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 June 30, 2000
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)
800-325-2265
(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 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 - 26,986,912 shares as of July 20, 2000
PAGE 1
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
June 30, 2000 and December 31, 1999 3
Condensed consolidated statements of income
three months ended June 30, 2000 and 1999,
and six months ended June 30, 2000 and 1999 4
Condensed consolidated statements of cash
flows - six months ended June 30, 2000
and 1999 5
Notes to condensed consolidated financial
statements 6-9
Item 2. Management's discussion and analysis of
financial condition and results of operations 10-18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
PAGE 2
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
[CAPTION]
<TABLE>
June 30, December 31,
2000 1999
(000's omitted except per share data)
<S> <C> <C>
ASSETS
Cash and due from banks $40,730 $38,663
Interest-earning deposits with banks 61 54
Federal funds sold 46,000 15,400
Securities:
Available for sale 561,485 557,994
Held to maturity (market value $15,856
in 2000 and $17,527 in 1999) 15,677 17,230
Total Securities 577,162 575,224
Loans, net of allowance for loan losses
of $29,892 in 2000 and $27,134 in 1999 1,528,999 1,469,143
Premises and equipment 20,576 20,678
Other assets 76,881 74,911
TOTAL ASSETS $2,290,409 $2,194,073
LIABILITIES
Deposits:
Noninterest-bearing $228,651 $219,202
Interest-bearing 1,255,578 1,215,863
Total Deposits 1,484,229 1,435,065
Securities sold under repurchase
agreements 91,389 116,009
Long term borrowings 427,139 364,062
Other liabilities 39,738 39,237
TOTAL LIABILITIES 2,042,495 1,954,373
SHAREHOLDERS' EQUITY
Preferred stock, without par value,
10,000,000 shares authorized and none
outstanding - -
Common stock ($2.50 par value)
Authorized - 50,000,000 shares in
2000 and 1999
Issued - 29,714,038 shares in 2000
and 1999 74,285 74,285
Additional paid in capital 21,060 21,070
Retained earnings 189,988 179,129
Accumulated other comprehensive income 13,999 16,410
Treasury stock (2,728,136 shares at
June 30, 2000 and 2,715,221 at
December 31,1999, at cost) (51,418) (51,194)
TOTAL SHAREHOLDERS' EQUITY 247,914 239,700
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,290,409 $2,194,073
See Notes to Condensed Consolidated Financial Statements
</TABLE>
PAGE 3
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
<TABLE>
For three months ended For six months ended
June 30, June 30
2000 1999 2000 1999
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $33,484 $29,453 $65,994 $58,155
Deposits with banks 3 1 4 2
Federal funds sold 490 106 720 259
Investment securities:
Taxable 7,957 7,452 15,843 14,696
Tax-exempt 202 240 410 508
Dividends 1,079 986 2,144 1,958
Total Interest Income 43,215 38,238 85,115 75,578
INTEREST EXPENSE
Deposits 13,733 11,494 26,709 23,066
Securities sold under
repurchase agreements 1,225 1,851 3,142 3,299
Federal funds purchased 3 67 20 121
Long-term borrowings 6,082 3,225 11,038 6,411
Total Interest Expense 21,043 16,636 40,909 32,897
NET INTEREST INCOME 22,172 21,602 44,206 42,681
Provision for loan losses 1,000 1,000 2,000 2,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 21,172 20,602 42,206 40,681
NONINTEREST INCOME
Security gains, net 569 407 1,464 1,826
Trust fees 970 1,051 1,856 1,933
Service charges on deposit
accounts 1,710 1,537 3,200 2,975
Other 2,229 1,487 4,214 3,024
Total Noninterest Income 4,909 4,075 9,270 7,932
NONINTEREST EXPENSE
Salaries and employee benefits 5,862 5,482 11,859 11,062
Occupancy, net 726 729 1,455 1,498
Furniture and equipment 640 627 1,333 1,483
Other taxes 400 347 816 744
Data processing 647 492 1,267 1,084
FDIC assessment 73 59 147 120
Other 2,828 2,778 5,612 5,339
Total Noninterest Expense 11,176 10,514 22,489 21,330
