SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-12508
S&T BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1434426
(State or other jurisdiction of (I.R.S.EMPLOYER
incorporation or organization) Identification No.)
800 Philadelphia Street, Indiana, PA 15701
(Address of principal executive offices) (Zip Code)
(412) 349-2900
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $2.50 Par Value - 11,046,575 shares as of October 22, 1996
<PAGE>
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
September 30, 1996 and December 31, 1995 3
Condensed consolidated statements of income -
Three months ended September 30, 1996 and 1995, and 4
Nine months ended September 30, 1996 and 1995
Condensed consolidated statements of cash flows -
Nine months ended September 30, 1996 and 1995 5
Notes to condensed consolidated financial statements 6-9
Item 2. Management's discussion and analysis of financial
condition and results of operations 10-16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> (000's omitted except share data)
ASSETS <C> <C>
Cash and due from banks $39,748 $39,852
Interest-earning deposits
with banks 82 51
Securities available for sale 340,180 315,343
Investment securities 29,864 34,997
Total loans 1,011,325 976,819
Less allowance for loan losses (17,024) (15,938)
Net Loans 994,301 960,881
Premises and equipment 15,374 14,795
Other assets 35,778 34,783
TOTAL ASSETS $1,455,327 $1,400,702
LIABILITIES
Deposits:
Noninterest-bearing demand $122,927 $116,054
Interest-bearing demand 27,999 96,577
Money market 206,966 123,121
Savings 118,379 123,606
Time 533,983 520,267
Total Deposits 1,010,254 979,625
Securities sold under repurchase
agreements 144,915 122,794
Federal funds purchased 15,775 325
Other borrowed funds 230 340
Long-term borrowing 81,618 96,618
Other liabilities 33,734 34,053
TOTAL LIABILITIES 1,286,526 1,233,755
SHAREHOLDERS' EQUITY
Preferred stock, without par value,
10,000,000 shares authorized
and none outstanding - -
Common stock $2.50 par value,
25,000,000 shares authorized
and 11,820,944 issued 29,552 29,552
Additional paid in capital 11,727 11,009
Retained earnings 121,663 111,980
Net unrealized holding gains on
securities available for sale 19,606 21,928
Treasury stock (774,589 shares at
September 30, 1996 and 578,092 (13,517) (7,182)
at December 31, 1995)
Deferred compensation (230) (340)
TOTAL SHAREHOLDERS' EQUITY 168,801 166,947
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,455,327 $1,400,702
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For Three Months Ended For Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(000's omitted except share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $21,999 $21,694 $64,713 $63,626
Deposits with banks 5 3 136
Federal funds sold 6 18 71 32
Investment securities:
Taxable 5,101 4,399 14,623 12,512
Tax-exempt 404 442 1,294 1,359
Dividends 725 619 2,136 1,880
Total Interest Income 28,235 27,177 82,840 79,545
INTEREST EXPENSE
Deposits
Interest-bearing demand 347 378 1,037 1,127
Money market 1,428 1,134 4,057 3,330
Savings 759 794 2,261 2,420
Time 7,337 7,159 21,770 20,121
Securities sold under repurchase
agreements 1,889 2,164 5,324 6,872
Federal funds purchased 89 56 263 430
Long term borrowing 1,165 1,129 3,564 2,764
Other borrowed funds 4 7 14 23
Total Interest Expense 13,018 12,821 38,290 37,087
NET INTEREST INCOME 15,217 14,356 44,550 42,458
Provision for loan losses 825 1,100 3,250 2,600
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 14,392 13,256 41,300 39,858
NONINTEREST INCOME:
Trust fees 738 541 2,118 1,753
Service charges on deposit accounts 950 781 2,624 2,151
Net securities/nonrecurring gains/
(losses) 592 317 1,675 676
Other 724 460 1,948 1,452
