SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
724-349-1800
(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 - 27,001,552 shares as of April 24, 2000
PAGE 1
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
March 31, 2000 and December 31, 1999 3
Condensed consolidated statements of income -
three months ended March 31, 2000 and 1999 4
Condensed consolidated statements of cash
flows - three months ended March 31, 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 10-16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
PAGE 2
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
[CAPTION]
March 31, December 31,
2000 1999
(000's omitted except per share data)
ASSETS
Cash and due from banks $36,748 $38,663
Interest-earning deposits with banks 55 54
Federal funds sold 48,310 15,400
Securities:
Available for sale 551,245 557,994
Held to maturity (market value
$17,031 in 2000 and $17,527
in 1999) 16,807 17,230
Total Securities 568,052 575,224
Loans, net of allowance for loan
losses of $29,410 in 2000
and $27,134 in 1999 1,479,687 1,469,143
Premises and equipment 20,550 20,678
Other assets 79,706 74,911
TOTAL ASSETS $2,233,108 $2,194,073
LIABILITIES
Deposits:
Noninterest-bearing $224,295 $219,202
Interest-bearing 1,247,598 1,215,863
Total Deposits 1,471,893 1,435,065
Securities sold under repurchase
agreements 87,895 116,009
Long term borrowings 389,109 364,062
Other liabilities 42,282 39,237
TOTAL LIABILITIES 1,991,179 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 21,068 21,070
Retained earnings 184,512 179,129
Accumulated other comprehensive
income 13,235 16,410
Treasury stock (2,713,996 shares at
March 31, 2000 and 2,715,221 at
December 31,1999, at cost) (51,171) (51,194)
TOTAL SHAREHOLDERS'EQUITY 241,929 239,700
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $2,233,108 $2,194,073
See Notes to Condensed Consolidated Financial Statements
PAGE 3
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
For three months ended
March 31,
2000 1999
INTEREST INCOME
Loans, including fees $32,510 $28,702
Deposits with banks 1 1
Federal funds sold 230 153
Investment securities:
Taxable 7,886 7,244
Tax-exempt 208 268
Dividends 1,064 972
Total Interest Income 41,899 37,340
INTEREST EXPENSE
Deposits 12,976 11,572
Securities sold under
repurchase agreements 1,917 1,448
Federal funds purchased 17 54
Long-term borrowings 4,956 3,186
Total Interest Expense 19,866 16,260
NET INTEREST INCOME 22,033 21,080
Provision for loan losses 1,000 1,000
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 21,033 20,080
NONINTEREST INCOME
Security gains, net 895 1,419
Trust fees 886 882
Service charges on deposit accounts 1,490 1,438
Other 1,985 1,537
Total Noninterest Income 4,361 3,857
NONINTEREST EXPENSE
Salaries and employee benefits 5,997 5,580
Occupancy, net 729 769
Furniture and equipment 693 856
Other taxes 416 397
Data processing 620 592
FDIC assessment 74 61
Other 2,783 2,561
Total Noninterest Expense 11,312 10,816
INCOME BEFORE INCOME TAXES 14,977 14,540
Applicable income taxes 4,190 4,404
NET INCOME $10,787 $10,136
PER COMMON SHARE (1)
Net Income - Basic $0.40 $0.37
Net Income - Diluted 0.40 0.37
Dividends 0.20 0.18
Average Common Shares
Outstanding - Basic 27,000 27,499
Average Common Shares
Outstanding - Diluted 27,093 27,740
See Notes to Condensed Consolidated Financial Statements
PAGE 4
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
Three Months Ended March 31
2000 1999
(ooo's omitted)
Operating Activities
Net Income $10,787 $10,136
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 1,000 1,000
Provision for depreciation
and amortization 568 550
Net amortization of investment
security premiums 127 168
Net accretion of loans and
deposit discounts (68) -
Net gains on sales of securities
available for sale (895) (1,419)
Deferred income taxes (1,043) (310)
(Increase) decrease in interest receivable (1,824) 931
Increase (decrease) in interest payable 133 (978)
Increase in other assets (2,051) (1,149)
Increase in other liabilities 4,328 2,919
Net Cash Provided by Operating Activities 11,062 11,848
Investing Activities
Net (increase) decrease in
interest-earning deposits
with banks (1) 1
Net (increase) decrease in
federal funds sold (32,910) 19,300
Proceeds from maturities of
Investment securities 391 1,200
Proceeds from maturities of
Securities available for sale 2,277 55,895
Proceeds from sales of securities
available for sale 6,297 61,223
Purchases of securities
