Q4 2024 S&T Bancorp Inc Earnings Call
Welcome to the S&T Bancorp fourth quarter and full year 2024 conference call. After the management's remarks, there will be a question and answer session.
Speaker Change: Now I would like to turn the call over to Chief Financial Officer Mark Kochvar. Please go ahead.
Speaker Change: Great. Thank you very much. Good afternoon, everyone. Thank you for participating in today's earnings call.
Speaker Change: Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation.
Speaker Change: A copy of the fourth quarter and full year 2024 earnings release as well as this earnings supplement slide deck can be obtained by clicking on the materials button.
Speaker Change: in the lower right section of your screen. This will open up a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our investor relations website at stbankcorp.com.
Speaker Change: Thank the analysts for being on the call. We really appreciate you being here with us and we look forward to your questions.
Speaker Change: As always, I want to thank our employees, shareholders, and others also listening to the call. To our leadership team and employees, your commitment and engagement is what drives these financial results. These results are yours, and you should be very proud.
Speaker Change: Before we discuss Q4 specifically, I would like to take a few minutes to discuss and wrap up 2024. Overall, S&T navigated a very dynamic environment in 2024 exceptionally well.
Speaker Change: Following two straight years of record financial results, we produced $3.41 per share in earnings while delivering excellent returns and building to record levels of capital.
Speaker Change: Additionally, we made great progress on our asset quality initiatives, and our efforts to grow and enhance our customer deposit franchise were significant.
Speaker Change: None of this could have happened without the commitment of almost 1,300 S&T employees who, as defined by organizations like the American Banker and Energage, are some of the most engaged, loyal, and talented employees in the industry.
Speaker Change: Our performance, capital levels, balance sheet strength, and business activity levels give us great optimism as we head into 2025.
Speaker Change: Now, turning to the quarter, the fourth quarter, our $33 million in net income equated to about 86 cents per share, up slightly from Q3. Again, our return metrics were excellent with a 13.25% ROTCE.
1.37% ROA, and our PPNR remains solid at 1.72%.
Speaker Change: Our net interest income showed slight contraction versus Q3, while our net interest margin at 3.77% also declined slightly but remained very strong.
Speaker Change: Mark will be able to provide more details on both our net interest income and our net interest marks in a few minutes.
Speaker Change: Asset quality continued to improve as we had another quarter of declining or improving ACL. And David's going to dive more deeply in here in a few minutes. He'll also touch on the meaningful pickup we are seeing in our loan pipelines.
Speaker Change: Moving to page 4, loan growth was just under 3% for the quarter because of very strong new loan production in the quarter.
Speaker Change: Payoffs were also higher in the quarter. However, some of this provided a contribution to the asset quality improvements you see on the page.
Speaker Change: Notably, on the deposit side, customer deposit growth of more than $75 million produced over 4% growth annualized, and this is the sixth consecutive quarter of meaningful deposit growth for our company.
Speaker Change: While deposit growth was broad-based, we are particularly pleased with our DDA and NOW performance, with overall DDA balances growing to a very strong level of 29% of total balances.
Speaker: In a minute, I'm going to turn it over to Dave, and he'll talk more about the loan book and credit quality, and then Mark will provide more color on the income statement and capital. But let me reiterate again how good we feel about all that we navigated in 2024. As I said, capital levels are at record levels.
Earnings were strong, results and metrics looked very good.
Speaker: Pipelines are strong and we feel very confident about 2025. So with that, I'm going to turn it over to Dave to talk a little bit more about the balance sheet.
Dave: Great. Thank you, Chris, and good afternoon, everyone. Continuing on slide 5 with our discussion of the balance sheet for Q4, we experienced solid loan growth in both commercial and consumer loans.
Dave: totaling 2.8% annualized. Focusing on commercial for a minute, Q4 was our strongest loan production quarter in three years. We fully expect originations in Q1 and Q2 of 2025 to continue at higher levels than experienced for those quarters in recent years.