INCOME BEFORE INCOME TAXES 15,474 14,570 30,451 29,110
Applicable income taxes 4,331 4,422 8,521 8,826
NET INCOME $11,143 $10,148 $21,930 $20,284
PER COMMON SHARE (1)
Net Income - Basic $0.41 $0.37 $0.81 $0.74
Net Income - Diluted 0.41 0.37 0.81 0.74
Dividends 0.21 0.19 0.41 0.37
Average Common Shares
Outstanding - Basic 26,997 27,128 26,998 27,312
Average Common Shares
Outstanding - Diluted 27,071 27,346 27,082 27,542
See Notes to Condensed Consolidated Financial Statements
</TABLE>
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
<TABLE>
Six Months Ended
June 30
2000 1999
(ooo's omitted)
<S> <C> <C>
Operating Activities
Net Income $21,930 $20,284
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,000 2,000
Provision for depreciation and amortization 1,133 1,096
Net amortization of investment security premiums 186 339
Net accretion of loans and deposit discounts (136) -
Net gains on sales of securities available for sale (1,464) (1,826)
Deferred income taxes (1,461) 116
(Increase) decrease in interest receivable (127) 462
Increase (decrease) in interest payable 1,391 (365)
Increase in other assets (844) (26,107)
Increase (decrease) in other liabilities 602 (1,354)
Net Cash Provided by (Used in) Operating Activities 23,210 (5,355)
Investing Activities
Net (increase) decrease in interest-earning
deposits with banks (7) 2
Net (increase) decrease in federal funds sold (30,600) 6,600
Proceeds from maturities of investment securities 1,548 4,495
Proceeds from maturities of securities available for sale 10,118 79,162
Proceeds from sales of securities available for sale 23,890 207,663
Purchases of securities available for sale (39,923) (309,466)
Net increase in loans (75,917) (63,089)
Proceeds from the sale of loans 14,196 14,064
Purchases of premises and equipment (1,060) (1,224)
Other, net 29 (75)
Net Cash Used in Investing Activities (97,726) (61,868)
Financing Activities
Net increase in demand, NOW, MMI, and
savings deposits 6,184 26,930
Net increase (decrease) in certificates of deposit 42,980 (14,341)
Net (decrease) increase in repurchase agreements (24,620) 67,360
Proceeds from long-term borrowing 116,075 -
Repayments on long-term borrowing (52,998) -
Acquisition of treasury stock (280) (14,922)
Sale of treasury stock 48 740
Cash dividends paid to shareholders (10,806) (9,881)
Net Cash Provided by Financing Activities 76,583 55,886
Increase (decrease)in Cash and Cash Equivalents 2,067 (11,337)
Cash and Cash Equivalents at Beginning of Period 38,663 48,736
Cash and Cash Equivalents at End of Period $40,730 $37,399
See Notes to Condensed Consolidated Financial Statements
</TABLE>
PAGE 5
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
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 instrucitons
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 six month period ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
Basic earnings per share is calculated by dividing income available to
common shareholders by the weighted average number of common shares
outstanding during the period. Options, warrants and other potentially
dilutive securities are excluded from the basic calculation, but are
included in diluted earnings per share. Average shares outstanding for
computing basic earnings per share were 26,998,240 and 27,312,231 for
the period ending June 30, 2000 and 1999. Average shares outstanding
for computing dilutive earnings per share were 27,081,783 and
27,541,958 for the period ending June 30, 2000 and 1999. In computing
dilutive earnings per share, average shares outstanding have been
increased by the common stock equivalents relating to S&T's available
stock options.
Components of comprehensive income for S&T include net income and
unrealized gains or losses on S&T's available-for-sale securities.
During the six months ended June 30, 2000 and 1999, total comprehensive
income amounted to $19,519,000 and $12,173,000.
