S&T Bancorp Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 17, 2024

There are 9 speakers on the call.

Operator

Welcome to the S&T Bancorp Third Quarter 2024 Conference Call. After management's remarks, there will be a question and answer session. Now I would like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead.

Speaker 1

Great. Thank you, and good afternoon, everyone, and thank you for participating in today's earnings call. 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. A copy of the Q3 2024 earnings release as well as this earnings supplement slide deck can be obtained by clicking on the materials button in the lower right section of your screen.

Speaker 1

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 stbancorp dotcom. With me today are Chris McComish, S&T's CEO and Dave Antolik, S&T's President. I'd now like to turn the call and program over to Chris.

Speaker 2

Mark, thank you and good afternoon everyone. I'm going to begin my comments on Page 3. I'd like to welcome everybody to the call. I certainly appreciate the analysts being here with us today and we look forward to your questions. I also want to thank our employees, shareholders and others listening in on the call.

Speaker 2

To our leadership team and employees, your commitment and engagement is what drives these financial results. And as I've said every quarter, these results are yours and you should be very proud. Our performance this quarter reflects our continued progress centered on S and T's People Forward purpose and the connection of our purpose to our core drivers of performance. Our drivers of performance are centered on the health and growth of our deposit customer deposit franchise, consistently solid credit quality, strong core profitability, all of which are underpinned by the talent and engagement level of our teams, which lead to the results we're going to speak to today. To sum it up, we have made strong progress on all of our performance drivers and in Q3, the continued growth of our deposit franchise and improving asset quality led the way to deliver very solid results for the quarter.

Speaker 2

Additionally, as you're aware over the past few years due to the results we've been able to deliver, we have been able to build a significant amount of capital. Our performance combined with our strong capital levels gives us real optimism as we head into the end of 2024 and into 2025. We're excited about our prospects for growth while delivering for our customer shareholders in the communities that we serve. Turning to the quarter, our $33,000,000 in net income equated to $0.85 per share, down slightly from Q3. Our return metrics were again excellent with a 13.5 percent ROTCE, 1.35% ROA and while our PPNR remained solid at 1.69%.

Speaker 2

It is important to note our PPNR was impacted by a little bit more than $2,000,000 of securities losses that we proactively decisioned to help mitigate impacts of future declining rate environment. Our net interest income showed growth in Q2, while our net interest margin at 3.82% declined slightly, but remained very strong. Again, this is the direct result of another quarter of very solid customer deposit growth. Mark will provide more details on both our net interest income and our net interest margin in a few minutes. Asset quality continues to improve as we had another quarter of decliningimproving ACL and Dave is going to dive more deeply here in a few minutes.

Speaker 2

He's also going to touch on the pickup we are seeing in our loan pipelines and activity. Moving to Page 4, while loans did not grow during the quarter, it's a reflection of lower pipelines from earlier in the year combined with a higher level of payoffs. On the deposit side, customer deposit growth was more than $100,000,000 in the quarter producing over 5% growth annualized. While some mix shift continued, overall DDA balances remain very strong at 28% of total balances. The customer deposit growth allowed us to reduce wholesale and broker deposits and borrowings by $150,000,000 combined, which will obviously have a positive impact on our future net interest margin.

Speaker 2

I'm going to stop right there and I'm going to turn it over to Dave and he can talk a little bit more about the loan book and credit quality. Then Mark will provide more color on the income statement and capital. Following that, we'll have some questions. I look forward to answering them. Dave, over

Speaker 3

to you.

Speaker 4

Yes, wonderful. Continuing with the discussion of our balance sheet, particularly as it relates to loan balance activities, we did see a reduction in balances of nearly $25,000,000 for the quarter. This was primarily the result of reduced commercial loan balances of $76,000,000 And in the Commercial segment, production in Q3 was just slightly lower than what we saw in Q2. What really impacted the balance reduction were payoffs that increased by nearly 50% in the quarter. These elevated payoff levels were driven by continued demand for multifamily loans in the permanent market, slightly lower C and I utilization rates and payoffs in our C and I portfolio as we manage asset quality.

