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, 1997
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 - 14,138,145 shares as of October 24, 1997
<PAGE>
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
September 30, 1997 and December 31, 1996 3
Condensed consolidated statements of income -
Three months ended September 30, 1997 and 1996 4
and nine months ended September 30, 1997 and 1996
Condensed consolidated statements of cash flows -
Nine months ended September 30, 1997 and 1996 5
Notes to condensed consolidated financial statements 6-9
Item 2. Management's discussion and analysis of financial
condition and results of operations 10-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(000's omitted except share data)
<S> <C> <C>
ASSETS
Cash and due from banks $43,400 $40,710
Interest-earning deposits
with banks 104 109
Federal funds sold 0 6,465
Securities:
Available for sale 441,266 449,801
Held to maturity ( market value
$50,334 in 1997 and $51,343
in 1996) 49,299 50,260
Total Securities 490,565 500,061
Loans, net of allowance for loan
losses of $20,392 in 1997 and
$18,729 in 1996 1,238,663 1,181,407
Premises and equipment 19,235 20,038
Other assets 40,185 38,255
TOTAL ASSETS $1,832,152 $1,787,045
LIABILITIES
Deposits:
Noninterest-bearing demand $167,462 $159,268
Interest-bearing demand 37,728 52,659
Money market 264,774 230,143
Savings 176,576 198,195
Time 643,351 630,102
Total Deposits 1,289,891 1,270,367
Securities sold under repurchase
agreements 121,425 114,205
Federal funds purchased 935 775
Long-term borrowings 123,118 136,618
Other borrowed funds 230 230
Other liabilities 46,421 38,732
TOTAL LIABILITIES 1,582,020 1,560,927
SHAREHOLDERS' EQUITY
Preferred stock, without par value,
10,000,000 shares authorized
and none outstanding
Common stock ($2.50 par value)
Authorized-25,000,000 shares
in 1997 and 1996
Issued-14,857,019 shares in
1997 and 1996 37,142 37,142
Additional paid in capital 19,333 19,044
Retained earnings 171,239 157,982
Net unrealized holding gains on
securities available for sale 35,212 25,197
Treasury stock (719,874 shares at
September 30, 1997 and 746,003
at December 31, 1996, at cost) (12,564) (13,017)
Deferred compensation (230) (230)
TOTAL SHAREHOLDERS' EQUITY 250,132 226,118
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,832,152 $1,787,045
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,
1997 1996 1997 1996
(000's omitted except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $27,670 $25,134 $81,003 $73,724
Deposits with banks 2 0 6 3
Federal funds sold 92 40 501 223
Investment securities:
Taxable 6,364 6,948 19,004 20,204
Tax-exempt 550 701 1,741 2,204
Dividends 811 725 2,432 2,136
Total Interest Income 35,489 33,548 104,687 98,494
INTEREST EXPENSE
Deposits :
Interest-bearing demand 342 450 1,036 1,335
Money market 1,993 1,528 5,367 4,333
Savings 1,075 1,268 3,322 3,834
Time 9,027 8,376 25,793 24,846
Securities sold under repurchase
agreements 1,538 1,889 4,842 5,325
Federal funds purchased 64 100 304 274
Long-term borrowings 1,704 1,165 5,142 3,564
Other borrowed funds 5 16 13 55
Total Interest Expense 15,748 14,792 45,819 43,566
NET INTEREST INCOME 19,741 18,756 58,868 54,928
Provision for loan losses 750 1,225 3,100 3,875
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,991 17,531 55,768 51,053
NONINTEREST INCOME:
Service charges on deposit accounts 896 738 2,305 2,119
Trust fees 1,174 1,059 3,317 2,937
Net securities/other gains(losses) 378 612 3,917 1,729
Other 777 821 2,178 2,201
Total Noninterest Income 3,224 3,231 11,717 8,986
NONINTEREST EXPENSE
Salaries and employee benefits 5,540 5,265 17,503 16,093
Occupancy, net 638 633 1,989 2,017
Furniture and equipment 559 666 2,580 2,048
Data processing 510 544 1,645 1,471