available for sale (5,908) (94,521)
Net increase in loans (19,291) (35,223)
Proceeds from the sale of loans 7,816 6,565
Purchases of premises and equipment (437) (567)
Other, net (4) (1)
Net Cash (Used in) Provided by
Investing Activities (41,770) 13,872
Financing Activities
Net increase in demand, NOW, MMI, and
savings deposits 10,817 27,190
Net increase (decrease) in certificates
of deposit 26,011 (12,982)
Net decrease in repurchase agreements (28,114) (29,797)
Net increase in federal funds purchased 0 3,225
Proceeds from long-term borrowing 78,275 -
Repayments on long-term borrowing (53,228) -
Acquisition of treasury stock 0 (14,303)
Sale of treasury stock 23 623
Cash dividends paid to shareholders (4,991) (4,819)
Net Cash Provided by (Used in)
Financing Activities 28,793 (30,863)
Decrease in Cash and Cash equivalents (1,915) (5,143)
Cash and Cash Equivalents at beginning
of Period 38,663 48,736
Cash and Cash Equivalents at end of
Period $36,748 $43,593
See Notes to Condensed Consolidated Financial Statements
PAGE 5
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 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 three
month period ended March 31, 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 26,999,959
and 27,498,813 for the period ending March 31, 2000 and 1999.
Average shares outstanding for computing dilutive earnings per share
were 27,092,954 and 27,739,943 for the period ending March 31,
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 three months ended March 31, 2000 and 1999, total
comprehensive income amounted to $7,612,000 and $3,778,000.
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
March 31 are as follows:
[CAPTION]
2000
Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of U.S. government
corporations and agencies $345,311 $59 ($10,286) $335,084
Mortgage-backed securities 5,984 18 (26) 5,976
U.S. treasury securities 13,673 407 (2) 14,078
Corporate securities 65,247 6 (1,927) 63,326
Debt securities available for sale 430,215 490 (12,241) 418,464
Marketable equity securities 62,353 37,730 (5,618) 94,465
Other securities 38,316 38,316
Total $530,884 $38,220 ($17,859) $551,245
2000 Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligation of states and political
subdivisions $14,807 $185 ($5) $14,987
Corporate securities 2,000 44 2,044
Total $16,807 $229 ($5) $17,031
The amortized cost and estimated market value of securities as of
December 31 are as follows:
[CAPTION]
1999 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
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
PAGE 7
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
NOTE B--SECURITIES
Continued
During the period ended March 31, 2000, there were $894,572 in
realized gains relative to securities available for sale.
The amortized cost and estimated market value of debt securities at
March 31, 2000, by contractual maturity, are shown below.
[CAPTION]
Estimated
Amortized Market
Available for Sale Cost Value
(000's omitted)
Due in one year or less $15,064 $15,140
Due after one year through five years 234,980 228,068
Due after five years through ten years 177,812 172,910
Due after ten years 2,359 2,346
Total $430,215 $418,464
Estimated
Amortized Market
Held to Maturity Cost Value
(000's omitted)
Due in one year or less $5,841 $5,904
Due after one year through five years 10,179 10,335
Due after five years through ten years 787 792
Total $16,807 $17,031
At March 31, 2000 and December 31, 1999 investment securities with
a principal amount of $332,133,000 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]
March 31, December 31,
2000 1999
(000's omitted)
Real estate - construction $92,290 $94,786
Real estate - mortgages:
Residential 465,998 466,881
Commercial 544,530 527,970
Commercial - industrial and agricultural 309,587 302,877
Consumer installment 96,692 103,763
Gross Loans 1,509,097 1,496,277
Allowance for loan losses (29,410) (27,134)
Total Loans $1,479,687 $1,469,143
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 three months ended
March 31 were as follows:
[CAPTION]
2000 1999
(000's omitted)
Balance at beginning of period $27,134 $26,677
Charge-offs (619) (515)
Recoveries 1,895 227
Net charge-offs 1,276 (288)
Provision for loan losses 1,000 1,000
Balance at end of period $29,410 $27,389
The following table represents S&T's investment in loans considered
to be impaired and related information on those impaired loans at
March 31, 2000 and December 31, 1999.
