S&T Bancorp, Inc. — 2024 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
S&T Bancorp, Inc. is a Pennsylvania-based bank holding company operating in Pennsylvania and Ohio through community banking, commercial and retail banking, cash management, wealth management, trust and brokerage services. The filing covers the three months ended March 31, 2024, with comparisons to the three months ended March 31, 2023 and the December 31, 2023 balance sheet.
Key Financial Metrics
| Metric | Q1 2024 | Comparable / Prior Period |
|---|---|---|
| Total assets | $9.54 billion | $9.55 billion at December 31, 2023 |
| Portfolio loans, net | $7.55 billion | $7.55 billion at December 31, 2023 |
| Total deposits | $7.60 billion | $7.52 billion at December 31, 2023 |
| Net interest income | $83.5 million | $88.8 million in Q1 2023 |
| Net interest margin, FTE | 3.84% | 4.32% in Q1 2023 |
| Provision for credit losses | $2.6 million | $0.9 million in Q1 2023 |
| Noninterest income | $12.8 million | $13.2 million in Q1 2023 |
| Noninterest expense | $54.5 million | $51.7 million in Q1 2023 |
| Net income | $31.2 million | $39.8 million in Q1 2023 |
| Diluted earnings per share | $0.81 | $1.02 in Q1 2023 |
| Cash dividends declared per share | $0.33 | $0.32 in Q1 2023 |
| Operating cash flow | $46.4 million | $44.3 million in Q1 2023 |
| Net cash change | $(26.2) million | +$34.1 million in Q1 2023 |
Return on average assets was 1.32%, return on average shareholders’ equity was 9.74%, and return on average tangible shareholders’ equity was 13.85%, compared with 1.77%, 13.38%, and 19.61%, respectively, in Q1 2023.
Material Changes Versus Prior Comparable Period
- Net income declined $8.6 million, or approximately 21.6%, primarily because net interest income decreased $5.3 million, provision expense increased $1.7 million, and noninterest expense increased $2.8 million. The lower expense was partly offset by a $1.7 million reduction in income tax expense.
- Interest income increased $16.9 million, but interest expense increased $22.2 million. Higher deposit costs and a shift toward money market accounts and certificates of deposit compressed earnings.
- Average interest-bearing deposits increased $689.4 million, including $377.8 million of brokered deposits. The average rate paid on interest-bearing deposits increased to 2.77% from 1.30%.
- Noninterest expense increased 5.5%, led by salaries and benefits, data processing and information technology, and furniture, equipment and software costs.
- Portfolio loans were essentially unchanged from year-end. Commercial loans declined $38.1 million, primarily from lower commercial and industrial balances, while consumer real estate loans increased $47.4 million.
- Deposits increased $78.6 million from year-end, while total borrowings decreased $130.1 million to $373.5 million, primarily because of deposit growth.
- Net loan charge-offs were $6.6 million, or 0.35% of average loans, compared with net recoveries of $5.1 million in Q1 2023. The 2023 comparison benefited from a $9.3 million recovery related to a 2020 customer fraud.
Asset Quality, Liquidity, Capital and Unusual Items
- The allowance for credit losses on loans was $104.8 million, or 1.37% of portfolio loans, versus $108.0 million, or 1.41%, at year-end. Nonaccrual loans increased to $33.2 million from $22.9 million, and nonperforming assets increased to $33.3 million from $23.0 million.
- The increase in nonaccrual loans primarily reflected a $16.4 million commercial real estate loan written down to the value of an asset sale agreement; the sale was expected later in 2024. A $3.2 million partial charge-off was recorded.
- Special mention loans increased to $147.3 million from $135.8 million, while substandard loans declined to $153.0 million from $173.3 million.
- The available-for-sale securities portfolio was $970.7 million and carried net unrealized losses of $87.8 million, compared with $82.0 million at year-end. Management attributed the losses to interest-rate changes rather than credit impairment and stated it did not intend, and was not likely required, to sell the securities before recovery.
- Highly liquid assets were $711.0 million, or 7.5% of total assets. Available borrowing capacity was $3.84 billion, exceeding uninsured deposits of approximately $2.3 billion. The Federal Reserve Bank Term Funding Program ceased making new loans on March 11, 2024.
- S&T Bancorp reported a 11.30% Tier 1 leverage ratio, 13.59% common equity Tier 1 ratio, and 15.49% total capital ratio, all above well-capitalized regulatory thresholds. S&T Bank also remained well capitalized.
- The company adopted ASU 2023-02 for tax credit equity investments on January 1, 2024. The adoption reduced retained earnings by $1.0 million and changed the presentation of related amortization and tax benefits within income tax expense.
- The board authorized a new $50 million share repurchase plan on January 24, 2024, expiring May 30, 2025. No shares were repurchased during the quarter.
Outlook, Management Commentary and Risks
Management’s 2024 strategic priorities are the deposit franchise, core profitability, asset quality, and talent and employee engagement. Loan volume has slowed because of higher interest rates and an uncertain macroeconomic environment. The filing provides no specific earnings, revenue, margin, loan-growth or expense guidance.
Management identifies material sensitivities to credit losses, commercial real estate and consumer credit performance, interest rates and funding costs, deposit stability, liquidity access, regulatory capital requirements, cybersecurity, operational and third-party risks, competition, economic conditions, housing-market deterioration, litigation, goodwill impairment, and potential disruption in banking and financial markets. The filing states that there were no material changes to previously disclosed risk factors and no material pending legal proceedings.
The balance sheet is described as asset sensitive: rising rates could support near-term pretax net interest income, while falling rates could reduce it. At March 31, 2024, a modeled immediate 100-basis-point rate increase was associated with a 0.8% increase in pretax net interest income over 1–12 months and a 0.9% increase over 13–24 months; a 100-basis-point decrease was associated with declines of 4.2% and 5.1%, respectively. These are modeled scenarios, not guidance.
Investor Verification Checklist
- Verify whether elevated nonaccrual loans, commercial real estate exposure, special mention loans, and quarterly charge-offs persist or require additional provisions.
- Monitor deposit mix, brokered and uninsured deposits, certificate-of-deposit pricing, and the effect of funding costs on net interest margin.
- Review unrealized securities losses, liquidity capacity, collateral availability, and the effect of the discontinued BTFP on contingency funding.
- Assess whether expense growth in compensation, technology, and software is consistent with future revenue generation and management’s core-profitability objectives.
- Reconcile the effects of ASU 2023-02 on tax expense, retained earnings, comparability, and effective tax rates.
- Track commercial real estate performance, including office and multifamily portfolios, geographic concentrations, collateral values, and the expected sale of the impaired CRE loan.
- Confirm future use of the $50 million repurchase authorization against capital, liquidity, and asset-quality conditions.