

We've had 102 people take our voluntary separation program over the last nine months or so. That program expires at the end of this year. In terms of continually looking for opportunities that's exactly what we are doing. I mean Mariner mentioned the consolidation of our bond operations and our brokerage operations.

For the last 12 to 18 months we've consolidated numerous parts of the bank that were redundant. We continue to look wherever we have siloed operational infrastructure we're pulling that together. On the technology side it's the same story. We continue to look at where we've got platforms that either don't communicate or redundant with each other in some form or fashion and we are trying to be more efficient on the platform side. You know the story on the branch side. We continue to look for those efficiencies and we've made progress in that regard this year so it's really all over the board. There's really no one thing I can point to but we continue to look for efficiencies across the entire operations of the company.

We know there's plenty of room there. We're focused on being more efficient. We would like to build - we consider that something that needs to be built into the way we manage the company rather than something we do when we have a down year and we're very focused on it. We think there's plenty to do there. I use the term with our management team self-funding which is making sure that we continue to find ways to invest, but also invest through creation of finding efficiencies somewhere else.

That's perfect. That leads into my next question. With the needed investment that you have been making in people continue to do more and better work do you anticipate though that you will continue to self fund so to speak for the efficiency ratio continues to move in the correct direction?

That is our intent to try to self fund as much as possible. I'm not going to sit here and say we're going to give it or do it at a 100% level but we are looking across the company to find ways to self funds with as much growth as possible.

Looking backwards without giving you any guidance the voluntary separation program is an example of that. The branch sales were an example of that. That's about probably as much as we can give you on that subject.

Okay great. One follow-up. I know your executive management team along with Mr. Genovese (ph) kind of made the rounds here in St. Louis late last year or early this year really - getting the word out that you're going to focus on the St. Louis market. How have you -- what tangible results have we seen from other tangible moves that you made to put more focus on the St. Louis market?

You'd have to wait for the 10-Q because we don't drill down that far within the organization. I will tell you that we feel very good about the progress we've had in St. Louis. We were actually there yesterday. We held our holding company Board meeting yesterday in St. Louis and our senior management team made calls all over St. Louis. We see great opportunity there. The deposit share in St. Louis - the amount of deposits in St. Louis in the MSA are greater than they are in Kansas City, so there's a tremendous opportunity there and we're very focused on that.

I think the most visible sign of what we've done there was the hiring of Andrew Hurford (ph). Andrew joined us a few months ago from Southwest Bank and is a very, very senior and very respected banker in the St. Louis market and we're thrilled to have him on our team and he's doing some really nice work for us over there.

We have tons of opportunity. We're very excited about St. Louis.

Great. Fair enough. Thank you.

Thank you.

Thanks.

Our next question comes from the line of Jim Schutz of Sterne, Agee.

Good afternoon.

Hi Jim, how are you?

I'm fine thank you. Just a very quick question. Could you provide us with the number of shares that you repurchased during the quarter and the average price?

We repurchased 151,000 shares during the last year to date on a year to date basis. Just making sure on the average price so I'll have to look here for it, $56 if I remember right. Here 56.45. On a year to date basis it's 151,000 shares at a price of $56.45.

Okay, I guess I can work out the quarterly number on that one.

Jim it's roughly 16,000 if you work it out. It's not material.

I'm sorry?

It is 16,000 shares in the third quarter.

Okay. All right, thanks very much.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question comes from the line of Peyton Green of FTN Midwest. Please state your question.

Okay, just two follow-up questions. As it relates to the incentive comp that you all are now paying, how much of the personnel expense in the third quarter was related to incentive comp versus what traditionally would have been just kind of salary or some type of accrual?

I don't know that we break it out that way specifically but we are certainly paying additional incentive compensation to gather the scout fund flows we've talked about in addition to our commercial officers. I don't know that we can break it that way.

We're not really prepared to give you that depth of disclosure but it obviously is up given the fact that we're paying for performance.

Right, but I mean I guess my point is I mean you would have had zero in it a year ago-

Pretty much.

-- and I'm just trying to figure out how much the - although personnel was flat just how much of I guess the redundancy that got replaced was replaced with incentive comp.

We don't - we're not - comps separately. This gets back to the whole issue of self-funding, though. I think we're using the VSP saves so at least pay for that alone with other things.

Sure and then the headcount was down about 4.5% is that the figure you all gave?

Right. Correct.

And then any idea on how much cash flow you have coming out of the security portfolio in the fourth quarter excluding the discounts notes?

You'll have to look for that in the numbers we release.

I think we'll stick with the 1.1 billion we (inaudible - cross talk) over 12 months.

Sorry about that Peyt.

All right thanks.

You bet.

Our next question comes from the line of David Konrad of KBW. Please state your question.

Hi, good afternoon.

Hi David.

Just I guess a follow-up question on the securities portfolio in terms of the 1.1 million cash flows. In terms of - can you give us an idea of which of the portfolios that may be weighted, and I guess specifically the taxable portfolio's about 2 billion assets and the yield was 295. I guess that's predominately the discount notes I guess. So I'm just wondering is there a weighting on the re-pricing in that portfolio versus the other portfolios?

We have to wait for the 10-Q to disclose that. We obviously know what it is. We actually discussed it with our Board yesterday but I don't think we're ready to disclose that right now.

Okay. Could you describe what is in the $2 billion portfolio in terms of types of securities?

Yes, HMO's, some treasuries.

Treasury's a big part of the portfolio and most of it's core. You talked about the discount notes. So it's a pretty small portion of the total.

On core is immaterial.

Okay great thank you.

Thank you. One more question.

Our next question comes from the line of Bryan Hadler(ph) of Kennedy Capital. Please state your question.

Hey guys how you doing?

Hey how are you?

Appreciate you having the call. Most of my questions have been asked or can't be answered but I just wanted to get maybe an update on the loan pipeline at the end of the quarter versus last quarter and what you're seeing as far as pricing?

Sorry to disappoint you but that would go into the category of guidance. Pricing is something that the whole industry is - there's a lot of pressure on pricing in general but nothing we're dealing with that nobody else is dealing with. So we continue to feel very good about our business but can't provide you with much more than that. I apologize.

Okay great thanks.

Well if there a - don't seem to be too many more questions I'd like to thank you all for participating. We are very excited about what's going on at UMB. We've got a great team and a great future and we're pleased to provide you with the results we did last night and we'll see you next quarter and thanks again for participating and your interest.

Ladies and gentlemen this concludes today's teleconference. We thank you for your participation and you may disconnect your lines at this time.