PAGE 6
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE B-SECURITIES
The amortized cost and estimated market value of securities as of
June 30 are as follows:
[CAPTION]
<TABLE>
2000 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 $356,206 $369 ($9,267) $347,308
Mortgage-backed securities 5,788 25 (36) 5,777
U.S. treasury securities 13,635 409 (1) 14,043
Corporate securities 65,208 4 (2,146) 63,066
Debt securities available for sale 440,837 807 (11,450) 430,194
Marketable equity securities 63,867 38,445 (6,264) 96,048
Other securities 35,243 35,243
Total $539,947 $39,252 ($17,714) $561,485
2000 Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligation of states and political
subdivisions $13,677 $153 ($4) $13,826
Corporate securities 2,000 30 2,030
Total $15,677 $183 ($4) $15,856
</TABLE>
The amortized cost and estimated market value of securities as of
December 31 are as follows:
[CAPTION]
<TABLE>
1999 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 $345,329 $86 ($9,474) $335,941
Mortgage-backed securities 6,179 12 (21) 6,170
U.S. treasury securities 13,709 417 14,126
Corporate securities 66,395 11 (1,880) 64,526
Debt securities available for sale 431,612 526 (11,375) 420,763
Marketable equity securities 61,635 42,073 (5,979) 97,729
Other securities 39,502 39,502
Total $532,749 $42,599 ($17,354) $557,994
1999 Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligation of states and political
subdivisions $15,231 $235 ($3) $15,463
Corporate securities 1,999 65 2,064
Total $17,230 $300 ($3) $17,527
</TABLE>
PAGE 7
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE B--SECURITIES
Continued
During the period ended June 30, 2000, there were $1,463,707 in
realized gains relative to securities available for sale.
The amortized cost and estimated market value of debt securities
at June 30, 2000, by contractual maturity, are shown below.
[CAPTION]
<TABLE>
Estimated
Amortized Market
Available for Sale Cost Value
(000's omitted)
<S> <C> <C>
Due in one year or less $14,527 $14,524
Due after one year through five years 246,541 240,312
Due after five years through ten years 177,521 173,141
Due after ten years 2,248 2,217
Total $440,837 $430,194
Estimated
Amortized Market
Held to Maturity Cost Value
(000's omitted)
Due in one year or less $4,956 $4,997
Due after one year through five years 10,198 10,334
Due after five years through ten years 523 525
Total $15,677 $15,856
</TABLE>
At June 30, 2000 and December 31, 1999 investment securities with
a principal amount of $368,842,000 and $317,979,000, 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:
[CAPTION]
<TABLE>
June 30, December 31,
2000 1999
(000's omitted)
<S> <C> <C>
Real estate - construction $107,541 $94,786
Real estate - mortgages:
Residential 465,411 466,881
Commercial 569,409 527,970
Commercial - industrial and agricultural 322,163 302,877
Consumer installment 94,367 103,763
Gross Loans 1,558,892 1,496,277
Allowance for loan losses (29,892) (27,134)
Total Loans $1,528,999 $1,469,143
</TABLE>
PAGE 8
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--LOANS AND ALLOWANCE FOR LOAN LOSSES
Continued
Changes in the allowance for loan losses for the six months
ended June 30 were as follows:
[CAPTION]
<TABLE>
2000 1999
(000's omitted)
<S> <C> <C>
Balance at beginning of period $27,134 $26,677
Charge-offs (1,602) (2,700)
Recoveries 2,360 2,247
Net recoveries (charge-offs) 758 (453)
Provision for loan losses 2,000 2,000
Balance at end of period $29,892 $28,224
</TABLE>
The following table represents S&T's investment in loans considered
to be impaired and related information on those impaired loans at
June 30, 2000 and December 31, 1999.
