Q1 2021 S&T Bancorp Inc Earnings Call

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Good afternoon, ladies and gentlemen, and welcome to the SMT Bancorp first quarter 2021 earnings conference call.

At this time, all participants have been placed on listen only mode and the floor will be opened for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host Mark coach for CFO, Sir the floor is yours.

Thank you and good afternoon, everyone and thank you for participating in today's conference call for <unk>.

During 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 Brian.

<unk> provides cautionary language required by the Securities Exchange Commission for forward looking statements that may be included in this presentation a.

A copy of the first quarter of 2021 earnings release can be obtained by clicking on the press release link on your screen or by visiting our Investor Relations website at T Bancorp Dot com.

We will be reviewing earnings supplement slide deck as part of this presentation.

You can obtain a copy of those slides by clicking on the earnings supplement link on your screen or on our website under events and presentations first quarter 2021 earnings conference call, what kind of first quarter 2021 earnings supplement.

With me today is data until it S&P president and interim CEO.

I can turn the program over to day.

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 essence ebay Inc.

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 her new growth initiatives and for.

Pairing for our future as a dynamic high performing community Bank I'm encouraged and proud of the progress that we've made and I'm pleased to report record net income of $31 $9 million in Q1.

This translates into 81 per share versus 62 per share in the previous quarter.

Our return metrics were also much improved this quarter with ROA of 142 ROE of 11 15 return on tangible common equity of $16 78.

Our pretax pre provision to average <expletive>ets also improved to 189% 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 and day.

Nearly 20% increase in wealth management revenue quarter over quarter, a modest increase in the core NIM rate improving <expletive>et quality and a continued focus on expense control, which contributed to an improvement in our efficiency ratio to 50, 147%.

I'm also pleased to report that our board of Directors has approved a 28 cents per share dividend consistent with the same period last year. This dividend is payable may 20 to shareholders of record on may 6th.

Portfolio loan balances continue to reflect the impact of stimulus programs, primarily triple T.

I can direct your attention to page five of the earnings supplement.

You will see an update of forgiveness for around one and bookings of $190 million.

In round two through March 31 offs.

As a reminder, Ron one activities were limited to existing customers while around to include a new customers for the bank.

Page six provides a history of our modified loan balances, we have seen modifications reduced to less than one percentage of total loans. Most encouraging is the continued reduction of modified hotel balances, which are now just $32 million compared to $177 million at the end of the year.

As I mentioned earlier, we have renewed our focus on growth and we have seen improvements in both our commercial and consumer pipelines when compared to last quarter and last year.

Our commercial pipeline is at its highest point in the past five quarters, we continue to experience payout pressure from permanent market offerings and the C. R E portfolio and in order to combat. These pressures we recognize the need for additional volume in the commercial space and in Q1 and for commercial bankers in order to improve production.

We also added for.

Mortgage loan originators in Q1.

Our consumer pipeline is up 30% versus Q1 of last year, and we continue to see strong demand for our home equity promotional product that is currently in the market.

With regard to our mortgage activity our pipelines are pointing towards increased activity in Q2, along with a meaningful shifts in mix, primarily nearly 90% of all activity being sold in Q1 to more meaningful portfolio activity and a reduction in sold loans as customer preference moves towards purchase.

And construction.

I'd now like to turn the presentation over to Mark.

Thanks, Dave to round out the credit discussion I'd like to point out that our ACL for loans decreased slightly to $1 six 7% in the first quarter for 163% at the end of the year and to 172% from $1 seven 4% excluding triple peaks.

For two and a half a million dollars release 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 800000 compared to the fourth quarter. This was mostly due to increased triple P activity.

Total net interest income from <unk> 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 347%.

There remains about $4 million of net for ease from TTP round, one with what was booked in round two by the end of the quarter, we havent niche 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 337% as lower interest bearing deposit costs as seen on the lower chart more than offset lower earning <expletive>et yields from lower LIBOR and a less favorable <expletive>et mix.

We continue to make progress with lowering our liability costs, which were also down nine basis points compared to last quarter.

We are however, running out of room to lower deposit costs going forward and anticipate that improvement will slow in the second quarter before stabilizing in the second half of the year.

Some volatility in headline margin rate will come with the forgiveness timing of Triple P round, one and two.

