S&T Bancorp Inc 2026 Q3 Earnings Call

Good afternoon, everyone. Thank you for participating in today's earnings call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors. This statement provides the cautionary language. The 2026 earnings release, as well as this earnings supplement slide deck, can be obtained by clicking on the Materials button in the lower right section of your screen. This will open up a panel on the right where you can download these items. You can also obtain a copy of these materials by visiting our investor relations website at stbancorp.com. With me today are Chris McComish, S&T's CEO, and Dave Antolik, S&T's President. I'd now like to turn the call over to Chris.

Great. Mark, thank you, and good afternoon, everyone, and thank you for joining us today. We certainly appreciate the analysts and investors being with us, and as always, we look forward to your questions. Before we get into the numbers, I would like to take a moment and talk a little bit about our company and reflect on who we are as an organization. While we're obviously here to deliver results for shareholders, and we're very proud of those results, banks like ours also exist to make broader impact. We focus our company on our values. The values drive our culture, and our culture drives our financial performance. Not only is our financial performance strong, but once again, we were honored with an award most recently by the American Bankers Association for supporting military families. This marks the second year in a row we received this recognition.

Our People Forward purpose is about making positive impact in the lives of those we serve, and this award is a powerful example of that purpose in action. We're proud to support military families and grateful to our employees for helping create stronger communities through their commitment and service. To everyone who has contributed to our efforts to support military families, thank you. Your work continues to make a meaningful difference and is helping us build on our shared future together. Now talking about the third quarter, our results reflect another strong quarter of disciplined financial performance. We delivered record earnings per share of $1.09, up nearly 20% from a year ago and almost 7% from last quarter, and record revenue of nearly $108 million for the quarter.

Return metrics were also strong, with ROA of 1.55%, ROE of just under 11%, and a return on average tangible shareholders equity of 14.81%. Further, PPNR increased 12 basis points to 2.01% for the quarter. Our results demonstrated the strength and consistency of our core earnings engine, producing higher profitability and stronger returns. Our operating performance was also strong. Net interest margin expanded 7 basis points from the linked quarter to 4.06%, supported by higher loan yields and an improved funding mix. Importantly, we are seeing positive year-to-date operating leverage as well. Through the first 9 months of the year, revenue growth has outpaced expense growth, and our efficiency ratio has improved to 54.65%, compared to 56.35% for the first 9 months of 2025.

Asset quality trends remained favorable for the quarter, with net charge-offs of $2.1 million, or 10 basis points of total loans, and non-performing assets declined again this quarter by $3.7 million to just over $36 million, or 0.45% of total loans plus OREO. Turning now to Slide 4 and our balance sheet, loan balances were essentially flat during the quarter. Growth was impacted by our decisions to balance overall profitability and net interest margin against loan volume. We also experienced lower line utilization during the quarter. While period-end loan balances were down slightly, average loan balances for the quarter were actually up $61 million. Deposits declined modestly during the quarter, largely reflecting seasonal trends. Similar to loans, period-ending deposit balances were down, but average deposit balances were up over $56 million, including $24 million of average DDA growth compared to June 30, 2026.

Importantly, our funding profile remains a source of strength and has improved significantly this year. Demand deposits continue to represent a significant component of our deposit base at 28% of total deposits. As a reminder, we reduced brokered deposits by over $180 million year to date and currently have no brokered deposits on the balance sheet. Tangible book value increased $0.10 per share to $29.28, despite a significant increase in AOCI related to the impact of higher interest rates on our bond portfolio, which reduced tangible book value by $0.66 a share. In summary, our third quarter performance demonstrates record results. We produced record earnings per share and revenue, expanded margins, achieved higher returns, delivered positive operating leverage, and maintained favorable credit quality. These results reflect the disciplined execution of our strategy and most importantly, the dedication of our employees across the organization.

As we move forward into the final quarter of the year, we remain focused on driving profitable growth, maintaining strong credit discipline, enhancing our operating efficiency, and continuing to create long-term value for our shareholders. I am going to turn it over to Dave to provide more details on the balance sheet and customer activity, as well as asset quality, and I look forward to your questions. Dave? Great. Thank you, Chris, and continuing on page four with the overview of the balance sheet.