Dave: We've seen expanded pipelines in both our business banking and commercial segments leading to a doubling of those pipelines year over year.
Dave: We've been actively recruiting business and commercial bankers and expanded our business and commercial banking teams by 15% in the past year. These additions, along with increased demand and renewed customer confidence, are positively impacting our results.
Dave: in 2024's earlier quarters as we successfully exited several credits, which led to the continued improvement in our asset quality profile and has allowed our bankers, most importantly, to focus more on growth.
Dave: Turning to consumer loans, much of the quarters and the full year growth was driven by our residential mortgage activities.
Dave: We've refined our residential mortgage strategy to better align it with our deposit franchise and focus on supporting our branch network and communities. As an outcome, our pipeline has reduced in residential mortgage and we expect consumer growth in 2025 to be more balanced between residential mortgage and our home equity products.
Dave: Turning to asset quality on slide 6, we continue to see improvement in Q4. Our allowance for credit loss has declined by almost $3 million and declined from 1.36% to 1.31% of total loans.
Dave: Influencing these results were several factors including a decline in non-performing assets of four million dollars. NPAs remain relatively low at three three six basis points of total loans.
Dave: We also saw continued declines in our criticized and classified loans of 16% during the quarter.
Dave: This represents the fifth consecutive quarter of C&C declines, and in total,
CNC assets declined by 31%.
Dave: In addition, we saw a net recovery of $100,000 for the quarter, compared to a $2.1 million net charge-off in Q3.
Finally, with the previously mentioned improvement in pipelines...
hiring...
Dave: Customer Demand and Customer Confidence. We anticipate mid-single-digit growth in the first half of 2025.
and Hyman Single-Digit Growth.
Mark Kochvar: for the full year of 2025. I'll now turn the call over to Mark.
Mark Kochvar: Great. Thanks, Dave. Here on slide seven, fourth quarter net interest margin rate at 3.77 percent, down about five basis points from the third quarter, with a decrease in net interest income of 1.2 million compared to last quarter. Both of those are in line with our expectations.
Mark Kochvar: Michael Blocoberg, thicker than ice Mark Grinnell, IEP – University of Rhode Island ... Transcribed by Transcription Outsourcing, Inc.
Speaker Change: a 14 basis points in the fourth quarter driven by exception and normal non-maturity deposit repricing at the beginning of a repricing of a relatively short CD book and lower borrowing amounts and rates.
Speaker Change: that interest margin and net interest income were also supported by better security yields.
Speaker Change: from normal replacements combined with the bond restructuring we have done over the past three quarters.
Speaker Change: now totaling about $143 million and cumulatively improving the interest income by approximately $1 million per quarter as we move into 2025.
Speaker Change: Looking ahead, we believe that we are within a couple of basis points at the bottom for the net interest margin rate, especially given the reduced Fed rate cut expectations.
Speaker Change: We anticipate that the current net interest margin level in the mid-370 area will hold even if rate cuts materialize later in 2025.
Speaker Change: Support for the net interest margin stability comes from favorable fixed and arm loan and security repricing with a steeper curve. Our $500 million received fixed swap ladder began to mature in the first quarter.
Speaker Change: A short-duration, $1.5 billion CD portfolio that will price mostly in the first half of 2025 and an improving ability to implement non-maturity rate cuts and manage deposit exceptions should short rates move lower.
Speaker Change: A more stable net interest margin rate combined with our better asset growth outlook should translate into net income growth as we move into the second quarter of 2025.
Speaker Change: On the next slide, non-interest income, which declined by about $8.8 million in the fourth quarter. As I mentioned, we executed a third securities repositioning. This one was about $445 million. We took a loss of $2.6 million with an earnback of just about two years.
Speaker Change: Our core non-interest income run rate remains approximately $13-14 million per quarter.
Next slide, nine, non-succinct.
