S&T Bancorp, Inc.

Good afternoon, ladies and gentlemen, and welcome to the S&P Bancorp Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode, and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mark Kochvar. Sir, the floor is yours.

All right. Thank you very much. Good afternoon, everyone, 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 factors, which is on the screen in front of you. This statement provides the cautionary language required by the Securities Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the fourth quarter and full year 2021 earnings release can be obtained by clicking on the press release link on your screen or by visiting our investor relations website at www.stbankcorp.com. We will be reviewing an earnings supplement slide deck as part of this presentation. You can obtain a copy of those slides by clicking on the link on your screen or on our website under events and presentations, fourth quarter 2021 earnings conference call. Click on the fourth quarter 2021 earnings supplement. With me today is Chris McCommish, S&T CEO. David Hillock, S&P's president, is under the weather today and won't be joining the call.

I'd now like to turn the call, the program, over to Chris. Thanks, Mark, and good afternoon, everybody, and thanks for joining the call, and certainly thank you for your interest in our company. Before we get into the discussion of the numbers and then take your questions, I want to take a couple minutes, have some statements, and talk about all that's going on with the company, and we'll get into the fourth quarter in the full year. I've completed my first full quarter as CEO, and I can tell you this has been a great experience over the past few months. First, this has been a year of significant change at S&T. I'm so pleased with what I've been a part of and certainly have witnessed over the past few months. Our leadership team and employee base has shown an incredible commitment to accept and embrace change and transition and to move our company forward toward a goal of delivering consistent and superior financial performance. While the work of building a team and ensuring clarity of strategic direction doesn't happen over a few short months, we've made great progress together in a relatively short period of time. We're emphasizing a focus on delivering consistent, profitable growth built on a foundation of safety and soundness in all that we do. We know that this business is a people business first, which means that the leadership team were very focused on delivering the capabilities needed to ensure high levels of employee engagement. Our engaged, skilled, and committed employee base delivering our bank to our customers, whether it be face-to-face, voice-to-voice, or digitally, is what will win the day here at S&T. As we enter into 2022 and coincidentally as we celebrate our 120th anniversary later this spring, I'm very optimistic about our future and our ability to deliver results for our shareholders. Now let me turn to the numbers. Let's go to slide three and you can see a brief fourth quarter overview. For the quarter, revenue was flat and margins were stable. Great news is loan growth was broad-based, represented in both commercial and consumer portfolios, and associated and focused with some of our strategic areas, including our asset-based lending group, our REIT team, and on the consumer side, our home equity lending business. That's two solid consecutive quarters of broad-based loan growth. for the team. Additionally, in a subject that's not talked about a lot nowadays, is another positive, and that is both in our growth of and the source of our deposit growth. Our deposit mix continued to improve, and overall deposit growth was up $50 million length quarter, highlighted by strong non-interest-bearing demand growth. It's a great reflection of the loyalty of our customer base and their engagement with our company. While we did have expense growth in the quarter, it was associated with investments in our business in technology and infrastructure, also with some proactive decisions made by me and our executive leadership team with the full support of the board related primarily to incentive and bonuses. As I mentioned, our team has been through a significant amount of change this year. They've showed an incredible commitment to each other, our customers and our communities, all the while navigating a pandemic and at the end of the day delivering the highest net income on an annual basis in the history of the company. For everyday employees, being able to provide additional incentive pay is a great and important way to say thank you We believe in you, and we have high expectations of you going forward. Approximately 43% of our employees earn less than $19 an hour. We made a proactive decision to increase our minimum base pay rate in December. While these numbers are not in this quarter, the incentive pay is, and it's met with a great level of satisfaction with our employee base and will serve as momentum for us in the future as we move forward as an organization. On the credit quality front, while we are disappointed in a couple of charges, I am pleased with the overall improvement in the quality of our loan book. Safety and soundness is a big part of who I am, and we are ensuring that the culture exists throughout our company, focused not only on profitable growth, but doing everything we do in a safe and sound way. We've made leadership changes and elevated people within the company and added new talents to the organization, all with this focus of consistent, profitable growth underpinned by safety and soundness. As we move forward into the fourth quarter, you'll see, as I mentioned, or I'm sorry, into the full year, $110 million of record net income. A highlight that I want to mention to everybody is our customer fee income growth. This is a reflection of, again, our proactive customer engagement. This is activity that includes things like debit card and interchange revenue, treasury management fee income growth, growth in our wealth management business. I've defined it as sticky fee income representative of healthy customer engagements. Turning to slide five, again, we'll talk a little bit about the balance sheet. We mentioned the broad-based loan growth that you see on the left made up both in our commercial businesses as well as in our consumer business, 7% annualized for the second consecutive quarter. Again, a little more detail on the deposit mix. You see DDAs up a little over $96 million, offset by a decrease in CDs of over $100 million. As it relates to the loan book, one thing that I know will be of interest to those on the line is two things. One, what we're seeing in utilization, line of credit utilization. It was up a little bit in the corner of about 3%. percentage point into the mid 30% of the line amount. This is actually consistent with the same increase that we saw last year, Q3 to Q4. So we believe that there still is latent borrowing capacity and activity within our customer base as the economy works through the pandemic, supply chain issues, and other opportunities for growth. We certainly see getting back into that mid to low 40% utilization rate would lead to growth in our loan portfolio by itself of over $100 million. As it relates to 2022 on the loan side, we've guided toward and very confident on an annual basis of looking at loan growth into the high single digit. There is seasonality in that number. We had a very strong Q4. Our pipelines are building. Lots of good activity right now. But we'll probably be looking something closer into the mid-single digits in Q1 as we move forward with an annualized and an annual growth rate in that high single-digit range. I'll stop there, turn it over to Mark, and a lot of things to keep going. Great. Thanks, Chris.