S&T Bancorp, Inc. (STBA) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary shows a stable financial performance with expectations of loan growth and stable net interest margins. However, the Q&A reveals uncertainties regarding competition in the deposit market and M&A activity. The company's strategy to stay under the $10 billion threshold and plans for share repurchases are positive, but management's lack of clarity on nonperforming credits and M&A targets adds uncertainty. Overall, the mixed signals lead to a neutral sentiment rating.
Key Financial Performance
Earnings Per Share (EPS) $0.91, net income of $35 million, while ROA came in at 1.42%, up 10 basis points from Q2, and PPNR at a very solid 1.89% was up 16 basis points. PPNR was aided by both NIM expansion increasing to a robust 3.93%, up 5 basis points linked quarter, while net interest income rose more than 3%.
Total Loan Balances Grew by $47 million or 2.3% annually during the quarter. This growth was largely driven by CRE activities, resulting in $133 million of increased balances in that category. Much of this growth was the result of construction loans converting to permanent commercial real estate loans as projects were completed during the quarter. Commercial construction balances declined by $78 million.
Allowance for Credit Losses (ACL) Decreased by 1 basis point linked quarter. Overall, criticized and classified assets were up moderately quarter-over-quarter and are in a range where we expect them to remain for the foreseeable future.
Non-Performing Assets (NPAs) Increased to 62 basis points of total loans. This level of NPL follows a period of exceptionally low levels and is well within an acceptable range. The increase was primarily a result of 2 CRE credits and 1 C&I credit that migrated during the quarter. Recognized charges of $2.4 million in the quarter and established additional specific reserve of $2.7 million.
Net Interest Income Improved by $2.6 million or 3% compared to the second quarter, and net interest margin expanded by 5 basis points. The net interest margin improvement came from a 1 basis point earning asset increase, combined with a 3 basis point decrease in cost of funds.
Noninterest Income Slight increase of $0.3 million during Q3, with small improvements in major customer fee categories.
Expenses Declined by $1.7 million compared to the second quarter. Favorable variances were concentrated in salaries and benefits, primarily in incentives and medical. Additionally, professional services decreased by about $0.5 million, mostly due to the timing of some projects.
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Operating Highlights
Loan Growth: Total loan balances grew by $47 million or 2.3% annually during the quarter, driven by CRE activities, with $133 million increase in commercial real estate loans.
Consumer Loan Activity: Consumer loans grew by $37 million or approximately 6% annualized, with pipelines supporting continued growth.
Commercial Pipelines: Commercial pipelines reached the highest point in 5 quarters, indicating potential for mid-single-digit loan growth in Q4.
Net Interest Income and Margin: Net interest income improved by $2.6 million (3%) compared to Q2, with net interest margin expanding by 5 basis points to 3.93%.
Deposit Mix: Noninterest-bearing deposits represented 28% of total deposits, with average DDA growth of over $50 million versus Q2.
Efficiency Ratio: Efficiency ratio dropped to 54.4%, reflecting well-managed expenses and revenue growth.
Expense Management: Expenses declined by $1.7 million compared to Q2, with reductions in salaries, benefits, and professional services.
Balance Sheet Repositioning: Strategically repositioned balance sheet to reduce asset sensitivity, enhancing ability to drive consistent net interest income growth.
Capital Flexibility: Earnings drove tangible book value growth of over 3%, providing flexibility for acquisitions and share buybacks.
Credit Risk Management: Allowance for credit losses decreased by 1 basis point, with no significant concerns in asset classes or industries.
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Risk or Challenges
Non-Performing Assets (NPAs) Increase: NPAs increased to 62 basis points of total loans, primarily due to two CRE credits and one C&I credit migrating during the quarter. While this follows a period of exceptionally low levels, it represents a potential risk to asset quality.
Higher Commercial Loan Payoffs: Total commercial loan payoffs were higher than the previous two quarters and Q3 2024, driven by seasonal reductions, higher-than-anticipated payoffs, and credits the company chose to exit. This could impact loan growth and revenue.
Allowance for Credit Losses Decrease: The allowance for credit losses decreased by 1 basis point, which may limit the company's ability to absorb potential future credit losses.
Muted Customer Deposit Growth: Customer deposit growth was muted, which could constrain the company's ability to fund future loan growth and maintain liquidity.