Total Noninterest Income 3,004 2,099 8,365 6,032
NONINTEREST EXPENSE
Salaries and employee benefits 4,570 4,449 13,908 13,236
Occupancy expense, net 506 538 1,601 1,582
Equipment expense, net 495 404 1,534 1,506
Data processing 406 368 1,178 1,082
FDIC assessment 988 55 1,198 1,076
Other 2,388 2,347 7,055 6,601
Total Noninterest Expense 9,353 8,161 26,474 25,083
INCOME BEFORE INCOME TAXES 8,043 7,194 23,191 20,807
Applicable income taxes 2,075 1,986 5,896 5,601
NET INCOME $5,968 $5,208 $17,295 $15,206
PER COMMON SHARE
Net Income $0.54 $0.46 $1.56 $1.35
Dividends 0.24 0.18 0.69 0.53
Average Common Shares Outstanding 11,041 11,233 11,077 11,244
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30
1996 1995
(000's omitted)
<S> <C> <C>
Operating Activities
Net Income $17,295 $15,206
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,250 2,600
Provision for depreciation and amortization 961 1,016
Net amortizaton of investment security premiums 417 613
Net accretion of loan and deposit discounts (343) (762)
Net gains on sales of securities available for
sale (1,593) (447)
Net investment security gains
Decrease in deferred income taxes (521) (254)
Increase in interest receivable (1,501) (1,693)
Increase in interest payable 488 3,376
(Decrease) increase in other assets 1,386 (627)
Increase (decrease) in other liabilities 40 (5,109)
Net Cash Provided by Operating Activities 19,879 13,919
Investing Activities
Net (increase in) redemption of interest-earning
deposits with banks (31) 3,399
Proceeds from maturities of investment securitie 6,115 18,224
Proceeds from maturities of securities available 58,444 8,000
for sale
Proceeds from sales of securities available 6,685 14163
for sale
Purchases of investment securities (534) (25,713)
Purchases of securities available for sale (92,813) (40,338)
Net increase in loans (52,318) (75,262)
Proceeds from the sale of loans 15,991 34,739
Purchases of premises and equipment (1,715) (1,442)
Proceeds from the sale of premises and equipment (82) 28
Net Cash Used by Investing Activities (60,258) (64,202)
Financing Activities
Net increase (decrease) in demand, NOW and
savings deposits 16,914 (7,035)
Net increase in certificates of deposits 13,716 51,341
Net increase (decrease) in repurchase agreements 22,121 (27,260)
Net increase (decrease) in federal funds purchased 15,450 (7,515)
(Decrease) increase in long-term borrowing (14,987) 42,201
Acquisition of treasury stock (7,289) (1,878)
Sale of treasury stock 1,671 1,275
Cash dividends paid to shareholders (7,321) (5,846)
Net Cash Used by Financing Activities 40,275 45,283
Decrease in Cash and Cash Equivalents (104) (5,000)
Cash and Cash Equivalents at Beginning of Period 39,852 38,791
Cash and Cash Equivalents at End of Period $39,748 $33,791
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the nine month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the annual report
on Form 10-K for the year ended December 31, 1995.
Earnings per common share are based on the average number of shares of common
stock outstanding during the periods presented.
Financial Accounting Standards Board Statement No.123 Accounting for Stock-
Based Compensation is effective in 1996 and allows companies the choice of
either changing their accounting for stock-based awards by recognizing
compensation cost in earnings for such plans or providing supplemental pro forma
footnote disclosures. For year end 1996, S&T is expecting to continue its
current accounting treatment of stock-based compensation and provide the
supplemental pro forma disclosures related to the fair value approach. As
provided in Statement No. 123, pro forma disclosure is not required in interim
financial statements.