[CAPTION]
<TABLE>
2000 1999
<S> <C> <C>
Recorded investment in loans considered
to be impaired $16,067,000 $11,602,000
Loans considered to be impaired that were
on a nonaccrual basis 5,887,000 -
Allowance for loan losses related
to loans considered to be impaired - 73,000
Average recorded investment in impaired loans 13,072,000 5,948,000
Total interest income recognized on impaired
loans 899,000 1,271,000
Interest income on impaired loans recognized
on a cash basis. 325,000 1,107,000
</TABLE>
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 S&T's 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 satisfy the terms of agreement
equals the notional amount of the obligation less the value of any
collateral. Unfunded loan commitments totaled $411,464,000 and
obligations under standby letters of credit totaled $154,690,000 at
June 30, 2000.
At June 30, 2000, S&T had marketable equity securities, totaling
$2,506,394 at amortized cost and $6,755,810 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 9
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 averaged $2.2 billion in the first six months of 2000, a
$95.5 million increase from the 1999 full year average. Average loans
increased $95.6 million and average securities and federal funds
increased $20.3 million in the first six months of 2000 compared to the
1999 full year average. Funding for this loan and security growth was
primarily provided by a $63.1 million increase in average deposits and
a $45.6 million increase in average borrowings offset by a decrease of
$7.9 million in average retained earnings.
Lending Activity
Average loans increased $95.6 million, or 7% to $1.5 billion for the six
months ended June 30, 2000 from the 1999 full year average. Changes
in the composition of the average loan portfolio during 2000 included
increases of $18.4 million of commercial loans and $93.6 million of
commercial real estate loans, offset by decreases of $6.9 million of
residential mortgages and $9.5 million of installment loans.
Commercial real estate loans comprise 36% of the loan portfolio.
Although commercial 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 or rental properties and many are
seasoned properties. During 2000, S&T sold $11.8 million of
participations in originated commercial real estate loans. The purpose
of these sales was to diversify credit risk on larger loans and to generate
fee income from servicing.
Residential mortgage lending continued to be a strategic area of focus
during the first six months of 2000 through a centralized mortgage
origination department, ongoing product redesign, the utilization of
commission compensated originators and the implementation of a
mortgage banking function. 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, for portfolio loans, a maximum term of twenty years
for fixed rate mortgages and private mortgage insurance for loans with
less than a 20% down payment. At June 30, 2000 the residential
mortgage portfolio had a 20% composition of adjustable rate
mortgages.
Much of the decline in average residential loans is due to more active
participation in the secondary mortgage markets. S&T periodically
sells longer-term, lower-yielding 1-4 family mortgages to the Federal
National Mortgage Association (FNMA). The rationale for these sales
is to mitigate interest rate risk associated with holding long-term
residential mortgages in the loan portfolio, to generate fee revenue from
servicing, and still maintain the primary customer relationship. During
the first six months of 2000, S&T sold $2.4 million of 1-4 family
mortgages to FNMA. S&T will continue to sell longer-term loans to
FNMA in the future on a selective basis, especially during periods of
lower interest rates.
Installment loan decreases are primarily associated with significantly lower
volumes in the indirect auto loan category and S&T's strategy to continue to
focus resources toward originations of direct installment loans and home
equity loans. Pricing pressures have been unusually intense in the indirect
auto loan market during the last two years and the decision was made to exit
this line of business and allow the portfolio to liquidate via normal paydowns
and pay-off activities. Direct loans and home equity loans increased $8.8
million for the six months ending June 30, 2000 as compared to the 1999 full
year average.
PAGE 10
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 real estate loans is generally 75-80%.
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 90%-100% of invoice for new automobiles and 80%-90% of
"NADA" value for used automobiles.
Management intends to continue to pursue quality loans in a variety of
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 by $7.3 million in the first six months of
2000 compared to the 1999 full year average. The average increase
was comprised of $12.8 million of corporate securities, $3.7 million of
corporate equity securities and $9.7 million of Federal Home Loan
Bank (FHLB) stock. Offsetting these increases were average decreases
of $7.2 million in U.S. treasury securities, $8.3 million in U.S.
government agency securities, $1.0 million of mortgage-backed
securities and $2.4 million of states and political subdivisions.