FDIC assessment 58 989 176 1,200
Other 2,686 2,832 8,699 8,369
Total Noninterest Expense 9,991 10,929 32,592 31,198
INCOME BEFORE INCOME TAXES 12,224 9,833 34,893 28,841
Applicable income taxes 3,575 2,586 10,190 7,536
NET INCOME $8,649 $7,247 $24,703 $21,305
PER COMMON SHARE
Net Income $0.61 $0.51 $1.75 $1.51
Dividends 0.28 0.24 0.81 0.69
Average Common Shares Outstanding 14,132 14,077 14,129 14,113
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,
1997 1996
(000's omitted)
<S> <C> <C>
Operating Activities
Net Income $24,703 $21,304
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 3,100 3,875
Provision for depreciation and amortization 1,643 1,364
Net amortizaton of investment security premiums 470 417
Net accretion of loan and deposit discounts 0 (343)
Net gains on sales of securities available for
sale (3,813) (1,646)
Increase (decrease)in deferred income taxes 38 (521)
Increase in interest receivable (1,226) (1,213)
Increase in interest payable 189 643
Decrease in other assets 1,139 1,066
Increase (decrease)in other liabilities (891) 40
Net Cash Provided by Operating Activities 25,352 24,986
Investing Activities
Net redemption(increase in)interest-earning
deposits with banks 5 (31)
Net decrease in federal funds sold 6,465 7,015
Proceeds from maturities of held to maturity
securities 952 9,152
Proceeds from maturities of securities available
for sale 86,985 67,772
Proceeds from sales of securities available
for sale 38,480 38,450
Purchases of held to maturity securities 0 (1,993)
Purchases of securities available for sale (98,124) (121,655)
Net increase in loans (70,541) (74,673)
Proceeds from the sale of loans 10,185 15,991
Purchases of premises and equipment (167) (1,949)
Proceeds from the sale of premises and equipment (673) (82)
Net Cash Used by Investing Activities (26,433) (62,003)
Financing Activities
Net increase in demand, NOW and
savings deposits 6,275 16,741
Net increase in certificates of deposit 13,249 13,716
Net increase in repurchase agreements 7,220 22,121
Net increase in federal funds purchased 160 15,450
Decrease in long-term borrowings (13,500) (14,987)
Acquisition of treasury stock (4) (7,289)
Sale of treasury stock 748 1,671
Cash dividends paid to shareholders (10,258) (8,015)
Decrease in obligation under capital lease (119) (218)
Net Cash Used by Financing Activities 3,771 39,190
Increase in Cash and Cash Equivalents 2,690 2,173
Cash and Cash Equivalents at Beginning of Period 40,710 46,477
Cash and Cash Equivalents at End of Period $43,400 $48,650
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
give retroactive effect to the merger of Peoples Bank of Unity with and into
S&T Bancorp, Inc. The merger which was consumated on May 2, 1997 resulted
in S&T issuing a total of 3,036,075 shares of common stock. The merger
was accounted for on a pooling of interest basis and the financial
statements are presented as if the merger had been consummated for all the
periods presented, and 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 principals 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, 1997 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
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. 128 "Accounting for Earnings
per Share" (Statement No. 128), is effective in 1997 and provides specific
computation, presentation and disclosure requirements for earnings per share.
The statement's objective is to simplify the computation of earnings per share
and to make the U.S. standard for computing earnings per share more compatible
with the standards of other countries and with that of the International
Accounting Standards Committee. Early adoption is not permitted and Statement
No. 128 will not have a material affect on S&T's financial position or results
of operations.
