S&T Bancorp Inc (STBA) Q1 2026 Earnings Call Transcript

to the S&P Bancorp first quarter, 2026 earnings conference call. After the management's remarks, there will be a question and answer session. Now, I would like to turn the call over to Chief Financial Officer, Mark Kochvar. Please go ahead.

Thank you, and 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. This statement provides the Cost-Using Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the first quarter 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 McCommish, S&T's CEO, and Dave Antolik, S&T's President.

I'd now like to turn the program over to Chris. Mark, thank you. And I want to welcome everybody to the call. Good afternoon. We appreciate the analysts being here with us, and we look forward to your questions. I'm going to begin my comments on page three. Before I do that, though, I want to just reflect on the busy week that it's been here in Western Pennsylvania and in Pittsburgh, as Pittsburgh is the center of the sporting universe with the NFL draft taking place starting today. Mark, Dave, and I are actually coming to you from the S&T Bank Draft Headquarters in downtown Pittsburgh, where there's been quite a buzz. We have significant customer engagement events going on, which actually started yesterday evening. It's very gratifying to see the impact our bank has on the markets we serve and the customer relationships that we've built. A big thank you to our employees and teammates who are leading the charge building our People Forward Bank. we're seeing it firsthand this week with all of these interactions. Turning to the quarter, our 35 million dollars in net income equates to 94 cents per share, up almost 6 percent from Q4 2025 and 8 percent from the first quarter a year ago. Returned metrics were strong again this quarter highlighted by a 144 ROA up seven basis points in an ROTCE of 1322 which was up almost one percent over Q4 2025. Almost fifty million dollars in buybacks in the quarter played a key role in this ROTCE improvement. Our NIM and efficiency ratios remain solid at 392 and 55.3 percent and Mark will provide more color here. Asset quality showed good improvement over the last quarter and Dave will provide more color on both asset quality and loan growth. Turning to page four, I'd like to focus on our strong deposit growth. For the quarter, our customer deposit growth was up over 300 million dollars. We achieved the highest level of customer deposit growth in the 125 year history of our company surpassing eight billion dollars this growth was broad-based with all lines of business contributing and all product categories showing growth in fact we showed growth in more than 80 percent of our branches in the market which is a real testament to the great work our employees are doing with customers every day in discipline customer engagement processes that we've built. It really is a strong reflection of the customer relationships that we have. This deposit growth allowed us to reduce wholesale fundings by almost 200 million dollars in the quarter and the quality of the growth was quite strong with as our DDA levels relative to total deposits increased to 28 percent in the quarter year, up 1% from Q4 2025. While I'd love to be able to tell you that I will be able to repeat another 16% annualized growth in Q2, we do want to make sure that we're realistic, as there are always temporary fluctuations in deposit balances. We've done an analysis, and we do see some seasonal or temporary growth in these balances. However, our analysis would tell you that $150 to $200 million of this growth is what we define as solid core growth in our customer deposit base. Again, even at this level would be one of the best quarters we've had in our history. So I'll stop right there and turn it over to Dave, and he can touch on asset quality and loan growth. Great.

