S&T Bancorp, Inc. — 2022 Q1 Form 10-Q Summary
Business Context and Reporting Period
S&T Bancorp, Inc. is a Pennsylvania-based bank holding company operating in Western and Eastern Pennsylvania, Ohio and Upstate New York. It provides commercial and retail banking, cash management, trust, brokerage and wealth management services. The filing covers the three months ended March 31, 2022; results are unaudited and should be read with the 2021 Form 10-K.
Key Financial Metrics
| Metric | Q1 2022 | Comparable / Period-End Reference |
|---|---|---|
| Net income | $29.1 million | $31.9 million in Q1 2021 |
| Diluted earnings per share | $0.74 | $0.81 in Q1 2021 |
| Net interest income | $67.7 million | $70.7 million in Q1 2021 |
| FTE net interest margin | 3.16% | 3.47% in Q1 2021 |
| Provision for credit losses | Negative $0.5 million | $3.1 million provision in Q1 2021 |
| Noninterest income | $15.2 million | $17.2 million in Q1 2021 |
| Noninterest expense | $47.4 million | $45.6 million in Q1 2021 |
| Total assets | $9.43 billion | $9.49 billion at December 31, 2021 |
| Portfolio loans, net | $6.86 billion | $6.90 billion at December 31, 2021 |
| Total deposits | $7.96 billion | $8.00 billion at December 31, 2021 |
| Total borrowings | $146.7 million | $161.3 million at December 31, 2021 |
| Allowance for credit losses | $99.9 million, or 1.43% of portfolio loans | $98.6 million, or 1.41%, at December 31, 2021 |
| Nonperforming assets | $59.6 million, or 0.85% of loans plus OREO | $79.6 million, or 1.13%, at December 31, 2021 |
| Operating cash flow | $86.6 million | $90.0 million in Q1 2021 |
Material Changes Versus Prior Comparable Period
- Net income declined $2.8 million, or approximately 8.6%, primarily because of lower net interest income and noninterest income, higher operating expenses and lower mortgage banking activity.
- Net interest income declined $2.9 million. PPP loan revenue fell $4.1 million as average PPP balances decreased by $394.3 million year over year. Lower funding costs partially offset the decline.
- FTE net interest margin decreased 31 basis points to 3.16%, negatively affected by higher balances of low-yielding interest-bearing deposits held at banks and reduced PPP revenue.
- Noninterest income decreased $2.0 million, primarily due to a $3.3 million, or 76.5%, decrease in mortgage banking income. Debit and credit card, deposit service charge and wealth management revenue increased.
- Noninterest expense increased $1.8 million, driven by higher professional services and legal expense, salaries and employee benefits, technology costs and OREO expense.
- The provision for credit losses shifted to a $0.5 million benefit from a $3.1 million provision in Q1 2021. Management attributed the change mainly to a $2.5 million recovery on a commercial and industrial relationship and improved credit trends.
- Portfolio loans decreased 0.5% from year-end, although loans excluding PPP loans increased $10.3 million. Commercial loans declined $74.7 million, while consumer loans increased $38.6 million.
- Deposits decreased 0.5% from year-end, with a mix shift toward lower-cost products. Borrowings decreased $14.6 million.
- Accumulated other comprehensive loss increased by $40.0 million to $47.0 million, mainly because higher interest rates produced $38.8 million of after-tax-unadjusted net unrealized losses in the available-for-sale bond portfolio. This drove comprehensive income to a loss of $10.8 million despite positive net income.
Cash Flow, Liquidity, Debt and Capital
- Cash and cash equivalents declined $98.5 million to $823.8 million at March 31, 2022. Investing activities used $122.9 million, primarily because of $211.3 million of securities purchases, while financing activities used $62.1 million.
- Management reported $1.3 billion of highly liquid assets, equal to 14.2% of total assets, including $750.9 million of interest-bearing bank deposits, $585.4 million of unpledged securities and $1.4 million of loans held for sale.
- Remaining borrowing availability at the Federal Home Loan Bank of Pittsburgh was $2.6 billion.
- Debt consisted primarily of $70.1 million of repurchase agreements, $22.2 million of long-term borrowings and $54.4 million of junior subordinated debt securities.
- Regulatory capital remained well above minimum requirements. S&T Bancorp reported a 9.85% Tier 1 leverage ratio, 12.26% common equity Tier 1 ratio and 14.18% total capital ratio. S&T Bank reported a 9.55% Tier 1 leverage ratio, 12.29% common equity Tier 1 ratio and 13.79% total capital ratio.
Guidance, Outlook, Risks and Unusual Items
- No quantitative earnings or revenue guidance was provided. Management identified organic loan growth, credit-risk and enterprise governance, digital and infrastructure investment, talent development and potential strategic acquisitions as priorities.
- Management described the deposit base as stable and continued to emphasize liquidity and prudent capital management amid economic uncertainty.
- The balance sheet was asset sensitive; management expects rising rates to support pretax net interest income, while falling rates could have the opposite effect. Four five-year interest-rate swaps with aggregate notional value of $200 million were entered into as cash-flow hedges.
- Credit quality improved: nonperforming loans decreased to $52.5 million from $66.3 million at year-end, and OREO declined to $7.0 million following a $6.3 million property sale. However, management increased qualitative reserves because of inflation, macroeconomic uncertainty and risks in healthcare and commercial and industrial portfolios.
- Material risks include commercial real estate and construction concentration, regional economic conditions, interest-rate and securities-market volatility, deposit stability, liquidity, credit losses, cybersecurity and operational risk, the LIBOR transition, COVID-19 effects, inflation and the Russia-Ukraine conflict.
- The company adopted reference-rate-reform accounting relief effective January 1, 2022 with no material financial statement impact. It expects ASU 2022-02 on troubled-debt-restructuring disclosures to have no material impact, but is still evaluating the standard.
- The company reported no material litigation, no material changes to previously disclosed risk factors other than the Russia-Ukraine-related risk, and effective disclosure controls as of March 31, 2022.
- A $50 million share-repurchase authorization was extended through March 31, 2023. No shares were repurchased during the quarter, and $37.4 million of authorization remained at March 31, 2022.
Most Important Facts for Investors to Verify
- Whether loan growth excluding PPP loans accelerates and offsets the continuing runoff of PPP balances.
- Whether the 31-basis-point year-over-year margin compression stabilizes as interest rates rise and excess liquidity is redeployed.
- The sustainability of the negative credit-loss provision and the adequacy of the $99.9 million ACL if inflation, regional conditions or commercial real estate performance deteriorate.
- Whether the substantial unrealized securities losses affect capital, liquidity or securities-sale decisions if rates rise further.
- Trends in mortgage banking revenue, operating expenses and the company’s ability to achieve its stated organic-growth initiatives.
- Actual utilization of the share-repurchase authorization and the effect of future repurchases on capital and per-share results.