S&T Bancorp(STBA) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents S&T Bancorp's unaudited consolidated financial statements for Q3 and nine months ended September 30, 2023, including balance sheets, income, equity, cash flows, and notes Consolidated Balance Sheets Total assets grew to $9.47 billion by September 30, 2023, driven by loan growth, while deposits remained stable at $7.2 billion with a shift to higher-cost certificates Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $9,466,077 | $9,110,567 | | Portfolio loans, net | $7,407,712 | $7,082,629 | | Securities available for sale | $955,262 | $1,002,778 | | Total Liabilities | $8,242,545 | $7,925,908 | | Total Deposits | $7,222,897 | $7,219,970 | | Short-term borrowings | $630,000 | $370,000 | | Total Shareholders' Equity | $1,223,532 | $1,184,659 | - The growth in total assets was primarily fueled by a $325 million increase in net portfolio loans[8] - A significant shift occurred in deposit composition: noninterest-bearing demand deposits fell by $312.7 million, while certificates of deposit grew by $553.3 million[8] Condensed Consolidated Statements of Comprehensive Income (Loss) Q3 2023 net income decreased to $33.5 million due to higher credit loss provision and interest expense, while nine-month net income increased to $107.7 million driven by net interest income growth Key Income Statement Data (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $87,387 | $83,798 | $264,301 | $226,725 | | Provision for credit losses | $5,498 | $2,498 | $16,949 | $5,190 | | Net Income | $33,468 | $37,249 | $107,734 | $95,250 | | Earnings per share—diluted | $0.87 | $0.95 | $2.78 | $2.43 | - Total interest income for the nine-month period grew significantly to $351.2 million in 2023 from $237.5 million in 2022, reflecting the higher interest rate environment[10] - Total interest expense also saw a sharp increase, rising to $86.9 million for the first nine months of 2023 from just $10.8 million in the prior-year period, driven by higher deposit and borrowing costs[10] Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity grew from $1.18 billion to $1.22 billion by September 30, 2023, primarily from net income, partially offset by dividends, repurchases, and other comprehensive loss Shareholders' Equity Activity - Nine Months Ended Sep 30, 2023 (in thousands) | Description | Amount | | :--- | :--- | | Balance at January 1, 2023 | $1,184,659 | | Net Income | $107,734 | | Other comprehensive loss, net of tax | ($13,511) | | Cash dividends declared | ($37,190) | | Repurchase of S&T Stock | ($19,998) | | Balance at September 30, 2023 | $1,223,532 | Condensed Consolidated Statements of Cash Flows Cash and due from banks increased by $28.4 million for the nine months, with $132.1 million from operations, $328.8 million used in investing, and $225.2 million provided by financing activities Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $132,070 | $205,236 | | Net Cash Used in Investing Activities | ($328,829) | ($306,607) | | Net Cash Provided by (Used in) Financing Activities | $225,203 | ($685,941) | | Net increase (decrease) in cash | $28,444 | ($787,312) | - A significant shift in financing activities occurred, from a net cash use of $685.9 million in 2022 to a net cash provision of $225.2 million in 2023, largely due to increased borrowings[14] Notes to Consolidated Financial Statements This section provides detailed disclosures for financial statements, covering accounting policies, fair value, portfolio risks, credit losses, derivatives, and off-balance sheet commitments - The company adopted ASU 2022-02 on January 1, 2023, which eliminated the Troubled Debt Restructuring (TDR) accounting model and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty, resulting in a $0.6 million increase to the Allowance for Credit Losses (ACL) and a decrease to retained earnings[20][23] - The company's available-for-sale debt securities portfolio had gross unrealized losses of $115.4 million as of September 30, 2023, primarily attributed to changes in interest rates rather than credit quality deterioration[37][38] - Total commitments to extend credit were $2.7 billion, and standby letters of credit were $53.1 million as of September 30, 2023[80] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and operations, analyzing earnings, net interest income, credit losses, noninterest items, balance sheet changes, and highlighting strong liquidity and capital Overview S&T Bancorp, a $9.5 billion bank holding company, maintains a strong liquidity and balance sheet with a diversified deposit base, robust capital, and $3.8 billion in available borrowing capacity - The company's deposit base is well-diversified, consisting of 57.4% personal, 35.2% business, 5.0% public funds, and 2.4% brokered deposits as of September 30, 2023[97] - Total uninsured deposits amount to $2.2 billion, representing 31% of the total deposit base[97] - Available borrowing capacity stood at $3.8 billion at September 30, 2023, including access to the FHLB, Federal Reserve Discount Window, and the Bank Term Funding Program (BTFP)[97] Earnings Summary Q3 2023 net income decreased to $33.5 million due to higher credit loss provision and expenses, while nine-month net income rose to $107.7 million driven by increased net interest income Key Profitability Metrics | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (in thousands) | $33,468 | $37,249 | $107,734 | $95,250 | | Earnings per share - diluted | $0.87 | $0.95 | $2.78 | $2.43 | | Return on average assets | 