Speaker Change: Expenses were overall unchanged in the fourth quarter compared to third. Salaries and benefits are lower due to a decline in incentives. Data processing is higher due to the timing of some technology investments. And the other tax increase relates to our Pennsylvania state tax, which is based on a level of capital.
Speaker Change: We expect expenses to increase in 2025 overall by approximately 3% compared to 2024 as we continue to invest in our production capacity and our customer experience.
Speaker Change: We expect a quarterly run rate of approximately $55-56 million in the first half of the year and closer to $57 million per quarter in the back half.
Speaker Change: And finally on slide 10, capital, the TCE ratio decreased slightly by four basis points this quarter due to the AOCI impact of higher rates. Our TCE and regulatory capital levels position us very well for the environment and will enable us to take advantage of organic or inorganic growth opportunities as they arise.
Speaker Change: Thank you very much. At this time I'd like to turn the call back over to the operator to provide instructions for asking questions.
Speaker Change: The floor is now open for questions. If you have a question, please press the star button followed by the number one on your telephone keypad. And we ask that while you're asking your question, please pick up your phone and turn off speakerphone for enhanced audio quality. Please hold while we poll for questions.
Speaker Change: Your first question comes from the line of Daniel Tamayo of Raymond James. Please go ahead.
Thank you. Good afternoon, guys.
Bye again.
Speaker Change: Yeah, maybe one for you, Chris, on the loan growth outlook. Looks pretty...
Speaker Change: bullish, especially as we get into the back half of the year here. So I guess you're starting the year.
Speaker Change: mid-single-digit and I'm sorry if you're starting the year, where are we? Yeah, mid-single-digit and ending mid to high-single-digit for the full year. Does that mean you're going to be kind of towards that high single-digit?
Speaker Change: level in the back half of the year and is that a good run rate to think about as we move forward given all these hirings you've made over the last 12 months?
Speaker Change: Dan, this is Dave. I'll take that question. Yeah, you're describing it accurately. As we hire through the year, add to both our business banking and commercial banking, customer-facing staffs, we anticipate growth.
Speaker Change: to follow that trajectory, that we come into the year with
Speaker Change: double the size pipeline that we had going into last year and last year our first quarter was was not a good one in terms of loan growth.
Speaker Change: We feel much better about that. We also feel much better about what we're hearing from our customers in terms of demand and confidence in the in the economy So all those things combined
Speaker Change: on top of the fact that we've had these asset quality improvements that give us significant confidence in our ability to grow at a more rapid pace.
Speaker Change: kind of the past three years and the effort that we've been under to build this foundation for growth.
Speaker Change: We're spending much more time proactively, many more people in the market, and combine that with the...
Speaker Change: Reputation that we have as a company and the following and loyalty that we have from our employee base We feel very very good about you know where we're sitting today Given the environment that we're in
Speaker Change: That's terrific. Thanks for that, Dave and Chris. Maybe switching over to credit, you know, that's certainly been a positive story for you guys for a while now through 2024. You continue to see those criticized and classified in particular numbers come down.
Speaker Change: Curious if you think we're kind of close to a bottom there and you know as we think about the the new credit profile of the bank where you think net charge offs would be on a more normalized basis.
Speaker Change: going forward. Yeah, it's David and Dan. I think, you know, first, charges are difficult to forecast.
Speaker Change: And we know our job is to ensure that we don't give back the asset quality improvements that we've worked so hard to achieve as we accelerate growth. So we would anticipate provisioning in 2025 to be in support of that growth.
2025.
Speaker Change: and the fact of the matter is our C&C assets are down from...
Speaker Change: Relative to our peer group, we feel like there's room to go, but not a lot. I mean, what we achieved in 2024, certainly we're not going to be able to repeat in 2025.
Speaker Change: I understood, yeah. And from a reserves perspective, you know, around $130k of loans seems like a pretty fair level for you guys. Is it fair to say that that's likely to be stable-ish going forward?