Speaker 4

It's very important to note that we do not anticipate this high level of commercial payoff activity in the coming quarter. During the quarter, we also experienced growth in all segments of consumer loans with the exception of construction. When looking more closely at Q3 activity, production was slower early in the quarter and much stronger in September. We expect this positive growth momentum to carry forward into Q4. Looking forward and in support of a return to loan growth in Q4, our total pipeline has increased by over 50% quarter over quarter, primarily due to improved commercial both in the CRE and C and I spaces.

Speaker 4

We've also seen an increase in the consumer pipeline as customer activity shifts from purchase to home equity. If I can now direct your attention to Page 5 of the presentation in order to discuss our asset quality results for the quarter. Starting with the allowance for credit losses, which declined by approximately $2,000,000 and moved from 1.38% to 1.36% of total loans. This reduction was a result of several factors, including a decline in our non performing assets of $3,000,000 As you can see, non performing assets remain low at $31,900,000 or 41 basis points of total loans. We also saw further declines in our criticized and classified assets of almost 3% during the quarter.

Speaker 4

This represents the 4th consecutive quarter of reductions in criticized and classified loans and they have reduced by 17% year to date and 31% year over year. Just as a reminder, these criticized and classified loans require higher levels of reserves. In addition, charge offs for the quarter were in line with expectations at $2,100,000 up from the previous quarter's $400,000 net recovery. Finally, we anticipate loan growth in Q4 to be in the low to mid single digit range and we are targeting mid single digit loan growth for 2025. I'll now turn the program over to Mark.

Speaker 1

Great, Dave. Thanks. Next slide, we have the 3rd quarter net interest margin rate at 3.82%, that's down 3 basis points from the 2nd quarter. While net interest income improved by $900,000 compared to last quarter, primarily due to an extra day. The impact of late September Fed rate decrease in the leading SOFR rate changes can be seen in the reduction of quarterly loan yield improvement to about one basis points in the Q3 compared to 5 to 6 basis points per quarter in the first half of the year.

Speaker 1

We're also still experiencing an increasing cost of funds in the Q3. That's driven by deposit mix changes and continued upward repricing activity throughout most of the quarter. We did implement non maturity deposit repricing in response to the Fed cut in late September with CD rates being lowered earlier in the quarter. Strong customer deposit growth allowed for the reduction in more expensive brokered CDs of $126,000,000 Wholesale borrowings are down $25,000,000 but this did not happen until very late in the quarter. So the Q3 should represent the peak in our cost of funds as we expect it to decline going forward as our liabilities reprice.

Speaker 1

So looking ahead, we expect an additional 10 to 12 basis points of net interest margin compression from here. That assumes another 50 basis points of rate cuts or 100 basis points of cuts in total in 2024. After that first 100 basis point cuts of cuts and as we move into 2025, we do expect to find an equilibrium net interest margin rate in the low 370s and that should happen early in the year. We anticipate that level to hold even if freight cuts continue as the market expects throughout 2025. Support for that and interest margin stability, despite those further cuts will come from favorable fixed and ARM loan and securities repricings, our received fixed swap ladder beginning to mature, a very short duration CD portfolio that will reprice and an improving ability to implement non maturity rate cuts as rates move lower.

Speaker 1

Moving on to non interest income. Non interest income declined in the 3rd quarter by $1,400,000 The quarter over quarter variance is related to 2 main things, securities repositioning and our Visa Class B1 shares. In the Q2, we recognized a $3,200,000 fair value adjustment in the Visa stock and also repositioned about $49,000,000 of securities, taking a loss for approximately the same amount, that $3,200,000 So these two actions netted to 0. In the Q3, however, we executed another securities repositioning also for about $48,000,000 $49,000,000 but this time taking a loss of $2,200,000 but without an offset like we had in the second quarter. Our normal non interest income run rate remains approximately $13,000,000 to $14,000,000 per quarter.

