Community Bank System, Inc. (CBU)’s Fourth Quarter and Year End 2014 Earnings Conference Call Transcript

Seasonally, as expected, our facilities related costs in the fourth quarter began to tickup from the warmer months of the third quarter but were still almost $1.5 cents per share lower than the winter dominated first quarter of this year. In addition, we did record approximately $300,000 of expenses in the fourth quarter related to certain branch efficiency initiatives.

Our effective tax rate in the fourth quarter of 2014 was 28.8% versus 28.2% in last year’s fourth quarter, on a full year basis our effective tax rate was 29.6% in 2014 up from 29.0% in 2013. We continue to expect net interest margin challenges going forward into 2015 as most of our existing assets are still being replaced by assets with modestly lower yields.

Our funding mix and costs are at very favorable levels today, from which we do not expect significant improvement. Our growth in all sources of non-interest revenues has been very positive and we believe we’re favorably positioned to continue to expand in all areas. While operating expenses will continue to be managed in a disciplined fashion, we do expect to continue to consistently invest in all of our businesses.

We expect the first quarter 2015 compensation increase its averaging 3% across our organization in are projecting almost $0.02 of share of additional retirement plan cost in 2015, a direct effect of lower discount rates at the end of 2014 compared to those at the end of 2013. Our asset quality has continued to remain a differentiating feature of our business model and we don’t expect that to change going forward.

Tax rate management will continue to be subject to the successful reinvestment of cash flows into high quality municipal securities, as it has been for last several years and in fact that it has become seemingly more difficult each quarter. We also expect to be net negatively impacted from certain statutory tax code changes enacted in the past year in New York and Pennsylvania and are currently forecasting an increase in our combined effective tax rate to approximately 31% in 2015.

Despite certain of these apparent headwinds, we have faced similar market conditions in characteristics and dynamics in the last few years in this interest rate environment and expect to execute on our business model in a consistent manner in order to create growing and sustainable value for our shareholders. I’ll now turn it back over to Jennifer to open the line for some questions.

Operator
Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speaker phone, please be sure your mute option is turned off to allow your signal to reach our equipment. Again, that is *1 if you’d like to ask a question. We’ll first hear form Alex Twerdahl with Sandler O’Neill.

Alexander Twerdahl – Sandler O’Neill
Hey, good morning guys.