Speaker Change: in 2024, but you could still see that go lower on a percent basis, although the dollar could, you know, if we're successful in the loan growth that Dave talked about, you could see the dollars still be higher.
Speaker Change: Understood. All right, great. Well, thanks for the call, guys. Appreciate it. Thank you, Dan. Thanks, Dan.
Speaker Change: Your next question comes from the line of Talai Motov, KBW. Please go ahead.
Talai Motov: Hi, good morning, or good afternoon, thanks for the question. It's been a long earning season for you, Kelly, we understand. Don't know what time it is, don't know what day it is, but I'm still standing. And happy to be on your call.
Talai Motov: You know, it sounds like the organic growth story trends are really encouraging with the pipeline, the acceleration throughout the year. I'm wondering, you know, given, you know, the talent you brought on and your outlook ahead, just
Talai Motov: And where you stand, if there's additional opportunities to, you know, add teams or pick up potential producers here, or if you feel like, you know, with the outlook ahead, you've got what you need and
Talai Motov: are kind of holding firm here. Wondering just kind of how you're looking at that.
Talai Motov: Yeah, we're planning to recruit through the year, Kelly, to continue to grow those teams. You know, 25 may look like 24 in terms of the 15% addition.
Talai Motov: I think we have room to do that and there's certainly opportunity in the market to do that given our strength and the story that we have to tell prospective bankers.
So, we'll continue to add to customer-facing staff in 2025.
Talai Motov: And Kelly, it's Chris. I'll add to that, if you, again, kind of go back over the past three years, what we've been doing is building this foundation for growth.
Talai Motov: So we may, we, you know, in total have, call it 75-ish, 100-ish more employees in the company today than we had three years ago.
David Antolik, Christopher McComish, Christopher McComish, Christopher McComish, David Antolik,
Speaker Change: Got it. That's helpful. And then, you know, it feels like M&A may be thawing out a bit. Just wondering if you could give us an update on...
Speaker Change: you know the the pace of of conversations and kind of how how you you're positioning here.
Speaker Change: I just got back from one of the big industry conferences this week and lots of discussions and talk and again
Speaker Change: We have record levels of capital in the company today. And we know we need to be deploying that capital in a smart way. It will obviously go in the form of organic asset growth. But, you know, we believe we're very well positioned.
Speaker Change: from both what we have from the resources within our company, the customer loyalty and employee engagement that we have, the reputation that our company has in the marketplace, we believe we're a very good partner in this environment. So our
Speaker Change: We're looking forward to being opportunistic at the right time, and I think it's becoming, you know, those things are becoming more active.
Speaker Change: Great. I will step back. Thank you so much. Thank you.
Speaker Change: Next question comes from the line of Manuel Navas of DA Davidson. Please go ahead.
Hello, good afternoon. This is Sharon Gee on from MNL.
Hi, Sharon. Hi, Sharon.
Speaker Change: Thank you for taking my questions. So for my first question, I wanted to talk a little bit about, so you mentioned a stable name around 370, and so how does that change if there are more rate cuts in the year?
Speaker Change: Yeah, I mean, based on the current expectations, you know, we think we can keep that margin rate relatively stable, even if we do see some additional cuts from the Fed.
We think we have, as we get deeper...
into lower rates.
and William Wells.
Speaker Change: So we had a better spot from that perspective so that, you know, we don't expect there to be as much pressure as if rates continue to go down.
Speaker Change: Thank you and how is the December cut versus prior cuts perceived for you and then is this a little bit of deposit cost cuts coming in the first quarter from the December Fed cut?
David Antolik, Christopher McComish
Speaker Change: Yeah, we should there's still a little bit of overhang on a quarter of a quarter basis and just based on the timing of the cups
Cut.
but we've already made...
Speaker Change: Those similar timings influence our deposit cuts as well, so we'll see some benefit there. One of the other things that's changing, more impactful in the first quarter is the CD repricing. It started to a much smaller degree in the fourth quarter, but we're repricing well over 100 million per month.
