STBA
#Thank you.
Good afternoon and thank you for participating in today's conference call.
Before beginning the presentation I want to take time to refer you to our statement about forward-looking statements and risk factor.
It is on the screen in front of you if you are using the webcast.
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 first-quarter earnings release can be obtained by clicking on the Press Release link on your screen or by visiting our Investor Relations website at www.STBancorp.com.
I'd now like to introduce <UNK> <UNK>, S&T's President and CEO, who will provide an overview of S&T's results.
Thank you, <UNK>.
And good afternoon, everyone.
As we announced in this morning's press release, we reported net income of $12.8 million, or $0.41 per share, compared to $14 million, or $0.47 per share in the first quarter of 2014, and $14.5 million, or $0.49 per share in the fourth quarter of 2014.
Really, the big story this quarter is the consummation of our margin with Integrity Bancshares on March 4.
This did, however, have an impact on our financial results this quarter.
One-time merger related charges were approximately $2.3 million, or $0.05 per share.
While it's been only a little over a month, we are very excited about our prospects in the south-central Pennsylvania marketplace.
The S&T integrity brand has been well received by clients and early results are very promising.
The next milestone will be combining the banking entities and IT systems, which are going to occur on May 11.
I know our teams have been spending a considerable amount of time in preparation for the conversion and we do anticipate a smooth transition.
From a sales perspective, I really like our position across the organization in all of our lines of business, including commercial banking, small business, retail mortgage, and consumer banking.
We have a seasoned team of bankers who excel in developing deep relationship with clients and it's really what we think adds long-term value and benefit to our organization.
We're also happy with our results on the deposit side of our Business this quarter.
With the anticipated loan volumes that we expect to achieve in 2015, we made a strategic effort this year to focus on deposit gathering throughout the organization.
And in Q1 deposits increased approximately $198 million, not including the merger.
The goal for the year is to have our deposit growth equal to our loan growth and we're off to a nice start.
Once we've completed the Integrity conversion, our focus is going to be maximizing revenue and profitability in all of our markets including southwestern Pennsylvania, central Ohio, south-central Pennsylvania, and our new office in western New York.
We think we have a lot of potential to grow the organization organically throughout our footprint with the investments that we've made over the past two years.
Therefore, we can afford to be opportunistic in our approach to M&A and want to make sure it's the right fit for our organization.
On the credit front, net charges for the quarter were $1 million, or 10 basis points annualized.
Non-performing assets did increase by $6.8 million, which was comprised of approximately $5 million of non-performing loans at S&T Bank, as well as about $1.3 million of OREO properties that were carried over from the merger.
Approximately half of the $5 million increase in NPLs is related to one borrower.
And the good news is the properties are under contract to sell and we anticipate closing in late Q2 or early Q3.
In spite of these increases, our ratio of non-performing assets to loans plus OREO is still very manageable at 0.41%.
So, all-in-all it's been an eventful quarter but we like how we're positioned as well as our prospects as we move forward.
I also thank you for your continued support of S&T Bank.
And at this time I'll turn the program over to our Chief Lending Officer, <UNK> <UNK>.
Thanks, Dave.
This quarter's results include the impact of the Integrity merger.
One-time expenses were $2.3 million, or about $0.05 per share, primarily data processing and investment banking fees.
We do expect some additional one-time items in the second quarter related to the bank merger in May but it should be less than $1 million.
The Holding Company merger closed on March 4 so average balances include 27 days, or 30% of the quarter with Integrity numbers.
The merger accounted for the majority of improvement in net interest income, but had no impact on the net interest margin rate.
We received a special dividend from the Federal Home Loan Bank of Pittsburgh loan portfolio, mostly prepayment fees.
There is no impact yet in margin related to the credit or interest rate marks.
We are still evaluating how that will impact us, and it is, of course, dependent on the eventual asset quality of the acquired loans.
The credit mark on the loan portfolio is approximately $11.8 million.
With the addition $789 million in acquired loans with no reserve, our reported reserve to loan ratio decreased to 1.03%.
Eliminating these loans and also acquired loans from previous mergers with remaining credit marks brings this ratio to 1.27%, unchanged from the fourth quarter.
Our own loan growth combined with acquired Integrity loans was primary floating for the quarter.
The gap between new and paid loans has been about 35 basis points for the past two quarters, the lowest level in the past four years.