Expense Management Challenges: While expenses were well-managed this quarter, the company expects a quarterly expense run rate of $57 million to $58 million, which could pressure margins if revenue growth slows.
Construction Loan Balances Decline: Commercial construction balances declined by $78 million, which could impact future growth in the CRE segment.
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Guidance & Outlook
Loan Growth: Guiding to mid-single-digit loan growth in Q4 2025, supported by commercial pipelines at their highest point in 5 quarters and anticipated new loan and payoff activity.
CRE Growth: Unfunded construction commitments grew by $37 million in Q3 2025, indicating continued growth in commercial real estate (CRE) for the balance of the year and beyond.
Consumer Loan Growth: Consumer loan activity is expected to continue growing at the pace seen in recent quarters, supported by current pipelines.
Net Interest Margin (NIM): The company expects its neutral interest rate risk position and pricing discipline to mitigate any negative impact from rate changes over the next several quarters.
Noninterest Income: Expectations for fees remain steady at approximately $13 million to $14 million per quarter.
Expenses: Quarterly expense run rate is expected to be approximately $57 million to $58 million for the next several quarters.
Credit Quality: Non-performing loans (NPLs) are expected to stabilize and potentially reduce over the balance of 2025 and into Q1 2026. No additional downward pressure on credit results is anticipated based on current indicators.
Capital Position: Strong capital ratios position the company well for both organic and inorganic growth opportunities, with a share repurchase authorization of $50 million in place.
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Shareholder Return Plan
Capital flexibility: The company has a share repurchase authorization in place for $50 million, providing flexibility for share buyback opportunities.
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Key Q&A
Q:Could you provide more details on loan growth in the quarter, including the impact of origination activity and paydowns?
A:Paydowns were up quarter-over-quarter and higher than in Q3 of last year, leading to lighter-than-expected results. CRE activity remains strong, with construction commitments growing, indicating better growth in Q4 and Q1. Consumer growth is expected to remain in the mid-single digits, similar to the 6% in Q3. Efforts are ongoing to drive better C&I growth, with new teams being recruited. Mid-single-digit growth is deemed appropriate given the deposit franchise growth and funding sources.
Q:Is the mid-single-digit growth target a result of paydowns or other factors like deposits?
A:It is a combination of paydowns, deposit factors, and market demand. Uncertainty due to the budget impasse in Washington and Pennsylvania also plays a role. The interest rate environment is favorable, but mid-single-digit growth is considered appropriate from a credit and funding perspective.
Q:How do you see the NIM playing out in the intermediate term with potential Fed rate cuts?
A:For the next several quarters, the company is well-positioned to handle potential rate cuts due to its funding mix, ability to reduce deposit rates, CD repricings, and the receive fixed swap book maturing over the next several quarters. Beyond mid-summer, customer behavior and the shape of the curve could pressure the margin in a stable rate environment.
Q:Do you have any deposits indexed directly to Fed funds that would reprice immediately with rate cuts?
A:No, there are no contractually indexed deposits. There is a small amount tied to a 3-month T-bill, approximately $150 million, which is very small.
Q:Could you provide an update on M&A activity and trends in your market?
A:The market remains active, particularly in Pennsylvania and Ohio, though not as much as other geographies. Conversations are ongoing, and the company is interested in areas like the Mid-Atlantic and regions further south and east.
Q:What are your thoughts on competition in the deposit market and betas for rate cuts?
A:After the first rate cut, there was more competitive pressure than expected, especially on CDs. Adjustments were made to exception pricing. With multiple cuts, the company expects to catch up. Loan beta is around 40%, and the company aims to match that with CD repricing to maintain a stable NIM.
Q:Will the company stay under the $10 billion threshold next quarter, and when will it cross it?
A:The company expects to stay under $10 billion next quarter and cross it organically sometime next year.
Q:Can the company sustain profitability above the 1.40% level?
A:Yes, the company targets staying in that range, focusing on credit performance and maintaining margins in a down-rate environment.
Q:Are there plans to recruit additional bankers, and how will that impact operating expenses?
A:Yes, the company plans to add bankers, expecting them to pay for themselves. There is a focus on improving productivity through artificial intelligence and streamlined processes to manage operating expenses.
Q:What is the company's appetite for share repurchases at current valuations?