Thank you, Chris, and good afternoon, everyone. Continuing on page four of the presentation, loan balances declined in Q1 by $113 million. Several factors impacted this outcome. First, we entered the new year with a reduced commercial pipeline as a result of solid activity in Q4 of last year. This, along with increased competition for new commercial deals, especially related to pricing, contributed to lower than anticipated new funding in the first quarter. Commercial real estate payouts were higher than anticipated, primarily as the result of permanent market offerings from insurance companies and other non-bank lenders who offer more aggressive pricing and structure. Third, we did see a slight reduction in utilization rates on our revolving credit commitments. Q1 construction fundings were negatively impacted by poor weather, particularly in February, but we anticipate increased draw activity in Q2 as projects move forward. Our unfunded construction commitments remained at similar levels to year-end. In our consumer loan categories, we saw reductions in our residential mortgage balances, including construction. We anticipate this level of reduced activity in Q2. Based on current pipeline and activity, we expect increased growth in our home equity balances for Q2, and we continue to focus on mortgage and home equity products as key components to enhancing customer engagement. Looking forward, we're adjusting our loan growth guidance to low single digits for the second quarter. In response to growth pressures, we're focused on adding talent and building for the long term with the goal of increasing our commercial banking team in 2026, primarily focused on CNI additions and some geographic expansion in the CRE space. During the first quarter, we hired four new commercial bankers and saw a modest increase in our pipeline. Turning to page five, credit results for the quarter were in line with expectations. Non-performing assets were down $5.7 million and remain at a manageable level of $50 million or 63 basis points. This reduction was a result of our ability to execute on well-defined asset resolution strategies, primarily related to one C&I credit that was mentioned last quarter. Loan charge-offs were low at $1.7 million or nine basis points. We saw criticized and classified assets increase during the quarter as compared to year-end 2025 when we were at historically low levels. C&C loans remain at a very manageable level, and when factored into our reserve methodology, our allowance for credit losses remain stable at 1.17%. I'll turn the call over to Mark. Mark? Great. Thanks, Dave.

First quarter managed income declined by $2.6 million, due primarily to two fewer days, which counts for $1.4 million. And we also had an interest recovery in the fourth quarter of 25, that was for $900,000. In addition, strong deposit growth and loan decline led to a higher cash balance as we adjusted our wholesale borrowing levels. The interest recovery in the fourth quarter of 25 and higher cash levels in the first quarter were the main reasons behind the interest margin rate decline in the first quarter of seven basis points, to still a very strong 3.92 percent. With muted expectations for Fed moves in 2020-26, we expect relative NIMP stability to continue and believe we are well positioned for the remainder of this year should interest rates. Tailwinds from our maturing receive fixed swaps along with security, fixed rate loan, and CD repricing all contribute to stability in the face of somewhat heightened loan and deposit prices. Looking at 2026, again we expect relative stability in the net interest margin around the current level with net interest income growth coming from a return of income it decreased by 0.7 million in the first quarter debit credit card activity was seasonally slower and other includes timing related to some letter credit fees and distributions from some SIPC investments that happened in our expectations for fees in 2026 remains at approximately 13 to 14 million per quarter on the expense side they were in line in the first quarter down about 500 000 compared to the fourth quarter largest variances in salaries and benefits and within that medical costs were lower with the reset of deductibles and salaries were lower due to a number of days. Occupancy was impacted by higher seasonal snow removal costs and utilities. Other taxes also a little bit higher than the Pennsylvania shares tax which is based on equity levels. We expect to manage our 2026 90% expense year over year increase to around 3% which implies a quarterly run rate of right around 58 million. Our total TTE ratio decreased by 43 basis points this quarter primarily due to the share repurchases that we completed in the first quarter. Over 1,146,000 shares, the average price was $43.30, totaled just under $50 million. That brings our total repurchases over the last two quarters to 85.8 million, over 2 million shares, to approximately 5.5% of outstanding shares. Our regulatory ratios continue to be very strong with significant excess capital. We have just over $50 million remaining in our authorized repurchase programs. We're comfortable with these levels, even considering additional repurchases.

We have more than sufficient current capital and generation capability to position us well for the environment and enable us to take advantage of organic or organic or inorganic growth opportunities thanks very much at this time I'd like to turn the call back over to the operator to provide instructions for asking questions thank you the floor is now open for questions if you have any questions please press star 1 on your telephone keypad to remove yourself from the queue press star 1 again we ask that while asking your question please pick up your phone and turn off speakerphone for enhanced audio quality We'll go first to Justin Crowley at Piper Sandler.

Justin Crowley Hey, good afternoon, everyone. Justin Crowley Just wanted to start out on the loan growth. I think you touched on it, Dave, but can you give a little more detail just on how origination versus payoff activity fared in the quarter, and then just a sense of where the pipeline ended the period at?

