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, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12508 S&T BANCORP, INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-1434426 (State or other jurisdiction of (I.R.S.EMPLOYER incorporation or organization) Identification No.) 800 Philadelphia Street, Indiana, PA 15701 (Address of principal executive offices) (Zip Code) (412) 349-2900 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $2.50 Par Value - 11,235,668 shares as of October 20, 1995 INDEX S&T BANCORP, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed consolidated balance sheets - September 30, 1995 and December 31, 1994 3 Condensed consolidated statements of income - Three months and nine months ended September 30, 1995 4 Condensed consolidated statements of cash flows - nine months ended September 30, 1995 and 1994 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 S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 30, December 31, 1995 1994 (000's omitted except share data) ASSETS Cash and due from banks $33,791 $38,791 Interest-earning deposits with banks 425 3,824 Securities available for sale 149,019 118,904 Investment securities 194,784 187,220 Total loans 964,280 924,408 Less allowance for loan losses (15,518) (14,331) Net Loans 948,761 910,077 Premises and equipment 14,831 14,690 Other assets 18,799 20,231 TOTAL ASSETS $1,360,410 $1,293,737 LIABILITIES Deposits: Noninterest-bearing demand $107,483 $111,345 Interest-bearing demand 93,611 97,970 Money market 115,633 104,296 Savings 129,498 139,648 Time 501,322 449,981 Total Deposits 947,546 903,240 Securities sold under repurchase 142,611 169,871 agreements Federal funds purchased 12,075 19,590 Other borrowed funds 360 430 Long-term borrowing 85,606 43,405 Other liabilities 13,988 15,614 TOTAL LIABILITIES 1,202,186 1,152,150 SHAREHOLDERS' EQUITY Common stock $2.50 par value, 25,000,000 shares authorized 29,552 29,552 and 11,820,944 issued Additional paid in capital 10,809 10,217 Retained earnings 109,077 99,824 Net unrealized holding gains on 16,323 8,406 securities available for sale Treasury stock (585,741 shares at September 30, 1995 and 555,223 (7,177) (5,982) at December 31, 1994) Deferred compensation (360) (430) TOTAL SHAREHOLDER'S EQUITY 158,224 141,587 TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $1,360,410 $1,293,737 See Notes to Condensed Consolidated Financial Statements S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME For Three Months Ended For Nine Months Ended September 30, September 30, 1995 1994 1995 1994 (000's omitted except per share data) INTEREST INCOME Loans, including fees $21,694 $18,144 $63,626 $51,596 Deposits with banks 5 71 136 210 Federal funds sold 18 3 32 10 Investment securities: Taxable 4,399 4,237 12,512 12,920 Tax-exempt 442 522 1,359 1,645 Dividends 619 591 1,880 1,730 Total Interest Income 27,177 23,568 79,545 68,111 INTEREST EXPENSE Deposits Interest-bearing demand 378 408 1,127 1,246 Money market 1,134 872 3,330 2,312 Savings 794 890 2,420 2,604 Time 7,159 5,706 20,121 16,985 Securities sold under 2,164 1,596 6,872 4,157 repurchase agreements Federal funds purchased 56 181 430 374 Long term borrowing 1,129 276 2,764 927 Other borrowed funds 7 13 23 36 Total Interest Expense 12,821 9,942 37,087 28,641 NET INTEREST INCOME 14,356 13,626 42,458 39,470 Provision for loan losses 1,100 800 2,600 2,100 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,256 12,826 39,858 37,370 NONINTEREST INCOME: Trust fees 541 486 1,753 1,548 Service charges on deposit 781 623 2,151 1,809 accounts Net securities/nonrecurring gains 317 (17) 676 447 Other 460 529 1,452 1,587 Total Noninterest Income 2,099 1,621 6,032 5,391 NONINTEREST EXPENSE Salaries and employee benefits 4,449 4,188 13,236 12,655 Occupancy expense, net 538 476 1,582 1,557 Equipment expense, net 404 417 1,506 1,485 Data processing 368 347 1,082 1,047 FDIC assessment 55 509 1,076 1,520 Other 2,347 1,963 6,601 5,805 Total Noninterest Expense 8,161 7,900 25,083 24,069 INCOME BEFORE INCOME TAXES 7,194 6,547 20,807 18,692 Applicable income taxes 1,986 1,816 5,601 4,869 NET INCOME $5,208 $4,731 $15,206 $13,823 PER COMMON SHARE Net Income $0.46 $0.42 $1.35 $1.21 Dividends 0.18 0.15 0.53 0.44 Average Common Shares Outstanding 11,233 11,279 11,244 11,281 See Notes to Condensed Consolidated Financial Statements S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30 1995 1994 (000's omitted) Operating Activities Net Income $15,206 $13,823 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,600 2,100 Provision for depreciation and amortization 1,016 960 Net amortizaton of investment security premiums 613 981 Net accretion of loan and deposit discounts (762) (768) Net gains on sales of securities available for (447) (441) sale Net investment security gains (6) (Decrease) increase in deferred income taxes (254) 186 Increase in interest receivable (1,693) (1,384) Increase