S&T Bancorp, Inc.
Q1 2021 Earnings Call Transcript

Published: 22 Apr 2021

[Operator:]

Good afternoon, ladies and gentlemen and welcome to the S&T Bancorp First Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mark Kochvar, CFO. Sir, the floor is yours.

[Mark Kochvar:]

Thank you and good afternoon, everyone. Thank you for participating in today's conference call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors, which is on the screen in front of you. This statement provides cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.

[Dave Antolik:]

Well, thank you, Mark and good afternoon, everyone. We appreciate you joining us for our first quarter earnings call, and I personally want to thank you for your continued interest in S&T Bank. As you may know, our Board of Directors continues its search for a permanent CEO and in the interim has entrusted me with the honor of serving as CEO. While we recognize the challenges that exist in the current environment, our energy is focused on renewed growth initiatives and preparing for a future as a dynamic high-performing community bank. I'm encouraged and proud of the progress that we have made and I'm pleased to report record net income of $31.9 million in Q1. This translates into $0.81 per share versus $0.62 per share in the previous quarter. Our return metrics were also much improved this quarter with ROA of 1.42%, ROE of 11.15%, return on tangible common equity of 16.78%. Our pre-tax pre-provision to average assets also improved to 1.89%. Mark will walk you through a more detailed discussion of our financial results, but I would like to highlight a $1.2 million increase in mortgage banking fees quarter-over-quarter, a nearly 20% increase in wealth management revenue quarter-over-quarter, a modest increase in the core NIM rate, improving asset quality and a continued focus on expense control, which contributed to an improvement in our efficiency ratio to 51.47%. I'm also pleased to report that our Board of Directors has approved a $0.28 per share dividend consistent with the same period last year. This dividend is payable May 20 to shareholders of record on May 6. Our portfolio of loan balances continue to reflect the impacts of stimulus programs, primarily, PPP. If I could direct your attention to page 5 of the earnings supplement, you will see an update of forgiveness for round one and bookings of $190 million in round two through March 31. As a reminder, round one activities were limited to existing customers, while round two included new customers of the bank.

[Mark Kochvar:]

Well, thanks Dave. To round out the credit discussion, I'd like to point out, that our ACL loans decreased slightly to 1.60% in the first quarter from 1.63% at the end of the year and to 1.72% from 1.74%, excluding PPP. The $2.5 million relief came out of specific reserves which are down $5.4 million from the fourth quarter. The general reserve actually increased, by about $2.9 million. Slide seven shows the net interest income increased by about $800,000 compared to the fourth quarter. This is mostly due to increased PPP activity. Total net interest income from PPP was approximately $5.8 million in the first quarter compared to $4.9 million in the fourth quarter, which helped to improve the headline NIM rate by nine basis points to 3.47%. There remains about $4 million of net deferred fees from PPP round one. And with what was booked in round two, by the end of the quarter we have an additional $7.3 million of net deferred fees. The core net interest margin rate improved by two basis points compared to the fourth quarter to 3.37%, as lower interest-bearing deposit costs as seen on the lower chart, more than offset lower earnings asset yields from lower LIBOR and a less favorable asset mix.

[Operator:]

Ladies and gentlemen, the floor is now open for questions. Your first question is coming from Matthew Breese. Your line is live.

[Matthew Breese:]

Hey. Good afternoon.

[Dave Antolik:]

Hey, Matt.

[Mark Kochvar:]

Hi, Matt.

[Matthew Breese:]

Just curious on -- so curious on the new hires, market-wise where are they focused? And then, you did mention a stronger commercial pipeline. Just curious on your loan growth core, ex PPP your core loan growth outlook for the year?

[Dave Antolik:]

Yes. Matt, this is Dave. So those hires were all in Eastern Pennsylvania. So, if you think about where we were when we consummated the DNB merger was right at the time of the beginning of the pandemic, so we weren't able to execute fully on our strategic vision for that market. Now that we've gotten through some of the noise of 2020, we've gone back on the offensive from a hiring perspective. And those folks are focused on that market. We did see a decline in core loan balances in Q1, and that was anticipated. So, we do expect to -- the growth to happen in the back half of the year. We're still in the low -- projecting low single digits for the full year.

[Matthew Breese:]

Okay. Okay. And then, could you give us an idea of -- you mentioned competition and pressure. Just can you give us an idea of where new loan yields are shaking out and maybe some of the different structures your competition is offering customers?

[Dave Antolik:]

That will be yield for Mark.

[Mark Kochvar:]

Yes. So the average yield on loans last quarter was in the low 3s right around 3.25%. That's kind of all in. It's heavily weighted towards commercial. but we're right around that 3.25% number.

[Dave Antolik:]

Yes. And the payout pressure is coming from the permanent market and most of that 10-year paper were competing on the shorter end of the curve. Spreads haven't moved significantly. In fact, we've been holding pretty steady on spread. But yields in the competitive environment, particularly in the permanent space are still more aggressive than what we would be comfortable putting on our own balance sheet.

