S&T Bancorp Earnings Call Highlights Profit, Credit Cleanup

S&T Bancorp ((STBA)) has held its Q4 earnings call. Read on for the main highlights of the call.

S&T Bancorp Earnings Call Signals Solid Profits Amid Credit Cleanup

S&T Bancorp’s latest earnings call painted a picture of a bank delivering strong, steady profitability while working through a handful of credit clean-up items. Management emphasized robust full-year earnings, expanding margins, disciplined cost control and ongoing capital returns to shareholders, even as fourth-quarter charge-offs and a modest rise in nonperforming assets reminded investors that credit normalization is underway. Overall, the tone was confident and constructive, with management stressing that asset quality trends remain favorable over a multi-year horizon and that the balance sheet is well-positioned to support both growth and shareholder returns through 2026.

Full-Year Profitability and Earnings Power

S&T Bancorp reported full-year 2025 net income just under $135 million, translating into earnings of $3.49 per share. This level of performance underscores the bank’s ability to generate attractive returns through a mixed operating environment, with earnings reflecting both solid core banking operations and disciplined risk management. The call highlighted that these results were not a one-off: they form part of a multi-year track record of improving profitability and returns, giving investors confidence in the durability of the franchise’s earnings power.

Quarterly Performance: Strong ROA and Consistent Profitability

For the fourth quarter, S&T delivered net income of $34 million, or $0.89 per share. Return on assets came in at a healthy 1.37%, indicating that the bank continues to convert its balance sheet into earnings efficiently on a quarterly basis. Management framed the quarter as another example of stable, core profitability even while absorbing elevated charge-offs tied to already identified problem credits, suggesting underlying operations remain sound.

Margin Expansion and Interest Rate Performance

Net interest margin was a key bright spot, rising to 3.99% in the fourth quarter, up 6 basis points from the prior quarter. This improvement was driven by both an expanding margin and lower cost of funds, as funding costs fell by 11 basis points. Management signaled confidence that the bank can sustain a NIM in the mid-to-high 3.9% range into 2026, implying that S&T is navigating the rate environment effectively and preserving spread income despite competitive pressure for deposits.

Revenue Resilience: PPNR and Net Interest Income

Pre-provision net revenue (PPNR) rose to 1.95% of average assets in Q4, an increase of 6 basis points quarter over quarter, reflecting stronger core profitability before credit costs. Net interest income grew by about $1.8 million from the third quarter, just under 2%, primarily on the back of margin expansion rather than outsized balance sheet growth. This combination of higher PPNR and NII suggests that earnings momentum is being driven by core spread income and improved mix, rather than one-off items.

Steady Loan and Deposit Growth

S&T reported solid balance sheet growth for the full year, with loans rising more than 4% and customer deposits increasing just under 3%. In the fourth quarter alone, loans grew by roughly $100 million, or about 4.5% annualized, while deposits rose nearly $60 million, or about 2.9%. This balanced growth profile indicates that the bank is adding assets without leaning excessively on higher-cost funding, helping support both earnings and liquidity.

Commercial Lending Momentum and a Rebuilding Pipeline

Loan growth in the quarter was led by commercial banking, with commercial and industrial (C&I) balances increasing by $53 million and commercial real estate (CRE) by $34 million. Unused commercial construction commitments increased by $78 million quarter over quarter, underpinning management’s guidance for mid-single-digit loan growth in 2026, led by C&I, CRE and consumer home equity. However, the bank also noted that elevated payoffs and refinancings—particularly construction loans being refinanced away—have burned off some of the existing pipeline, requiring active rebuilding heading into the new year.

Capital Strength and Aggressive Share Repurchases

Capital management featured prominently in the call as S&T’s board approved a new $100 million share repurchase authorization. In the fourth quarter alone, the bank repurchased approximately 948,000 shares at an average price of $33.82, totaling $36.2 million. While these actions trimmed the tangible common equity ratio by 29 basis points in the quarter, management stressed that regulatory capital ratios remain strong with meaningful excess capital still available. This positions the bank to continue buybacks while retaining flexibility for organic growth and potential strategic opportunities.