in interest payable 3,376 1,823 Increase in other assets (627) (681) (Decrease) increase in other liabilities (5,109) 178 Net Cash Provided by Operating Activities 13,919 16,771 Investing Activities Net redemption (increase) of interest-earning deposits with banks 3,399 (168) Proceeds from sales of investment securities 356 Proceeds from maturities of investment securities 18,224 31,758 Proceeds from maturities of securities available 8,000 14,000 for sale Proceeds from sales of securities available 14,163 22,224 for sale Purchases of investment securities (25,713) (14,800) Purchases of securities available for sale (40,338) (25,148) Net increase in loans (75,262) (80,648) Proceeds from the sale of loans 34,739 Purchases of premises and equipment (1,442) (1,620) Proceeds from the sale of premises and equipment 28 18 Net Cash Used by Investing Activities (64,202) (54,028) Financing Activities Net (decrease) increase in demand, NOW and savings deposits (7,035) 14,824 Net increase in certificates of deposit 51,341 2,467 Net (decrease)increase in repurchase agreements (27,260) 25,351 Net(decrease)increase in federal funds purchased (7,515) 2,025 Increase in long-term borrowing 42,201 3,429 Acquisition of treasury stock (1,878) (567) Sale of treasury stock 1,275 1044 Cash dividends paid to shareholders (5,846) (4,733) Net Cash Provided by Financing Activities 45,283 43,840 (Decrease) Increase in Cash and Cash Equivalents (5,000) 6,583 Cash and Cash Equivalents at Beginning of Period 38,791 32,936 Cash and Cash Equivalents at End of Period $33,791 $39,519 See Notes to Condensed Consolidated Financial Statements S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1995 NOTE A--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1995 are not necessarily indicative of theresults that may be expected for the year ending December 31, 1995. 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, 1994. NOTE B--SECURITIES The amortized cost and estimated market value of securities as of September 30 are as follows: 1995 Available for Sale Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value (000's omitted) Marketable equity securities $32,982 $24,242 ($196) $57,028 Obligations of U.S. government corporations and agencies 35,532 387 35,919 Collateralized mortgage obligations of U.S. government corporations and agencies 5,127 (127) 5,000 U.S. Treasury securities 50,266 806 51,072 $123,907 $25,435 ($323) $149,019 1995 Investment Securities Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value (000's omitted) U.S. Treasury bonds and obligations of U.S. government corporations and agencies $138,058 $3,702 ($446) $141,314 Collateralized mortgage obligations of U.S. government corporations and agencies 12,103 178 12,281 Obligations of states and political subdivisions 30,345 885 (17) 31,213 Corporate securities 2,682 305 2,987 183,188 5,070 (463) 187,795 Other securities 11,596 0 0 11,596 Total $194,784 $5,070 ($463) $199,391 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: 1994 Available for Sale Gross Gross Estimated Amortized UnrealizedUnrealized Market Cost Gains Losses Value (000's omitted) Marketable equity securities $32,122 $15,864 ($1,568) $46,418 Collateralized mortgage obligations of U.S. government corporations and agencies 5,147 (597) 4,550 U.S. Treasury securities 68,704 67 (835) 67,936 $105,973 $15,931 ($3,000) $118,904 1994 Investment Securities Gross Gross Estimated Amortized UnrealizedUnrealized Market Cost Gains Losses Value (000's omitted) U.S. Treasury bonds and obligations of U.S. government corporations and agencies $130,456 $99 ($4,508) $126,047 Collateralized mortgage obligations of U.S. government corporations and agencies 14,451 30 (68) 14,413 Obligations of states and political subdivisions 32,816 295 (542) 32,569 Corporate securities 4,038 129 4,167 181,761 553 (5,118) 177,196 Other securities 5,459 5,459 Total $187,220 $553 ($5,118) $182,655 During the period ended September 30, 1995, there were $1,073,582 in realized gains and $626,386 in realized lossed relative to securities available for sale. The amortized cost and estimated market value of debt securities at September 30, 1995, by contractual maturity, are shown below: Estimated Amortized Market Available for Sale Cost Value (000's omitted) Due in one year or less $22,051 $22,195 Due after one year through 41,090 41,889 five years 22,657 22,907 Due after five years through 5,127 5,000 ten years Total $90,925 $91,991 S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued NOTE B-SECURITIES Estimated Amortized Market Investment Securities Cost Value (000's omitted) Due in one year or less $7,995 $8,062 Due after one year through five years 83,285 84,837 Due after five years through ten years 78,549 81,398 Due after ten years 13,359 13,498 Total $183,188 $187,795 At September 30, 1995 and December 31, 1994 investment securities with a principal amount of $211,491,000 and $230,171,000 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: September 30, 1995 December 31, 1994 (000's omitted) Real estate - construction $32,296 $32,714 Real estate - mortgages: Residential 369,543 343,935 Commercial 193,909 199,959 Commercial - industrial and agricultural 222,047 197,028 Consumer installment 146,485 150,772 Total Loans $964,280 $924,408 Changes in the allowance for loan losses for the nine months ended September 30 were as follows: 1995 1994 (000's omitted) Balance at beginning of period $14,331 $13,480 Charge-offs (2,001) (1,840) Recoveries 588 676 Net charge-offs (1,413) (1,164) Provision for loan losses 2,600 2,100 Balance at end of period $15,518 $14,416 Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan" (Statement No. 114) requires certain loan impairments to be measured using a present value of expected cash flows method. S&T implemented Statement No. 114 in the first quarter of 1995. Statement No. 114 had no effects on S&T's financial position or results of operations. 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 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 satisify the terms of agreement equals the notional amount of the obligation less the value of any collateral. Unfunded loan commitments totaled $163,387,000 and obligations under standby letters of credit totaled $49,715,000 at September 30, 1995. At September 30, 1995, S&T had no securities that were subject to covered option contracts. 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. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Equity purchases of preferred and common stocks were made in order to take advantage of the higher yields and the dividends received deduction for corporations; the FHLB stock is a membership and borrowing requirement. The equities portfolio is currently yielding 10.6% on a fully taxable equivalent basis and has $24.0 million of unrealized gains net of nominal unrealized loss. Allowance for Loan Losses The allowance for loan losses increased to $15.5 million or 1.61% of total loans at September 30, 1995 as compared to $14.3 million or 1.55% of total loans at December 31, 1994. 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, which includes nonaccrual loans past due 90 days or more, at September 30, 1995 was $3.4 million or 0.35% of total loans. This compares to nonperforming loans of $1.9 million or 0.21% of total loans at December 31, 1994. Asset quality is the 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 $14.5 million for the nine months ended September 30, 1995 compared to the 1994 average. Changes in the average deposit mix include a $30.4 million increase in time deposits and $1.5 million in demand deposits, offset by a $17.4 million decrease in NOW's, money market and savings accounts, as compared to the annual 1994 average. These changes can be partially explained by customer preferences for higher-yielding, longer-term certificates of deposits in a rising interest rate environment and the withdrawal of some temporary corporate funds deposited in December 1994. Special rate deposits of $100 thousand and over were 6% of total deposits at September 30, 1995 and December 31, 1994 and primarily represent deposit relationships with local customers in our market area. Management believes that the S&T deposit base is stable and that S&T has the ability to 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. During 1995, S&T S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS issued $25 million of retail certificates of deposits through two brokerage firms, further broadening the availability of reasonably priced funding sources. Borrowings Average borrowings increased $53.2 million for the nine months ended September 30, 1995 compared to the 1994 annual average and were comprised of retail repurchase agreements (REPO's), wholesale REPO's, federal funds purchased and long-term borrowings. During the first nine months of 1995, S&T obtained long-term borrowings of $37.5 million at an adjustable rate and $4.7 million at a fixed rate with the FHLB in order to mitigate the funding risks associated with short-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 $23.3 million for the first nine months of 1995 compared to the full year 1994 average. The customer preference for this type of account is due to collateralization feature and the slightly higher rates that S&T could make available because of the lack of FDIC insurance premiums. Average wholesale REPO's, long-term borrowings and federal funds purchased averaged $141.3 million for the first nine months of 1995, an increase of $29.9 million over the 1994 average balances. This increase is primarily related to the funding requirements of an increase in loan demand, and to take advantage of the relatively low costs as compared to attracting new deposits locally. Capital Resources Average shareholders' equity increased $10.6 million at