Speaker Change: as we move into the first half of the year, first quarter of the year, so we'll have a much better impact from that activity.
Speaker Change: Awesome, and then you mentioned that your pipelines were really strong coming into the first quarter, and so what is the pricing for those loans coming on and thoughts on price or yield competition?
Speaker Change: In terms of pricing, it would be similar to what we saw in Q4. The growth is not coming through us being more aggressive in pricing. It's really the additional bankers that we've added and the customer demand.
Thank you, that was all.
Thank you.
Speaker Change: Your next question comes from the line of Matthew Brees of Stephens Incorporated. Please go ahead.
Hey, good afternoon.
Speaker Change: I'm at a couple quick ones for me a lot has been answered, you know
Speaker Change: The optimism on the pipeline, and you said the optimism from your customers?
Speaker Change: Can you just talk a little bit about that? What's what's driving that optimism? Do you think it's the general kind of environment and kind of a more stable outlook or something geography specific?
We'd love to hear more there.
Speaker Change: Yeah, I don't I don't think it's necessarily geographic specific or industry specific. I think if you can you know if you go back
to say this time last year, we noticed as
Speaker Change: There was more confidence in the direction of interest rates, short-term interest rates.
Speaker Change: There were customers waiting to see what was going to happen relative to inflation and interest rates and all those sorts of things. And as things started to become clear as far as the direction, people were able to be more planful in their execution based upon those things. So one less variable in the equation for our customers. And then just getting through the election and having some clarity around the general
David Antolik, Christopher McComish, Christopher McComish
Got it.
to kind of be on an upward trajectory again, as...
David Antolik, Christopher McComish
Speaker Change: I know where the Fed stands today on one or two cuts, barring anything outside of that.
Speaker Change: Right. I mean, there's some possibility of that. I think at the end of the day, it comes down to the competitiveness of the deposit pricing. That is kind of the one variable that has the biggest.
Delta for us from end result.
Speaker Change: We do have, as Dave mentioned, higher loan growth expectations, so in order to keep pace with that, we're going to have to continue to implement the things that we've done on the deposit franchise.
Speaker Change: Some of that could involve rape, depending on how other institutions and just the general environment that it deposits, so we're leaving room for, potentially need to be a little bit more aggressive on the deposit side to make sure that we can fund that growth appropriately.
Speaker Change: So, I think there's a little bit of a change in their potential to do better, or perhaps even a little bit below that, depending on how competitive that environment is in the deposit.
Speaker Change: Maybe you can help me out on NII then. You know, what is your expectation for NII growth in 25 versus 24?
Speaker Change: And it's still, it's relatively modest over the course of the year. We still think that, you know, Q1 is probably relatively flat. We should see a pickup starting in Q2, but, you know, it's probably in the, in the, in the low single-digit percent.
Thank you very much. Thank you. Thank you.
Understood. Okay, that's all I have.
Speaker Change: I'm sorry, I didn't mean to cut you off. Year over year, what were you going to say? Yeah, I was just saying over year over year, because we were coming down over the course of 2024, so we had to kind of make that back up.
on a year-over-year basis.
Understood, thank you.
Thanks.
Speaker Change: Once again, ladies and gentlemen, if you would like to ask a question, please press the star button followed by the number one on your telephone keypad.
Speaker Change: There are no further questions at this time. I would now like to turn the call back over.
Speaker Change: I would now like to turn the call over to Chief Executive Officer Chris McComish for closing remarks. Please go ahead. Okay. Great. Well, thank you all for your time. I know it's been, as I said earlier, a busy earnings season for all of you, and we certainly appreciate your interest in your company and the dialogue, so I hope everybody has a great afternoon. Thank you.
Speaker Change: Ladies and gentlemen, that concludes your conference call. We thank you for participating and ask that you please disconnect your lines.
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