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

Matthew Breese - Piper Jaffray & Co. Collyn Gilbert - Keefe Bruyette & Woods Inc..

Greetings, and welcome to the S&T Bancorp Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

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

Thanks, Matt. 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 and Exchange Commission for forward-looking statements that may be included in this presentation.

A copy of the fourth quarter and full-year 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..

Thank you, Mark, and good afternoon, everyone. As we announced in this morning’s press release earnings for 2016 were a record $71.4 million or $2.05 per share versus $67.1 million or $1.98 per share for 2015. Our return on asset and return on tangible equity were 1.08% and 13.71% respectively.

For the quarter, we reported net income of $17.7 million or $0.51 per share versus $17.4 million or $0.50 per share in the fourth quarter of last year and $20.6 million or $0.59 per share in Q3 of 2016. And again, the return on asset and return on tangible common equity were 1.04% and 13.05% respectively for the quarter.

Organic loan growth once again for both the quarter and full-year continues to be a bright spot as loans increased by $193 million or 14.2% annualized for the quarter and $584 million or 11.6% for the year. This is having a nice impact on our net interest income which increased by $1 million over Q3 and $3.6 million dollars over Q4 of 2015.

We are really pleased with the growth that we are experiencing and it's coming across all of our markets and really just comes down to having a team of experienced bankers who excel in deepening relationships with existing clients and also developing new relationships with new clients.

So expenses for the quarter were $35.6 million and were in line with expectations. As a result, the efficiency ratio for the quarter was 53.04% and for the year came in at 54.06%.

Our managing expense levels is, and is going to continue to be emphasized throughout the Company and we would expect our efficiency ratio to be at or even slightly lower than our Q4 levels for the full-year in 2017.

To that end, we have three branch closures scheduled in the first quarter and that will put our average deposits per branch at $86.4 million. The one area that did put some challenges was on the credit front this quarter. Net charge-offs totaled $6.6 million which resulted in a provision expense of $5.6 million.

Again, the variance was attributed to charging off an account for $1.5 million on which we had previously set aside a specific reserve. For the year, net charge-offs totaled $13.3 million or 25 basis points.

There is some good news, we did receive a payoff of approximately $7.4 million early in January of 2017 on one of our non-performing loans which did represent the majority of the increase that was showing up in the CRE portion of ourNPLs. Looking forward to 2017, I like how we are positioned.

We have a great team of bankers and we were well-positioned across our five markets. We continue to meet our organic growth expectations. And finally, our Board of Directors declared a quarterly dividend of $0.20 per share payable on February 23, 2017. For the full-year dividend increased by 5.5% over the 2015 level.

So we appreciate your continued support of S&T Bancorp. And now, I’d like to turn the program over to Dave Antolik, our Chief Lending Office..

Thanks, Todd, and good afternoon, everyone. As Todd mentioned, we are very pleased to report that we have finished 2016 with year-over-year total portfolio loan growth of $584 million. This represents 11.6% annual organic loan growth.

Capping 2016 was a strong fourth quarter for lending activities where we saw increases in both total commercial and total consumer loans. Leading the way was an increase of $71 million in commercial real estate loans followed by a $57 million increase in C&I balances and $54 million increase in commercial construction.

Quarterly highlights include well diversified geographic growth. As we experienced balance increases of $58 million in Western New York, $30 million in Central Ohio, $22 million in Northeast Ohio and $40 million in South Central Pennsylvania. The remaining $43 million of growth came within our core Western Pennsylvania markets.

C&I growth for the quarter was driven by solid new customer acquisition activities led by our North Shore, Pittsburgh corporate banking team who are responsible for nearly half of the increase. We also saw floor plan commitments in outstandings increased by $8 million and $18 million respectively.

Floor plan utilization rates increased by nearly 5% as dealer inventory levels increased due primarily to the delivery of new vehicle models. Overall C&I utilization rates remain stable at 42%.

Growth in our commercial real estate portfolio was driven primarily by increases in our flex warehouse, mixed use, healthcare, retail strip and multi-family segments. We did see a slight decline in our Office segment during the quarter. We actively manage our overall commercial real estate and individual segment concentrations.

At year-end, no single segment represented more than 14% of our total commercial real estate portfolio. Within the construction portfolio, our largest concentrations include office and multi-family, which make up approximately 20% of outstandings for each segment.

In the multi-family construction segment, the growth has been driven by our Ohio and New York loan production offices along with the South Central Pennsylvania, while growth to the office construction segment has been centered in our core Western Pennsylvania markets.

No other construction segment constitutes more than 10% outstandings for this portfolio. In total commercial loan payoffs reduced from the levels that we saw in the third quarter, which allowed for significantly improved net loan growth in Q4. Finally our bankers continue to execute on our customer acquisition strategy, particularly in the C&I pace.

Our pipeline remains healthy and despite being lower than it was at this disappoint last year. We're confident that it will provide support to reach our mid-to-high single-digit loan growth goal for 2017. And now Mark will provide you with additional details on our financial results..

Great, thanks Dave. Net interest income improvement this quarter of about $5 million, this is primarily due to the increase in average loan balance of $131 million. Loan rates stabilized, hope some by the mid December fed increase and narrowing of the gap between new and paid loan rates to about 25 basis points.