[CAPTION]
2000 1999
Recorded investment in loans
considered to be impaired $11,546,000 $11,602,000
Loans considered to be impaired
that were on a nonaccrual basis - -
Allowance for loan losses related
to loans considered to be impaired - 73,000
Average recorded investment in
impaired loans 11,574,000 5,948,000
Total interest income recognized on
impaired loans 338,104 1,271,000
Interest income on impaired loans
recognized on a cash basis 124,301 1,107,000
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 $408,352,000 and
obligations under standby letters of credit totaled $156,518,000 at
March 31, 2000.
At March 31, 2000, S&T had marketable equity securities, totaling
$2,777,216 at amortized cost and $7,680,408 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 three months of 2000, a
$72.1 million increase from the 1999 full year average. Average
loans increased $82.2 million and average securities and federal funds
increased $12.1 million in the first three months of 2000 compared to
the 1999 full year average. Funding for this loan and security growth
was primarily provided by a $46.7 million increase in average
deposits and a $42.7 million increase in average borrowings, offset
by a decrease of $11.2 million in average shareholders' equity.
Lending Activity
Average loans increased $82.2 million, or 6% to $1.5 billion for the
three months ended March 31, 2000 from the 1999 full year average.
Changes in the composition of the average loan portfolio during 2000
included increases of $13.3 million of commercial loans and $83.4
million of commercial real estate loans, offset by decrease of $7.0
million of residential mortgages and $7.5 million of installment loans.
Commercial real estate loans comprise 35% 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 rigouous 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 $7.1
million of participations in originated commercial real estate loans.
The purpose of these participations 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 three 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 March 31, 2000 the
residential mortgage portfolio had a 20% composition of adjustable
rate mortgages.
The decline in average residential loans is due to more active
participation in the secondary mortgage markets and reduced demand
for mortgage loans in the the first quarter of 2000. 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 three months of 2000, S&T sold $0.7 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.
PAGE 10
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 $8.3 million for the
three months ending March 31, 2000 as compared to the 1999 full
year average.
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 National Automobile Dealer Association (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 $6.9 million in the first three months
of 2000 compared to the 1999 full year average. The average increase
was comprised of $14.7 million of corporate securities, $3.0 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, $10.2 million in
U.S. government agency securities, $0.9 million of mortgage-backed
securities and $2.2 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 9.6% on a fully taxable equivalent basis and
had unrealized gains, net of nominal unrealized losses, of $32.1
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 11
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
S&T's policy for security classificaton 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 March 31, 2000,
unrealized gains, net of unrealized losses, for securities classified as
available for sale were $20.4 million.
Allowance for Loan Losses
The balance in the allowance for loan losses was $29.4 million or
1.95% of total loans at March 31, 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 commerical 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 commerical 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 charge-offs (recoveries) totaled ($1.3) million in the first
three months of 2000, as compared to $0.3 million in the same period
of 1999. Net recoveries for the first quarter of 2000 were primarily
due to proceeds received on a floor plan loan charged-off in 1998.
The balance of nonperforming loans, which included nonaccrual loans
past due 90 days or more, at March 31, 2000, was $8.3 million or
0.55% 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
attributable to one commercial real estate credit 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 $46.7 million, or 3% for the three
months ended March 31, 2000 as compared to the 1999 full year
average. Changes in the average deposit mix included a $30.0 million
increase in time deposits, a $24.5 million increase in money market
accounts and a $4.2 million increase in demand accounts, offset by a
$9.2 million decrease in savings accounts and a $2.8 million decrease
in NOW accounts. Some of the changes can be partially explained by
strategic initiatives to increase demand accounts and cash
management services. In addition, a new, successful strategy for
money market account pricing was implemented in order to make
these accounts more competitive with money funds offered at
brokerage firms.
PAGE 12
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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% of total deposits at March 31, 2000 and 6% of total
deposits at December 31, 1999 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 engaged a firm that
trades institutional certificates of deposit on the Internet. At March
31, 2000, there were $13.3 million of brokered retail and institutional
certificates of deposit outstanding.
Borrowings
Average borrowings increased $42.7 million for the first three months
ended March 31, 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 $2.4
million for the first three 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 increased slightly by
$2.4 million for the first three 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 $42.7 million in the
first three months of 2000 as compared to the full year 1999 average.
At March 31, 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 $2.2 million at March 31, 2000,
compared to December 31, 1999. Net income was $10.8 million and
dividends paid to shareholders were $5.4 million for the three months
ended March 31, 2000. Also affecting capital is a decrease of $3.2
million in unrealized gains on securities available for sale. There
were no buy-backs during the first quarter of 2000. An authorization
is in effect to buy-back up to 1,000,000 shares until December 31,
2000.