NOTE B--SECURITIES
<TABLE>
<CAPTION>
The amortized cost and estimated market value of securities as of September 30
are as follows:
1996 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
<S> <C> <C> <C> <C>
Marketable equity
securities $38,692 $29,551 ($227) $68,016
Obligations of U.S. government
corporations and agencie 222,054 1,996 (1,978) 222,072
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 7,046 42 7,088
U.S. Treasury securities 34,078 778 34,856
Corporate Securities 300 300
302,170 32,367 (2,205) 332,332
Other securities 7,848 7,848
$310,018 $32,367 ($2,205) $340,180
<CAPTION>
1996 Investment Securities
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $25,742 $544 ($10) $26,276
Corporate securities 2,496 209 2,705
28,238 753 (10) 28,981
Other securities 1,626 1,626
Total $29,864 $753 ($10) $30,607
</TABLE>
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
<TABLE>
<CAPTION>
NOTE B-SECURITIES
The amortized cost and estimated market value of securities as of December 31
are as follows:
1995 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
<S> <C> <C> <C> <C>
Marketable equity
securities $37,573 $26,926 ($276) $64,223
Obligations of U.S.
government corporations
and agencies 172,612 5,113 (143) 177,582
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 10,911 124 11,035
U.S. Treasury securitie 51,205 1,993 53,198
Corporate Securities 190 190
272,491 34,156 (419) 306,228
Other securities 9,115 9,115
Total $281,606 $34,156 ($419) $315,343
<CAPTION>
1995 Investment Securities
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
<S> <C> <C> <C> <C>
Obligations of states
and political
subdivisions 31,412 949 (12) 32,349
Corporate securities 2,493 350 2,843
33,905 1,299 (12) 35,192
Other securities 1,092 1,092
Total $34,997 $1,299 ($12) $36,284
</TABLE>
During the period ended September 30, 1996, there were $1,592,652 in realized
gains relative to securities available for sale.
The amortized cost and estimated market value of securities at September 30,
1996 by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Available for Sale Cost Value
(000's omitted)
<S> <C> <C>
Due in one year or less $27,025 $27,143
Due after one year through
five years 73,900 75,125
Due after five years through
ten years 161,288 160,776
Due after ten years 1,265 1,272
Total $263,478 $264,316
</TABLE>
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
<TABLE>
<CAPTION>
NOTE B-SECURITIES
Estimated
Amortized Market
Held to Maturity Cost Value
(000's omitted)
<S> <C> <C>
Due in one year or less $2,939 $2,954
Due after one year through
five years 10,312 10,701
Due after five years through
ten years 10,665 10,959
Due after ten years 4,322 4,367
Total $28,238 $28,981
</TABLE>
At September 30, 1996 and December 31, 1995 investment securities with a
principal amount of $202,104,000 and $203,063,000 respectively, were
pledged to secure repurchase agreements and public and trust fund
deposits.
NOTE C--LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
(000's omitted)
<S> <C> <C>
Real estate - construction $29,547 $23,712
Real estate - mortgages:
Residential 398,226 377,258
Commercial 209,100 191,885
Commercial - industrial
and agricultural 230,674 234,779
Consumer installment 143,778 149,185
Total Loans $1,011,325 $976,819
</TABLE>
Changes in the allowance for loan losses for the nine months ended September 30
were as follows:
<TABLE>
<CAPTION>
1996 1995
(000's omitted)
<S> <C> <C>
Balance at beginning
of period $15,938 $14,331
Charge-offs (3,869) (2,001)
Recoveries 1,705 588
Net charge-offs (2,164) (1,413)
Provision for loan losses 3,250 2,600
Balance at end of period $17,024 $15,518
</TABLE>
At September 30, 1996, the recorded investment in loans that are considered
to be impaired under Statement No. 114 was $5,200,000 of which $380,000
were on a nonaccrual basis. The allowance for loan losses related to
these impaired investments was $1,619,000.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE D--FINANCIAL INSTRUMENTS
S&T, in the normal course of business, commits to extend credit and issue
standby letters of credit. The obligations are not recorded in S&T's
financial statements. Loan commitments and standby letters of credit
are subject to normal credit underwriting policies and procedures and
generally require collateral based upon management's evaluation of each
customer's financial condition and ability to satisfy completely the terms
of the agreement. S&T's exposure to credit loss in the event the customer
does not satisify the terms of agreement equals the notional amount of the
obligation less the value of any collateral. Unfunded loan commitments
totaled $230,487,000 and obligations under standby letters of credit totaled
$61,297,000 at September 30, 1996.