Justin Crowley Yeah, sure. So relative to origination activity in Q1, we built pipeline competition relative to pricing. We had some lower utility due to weather, so we know those will happen. We anticipate utilization to improve as we move throughout, lower than what we had expected, and there's no specific reason for that other than some sort of the result of large straws in Q1. But overall, the pipeline, when I say modestly, 10% to 15% over year-end. So as we onboard new bankers, continue to be disciplined around pricing, that all kind of boils down to a little lighter loan growth than what we had expected in Q4.

And then you mentioned some of the hires and adding bankers. Is that coming across the board, or is it more weighted towards C&I? I know that's been an area you've talked a lot about in terms of just the investments that you've made there.

Yeah, the hiring in Q1 was more C&I focused, but we're hiring both C&I and CRE bankers. We still feel really good about our ability to grow CRE. We're good at it. We have historically been able to build a brand in that space. So we're adding to that staff as well. They're just based on our geographies, there are significant opportunities in the CNI space. The CRE space, as I mentioned in the prepared comments, might include some geographic expansion, particularly in Ohio. So it's a combination of the two. We're also adding business bankers, treasury management officers, really growth-focused positions to the organization.

Okay, great. And then just one last one, pivoting a little, just, you know, on the margin guide calling for stability here, you know, you know, we think that higher for longer environment that I suppose we're in is beneficial. So just trying to square some of the puts and takes as far as, you know, loan repricing. I'm not sure if there's, you know, anything that offsets that as far as funding costs, you know, perhaps, you know, maybe moving in the other direction and starting to see upper pressure, you know, what are some of the underlying assumptions there?

I'm thinking that there's not going to be a lot of rate increase, and given that improvement in margin, but it is that.

Okay, and what does that, you know, I guess with spread sighting, I mean, where is new production coming on the book side, and how does that compare to, you know, what's repricing or rolling off, if you have that detail?

I mean, the mid, like two points over the last competition that we decided not to move forward. You know, for us, it's about getting more looks, which leads to adding more bankers. And that will allow us. But we also want to be cognizant of the impact that that growth has on, you know, the NIM and that interest income.

I will leave it there. Thank you guys so much.

Thank you, Joe. Thank you, Jeff.

We'll move next to Daniel Tameo at Raymond James.

Thank you. Good afternoon, everyone. Maybe starting first on the capital and the buyback side, you've got – you did about $50 million in the first quarter. you've got a similar amount remaining in the authorization. I think you just said capital is still really strong, CET1 over 14%, really by any measure you look at. Do you think that it's in the cards to re-up that authorization and continue the repurchase further out than just the second quarter? Or how are you guys thinking about the trajectory of buybacks given the level of capital you have and the growth expected?

Yeah, I think we would definitely take a very hard look at the remaining authorization. I think we'll see how that goes. Leg of that, I mean, our internal target ratios, the next 50 will put us quite a bit closer to that. So we may enter more of a maintenance phase in terms of target capital ratios at that point. And so then going forward, it might be more dependent on that growth trajectory from there and how much capital.

Okay, and remind me what the target capital ratio is, if you don't mind.

We're looking to be approximately, I mean, across the different ratios, you know, above kind of median, median 75th percentile, so they vary for the different ratios. But we want to make sure enough to grow and enough to take advantage of a merger that might arise or that might present itself.

Yeah, Danny, this is Chris. That's what I want to reemphasize. given us the financial flexibility that we have is a you know it's a real benefit for us so as Mark described that being able to think about this in an and organic growth while at the same time having the financial flexibility should an inorganic opportunity present itself is important to us but by the same token we knew we as we were getting you know north of 14 percent and so we It made sense to dial that back. As Mark said, those ratios closer from 50 to 75th percentile make a lot more sense to as well.

Understood. And then maybe just diving in a little bit on the hirings. The last question talked about it a little bit, but you said that the new geographic expansion, I think you mentioned Ohio. Just curious if you could provide a little more detail on the markets where you're hiring.