NOTE B--SECURITIES
The amortized cost and estimated market value of securities as of September 30
are as follows:
<TABLE>
<CAPTION>
1997 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
<S> <C> <C> <C> <C>
Obligations of U.S. government
corporations and agencies $269,134 $2,544 ($363) $271,314
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 15,238 335 15,573
U.S. Treasury securities 38,087 1,335 39,422
Corporate Securities 11,251 197 (11) 11,437
Debt securities available
for sale 333,710 4,411 (374) 337,746
Marketable equity
securities 42,392 50,168 (33) 92,527
Other securities 10,993 10,993
Total $387,095 $54,579 ($407) $441,266
1997 Held To Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states and
political subdivisions $39,538 $835 ($12) $40,361
Corporate securities 1,998 212 2,210
Debt securities held to
maturity 41,536 1,047 (12) 42,571
Other securities 7,763 7,763
Total $49,299 $1,047 ($12) $50,334
</TABLE>
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE B-SECURITIES
The amortized cost and estimated market value of securities as of December 31
are as follows:
<TABLE>
<CAPTION>
1996 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
<S> <C> <C> <C> <C>
Obligations of U.S.
government corporations
and agencies $234,632 $2,408 ($1,116) $235,924
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 51,503 408 (267) 51,644
U.S. Treasury securitie 57,187 1,555 58,742
Corporate Securities 14,463 143 (56) 14,550
Debt securities available
for sale 357,785 4,514 (1,439) 360,860
Marketable equity
securities 40,161 35,868 (224) 75,805
Other securities 13,136 13,136
Total $411,082 $40,382 ($1,663) $449,801
1996 Held To Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states
and political
subdivisions 46,334 919 (52) 47,201
Corporate securities 1,998 216 2,214
48,332 1,135 (52) 49,415
Other securities 1,928 1,928
Total $50,260 $1,135 ($52) $51,343
</TABLE>
During the period ended September 30, 1997, there were $3,813,153 in realized
gains relative to securities available for sale.
The amortized cost and estimated market value of securities at September 30,
1997, 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 $20,067 $20,284
Due after one year through
five years 86,430 87,986
Due after five years through
ten years 218,970 221,052
Due after ten years 8,242 8,424
Total $333,710 $337,746
</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 $6,215 $6,278
Due after one year through
five years 18,770 19,328
Due after five years through
ten years 13,609 13,954
Due after ten years 2,942 3,011
Total $41,536 $42,571
</TABLE>
At September 30, 1997 and December 31, 1996 investment securities with a
principal amount of $214,230,000 and $181,489,000 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, 1997 December 31, 1996
(000's omitted)
<S> <C> <C>
Real estate - construction $48,105 $35,508
Real estate - mortgages:
Residential 520,989 513,424
Commercial 299,055 250,132
Commercial - industrial
and agricultural 258,009 246,731
Consumer installment 132,897 154,341
Gross Loans 1,259,055 1,200,136
Allowance for loan losses ($20,392) ($18,729)
Total Loans 1,238,663 1,181,407
</TABLE>
Changes in the allowance for loan losses for the nine months ended September 30
were as follows:
<TABLE>
1997 1996
(000's omitted)
<S> <C> <C>
Balance at beginning
of period $18,729 $17,065
Charge-offs (2,137) (4,057)
Recoveries 699 1,727
Net charge-offs (1,438) (2,330)
Provision for loan losses 3,100 3,875
Balance at end of period $20,392 $18,610
At September 30, 1997 and December 31, 1996, the recorded investment in loans that are
considered to be impaired under FASB Statement No. 114, as amended by FASB Statement
No. 118, was $14,600,000 and $10,687,000, respectively, after cumulative charge-offs of
$3,690,000 at September 30, 1997 and $3,458,000 at December 31, 1996. Of these impaired
investments, none were on nonaccrual at September 30, 1997 and $6,487,000 at December 31,
1996. The average recorded investment in impaired loans at September 30, 1997 and December
31, 1996 was $11,000,000 and $4,256,000, respectively. S&T Bank has recorded an allowance
for loan losses for all impaired loans totaling $2,700,000 and $2,605,000 at
September 30, 1997 and December 31, 1996, respectively. Interest income on impaired loans
of $1,000,000 and $1,103,000 was recognized at September 30, 1997 and December 31, 1996,
respectively. Of this interest income recognized on impaired loans, primarily
all was recognized using a cash basis method of accounting.
