S&T Bancorp, Inc. — Form 10-Q Summary
Business context and reporting period
S&T Bancorp, Inc. is a Pennsylvania-based regional bank holding company operating in Western and Eastern Pennsylvania, Ohio, and Upstate New York. It provides retail and commercial banking, cash management, trust, brokerage, and related financial services. This unaudited filing covers the three months ended March 31, 2021, compared primarily with the three months ended March 31, 2020 and the December 31, 2020 balance sheet.
Key financial metrics
| Metric | Q1 2021 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $9.329 billion | $8.968 billion at Dec. 31, 2020 |
| Net income | $31.9 million | $13.2 million in Q1 2020 |
| Diluted EPS | $0.81 | $0.34 in Q1 2020 |
| Net interest income | $70.7 million | $70.0 million in Q1 2020 |
| FTE net interest margin | 3.47% | 3.53% in Q1 2020 |
| Provision for credit losses | $3.1 million | $20.0 million in Q1 2020 |
| Noninterest income | $17.2 million | $12.4 million in Q1 2020 |
| Noninterest expense | $45.6 million | $46.4 million in Q1 2020 |
| Cash flow from operating activities | $90.1 million | $(60.0) million in Q1 2020 |
| Cash and due from banks | $671.4 million | $229.7 million at Dec. 31, 2020 |
| Total deposits | $7.876 billion | $7.421 billion at Dec. 31, 2020 |
| Total borrowings | $154.8 million | $227.9 million at Dec. 31, 2020 |
| Shareholders’ equity | $1.168 billion | $1.155 billion at Dec. 31, 2020 |
Portfolio loans declined to $7.183 billion from $7.226 billion at year-end 2020, while commercial loans represented 79.0% of the portfolio. The allowance for credit losses on loans was $115.1 million, or 1.60% of portfolio loans. Net loan charge-offs were $5.8 million, or 0.33% annualized of average loans.
Material changes versus comparable periods
- Net income increased $18.7 million, primarily because the provision for credit losses fell $16.9 million from the pandemic-related elevated level in Q1 2020. Higher noninterest income and lower expenses also contributed.
- Interest income declined because of lower short-term rates, but interest expense fell substantially as funding costs decreased. PPP loans contributed $5.8 million of interest income and increased FTE net interest margin by 10 basis points.
- Mortgage banking income increased $3.1 million to $4.3 million. Debit and credit card income and wealth management income also increased, while commercial loan swap income declined $2.4 million.
- Noninterest expense benefited from the absence of $2.3 million of merger-related expenses recorded in Q1 2020. This benefit was partly offset by higher salaries and employee benefits, professional services, legal costs, and FDIC insurance expense.
- Deposits increased $455.5 million, primarily from customer stimulus payments, PPP activity, and customer liquidity preferences. Short-term borrowings declined $75.0 million and brokered deposits declined $53.3 million.
- Net unrealized gains on available-for-sale debt securities declined to $23.7 million from $33.4 million at year-end 2020, reflecting higher interest rates.
- Nonperforming assets declined to $134.0 million from $148.9 million at year-end 2020. Total nonperforming loans, including a $2.8 million held-for-sale loan, were $135.2 million.
Guidance, outlook, risks, contingencies, and unusual items
The filing does not provide formal earnings or revenue guidance. Management expects the COVID-19 pandemic to continue affecting commercial and consumer borrowers and remains particularly focused on asset quality, including the hotel portfolio. Management reported improvement in asset quality during the quarter but remains cautious.
- PPP loans totaled $499.1 million at March 31, 2021; average PPP loans were $454.8 million and $156.5 million of PPP forgiveness occurred during the quarter. These loans are 100% SBA-guaranteed.
- COVID-related loan modifications declined to 40 commercial loans totaling $61.8 million from 52 loans totaling $195.6 million at year-end 2020. Management cautions that delinquency information may not fully reflect the credit risk of modified loans.
- Nonperforming loans were elevated versus Q1 2020, increasing $61.4 million year over year, principally because of $53.6 million of hotel loans that became nonperforming in late 2020.
- Commercial real estate and commercial construction represented approximately 52.1% of total portfolio loans, creating exposure to real estate, regional economic conditions, and construction risk.
- The balance sheet is asset sensitive. Management states that low interest rates negatively affect net interest income and margin, while rising rates may benefit near-term net interest income but reduce the value of securities and economic value of equity.
- Highly liquid assets totaled approximately $1.1 billion, or 11.9% of assets, and remaining FHLB borrowing availability was $2.5 billion. Regulatory capital ratios exceeded well-capitalized thresholds.
- A $0.7 million pension settlement charge was recognized in Q1 2021. Accumulated other comprehensive income declined $7.9 million, primarily because of lower unrealized securities gains.
- The $50 million share repurchase authorization was extended through March 31, 2022, with $37.4 million of capacity remaining. No shares were repurchased in Q1 2021.
- Management identified credit losses, cybersecurity, operational and third-party risks, interest-rate changes, LIBOR transition, regulatory requirements, liquidity, competition, acquisitions, regional economic conditions, COVID-19, mortgage demand, goodwill impairment, and litigation as material risk areas. No material legal proceedings or changes to previously disclosed risk factors were reported.
Most important facts for an investor to verify
- Whether the improvement in quarterly earnings is sustainable after the unusually large year-over-year reduction in credit-loss provisioning.
- Future performance of the hotel and broader commercial real estate portfolios, including migration of special mention and substandard loans.
- Credit performance of the $499.1 million PPP portfolio and the timing of remaining SBA forgiveness.
- Deposit retention after government stimulus effects fade and the company’s continuing need for wholesale funding.
- Effects of interest-rate movements on net interest margin, securities valuations, liquidity, and economic value of equity.
- Whether loan growth resumes after excluding PPP loans, given that management reported reduced originating activity related to COVID-19.
- Capital, liquidity, and allowance adequacy under adverse regional economic and credit-loss scenarios.