S&T Bancorp - Earnings Call - Q4 2024

Executive Summary

• Q4 EPS was $0.86 and net income $33.1M; sequentially up from $0.85/$32.6M in Q3, but down from $0.96/$37.0M in Q4’23 as lower rates and a $2.6M securities loss weighed on revenue lines. NIM (FTE) slipped 5 bps q/q to 3.77% but remains robust; ROA/ROE held at 1.37%/9.57%.
• Balance sheet trends were positive: loans +$53.9M (2.8% annualized), deposits +$128.3M (customer +$78.3M), and borrowings −$88.1M q/q, aided by deposit inflows; DDA balances reached ~29% of total per management.
• Asset quality improved: provision was −$2.5M, net recoveries of ~$0.1M, ACL/loans fell 5 bps q/q to 1.31%, and NPAs declined to 0.36% of loans+OREO.
• 2025 outlook: management expects NIM to hold in the mid‑3.70% area even if cuts occur; NII to be flat in Q1 then grow from Q2; expense run‑rate ~$55–56M in 1H25 and ~$57M in 2H25; loan growth mid‑single‑digit 1H25 and high mid‑single‑digit for FY25.
• Dividend raised to $0.34 (3.56% annualized yield at $38.16 close) payable Feb 27, 2025; capital levels remain strong (CET1 14.58%, TCE/TA 10.82%), supporting organic growth and potential M&A optionality.

What Went Well and What Went Wrong

• What Went Well

  • Deposit franchise momentum: sixth consecutive quarter of meaningful customer deposit growth; total deposits +$128.3M q/q and customer deposits +$78.3M, enabling $88.1M reduction in borrowings.
  • Credit beat: negative provision (−$2.5M) and net recoveries (~$0.1M) as NPAs fell to 0.36% and ACL/loans decreased to 1.31%.
  • Constructive 2025 setup: “We believe…within a couple of basis points at the bottom for the net interest margin…mid‑3.70% area will hold even if rate cuts materialize,” with NII growth resuming from Q2’25 and pipelines doubling y/y, strongest commercial production in 3 years.

• What Went Wrong

  • Spread pressure: NIM (FTE) declined 5 bps q/q to 3.77% and NII fell by $1.2M q/q as earning asset yields fell 15 bps with lower fed funds; deposit and borrowing costs improved but only partially offset.
  • Noninterest income headwind: $2.6M realized securities loss related to portfolio repositioning; total noninterest income declined to $11.1M (down $0.8M q/q; down $7.0M y/y).
  • Efficiency drifted higher: efficiency ratio (FTE) rose to 56.93% vs 55.88% in Q3; full‑year 2024 efficiency at 55.99% vs 51.35% in 2023; management guided expenses higher in 2H25 as investments continue.

Transcript

Operator (participant)

Welcome to the S&T Bank Corp Q4 and Full Year 2024 Conference Call. After the 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.

Mark Kochvar (CFO)

Great. Thank you very much. Good afternoon, everyone. 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 Q4 and Full Year 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. 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.com. With me today are Chris McComish, S&T's CEO, and Dave Antolik, S&T's President.

Now, I'd like to turn the call over to Chris.

Chris McComish (CEO)

Thank you, Mark, and welcome and good afternoon, everybody. I want to thank the analysts for being on the call. We really appreciate you being here with us, and we look forward to your questions. 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. 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. 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.

Additionally, we made great progress on our asset quality initiatives, and our efforts to grow and enhance our customer deposit franchise were significant. 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. Our performance, capital levels, balance sheet strength, and business activity levels give us great optimism as we head into 2025. Now, turning to the quarter, the Q4, our $33 million in net income equated to about $0.86 per share, up slightly from Q3. Again, our return metrics were excellent, with a 13.25% ROTCE, 1.37% ROA, and our PPNR remained solid at 1.72%. Our net interest income showed slight contraction versus Q3, while our net interest margin at 3.77% also declined slightly but remained very strong.

Mark will be able to provide more details on both our net interest income and our net interest margin in a few minutes. Asset quality continued to improve as we had another quarter of declining or improving ACL, and Dave is 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. Moving to page four, loan growth was just under 3% for the quarter because of very strong new loan production in the quarter. Payoffs were also higher in the quarter. However, some of this provided a contribution to the asset quality improvements you see on the page. 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.

