Mark Kochvar - Senior Vice President and Chief Financial Officer Todd Brice - President and Chief Executive Officer David Antolik - Chief Lending Officer.

Collyn Gilbert - KBW Brody Preston - Piper Jaffray Daniel Cardenas - Raymond James.

Greetings and welcome to the S&T Bancorp's Fourth Quarter 2017 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, Mark Kochvar, CFO. Please go ahead, Mark..

Thanks. Good afternoon and thank you for participating in today's 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 all full year 2017 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 would now like to introduce Todd Brice, S&T's President and CEO, will provide an overview of S&T's results..

Well, thank you Mark and good afternoon, everyone. We are pleased to report net income of $9.3 million or $0.27 per share versus $17.7 million or $0.51 per share in the fourth 2016. Our result this quarter were impacted by a $13.4 million or $0.38 from the re-measurement of our net differed tax asset as a result of the tax reform pass in Q4.

A net of DTA re-measurements core range are very solid with net income of $22.7 million or $0.65 per share, which is 27% increase over the fourth quarter of 2016. Core operating metrics are also very strong with an ROA of 1.26, return on equity of 10.09%, return on tangible equity of 15.16% and an efficiency ratio of 5175%.

For the full year, we are reporting net income of $73 million or $2.09 per share. And again full year results are impacted by the $13.4 million DTA re-measurement. But on a core basis, net income increased 21% to $86.4 million or $2.47 per share versus $71.4 million or $2.05 per share in 2016.

Again, core operating metrics for the full year were very strong with an ROA of 1.22%, return of equity of 9.9%, return of tangible equity of 15.08% and efficiency ratio or 51.77%. Our balance sheet growth this quarter was mix as we experience a $100 million decline in loan balances.

And the majority of the decrease occur in our commercial portfolio which was impacted by the sale of the State College branch and also abnormally higher payoffs in the quarter. Our Chief Lending Officer, Dave Antolik will provide some more color on our lending activities in a few moments.

Credit metrics were bright spot this quarter as non-performing assets decreased by $6.1 million or 20% to $24.4 million. Non-performing loans of total loans now stand at 42 basis points and net charge-offs for the quarter were $1.3 million or 9 basis points annualized.

So as a result of improved credit metrics, reduce charges and slower loan growth, we record a provision expense of $1 million versus $2.9 million in the third quarter and $5.6 million in the fourth quarter 2016.

Controlling expense continues to be a strategic focus on the organization with efficiency ratios in the low 50s on both quarterly and annual basis. And going forward into '18, we are going to continue to maintain tight control over expenses and expect to at least maintain improve on historical levels.

We did cause to make a sale of majority interest in our Evergreen Insurance division to The Reschini Group on January 1st and we expect the book of gain in the neighborhood of $1 million for the first quarter. The Reschini Group is one of the top insurance agencies in Pennsylvania specialized in employee benefit plans.

And with their industry knowledge and product set, we anticipate increased net contributions to the bank. We are excited about our prospects for 2018. Obviously a big lift will come from the change in the federal tax.

At this point, we are evaluation options on investing some of these savings back into the company where we can receive the best long term benefit. Furthermore, we're also evaluating capital management strategies which would include buybacks or increased dividends.

In addition, we have a great team of season who excel developing long standing relationships. We operate in great markets which both well for creating long term value. 2017 was a great year and we expect to continue to post strong profitability metrics in ROA return of equity, return on tangible equity to benefit our shareholders in the coming year.

And finally I want to mention that our Board of Directors has approved the quarterly dividend of $0.22 per share payable on February 22nd which is a 10% increase over the prior year. We appreciate your continued support on S&T Bank Corp and now I would like to turn the program over to David Antolik..

Thank you, Todd and good afternoon, everyone. I like to start with an overview of some of our successes in commercial banking in the fourth quarter then address the balance declines and discuss our expectations for 2018. First, our business banking group has its best long growth quarter since the second quarter of 2016.

Our dedicated credit delivery and customer relationship model for this segment has created a unique in the market for us. And this is a division that we intend to grow. In the quarter, we added four new business bankers to our team in order to support growth.

Second, we experienced long growth of $25 million in Western New York, loan balance is now exceed $325 million in this market and our team has a solid pipeline to support future growth.

Third, our investment in Central Pennsylvania continues to yield positive result as we saw loan growth of $17 million and added one experience commercial banker during the fourth quarter in that market.

In addition, our newer North Shore Pittsburgh corporate banking group saw a modest loan growth in the quarter despite headwinds and impacted bank-wide C&I growth. We also saw a very strong business demand deposit growth capping a year end which we grew this deposit type by nearly $100 million.

Our loan balance declines would resolve several factors including the sale of our State College branch which accounted for $41 million of the reduction and elevated commercial loan payoffs that were approximately 60% higher than the average for the previous four quarter.