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 2000, the
equity portfolio yielded 9.5% on a fully taxable equivalent basis and
had unrealized gains, net of nominal unrealized losses, of $32.2
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.
S&T's policy for security classification includes U.S. treasuries, U.S.
government agencies, mortgage-backed securities and corporate
equities as available for sale. Municipal securities and other debt
securities are classified as held to maturity. At June 30, 2000,
unrealized gains, net of unrealized losses, for securities classified as
available for sale were $21.5 million.
PAGE 11
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Allowance for Loan Losses
The balance in the allowance for loan losses was $29.9 million or
1.92% of total loans at June 30, 2000 as compared to $27.1 million or
1.81% of total loans at December 31, 1999. 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; and growth and composition of the
loan portfolio, as well as other relevant factors.
A quantitative analysis is utilized to support the adequacy of the
allowance for loan losses. This analysis includes review of the high
and low historical charge-off rates for loan categories, fluctuations and
trends in the amount of classified loans and economic factors.
Economic factors consider the level of S&T's historical charge-offs that
have occurred within the credits' economic life cycle.
Significant to this analysis is the shift in the loan portfolio composition
to an increased mix of commercial loans. These loans are generally
larger in size and, due to our continuing growth, many are not well
seasoned and could be more vulnerable to an economic slowdown.
Management relies on its risk rating process to monitor trends which
may be occurring relative to commercial loans to assess potential
weaknesses within specific credits. Current economic factors and
trends in risk ratings are considered in the determination of the
allowance for loan losses.
Net loan (recoveries) charge-offs totaled $(0.8) million and $0.5
million in the first six months of 2000 and 1999, respectively. Net
charge-offs for the first half of 2000 were reduced by the proceeds
received on a previously charged-off floor plan loan in 1998. The
balance of nonperforming loans, which included nonaccrual loans past
due 90 days or more, at June 30, 2000, was $12.4 million or 0.80% of
total loans. This compares to nonperforming loans of $3.0 million or
0.20% of total loans at December 31, 1999. The increase is primarily
attributable to three commercial real estate credits where there should
be sufficient collateral value, and that real estate is presently for sale.
Asset quality is a major corporate objective at S&T, and management
believes that the allowance for loan losses is adequate to absorb
probable loan losses.
Deposits
Average total deposits increased by $63.1 million, or 5% for the six
months ended June 30, 2000 as compared to the 1999 full year average.
Changes in the average deposit mix included a $23.9 million increase
in money market accounts, a $11.4 million increase in demand
accounts and a $39.5 million increase in time deposits offset by a $2.6
million decrease in NOW accounts, and a $9.1 million decrease in
savings accounts. Some of the changes can be partially explained by
strategic initiatives to increase demand accounts and cash management
services. In addition, a successful strategy for money market account
pricing was implemented in order to make these accounts more
competitive with money funds offered at brokerage firms.
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. Special rate deposits of $100,000 and over were
7% and 6% of total deposits at June 30, 2000 and December 31, 1999,
respectively and primarily represent deposit relationships with local
customers in our market area. In addition, S&T has the ability to access
both public and private markets to raise long-term funding if necessary.
During 1995, S&T issued $25.0 million of retail certificates of deposit
through two brokerage firms, further broadening the availability of
reasonably priced funding sources. During the first quarter of 2000,
S&T joined National CD Rateline which is a firm that trades
institutional CD's on the Internet. At June 30, 2000, there were $13.4
million of these brokered and institutional retail certificates of deposit
outstanding.
PAGE 12
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Borrowings
Average borrowings increased $45.6 million for the first six months
ended June 30, 2000 compared to the 1999 full year 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 decreased approximately $2.9
million for the first six months of 2000 compared to the full year 1999
average. S&T views retail REPOS as a relatively stable source of
funds since most of these accounts are with local, long-term customers.