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. 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 look very good. 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.

Dave Antolik (President)

Great. Thank you, Chris, and good afternoon, everyone. Continuing on slide five with our discussion of the balance sheet for Q4, we experienced solid loan growth in both commercial and consumer loans, 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. We've seen expanded pipelines in both our business banking and commercial segments, leading to a doubling of those pipelines year over year. 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.

Pressuring growth, as Chris mentioned, were higher payoffs in Q4 than experienced 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. Turning to consumer loans, much of the quarter's and the full-year growth was driven by our residential mortgage activities. 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. Turning to asset quality on slide six, we continued to see improvement in Q4. Our allowance for credit losses declined by almost $3 million and declined from 1.36%-1.31% of total loans.

Influencing these results were several factors, including a decline in non-performing assets of $4 million. NPAs remained relatively low at 36 basis points of total loans. We also saw continued declines in our criticized and classified loans of 16% during the quarter. This represents the fifth consecutive quarter of CNC declines, and in total, CNC assets declined by 31% in 2024. In addition, we saw a net recovery of $100,000 for the quarter compared to a $2.1 million charge-off, net charge-off in Q3. Finally, with the previously mentioned improving, improvement in pipelines, hiring, customer demand, and customer confidence, we anticipate mid-single-digit growth in the first half of 2025 and high mid-single-digit growth for the full year of 2025. I'll now turn the call over to Mark.

Mark Kochvar (CFO)

Great. Thanks, Dave. Here on slide seven, Q4 net interest margin rate at 3.77%, down about five basis points from the Q3, with a decrease in net interest income of $1.2 million compared to last quarter. Both of those are in line with our expectations. Earning asset yields declined by 15 basis points in response to a 60 basis points decline in the average Fed funds rate in the fourth quarter compared to the third. This was mostly offset by a decline in interest-bearing liability costs of 14 basis points in the Q4, 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.

The net interest margin and net interest income were also supported by better security yields from normal replacements combined with the bond restructurings we have done over the past three quarters, now totaling about $143 million and cumulatively improving net interest income by approximately $1 million per quarter as we move into 2025. 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. We anticipate that the current net interest margin level in the mid-370 area will hold even if rate cuts materialize later in 2025. Support for the net interest margin stability comes from favorable fixed and ARM loan and securities repricing with a steeper curve.

Our $500 million receive-fixed swap ladder beginning to mature in the Q1, 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 managed deposit exceptions should short rates move lower. A more stable net interest margin rate combined with our better asset growth outlook should translate into net interest income growth as we move into the Q2 of 2025. On the next slide, non-interest income, which declined by about $8.8 million in the Q4. We as I mentioned, we executed a third securities repositioning. This one was about $45 million. We took a loss of $2.6 million with an earnback of just about two years. Our core non-interest income run rate remains approximately $13 million-$14 million per quarter. Our next, slide nine, non-interest expense.

Expenses were overall unchanged in the Q4 compared to the 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 taxes increase relates to our Pennsylvania state tax, which is based on the level of capital. 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. We expect a quarterly run rate of approximately $55 million-$56 million in the first half of the year and closer to $57 million per quarter in the back half, 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. 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.

Operator (participant)

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'll call for questions. Your first question comes from the line of Daniel Tamayo of Raymond James. Please go ahead.

Daniel Tamayo (Vice President and Senior Research Analyst)

Thank you. Good afternoon, guys.

Yeah, maybe one for you, Chris, on the loan growth outlook. Looks pretty bullish, especially as we get into the back half of the year here. So I guess if you're starting the year 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. Is that mean you're going to be kind of towards that high single digit 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?

Dave Antolik (President)

Yeah. At the end of the day, I'll take that question. But 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 to follow that trajectory. And we come into the year with double the size pipeline that we had going into last year. And last year, our Q1 was not a good one in terms of loan growth. So 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 economy. So all those things combined, 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.

Chris McComish (CEO)

Yeah, Dan, it's Chris. I'll just add to this. This is a reflection of the kind of the past three years and the effort that we've been under to build this foundation for growth. You know we're spending much more time proactively, many more people in the market, and you know combine that with the reputation that we have as a company and the following and loyalty that we have from our employee base. We feel very good about where we're sitting today you know given the environment that we're in.