I will start by emphasizing something that Chris just reflected on, which was our deliberate decisions to balance volume and margin. This is being done in support of our continued strong earnings performance. At the same time, we recognize that the competitive environment for both loans and deposits continues to evolve in response to changes in both the economic landscape and the interest rate environment. We remain committed to investing in our deposit franchise as the primary driver of both profitability and growth here at S&T. As an example of that commitment, we completed a significant upgrade to our online banking platform for all customers in Q3, and we will roll out a similar significant upgrade for our mobile banking platform in Q4.

As depicted on the slide, loans were relatively flat during the quarter, reflecting reduced origination activity, particularly in the C&I banking space. Within commercial real estate, we saw balanced growth of $65 million, driven primarily by construction projects that were fully funded and moved from commercial construction into the commercial real estate category. Construction loan funding remains an important contributor to the total loan growth, and we forecast funding levels and overall CRE growth to remain relatively consistent in Q4 and into Q1. Balances in our C&I book declined by approximately $50 million in Q3. Impacting this result were a number of factors, including a slight reduction in revolving commercial utilization rates, the decision to exit several credits due to credit deterioration, and lower than anticipated originations. Based on current pipeline activity, we anticipate flat to low single-digit loan growth in Q4.

Turning to page 5, asset quality metrics remained solid during the quarter. Our allowance for credit losses was stable at 1.16% of gross loans, reflecting the overall quality of the loan portfolio and our focus on maintaining improvements that we've made over the past several years. Non-performing loans declined by $3.7 million, representing a very manageable 45 basis points of total loans plus OREO. Net charge-offs were modest at $2.1 million. Criticized and classified assets did increase during the quarter by approximately 7%. However, it's important to note that the increase was primarily driven by growth in criticized loans while classified loans remained stable. We view this distinction as important because it reflects proactive risk identification and monitoring rather than deterioration in our most severely rated credits.

Overall asset quality remains sound as we actively monitor the portfolio and adjust underwriting practices to reflect changes in the economic and interest rate environments. I'll turn the program over to Mark.

Hey, thanks, Dave. Third quarter net interest income increased by $2.7 million, or about 3%, due to an additional day in the quarter and growth in average loan balances. That, combined with improvement in the yield on earning assets, up 9 basis points with both better loan and securities yields. Also, a stable cost of funds, up just 1 basis point in the quarter. The net interest income and net interest margin improvement came with very little impact from the September Fed increase, which we expect will add a couple of basis points to margin in the fourth quarter. As our floating loan rate book will reprice within the month and deposit pricing repricing will lag some. We expect net interest margin strength if rates continue to move higher.

Based on expectations for two to three additional rate increases over the year, the net interest margin should stay north of 4% into 2027. How much depends on the level of price competition on both loans and deposits, which we have seen increase over the past month or so. Non-interest income was essentially unchanged this quarter, down about $200,000. Declines were mostly due to one-time items last quarter. Our expectations for fees as we close out the year and move into 2027 is approximately $14 million to $15 million per quarter. Given the slower loan growth this quarter, we do not expect to cross the $10 billion threshold before year-end, which would delay the Durbin impact to mid-2028 at the earliest. Expenses were well controlled this quarter, decreasing by $1.1 million compared to second quarter.

Marketing decreased due to higher promotional efforts in the second quarter, and the favorable variance in other includes tax-related contributions, which were partially offset by an unfavorable variance in the other taxes line. We expect to manage our 2027 non-interest expense year-over-year increase to approximately 3%, which implies a quarterly run rate moving towards $59 million up to $60 million over the course of next year. The TCE ratio increased by 10 basis points this quarter as strong earnings and a slightly smaller balance sheet more than offset the higher AOCI. We paused share repurchases in the third quarter after the strong stock performance in late June and into July. We do have a $100 million authorization in place and are evaluating a resumption of activity here in the fourth quarter, with an eye towards at least maintaining current capital levels.