S&T Bancorp, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
S&T Bancorp, Inc. is a Pennsylvania-based bank holding company operating primarily in Pennsylvania, Ohio and New York. It provides commercial and retail banking, cash management, trust and brokerage services. The filing covers the quarter and nine months ended September 30, 2022; financial statements are unaudited.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Net income | $37.2 million | $27.6 million | $95.3 million | $87.9 million |
| Diluted EPS | $0.95 | $0.70 | $2.43 | $2.24 |
| Net interest income | $83.8 million | $68.7 million | $226.7 million | $207.7 million |
| Net interest margin, FTE | 4.04% | 3.14% | 3.58% | 3.25% |
| Provision for credit losses | $2.5 million | $3.4 million | $5.2 million | $9.1 million |
| Noninterest income | $14.8 million | $15.8 million | $42.6 million | $48.6 million |
| Noninterest expense | $49.6 million | $47.2 million | $145.5 million | $138.7 million |
| Return on average assets | 1.64% | 1.15% | 1.38% | 1.26% |
| Return on average equity | 12.47% | 9.13% | 10.73% | 9.96% |
Total assets were $8.94 billion at September 30, 2022, compared with $9.49 billion at December 31, 2021. Portfolio loans increased 1.4% to $7.10 billion, while securities increased 9.5% to $997.4 million.
Operating cash flow for the first nine months was $205.2 million, compared with $171.7 million in the prior-year period. Investing activities used $306.6 million, primarily for securities purchases and loan growth. Financing activities used $685.9 million, mainly reflecting deposit outflows, the elimination of repurchase-agreement funding and dividends. Cash and cash equivalents declined to $134.9 million from $922.2 million at year-end.
Total deposits declined 7.3% to $7.41 billion. Borrowings totaled $104.3 million, including $35.0 million of short-term borrowings, $14.9 million of long-term borrowings and $54.4 million of junior subordinated debt securities.
The allowance for credit losses on portfolio loans was $99.7 million, or 1.40% of loans. Net charge-offs for the first nine months were $1.7 million, or 0.03% of average loans. Nonperforming assets were $28.8 million, or 0.41% of loans plus OREO.
Material changes versus comparable periods
- Q3 net income rose $9.7 million, or approximately 35%, driven primarily by a $15.1 million increase in net interest income.
- For the first nine months, net income increased $7.4 million, or approximately 8%, despite lower noninterest income and higher operating expenses.
- Higher market interest rates increased asset yields and expanded FTE net interest margin by 90 basis points in Q3 and 33 basis points for the nine-month period.
- Mortgage banking income fell 80.3% in Q3 and 76.8% year to date as higher rates reduced mortgage loan sales.
- Noninterest expense increased 5.1% in Q3 and 4.9% year to date, including higher compensation, technology, consulting, marketing and lease-impairment costs.
- Commercial loans decreased $166.9 million from year-end, while consumer loans increased $263.9 million. PPP loans declined to $4.7 million from $88.3 million.
- Nonperforming assets decreased $50.8 million from year-end, primarily due to payoffs, hotel-loan upgrades and OREO property sales.
- Shareholders’ equity declined $53.3 million to $1.15 billion, principally because of $107.9 million of other comprehensive loss, dividends and share repurchases, partly offset by net income.
Outlook, risks, contingencies and unusual items
Management identified 2022 priorities including high-impact growth initiatives, credit and enterprise-governance discipline, digital and infrastructure investments, talent development and stakeholder engagement. The filing does not provide quantitative earnings or revenue guidance.
The largest unusual balance-sheet item was the $104.6 million net unrealized loss on available-for-sale securities, compared with a $9.4 million net unrealized gain at December 31, 2021. Management attributed the losses to higher interest rates rather than issuer credit deterioration and stated that it did not intend, and was not required, to sell the securities before recovery.
Liquidity remains sensitive to deposit competition and rising rates. S&T reported $767.9 million of highly liquid assets, equal to 8.6% of total assets, and $2.7 billion of remaining FHLB borrowing capacity. Regulatory capital remained above well-capitalized thresholds, including a 10.75% holding-company leverage ratio and a 12.53% Common Equity Tier 1 ratio.
The filing highlights credit concentration in commercial real estate and other commercial lending, regional economic conditions, inflation, interest-rate and deposit-cost changes, liquidity, cybersecurity, operational and regulatory risks, LIBOR transition, litigation, and the effects of Russia’s invasion of Ukraine. The company reported no material litigation proceedings and no material changes to previously disclosed risk factors other than the Ukraine-related risk.
The board extended the $50 million share-repurchase authorization through March 31, 2023. The company repurchased 268,503 shares for $7.6 million during the first nine months, leaving approximately $29.8 million of capacity at September 30, 2022.
Investor verification checklist
- Verify whether deposit attrition continues and how funding costs and liquidity metrics evolve.
- Track the duration, unrealized losses and potential capital impact of the securities portfolio as interest rates change.
- Review commercial real estate, hotel and C&I credit quality, including the $28.5 million C&I relationship downgraded to substandard.
- Assess whether the low charge-off rate and reduced nonperforming assets are sustainable under weaker regional or macroeconomic conditions.
- Monitor future net interest margin performance as deposit pricing catches up with higher asset yields.
- Evaluate the effect of weaker mortgage banking activity and higher operating expenses on earnings diversification.
- Confirm future share repurchases, dividend funding and capital ratios against liquidity needs.