At September 30, 1996, S&T had marketable equity securities totaling $407,813
at amortized cost and $603,225 at estimated market value, that were
subject to covered call option contracts. The purpose of these contracts
was to generate fee income for S&T.
NOTE E - LITIGATION
S&T, in the normal course of business, is subject to various legal
proceedings in which claims for monetary damages are asserted. No
material losses are anticipated by management as a result of these
legal proceedings.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis is presented so
that shareholders may review in further detail the
financial condition and results of operations of S&T
Bancorp, Inc. and subsidiaries (S&T). This discussion
and analysis should be read in conjunction with the
condensed consolidated financial statements and the
selected financial data presented elsewhere in this
report.
Financial Condition
Total assets at September 30, 1996 were $1.5 billion,
increasing slightly from December 31, 1995. Total
assets averaged $1.4 billion in the first nine months
of 1996, an $80.2 million increase from the 1995 full
year average. Average loans and average securities
increased $29.1 million and $31.0 million, respectively,
in the first nine months of 1996 compared to the 1995 full
year averages. Funding for this loan and security growth
was primarily provided by a $57.8 million increase in average
deposits, a $11.6 million increase in average retained earnings,
offset by a $5.1 million decrease in average
borrowings.
Lending Activity
Total loans at September 30, 1996 were $1.0 billion,
a $34.4 million or 3.5% increase from December 31, 1995.
Average loans increased $29.1 million, or 3% to $979.0
million for the nine months ended September 30, 1996 from
the 1995 full year average. Changes in the composition
of the average loan portfolio during 1996 included increases
of $10.2 million of commercial loans, $24.8 million of
residential mortgages, offset by a decreases of $0.9
million of installment loans and $5.0 million of commercial
real estate loans.
The slight increase in overall loan volumes for the
first nine months of 1996 can be attributed to higher
new loan activity in the third quarter. Borrowers
perceived the first half of 1996 to be the bottom of
the interest rate cycle and significantly increased
refinancing activities in order to lock in lower loan
rates. At the same time, competitive pressures in the
market pushed new loan rates to levels that were
sometimes below the risk adjusted yields that could be
obtained from investment securities with similar
duration. Loan priceings firmed somewhat in the third
quarter providing better risk adjusted returns as
compared to securities.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Commercial real estate loans comprise 21% of the loan
portfolio. Although real estate loans can be an area
of higher risk, management believes these risks are
mitigated by limiting the percentage amount of portfolio
composition, a rigorous underwriting review by loan
administration and the fact that many of the commercial
real estate loans are owner-occupied and/or seasoned
properties that were refinanced from other banks.
Residential mortgage lending continued to be a strategic
area of focus during the first nine months of 1996 through
the establishment of a centralized mortgage origination
department, product redesign and the utilization of
commission compensated originators. Management believes
that if a downturn in the local residential real estate
market occurs, the impact of declining values on the real
estate loan portfolio will be negligible because of S&T's
conservative mortgage lending policies. These policies
generally require a maximum term of twenty years for fixed
rate mortgages and private mortgage insurance for loans with
less than a 20% down payment. At September 30, 1996 the
residential mortgage portfolio had a 36% composition of
adjustable rate mortgages.
Installment loan decreases are primarily associated
with significantly lower volumes in the indirect auto
loan category and the sale of the student loan
portfolio in the second quarter of 1996. Pricing
pressures were unusually intense in the indirect
market during the first nine months of 1996 and the
decision was made to temporarily deploy investable
funds into other, higher yielding and lower risk
earning assets. In the second quarter of 1996, S&T
implemented an indirect auto leasing program and
currently has $2.5 million of outstanding auto leases.
$8.2 million of the student loan portfolio was sold in
the second quarter of 1996 because of newly issued
government regulations and restrictions that
significantly reduced much of the profit potential
associated with the product.
