Todd Brice - President and CEO Mark Kochvar - Senior Executive Vice President and CFO Dave Antolik - Senior Executive Vice President and Chief Lending Officer Pat Haberfield - Senior Executive Vice President and Chief Credit Officer.

Collyn Gilbert - KBW Matt Schultheis - Boenning and Scattergood Matthew Breese - Piper Jaffray.

Greetings and welcome to S&T Bancorp's Incorporated Second Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host today, Mr. Mark Kochvar. Thank you, sir. You may begin..

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 factors, which is on the screen.

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 second 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 Todd Brice, S&T's President and CEO, who will provide an overview of S&T’s results..

Well, thank you Mark and good afternoon everyone. As announced in this morning's press release, we reported net income of $18.2 million, or $0.52 per share, compared to first quarter earnings of $12.8 million, or $0.41 per share, and second quarter of 2014 earnings of $14.7 million, or $0.49 per share.

Once again, the big story this quarter is the continued integration of Integrity Bank. We completed the conversion of the banking entities and IT systems on May 11, and overall, the conversion went extremely well. Thanks to the planning and preparation that was done by our conversion team.

We are very pleased with the activity levels that we are experiencing in southcentral Pennsylvania market across all of our lines of business; retail, commercial lending, mortgage banking, wealth management, and insurance. So, all-in-all, that’s going on very well. Another big factor this quarter was loan growth.

We’ve set a new benchmark for the organization this quarter which increased $115 million, 9.8% annualized, and it was again a nice mix across the board of commercial real estate and construction, and then C&I which increased $61 million and $40 million respectively, and our consumer loans increased by $14 million which were predominately home equity loans.

In addition to growth in core market in southcentral Pennsylvania, we are also seeing nice activity in our LPOs in Ohio and Western New York as bankers in all of our markets are working very diligently to expand relationships with existing customers as well as developing relationships with new clients.

Our Chief Funding Officer, Dave Antolik will provide more color in his comments in a few moments. I think another good story this quarter was asset quality, which remains consistent with net charge-offs totaling $1.3 million or 11 basis points annualized.

Totals did increase in some of our credit side and classified categories as a result of margin, but on a percentage basis, levels are still within acceptable levels and we think they may be trending in the right direction. Production in our retail mortgage division has been another bright spot.

Total production, including Integrity Division was $102 million for June versus a combined $75 million last year. This represents a 36% increase. The pipeline is always - also very robust, and we expect to continue to see a similar pace throughout 2015. I think mortgage banking fees are about $1.3 million for the first six months.

All-in-all, we are pleased with the performance this quarter and now with the conversion just behind us, our focus will be on maximizing revenue opportunities throughout the organization as well as being disciplined and efficient in our operational areas to control expenses.

We really like our position as an organization to generate trends that meet our shareholders expectations. So at this point, I will turn the program over to Dave Antolik. I want to thank everybody for your continued support of S&T Bank..

Thanks Todd. Good afternoon everyone. Todd mentioned our expansion into new markets including southcentral PA via the Integrity merger continues to be the primary contributor to our loan growth.

Growth in the Integrity portfolio totaled $33 million for the quarter, while our loan production offices in central and Northeast Ohio, State College and Western New York contributed $64 million to this quarter's $150 million total growth.

We are very pleased that our growth strategies have resulted in increased loan balances and we're also very encouraged by our activity levels and the improved pipelines that exist in all of our markets.

During the quarter, we expanded on commercial banking staff by adding three bankers to our Western New York team and one to our Northeast Ohio team, and total balances in our LPOs were $389 million at June 30. We’re also very encouraged by the diversity of growth that we achieved during the quarter.

In addition to the $14 million in consumer loan growth that we experienced, balances in all of our commercial loan categories increased in Q2 as Todd detailed. Within the C&I portfolio, we experienced increased line commitments and balances along with an increase in the number of commitments.

Revolving line utilization remains flat for the quarter and we continue to benefit from our investment in our floor plan lending area for commitments increased by $12 million to $192 million and outstandings increased by $7 million to $114 million during the quarter.

Another area of growth is municipal lending where we've had success attracting borrowers looking for finance public projects or refinance public debt, while rates remains low. It’s also important to note that these relationships provide opportunities to attract significant deposits.

Finally, our loan production offices grew their C&I balances by over $8 million during the quarter. In conclusion, our growth this quarter came in spite of increased competition from bank and non-bank financing sources.

