S&T Bancorp, Inc. (NASDAQ:STBA) is a bank holding company headquartered in Indiana, Pennsylvania, with assets of $9.6 billion as of June 30, 2024. The company operates in Pennsylvania and Ohio, providing a full range of financial services, including retail and commercial banking products, cash management services, trust, and brokerage services.

For the full year 2023, S&T Bancorp reported annual net income of $144,781,000, annual revenue of $536,082,000, annual operating cash flow of $171,805,000, and annual free cash flow of $165,586,000. In the second quarter of 2024, the company reported net income of $34,371,000, or $0.89 per diluted share, compared to $34,467,000, or $0.89 per diluted share, in the same period of 2023.

Business Overview

S&T Bancorp's purpose is "building a better future together through people-forward banking." The company believes that all banking should be personal and cultivates relationships rooted in trust, strengthened by going above and beyond, and renewed with every interaction. S&T Bancorp's strategic priorities for 2024 and beyond will be focused on its deposit franchise, core profitability, asset quality, and talent and engagement.

The company operates in three main business segments:

Commercial:

Includes commercial real estate, commercial and industrial, and commercial construction loans.

Business Banking:

Serves small businesses through a streamlined credit approval process.

Consumer:

Focuses on residential mortgages, home equity loans and lines of credit, and other consumer loans.

Financials

S&T Bancorp's financial performance in the second quarter of 2024 was strong, with a return on average tangible shareholders' equity (non-GAAP) of 15.01% and an efficiency ratio (non-GAAP) of 54.92%. The company's net interest margin (NIM) on an FTE basis (non-GAAP) was 3.85% in the second quarter of 2024, down from 4.22% in the same period of 2023.

The company's loan portfolio totaled $7.7 billion as of June 30, 2024, with commercial loans comprising 69.2% of the total and consumer loans making up the remaining 30.8%. The allowance for credit losses was $106.2 million, or 1.38% of total loans, as of June 30, 2024, compared to $108.0 million, or 1.41% of total loans, as of December 31, 2023.

Liquidity

S&T Bancorp maintains a strong liquidity position, with $742.3 million in highly liquid assets as of June 30, 2024, consisting primarily of $172.2 million in interest-bearing deposits with banks and $569.9 million in unpledged securities. The company's leverage ratio was 11.51% at June 30, 2024, well above the well-capitalized regulatory guideline of 5.00%. The risk-based Common Equity Tier 1 ratio was 13.89% at June 30, 2024, also exceeding the well-capitalized regulatory guideline of 6.50%.

Deposit Growth and Funding Mix

S&T Bancorp has focused on growing its deposit franchise, which is a key driver of its performance. In the second quarter of 2024, the company's customer deposits increased by $232.9 million, or 3.26%, compared to December 31, 2023. This growth allowed the company to reduce its wholesale deposits and borrowings by $85 million, which had a positive impact on its net interest margin.

The company's deposit base is well-diversified, with 58.4% personal, 32.9% business, 4.8% public funds, and 3.9% brokered deposits as of June 30, 2024. S&T Bancorp has been successful in growing its deposit franchise through its focus on customer relationships, product capabilities, and proactive outreach to both existing and new clients.

Loan Portfolio and Credit Quality

S&T Bancorp's loan portfolio remained relatively unchanged at $7.7 billion as of June 30, 2024, compared to December 31, 2023. The company expects loan growth for the third quarter of 2024 to be in the low single-digits, driven primarily by consumer and retail mortgage activities, with increased growth anticipated in the fourth quarter as commercial and business banking pipelines grow.

The company's credit quality remains stable to improving, with nonperforming assets at 0.45% of total loans plus OREO as of June 30, 2024, compared to 0.30% as of December 31, 2023. Criticized and classified loans decreased by 12% quarter-over-quarter and 29% year-over-year, reflecting the company's proactive efforts to enhance and build relationships that represent long-term opportunities.

Outlook

S&T Bancorp's management is cautiously optimistic about the company's outlook, citing improved loan pipelines, stable credit quality, and a strengthening deposit franchise. The company expects loan growth to accelerate in the fourth quarter of 2024 as commercial and business banking activities increase.

However, the company faces several risks, including potential changes in interest rates, economic conditions, and regulatory environment. Additionally, the company's exposure to the commercial real estate, particularly the office and multifamily segments, could pose risks if market conditions deteriorate. S&T Bancorp closely monitors these segments and maintains conservative underwriting standards to mitigate potential risks.

Conclusion

S&T Bancorp has demonstrated solid financial performance, with strong profitability, stable credit quality, and a growing deposit franchise. The company's focus on customer relationships, talent and engagement, and core profitability has positioned it well for the future. While the company faces some risks, its strong capital position and liquidity profile provide a solid foundation for continued growth and success.