</TABLE>
<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 $278,838,000 and obligations under standby letters of credit totaled
$51,590,000 at September 30, 1997.
At September 30, 1997, S&T had no marketable equity securities, totaling
$1,573,324 at amortized cost and $3,990,538 at estimated market value, that
were subject to covered call option contracts. The purpose of these contracts
was to gererate 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. All prior period amounts have been restated
to reflect the pooling of interest transaction with
Peoples Bank of Unity (Peoples) which closed on May 2,
1997.
Financial Condition
Total assets averaged $1.8 billion in the first nine
months of 1997, a $80.4 million increase from the 1996
full year average. Average loans increased $94.6
million and average securities and federal funds
decreased $22.2 million in the first nine months of
1997 compared to the 1996 full year averages. Funding
for this loan growth was primarily provided by the
aforementioned decrease in average securities and
federal funds, a $33.1 million increase in average
deposits, a $21.8 million increase in average retained
earnings and a $19.6 million increase in average
borrowings.
Lending Activity
Total loans at September 30, 1997 were $1.3 billion, a
$58.9 million or 4.9% increase from December 31, 1996.
Average loans increased $94.6 million, or 8% to $1.2
billion for the nine months ended September 30, 1997
from the 1996 full year average. Changes in the
composition of the loan portfolio during 1997 included
increases of $11.3 million of commercial loans, $9.0
million of residential mortgages and $60.1 million of
commercial real estate loans, offset by a decrease of
$21.5 million of installment loans.
Commercial real estate loans comprise 24% 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 1997 through a centralized mortgage origination
department, ongoing 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,
1997 the residential mortgage portfolio had a 27%
composition of adjustable rate mortgages.
Installment loan decreases are primarily associated
with significantly lower volumes in the indirect auto
loan category and a $7.0 million sale of the student
loan portfolio. Pricing pressures have been
unusually intense in the indirect market during the
last twenty-one months 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 $4.3 million of
outstanding auto leases. Recent changes in
government regulations have significantly decreased
the profit potential of guaranteed student loans. S&T
will continue to distribute student loan applications
for customer convenience, but will not fund or hold
the loans.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Loan underwriting standards for S&T are established by
a formal policy administered by the S&T Bank Credit
Administration Department, and subject to the periodic
review and approval of the S&T Bank Board of
Directors.
Rates and terms for commercial real estate and
equipment loans normally are negotiated, subject to
such variables as economic conditions, marketability
of collateral, credit history of the borrower and
future cash flows. The loan to value policy guideline
for commercial loans is generally 75%.
The residential, first lien, mortgage loan to value
policy guideline is 80%. Higher loan to value loans
can be approved with the appropriate private mortgage
insurance coverage. Second lien positions are
sometimes incurred with home equity loans, but
normally only to the extent that the combined credit
exposure for both first and second liens do not exceed
100% of loan to value.
A variety of unsecured and secured installment loan
and credit card products are offered by S&T. However,
the bulk of the consumer loan portfolio is automobile
loans. Loan to value guidelines for direct loans are
80% and 67% for new and used automobiles,
respectively. Loan to value policy guidelines for
automobile loans purchased from dealers on a third
party basis are 125% of dealer invoice for new
automobiles and 125% of "black book" dealer value for
used automobiles.
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 decreased $28.3 million in the
first nine months of 1997 compared to the 1996 full
year average. The decrease in the average investment
portfolio was related to decreases in average taxable
securities of $19.5 million and tax-exempt state and
municipal securities average balances of $8.8 million.
The decreases in average taxable investment securities
were principally comprised of $34.0 million of U.S.