In addition to prepayment and refinancing activity,
the decrease in commercial loan volumes for the period
can be partially attributed to $7.8 million of loan
participations during the first nine months of 1996.
S&T began to expand the participation of select
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
commercial loans in 1995 and has developed a network
of banks seeking to participate in larger commercial
loans. The rationale for these participations
included credit risk diversification, servicing income
generation and the development of alternative funding
sources.
Management intends to continue to pursue quality loans
in all lending categories within our market area in
order to honor our commitment to provide the best
service possible to our customers. S&T's loan
portfolio primarily represents loans to businesses and
consumers in our market area of Western Pennsylvania
rather than to borrowers in other areas of the country
or to borrowers in other nations. S&T has not
concentrated its lending activities in any industry or
group. During the past several years, management has
concentrated on building an effective credit and loan
administration staff which assists management in
evaluating loans before they are made and identifies
problem loans early.
Security Activity
Average securities increased $31.0 million in the
first nine months of 1996 compared to the 1995 full
year average. Security yields during the period
offered reasonable investment alternatives to the
depressed yields in the market for new loans. The
change in composition of the average investment
portfolio was all related to increases in average
taxable securities; tax-exempt state and municipal
securities average balances decreased $1.3 million .
The increase in average taxable investment securities
was principally comprised of $53.8 million of U.S.
government agencies securities, $3.9 of common stocks
and $1.1 million of Federal Home Loan Bank (FHLB)
stock. Offsetting these increases were average
decreases of $16.7 million in U.S. Treasury
securities, $8.6 million in collateral mortgage
obligations (CMO's) and $1.1 million in other
corporate securities.
Equity purchases of common stocks were made in order
to take advantage of the higher yields and the
dividends received deduction for corporations; the
FHLB stock is a membership and borrowing requirement.
The equities portfolio is currently yielding 10.6% on
a fully taxable equivalent (FTE) basis and has $29.3
million of unrealized gains net of nominal unrealized
losses.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Allowance for Loan Losses
The allowance for loan losses increased to $17.0
million or 1.68% of total loans at September 30, 1996,
as compared to December 31, 1995. The adequacy of the
allowance for loan losses is determined by management
through evaluation of the loss potential on individual
nonperforming, delinquent and high-dollar loans,
review of economic conditions and business trends,
historical loss experience, growth and composition of
the loan portfolio as well as other relevant factors.
The balance of nonperforming loans, at September 30,
1996 which includes nonaccrual loans past due 90 days
or more, was $1.9 million, or 0.18% of total loans.
This compares to nonperforming loans of $2.8 million
or 0.29% of total loans at December 31, 1995. Asset
quality is a major corporate objective at S&T and
management believes that the total allowance for loan
losses is adequate to absorb probable loan losses.
Deposits
Average total deposits increased by $57.8 million, or
6% for the nine months ended September 30, 1996 as
compared to the 1995 average. Changes in the average
deposit mix included a $39.5 million increase in
time deposits, $23.0 million increase in money market
accounts, and a $3.6 million increase in demand
accounts offset by a $8.3 million decrease in savings
accounts.
During the second half of 1995, S&T issued $25.0
million of retail certificates of deposits through two
brokerage firms, further broadening the availability
of reasonably priced deposit funds. At September 30,
1996, there were $15.0 million of these brokered
retail certificates of deposits outstanding. In
addition, money market accounts were recently repriced
in order to be more competitive with money funds
offered by brokerage firms.
Special rate deposits of $100 thousand and over were
8% of total deposits at September 30, 1996 and 7% of
total deposits at December 31, 1995 and primarily
represent deposit relationships with local customers
in our market area. Management believes that the S&T
deposit base is stable and that S&T has the ability to
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
attract new deposits, mitigating a funding dependency
on volatile liabilities. In addition, S&T has the
ability to access both public and private markets to
raise long-term funding if necessary.