We continue to offer very aggressive structural and pricing options that cause payoffs to exceed our expectations by more than 20% in the second quarter. We expect this trend to continue, but we’re very confident in our ability to maintain the pace of our growth. And now, Mark will provide you with some additional details on our financial results..

Thanks Dave. The impact of the merger with Integrity shows up in three main ways in this quarter's results. First, second quarter results include a full quarter with the Integrity merger compared to just 27 days in the first quarter. This impact average balances most income statement items and average shares outstanding.

Second, this quarter includes accretion related to the fair value of purchase loans and certificate to deposit. And third, we had $866,000 of onetime merger related expenses. The total accretion in the second quarter was $2.7 million or about $0.05 per share approximately $2 million impacting loans and a little under $700,000 in CDs.

This impacted net interest margin rate favorably by 21 basis points. We expect the accretion to continue, but at a declining rate.

Our modeling indicates about $1.7 million in the third quarter and less than $1 million in the fourth quarter or it can be some volatility with the loan related part of accretion depending on the asset quality of the purchased loan.

Without the accretion this quarter and some special items in both first and second quarters, the NIM rate was essentially unchanged. Loan growth continues to be primarily floating and the gap between new and paid loans widened flatly to about 50 basis points this quarter, compared to the 35 basis points in the past two quarters.

The one-time expenses of $866,000 primarily related to systems conversion this quarter and should be the end of our merger expenses. This represented about $0.02 per share. Expense synergies are just now being fully realized and we continue to expect our quarterly expense run rate to settle in at about $34 million.

We also expect the effective tax rate for the year to be between 26% and 27%. The risk based capital ratios declined this quarter due to loan and commitment growth that outpaced the increase in retained earnings. We continue to evaluate the impact of Basel III and our capital ratios still remain comfortable with our current capital level.

Thanks very much. At this time, I’d like to turn it over to the operator to provide instructions for asking questions..

[Operator Instructions] Our first question comes from Collyn Gilbert with KBW. Please proceed with your question..

Thanks. Good afternoon, gentlemen. Just a couple questions on your loan growth outlook. It looks like - and I know these portfolios are small, but you've seen some really good growth on the construction side.

Can you talk just a little bit about that? And then maybe also if you could tighten up your thoughts on loan growth as we look out, in terms of what you think the growth rate could be this year or next year? And then I've got a couple follow-ups too..

We're still looking at upper single digit loan growth. We think we've got the teams in place throughout all of our markets to drive that. Certainly, Integrity merger is going to help with that as well.

There's going to be some upside as we add the staff, but we're pretty well staffed in terms of production, so we think that up high single digit growth rate's still achievable..

We like how we're sitting for pipelines and –.

Right. Pipelines are strong. We're just really getting Western New York off the ground. They've got some nice activity in that market. So, in terms of the new market activity and core market activity, we're sticking to that high-single digit..

And economic conditions overall are still pretty good. There has been a little bit of a slowdown in energy industry, but some of that is right now just shifted into - from drilling over into the pipelines. There's 15 pipeline projects going on throughout the state and that will create opportunities down the road too.

So we kind of like long-term prospects right now..

Okay.

And any thoughts on construction or how you guys are seeing that portfolio - those portfolios develop?.

We're a construction lender. It's what we do. So we've seen some of that growth accelerate. It's really going to follow the economic activity throughout all of our markets. So as economies go in various regions that we're in, those opportunities are going to provide themselves and we're going to move with them. And it's across the board.

We've seen nice growth in the quarter in retail construction, apartment construction, office, and there's even some decent industrial growth. So it's pretty well diversified in terms of type of growth that we're seeing..

Okay. And then could you just give a little bit of color on the NPL this quarter. It's such a low level. It seems silly that we're even talking about it.

Looks like was it the commercial credit that came on this quarter and then maybe did you guys see the resolution of the credits that came on in the first quarter?.

Collyn, this is Pat. First, that increase in the NPA number that you're seeing is really a direct effect of the merger. So we're integrating all those into our processes now. And those two credits that we did talk about last quarter, we did resolve those..

Okay. Okay. That's great. And then just back to your comment, Todd, on the oil and gas, could you just give us an update where your exposures lie, I think you were at $53 million..

It's $54.2 million. We just ran it a couple days ago..

Okay..

Out of that the bulk of that is really just to support company, to provide ancillary services, no really direct exposure into the drilling activity..

Okay.

And no deterioration in credits there or anything?.

No, as a matter of fact, they have contracts and they're still fairly busy right now..

Okay. Okay. And then just one last sort of housekeeping item.

