“While we are very disappointed in the loss that we experienced this quarter related to the fraudulent activities of a single business customer, we are a resilient company with 118 years of history overcoming all manner of challenges,” S&T CEO Todd Brice said in an earnings report issued this morning. “I am confident we will emerge from this situation as strong, if not stronger, than before.”
The net loss came after net income of $13.2 million, or 34 cents per diluted share, in the first quarter of this year, and a net income of $26.1 million, or 76 cents per diluted share, for the second quarter a year ago.
In late May, S&T Bancorp Inc. told the federal Securities and Exchange Commission that they had become aware of a check kiting scheme conducted by a business customer, resulting in $58.7 million in returned deposits.
That was about four times S&T’s total credit loss exposure in the matter, according to the SEC filing made May 26.
“S&T believes this incident involves a single business relationship,” bank officials told the SEC. “S&T also expects that it may incur a credit loss arising from a loan agreement and line of credit with this business customer.”
S&T officials said today that this fraud loss reduced net income by $46.3 million, or $1.19 per diluted share. They said the bank continues to pursue all available sources of recovery to mitigate the loss.
In May, S&T Bancorp said its board of directors retained independent outside counsel to conduct an internal review of the matter.
“We are a well-capitalized bank,” Executive Vice President George Basara said on May 28. “We will continue to serve our customers and our communities.”
In the wake of the COVID-19 pandemic, that has included involvement in the Small Business Administration’s Payment Protection Program, through which S&T originated loans of $547.6 million.
“The personalized assistance given to our customers who are experiencing financial hardships as a result of COVID-19 is a direct reflection of the integral role we play in the communities where we operate,” Brice said. “As we move forward, we will continue to be a source of strength for our customers and our employees.”
In its earnings report, S&T, which operates in five markets in Pennsylvania, Ohio and Upstate New York, said, “As we navigate through these uncertain times, our focus remains on the health and safety of our employees and the customers and communities that we serve. We continue to support our customers through the potential financial hardships that have arisen through this crisis.”
Included were consumer and homeowner needs-based loan assistance with payment deferrals for 1,071 loans totaling $123.0 million; and commercial and business needs-based loan assistance with payment deferrals for 1,289 loans totaling $1.3 billion.
The bank said the fraud that resulted in a $58.7 million loss had a significant impact on asset quality during the second quarter. It said net loan charge-offs were $68.1 million for the second quarter compared to $11.2 million in the first quarter. Excluding the fraud, S&T officials said, net loan charge-offs were $9.4 million for the second quarter.