Borrowings
Average borrowings decreased $5.1 million for the nine
months ended September 30, 1996 compared to the 1995
annual average and were comprised of retail repurchase
agreements (REPO's), wholesale REPO's, federal funds
purchased and long-term borrowings. S&T defines
repurchase agreements with its local, retail customers
as retail REPOS; wholesale REPOS are those transacted
with other banks and brokerage firms with terms
normally ranging from 1 to 14 days.
The average balance in retail and wholesale REPOS
decreased approximately $18.3 million for the first
nine months of 1996 compared to the full year 1995
average. Some retail REPO funds have shifted back to
deposits as a result of the Federal Deposit Insurance
Corporation (FDIC) insurance premium reduction; more
comparable rates can now be offered on deposits. In
addition, core deposit increases and more moderate
loan growth have decreased the usage of wholesale REPO
fundings.
Average long-term borrowings have increased $13.2
million in the first nine months of 1996 as compared
to the full year 1995 average. At September 30, 1996,
S&T had long-term borrowings outstanding of $8.1
million at a fixed rate and $73.5 million at an
adjustable rate with the FHLB. The purpose of these
borrowings was to provide matched, fixed rate fundings
for newly originated loans, to mitigate the risk
associated with volatile liability fundings and to
take advantage of lower cost funds through the FHLB's
Community Investment Program. All other long-term
borrowings are related to the funding of the S&T
Employee Stock Ownership Plan (ESOP) loan. The loan
was used by the ESOP to acquire treasury stock from
S&T. This loan is recorded in the financial
statements as other borrowed funds, offset by a
reduction in shareholders' equity to reflect S&T's
guarantee of the ESOP borrowing. The balance of the
ESOP loan at September 30, 1996 was $0.2 million. The
terms of this loan require annual principal payments
and quarterly interest payments at a rate equal to 80%
of the lender's prime rate.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Capital Resources
Shareholders' equity increased $1.9 million at
September 30, 1996, compared to December 31, 1995.
The slight increase is related to a program announced
in the fourth quarter of 1995 to annually acquire up
to 350,000 shares, or approximately 3%, of S&T's
common stock as treasury shares. In the first nine
months of 1996, S&T acquired 257,525 treasury shares
on the open market in order to fund the employee stock
option plan, the dividend reinvestment plan for
shareholders and other general corporate purposes.
Net income was $17.3 million and dividends paid to
shareholders were $7.3 million for the nine months
ended September 30, 1996. During the first nine
months of 1996, S&T paid 42% of 1996 net income in
dividends, equating to an annual dividend rate of
$0.96 per share.
The book value of S&T's common stock increased
slightly from $14.85 at December 31, 1995 to $15.28 at
September 30,1996 due to the stock buyback and the
effect of the unrealized gains on the available for
sale portfolio. Equity associated with the available
for sale securities portfolio decreased $2.3 million
during the first nine months of 1996 due to rising
interest rates and the resulting decline in values.
The market price of S&T's common stock increased to
$31.50 per share at September 30, 1996 as compared to
$30.50 per share at December 31, 1995.
S&T continues to maintain a strong capital position
with a leverage ratio of 10.3% as compared to the
minimum regulatory guideline of 3.0%. S&T's
risk-based capital Tier I and Total ratios were 13.3%
and 14.5% respectively, at September 30, 1996. These
ratios place S&T well above the Federal Reserve
Board's risk-based capital guidelines of 4.0% and 8.0%
for Tier I and Total, respectively.
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 compared to
Nine months ended September 30, 1995
Net Income
Net income increased to $17.3 million or $1.56 per
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
share in the first nine months of 1996 from $15.2
million or $1.35 per share for the same period of
1995. The significant improvement during the first
nine months of 1996 was the result of higher net
interest income, increased noninterest income,
partially offset by higher provision and operating
expense.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $2.2 million or 5% in the first nine
months of 1996 compared to the same period of 1995.
The net yield on interest-earning assets decreased
slightly from 4.77% to 4.73%. Net interest income was
positively affected by a $59.4 million, or 5% increase
in average earning assets.