Cash balances accelerated significantly at the end of March for stimulus payments and.

And round two of Triple peaks, all but about $70 million of the cash balance at period end was interest bearing.

And while the point to point cash balances increased over $440 million coming late in the quarter had a more muted impact on average balances, which decreased only about $60 million.

The first quarter average balance level of cash lowers the net interest margin rates by about 90 basis, just nine basis points compared to normal and for quarter ending higher level hold throughout the second quarter, we could see an additional 15 basis point of net.

Net interest margin rate pressure.

We remain cautious on investing significant amounts of cash and bonds given the rate volatility only modest yield tick up and uncertainty surrounding the digital unwind of its deposit surge.

Non interest income in the first quarter increased by $1 6 million compared to the fourth quarter, Dave mentioned largest increase was in mortgage banking, which improved by $1 2 million to $4 3 million.

She didn't have remained strong and we also benefited from better mortgage servicing rights valuation on new loans and also a recapture of $941000.

Consumer related these are showing signs of improvement as card related fees are now running ahead of pre pandemic levels.

NSF still lag influenced by the improved liquidity and consumers.

We also saw improved numbers in wealth management through a combination of <expletive>et appreciation and increased customer activity.

While we don't expect to repeat this quarters level of fee income give me a better mortgage volume improvements in wealth and returned a sewer fees the run rate in non interest income should improve to closer to $16 million per quarter.

Noninterest expense decreased by over $2 9 million from the fourth quarter for $45 6 million.

Largest decrease came in workout related expenses, which are in the other category.

They were down by $1 7 million after being elevated in the fourth quarter.

Other larger decrease came as marketing down almost 800000 due to higher campaign expenses in the fourth quarter.

Despite lower expenses this quarter, we still expect our run rate going forward to be $47 million to $48 million per quarter. As we worked through some credit issues and begin to focus on production and new hires.

Triple peaks salary deferrals, which were about 500000 in the first quarter will come to an end.

Our bankers to be more active as travel and customer activity resumes.

Centerpiece stable net interest income and lower expenses resulted in nice improvement in pretax pre provision and the efficiency ratio that Dave mentioned.

We expect us to moderate some as fees and expenses normalized and core net interest income remained stable.

The risk weighted capital levels on slide eight improved by about 50 basis points of leverage and TCE are weighed down by Triple peak by about 50 basis points and additionally by the higher cash flow.

All capital ratios are in excess of regulatory well capitalized levels and our capital Cushing continues to expand.

In March the board of directors extended the repurchase authorization that was set to expire.

On March 31, this year for an additional year through the end of the first quarter 2022.

We have $37 4 million remaining on that authorization.

While we have no immediate plans to do buyback given improved valuations and our purpose use that capital to support growth. We have the flexibility to act should conditions change.

Thanks, very much at this time I would like to turn the call back over to the operator to provide instructions for asking questions.

Ladies and gentlemen, the floor is now open for questions.

You have any questions or comments. Please press star one on your phone now.

Yes that will pose your question and please pick up your handset listening on speaker phone to provide some of the sound quality.

Please hold them only pull for questions.

Your first your first question is coming from Matthew Breese.

Your line is live hey, good afternoon.

Hey, Matt.

Just curious on a so.

So curious on the new hires.

Market wise, where where are they focused and then you did mentioned stronger a stronger commercial pipeline just curious on your your loan growth core ex PPP your core loan growth outlook for the year.

Yeah, Matt It's day, so all of those hires were all in eastern Pennsylvania. So do you think about where we were when we comped.

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 for them from a hiring perspective and in the zone.

Focused on on that market.

We did see a decline in core of loan balances in Q1 that that wasn't anticipated. So we do expect to.

The growth to happen in the back half of the year and we're still in the low you know projecting low single digits for the for.

Full year.

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 for shaking out and maybe some of the different structures your copper.

Competition is offering customers.

For the type of yield Mark yesterday, the average yield on loans last quarter was in the low threes by around three and a quarter.

All in it's heavily weighted towards commercial but we're right around that three in a quarter.

Yeah, and then in the pay offs pressure is coming from the permanent market and most of that 10 year paper and we're competing on the shorter end of the end of the curve net spreads haven't moved significantly actually 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 pick up what we're putting on our own balance sheet.

