S&T Bancorp(STBA) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The financial statements present S&T Bancorp's financial position as of March 31, 2024, and its performance for the first quarter. Total assets slightly decreased to $9.54 billion from $9.55 billion at year-end 2023. Net income for Q1 2024 was $31.2 million, a decrease from $39.8 million in Q1 2023, primarily driven by lower net interest income and a higher provision for credit losses. Total shareholders' equity increased to $1.30 billion from $1.28 billion at year-end 2023 Consolidated Balance Sheets Balance Sheet Highlights (in thousands) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $9,539,103 | $9,551,526 | | Portfolio loans, net | $7,551,232 | $7,545,375 | | Goodwill | $373,424 | $373,424 | | Total Deposits | $7,600,347 | $7,521,769 | | Short-term borrowings | $285,000 | $415,000 | | Total Liabilities | $8,244,029 | $8,268,081 | | Total Shareholders' Equity | $1,295,074 | $1,283,445 | - Total assets saw a slight decrease of $12.4 million, while total deposits grew by $78.6 million, allowing for a $130.0 million reduction in short-term borrowings[8] Condensed Consolidated Statements of Comprehensive Income Income Statement Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net Interest Income | $83,477 | $88,791 | | Provision for credit losses | $2,627 | $922 | | Total Noninterest Income | $12,830 | $13,190 | | Total Noninterest Expense | $54,520 | $51,699 | | Net Income | $31,239 | $39,799 | | Earnings per share—diluted | $0.81 | $1.02 | | Dividends declared per share | $0.33 | $0.32 | - Net income decreased by 21.5% YoY, driven by a 6.0% decline in Net Interest Income, a 185% increase in the Provision for credit losses, and a 5.5% rise in Noninterest Expense[10] Condensed Consolidated Statements of Cash Flows Cash Flow Summary (in thousands) | Activity | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $46,378 | $44,255 | | Net Cash Used in Investing Activities | ($8,338) | ($55,745) | | Net Cash (Used in) Provided by Financing Activities | ($64,190) | $45,633 | | Net (decrease) increase in cash | ($26,150) | $34,143 | - The net decrease in cash was primarily due to financing activities, including a $130.0 million net decrease in short-term borrowings and $12.6 million in dividend payments, which was partially offset by a net increase in deposits[13] Notes to Consolidated Financial Statements Key notes detail the adoption of new accounting standards, particularly ASU 2023-02 for tax credit investments, which resulted in a $1.0 million adjustment to retained earnings. The loan portfolio composition remained stable at $7.66 billion. Nonperforming loans increased to $33.2 million from $22.9 million at year-end. The Allowance for Credit Losses (ACL) decreased to $104.8 million, representing 1.37% of total loans. Derivative liabilities, primarily for hedging, stood at $91.0 million - Adopted ASU 2023-02 for tax credit investments, using the proportional amortization method (PAM). This resulted in a $1.0 million cumulative effect adjustment to retained earnings as of January 1, 2024[19][70] Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Commercial real estate | $2,699,782 | $2,659,135 | | Commercial and industrial | $1,410,517 | $1,436,183 | | Business banking | $1,307,155 | $1,360,765 | | Consumer real estate | $1,782,973 | $1,731,778 | | Total Portfolio Loans | $7,656,034 | $7,653,341 | Allowance for Credit Losses (ACL) Activity (in thousands) | Description | Three Months Ended Mar 31, 2024 | | :--- | :--- | | Balance at beginning of period | $107,966 | | Provision for credit losses on loans | $3,425 | | Net Charge-offs | ($6,589) | | Balance at End of Period | $104,802 | - Total nonperforming assets increased to $33.3 million at March 31, 2024, from $23.0 million at December 31, 2023, primarily due to a rise in nonaccrual loans[45] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the $8.6 million year-over-year decrease in Q1 2024 net income to a $5.3 million decline in net interest income, a $1.7 million increase in the provision for credit losses, and a $2.8 million rise in noninterest expenses. The Net Interest Margin (NIM) compressed by 48 basis points to 3.84% due to higher funding costs. The financial condition remains stable with total assets at $9.5 billion. The loan portfolio was flat, while deposits grew by $78.6 million, reducing reliance on borrowings. Asset quality saw an increase in nonperforming loans, though capital levels remain strong and well above regulatory requirements - The company's strategic priorities for 2024 focus on its deposit franchise, core profitability, asset quality, and talent engagement[92] Key Profitability Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $31.2M | $39.8M | | Diluted EPS | $0.81 | $1.02 | | Return on average assets | 1.32% | 