Maintaining consistent spreads between earning assets
and costing liabilities is very significant to S&T's
financial performance since net interest income
comprises 87% of operating revenue. A variety of
asset/liablity management strategies were successfully
implemented, within prescribed ALCO risk parameters,
that enabled S&T to maintain a net interest margin
consistent with historical levels.
During the same period, earning assets increased
primarily through both new loan originations and
securities purchases. The bulk of funding for this
asset growth was provided by deposits, borrowings and
retained earnings. The level and mix of funds is
continually monitored by ALCO in order to mitigate the
interest rate sensitivity and liquidity risks of the
balance sheet.
Provision for Loan Losses
The provision for loan losses increased to $3.3
million for the first nine months of 1996 compared to
$2.6 million in the same period of 1995. The increase
was the result of management's assessment of economic
conditions, credit quality statistics, loan
administration effectiveness and other factors that
would have an impact on future probable losses in the
loan portfolio. Net loan charge-offs totaled $2.2
million for the first nine months of 1996 compared to
$1.4 million for the same period of 1995. S&T's
allowance for loan losses at September 30, 1996 was
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
$17.0 million, or 1.68% or total loans compared to
$15.5 million, or 1.61% of total loans at September
30, 1995. Nonperforming loans to total loans decreased
17 bp to 0.18% at September 30, 1996.
Noninterest Income
Noninterest income increased $0.2 million or 39% in
the first nine months of 1996 compared to the same
period of 1995. Increases included $0.4 million or
21% in trust income, $0.5 million or 22% in service
charges and fees, $0.5 million or 34% in other income
and $1.0 million in security/nonrecurring gains.
The increase in trust income was attributable to a
bank wide incentive program and expanded marketing
efforts designed to develop new trust business. The
increase in service charges on deposit accounts was
primarily the result of the introduction of new cash
management services and management's continual effort
to implement reasonable fees for services performed
and to manage closely the collection of these fees.
Other income increases included insurance sales,
brokerage, equity call fees and letters of credit.
Security gains were taken on available for sale
equities securities in the first nine months of 1996
in order to maximize returns by taking advantage of
market opportunities when presented. Unrealized
gains, net of unrealized losses in the available for
sale equities portfolio totaled $29.3 million at
September 30, 1996.
Noninterest Expense
Noninterest expense increased $1.4 million or 6% at
September 30, 1996 compared to September 30, 1995.
The increase is primarily attributable to employment,
other expense, and FDIC insurance premium. The $0.7
million increase in employment expense resulted from
normal merit increases, higher incentive payouts
relative to commercial loan volume and trust sales,
offset by higher deferral of loan origination costs,
resulting from new loan activity. Average full-time
equivalent staff increased from 567 to 571 as compared
to the same period of 1995. Other expense increased
$0.5 million primarily due to higher legal,
consulting, postage, loan related costs.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During 1995, FDIC premiums were eliminated resulting
in expense savings of $0.8 million for the first half
of 1996. However, S&T has $168 million of Oakar
deposits subject to the Savings Association Insurance
Fund (SAIF) rate of 23 basis points. On September 30,
1996, legislation was passed for recapitalization of
the SAIF fund. The SAIF fund was recapitalized by
imposing a one-time surcharge of 65.6 basis points on
any financial institution holding SAIF deposits. This
surcharge resulted in a expense of $0.9 million to
S&T. For future years, the insurance rate for SAIF
deposits is expected to be lower, significantly reducing
future expense.
Federal Income Taxes
Federal income tax expense increased $0.3 million or
5% at September 30, 1996 as compared to September 30,
1995 as a result of higher pre-tax income in 1996.
The effective tax rate for the first nine of 1996 was
25%, which is below the 35% statutory rate due to
benefits resulting from tax-exempt interest,
excludable dividend income and LIHTC's.
RESULTS OF OPERATIONS
Three months ended September 30, 1996 compared to
Three months ended September 30, 1995
Net Income
Net income increased to $6.0 million or $0.54 per
share for the third quarter of 1996 from $5.2 million
or $0.46 per share for the third quarter of 1995, a
15% improvement.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $0.9 million or 6% in the third
quarter of 1996 compared to the same period of 1995.