1.42% | 1.64% | 1.56% | 1.38% | | Return on average shareholders' equity | 10.84% | 12.47% | 11.80% | 10.73% | Results of Operations Net interest income grew despite rising interest expense, while credit loss provision increased, noninterest income declined due to valuation adjustments, and noninterest expense rose from higher salaries - Net interest margin (NIM) on a fully taxable equivalent (FTE) basis increased to 4.09% in Q3 2023 from 4.04% in Q3 2022, and to 4.21% for the nine-month period from 3.58% a year prior, driven by higher interest rates[100][107][113] - The provision for credit losses for the nine months ended Sep 30, 2023, was $17.0 million, an increase of $11.8 million from the same period in 2022, due to higher net charge-offs and an increased qualitative reserve[101][119] - Noninterest income for Q3 2023 decreased by $2.6 million year-over-year, primarily due to a $0.9 million valuation adjustment for commercial loan swaps and a $0.6 million gain on OREO sale in the prior year period that did not recur[102][122] - Noninterest expense for the nine months ended Sep 30, 2023, increased by $8.7 million year-over-year, mainly due to a $5.3 million rise in salaries and employee benefits[103][124] Financial Condition Total assets grew by $355.5 million to $9.5 billion driven by loan growth, deposits remained flat at $7.2 billion with a mix shift, and borrowings increased by $279.5 million - Total portfolio loans grew by 4.6% to $7.5 billion at September 30, 2023, with consumer real estate loans increasing by 15.3% and commercial loans increasing by 1.2%[126][134][136] - The Allowance for Credit Losses (ACL) increased to $108.2 million (1.44% of loans) from $101.3 million (1.41% of loans) at year-end, reflecting a larger qualitative reserve and downgrades in the C&I portfolio[142] - Nonaccrual loans decreased by 33.5% to $12.7 million (0.17% of loans) from $19.1 million (0.27% of loans) at year-end 2022, mainly due to the payoff of a large CRE loan[146] - Total borrowings increased to $718.7 million from $439.2 million at year-end 2022 to support loan growth[149] Liquidity and Capital Resources The company maintains strong liquidity and capital, supported by a stable deposit base and $3.8 billion in borrowing capacity, with all capital ratios exceeding 'well-capitalized' minimums Available Funding Sources (in thousands) | Source | Borrowing Capacity | Balance | Available | | :--- | :--- | :--- | :--- | | FHLB | $3,125,638 | $787,701 | $2,337,937 | | Federal Reserve Discount Window | $769,550 | $0 | $769,550 | | Federal Reserve BTFP | $675,784 | $0 | $675,784 | | Total | $4,570,972 | $787,701 | $3,783,271 | Regulatory Capital Ratios (S&T Bancorp, Inc.) | Ratio | September 30, 2023 | Well-Capitalized Guideline | | :--- | :--- | :--- | | Common equity tier 1 | 13.11% | 6.50% | | Tier 1 capital | 13.43% | 8.00% | | Total capital | 15.01% | 10.00% | | Tier 1 leverage | 11.12% | 5.00% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with an asset-sensitive balance sheet indicating net interest income increases in rising rates and decreases in falling rates Interest Rate Sensitivity Analysis (Pretax Net Interest Income % Change) | Change in Interest Rate (bps) | 1 - 12 Months % Change | 13 - 24 Months % Change | | :--- | :--- | :--- | | +400 | 7.7% | 10.9% | | +200 | 3.7% | 5.0% | | +100 | 1.7% | 2.4% | | -100 | (4.1)% | (5.8)% | | -200 | (5.9)% | (8.4)% | - The balance sheet is asset sensitive, meaning more assets than liabilities will reprice in a given period, leading to higher net interest income in a rising rate environment and lower net interest income in a falling rate environment[168] Controls and Procedures Management, including the CEO and CFO, deemed disclosure controls effective as of September 30, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[172] - No changes were made to internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[173] PART II. OTHER INFORMATION Legal Proceedings The company reports no legal proceedings - None[175] Risk Factors No material changes to risk factors from the 2022 Form 10-K, except for a new risk concerning adverse effects from difficult market conditions and bank failures - A new risk factor has been added concerning the potential adverse effects of difficult market conditions, such as rapidly rising interest rates and recent bank receiverships, on the company's business, operations, liquidity, and stock price[176] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q3 2023; a $50 million share repurchase plan remains active with $9.8 million available as of September 30, 2023 - No shares were repurchased during the three months ended September 30, 2023[179] - The company has a $50 million share repurchase plan authorized through March 31, 2024, with $9,807,857 remaining capacity at the end of the quarter[179] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[180] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[180] Other Information No director or Section 16 officer adopted, terminated, or modified trading arrangements during the third quarter of 2023 - No director or Section 16 officer adopted, terminated, or modified a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the quarter[180] Exhibits This section lists Form 10-Q exhibits, including CEO and CFO certifications and XBRL interactive data files - The report includes certifications from the Chief Executive Officer and Chief Financial Officer under Rule 13a-14(a) and Rule 13a-14(b)[181] - Interactive Data Files (XBRL documents) are included as exhibits[181]