Treasury securities, $45.1 million of mortgage backed
securities and $2.0 million in other corporate
securities. Offsetting these decreases were average
increases of $54.5 million in U.S. Government Agency
securities, $4.4 million of common stocks and $2.7
million of Federal Home Loan Bank (FHLB) stock.
During 1997 S&T sold $27.9 million of mortgaged backed
securities and $6.0 million of U.S. agency securities
classified as available for sale. These sales were
made as part of a balance sheet restructuring in order
to integrate the investment and asset/liability
management strategies of S&T and Peoples following the
merger. The equity securities sales of $4.9 million
were made in order to maximize returns when market
opportunities are presented.
The equity securities portfolio is primarily comprised
of bank holding companies, as well as preferred and
utility stocks to take advantage of the dividends
received deduction for corporations. During 1997, the
equity portfolio yielded 10.6% on a fully taxable
equivalent basis and had unrealized gains net of
nominal unrealized losses, of $50.1 million. The
equity securities portfolio consists of securities
traded on the various stock markets and are subject to
change in market value. The FHLB capital stock is a
membership and borrowing requirement and is acquired
and sold at stated value.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
S&T's policy for security classification included U.S.
Treasuries, U.S. government agencies, mortgage-backed
securities, CMOs and corporate equities as available
for sale. Municipal securities and other debt
securities are classified as held to maturity. At
September 30, 1997, unrealized gains, net of
unrealized losses for securities classified as
available for sale were approximately $54.2 million.
Allowance for Loan Losses
The allowance for loan losses increased to $20.4
million or 1.62% of total loans at September 30, 1997,
as compared to $18.7 million or 1.56% of total loans
at December 31, 1996. 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,
1997 which includes nonaccrual loans past due 90 days
or more, was $4.1 million, or 0.32% of total loans.
This compares to nonperforming loans of $10.3 million
or 0.86% of total loans at December 31, 1996. The
decrease is attributable to one commercial real estate
loan that went into nonperforming status in the fourth
quarter of 1996, was resolved in the first quarter of
1997, and is now back in the performing category.
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 $33.1 million, or
3% for the nine months ended September 30, 1997 as
compared to the 1996 average. Changes in the average
deposit mix included a $16.0 million increase in time
deposits, $26.6 million increase in money market
accounts and a $7.9 million increase in demand
accounts, offset by a $14.4 million decrease in
savings accounts and a $3.0 million decrease in NOW
accounts.
Special rate deposits of $100 thousand and over were
8% of total deposits at September 30, 1997 and
December 31, 1996 and primarily represent deposit
relationships with local customers in our market area.
Retail time deposit increases of $13.1 million were
the result of expanded promotional programs.
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,
1997, there were $26.6 million of these brokered
retail certificates of deposits outstanding. Money
market accounts were recently repriced in order to be
more competitive with money funds offered by brokerage
firms. As a result of this repricing and proactive
sales activities to high-balance deposit customers,
S&T has experienced a significant shift in funds from
savings to money market accounts. Although this
strategy tends to increase cost of funds, management
believes it is necessary for customer retention and
the development of long-term relationships.
The decrease in NOW balances is attributable to the
implementation of a NOW money market sweep product on
the accounts acquired from Peoples that reduces the
amount of Federal Reserve Requirements.
Management believes that the S&T deposit base is
stable and that S&T has the ability to 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.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Borrowings
Average borrowings increased $19.6 million for the
nine months ended September 30, 1997 compared to the
1996 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 REPOS increased
approximately $7.6 million for the first nine months
of 1997 compared to the full year 1996 average.
This increase is primarily attributable to new REPO
sweep relationships in our cash management department.
S&T views retail REPOS as a relatively stable source
of funds since most of these accounts are with local,
long-term customers.
Wholesale REPOS and federal funds decreased $18.3
million for the first nine months of 1997 compared to
the full year 1996 average. The availability and more
favorable pricings of other funding sources has
allowed S&T to meet the funding demands of loan growth
without depending upon large amounts of wholesale
REPOS. Core deposit increases, securities sales and
the availability of reasonably priced longer term
borrowings decreased the usage of wholesale REPO
fundings in 1997.