Daniel Tamayo (Vice President and Senior Research Analyst)

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. Continued to see those criticized and classified in particular numbers come down. Curious if you think we're kind of close to a bottom there, and you know as we think about the new credit profile of the bank, where you think net charge-offs would be on a more normalized basis going forward?

Dave Antolik (President)

Yeah. Yeah, yeah. It's Dave again, Dan. I think you know first, charges are difficult to forecast, 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. All that being said, we don't see any particular loan or industry or segment that gives us concern that would lead to outsized charges in 2025, and the fact of the matter is our CNC assets are down from nearly 6% two years ago to 2.75% of total loans, so we feel good about where we are. Is there room for improvement in the CNC area? Yeah, we're nearing the bottom, right?

I think that if you look at you know our goals relative to CNCs, relative to our peer group, we feel like there's room to go, but not a lot. I mean that, what we achieved in 2024, certainly we're not going to be able to repeat in 2025.

Daniel Tamayo (Vice President and Senior Research Analyst)

Understood. Yeah. And from a reserves perspective, you know around 130 of loans seems like a pretty fair level for you guys. Is it fair to say that that's likely to be stable going forward?

Mark Kochvar (CFO)

Yeah, you could see there's still some additional improvement that could come on within the model on a qualitative basis, depending on the economy and how some of the metrics work out. So you could see some some further decrease in there, but probably not to the extent that we saw, as Dave mentioned, in 2024. But you could still see that you know lower on a percent basis. Although the dollar could, if we're successful in the loan growth that Dave talked about, you could see the dollars still be higher.

Daniel Tamayo (Vice President and Senior Research Analyst)

Understood. All right, great. Well, thanks for the call, guys. Appreciate it.

Chris McComish (CEO)

Thank you, Dan.

Mark Kochvar (CFO)

Thanks, Dan.

Operator (participant)

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

Kelly Motta (Managing Director)

Hi, good morning or good afternoon. Thanks for the question.

Chris McComish (CEO)

It's been a long earning

Mark Kochvar (CFO)

Yeah.

Chris McComish (CEO)

It's been a long earnings season for you, Kelly. We understand.

Kelly Motta (Managing Director)

No, no.

Yeah. 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. 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've brought on and your outlook ahead, just 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 are kind of holding firm here. Wondering just kind of how you're looking at that.

Mark Kochvar (CFO)

Yeah, we're planning to recruit through the year, Kelly, to continue to grow those teams. May 2025 may look like 2024 in terms of the 15% addition. And if 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.

Chris McComish (CEO)

Yeah. And Kelly, it's Chris. I'll add to that. Again, kind of go back over the past three years, what we've been doing is building this foundation for growth. So we may you know in total have, call it 75-ish, 100-ish more employees in the company today than we had three years ago. The vast majority of those employees are kind of in our control functions you know: credit, risk management, audit, finance, BSA, AML, all of that foundation that we need as we cross over $10 billion as we continue to grow. And we really had not added a lot to our customer-facing employees.

We made a very firm decision back earlier last year that we feel good about where we stand, the foundation of the company. And so our attention has been turned much more towards revenue-facing employees and teams and will continue to look to be opportunistic.

Kelly Motta (Managing Director)

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 you know the piece of conversations and kind of how how you're positioning here and potential opportunities?

Chris McComish (CEO)

Sure. Yeah, I just got back from one of the big industry conferences this week and lots of discussions and talk. And again, you know we have record levels of capital in the company today. And we know we need to be just deploying that capital in a smart way. It'll obviously go in the form of organic asset growth. But you know we believe we're very well positioned from both what we have from 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 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.

Kelly Motta (Managing Director)

Great. I will step back. Thank you so much.

Chris McComish (CEO)

Thank you.

Mark Kochvar (CFO)

Thanks, Kelly.

Operator (participant)

Next question comes from the line of Manuel Navas of D.A. Davidson. Please go ahead.

Sharon Gee (Equity Research Analyst)

Hello, good afternoon. This is Sharon Gee on from Manuel.

Chris McComish (CEO)

Hi, Sharon.

Mark Kochvar (CFO)

Hi, Sharon.

