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

Scott Kingsley – Executive Vice President & Chief Financial Officer
Sure, we’ve been in the indirect auto lending business for quite some time more than half of our business is used autos and we like the risk reward profile of the used business better, we’ve made some investments to grow that business over the last couple of years actually before had coming out of recession we knew that there was going to be a growth opportunity in that line of business.

I think it’s still very strong business in terms of demand for automobiles, the risk just starting to grow a little bit, you are seeing the used car values come down somewhat which creates a little bit more risk, if you’re seeing other generally what we see is smaller banks who haven’t been in this before looking to grow loans and get into that business and so we’ve seen a slight deterioration in the credit quality of the applications flow.

So, we’re going to stick to our disciplined underwriting, 70% plus of our origination or A&B paper and it’s been for long period of time. Loss rates continue to be very acceptable; the only thing I would suggest at this point that would slow us down would be further deterioration in the credit quality of the applications.

So, I guess one of the bright spots if you will in terms of the spread in the indirect business which you know really ebbs and flows of interest rates. When interest rates are low the ROE of that business is low, when interest rates are higher the ROE is higher. So, right now the ROE on that business is not very strong, it’s not in the brighter. Now, we have hit the point where the yields on originated product are almost exactly what the overall yield on the portfolio is. So we don’t expect to see any further declines in spreads on the indirect business going forward.

Collyn Gilbert – KBW
Ok. Ok that’s helpful. And then just in general, how are you thinking about loan growth sort of for the remainder of the year [inaudible] portfolio?

Mark Tryniski – President & Chief Executive Officer
Yes, the last couple of years have been good, for us in our markets, we are in stable but lower growth markets and if we can get 3% plus we can do well by our shareholders with that level of growth in the loan portfolio, which we’ve managed to achieve the last couple of years. Most of that’s been consumer oriented to a much lesser degree commercial oriented, we did have a very strong quarter in the Commercial Banking business in the fourth quarter.

I think the mortgage business will be stable and will likely grow modestly in 2015, I think the auto business will also grow but at a lesser pace, our prediction for the last couple years have been double digit growth, we don’t think that’s going to happen again in 2015. So I think we would hope to put another 3% or greater, achieve that in 2015 as well and I think we can perform well with that kind of organic loan growth.