Average long-term borrowings have increased $30.3
million in the first nine months of 1997 as compared
to the full year 1996 average. At September 30, 1997,
S&T had long-term borrowings outstanding of $49.6
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, 1997 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.
Capital Resources
Shareholders' equity increased $24.0 million at
September 30, 1997, compared to December 31, 1996.
Net income was $24.7 million and dividends paid to
shareholders were $10.3 million for the nine months
ended September 30, 1997. During the first nine
months of 1997, S&T paid 42% of 1997 net income in
dividends, equating to an annual dividend rate of
$1.12 per share.
The book value of S&T's common stock increased from
$16.02 at December 31, 1996 to $17.69 at September
30,1997. Equity associated with the available for
sale securities portfolio increased $10.0 million
during the first nine months of 1997 due to stabilized
interest rates and the resulting increase in values of
debt and equity securities. The market price of S&T's
common stock was $38.25 per share at September 30,
1997, an increase from $30.75 per share at December
31, 1996.
S&T continues to maintain a strong capital position
with a leverage ratio of 11.8% as compared to the
minimum regulatory guideline of 3.0%. S&T's risk-based
capital Tier I and Total ratios were 17.1% and 18.4%
respectively, at September 30, 1997. 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.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Nine months ended September 30, 1997 compared to
Nine months ended September 30, 1996
Net Income
Net income increased to $24.7 million or $1.75 per
share in the first nine months of 1997 from $21.3
million or $1.51 per share for the same period of
1996. The significant improvement during the first
nine months of 1997 was the result of higher net
interest income, increased noninterest income, higher
security gains, partially offset by higher operating
expense.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $3.8 million or 7% in the first nine
months of 1997 compared to the same period of 1996.
The net yield on interest-earning assets was 4.90% in
the first nine months of 1997 as compared to 4.85% in
the same period of 1996.
Net interest income was positively affected by a $85.6
million, or 5% increase in average earning assets.
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.
In the first nine months of 1997, average loans
increased $110.3 million, comprising most of the
earning asset growth, offset by a decrease of $31.6
million in average securities. The yields on average
loans remained relatively unchanged and average
securities increased by 5 basis points during the
period. The yield increase for securities is
partially a result of selling lower yielding
investments as part of the People's merger portfolio
and balance sheet restructuring.
Average interest bearing deposits provided $29.9
million of the funds for the growth in loans; cost of
deposits totaled 4.30%, relatively unchanged from
1996. The cost of REPOS and other borrowed funds
increased 9 basis points to 5.51%. More longer-term
borrowings were utilized in 1997 in order to mitigate
interest rate risk.
Also positively affecting net interest income was a
$32.7 million increase to average net free funds.
Average net free funds are the excess of demand
deposits, other non-interest bearing liabilities and
shareholders' equity over non-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 89% 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.
Provision for Loan Losses
The provision for loan losses decreased slightly to
$3.1 million for the first nine months of 1997 as
compared to $3.9 million in the same period of 1996.
The decrease 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. Also, during the third quarter of
1996, prior to the merger, Peoples significantly
increased its loan loss reserve on the recommendation
of external auditors.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Credit quality statistics are an important factor in
determining the amount of provision expense. Net loan
charge-offs totaled $1.4 million for the first nine
months of 1997 compared to $2.3 million for the same
period 1996. Nonperforming loans to total loans was
0.32% at September 30, 1997 and 1996.
Also affecting the amount of provision expense is loan
growth. Despite a $94.6 or 8% increase in average
loans, S&T's allowance for loan losses to total loans
remained relatively constant at 1.62% at September 30,
1997 compared to 1.60% at September 30, 1996.
Noninterest Income
Noninterest income increased $2.7 million or 30% in
the first nine months of 1997 compared to the same
period of 1996. Increases included $0.4 million or
13% in service charges and fees, $0.2 million in trust
income and $2.1 million in security gains. Other
income remained constant during the first nine months
of 1997.