Average wholesale REPOS and federal funds decreased by $24.8
million for the first six months of 2000 compared to the full year 1999
average. The increase in core deposits and the availability of
reasonably priced long-term borrowings from the FHLB decreased the
usage of these types of fundings in 2000.
Average long-term borrowings have increased $73.3 million in the first
six months of 2000 as compared to the full year 1999 average. At June
30, 2000, S&T had long-term borrowings outstanding of $265.6 million
at a fixed rate and $19.6 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, to take advantage of lower cost funds
through the FHLB's Community Investment Program and to fund stock
buy-backs.
Capital Resources
Shareholders' equity increased $8.2 million at June 30, 2000, compared
to December 31, 1999. Net income was $21.9 million and dividends
paid to shareholders were $10.8 million for the six months ended June
30, 2000. Also affecting capital is a decrease of $3.2 million in
unrealized gains on securities available for sale. There were 16,000
shares of S&T common stock repurchased during the first half of 2000.
An authorization is in effect to buy-back up to 1,000,000 shares until
December 31, 2000.
S&T paid 49% of net income in dividends, equating to an annual
dividend rate of $0.84 per share during the first six months of 2000.
The book value of S&T's common stock increased slightly from $8.88
at December 31, 1999 to $9.19. Equity associated with the available
for sale securities portfolio decreased $2.4 million during the first six
months of 2000. The market price of S&T's common stock was $18.25
per share at June 30, 2000, compared to $23.19 per share at December
31, 1999.
S&T continues to maintain a strong capital position with a leverage
ratio of 10.2% as compared to the minimum regulatory guideline of
3.0%. S&T's risk-based capital Tier I and Total ratios were 12.2% and
14.2% respectively, at June 30, 2000. 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 13
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Six months ended June 30, 2000 compared to
Six months ended June 30, 1999
Net Income
Net income increased to $21.9 million or $0.81 per diluted earnings per
share in the first six months of 2000 from $20.3 million or $0.74 per
diluted earnings per share for the same period of 1999, representing a
9% improvement. The significant improvement during the first six
months of 2000 was the result of higher net interest income and
noninterest income offset by normal increases in operating expenses.
Net Interest Income
On a fully taxable equivalent basis, net interest income increased $1.5
million or 3% in the first six months of 2000 compared to the same
period of 1999. The net yield on interest-earning assets was 4.40% in
the first six months of 1999 as compared to 4.64% in the same period
of 1999. The decline in the net yield on interest earning assets during
2000 was primarily attributable to the implementation of a bank owned
life insurance program in the second quarter of 1999 and to the stock
buy-back program, offset by growth in low cost core deposits.
In the first six months of 2000, average securities increased $7.3
million and average loans increased $95.6 million. The yields on
average securities increased by 30 basis points during the period and
the yield on average loans increased 27 basis points.
In the first six months of 2000, average interest-bearing deposits
provided $51.7 million of the funds for the growth in the loan and
security portfolios; cost of deposits totaled 4.34%, an increase of 36
basis points from 1999 due to increased rates paid on money market
and time deposits. The cost of REPOS and other borrowed funds
increased 74 basis points to 6.01%.
Also positively affecting net interest income was a $18.7 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. This increase is net of the
reduction to shareholders' equity resulting from stock buy-backs during
the first half of 1999 and the aforementioned $25 million bank owned
life insurance program.
Maintaining consistent spreads between earning assets and costing
liabilities is very significant to S&T's financial performance since net
interest income comprises 83% 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 reasonably consistent with historical levels. 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 was $2.0 million for the first six months
of 2000 and 1999. The provision is the result of management's
assessment of economic conditions, credit quality statistics, loan
administration effectiveness and other factors that would have an
impact on probable losses in the loan portfolio. Also affecting the
amount of provision expense is loan growth, portfolio composition and
trends within risk ratings.