Going forward we expect that gap to contract further, which should like margin pressure to just a fee base points over the course of 2017 at corresponding any further fed increases or significant change in the shape of the curve.

We continue to believe that fed increase would be beneficial to our net interest margin and net interest income due to approximately $1.3 billion repricing gap we have on the front end of the curve. Loan purchase accounting, accretion continues to diminish and we expected to be about 300,000 per quarter in 2017.

Our deposit growth was very good for the year at just under $400 million or 8.1%. Do not keep pace with our strong loan growth. Deposit growth to match our loan growth is one of our goals and achieving this could put some pressure on our net interest margin, depending on rate changes and the competitive environment.

Non-interest income decreased by 526,000 in the fourth quarter compared to last quarter with the biggest variance in our mortgage banking line. All though activity in pricing were good, the mark in our commitments at year-end we're down due to a smaller pipeline and an increase in rates.

We did have about $3.1 million of one-time items in early 2016 and expect the most recent quarterly run rate and non-interest income to hold into next year. Non-interest expense increased by about $1.2 million from the third quarter, salaries and benefit were higher due to incentive plan true-up based on full-year results and higher medical costs.

The other category was favorably impacted in the third quarter by lower credit related expenses. On a go forward basis, expense control will continue to be a focus for us with year-over-year expense increase in the low single-digits. In 2017, we expect our expense run rate to be in the $36 million to $37 million per quarter range.

Tax rate for 2016, came in at $26.2 million, which we expect to increase closer to 27% in 2017 as pretax income improves. Our risk-based capital ratios were a little changed this quarter as earnings retention just kept pace with the strong loan growth and the related risk weighted assets increase.

Our TCE ratio declined due to the reduced unrealized gain in our bond portfolio due to rates. We remain comfortable with our current capital levels. Thanks very much. At this time, I'd like to turn it back over to the operator to provide instructions for asking questions.

Matt?.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Matthew Breese from Piper Jaffray. Please go ahead..

Good afternoon, everybody..

Hi, Matt..

Hi, Matt..

I'm sorry if I missed it, but I was just curious on loan growth, which was strong this quarter.

What is the outlook for 2017 given the pipelines right now?.

Yes. We're looking at high single-digit growth for 2017. And we don't expected to be quite as high as what we saw in 2016. The pipeline is down slightly from this point last year and as we manage through some of the CRE concentration levels..

There is still good activity across our footprint though..

Yes, absolutely..

Yes.

I guess that was my follow-up, the new President seems to be much more favorable towards the oil and gas industry, and has that played through to your borrow base at all, your market?.

Yes. We were up maybe $3 million or $4 million in our oil and gas portfolio this quarter. We did have with existing clients who are just buying some equipment, expanding a little bit. There's a fair amount of pipeline activity going on in our region to which kind of filters down into the segment that we lend into..

Got it.

So you expect the pipeline activity to pick up and indirectly benefit you?.

You mean the loan pipeline or the oil and gas pipeline? I just want to make sure we’re talking about the same thing..

The oil and gas pipeline..

Yes. So in the long-term it should help because it will just getting more gas to the market, it’s going from out in Ohio to Philadelphia. So a lot of it will go into the export market and that would just create more demand regionally. So we did see a nice move in the price this quarter. There was a gap of the spot market.

The PA introducers were getting maybe $0.75 or $0.80 below the spot and that narrowed considerably this quarter. So that's a big win for the region as well..

Have you seen any untapped kind of natural gas lines starting to get tapped, has that improved?.

Well, what we did see in the quarter this $3 million or $4 million increase was our borrowers borrowing for working capital because activity has increased in this space. That's really minor, but we are seeing positive signs in terms of activity….

Rig counts are up..

Got it. Okay. And then your stock price is appreciated, pretty meaningfully since the election.

I just wanted to get your thoughts on your outlook for M&A and whether or not the landscape has changed pre and post-election?.

Yes. I mean from our perspective, we've always managed the Company to grow it and meet our expectations on our organic basis. And I think if you look at the balance sheet growth that we had last year, we were very pleased. We expect that to continue into 2017. We'll be disciplined if something pops up that it has some appeal to us.

I will take a look, but unless it fits kind of the box we're looking for.

We're going to get started I mean we did take a look at a couple small institutions and elected not to just to move forward on those, but again, people eyes and ears open and be opportunistic when the opportunity arises, but still we like to kind of the model that we said to be accretive in the first year and get the expense sales that we want out of them and then if we can’t do that we are not going to move forward on it..

Got it. Okay. My last one is really around the provision, it was a bit higher than I thought this quarter, and some of it was the specific reserve release.

So I wanted to get some color around that portion and I guess my question was is there any tax planning strategy around that ahead of any potential tax rate changes coming from the new administration?.

This is Mark. On the tax planning we haven't gotten into that level yet and I think we're still cautious about where that whole tax issue might go, so we haven't done anything proactively relative to that..

Okay. So that was one of a one-time thing.

If that's the case, where do you think the provision can shake out, or where will it shake out in 2017?.