Speaker 1

Related non interest expenses on the next slide, we saw an increase of $1,800,000 in the 3rd quarter compared to the second. Two main things drove that. Salaries and benefits are higher due to increased incentive payout expectations due to our performance. And in the data processing line, that's higher due to some timing related to some technology investments. We expect run rates and expenses to be $54,000,000 to $55,000,000 per quarter.

Speaker 1

And lastly, on capital, TCE ratio increased by 64 basis points this quarter. A little over half of that, 36 basis points was due to AOCI improvement. Our TCE and regulated capitals, as Chris mentioned, position us very well for the environment and will enable us to take advantage of both organic and inorganic growth opportunities. Thanks very much. At this time, I'd like to turn the call back over to the operator to provide instructions for asking questions.

Operator

The floor is now open for questions. And your first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Speaker 5

Thank you. Good afternoon, guys. Hey, Dan. Maybe first on credit where the story just continually gets better every quarter seemingly for you guys. So that's certainly good news.

Speaker 5

But just curious now with NPAs down to the level they're at and net charge offs seeming to slow, If you had updated thoughts on what would be kind of a more normalized or regular type of cadence for net charge offs or provision, however, we should think about it going forward?

Speaker 4

Yes. I think what you saw in the quarter would be closer to what would I would call as normalized relative to the charge off levels. What we're hoping to see relative to provisioning is as we return the loan growth that we would need to keep provision in place to support that loan growth. We do think there is still room for us to improve though. I mentioned the criticized and classified asset.

Speaker 4

So I think about adversely classified assets generally, there's still room for improvement there for us. So the ACL level may move as a result of those continued improvements.

Speaker 5

Okay. All right, terrific. And then I guess just a clarification for Mark on the net interest margin guidance. So you talked about a stabilization in the early 2025 in the, let's see here, the 370s, I think, low 370s, even assuming further rate cuts. So I'm just curious, I guess if we didn't get those rate cuts, does that mean that margin would you'd expect it to stabilize higher or I guess then get down to the low 370s and rise from there?

Speaker 5

Or like I'm just curious kind of what the embedded impact from rate cuts would be within that forecast that you're giving?

Speaker 1

Yes. I mean a lot of the finer details is going to depend on the timing and on the competition. But if the Fed moves a lot slower, I would expect it to take potentially longer to get to the that stabilization point. And as you kind of alluded to, it probably would be slightly higher than the 370s that we're looking at now with a much deeper cut.

Speaker 5

Okay. Yes, that makes sense. Okay. All right. Well, I will I'll step back.

Speaker 5

Thanks, guys.

Speaker 4

Thank you, Dan.

Operator

Your next question comes from the line of Kelly Marta with KBW. Please go ahead.

Speaker 6

Hey, good afternoon. Thanks for the question.

Speaker 7

Sure. Thanks, John.

Speaker 6

It sounds like the pipeline is really strong and you were impacted by some elevated payoffs and paydowns this quarter. I'm just wondering what gives you the confidence that that kind of headwind will slow? And how should we be thinking about the potential risk of that going forward with customers potentially looking to refi as rates come down?

Speaker 4

Yes. Well, as rates reduce, of course, customers will be looking at the potential to refinance. We do have rate protection in many of our loan products with prepayment penalties and make whole. So we're able to get ahead of those and understand when those maturities or rate changes occur. And the bankers have proactive conversations relative to those.

Speaker 4

And if we can get ahead of them, make sure that we understand what the impact is and what really what the customer desires and what's best for them, that's our focus. And then in terms of adding additional volume, we've seen some pretty good activity, as I mentioned at the end of Q3 that carries into beginning of Q4 here, relative to new customer calling activities.

Speaker 2

And Kelly, I think that this is Chris, but part of what we're hearing a lot from customers is many of them been waiting on the sidelines either in the C and I space for capital expenditures waiting to find out what's going to happen with the rate environment or some of our CRE customers and having some better clarity around the direction of rates, I think is helping people be more confident to make decisions about future investment, which obviously leads to a bigger pipeline for us. So it may not be while it was a little unusual to see the level of payoffs, some of it as Dave talked about was credit related for us continuing to focus on credit quality and returns. It also is going to help us the pipeline coming in was lower in the year just simply because of what I would define some uncertainty as to what people wanted understood about the future.

