S&T Bancorp, Inc. — Fiscal 2022 Form 10-K Summary
Business Context and Reporting Period
S&T Bancorp, Inc. is a Pennsylvania-based bank holding company operating primarily through S&T Bank in Pennsylvania and Ohio, with commercial, consumer, small-business, wealth-management, insurance and investment-advisory activities. The filing covers the fiscal year ended December 31, 2022, with comparative results for 2021 and 2020. At year-end, the company reported approximately $9.1 billion of assets, $7.2 billion of loans, $7.2 billion of deposits, $1.2 billion of shareholders’ equity, 73 banking branches and approximately 1,182 full-time-equivalent employees.
Key Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net income | $135.5 million | $110.3 million | 22.8% increase |
| Diluted EPS | $3.46 | $2.81 | 23.1% increase |
| Net interest income | $315.8 million | $276.1 million | 14.4% increase |
| FTE net interest margin | 3.76% | 3.22% | 54 basis-point increase |
| Provision for credit losses | $8.4 million | $16.2 million | Decrease of $7.8 million |
| Noninterest income | $58.3 million | $64.7 million | 9.9% decrease |
| Noninterest expense | $196.7 million | $188.9 million | 4.1% increase |
| Efficiency ratio, non-GAAP | 52.34% | 55.06% | Improved |
| Return on average assets | 1.48% | 1.18% | 30 basis-point increase |
| Return on average equity | 11.47% | 9.30% | 217 basis-point increase |
Net income benefited principally from higher interest rates and lower credit losses. Net loan charge-offs declined to $2.6 million, or 0.04% of average loans, from $34.5 million, or 0.49%, in 2021. The allowance for credit losses increased to $101.3 million, or 1.41% of portfolio loans. The effective tax rate was 19.8%, compared with 18.7% in 2021.
Portfolio loans increased 2.6% to $7.2 billion. Consumer loans increased $344.0 million, while commercial loans declined $160.1 million. Commercial loans remained 73.0% of portfolio loans, including significant commercial real estate and construction exposure. Securities increased to $1.0 billion, but the portfolio had $102.3 million of net unrealized losses at year-end due primarily to higher interest rates.
Total deposits declined 10.0% to $7.2 billion, driven by competition for deposits in the rising-rate environment. Total borrowings increased to $439.2 million from $161.3 million, including $370.0 million of short-term Federal Home Loan Bank advances. Cash and due from banks declined to $210.0 million from $922.2 million.
Net cash provided by operating activities was $240.4 million. Investing activities used $398.6 million, primarily due to securities purchases and loan growth. Financing activities used $554.1 million, principally due to deposit reductions, dividends and the replacement of deposit funding with borrowings. Year-end cash and cash equivalents were $210.0 million.
Liquidity included $870.0 million of highly liquid assets, equal to 9.6% of total assets, and approximately $2.4 billion of remaining FHLB borrowing availability. Regulatory capital remained strong: S&T reported an 11.06% leverage ratio, 12.81% common equity Tier 1 ratio, 13.21% Tier 1 ratio and 14.73% total capital ratio. S&T Bank was classified as well-capitalized.
Material Changes Versus the Prior Comparable Period
- Higher market interest rates increased loan yields and expanded the FTE net interest margin, despite higher deposit and borrowing costs.
- Mortgage banking income fell 77.2% to $2.2 million as rising rates reduced loan-sale activity and encouraged retention of originated mortgages.
- Noninterest expense increased due mainly to higher salaries and benefits, professional services, marketing, and other operating costs.
- Credit quality improved materially: nonperforming assets declined 72.2% to $22.1 million, and nonaccrual loans declined to $19.1 million from $66.3 million.
- Shareholders’ equity declined 1.8% to $1.185 billion because $105.0 million of other comprehensive losses and $47.0 million of dividends more than offset net income.
- Accumulated other comprehensive loss increased substantially due to after-tax unrealized losses on available-for-sale securities and interest-rate swaps.
- The company repurchased 268,503 shares for $7.6 million during 2022. The remaining authorization was $29.8 million at year-end; in January 2023, the $50 million plan was extended through March 31, 2024.
Outlook, Management Commentary, Risks and Unusual Items
Management identified 2023 and longer-term priorities as strengthening the deposit franchise, core profitability, asset quality, talent and employee engagement. The filing does not provide formal quantitative earnings or revenue guidance.
The balance sheet is described as asset sensitive. A 100-basis-point rate increase was modeled to increase pretax net interest income by 3.7% over 12 months, while a 100-basis-point decrease was modeled to reduce it by 6.1%. Management entered into $500 million of interest-rate swaps to reduce variability associated with commercial loans indexed to one-month LIBOR.
Key risks include deposit outflows and higher funding costs, dependence on FHLB and other wholesale funding, interest-rate and securities-market volatility, commercial real estate and commercial credit concentrations, regional economic weakness, inflation, recession, cybersecurity and third-party technology failures, fraud, regulatory changes, LIBOR transition, competition and potential limitations on dividends or capital distributions.
The company reported $2.8 billion of commitments to extend credit and standby letters of credit. The allowance for unfunded commitments increased to $8.2 million. Management stated that no pending litigation was material to financial condition or results of operations. The 2020 check-kiting fraud remained an unusual historical item: it produced a $58.7 million pretax loss, and the company continues to pursue recovery sources.
The company concluded that goodwill was not impaired as of October 1, 2022. Available-for-sale securities remained investment grade, and management did not record credit impairment because unrealized losses were attributed primarily to interest-rate changes. The filing identifies the allowance for credit losses as the critical audit matter. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important Facts for Investors to Verify
- Whether deposit runoff continues and how quickly deposit pricing and borrowing costs rise.
- The sustainability of the 2022 net interest margin benefit as interest rates, the yield curve and funding mix change.
- Commercial real estate, construction and commercial-and-industrial credit performance, including criticized loans and collateral values.
- Whether the $101.3 million allowance for credit losses remains adequate under adverse economic and unemployment scenarios.
- The liquidity value and potential capital impact of the $102.3 million unrealized securities loss and the interest-rate swap losses recorded in accumulated other comprehensive income.
- Future access to FHLB funding and other contingency liquidity sources if core deposits decline further.
- The effect of the LIBOR transition on loans, derivatives and junior subordinated debt securities.
- Future dividend payments and share repurchases, which remain subject to regulatory, capital, liquidity and market conditions.
- Execution against management’s deposit, profitability and asset-quality priorities; no formal quantitative guidance was provided.