Business Overview
S&T Bancorp, Inc. (STBA) is a diversified financial services holding company headquartered in Indiana, Pennsylvania. The company's principal subsidiary, S&T Bank, has been serving customers since 1902, establishing a strong legacy of community banking and a commitment to growth. Over the past century, S&T Bancorp has evolved from a small community bank to a regional powerhouse, providing a comprehensive suite of banking and financial solutions to individuals, businesses, and institutions throughout Pennsylvania and Ohio.
S&T Bancorp, Inc. operates as the holding company for S&T Bank, providing a full range of financial services including retail and commercial banking, cash management, trust, and brokerage services. The company has grown to become a $9.6 billion bank holding company that trades on the NASDAQ Global Select Market under the ticker symbol STBA.
Throughout its history, S&T Bancorp has demonstrated resilience in the face of economic challenges. In the aftermath of the 2008 financial crisis, the company maintained a strong capital position, allowing it to continue serving its customers and communities effectively. More recently, S&T Bancorp successfully navigated the COVID-19 pandemic, adapting its operations and providing crucial support to its customers during this period of disruption.
In recent years, S&T Bancorp has strategically focused on enhancing its deposit franchise, maintaining solid asset quality, and delivering consistent profitability. The company has made significant investments in its risk management, audit, compliance, and other control functions to position itself for future growth, whether through organic expansion or strategic acquisitions.
S&T Bancorp's commitment to excellence has not gone unnoticed. The company was named a 2024 American Banker Best Bank to Work For, a testament to its people-forward purpose and dedication to creating a welcoming work environment for its employees. Furthermore, CEO Chris McComish was recognized as a 2024 C-Suite Award recipient by the Pittsburgh Business Times, highlighting his leadership and contributions to the organization's success.
Today, S&T Bancorp operates a network of over 80 branches across Pennsylvania and Ohio, serving a diverse customer base that includes individuals, small and medium-sized businesses, and institutional clients. The company's product offerings span commercial and consumer lending, deposit services, wealth management, and treasury management, catering to the evolving needs of its clientele.
Financial Snapshot
As of September 30, 2024, S&T Bancorp reported total assets of $9.6 billion, a testament to its steady growth and financial stability. The company's loan portfolio stood at $7.7 billion, with a diversified mix of commercial real estate, commercial and industrial, commercial construction, business banking, consumer real estate, and other consumer loans.
S&T Bancorp's deposit base has also been a key driver of its success, growing to $7.65 billion as of September 30, 2024. The company has been able to maintain a strong customer deposit franchise, with a healthy mix of personal, business, and public funds deposits, as well as a reduction in higher-cost brokered deposits.
The company's net interest income for the nine months ended September 30, 2024, was $251.6 million, with a net interest margin of 3.81% on a fully taxable equivalent basis. This performance reflects S&T Bancorp's ability to effectively manage its interest rate risk and optimize its balance sheet during a challenging interest rate environment.
For the most recent fiscal year (2023), S&T Bancorp reported revenue of $407.03 million, net income of $144.78 million, operating cash flow of $171.75 million, and free cash flow of $165.53 million. In the most recent quarter (Q3 2024), the company reported revenue of $96.35 million, net income of $32.59 million, operating cash flow of $27.54 million, and free cash flow of $28.95 million. Year-over-year, revenue grew 11.7%, while net income decreased 2.7% primarily due to higher interest expense on deposits. Operating cash flow decreased 24.2%, but free cash flow increased 36.0%, driven by lower capital expenditures.
Solvency and Liquidity
S&T Bancorp maintains a strong capital position, with a Common Equity Tier 1 ratio of 14.37% and a leverage ratio of 11.70% as of September 30, 2024. These ratios exceed the well-capitalized regulatory guidelines, providing the company with the financial flexibility to withstand potential economic headwinds and pursue strategic growth opportunities.
The company's liquidity position is also robust, with $682.5 million in highly liquid assets as of September 30, 2024, consisting primarily of interest-bearing deposits with banks and unpledged securities. This liquidity cushion, along with access to additional funding sources such as the Federal Home Loan Bank and the Federal Reserve's Borrower-in-Custody Program, allows S&T Bancorp to meet its financial obligations and support its lending and investment activities.
As of September 30, 2024, S&T Bancorp reported a debt-to-equity ratio of 0.25, cash and cash equivalents of $228.09 million, and access to borrowing capacity of $4.21 billion. This borrowing capacity includes $3.27 billion from the Federal Home Loan Bank, $746.12 million from the Borrower-in-Custody Program, and $200 million from the Federal Reserve's Bank Term Funding Program. The company's current ratio and quick ratio both stood at 5.51, indicating strong short-term liquidity.