A:The company sees better opportunities due to a downdraft in bank stocks and plans to look closer at share repurchases in the current quarter.
Q:Does the company have any exposure to the NDFI sector?
A:No material exposure. There is some exposure to REITs classified as NDFIs, but not in areas where larger regional banks have faced problems.
Q:Are there specific areas of credit to watch more carefully?
A:No specific areas of concern. Credit is performing as expected, with investments like a data center in Western Pennsylvania adding growth opportunities. The company is managing its C&I book closely to avoid excessive risk.
Q:What are the opportunities to raise core funding and improve the loan-to-deposit ratio?
A:The company focuses on growing its deposit franchise through incentive plans, product mix, and adding staff, including treasury management professionals. It aims to improve the loan-to-deposit ratio while responding to competitive intensity in the deposit market.
Q:When will the company cross the $10 billion threshold, and is there room to delay it?
A:The company expects to cross the $10 billion threshold in the first half of next year and does not plan to delay it long-term.
Q:What is the timing difference between floating rate loans and deposit repricing, and how will it impact NIM?
A:Floating rate loans have decreased to about 30% net, providing some relief. The company does not expect a significant air pocket in NIM due to deposit repricing and competitive pressures.
Q:What were the business lines and sectors behind the nonperforming credits?
A:The C&I credit was a manufacturer, and the two CRE credits were related to construction risk. Asset resolution plans are in place, and there are no broader concerns tied to specific industries or geographies.
Q:What makes an attractive M&A target beyond geography?
A:An attractive target has a strong deposit franchise, potential for geographic expansion or overlap, and opportunities to grow the company faster. The focus is on the balance sheet, particularly deposits, and potential synergies in business lines like C&I or small business.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the nonperforming credits, citing active workouts. They also used general language when discussing M&A strategy, focusing on deposit franchises and geographic preferences without detailed criteria for targets.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Antolik color
Asset class
Asset payoff
CI credit
CRE activity
CRE balance
CRE credit
CRE decline
Chair year
Charges ACL
Consumer pipeline
DDA interest
Director lot
Great afternoon
Independent Director
Lead Independent
NPAs base
NPL period
NPLs balance
NPLs support
Officer Great
Officer Senior
PPNR basis
Page
construction
deposit DDA
expansion
focus
future
income interest
increase
point PPNR
strategy
year service
STBA Transcript
S&T Bancorp, Inc. (STBA) Q4 2025 Earnings Call Transcript
Positive1-22
The earnings call summary indicates strong financial performance with increased noninterest income and a significant share repurchase plan, which are positive catalysts. Despite higher expenses, the company maintains a solid capital position and expects steady loan growth, supported by internal deposits. The Q&A reveals confidence in managing competitive pressures and M&A activities, though some responses lacked detail. Overall, positive guidance and strategic initiatives, along with a small-cap market cap, suggest a positive stock price movement of 2% to 8%.
S&T Bancorp, Inc. (STBA) Q3 2025 Earnings Call Transcript
Unknown10-23
The earnings call summary shows a stable financial performance with expectations of loan growth and stable net interest margins. However, the Q&A reveals uncertainties regarding competition in the deposit market and M&A activity. The company's strategy to stay under the $10 billion threshold and plans for share repurchases are positive, but management's lack of clarity on nonperforming credits and M&A targets adds uncertainty. Overall, the mixed signals lead to a neutral sentiment rating.
S&T Bancorp, Inc. (STBA) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call indicates strong financial performance with EPS exceeding estimates and stable NIM. Loan growth and deposit strategies are promising, and M&A activity is progressing positively. While there are concerns about funding costs, the company has strategies to mitigate these. The Q&A reveals confidence in growth and stable credit quality. The market cap suggests a moderate reaction, leading to a positive outlook.
Earnings call transcript: S&T Bancorp beats Q1 2025 EPS expectations
Positive4-24
The company reported strong financial performance with EPS and net income exceeding expectations, alongside continued customer deposit and loan growth. Despite some market uncertainties and competitive pressures, the stable net interest margin and improved capital position are positive indicators. The Q&A session revealed proactive growth strategies and cautious risk management, albeit with some hesitancy in addressing tariff impacts. Given the market cap, this combination of strong performance and strategic planning suggests a positive stock price movement in the short term.
STBA Slides
STBA Report
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