Speaker 6

Got it. That's helpful. Maybe a bit of a housekeeping question for the model. Just looking at the average balance sheet, it looks like interest bearing cash was a bit elevated. Just wondering how we should be thinking about managing liquidity levels and the size of the balance sheet.

Speaker 6

Was that because loan growth was a little slower and you're expecting to deploy that as we look to Q4? Just any color on managing the liquidities there and how you guys are looking to optimize that?

Speaker 1

So on an average basis, we were a little bit high. I mentioned these brokered CDs that we paid off and that happened at the very end of the quarter. So we knew that was coming and it's our intent to pay those off. So we let some of the cash levels build that was coming from our customer deposit growth so that we could pay those off and not replace them at the end of the quarter. So on average, we did have a little bit higher cash, but I think it got some more normal level if you looked at just the quarter end point.

Speaker 6

Got it. Okay. That's really helpful. And then as we look ahead, you're just under $10,000,000,000 in assets. Just wondering if you have any updated thoughts on potentially crossing next year and how you guys are thinking about what potential levers you have to offset that initial hit from Durbin?

Speaker 2

Yes. And some of it obviously is timing associated with Durbin. And as we've talked about before, Kelly, it's about $6,000,000 $7,000,000 of initial impact. Normal loan growth as we've talked about kind of in that mid single digit range would put us there sometime in 2025. We have I have really no concerns from the standpoint of will we be able to absorb the kind of the additional regulatory oversight we've been building for that over the course of the past couple of years.

Speaker 2

If you look that's where a lot of some of our expense growth has come in enhancing all of our risk management, audit, compliance, BSA, AML, all of those areas that are critical to growing the franchise, whether we go over $10,000,000,000 or not. So we recognize organically it's $6,000,000 to $7,000,000 That's a big reason why we're so focused on things like our treasury management initiatives and deepening some other forms of fee income to offset some of that as well as just expanding our customer base. So it's not a huge hit for us. We made $33,000,000 this quarter. So we're going to have to absorb it, but it's something that we'll be able to grow into.

Speaker 2

And then again, we believe that as inorganic opportunities will present themselves and we're preparing for that

Speaker 7

as well.

Speaker 6

Got it. That's helpful. I'll step back. Thank you so much.

Speaker 4

Thank you. Thanks, Kelly.

Operator

Your next question comes from the line of Manuel Nieves with D. A. Davidson. Please go ahead.

Speaker 3

Hey, I appreciate the NIM outlook, but could you just dive a

Speaker 2

little bit deeper into some

Speaker 3

of the assumptions there? You talked about some swaps. I'm interested in what you're assuming on loan and deposit betas initially and maybe through the cycle. Just any extra color you could add there as you build that 10 to 12 basis point decline into next year. It's not immediate, but just any extra color there would be really helpful.

Speaker 1

Okay. So I mean, overall, I mean, when I talk about the full 24% 25%, we're looking at an aggregate 200 basis point drop is kind of what we're modeling. That seems to be somewhat of a consensus from the market and the Fed. So going from the $550,000,000 to the $3,500,000,000 So that's kind of our baseline Fed piece. So the declines that we have in the core rates, a lot of those are coming from how we're addressing the exception pricing book that we have.

Speaker 1

And so our goal there is to as we go deeper into the tranches to make deeper and deeper cuts on those lower levels of deposits. So for example, in this initial cut, with 50 basis points, we came close to the 50 basis points in the highest tranches, but there were some tranches lower that we were we didn't touch. So the deeper that we go into the rate stack over time as rates get slower, the more we'll be able to balances we'll be able to impact. And then eventually, we should be able to also change some of the rates that we have on our non exception book. So that's sort of improving over the course of the year.

