S&T Bancorp, Inc. — Q1 2023 Form 10-Q Summary
Business context and reporting period
S&T Bancorp, Inc. is a Pennsylvania bank holding company headquartered in Indiana, Pennsylvania, operating in Pennsylvania and Ohio through retail and commercial banking, cash management, trust and brokerage services. The filing covers the three months ended March 31, 2023, with comparisons to the three months ended March 31, 2022 and December 31, 2022 balance-sheet data.
Key financial metrics
| Metric | Q1 2023 | Comparable period or prior year-end |
|---|---|---|
| Net income | $39.8 million | $29.1 million in Q1 2022 |
| Diluted EPS | $1.02 | $0.74 in Q1 2022 |
| Total assets | $9.2 billion | $9.1 billion at December 31, 2022 |
| Net interest income | $88.8 million | $67.7 million in Q1 2022 |
| FTE net interest margin | 4.32% | 3.16% in Q1 2022 |
| Noninterest income | $13.2 million | $15.2 million in Q1 2022 |
| Noninterest expense | $51.7 million | $47.4 million in Q1 2022 |
| Provision for credit losses | $0.9 million | $(0.5) million in Q1 2022 |
| Portfolio loans | $7.25 billion | $7.18 billion at December 31, 2022 |
| Allowance for credit losses | $108.1 million, or 1.49% of loans | $101.3 million, or 1.41%, at December 31, 2022 |
| Total deposits | $7.15 billion | $7.22 billion at December 31, 2022 |
| Total borrowings | $564.1 million | $439.2 million at December 31, 2022 |
| Cash flow from operating activities | $41.9 million | $86.6 million in Q1 2022 |
| Cash and cash equivalents | $244.2 million | $210.0 million at December 31, 2022 |
| Return on average assets | 1.77% | 1.25% in Q1 2022 |
| Return on average shareholders’ equity | 13.38% | 9.88% in Q1 2022 |
Comprehensive income was $55.3 million, compared with a comprehensive loss of $10.8 million in Q1 2022, primarily reflecting improved unrealized losses on available-for-sale securities and positive interest-rate-swap adjustments. The company declared a quarterly dividend of $0.32 per share, up from $0.29.
Material changes versus comparable periods
- Net income increased $10.7 million, or approximately 36.6%, primarily because higher interest rates increased net interest income by $21.1 million.
- Interest and dividend income rose $40.8 million, while interest expense increased $19.7 million as deposit and borrowing costs rose.
- Average portfolio loans increased $216.6 million year over year, and the average loan yield increased 204 basis points to 5.81%.
- Noninterest income declined $2.0 million, led by lower mortgage banking income and debit and credit card income.
- Noninterest expense increased $4.3 million, mainly from salaries and employee benefits, marketing, and other taxes.
- Portfolio loans increased $67.1 million from year-end, driven primarily by a $70.3 million increase in consumer real estate loans. Commercial loans were essentially unchanged.
- Deposits declined $66.9 million, or 0.9%, as noninterest-bearing demand, money market and savings balances decreased; certificates of deposit increased $240.6 million, partly reflecting migration from other deposit categories.
- Borrowings increased $124.9 million, primarily to support loan growth and lower deposit balances.
- Nonaccrual loans increased to $24.6 million from $19.1 million, primarily because of a $6.8 million commercial and industrial relationship. Nonperforming assets increased to $27.7 million from $22.1 million.
Guidance, outlook, risks and unusual items
Management did not provide formal quantitative earnings or revenue guidance in the filing. Strategic priorities for 2023 include the deposit franchise, core profitability, asset quality, and talent and engagement. Management stated that liquidity and the balance sheet remained strong despite industry volatility following several bank failures.
- Available liquidity sources at March 31, 2023 totaled approximately $3.87 billion, including $2.34 billion of available FHLB capacity, $794.4 million through the Federal Reserve Borrower-In-Custody program, and $730.5 million under the Bank Term Funding Program. No Bank Term Funding Program balance was outstanding.
- Highly liquid assets were $917.9 million, or 10.0% of total assets. Uninsured deposits were approximately $2.4 billion, or 33% of total deposits.
- Capital remained above well-capitalized regulatory thresholds: Common Equity Tier 1 ratio was 13.10%, total capital ratio was 15.09%, and leverage ratio was 11.15%.
- The provision for credit losses included a $4.2 million specific reserve related to a commercial and industrial relationship and a $1.8 million increase in qualitative reserves related to the macroeconomic environment. These factors were partly offset by a $9.3 million recovery related to customer fraud occurring in 2020 and $5.1 million of net loan recoveries.
- Available-for-sale securities had gross unrealized losses of $88.9 million and gross unrealized gains of $0.6 million. Management attributed the losses primarily to interest-rate changes, determined the securities to be investment grade, and stated that it did not intend or expect to be required to sell them before recovery.
- The filing highlights risks from deposit outflows, higher funding costs, interest-rate volatility, unrealized securities losses, banking-system disruption, credit deterioration, commercial real estate exposure, cybersecurity, regulatory changes, litigation, and broader economic conditions.
- S&T adopted ASU 2022-02 on January 1, 2023. The adoption increased the allowance for credit losses by approximately $0.6 million and reduced retained earnings by $0.4 million, net of tax.
- The company extended its $50 million share-repurchase authorization through March 31, 2024. No shares were repurchased during Q1 2023; approximately $29.8 million remained available under the plan at March 31, 2023.
- Management reported no material litigation, no material changes to previously disclosed risk factors other than the banking-industry volatility risk, and effective disclosure controls and procedures.
Important facts for investors to verify
- Whether the higher net interest margin can be sustained as deposit repricing and borrowing costs continue to increase.
- Trends in deposits, particularly uninsured deposits and migration into higher-cost certificates of deposit.
- Changes in nonaccrual loans, special-mention loans, commercial and industrial credit quality, and the adequacy of the allowance for credit losses.
- Exposure to unrealized securities losses and the availability and cost of contingent funding if deposit outflows accelerate.
- The effect of retaining more consumer mortgage loans on balance sheet and the resulting interest-rate, liquidity and credit risks.
- Whether noninterest income remains pressured by weak mortgage banking activity and lower wealth-management balances.
- Future borrowing levels, funding costs, capital ratios, and the timing of any share repurchases.
- The filing’s forward-looking statements and risk disclosures, which caution that actual results may differ materially from management expectations.