Improving Asset Quality Over the Multi-Year Horizon

Despite some quarterly noise, longer-term asset quality trends remain a clear positive. Over the last three years, criticized and classified (CNC) loans have been reduced by about 50%, reflecting a sustained clean-up of problem assets and more disciplined underwriting. Management highlighted that these improvements are not cosmetic but represent a structurally healthier loan portfolio, which should support lower through-the-cycle credit costs even as the bank grows its commercial book.

Fee Income and Expense Discipline

Noninterest income increased by $0.5 million in the fourth quarter, and management expects fee revenue to run at roughly $13–$14 million per quarter in 2026. On the expense side, guidance calls for noninterest expenses to rise about 3% year over year, with a targeted quarterly run rate around $58 million. This measured cost growth, paired with healthy revenue, is expected to support an efficiency ratio in the mid-50s, indicating continued focus on operating leverage and productivity.

Technology and AI Investments Driving Efficiency and Risk Control

S&T is leaning into technology and artificial intelligence to improve both efficiency and risk management. AI-based tools are already deployed in areas such as BSA/AML compliance, fraud detection, commercial underwriting and portfolio management. Management cited meaningful savings from fraud prevention alone, framing these investments as high-return initiatives that reduce losses, improve decision-making and support scalable growth without proportionate increases in headcount or overhead.

Elevated Quarterly Charge-offs from Problem Credit Resolutions

The most notable blemish in the quarter was a spike in net charge-offs to $11 million, equivalent to 54 basis points on an annualized basis. Management attributed this to the resolution of a small group of previously identified problem credits—specifically two CRE loans and one C&I relationship—that were deliberately moved off the books. While this raised quarterly credit costs, the bank characterized these actions as a proactive clean-up that reduces future risk and aligns with its broader multi-year efforts to shrink criticized and classified exposures.

Nonperforming Assets Edge Higher but Remain Manageable

Nonperforming assets increased by $6 million in the fourth quarter, pushing the NPA ratio from 62 basis points to 69 basis points. Management acknowledged this uptick but described the level and trend as manageable, particularly in the context of broader portfolio improvements and reduced criticized loans. Investors are likely to watch this metric closely, but the bank’s commentary suggested no systemic deterioration, rather a normalization from very benign levels.

Allowance for Credit Losses Trends Lower

The allowance for credit losses declined to 1.15% of gross loans from 1.23% in the prior quarter, an 8 basis point reduction, and was down 16 basis points year over year. Part of this decrease reflects the release of specific reserves as certain problem credits were resolved. While this supports near-term earnings, it also means the reserve cushion is somewhat thinner heading into a potentially late-cycle credit environment, a dynamic that investors will need to weigh against management’s confidence in asset quality.

Deposit Pricing Pressure and Funding Costs

Deposit competition remained intense early in the fourth quarter, with certificates of deposit proving particularly sticky. CD costs in December were noted in the roughly 3.82%–3.86% range, and interest-bearing deposit costs across the book were around 2.50% (excluding noninterest-bearing DDA balances). This pricing pressure limits upside to margins until rates normalize further, though management expects overall deposit betas near 30%, indicating that funding costs should remain manageable relative to the yield on earning assets.

Forward-Looking Guidance and Outlook

Looking ahead to 2026, management guided to mid-single-digit loan growth, driven primarily by C&I, CRE and consumer home equity, with net interest income expected to grow as earning assets expand. NIM is projected to hold steady in the mid-to-high 3.9% range, supported by disciplined pricing and balance sheet mix. Fee income is targeted at roughly $13–$14 million per quarter, and noninterest expenses are expected to rise about 3% annually, implying a quarterly run rate of around $58 million and an efficiency ratio in the mid-50s. Asset quality is expected to resemble 2025 levels, with continued reductions in nonperforming and criticized loans, while capital remains sufficient to support further share buybacks and growth.

In summary, S&T Bancorp’s earnings call showcased a bank combining solid profitability, expanding margins and prudent cost control with a proactive approach to credit cleanup. While fourth-quarter charge-offs and a modest rise in NPAs highlighted that credit normalization is real, multi-year improvements in criticized loans, stable guidance for margins and growth, and continued capital returns suggest a resilient earnings profile. For investors, the story remains one of a well-capitalized regional bank balancing growth, risk management and shareholder returns as it navigates the later stages of the credit cycle.