1.77% | | Return on average tangible shareholders' equity (non-GAAP) | 13.85% | 19.61% | Results of Operations Q1 2024 operating results declined compared to Q1 2023. Net interest income fell by $5.3 million as the cost of interest-bearing liabilities rose 131 basis points, outpacing the 47 basis point increase in asset yields. The provision for credit losses increased by $1.7 million, driven by higher net charge-offs of $6.6 million. Noninterest income was stable, while noninterest expense grew by $2.8 million, mainly from higher salaries and technology investments. The effective tax rate increased to 20.2% from 19.4% - Net interest margin (NIM) on an FTE basis (non-GAAP) decreased by 48 basis points to 3.84% in Q1 2024 from 4.32% in Q1 2023, primarily due to higher interest rates and a shift in funding mix to more expensive money market accounts and certificates of deposit[94][100] - Net loan charge-offs were $6.6 million in Q1 2024, compared to net recoveries of $5.1 million in Q1 2023. The 2024 charge-offs were mainly related to two CRE relationships and one C&I relationship[106] - Noninterest expense increased by $2.8 million YoY, driven by a $1.9 million rise in salaries and benefits (due to merit increases and new talent) and a $0.7 million increase in data processing and IT costs[108] Financial Condition As of March 31, 2024, the company's financial condition remained solid. Total assets were stable at $9.5 billion. The loan portfolio was flat at $7.7 billion, with a slight mix shift from commercial to consumer real estate loans. Total deposits grew by $78.6 million to $7.6 billion, enabling a $130.1 million reduction in total borrowings. Nonperforming assets increased to $33.3 million from $23.0 million at year-end, primarily from one large CRE loan moving to nonaccrual status. Capital ratios improved and remain well-capitalized, with a Common Equity Tier 1 ratio of 13.59% Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2024 | % of Total | | :--- | :--- | :--- | | Total Commercial Loans | $5,324,927 | 69.6% | | Total Consumer Loans | $2,331,107 | 30.4% | | Total Portfolio Loans | $7,656,034 | 100.0% | - Nonaccrual loans increased by $10.3 million to $33.2 million, mainly due to the addition of a $16.4 million CRE loan which was subsequently written down[129] - Total deposits increased by $78.6 million from year-end 2023, with customer deposits growing by $77.8 million, reflecting a focus on the deposit franchise[131][132] Capital Ratios | Ratio | March 31, 2024 | Well-Capitalized Guideline | | :--- | :--- | :--- | | Tier 1 leverage | 11.30% | 5.00% | | Common equity tier 1 | 13.59% | 6.50% | | Total capital | 15.49% | 10.00% | Quantitative and Qualitative Disclosures About Market Risk The company actively manages market risk, primarily interest rate risk, through its Asset and Liability Committee (ALCO). The balance sheet is asset-sensitive, meaning net interest income is projected to increase in a rising rate environment and decrease in a falling rate environment. As of March 31, 2024, a 100 basis point instantaneous increase in rates is estimated to increase pretax net interest income by 0.8% over 12 months, while a 100 basis point decrease would lower it by 4.2%. The company's risk exposure remains within its established policy limits - The company's balance sheet is positioned to be asset sensitive, meaning net interest income is expected to benefit from rising interest rates and be negatively impacted by falling rates[152] Interest Rate Sensitivity Analysis (Pretax Net Interest Income - 1-12 Months) | Change in Interest Rate (bps) | % Change at Mar 31, 2024 | % Change at Dec 31, 2023 | | :--- | :--- | :--- | | +200 | 2.6% | 1.2% | | +100 | 0.8% | 0.2% | | -100 | (4.2)% | (3.5)% | | -200 | (6.0)% | (4.2)% | Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024. There were no material changes to the company's internal control over financial reporting during the first quarter of 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective in all material respects as of the end of the period[156] - No changes were made to internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[157] PART II. OTHER INFORMATION Other Information Summary This section confirms there were no material changes to risk factors and no new legal proceedings. A new $50 million share repurchase plan was authorized in January 2024, replacing the previous plan, though no shares were repurchased during the first quarter. Other disclosures are standard and report no significant events - There have been no material changes to the risk factors previously disclosed in the 2023 Form 10-K[160] - On January 24, 2024, the Board of Directors authorized a new $50 million share repurchase plan, set to expire on May 30, 2025. No shares were purchased under this plan during the first quarter of 2024[161]