Sure, sure. Well, we've got a group of bankers in Columbus, and we're looking westward, and then in northeast Ohio, Cleveland. So there are opportunities in those two markets that we think we can take advantage of as we grow. We've also, in our Eastern Pennsylvania franchise, we've done a lot of work into Maryland and Delaware. We think there's more opportunity there for us to grow.

Okay, great. All right, I'll step back. Thanks for the answers.

Thank you.

We'll take our next question. Kelly Mata at KBW.

Hey, good afternoon. Thanks for the question. You know, I would love to follow up on that capital question since you mentioned M&A. I'll bite on, if you could maybe, Chris, give us an update on, you know, the pace of conversations. Clearly, there's an M&A window open at this time and how those are going.

Yeah, I would describe them. You know, we're We're consistently having discussions and we look at opportunities. We're disciplined, as you could tell, and we're going to remain so. But, you know, I think you're right, Kelly, there's a window here that seems to make sense. And, you know, we would like to, you know, capitalize on the right opportunity should it present itself. So we have not, you know, haven't slowed down at all in the number of conversations that we've had. And quite honestly, the financial performance, the returns that we're able to deliver, that opens up windows for conversations for us. So that's what we want to be able to capitalize on those things.

Great. That's great color. I would like to switch back to the deposit growth because clearly that was a major highlight of the quarter and, you know, something you guys have been working really diligently on. just wondering, you know, if there was one or a couple of things that really drove that outsized growth. It was just, you know, things moving in the right direction and kind of just all clicking here, any sort of market dynamics. I'm just trying to get a sense of it clearly was a remarkable quarter for you.

So thanks for that recognition, Kelly. And it's a real point of pride for our employees. I'm coming up on my fifth year here at the company in another couple of months and we've been pretty unrelenting on our focus on the importance of building on a high quality of momentum over the last 18 plus months in our the consumer side of our business. We've talked a lot about our you know the rigor and discipline of the process that we our customer engagement process that we define as care and you know you think well how do you know it's working and I'll go back to that the anecdote that I provided to When we saw broad-based growth in 80% of our branches in the quarter, that tells me that the right customer interactions are taking place. We've also talked a lot about the way that we manage exception pricing and the need to be dynamic with that, at the same time responsive. And that's a process that was built over the past couple of years, and it continues to work in this environment or a rising or declining rate environment. On the commercial side of the business and business banking side, we've spent the past few years working on enhancing our treasury management capabilities, the number of teammates, both in commercial banking as well as business banking. We're seeing good momentum there, and we know that a portion of this on the commercial space was true new customer acquisition that added to it. As I did say, you know, we wanted to analyze it. One of the other things that we looked at, I don't know if you've seen this in other calls that you've had, was, well, what was the impact of, you know, you talk about the tax law changes. And what we saw with tax receipts, you know, so deposits, tax receipts, deposits into our accounts, a year-over-year growth was about $30 million. So higher, higher, did contribute to some of this. And so that's why we were guiding toward all $300 million, you know, probably isn't going to stick forever. there's some fluctuation in it, but what we can tell, we feel really good about that $150 to $200 million, which by itself would have been a really, really strong quarter.

Great. That's really helpful. Thanks for the color. I'll step back.

We'll move next to Tyler Cacciatore at Stevens, Inc. Good afternoon.

This is Tyler on for Matt Brees.

Maybe just a follow-up on the M&A commentary can you just update us on what the ideal target would look like and if there's any ideal size or whether you want to dive into new markets or or maybe complement existing ones yeah i'll be consistent tyler with what we've talked about in the past we look geographically at the core markets we're in and in adjacent markets so um and uh we're active in that geography we were you know if you think about a pure acquisition given our size you're talking about banks probably in the one to six seven billion dollar range make make sense from a from a size standpoint and that's you know that's been our focus very quality before deposit franchise cultural fit ability to, you know, accelerate growth in the company are kind of the criteria that we look through.