PAGE 13
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
S&T paid 50% of net income in dividends, equating to an annual
dividend rate of $0.80 per share during the first three months of 2000.
The book value of S&T's common stock increased slightly from
$8.88 at December 31, 1999 to $8.96. The market price of S&T's
common stock was $17.13 per share at March 31, 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 14.3%, respectively, at March 31, 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.
RESULTS OF OPERATIONS
Three months ended March 31, 2000
compared to Three months ended March 31, 1999
Net Income
Net income increased to $10.8 million or $0.40 per diluted earnings
per share in the first three months of 2000 from $10.1 million or $0.37
per diluted earnings per share for the same period of 1999,
representing an 8% improvement. The significant improvement
during the first three 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 $0.9
million or 4% in the first three months of 2000 compared to the same
period of 1999. The net yield on interest-earning assets was 4.43% in
the first three months of 1999 as compared to 4.67% 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 three months of 2000, average securities increased $6.9
million and average loans increased $82.2 million. The yields on
average securities increased by 27 basis points during the period and
the yield on average loans increased 22 basis points.
In the first three months of 2000, average interest-bearing deposits
provided $42.5 million of the funds for the growth in the loan and
security portfolios; cost of deposits totaled 4.24%, an increase of 26
basis points from 1999 due to increased rates paid on money market
and time deposits. The cost of REPOS and other borrowed funds
increased 60 basis points to 5.87%.
Also positively affecting net interest income was a $9.1 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 quarter 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 84% of operating revenue. A variety of
asset/liability 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.
PAGE 14
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Provision for Loan Losses
The provision for loan losses was $1.0 million for the first three
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.
Credit quality statistics are an important factor in determining the
amount of provision expense. Net loan recoveries totaled $1.3 million
for the first three months of 2000 compared to $0.3 million of charge-
offs for the same period 1999. Net recoveries for the first quarter of
2000 were primarily due to proceeds received on a floor plan loan
charged-off in 1998. Nonperforming loans to total loans was 0.55%
at March 31, 2000 compared to 0.23% in the same period of 1999.
The increase is attributable to one commercial real estate credit where
there should be sufficient collateral value to cover the bank's
exposure. 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 $0.5 million or 13% in the first three
months of 2000 as compared to the same period of 1999. Increases
included $0.1 million in service charges and fees and $0.4 million in
other income. Security gains decreased $0.5 million in the first three
months of 2000 as compared to the same period of 1999.
The $0.1 million increase in service charges on deposit accounts was
primarily the result of expanding new cash management
relationships, management's continual effort to implement reasonable
fees for services performed, and to manage closely the collection of
these fees. The $0.4 million increase in other income was primarily
a result of higher performance levels for brokerage activities,
merchant and debit card income 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 $0.9 million of gains on available for sale securities
in the first three months of 2000 as compared to $1.4 million in the
same period of 1999. The security gains were taken on available for
sale securities in the first three months of 2000 and 1999 in order to
maximize returns in the portfolio by taking advantage of market
opportunities when presented. Unrealized gains, net of unrealized
losses, in the available for sale portfolio totaled $20.4 million at
March 31, 2000.
PAGE 15
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Noninterest Expense
Noninterest expense increased by $0.5 million or 5% at March 31,
2000 compared to March 31, 1999. Staff expense increased $0.4
million or 7% primarily attributable to normal merit increases and
higher incentive payouts. Other expenses increased $0.3 million or
8% as compared to March 31, 1999. This increase included $0.1
million in telephone expense relating to the implementation of a wide
area computer communications network. Other expense increases of
$0.2 million were not significant and reflect normal changes due to
activity increases, organization expansion, timing on maintenance
contracts and fee increases from vendors. Average full-time
equivalent staff was 657 at March 31, 2000 and 654 at March 31,
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 42% at March 31, 2000 and
March 31, 1999.
Federal Income Taxes
Federal income tax expense decreased $0.2 million at March 31, 2000
as compared to March 31, 1999 primarily as a result of higher pre-tax
income offset by by a lower effective tax rate resulting from a buildup
of deferred tax expense in previous years. The effective tax rate for
the first three 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, bank owned life
insurance (BOLI) 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 to ensure all processes continue to function properly.
Through first 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.
"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 16
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
PAGE 17
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:
May 11, 2000 /s/ Robert E. Rout
Robert E. Rout
Principal Accounting Officer
PAGE 18