This helped keep the loan rate stable, not including the positive impact of the prepaid fees.
Of the $198 million growth in deposits this quarter, $86 million was in retail and business, $47 million came from our wealth management division, which we do expect to be invested over the coming quarters, and the remaining $65 million was in broker funds that mostly went to decrease our borrowings.
As we detailed in the earnings release, fee income improved due to the merger by including one month of Integrity results along with seasonality in our insurance business.
Expenses had quarter-over-quarter increases from one-time items of $1.6 million, $2.3 million was the total for the quarter, and another $1.4 million including one month of Integrity results.
Salaries and benefits increased beyond the merger numbers due to seasonal factors related to vacation accruals and payroll taxes.
We expect a new quarterly expense run rate of approximately $33 million.
The tax rate for the quarter of 26.7% reflects our expectations for the full year.
This quarter we had the implementation of the new Basel III capital rules which increased risk-weighted assets, and when combined with the impact of the merger accounted for the decrease in our risk-weighted capital ratios.
The leverage ratio shows an increase, since it is calculated using average assets which are lower than what they will be going forward due to the timing of the merger during the quarter.
This ratio would have been approximately 9% with a full quarter average of acquired assets.
Thank you very much.
At this time I'd like to turn it back over to Rob to provide instructions for asking questions.
They've been originated for a few years.
But one project they had a little bit of cash flow difficulty.
But actually there's two credits combined with the one relationship.
And like I said they're under contract, they are going to get sold.
And even with the increase in NPAs, we had done all of our impairment analysis and we've take the appropriate mark this quarter.
So, we're comfortable with where we are from a provisioning and reserve standpoint.
Like I said, it was real estate and the other relation ---+ <UNK> is here, too.
Yes, they were about $2.2 million.
We were at the 3.48%, which included the 3 basis points of the Home Loan Bank.
And I think we're going to be in the mid 3.40%s to low 3.40%s.
The exception will be if there's some timing-related issues with the credit mark accounting related to Integrity over the next several quarters.
But the core rate I'd still expect to be in the 3.40%s.
The wild card on pay-offs, as Dave said, they were up a little bit this quarter over where we experienced in the past.
But, like I said, we like how the pipelines are growing.
Not only the commercial side but also our small business is up significantly, retail mortgage is up, and we're seeing some nice activity on the consumer side.
So, as I said earlier, we focus a lot of attention on the sales side of the house and I think it's really starting to pay off for us.
Yes, it's about $200,000.
Maybe around 2 basis points of that.
Our core rate without those two items was probably flat to fourth quarter at about 3.43%.
Right.
Actually in the fourth quarter we didn't have any.
I think it's more the latter.
We did have some specials in the fourth quarter but those weren't in place in the first quarter.
There was some seasonality, I think, in the first quarter in the consumer side with taxes, so we did probably see some benefit from that.
But I think it's more just the concerted effort and attention that we're paying to deposit growth internally.
The first quarter they were a little bit light.
We did note that some, especially in January and February the activity was light.
March, however, we did see a bit of a pick up.
And we actually saw the first time in a long time the numbers in March were actually ahead of the year-ago period, but it wasn't enough to offset January and February which were lower than prior periods.
<UNK>, really, it was just seasonality.
If you break the quarter down, January was a very difficult month.
Originations were significantly less than what we had forecast.
February was fairly robust and March was extremely strong.
So, we like the trajectory, we like the pipeline, so I think we'll be back in line with our forecast.
Just one further point that we would like to make, too.
I think, <UNK>, you touched base on it, your question.
Obviously there's a lot of attention right now on the oil and gas business in the region.
And as Dave said, we're having continual conversations with clients and trying to stay on top of some of the events.
There's been some slowdown, there's been some migration of jobs out of the region.
But I think for the most part, as we sit today, we haven't seen any deterioration in our portfolio as a result of the oil and gas exposure that we have.
Right.
And there's a certain amount of infrastructure that still needs to be maintained once the wells are completed, too, whether it be hauling the water or some of the other services they provide.
So, now that the wells are in place, again, some of our clients support the completed well programs and it's been good for their business.
But it is an area we're looking at and we'll stay on top of it.
Again, we appreciate everyone's participation in today's call, and are looking forward to getting together next quarter to discuss our results.
Thanks again.