PAGE 14
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 (recoveries) charge-offs totaled
($0.8) million for the first six months of 2000 compared to $0.5 million
for the same period 1999. Net recoveries for the first half of 2000 were
primarily due to proceeds received on a previously charged-off floor
plan loan in 1998. Nonperforming loans to total loans was 0.80% at
June 30, 2000 compared to 0.27% in the same period of 1999. The
increase is attributable to three commercial real estate credits where
there should be sufficient collateral value, and that real estate is
presently for sale. Also affecting the amount of provision expense is
the amount and types of loan growth and portfolio composition. Most
of the loan growth in 2000 and 1999 is attributable to larger-sized
commercial loans.
Noninterest Income
Noninterest income increased $1.3 million or 17% in the first six
months of 2000 as compared to the same period of 1999. Increases
included $0.2 million in service charges and fees, $1.2 million in other
income, offset by a decrease of $0.1 million in trust income. Security
gains decreased $0.4 million in the first six months of 2000 as
compared to the same period of 1999.
The $0.2 million increase in service charges on deposit accounts was
primarily the result of management's continual effort to implement
reasonable fees for services performed, and to manage closely the
collection of these fees. The $1.2 million increase in other income was
primarily a result of higher performance levels for brokerage activities,
merchant and debit card income, equity call options, mortgage
servicing revenues as well as bank owned life insurance income from a
transaction entered into in the second quarter of 1999. These areas
were the focus of several strategic initiatives and product enhancements
implemented in order to expand this source of revenue.
S&T recognized $1.5 million of gains on available for sale securities in
the first six months of 2000 as compared to $1.8 million in the same
period of 1999. The security gains were taken on available for sale
securities in the first six months of 2000 and 1999 in order to maximize
returns in the portfolio by taking dvantage of market opportunities
when presented. Unrealized gains, net of unrealized losses, in the
available for sale portfolio totaled $21.5 million at June 30, 2000.
Noninterest Expense
Noninterest expense increased by $1.2 million or 5% at June 30, 2000
compared to June 30, 1999. Staff expense increased $0.8 million or 7%
primarily attributable to normal merit increases and higher incentive
payouts. Other expenses increased $0.4 million or 6% as compared to
June 30, 1999. This increase included $0.1 million in telephone
expense relating to the implementation of a wide area computer
communications network and $0.2 million in legal fees related to
increased activity in collections as well as the formation of S&T
Insurance Group, LLC. Other expense increases of $0.1 million were
not significant and reflect normal changes due to activity increases,
organization expansion and fee increases from vendors. Occupancy
expense decreased $0.2 million or 6% due to timing differences in the
payment of annual maintenance agreements and data processing
increased $0.2 million due to a refund received from our third party
processor in the second quarter of 1999. Average full-time equivalent
staff was 658 at June 30, 2000 and 654 at June 30, 1999. S&T's
efficiency ratio, which measures noninterest expense as a percent of
recurring noninterest income plus net interest income on a fully taxable
equivalent basis, was 41% at June 30, 2000 and June 30, 1999.
PAGE 15
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Federal Income Taxes
Federal income tax expense decreased $0.3 million at June 30, 2000 as
compared to June 30, 1999 primarily as a result of higher pre-tax
income offset by a lower effective tax rate. The effective tax rate for
the first six months of 2000 was 28% and 30% in 1999, 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 June 30, 2000 compared to
Three months ended June 30, 1999
Net Income
Net income increased to $11.1 million or $0.41 per diluted earnings per
share in the second quarter of 2000 from $10.1 million or $0.37 per
diluted earnings per share for the same period of 1999. This significant
improvement is due to higher net interest income, higher noninterest
income and minimal increases in operating expenses.
Net Interest Income
On a fully taxable equivalent basis, net interest income increased $0.6
million or 2% in the second quarter of 2000 compared to the same
period of 1999. This improvement in net interest income resulted from
a higher level of earning assets while maintaining fairly consistent
spreads.