Okay.

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

I think it's gonna be more holding onto it we like you might see a little bit of an increase on the securities, but nothing nothing significant we saw small maybe $40 million increased point to point might look for something.

And in that range correct.

Yield levels hold but we're not going to jump in.

With both feet on the on the Securities book at this point.

Okay, and then just last one for me deferrals down to $62 million a far cry from where we were a mid last year. So job well done I'm. Just curious any thoughts you have on you know from here kind of credit quality charge offs provisioning outlook that that might be helpful.

Yeah.

So book has yet to be completed the final chapter on the kind of the macroeconomic issues, but from what we see right now I would anticipate.

Moving credit trends throughout the year, we didn't see reduced delinquency. This this quarter as well so that that's a that's a big positive for us.

We are looking at other ways to reduce npls more aggressively if we get out of the opportunity set aside would anticipate improving credit trends as we move through the year.

Okay.

That's all I had I'll leave it there thank you.

Thank you Matt.

Your next question is coming from Russell Gunther.

Your line is live.

Hey, good afternoon guys.

Hey, Ross.

Hey, Dave I think in your prepared remarks, you were talking about growth initiatives.

I believe I heard you say revenue growth initiatives.

Spoke a bit about some of the new hires but is there anything.

It helps that you're referring to or or a more formal approach. So you get interest.

Perspective.

So we strategically realigned our wealth management group last year with the consumer bank.

Hum.

I like to.

I'd say, we need to resource the opportunity. So we saw a larger opportunity in particular in particularly in our financial advisory business.

So in the first quarter really prove 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 card.

Renewed emphasis on merchant.

And then we're also looking at potentially other avenues and new revenue sources that might include other partnerships or perhaps some.

Acquisition activity in the noninterest income space.

Okay, great. Thanks, Dave and then.

You know I heard your commentary on organic growth expectations for the year.

Both from a mix and timing perspective, but it looks like core C&I. The P. P. P was up a bit could you give some color in terms of what the dynamics were there and what the related growth outlook.

Yeah, I think the core C&I was actually flat to down slightly on the on the quarter, which you take out the the Triple T. We can triple P was down on a quarter for 40 to 50.

<unk> million dollars once you take out all of the activity surrounding forgiveness of.

Round, one and then bookings for round, two but C&I activity the way the utilization rate was flat.

For the for the quarter, we did have some activity towards the end of the quarter with some new names and about 50 per cent of pipeline. At this point is C&I versus CRE. So you know I would anticipate you know some some re borrowings as we worked through the year and companies work through their liquid.

Any particularly their stimulus related liquidity and an improved borrowings as folks get more comfortable with making capital investments.

In the current environment as well.

Great well. Thank you for the interest for the clarification and thoughts there just last question for me.

I heard you on the guide on the expenses kind of 47 48 going forward.

And 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.

But it's something we're always looking at we don't have that we've talked about before you know given our bank branch footprint.

A huge opportunity to make up a lot of strides there so for for US it's going to be a lot of singles to try to hit in order to keep the expenses under under control and no big initiatives planned to.

For for layoffs for branch closures or anything along those line.

It's gonna have to be managing it.

Item by item.

Yeah, and then on there on the revenue side Russell comes down for some of these non interest income initiatives and accelerated growth.

And in addition to the staff in the Atlantic space should should help with that so again our growth. Our focus is on growing revenue because we know we run an efficient shop and if we cut any deeper you know, we don't want to cut too deep.

Understood well great guys. That's it for me thanks for taking my questions. Thanks Russell.

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, Yeah. Mark guys. One question that came in that he would like to answer.

A question that came in through email that I get a chance to answer it related to the amount of purchase accounting adjustments in the margin this quarter.

If I can probably about three basis points this quarter, a little bit higher than usual typically we run about two basis points runs a little less than 100000 per month or about 300000, a quarter and we have about $5 $6 million.

Net purchase accounting adjustments to go through income related to prior acquisitions, primarily the dnb merger that day.

Exactly for the closing comments great. Thank you Mark and thank you everyone on the line for your continued interest in F&B back and I look forward to talking to you again next quarter. Thank you.

Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day. Thank you for your participation.