Understood. Thank you for the color. And then just moving to credit, nice to see the charge-offs move much lower, led to quite a bit of a lower provision than what I was expecting. Maybe just talk about what you're seeing from a credit perspective going forward and what levels of charge-offs you're comfortable running the bank at. Just trying to get a sense of how to model the provision from here.

Yeah, I think in total for 2026, we would expect similar total results for charge-offs targeting to reduce from where we are now modestly. As I mentioned in the comments, though, we did see a slight uptick in our criticizing classified assets. It didn't have a significant impact on provisioning or a large increase in the ACL. There's nothing outside that we anticipate, just normal movement. We're a commercial-focused bank, so when something happens negatively from a credit perspective, it tends to be a little larger than a bank that might have a larger consumer base. So we acknowledge that, but we have really fine-tuned our methodology and spent a lot of time, obviously, internally as a management team, the impact of asset quality and how we can get ahead of things and forecast better.

Obviously, in addition to that is just the external environment, right? I mean, you see the run-up in gas prices and oil prices and things like that. And we believe that that has not really impacted the economy dramatically right now in the short term, but it continues this way. you can see things impacting it for all of us down the road. And we're not outsized one way or another, but there's a lot that we also don't control that we have to pay attention to.

Understood. Thank you. And then just a real quick one on deposit costs, if you have the detail. Do you have the spot cost of deposits at quarter end or in the month of March?

I have a margin was on the deposit for the month. that would have been great thank you i'll stand back here and as a reminder if you'd like to ask a question press star one we'll go next to david bishop at hubby group hey good afternoon chris uh

excited for the draft as well down here excited for the draft down here come on you got it you got it i'm sure you're waving your terrible towel out there i love it love it hey a lot of my questions have been asked to answer but to be curious you know you had the good growth in deposits and maybe some cash flows from the loan portfolio sitting in the cash at the end of the quarter is that sort of earmarked for funding expected loan growth i don't know if you see the line of sight to maybe you know temporary deposits outflowing just curious i wish to think about

cash levels moving into the back half of the year we do affect those to decrease we still have some wholesale borrowings that we have an opportunity to reduce so that would be the the first priority. And as Chris mentioned, we do expect some of that to potentially roll off and then the return of some loan growth in the second quarter. But then- Got it.

Then I guess final question. As you look across your fee income segments and categories, any areas with all the changes you've implemented here you're most pulled up about for for augmentation as you look out into the rest of the year? Thanks.

We have seen some, it's sometimes hard to see in numbers, but we have seen some encouraging pickup on the treasury management side that we talked about. There's a, there's a group within, within that kind of a non we've done that we've seen some improvement on, especially in the last couple of quarters. And there's a renewed emphasis for that in the bank and in our, especially in our business banking group. So that's something that we have higher expectations for. And then just on the basic treasury management side on the account analysis, we did some price adjustments, and that group is making some headway in the market as well. So I think the deposit fee on the treasury management AA side probably offers some potential.

Today, the non-analyzed treasury management services, that's really the result of work that we started a couple of years ago. We built a product for the small business business banking space that provided a combination of, call it six to eight, important treasury management products, anything from information reporting to collection and disbursement services, fraud protection, those kinds of things, package to them into basically one price and so what we've seen and then we rolled that out a couple of years ago trained our teams put it in the market you know we believed at the time it was a differentiating factor and we're seeing balanced growth come from it as well as annuity nature of it's nice to see they go go up something going from concept to reality and that's great color that was all I had thanks and that concludes the question and answer session.

I would like to turn the call back over to Chief Executive Officer Chris McCommish for closing remarks.

Well, as we always say, thank you for your interest in our company and your good questions and the relationships that you've built with us. We're, again, really proud of the performance that we're showing, looking for continued growth and impact in the marketplace. And, you know, spring is here, so the weather has turned and there's a lot of optimism in the air. So thanks all for your time and have a great rest of the day.

And that concludes today's conference. Thank you for your participation. You may now disconnect.