S&T Bancorp Inc (STBA) 2006 Q3 法說會逐字稿

Welcome to the S&T Bancorp, Incorporated, third quarter 2006 earnings conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Robert E. Rout, Executive Vice President and Chief Financial Officer of S&T Bancorp, Incorporated. Thank you. You may begin.

Good afternoon, everyone. We thank you for participating in our conference call. Before beginning the presentation I want to take time to refer you to our statement about forward-looking statements and risk factors presented on the second slide of our webcast presentation.

This statement provides the required cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included with this presentation. Listeners are also reminded that a copy of the third quarter earnings release can be obtained at our Investor Relations website at www.stbancorp.com.

A set of financial highlight slides is included with this webcast that support what we are to discuss. We do not plan to review the slides in detail, but will be more than happy to respond to any questions concerning them or any other aspects of our financial performance. Now I would like to introduce Todd Brice, S&T's President and Chief Operating Officer, who will provide an overview of S&T Bancorp's results during the third quarter.

Thank you, Bob, and good afternoon, everyone. I'm filling in today for our Chairman, Jim Miller, who is on the road traveling. Jim is hooked into the conference call and will be available to answer any questions that you may have at the conclusion of this program.

It's good to be with you -- here with you today to update you on what has been happening with S&T Bank from both the financial performance and a strategic perspective. We are pleased with our performance this quarter, given the interest rate environment and general economic challenges these days for all banks.

Some of the highlights for our third quarter performance include the following. Our net income increased $300,000 to $14.7 million, representing a 2% increase over the same period last year. Earnings per share was up $0.03 to $0.57 per share, representing a 6% increase. Earnings per share was impacted favorably by our success in repurchasing 1 million shares during 2006 at what we believe are fairly attractive prices.

On October 16, our Board of Directors authorized a new stock buyback program for an additional 1 million shares over the next 12 months. Our return on assets and return on equity for the quarter were 1.77%, and 16.95% respectively. Despite the inverted yield curve, sluggishness in loan growth, the effects of delinquent loans and limited opportunities for security leveraging activities, we were still able to grow net interest income on a fully taxable equivalent basis by $500,000, or 2%.

Service revenue growth, which is another very important strategic focus increased $600,000, or 7%. We are very encouraged by the continued expansion of fee income, sources from our retail insurance, and wealth management activities. Noninterest income expenses increased $1.7 million, or approximately 11% comparing the third quarter 2006 with the third quarter of 2005.

About one-half of that increase is related to several nonrecurring benefits received in the third quarter 2005. The remainder of that increase is due to increased staffing and other expenses for implementing new strategic initiatives and de novo branches. Our normally robust commercial lending growth has slowed somewhat during the third quarter of 2006. We continue to book plenty of new business and develop new relationships, but we are experiencing a significant number of commercial loan payoffs, as many of our more seasoned real-estate loans are refinancing in the secondary market.

Some of the long-term fixed rates being offered today in these markets are extremely attractive to our real-estate borrowers, especially in a inverted yield curve environment. They're not rates that we would be comfortable with putting on our balance sheet from an interest rate risk perspective.

From an asset quality perspective, there were no real surprises in the third quarter as compared to the second quarter this year. If you recall, in the second quarter we addressed four problem commercial credits. Two of the four are fully resolved, and we are continuing to make progress toward final resolution of the two that remain on the books.

A part of that process is the $7.2 million partial charge-off of one of those credits in the third quarter. As mentioned in our earnings press release, one of the two remaining problems is a participation, and we have recently been advised that the lead bank in this credit does have a letter of intent from a prospective buyer which could take us out of that credit without any further material write-down.

We believe this quarter supports our view that our core business activities are strong and that our strategic direction is sound. Our relationship banking strategy continues to drive our organic growth, and we expect to continue expanding our market presence through the additional -- through the addition of several new offices in the upcoming year.

As I mentioned in recent conference calls, we long ago discontinued the practice of providing specific earnings and guidance each quarter. With that in mind, Jim, Bob, and I would be more than happy to entertain any specific questions about our past performance and the future outlook for our business in general. So with that I would like to open up the call to questions.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from the line of [Steve Moss] with Janney Montgomery Scott.

Good afternoon, guys.

Hi, Steve.

Just a question on the net interest margin, which increased this quarter. I was wondering how much was related to the reduction in rates on the Green Plan account?

About 3 basis points.

Okay.

That change, Steve, was effective approximately mid August, so we had maybe half a quarter where we got the full effect.

What's the Green Plan balance as of period end?

