10-Q: S&T Bancorp Reports Third Quarter 2024 Results, Net Income Slightly Down

S&T Bancorp's third quarter 2024 earnings saw a slight decrease in net income compared to the same period last year, with shifts in interest income and expenses impacting overall profitability.

Summary

• S&T Bancorp reported a net income of $32.6 million, or $0.85 per diluted share, for the third quarter of 2024, compared to $33.5 million, or $0.87 per diluted share, for the same period in 2023.
• Net interest income decreased by $2.9 million, or 3.3 percent, for the quarter and $12.8 million, or 4.8 percent, for the nine months ended September 30, 2024, compared to the same periods in 2023.
• The net interest margin (NIM) on a fully taxable equivalent (FTE) basis decreased by 27 basis points for the quarter and 37 basis points for the nine months ended September 30, 2024, compared to the same periods in 2023.
• The provision for credit losses decreased to a negative $0.5 million for the quarter and $2.6 million for the nine months ended September 30, 2024, compared to $5.5 million and $16.9 million for the same periods in 2023.
• Noninterest income saw a slight decrease of $0.3 million for the quarter and $1.5 million for the nine months ended September 30, 2024, compared to the same periods in 2023, primarily due to losses on the sale of securities.
• Noninterest expense increased by $2.6 million for the quarter and $9.4 million for the nine months ended September 30, 2024, compared to the same periods in 2023, mainly due to higher salaries and employee benefits.
• Total assets remained relatively stable at $9.6 billion as of September 30, 2024, compared to December 31, 2023.
• Total portfolio loans were also relatively unchanged at $7.7 billion as of September 30, 2024, compared to December 31, 2023.
• Customer deposits increased by $333.4 million, or 4.7 percent, while brokered deposits decreased by $200.4 million, or 53.3 percent, at September 30, 2024, compared to December 31, 2023.
• Total borrowings decreased by $165.2 million, or 32.8 percent, to $338.4 million at September 30, 2024, compared to $503.6 million at December 31, 2023.
• Total shareholders' equity increased by $92.3 million to $1.4 billion at September 30, 2024, compared to December 31, 2023.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative. While the company shows strength in deposit growth and capital, the decrease in net interest income and margin, along with increased expenses, indicates some challenges. The company is taking steps to address these challenges, but the overall tone is cautious.

Positives

• Customer deposit growth was strong, leading to a reduction in higher-cost brokered deposits and borrowings.
• The provision for credit losses decreased significantly, indicating improved asset quality.
• Total shareholders' equity increased by $92.3 million, reflecting a stronger capital position.
• The company continues to maintain a strong capital position with a leverage ratio of 11.70 percent at September 30, 2024.
• The company's risk-based Common Equity Tier 1 ratio was 14.37 percent at September 30, 2024.

Negatives

• Net interest income decreased by 3.3% for the quarter and 4.8% for the nine months ended September 30, 2024, compared to the same periods in 2023.
• The net interest margin (NIM) on an FTE basis decreased by 27 basis points for the quarter and 37 basis points for the nine months ended September 30, 2024, compared to the same periods in 2023.
• Noninterest income decreased slightly due to losses on the sale of securities.
• Noninterest expense increased due to higher salaries and employee benefits, data processing, and technology investments.
• Nonaccrual loans increased by $9.0 million to $31.9 million at September 30, 2024, compared to $22.9 million at December 31, 2023.

Risks

• The company is exposed to interest rate risk, which could impact net interest income and capital.
• Credit risk in the loan portfolio could lead to potential losses.
• Cybersecurity concerns and operational risks could disrupt business activities.
• Changes in regulatory requirements could impact the company's operations and capital.
• Economic conditions and competition could affect the company's performance.
• The company is exposed to the risk of a deterioration in the housing market and reduced demand for mortgages.
• The company is exposed to the risk of a deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge to net income.

Future Outlook

The company's strategic priorities for 2024 and beyond will be focused on its deposit franchise, core profitability, asset quality, and talent and engagement. The company will continue to monitor and manage interest rate risk, liquidity risk, and credit risk.

Management Comments

• Management believes that all banking should be personal and that they cultivate relationships rooted in trust.
• Management's strategic priorities for 2024 and beyond will be focused on the deposit franchise, core profitability, asset quality and talent and engagement.

Industry Context

The decrease in net interest income and NIM reflects a broader trend in the banking industry where higher interest rates are impacting funding costs. The company's focus on growing customer deposits and reducing reliance on wholesale funding aligns with industry best practices for managing interest rate risk.

Comparison to Industry Standards

• The decrease in net interest margin (NIM) is a common challenge for banks in the current rising interest rate environment, with many regional banks experiencing similar pressures on profitability.
• S&T's focus on growing customer deposits and reducing reliance on brokered deposits is a strategy employed by many banks to improve their funding mix and reduce interest rate sensitivity.
• The company's capital ratios remain strong, exceeding regulatory requirements, which is consistent with the performance of well-capitalized banks in the industry.
• The increase in nonaccrual loans is a concern, but the company's allowance for credit losses remains adequate, which is a common practice among banks to mitigate potential losses.
• Compared to peers like First Commonwealth Financial Corporation and Northwest Bancshares, S&T's loan growth has been more muted, reflecting a more conservative approach to lending in the current economic climate.

Stakeholder Impact

• Shareholders may be concerned about the slight decrease in net income and the decline in net interest margin.
• Employees may be impacted by changes in salaries and benefits.
• Customers may benefit from the company's focus on growing its deposit franchise.
• Creditors may be reassured by the company's strong capital position and liquidity.

Next Steps

• The company will continue to focus on growing its deposit franchise, improving core profitability, maintaining asset quality, and engaging talent.
• The company will continue to monitor and manage interest rate risk, liquidity risk, and credit risk.
• The company will continue to evaluate its loan portfolio and make adjustments as needed.

Key Dates

Keywords

net interest income, net interest margin, credit losses, customer deposits, noninterest expense, loan portfolio, asset quality, capital, borrowings, securities