S&T BANCORP INC Q3 FY2024 earnings call

• Focused on S&T's people-forward purpose and core drivers of performance including deposit franchise growth, credit quality, and core profitability.
• Customer deposit franchise grew by over $100 million, annualized over 5%, with DDA balances at 28% of total balances.
• Loan pipeline increased by over 50% quarter-over-quarter, with improvement in commercial and consumer segments.
• Asset quality improved with allowance for credit losses declining, non-performing assets low, and criticized/classified assets reducing for the fourth consecutive quarter.
• Net interest margin at 3.82% (down 3 basis points from Q2), with net interest income improving by $900,000. Noninterest income declined by $1.4 million due to securities repositioning, and noninterest expenses increased by $1.8 million due to salaries/benefits and technology investments.
• TCE ratio increased by 64 basis points, with AOCI improvement contributing 36 basis points.

In Q3 2024, S&T Bancorp had a net income of $33 million, equating to $0.85 per share. Return metrics included a 13.5% ROTCE, 1.35% ROA, and PPNR at 1.69%. Net interest income grew, with the net interest margin at 3.82% (down slightly). Customer deposits saw growth of over $100 million, annualized at over 5%. Loans had a reduction, but the pipeline increased by over 50% quarter-over-quarter. The allowance for credit losses declined by approximately $2 million, non-performing assets were low at $31.9 million, and charge-offs were in line with expectations at $2.1 million.

• Expect 10 to 12 basis points of net interest margin compression from current levels, assuming 50 basis points to 100 basis points of rate cuts in 2024 and 2025.
• Anticipate net interest margin to stabilize in the low-3.70%s early in 2025, even with further rate cuts.
• Target mid-single-digit loan growth for 2025.
• Normal noninterest income run rate remains approximately $13 million to $14 million per quarter, and noninterest expenses run rate expected to be $54 million to $55 million per quarter.

• Competition in commercial real estate, especially for multifamily permanent loans, with other players like insurance companies and larger banks being more aggressive.
• Impact of rate cuts on fee income, particularly in the mortgage business where repositioning is needed.
• Reliance on deposit growth to replace higher-cost wholesale borrowings and maintain net interest margin.

Q: Daniel Tamayo asked about updated thoughts on net charge-offs or provision cadence going forward.

A: Dave Antolik said Q3 results were closer to normalized, and provisioning would need to support loan growth with room for improvement in criticized/classified assets.

Q: Kelly Motta inquired about pipeline strength and risk of refi activity.

A: Dave Antolik mentioned rate protection in loan products and proactive conversations with customers, while Chris McComish noted customer confidence improving with rate clarity.

Q: Manuel Navas asked about NIM assumptions, loan and deposit betas.

A: Mark Kochvar discussed modeling a 200-basis-point rate cut, exception pricing book adjustments, and swap ladder maturity impact.

Q: Matthew Breese asked about payoff activity in commercial real estate and competition.

A: Dave Antolik explained payoffs were normal course of business for existing customers, with differences in structure and recourse compared to competitors.

Q: Daniel Cardenas asked about deposit growth outlook and stock repurchase activities.

A: Chris McComish spoke about deposit growth momentum and Mark Kochvar noted stock repurchases are less favorable given current price levels, with growth prioritized over buybacks.