About $680 million.

Also, with regard to the loan pipeline, how's the outlook for that?

The pipeline has been good, Steve. It's still up where we typically see it at this point in the year, and, matter of fact, our year to date originations are up about 12% over last year, but we just had a significant amount of credits that were in the construction pipeline that we typically have, all kind of ran out the back door in this quarter. A lot of them ran out the back door this quarter. It's really just a function of the interest rate environment. We had several partner projects on the books that now are getting ready to -- when they refinance with something that starts with a 5.

Great. Thank you.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from the line of David Darst with FTN.

Good afternoon.

Hi, David.

Todd, I missed some of your comments regarding your other expenses and why those were lower this quarter. Is the second quarter run rate for total noninterest expense a better run rate going forward?

I would say there's really nothing really unusual in the third quarter 2006, David. A lot of the unusual numbers happened in the -- well, you know what we had in the second quarter was a $700,000 write down in OREO property. That's a big piece of it. It's on a linked quarter basis.

So 16.5 is probably a good run rate there?

Yes, 16.5, 16.3.

Okay. And is your primary use of the trust preferred going to be to repurchase stock?

Yes. That and other general corporate purposes.

Okay.

Actually, it was coordinated debt, David, not preferred.

Okay. And then as far as the repurchase, what's your time frame? Do you see that given balance sheet growth of the near term you'd probably repurchase more stock or do you have to spread it out?

I think we'll let the market dictate that. We'll look for pricing opportunities when they're presented.

And what's your outlook on credit quality going forward in your watch list?

I think it's improving, considering the quarter that we had last year, but we think we have a couple of these problems that we had under control, and we factor that into our model this quarter, and I think the outlook, I would say is favorable.

The other thing, this is Jim Miller, David. The other thing that I always look at and it's usually a pretty good indicator. We don't publish it, I know, but we sometimes talk about it in these calls, and that's the 30 day delinquency number. While I've mentioned before that we do produce a projected delinquency list in the middle of the month every month and then kind of tick those off, and that list continues to grow, but the actual 30-day delinquency numbers are still quite good. I mean, relative to historical numbers, I think we're just a little bit north of 1%. Maybe 1.05, 1.06, something in that range, in the most recent -- and it's September. So that's usually a pretty good indicator, I think.

Okay.

The other thing, David, I just wanted to mention is, is it happened after the quarter, but we had one of our six rated credits, which was a larger relationship, and we had been working with them probably for about six months to kind of exit them out of the bank, and they were able to pay us off. So we have some positive things going on in that regard as well.

Can you share with us the size of that one?

It was about a $10 million credit.

Okay.

We felt we were adequately collateralized and there were just some other issues that we just were a little bit uncomfortable with.

Okay. Thank you.

Thank you. Our next question comes from the line of Matt Schultheis with Ferris Baker Watts.

Good afternoon.

Hi, Matt.

A couple of quick questions and sorry if there's some redundancy here. Obviously your noninterest expenses were down. 700,000 was the break down in OREO. But you also had a fairly meaningful linked quarter decrease in your salary and employee benefits. What happened there?

Well, the main thing was a bad second quarter which means that we're not going to be paying out as much employee and officer bonuses at the end of this year, so we were able to certainly cut back on those -- accrual space substantially. Also we saw a little bit of improvement in our medical training costs and we had some -- mostly medical training costs been doing well, but the big thing was the accruals on year-end bonuses. We're just not going to have them this year.

And also on your fee income, linked quarter decrease is there particularly in wealth management but also in other. Can you provide any color on what's happening there?

Well, on the wealth management was linked quarter, the summers usually aren't that strong for our brokerage, and that would be the largest factor there.

Okay.

Plus, we were doing some revamping in our brokerage type activities. In the other categories, on a linked quarter, I would say probably most of that would be mortgage banking.

Okay.

I can have somebody just look at that real quick to confirm that, but there's a lot of things that go into that line item, including the letter of credit fees.

I understand.

The biggest one would be letters of credit.

Okay.

And that's just a seasonal fluctuation, from our standpoint.

All right. That's it for me. Thank you.

Thank you, Matt.

Thank you. [OPERATOR INSTRUCTIONS] Gentlemen, there appear to be no questions at this time.

Thank you for participating in today's conference call. Jim, Bob, and I appreciate the opportunity to discuss the third quarter financial results of S&T Bancorp, and we look forward to hearing from you at our next conference call.

Thank you, folks.

Thank you for your participation. You may disconnect the lines at this time.