Mark, was there something in the other income line this quarter or is there anything - I know other than the merger charges, but is there anything else unusual or seasonal that will not repeat itself in the out quarters?.

The other thing in the other, we did have some higher than normal loan related fees and there were a number of different categories, but our spot fees were about $250,000, just a little bit higher than normal. We also had some letter of credit fees, that's mostly timing.

And then we did have related to resolution of a non-performing item we had from years ago, we had a special asset fee of about $150,000. That's unusual. So I'd say of that, there might be $300,000 or $400,000 that is above normal..

Okay. I'll stop there. Thanks, guys..

Thanks, Collyn..

Our next question comes from Matt Schultheis with Boenning and Scattergood. Please proceed with your question..

Good afternoon.

Couple of quick questions, with regard to the loan growth for the first quarter, how much of that was driven by increases in line utilization from commercial borrowings and how much of that was just pure originations?.

Yes, utilization was flat quarter-over-quarter. So it's really additional commitment to additional customers..

Okay.

With regard to the outlook for discount accretion going forward, how does the second quarters experience actually compares what you had anticipated going into the second quarter?.

When we finally got a hold of the – detail we needed as we’re approaching the merger, the number for the quarter actually came in within $50,000 of what we had modeled out, but we really didn’t have a good handle on that until sort of midway through second quarter..

Okay.

So I think - and correct me if I’m wrong, I think you had an original discount amount of something like $14.8 million?.

Right that's was 15..

For the loans -.

That was the credit and the interest portion..

Okay.

And so how much was the interest portion there?.

About $500,000, I mean of what we took this quarter from the original that credit was 11.7 and then the interest was just under 3..

Okay. All right. Thank you very much..

[Operator Instructions] Our next question comes from Matthew Breese with Piper Jaffray. Please proceed with your question..

Good afternoon guys. I just wanted to reaffirm the accreteable yield guidance for the rest of the year.

Am I correct $1.7 million for 3Q and then a $1million for 4Q?.

Yes just it’s about 9.50 for fourth quarter..

Okay.

And then what’s the right time you are expecting for accreteable yield?.

There is a pretty long tale to that, because it goes with the whole life. I mean we’re actually doing the accounting for it at the loan at the note level, loan note level, so it's going to depend there’s something on every single loan essentially that came over.

So in theory, it lasts as long as the last loan that we bought, but it should I would say within the couple of years certainly become something that’s relatively material..

Okay.

And I’m assuming once we enter 2016 we will drop meaningfully below even at $1 million run rate for 4Q?.

Right. And we didn’t go out any longer and at this point. We wanted to get another addition of quarter of experience behind us before we reforecast before I guess that..

Okay. And then maybe just touching on the core margins, I know you had mentioned that new loans price versus existing actually widened this quarter.

So maybe you can give us an update on where you expect these margins to shake out for the remainder of the year?.

I still it's driving, without all the special items, it sort of in about 3.45ish range. We still think it should hold in relatively close to that. .

Do you get the sense that we’re near a margin bottom in this interest rate cycle?.

I hope so, but I think we’re pretty close I mean we still could see basis points here or there, but I think as far as NIM will decline that I believe we’re past that sort of something perhaps with the yield curve or the competitive environment changes quite a bit..

Okay.

And then as we think about loan growth in the upper single-digits and then maybe surpassing that, can you give us a good sense of how you intend to fund that loan growth and if there is going to be a need to maybe put on some more borrowings?.

We have a lot of different efforts going right now on the deposit side. We have utilizing some of the brokered markets and also borrowings. So we will do that when we can. At this level of rates it can be difficult to get people to move just because rates are so low. But we are doing a number of different things both in the new market.

In southcentral Pennsylvania we think there is a lot of opportunity out there since we are relatively small player there that we can do some things differently out there that might be effective. Now we are looking at some different submarkets even within our own markets that might have some potential.

So we think that there is a lot of room to operate within the current market but we won't hesitate to borrow or to access the brokerage market a little bit further to fund that loan growth..

Is there any hesitation to maybe grow the loan to deposit ratio too much further beyond 100% or we are pretty close to it right now?.

Our goal is to try to stay on that 100%..

Got it.

And could you remind us what is the brokerage deposit balance as of 06/30?.

It is around 370 I think..

That's all I had. Thank you very much guys..

At this time, there are no current questions in queue. I would like to turn the call back over to Mr. Brice for any closing comments..

I just want to thank everyone for participating in today’s call. Mark, Dave and I appreciate the opportunity to discuss the quarter results and look forward to hearing from you on our next conference call. So have a great day..