[Matthew Breese:]

Okay. You are still holding on to some excess liquidity. Just curious, if we should anticipate continued build in the securities book or you're more focused at this point on back half of the year loan growth and holding onto it for now.

[Mark Kochvar:]

I think that, we'll be more holding on to it. We might -- you might see a little bit of an increase on the securities, but nothing significant. We saw a small maybe $40 million increase point-to-point. May look for something in that range, if the current yield levels hold, but we're not going to jump in with both feet on the securities book at this point.

[Matthew Breese:]

Okay. Okay. And then just last one for me. Deferrals down to $62 million a far cry from where we were mid last year, so job well done. Just curious, any thoughts you have on -- from here kind of credit quality charge-off provisioning outlook that might be helpful.

[Dave Antolik:]

Yes. The book has yet to be completed the final chapter on the kind of macroeconomic issues. But from what we see right now, I would anticipate improving credit trends throughout the year. We did see reduced delinquency this quarter as well. So, that's a big positive for us. We are looking at other ways to reduce NPLs more aggressively, if we have the opportunity. So, I would anticipate improving credit trends, as we move through the year.

[Matthew Breese:]

Okay. Great. That’s all I had. I’ll leave it there. Thank you.

[Dave Antolik:]

Thank you, Matt.

[Mark Kochvar:]

Thanks.

[Operator:]

Your next question is coming from Russell Gunther. Your line is live.

[Russell Gunther:]

Hey, good afternoon guys.

[Dave Antolik:]

Hey Russ.

[Russell Gunther:]

Dave, I think in your prepared remarks, you were talking about growth initiatives. I believe, I heard you say revenue growth initiatives. We spoke a bit about some of the new hires. But is there anything else that you're referring to or a more formal approach that you can share from a perspective?

[Dave Antolik:]

Yes. So, we strategically realigned the wealth management group last year with the consumer bank. I'd like to say, we need to resource the opportunity. So, we saw a larger opportunity particularly in our financial advisory business. So, the first quarter really proved that out. If you look at wealth management fees, a big portion of that is just based on renewed activity, selling our corporate and personal credit cards, a renewed emphasis on merchant. And then we're also looking at potentially other avenues and new revenue sources that might move out of partnerships or perhaps some acquisition activity in the noninterest income space.

[Russell Gunther:]

Okay. Great. Thanks, Dave. And then heard your commentary on organic growth expectations for the year both from a mix and timing perspective. But it looked like core C&I ex PPP was up a bit. If you could give some color in terms of what the dynamics were there and what the related growth outlook is?

[Dave Antolik:]

Yeah. I think the core C&I was actually flat to down slightly on the quarter, once you take out the PPP. I think PPP was down on the quarter $40 million to $50 million, once you take out all the activity surrounding forgiveness of round one and then bookings for round two. But C&I activity the utilization rate was flat for the quarter. We did have some activity towards the end of the quarter with some new names and about 50% of pipeline at this point is C&I versus CRE. So I would anticipate some reborrowing as we work through the year and companies work through their liquidity, particularly their stimulus-related liquidity and improved borrowings as folks get more comfortable with making capital investments in the current environment as well.

[Russell Gunther:]

Great. Well thank you for the clarification and thoughts there. Just last question for me. I heard you on the guide on the expenses kind of $47 million, $48 million going forward. You mentioned where that incremental dollar was coming from. But is there a thought being contemplated as to how you might offset that support positive operating leverage going forward in terms of any expense initiatives?

[Mark Kochvar:]

Well it's something we're always looking at. We don't have -- as we've talked about before given our best branch footprint, we don't see any huge opportunities to make a lot of strides there. So for us, it's going to be a lot of singles to try to hit in order to keep the expenses under control. And no big initiatives plan to -- for layoffs or branch closures or anything along those lines. It's going to have to be managing it item by item.

[Dave Antolik:]

Yeah. And then on the revenue side, Russell comes down with some of these noninterest income initiatives and accelerated growth. And the addition to the staff in the lending space should help with that. So again, our focus is on growing revenue because we know we run an efficient shop. And if we cut any deeper, we don't want to cut too deep.

[Russell Gunther:]

Understood. Well great guys. That it's for me. Thanks for taking my questions.

[Dave Antolik:]

Thanks, Russell.

[Operator:]

There are no further questions from the lines at this time. I would now like to turn the floor back to David Antolik for closing remarks.

[Dave Antolik:]

Yeah. Mark had one question that came in that he would like to answer.

[Mark Kochvar:]

Yes. A question that came in through e-mail I didn't get a chance to answer related to the amount of purchase accounting adjustments in the margin this quarter. It occupied about three basis points this quarter a little bit higher than usual. Typically, we run about two basis points, runs a little less than $100,000 per month or about $300,000 a quarter. And we have about $5.6 million less purchase accounting adjustments to go through income related to prior acquisitions, primarily the DNB merger. So Dave, back to you for the closing comments.

[Dave Antolik:]

Great. Thank you, Mark. And thank you everyone on the line for your continued interest in S&T Bank and I look forward to talking to you again next quarter. Thank you.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.