This unusual payoff level was anticipated as several large construction and stabilized CRE loans move to the permanent market. We also saw nearly $30 million in payoffs as a result of companies and properties being sold and major decision to exit one share national credit for $10 million.

In addition, our revolving line of credit utilization rate excluding four plant commitments declined from 42% to 39%. Moving forward, we expect payoffs and utilization rates return to historic levels. Our forecasts were full year loan growth of mid-single-digits with more modest growth in the early part of the year as we continue to grow our pipeline.

We expect to achieve this loan growth while focusing on protecting our net interest margin and we're discipline with regard to credit risk. And now Mark will provide you with additional details on our financial results..

Great, thanks Dave. Although point-to-point, quarter end loan balances were down, average loan balances increased in the fourth quarter compared to the third quarter by about 49 million, which combined with a fed increase in mid-December resulted in an increase in net interest income and relatively stable net interest margin rate.

We continue to see a competitive environment for funding which some improvement in net interest income in the first quarter as we realize a full quarter of the fed increase. The interest margin rate moving into 2018, will decline by about 5 basis point to this lower fully taxable equivalent adjustment everything else being equal.

Beyond that the net interest margin rate will depend on fed moves in the share of the yield curve. We continue to think that we will benefit modestly from rates up. Non-interest income include some onetime items the past couple of quarter, the gain on the branch sale in the fourth by $1 million and a full claim in the third quarter of about 700,000.

We did take about 1 million security losses in the fourth quarter as part of our strategy related tax reform, which we should get back over the next year and half with better net interest income. Goring forward with the sale of the majority of our insurance business, we expect fee income to be approximately $12 million per quarter.

Non-interest expense again exited good control this quarter. Increases were due to timing of margin programs, higher loan related expenses and some onetime items related to the sale of our insurance business.

Without the insurance business in our financials going forward, we expect expenses to be relatively flat to 2017 and the 36 million to 37 million per quarter range. With tax reform, we expect our new effective rate in 2018 to be in the low to mid 16% area.

Our risk related capital ratios were relatively unchanged as earnings were impacted by the net DTA re-measurement. Thanks very much. This time, I would like to turn it back over to the operator to provide some instructions for asking questions..

Thank you. [Operator Instructions] Thank you. Our first question is coming from the line of Collyn Gilbert with KBW..

Thanks, good afternoon, guys..

Hi Collyn..

Mark, maybe just start on the NIM and sort of your - I think you said you expect to get a slight benefit from rates moving high.

Can you just talk about what you're anticipating in terms of deposit costs within your assumptions for next year and how you're seeing competitive pricing within your marketplace?.

So, overall for our margin next year, again with 5 basis point decline FTE adjustment offset a little bit by some benefit from the rest of the fed. We expect first quarter be in the mid-350s prior on 335, 336 and relatively stable. After that going forward, we're seeing a little bit better pricing because of higher yield curve on the loan side.

And although we expect and have seen deposit pricing pressure, it has slowed down a little bit, we saw a little bit better a little bit lower reprising in the fourth quarter than we saw in the prior quarters. So we're looking for a relatively stable margin rate over the course of the year..

Okay. That's very helpful. Okay. And then just on provisioning, credit is obviously been trending really, really well. Did do you think the provision in 2018 will align more with what you guys did in 2017 or do you think it would revert back to what you were doing prior to 2017..

We certainly….

How that in - I was even saying had that in your outlook for credit which hopefully yes is not to be reflective of perhaps what you saw in 2015 and 2016..

Yeah, if you look at the three big quarters that we had call in on charges where the fourth quarter of 2016 then the first two quarters of 2017. And the last two quarters have been very good. And probably I mean the third quarter is probably a better indication of where we're going to be probably be in that range would be my estimation..

There was any impact this quarter on provisioning because the loan balances were down. With some return of growth we expect the provision to be maybe a little bit higher but the net charge-offs we would hope would stay closer to what we experience in the back half of 2017..

Okay. That's helpful..

For the year, charges we are anticipating 15, 18 basis points in that range..

Okay. Okay, that's helpful. And then Dave, just maybe a question for you.

As you know I think about the loan growth going forward as you mentioned elevated pay-offs in the fourth quarter I usually see that seasonally but just what you're assuming in pay down activity within that sort of mid-single-digit loan growth rate?.

So, we track it on a quarterly basis and I've gone back several years and it's fairly consistent including the fourth quarter of 2016, so 2017 payoffs were truly out of line with regard to historical levels. So we would expect them to return to more historical levels.

And some of that as I mentioned was due to some sales that we knew were going to have been. Fortunately, we've been able to turn those sales into some nice deposit accounts of wealth opportunities, other revenue generating opportunities for ourselves..