Average earning assets increased by $167.5 million as compared to the
second quarter of 1999, primarily as a result of $128.8 million of loan
growth and $25.7 million of security growth. Funding for this asset
growth was provided by available for sale securities sales, deposit
growth, increased borrowings and earnings retained.
Net interest margin on a fully taxable equivalent basis was 4.36% for
the second quarter of 2000, as compared to 4.61% for the same period
of 1999.
Provision for Loan Losses
The provision for loan losses was $1.0 million in the second quarter of
2000 and 1999. Net loan charge-offs totaled $0.5 million for the
second quarter of 2000 compared to $0.2 million for the same period of
1999. The provision expense in 2000 and 1999 is the result of an effort
to maintain S&T's allowance for loan losses to total loans at a
relatively consistent level with charge-offs, loan growth, a continuing
mix change in the loan portfolio to a greater percentage of commercial
loans 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.
Noninterest Income
Noninterest income increased $0.8 million or 20% in the second quarter
of 2000 as compared to 1999. Increases included $0.2 million in
service charges and $0.7 million in other income during the second
quarter of 2000. Trust income decreased $0.1 million in the second
quarter of 2000 as compared to the same period of 1999. Security
gains decreased $0.2 million in the second quarter of 2000 as compared
to the same period of 1999.
PAGE 16
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The 11% increase in service charges on deposit accounts was primarily
the result of management's continual effort to implement reasonable
fees for services performed, and to manage closely the collection of
these fees. The 50% increase in other income was primarily a result of
increased performance for brokerage activities, loan related fees,
merchant and debit card income and BOLI investment income. These
areas were the focus of several strategic initiatives and product
enhancements implemented in order to expand this source of revenue.
During the second quarter of 2000, S&T realized equity security gains
of $1.0 million offset by $0.4 million in losses from the available for
sale bond portfolio. The available for sale equity security gains were
taken in order to maximize returns by taking advantage of market
opportunities when presented.
Noninterest Expense
Noninterest expense increased $0.7 million or 6% in the second quarter
of 2000 as compared to the second quarter of 1999. The increase is
primarily attributable to increased employment and other expenses.
Staff expense increased $0.4 million or 7% as compared to the same
period of 1999. The increase is a result of normal merit increases and
higher incentive payouts. Data processing increased $0.2 million due
to a refund received from our third party processor in the second
quarter of 1999. Other expenses increased $0.1 million primarily due
to normal organizational expansion and fee increases from vendors.
Federal Income Taxes
Federal income tax expense decreased slightly in the second quarter of
2000 as compared to the second quarter of 1999. The decrease is
primarily attributable to higher pre-tax income offset by a lower
effective tax rate. The effective tax rate for the second quarter of 2000
was 28% and 30% for the second quarter of 1999, 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).
Year 2000
During 1999, S&T completed the process of preparing for the Year
2000 date change. This process involved identifying and remediating
date recognition problems in computer systems, software and other
operating equipment, working with third parties to address their Year
2000 issues, and developing contingency plans to address potential
risks in the event of Year 2000 failures. To date, S&T has successfully
managed the transition.
Although considered unlikely, unanticipated problems in S&T's core
business processes, including problems associated with non-compliant
third parties and disruptions to the economy in general, could still occur
despite efforts to date to remediate affected systems and develop
contingency plans. Management will continue to monitor all business
processes, including interaction with S&T's business customers,
vendors and other third parties, throughout 2000 to address any issues
and ensure all processes continue to function properly.
Through second quarter of 2000, the cost of the Year 2000 project
totaled approximately $0.3 million. Purchased hardware and software
was capitalized in accordance with normal policy. Personnel and all
other costs related to the project was expensed as incurred.
PAGE 17
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
The statements in this Annual Report, 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 pricings, and other
risks detailed in S&T's Securities and Exchange Commission filings.
PAGE 18
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
PAGE 19
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: August 11, 2000 /S/ Robert E. Rout
Robert E. Rout
Principal Accounting Officer
PAGE 20