The increase in service charges on deposit accounts
was primarily the result of expanding new cash
management relationships and management's continual
effort to implement reasonable fees for services
performed and to manage closely the collection of
these fees. The increase in trust fees is
attributable to expanded marketing efforts to develop
new trust business and to develop new relationships
within the Allegheny county market.
Security gains were taken on available for sale
equities securities in the first nine months of 1997
in order to maximize returns by taking advantage of
market opportunities when presented. These security
gains helped to offset $2.2 million of merger related
and nonrecurring expenses related to the acquisition
of Peoples. Unrealized gains, net of unrealized
losses, in the available for sale equities portfolio
totaled $50.1 million at September 30, 1997.
Noninterest Expense
Noninterest expense increased $1.4 million or 4% at
September 30, 1997 compared to September 30, 1996.
The increase is primarily attributable to $2.2 million
of merger related and other nonrecurring expenses
associated with the acquisition of Peoples during the
second quarter of 1997, offset by higher FDIC
insurance expense in 1996 relating to the one-time
surcharge of 65.6 basis points on any financial
institution holding Savings Association Insurance Fund
(SAIF) deposits. Merger related and other nonrecurring
expenses included costs for severance and early retirement
programs that eliminated 38 duplicate positions, the
write-off and conversion of data processing systems,
as well as legal, accounting and investment banker
expenses.
Recurring expense changes included a $0.7 million increase
resulting from normal year-end staff merit increases, a $0.3
million reduction of goodwill amortization relating to
a 1991 branch acquisition, a $0.2 million increase in
ongoing data processing costs and smaller increases in
several expense categories totaling $0.3 million.
Average full-time equivalent staff decreased from 675
to 667. Severance and early retirement programs were
implemented in May 1997, therefore the full effect of
these programs are not yet fully reflected in the year
to date full-time equivalent staff averages.
Federal Deposit Insurance Corporation (FDIC) premium
expense decreased by 85% or $1.0 million at September 30,
1997 as compared to the same period last year as a result of
recapitalization legislature passed in September 1996.
S&T Bank currently pays an annual premium of $.013 per
$100 on Bank Insurance Fund deposits and $.0648 per
$100 on SAIF deposits, the lowest premium possible under
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
the FDIC's risk assessment program for determining
deposit insurance premiums. S&T Bank has $168.1 million
of deposits subject to the SAIF. These deposits are
related to a thrift institution and branches acquired
from the Resolution Trust Corporation in 1991.
Federal Income Taxes
Federal income tax expense increased $2.7 million at
September 30, 1997 as compared to September 30, 1996
primarily as a result of higher pre-tax income in 1997
and nondeductible merger related expenses. The
effective tax rate for the first nine months of 1997
was 29%, which is below the 35% statutory rate due to
benefits resulting from tax-exempt interest,
excludable dividend income and low income housing tax
credits (LIHTC).
RESULTS OF OPERATIONS
Three months ended September 30, 1997 compared to
Three months ended September 30, 1996
Net Income
Net income increased to $8.6 million or $0.61 per
share in the third quarter of 1997 from $7.2 million
or $0.51 per share for the same period of 1996, a 19%
improvement. This significant improvement is due to
higher net interest income, lower provision expense,
higher noninterest income, offset by significantly
higher nonrecurring noninterest expense resulting from
the acquisition of Peoples in May 1997.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $1.0 million or 5% in the third
quarter of 1997 compared to the same period of 1996.
This improvement in net interest income resulted from
a higher level of earning assets while maintaining
fairly consistent spreads.
Average earning assets increased by $78.9 million as
compared to the third quarter of 1996, primarily as a
result $107.4 million of loan growth. Funding for
this asset growth was provided by available for sale
securities sales, deposits, borrowings and retained
earnings.