Sharon Gee (Equity Research Analyst)

Thank you for taking my questions. So for my first question, I wanted to talk a little bit about, so you mentioned a stable NIM around 370. And so how does that change if there are more like more rate cuts in the year?

Dave Antolik (President)

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 the into lower rates, into the deposit stack, there's more opportunities for us to match whatever happens on the short end with the Fed with additional repricings of our deposit books. So we think we're at a good place. We've done a lot to neutralize the balance sheet a little bit more from rate changes. So we're at 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.

Sharon Gee (Equity Research Analyst)

Thank you. And how is the December cut versus prior cuts perceived for you? And then is there still a little bit of deposit cost cuts coming in the Q1 from the December Fed cut?

Dave Antolik (President)

Yeah. We should say there's still a little bit of overhang on a quarter-over-quarter basis just based on the timing of the cuts. But we've already made those similar timings influence our deposit cuts as well. So we'll see some benefit there. One of the other things that's changing is more impactful in the Q1 is the CD repricing. It started to a much smaller degree in the Q4, but we're repricing well over $100 million per month as we move into the first half of the year, Q1 of the year. So we'll have a much better impact from that activity.

Sharon Gee (Equity Research Analyst)

Awesome. And then you mentioned that your pipeline was really strong coming into the first quarter. And so what is the pricing for those loans coming on it and thoughts on price or yield competition?

Dave Antolik (President)

In terms of the price, 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.

Sharon Gee (Equity Research Analyst)

Okay. Thank you. That was all.

Dave Antolik (President)

Thank you.

Operator (participant)

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

Matthew Breese (Managing Director and Research Analyst)

Hey, good afternoon. I have a couple of quick ones for me. A lot has been answered. You know the optimism on the pipeline and you said the optimism from your customers. Can you just talk a little bit about that? 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.

Chris McComish (CEO)

Yeah. 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 you know there was more confidence in the direction of interest rates, short-term interest rates. You know 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 clearer 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 you know the general environment also provided, I think, some tailwinds simply because people had clarity on where things stood. So that that, it wasn't specific to any industry or any geography. It was just kind of the overall general tone within our customer base.

Matthew Breese (Managing Director and Research Analyst)

Got it. And then understanding kind of the near-term outlook for the NIM. But as we get towards the end of 2025, do you expect the margin to kind of be on an upward trajectory again as your fixed assets reprice and there's still some room to reprice deposit costs lower? I'm just curious, as we get towards the end of this year, what do you expect kind of the exit NIM to look like entering 2026, you know barring you know anything that I know where the Fed stands today on one or two cuts, barring anything outside of that?

Mark Kochvar (CFO)

Right. There's some possibility of that. I think at the end of the day, it comes down to the competitiveness of the deposit pricing as the kind of one variable that has the biggest delta for us from an end result. And we do have, as Dave mentioned, you know higher loan growth expectations.

Yeah so in order to keep pace with that, we're gonna have to continue to implement the things that we've done on the deposit franchise. Some of that could involve rate and depending on how other institutions and just the general environment that deposit. So we're leaving room for potentially needing to be a little bit more aggressive on the deposit side to make sure that we can we can fund that growth appropriately. 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 on deposits.

Matthew Breese (Managing Director and Research Analyst)

Maybe you can help me out on NII then. What is your expectation for NII growth in 2025 versus 2024?

Mark Kochvar (CFO)

I think 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 low single-digit % change.

Matthew Breese (Managing Director and Research Analyst)

Understood. Okay. That's all I have. Okay. I'm sorry. I didn't mean to cut you off. Year over year, what were you going to say?

Mark Kochvar (CFO)

Yeah. I was just saying on over year over year because we were you know coming down over the course of 2024. So we have kind of make that back up on a year-over-year basis.

Matthew Breese (Managing Director and Research Analyst)

Understood. Thank you.

Mark Kochvar (CFO)

Thanks.

Operator (participant)

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. There are no further questions at this time. I would now like to turn the call back over. My apologies. I would now like to turn the call over to Chief Executive Officer Chris McComish for closing remarks. Please go ahead.

Chris McComish (CEO)

Okay. Great. 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 in our company and the dialogue. So hope everybody has a great afternoon. Thank you.

Operator (participant)

Ladies and gentlemen, that concludes your conference call. We thank you for participating and, at this time, disconnect your lines.