This improvement in net interest income resulted from
a higher level of earning assets while maintaining
fairly consistent spreads.
Average earning assets increased by $68.3 million as
compared to the third quarter of 1995, primarily as a
result of an increase in new loan originations and
securities purchases. The bulk of funding for this
asset growth was provided by deposits, borrowings and
retained earnings.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Net interest margin on a fully taxable equivalent
basis was 4.75% for the third quarter of 1996, as
compared to 4.74% for the same period of 1995.
Provision for Loan Losses
The provision for loan losses was $0.8 million in the
third quarter of 1996 compared to $1.1 million in the
same period of 1995. Net loan charge-offs totaled
$0.5 million for the third quarter of 1996 and $0.6
million in the third quarter of 1995.
Noninterest Income
Noninterest income increased $0.9 million or 43% in
the third quarter of 1996 compared to the same period
of 1995. Increases included $0.2 million or 36% in
trust income, $0.2 million or 22% in service charges
and fees, $0.3 million or 57% in other income and $0.3
million in security/nonrecurring gains.
The increase in trust income was attributable to a
bank wide incentive program and expanded marketing
efforts designed to develop new trust business. The
increase in service charges on deposit accounts was
primarily the result of new cash management services
and management's continual effort to implement
reasonable fees for services performed and to manage
closely the collection of these fees. The increase in
other income is attributable to higher insurance
commissions due to low experience ratings and an
increase from the sale of credit insurance.
Security/nonrecurring gains increased $0.3 million in
the third quarter of 1996 as compared to the same
period of 1995. Security gains were taken on
available for sale securities in the third quarter of
1996 in order to take advantage of market
opportunities when presented.
Noninterest Expense
Noninterest expense increased $1.2 million or 15% at
September 30, 1996 compared to September 30, 1995.
The increase is primarily attributable to the
aforementioned surcharge in FDIC/SAIF premiums and an
increase in employment costs.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FDIC expense increased $0.9 million in the third
quarter of 1996 compared to the third quarter of 1995.
The increase is attributable to legislation passed on
September 30, 1996 for recapitalization of the SAIF
fund. S&T has $168 million of Oakar deposits subject
to the surcharge of 65.6 basis points, resulting in an
expense of $0.9 million in the third quarter of 1996.
Employment costs increased $0.2 million or 3% in the
third quarter of 1996 compared to the same period of
1995. The increase resulted from normal merit
increases offset by higher deferral of loan
origination costs, resulting from an increase in loan
volume during the third quarter of 1996.
Federal Income Taxes
Federal income tax expense increased $0.1 million or
4% at September 30, 1996 as compared to September 30,
1995 as a result of higher pre-tax income in 1996.
The third quarter effective tax rate of 26% was below
the 35% statutory tax rate due to the tax benefits
resulting from tax-exempt interest, excludable
dividend income and low income housing tax credits.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.
S&T Bancorp, Inc.
(REGISTRANT)
Date: November 8, 1996 Robert E. Rout
Principal Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q and is qualified in its entirely by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 39748
<SECURITIES> 370044
<RECEIVABLES> 35778
<ALLOWANCES> 17024
<INVENTORY> 0
<CURRENT-ASSETS> 1455327
<PP&E> 28946
<DEPRECIATION> 13572
<TOTAL-ASSETS> 1455327
<CURRENT-LIABILITIES> 1286526
<BONDS> 0
0
0
<COMMON> 29552
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1455327
<SALES> 82840
<TOTAL-REVENUES> 91205
<CGS> 44550
<TOTAL-COSTS> 44550
<OTHER-EXPENSES> 26474
<LOSS-PROVISION> 3250
<INTEREST-EXPENSE> 38290
<INCOME-PRETAX> 23191
<INCOME-TAX> 5896
<INCOME-CONTINUING> 17295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17295
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
</TABLE>