Net interest margin on a fully taxable equivalent
basis was 4.85% for the third quarter of 1997, as
compared to 4.90% for the same period of 1996. The
decrease in the net interest margin is primarily the
result of the aforementioned balance sheet
restructuring that increased long-term borrowings.
Provision for Loan Losses
The provision for loan losses decreased to $0.8
million for the third quarter of 1997 compared to $1.2
million in the same period of 1996. Net loan charge-
offs totaled $0.3 million for the third quarter of 1997
compared to $0.6 million for the same period 1996.
The extra provision expense in 1996 was a result of an
effort to maintain S&T's allowance for loan losses to
total loans at a relatively consistant level with loan
growth and 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. During the third quarter of 1996,
prior to the merger, Peoples significantly increased
its loan loss reserve on the recommendation of
external auditors.
<PAGE>
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Noninterest Income
Noninterest income remained constant at $3.2 million
in the third quarter of 1997 and 1996. Component
changes included a $0.2 million decrease in
security/nonrecurring gains, $0.1 million increase in
service charges and fees and $0.1 million in trust
income. Other income remained constant during the
third quarter of 1997.
The increase in service charges on deposit accounts
was primarily the result of expanding new cash
management relationships and management's continual
effort to implement reasonable fees for services
performed and to manage closely the collection of
these fees. The increase in trust fees is
attributable to expanded marketing efforts to develop
new trust business and to develop new relationships
within the Allegheny county market.
Security gains were taken on available for sale
equities securities in the third quarter of 1997 in
order to maximize returns as market opportunities were
presented.
Noninterest Expense
Noninterest expense decreased $0.9 million or 9% in
the third quarter of 1997 as compared to1996. The
decrease is primarily attributable to the
aforementioned FDIC one-time surcharge during the
third quarter of 1996.
Recurring noninterest expense changes included $0.3
million for annual staff merit increases, offset by
lower FDIC insurance expense, the elimination of
goodwill amortization from a 1991 branch acquisition
and smaller expense reductions in several other
categories of noninterest expense totaling $0.1
million.
Federal Income Taxes
Federal income tax expense increased $1.0 million at
September 30, 1997 as compared to September 30, 1996
primarily as a result of higher pre-tax income in
1997. The effective tax rate for the third quarter of
1997 was 29%, which is below the 35% statutory rate
due to benefits resulting from tax-exempt interest,
excludable dividend income and LIHTC.
Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995
The statements in this Form 10-Q which are not
historical fact are forward looking statements that
involve risks and uncertainties, including, but not
limited to, the interest rate environment, the effect
of federal and state banking and tax regulations, the
effect of economic conditions, the impact of
competitive products and pricing, and other risks
detailed in S&T's Securities and Exchange Commission
filings.
<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Form 8-K dated September 12, 1997
On September 18, 1997, the Board of Directors of S&T Bancorp
announced that it has accepted Robert D. Duggan's retirement plans.
Duggan intends to retire as chief executive officer of the Corporation
and S&T Bank, effective December 31, 1997. Duggan has been the chief
executive officer of S&T Bancorp and S&T Bank since 1982. He will
remain the chairman of both Boards of Directors.
James C. Miller, president and chief operating officer of S&T
Bancorp and S&T Bank, will become chief executive officer of both
organizations, effective January 2, 1998. Mr. Miller has been the
chief operating officer of the holding company and the bank since 1993.
Mr. Miller joined S&T Bank in 1983, when S&T acquired Univank in
Brookville, PA where he was an Executive Vice President.
On September 12, 1997, Robert D. Duggan, chairman and chief
executive officer of S&T Bancorp, announced that Jeffrey D. Grube
and Alan Papernick have been appointed to the S&T Bancorp Board of
Directors.
<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 thereunto duly authorized.
S&T Bancorp, Inc.
(REGISTRANT)
Date: November 10, 1997 /s/ Robert E. Rout
Robert E. Rout
Senior Vice President
and Chief Financial Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
"This schedule contains summary financial information extracted from SEC
Form 10-Q and is qualified in its entirety by reference to such financial
statements."
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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