Mark Kochvar:.

, :.

Okay. That's very helpful.

Okay, and then Todd maybe just offer some of your thoughts on where you're thinking about M&A at this point, activity in the market, potential activity in the market or how as you build out kind of strategic plan over the next couple years how you see M&A heading into that?.

You know Collyn, I think it changes much from how we've approached it historically. We think not big but we have a company set up to grow organically and we meet expectations and capital levels are kind of building a little bit. So you will keep a little powder, if the right opportunity comes up, we'll certainly take a look.

But we're not going to go out and that sort of try and overpay the due, just say we're doing a deal..

Okay. All right, that's helpful, I'll leave it there. Thanks guys..

Thank you..

Our next question comes from the line of Brody Preston with Piper Jaffray. Please proceed with your questions..

Good afternoon, guys.

How are you?.

Hi, Brody..

And so I guess just going back to the NIM guide for a sec, are you guys including any rate hikes in your guidance?.

No, we're not..

Okay. That's what I figured. All right. And I guess going back to the loan growth moving forward, you mentioned that I guess maybe the first half of the year, you expect to be a little bit slower than the second half of the year as you continue to build the pipeline.

What - I guess what sort of I guess across the various loan categories, would a pipeline book like now and I guess where would you like them to be?.

Right, so that the pipeline as we exited the fourth quarter was slightly higher than it was. You know we kind of bottomed out again the second quarter through the third quarter, so we have been growing the pipeline. As I mentioned we've added a few new producers as well.

We feel good about the markets and the conversations that we're having with our clients and where tax reform might take them and the impact of that is creating a lot of positive momentum for many of our customers. So we believe that to do some additional lending opportunities as well..

Okay, great.

And I think the total number of people you said you added from a loan production perspective, was that five correct four?.

There are actually six. We had another commercial banker in Northeast Ohio as well..

Okay, okay.

That's six new commercial bankers total?.

Yeah, four business bankers and two commercial bankers..

Okay.

And I guess if the guidance for expenses in that 36 to 37 range, so back normalized a little bit lower, now what you saw this quarter I'm assuming those additional salaries and benefits that come with those hires I guess where you're looking to trim in the expense line items to keep it within that quarterly range?.

Big impact is the joint business that we had, that will no longer be consolidated after the first of the year and so the annual run rate on that was $4 million. So that can be gone, we also sold the State College branch in the fourth quarter and so those expenses will also be out.

So really redeploying some of those expenses in part into the commercial lending producers..

Okay. Okay and then last one for me.

You correctly you said the tax rate guidance in the low to mid 16%, so 16% to 16.5%?.

Correct. We're still working through some of the numbers but that's where look like it's going to end up..

Alright, great. Thank you very much, guys..

Thanks.

[Operator Instructions] The next questions is from line of Daniel Cardenas with Raymond James..

Hey, guys, good afternoon..

Hi Dan..

Hi Dan..

So, just in terms of additional talent addition, I guess the talent additions for 2018 I mean I know it's subject to finding the right people but I mean what are your expectations for additional new hires in the coming year?.

Well, you know we're always in the market looking for new commercial bankers for a couple of reasons, one pipeline for potential retirements or new markets.

But we feel good about that and some of this is going to come down to where we want to go if we do enter a new market, find the right talent for the foreseeable future and we're looking to grow within the existing markets and add incremental into those teams..

Good.

And then for the new hires in Q4, they all operating under non-compete agreements or can they start bringing some of their book over?.

It is a mix bag. So typically the business bankers do not have non-solicit agreements..

Okay, great. All right, good.

And then one quick question on deposit competition, maybe some color as to what you're seeing throughout your footprint, is this competition starting to intensify and if so, where is that coming from in terms of larger or smaller financial institutions or even credit unions?.

We're still seeing I think pricing competition from all the markets and pretty much all the segments. It's still is very competitive on the public fund side, but we're also seeing still a fair amount of CD specials especially in one year to two year range and also money market accounts that have fairly high, fairly high rates..

Okay.

And then of this last rate increase that we saw, how much of that do you anticipate passing on to the depositors?.

I mean our deposits betas they've been - there's a lag - there's been a lag, it slowed down a little bit in the last quarter but out of that the 25 basis points or so, we're usually giving up I think on how you look like look at it anywhere from around 5 basis points to 10 basis points of that thing depending on how you measure it..

Okay. Good, good. All right, all my other questions have been answered. Thanks, guys..

Thanks Dan..

Thank you. At this time, I'll turn the floor back to management for closing remarks..

Thank you. And again thank you for participating in today's conference call. Mark, David and I appreciate the opportunity to discuss this quarter's results. And we look forward to hearing from you at our next conference call. And I hope you all have a good day..

This concludes today's conference. You may disconnect your lines this time. Thank you for your participation..