Speaker 1

The other piece, the swap book that you mentioned, we have about a $500,000,000 received fixed swap ladder that we built as rates began to rise. That starts to mature at the pace of about $50,000,000 per quarter starting in the Q1. So we're underwater on those anywhere from 200 to 300 basis points. So as those mature, if we let those fully go, that will also provide some margin support that will show up really in the loan line versus in the deposit space. Then we also have the CD book that we've intentionally over the course of this past year have priced very short like many others.

Speaker 1

So we do expect we've already repriced that lower starting early September, late August. Most of those are going into the kind of the 6 month area. So over the course of the year, we expect to get a couple of price decline attempts out of those. And then on the securities, securities and the fixed loans, based on where those are repricing, there's still better rates with those being put on at newer rate or at the current rate levels versus what they're maturing at. So I can't tell you the exact betas because the betas are going to change over the course of that year.

Speaker 1

They're going to be a little bit higher or a little bit different going into the cycle and then improve as we are able to implement more of those deposit rate changes later in 2025.

Speaker 3

That's really helpful color. How so how should I think about like end of period deposit costs this quarter? And you're kind of already you're saying this is the peak, so you're already expecting with the exception pricing moves you've made deposit costs to decline next quarter?

Speaker 1

Right. Yes. I mean, with the Fed moving so late in September, we moved within a few days after that, but really didn't see much of an impact. The bulk of the momentum going for the quarter happened in July, August, 1st part of September. We still continue to see the mix changes and continued exception in pricing.

Speaker 1

So we're definitely going to and when we look at spot rates, our spot rates as of September 30 were down already from that month end average. So we know we're going to have a better cost of funds, cost of deposits in the Q4 for sure.

Speaker 3

Is your deposit strength potentially a wildcard here that could even help the NIM more? Can you just kind of talk about your success in deposit flows and where that could go going forward?

Speaker 1

Yes, we think so. I mean, there's a lot of emphasis being placed on that, both on the business side, commercial side and also on the consumer side. We still have about $375,000,000 of wholesale borrowings that are also very short and relatively high priced that we can pick up some advantage if we're able to replace those with a decent mix of customer deposits.

Speaker 2

Manuel, it's Chris. And this is more anecdotal than anything. But the good news is with rates are in the above the fold from a standpoint of what's being talked about in the marketplace as a whole. And so that leads to more customer conversations both with existing customers as well as prospective customers. So we feel very good about obviously the progress that we've made and kind of the infrastructure that we built in order to continue this.

Speaker 2

And I think changing rates lead to customer conversations and that's a good thing.

Speaker 3

That's good color. Can I switch over to fees for a moment? If you have 200 basis points in cuts, what could that do on the fee side for you? Next year.

Speaker 1

This year, I mean, I think we're relooking and repositioning our mortgage business. We've really been portfolying most of that activity, but we're getting ready to make a concerted effort to sell more of that production going into next year. That's probably our biggest interest rate related ability or potential on the fee side is right now, the only mortgage activity we're seeing right now is just the fees from the servicing side. But there's an opportunity as we shift some of that production to sales that we would pick up, possibly a couple of $1,000,000 next year of fee income.

Speaker 3

Do you feel like you have the right capacity? Or is that part of the adjustments you're going to make? You might have to make some hires. How do you compare your capacity versus where you were 3 years ago, for example?

Speaker 1

I think from a capacity standpoint, it's similar in terms of origination. We haven't been selling a lot. So some of the back office functions need to be reset to make that process smoother.

Speaker 2

It's not a dramatic lift. I mean the fact yes, the only thing that could and if you're talking specifically about mortgages is if mortgage rates decline rapidly and there becomes a big refi boom that could create capacity issues not only for us, but everybody in the industry because we're because we ran a much lower run rate than we were 3 years ago when the refi activity was really high.

Speaker 3

And then I appreciate that color

Speaker 1

We could be getting going

Speaker 3

in that direction. Going back to the comment about inorganic growth, what are some places that you're interested in growing that and where are opportunities that you would be excited to geographically?

Speaker 2

Yes. So we've talked about this before, but I'll continue to reiterate it. We look at our core geographic franchise today is kind of the southern half of Pennsylvania, east to west and into Northeast Ohio and Central Ohio. Those are all really, really attractive markets for us. We also have lots of interest throughout the state of Ohio into that area of the Midwest and then further south into Maryland, Northern Virginia, D.