Business Segments and Performance
S&T Bancorp operates two main business segments: Commercial Loans and Consumer Loans.
The Commercial Loans segment, which represented 68.4% of the total loan portfolio as of September 30, 2024, includes commercial real estate (CRE), commercial and industrial (CI), and commercial construction loans. Key financial metrics for this segment include:
- Average yield on commercial loans of 6.51% for the nine months ended September 30, 2024 - Net charge-offs of $8.34 million for the nine months ended September 30, 2024 - Allowance for credit losses of $75.79 million, or 1.44% of commercial loans, as of September 30, 2024
The Consumer Loans segment, accounting for 31.6% of the total loan portfolio, includes consumer real estate loans such as 1-4 family residential mortgages, home equity loans, and home equity lines of credit, as well as other consumer loans. Key financial metrics for this segment include:
- Average yield on consumer loans of 5.75% for the nine months ended September 30, 2024 - Net charge-offs of $1.31 million for the nine months ended September 30, 2024 - Allowance for credit losses of $17.53 million, or 0.72% of consumer loans, as of September 30, 2024
Overall, S&T Bancorp's loan portfolio remained relatively stable at $7.69 billion as of September 30, 2024, compared to $7.65 billion as of December 31, 2023. The company's focus has been on growing its core deposit franchise, which has allowed it to reduce its reliance on higher-cost borrowings and brokered deposits.
Navigating Challenges and Seizing Opportunities
S&T Bancorp's performance during the first nine months of 2024 has been commendable, with net income of $98.2 million and a return on average assets of 1.37%. The company's ability to navigate the challenges posed by the evolving interest rate environment, while maintaining a strong focus on deposit growth and asset quality, has been a key driver of its success.
In the third quarter of 2024, S&T Bancorp delivered $33 million in net income, or $0.85 per share. The company's return metrics were excellent, with a 13.5% return on tangible common equity (ROTCE) and 1.35% return on assets (ROA). Pre-provision net revenue (PPNR) remained solid at 1.69%, though it was impacted by $2 million in securities losses.
The company's commitment to disciplined credit risk management is evidenced by its declining non-performing asset ratio, which stood at 0.41% as of September 30, 2024. S&T Bancorp's proactive approach to credit risk monitoring and its willingness to make timely adjustments to its loan portfolio have contributed to its resilient asset quality. This is further reflected in the improvement of asset quality, with a decline in the allowance for credit losses (ACL) ratio to 1.36% of total loans.
Looking ahead, S&T Bancorp remains well-positioned to capitalize on opportunities in its core markets. The company's expanding commercial and consumer loan pipelines, combined with its focus on deepening customer relationships and diversifying fee income streams, suggest a positive outlook for continued growth and profitability.
S&T Bancorp expects an additional 10-12 basis points of net interest margin compression, assuming another 50-100 basis points of rate cuts in 2024. However, the company anticipates the net interest margin to stabilize in the low-3.70% range early in 2025, even if further rate cuts occur, supported by loan and securities repricing, their swap ladder, and the ability to implement deposit rate cuts.
For the coming periods, S&T Bancorp projects loan growth to be in the low-to-mid single digit range in Q4 2024 and mid-single digit for 2025. Noninterest income is expected to have a normal run rate of $13-$14 million per quarter, while noninterest expenses are anticipated to be $54-$55 million per quarter.
Furthermore, the company's strong capital position and liquidity profile provide a solid foundation for potential inorganic growth through strategic acquisitions, should attractive opportunities arise. S&T Bancorp's management team has demonstrated a track record of successful integration and value creation, further enhancing the company's long-term prospects. The company's tangible common equity (TCE) ratio increased by 64 basis points in Q3 2024, with over half (36 bps) due to accumulated other comprehensive income (AOCI) improvement, positioning them well for growth opportunities.
Conclusion
S&T Bancorp's rich history, financial strength, and unwavering commitment to its customers and communities have positioned the company as a formidable player in the regional banking landscape. Despite the challenges posed by the evolving interest rate environment, the company has navigated these waters with agility, maintaining a relentless focus on deposit growth, asset quality, and profitability.
As S&T Bancorp continues to leverage its deep expertise, innovative spirit, and customer-centric approach, the company is poised to capitalize on future growth opportunities and deliver sustainable value for its shareholders. The company's ability to adapt, innovate, and provide exceptional service to its clients has been a hallmark of its success, and it is well-equipped to navigate the dynamic banking industry landscape in the years to come.