We continue to expect growth in the portfolio, so that loan loss reserves and the provision that will accompany that will have to support that. Charges, we do expect to moderate a little bit from what we saw in 2017, so we’ll need to replenish that.

So we're looking at probably low 20s for net charge-offs and then we'll have to on top of that provide for the growth that we would expect to experience..

That's great. I appreciate the color guys. Thank you..

Yes, just to your point to the provision left in Q4, I mean we had a credit that was kind of a one off.

It was specialty retail that actually got through the holiday season and notified us in early January that their holiday sales didn’t meet their expectations, so we just came up with evaluated options and came up with a workout scenario to expedite it.

We felt that was the most prudent course of action, that’s the one they got paid off and looked into real estate again was primarily attributed to that particular credit with their owner occupied real estate piece of the credit..

Got it. Makes sense. Thanks again..

Thanks Matt..

[Operator Instructions] And our next question comes from Collyn Gilbert from KBW. Please go ahead..

Thanks. Good afternoon, guys..

Hi, Collyn..

Todd, just back on the conversation about the one credit.

What is the overall exposure of that relationship?.

Zero now. We took a charge in Q4 and then we got paid off early in January..

Okay.

So all of the uptick that we saw, both related to the charge-offs and the increase in non-accruals, has now been resolved?.

Exactly..

Okay..

On that particular credit, yes..

Got it. Okay. And then….

And then, Collyn, just the other piece of that, we had like I said the charge associated with that credit and we had the other one which was $1.5 million charge that we previously had taken a specific. And between those two, that was probably over half of the provision amount. Yes..

Okay.

And then what was the nature of the credit that you already had a specific reserve for?.

It was one of our SNCs..

Okay..

That was not – I think we had a little exposure into oil and gas..

Yes, a little bit, but it wasn't primarily our there. They were in many different things..

Yes. It was one of those SNCs that we have talked about earlier here..

Okay, so there is nothing – I mean despite this quarter, it sounds like is not necessarily indicative of any deterioration you are seeing in the broader market or your book or anything like that.

These were really just unexpected one offs?.

Yes, it was definitely one off, I mean we had it on the rate, but it was performing, but they just kind of got through the holiday season and sales didn't meet their expectations as I think you know you see kind of a shakeout throughout the – across the retail footprint with some of the other bigger stores closing and some difficulties..

Yes, Collyn, this is Pat. I would say we have been watching it closing obviously with the type of business and it was and it was current, it was paying and then we got notified shortly after the end of the year, what they’re planning to do.

And so we got all hands on deck and the success workout a plan, I think getting paid off and taking care of this credit inside about two weeks. It was pretty quick on everyone’s part..

Yes. That's great, okay.

Do you guys have what your retail exposure is within the CRE book?.

Yes, you probably coming to us with that question..

The total exposure when we look at it for true retailer or books roughly about $49 million just under $50 million, but again looking through to try to find exact – especially retail like we experienced, we don’t have a little..

Okay..

But we also have – there is obviously some stuff in real estate portfolio that would be associated with retail type properties. Those are performing very well, but true retail related lending is about $41 million..

Okay.

And have you changed your reserve methodology or outlook for that portfolio?.

No I don’t think so, because I said we looked through it and again with what happened on this specialty retailer, our first look was how many more do we have and we don’t..

Got it, okay, that's helpful.

And back to the idea the CRE concentration and kind of indicating perhaps you managed a little bit to that number, how are you guys thinking about that in kind of the broader sense of where your growth is coming and how you're managing the overall loan portfolio?.

Well, we’ve got concentration limits and we managed those, it’s pretty simple and we try to make sure that we're looking at it geographically as well, so that we don't have a concentration in one geography with one product type, so we're pretty discipline about that..

Okay.

And I presume the regulators haven't said are comfortable or haven't given any guidance one way or the other to you on that ratio?.

Collyn, we stay close with the regulators and sure we get their opinions on what our plans are and to date conversation….

Okay. That's great. That's helpful. Okay.

And then, Mark just on the NIM, so it sounds like the NIM is going to probably trend better than maybe perhaps what you've all had anticipated I guess maybe post 3Q, because I think were you thinking maybe 1 to 2 basis points of compression a quarter and now it sounds like you're saying that's more likely for the full-year, is that right?.

Yes. It looks little bit better as we refine our modeling and what's on the books changes, so we do have a little bit more positive outlook a little bit flatter than what we had thought after Q3, so that’s correct..

Just to add on to that, December Mark mentioned for the quarter, the difference between the new loans coming on and the ones being off was about 25 in December. That was keeping pretty close for us to being approached..

That’s great okay..

We’ll see other volume of all during the first quarter and that will give us a better indication..

Okay. That’s it. That’s all I had. Thanks guys. End of Q&A.

Thank you. There are no further questions at the moment and I’d like to turn the floor back over to management for any closing comments..

Good. I just want to thank everybody for participating in today's call. Mark and Dave and I appreciate the opportunities to discuss this quarter's results and look forward to hearing from you on our next conference call. Thank you very much and have a good day..

This concludes today’s teleconference. Thank you for your participation and you disconnect your lines at this time..