Speaker 2

C, those areas. Geographically, if you think about it, from Pittsburgh to Washington DC is not that far, it's not as far as it is to get all the way to Philadelphia, for example. So we think about markets, the makeup of markets relative to our culture and what we're trying to build. And there's interesting opportunities both east and west as well as here in Western Pennsylvania. So we continue to build relationships and the best way that we can build relationships from an inorganic standpoint is to deliver performance and have the currency necessary to have these conversations and that's where we're focused.

Speaker 3

Thank you very much. I'll step back into the queue.

Operator

Your next question comes from the line of Matthew Breese with Stephens. Please go ahead.

Speaker 3

Hey, good afternoon.

Speaker 5

Hey, Matt.

Speaker 8

Just a couple of questions. Most of them have been answered. First, just any are you contemplating any additional securities restructurings? If so, maybe sense for how much? And is that included in any way, shape or form into your 2025 NIM outlook?

Speaker 1

I mean, we're still looking at it. We're not anticipating anything significant. So we've done 2, both of them just under $50,000,000 I mean, it would certainly be less than that. The opportunities that are with the shape of the curve changing a little bit and just what we've sold already is kind of being the best candidate. Again, kind of the cost benefit of the activity is less than it was.

Speaker 1

So if we were to do anything more, it would be it wouldn't be any larger than the ones we've already done. And there's a fair chance we wouldn't do anymore.

Speaker 8

And remind us again what the yield pickup was on both of those restructurings?

Speaker 1

So the first one was about 370 basis points, the second one was maybe 270 basis points.

Speaker 3

Okay.

Speaker 8

And the other topic I just wanted to touch on and it's been brought up a handful of times on the call is just payoff activity, commercial real estate, multifamily related. How much of that was by design, meaning these were non strategic or non full relationship type customers? And then how much of it was rate driven? One thing we've been hearing a lot of this quarter is that there's been some stiffer competition on the commercial real estate front from insurance companies, some of the agencies, some of the bigger banks even. And so I wanted to get a sense for how much of that was going on and how different the types of rate offerings were between yourselves and some of the other players?

Speaker 4

Yes, sure. To your point, there is still a significant amount of competition relative to these permanent mortgages for multifamily. We had 2 relatively large $20,000,000 range deals that paid off during Q3. They're both with existing customers. They're not transactional deals.

Speaker 4

It's just normal course of business where we do a construction loan. That construction loan converts to a permanent loan on a bridge basis typically to get to permanent financing. So in both of these cases, it is the normal course that they would take these to a permanent facility. And normally, the reason that's done is to take advantage of a longer term fixed rate, typically a 10 year rate and remove recourse. The second being the most important, right?

Speaker 4

So these large builders and developers want to preserve equity in their deal, have it owned in a single asset entity and not have recourse back to the sponsorship. So and those are things that would fall outside of our credit risk appetite. So we view that as again sort of normal course of business for these types of transactions.

Speaker 8

Got it. Was there any meaningful delta between yourselves and other sources, other competition or other competitors?

Speaker 4

From a structure perspective, LTVs are generally similar, rates may be slightly more aggressive depending on if it's an insurance company or a CMBS. Insurance companies looking for assets tend to be a little more aggressive. But the big difference in structure is the recourse, right? We require recourse even if it's limited after some point of stabilization, these facilities in the permanent market tend to be completely non recourse.

Speaker 2

And if you're talking about bank competitive pressures from a rate standpoint, I would say that any of that is more anecdotal one off driven specific transaction than it is anything that we're seeing in the marketplace. We have seen in some areas of our geography, which is it makes you scratch your head. We've seen some deals that were maybe as you described, not necessarily long term relationship deals that were actually taken out by large credit unions. That's an unusual place for a C and I or a commercial real estate customer of ours, but there are some pockets of the geography, particularly the eastern part of the state of Pennsylvania where we're seeing some of that activity.

