S&T Bancorp, Inc. (S&T) (NASDAQ: STBA), the holding company for S&T Bank, with operations in five markets including Western Pennsylvania, Central Pennsylvania, Northeast Ohio, Central Ohio, and Upstate New York, announced its third quarter 2019 earnings. Third quarter net income was $26.9 million, or $0.79 diluted earnings per share (EPS), compared to second quarter of 2019 net income of $26.1 million, or $0.76 diluted EPS, and third quarter of 2018 net income of $30.9 million, or $0.88 diluted EPS. The third quarter of 2018 results were positively impacted by a one-time reduction to tax expense of $2.9 million, or $0.08 diluted EPS, related to a tax deduction for a pension contribution at a 35% corporate tax rate versus the current rate of 21%.

Third Quarter of 2019 Highlights:

• Return on average assets (ROA) was 1.45%, return on average equity (ROE) was 10.97% and return on average tangible equity (ROTE) (non-GAAP) was 15.69%.
• Portfolio loans increased $162.6 million, or 10.7% annualized, compared to the second quarter of 2019.
• Deposits increased $126.0 million, or 8.6% annualized, compared to the second quarter of 2019.
• DNB Financial Corporation (DNB) shareholders' approval and all bank regulatory approvals have been obtained for the pending merger with DNB.
• S&T's Board of Directors declared a $0.28 per share dividend. This is an increase of 3.7% compared to a dividend of $0.27 per share declared in the same period in the prior year.

"We are pleased to report solid loan and deposit growth across all five of our markets during the third quarter," said Todd Brice, chief executive officer of S&T. "The growth during the quarter is a result of the successful execution of our new market-based strategy announced earlier this year. This strategy reflects a tailored approach to each individual market that allows us to maintain our core value of relationship banking as our geographic footprint expands."

S&T Bancorp, Inc. and DNB Financial Corporation Merger

On September 25, 2019, DNB held a Special Meeting of Shareholders where the Agreement and Plan of Merger, dated June 5, 2019, by and between S&T and DNB, was approved. All required bank regulatory approvals have been received for the merger. The transaction is expected to be completed on or about November 30, 2019 and remains subject to the satisfaction or waiver of other customary closing conditions. Merger related expense was $0.6 million, or $0.01 diluted EPS, for the third quarter of 2019 and $1.2 million, or $0.03 diluted EPS, for the year-to-date period.

"The S&T team is excited to partner with DNB as we move closer to the expected completion of merger in the fourth quarter," said Todd Brice, chief executive officer of S&T. "Through our preparation for the merger, it has become very clear that both institutions share not only a like business model, but a similar people centric culture that is focused on satisfying the needs of our customers. We believe these shared values will result in a seamless execution of the closing and allow us to maximize the synergies realized through the merger."

Net Interest Income

Net interest income increased $0.4 million to $61.2 million for the third quarter of 2019 compared to $60.8 million for the second quarter of 2019. The increase was primarily due to growth in average loan balances of $102.7 million and one additional day in the third quarter compared to the second quarter. Net interest margin on a fully taxable equivalent basis (FTE) (non-GAAP) decreased 6 basis points to 3.62% for the third quarter of 2019 from 3.68% in the second quarter of 2019 primarily due to decreases in short-term rates. Loan rates decreased 11 basis points to 4.95% and total interest-bearing liability costs decreased 4 basis points to 1.54%.

Asset Quality

Total nonperforming loans increased $5.0 million to $50.0 million, or 0.81% of total loans, at September 30, 2019 compared to $45.0 million, or 0.75% at June 30, 2019. Net loan charge-offs were $4.3 million for the third quarter of 2019 compared to $2.1 million in the second quarter of 2019. The provision for loan losses was $4.9 million compared to $2.2 million in the second quarter of 2019 mainly due to higher charge-offs. The allowance for loan losses to total portfolio loans was 1.00% at September 30, 2019 compared to 1.02% at June 30, 2019.

Noninterest Income and Expense

Noninterest income increased $0.2 million to $13.1 million for the third quarter of 2019 compared to $12.9 million for the second quarter of 2019. Included in other income was commercial loan swap fees of $1.5 million related to higher demand for this product in the current rate environment.

Noninterest expense decreased $2.7 million to $37.7 million for the third quarter of 2019 compared to $40.4 million in the second quarter of 2019. FDIC insurance expense decreased $1.4 million compared to the second quarter of 2019 related to Small Bank Assessment Credits that were received by all banking institutions with assets of less than $10 billion. Other expense decreased $0.6 million primarily related to higher loan related items in the second quarter of 2019. The third quarter of 2019 included merger related expenses of $0.6 million, or $0.01 diluted EPS.

Financial Condition

Total assets were $7.6 billion at September 30, 2019 compared to $7.3 billion at June 30, 2019. Loan growth was strong across all five markets during the quarter with an increase of $162.6 million, or 10.7% annualized, compared to the second quarter of 2019. Commercial loans grew $130.0 million during the quarter, or 10.9% annualized, with growth in all commercial portfolios. Consumer loans grew $32.5 million, or 9.9% annualized, driven by growth in the residential mortgage and home equity portfolios. Deposits were $6.0 billion at September 30, 2019 compared to $5.9 billion at June 30, 2019. Strong customer deposit growth in all of our markets during the third quarter lead to a reduction in brokered deposits of $52 million.

The Board of Directors of S&T Bancorp, Inc. authorized a new $50 million share repurchase plan at its regular meeting held September 16, 2019. This new repurchase authorization, which is effective through March 31, 2021, permits S&T to repurchase from time to time up to $50 million in aggregate value of shares of S&T's common stock through a combination of open market and privately negotiated repurchases. During the third quarter of 2019, 84,868 of common shares were repurchased at a total cost of $3.1 million, or an average of $36.52 per share.

All regulatory risk-based capital ratios declined at September 30, 2019 compared to June 30, 2019 due to strong loan growth and share repurchases. All capital ratios remain above the well-capitalized thresholds of federal bank regulatory agencies.

Dividend

The Board of Directors of S&T declared a $0.28 per share cash dividend at its regular meeting held October 21, 2019. This is an increase of 3.7% compared to a dividend of $0.27 per share declared in the same period in the prior year. The dividend is payable November 21, 2019 to shareholders of record on November 7, 2019.

About S&T Bancorp, Inc. and S&T Bank

S&T Bancorp, Inc. is a $7.6 billion bank holding company that is headquartered in Indiana, Pennsylvania and trades on the NASDAQ Global Select Market under the symbol STBA. Its principal subsidiary, S&T Bank, was recently named by Forbes as a 2019 World's Best Bank. Established in 1902, S&T Bank operates in five markets including Western Pennsylvania, Central Pennsylvania, Northeast Ohio, Central Ohio, and Upstate New York. For more information visit stbancorp.com, stbank.com, and follow us on Facebook, Instagram, and LinkedIn.