Speaker 4

Yes. I think Matt, bottom line for us relative to asset quality, I think it speaks well for that segment. In our geographies, those multifamily projects continue to perform very well. They can take advantage of the permanent market and we can continue to play a role as the depository institution for those borrowers and look at their ongoing construction needs.

Speaker 8

Yes, absolutely. Good for asset quality, but headwind to growth.

Speaker 4

Yes, you got it.

Speaker 2

That's why we have 4 drivers.

Speaker 8

I appreciate all that very much. I'll step back. Thank you.

Speaker 4

Yes. Thanks, Matt.

Operator

Your next question comes from the line of Daniel Cardenas with Janney Montgomery Scott. Please go ahead.

Speaker 7

Hey, good afternoon, guys. Hey, Daniel. Hey, Dan. Just a couple of questions here for you all. In terms of deposit, your deposit growth outlook for 2025 on a percentage basis, do you think that can mirror what you're looking for on the lending side or could you be a little bit better, just kind of given where the loan to deposit ratio is right now?

Speaker 2

Yes. Hi, Dan, you know what, we feel good about the momentum that we have and the focus on our deposit franchise and deposit business. We've invested in it in people and product and improving processes. We're going to continue that focus. As I said, I think the rate environment leads to opportunities both with existing customers as well as new customers.

Speaker 2

We talk about the kind of declining rate environment that Mark is speaking to. That's going to put as I would define it as a lot of money in motion. And so that's our targets are to continue to look for growth in the range that we're seeing in.

Speaker 7

Okay. And then given what capital levels are right now, what are your thoughts in terms of stock repurchase activities going forward?

Speaker 4

Yes. I mean, that's going

Speaker 1

to be our least favorite of them, especially given the run up in price. It just makes it a little more difficult for that to make economic sense. So our first priorities are going to be on the growth side and to use the capital that way.

Speaker 7

So kind of growth dividends and then maybe buybacks if it makes sense mathematically?

Speaker 1

Right.

Speaker 7

Okay. And then just a housekeeping question. What was your AOCI number for the quarter?

Speaker 1

End of the quarter was 77,000,000

Speaker 7

dollars Okay, great. All my other questions have been asked and answered. Thanks guys.

Speaker 2

Okay, Dan. Thanks. Thank you.

Operator

There are no further questions at this time. I would like to turn the call over to Chief Executive Officer, Chris McComish, for closing

Speaker 2

remarks. Okay. Well, thanks everybody for the great questions and the dialogue. We really appreciate your engagement and your interest in our company. We look forward to being with you over the coming weeks months and let's have a great rest of the earnings season.

Speaker 2

Thank you. Bye bye.

Operator

This does conclude today's call. You may now disconnect.

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Key Takeaways

  • Net Income and Profitability: S&T delivered $33 million in net income for Q3 2024 (EPS $0.85) with a 13.5% ROTCE, 1.35% ROA, and a 3.82% net interest margin despite $2 million in proactive securities losses.
  • Deposit Franchise Growth: Customer deposits grew by over $100 million (5% annualized) in the quarter, boosting DDA to 28% of total deposits and enabling a $150 million reduction in wholesale and brokered borrowings.
  • Loan Pipeline and Growth Outlook: While Q3 loan balances declined by $25 million due to elevated commercial payoffs, the total loan pipeline rose by over 50% QoQ, supporting an expected low- to mid-single-digit loan growth in Q4 and mid-single-digit growth in 2025.
  • Improving Asset Quality: The allowance for credit losses fell to 1.36% of loans, nonperforming assets dropped to $31.9 million (0.41% of loans), and criticized/classified assets declined 31% YoY, with net charge-offs near normalized levels at $2.1 million.
  • NIM Forecast and Rate Sensitivity: The bank anticipates 10–12 bps of net interest margin compression on an assumed 100 bps of rate cuts through 2024, stabilizing NIM in the low-3.70% range by early 2025 as assets and liabilities reprice.
AI Generated. May Contain Errors.
Earnings Conference Call
S&T Bancorp Q3 2024
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