September 30,1995, compared to December 31, 1994. Net income was $15.2 million for the nine months ended September 30, 1995 and dividends paid to shareholders were $6.0 million for the nine months ended September 30, 1995. During the first nine months of 1995, S&T paid 39% of 1995 net income in dividends, equating to an annual dividend rate of $0.72 per share. The book value of S&T's common stock increased 12% from $12.57 at December 31, 1994 to $14.08 at September 30, 1995 due to an increase in shareholders' equity from retained earnings and the positive effect of Financial Accounting Standards Board Statement No. 115, "Statement on Accounting for Certain Investments in Debt and Equity Securities." The market price of S&T's common stock increased 22.0% to $25.00 per share S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS at September 30, 1995 as compared to $20.50 per share at December 31, 1994. S&T continues to maintain a strong capital position with a leverage ratio of 10.4% as compared to the 1993 minimum regulatory guideline of 3.0%. S&T's risk-based capital Tier I and Total ratios were 13.7% and 15.0% respectively, at September 30, 1995, which places S&T well above the Federal Reserve Board's risk-based capital guidelines of 4.0% and 8.0% for Tier I and Total, respectively. RESULTS OF OPERATIONS Nine months ended September 30, 1995 compared to Nine months ended September 30, 1994 Net Income Net income increased to $15.2 million or $1.35 per share in the first nine months of 1995 from $13.8 million or $1.21 per share for the same period of 1994. The significant improvement during the first nine months of 1995 was primarily the result of higher net interest income and noninterest income partially offset by higher provision and operating expense. Net Interest Income On a fully taxable equivalent basis, net interest income increased $3.1 million or 7% in the first nine months of 1995 compared to the same period of 1994. The net yield on interest-earning assets deceased slightly by 2 basis points to 4.77%. Net interest income was positively affected by a $79.1 million or 7% increase in average earning assets. Active management by the Asset Liability Committee (ALCO) during a period of substantial and unprecedented rate changes in 1994 and 1995 enabled S&T to maintain consistent spreads. The earning asset increase is primarily attributable to a $87 million or 10% loan growth over the past 12 months. New market penetration in the Allegheny and Westmoreland counties has been particularly successful. Provision for Loan Losses The provision for loan losses increased to $2.6 million for the first nine months of 1995 compared to $2.1 million in the same period of 1994. The increase was the result of management's assessment of economic conditions, credit quality statistics, loan administration effectiveness and other factors that would have an impact on future probable losses in the loan portfolio. Net loan charge-offs totaled $1.4 S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS million for the first nine months of 1995 and 1994. S&T's allowance for loan losses at September 30, 1995 was $15.5 million, or 1.61% of total loans compared to $14.4 million, or 1.64% of total loans at September 30, 1994. Nonperforming loans to total loans at September 30, 1995 was 0.35% which is essentially unchanged from the previous year period. Noninterest Income Noninterest income increased 12% in the first nine months of 1995 compared to the same period of 1994. Increases included $0.2 million or 13% in trust income and $0.3 million or 19% in service charges and fees, offset by a $0.1 million or 9% decrease in other income. The increase in trust income was attributable to a bank wide incentive program and expanded marketing efforts designed to develop new trust business. The increase in service charges on deposit accounts was primarily the result of management's continual effort to implement reasonable fees for services performed and to manage closely the collection of these fees. The decrease in other income was attributable to decreased performance for the relatively new fee based businesses of mutual funds and annuities sales in the first nine months of 1995. Security/nonrecurring gains increased $0.2 million in the first nine months of 1995 as compared to the same period of 1994. Security losses were taken on available for sale securities in the first nine months of 1995 in order to reinvest in higher-yielding investment securities. These losses were offset by gains from the sale of various equity securities that were made in order to take advantage of market opportunities. Included in this category is a $0.2 million gain from the aforementioned sale of student loans Noninterest Expense Noninterest expense increased $1.0 million or 4% at September 30, 1995 compared to September 30, 1994. The increase is primarily attributable to employment costs which increased 5% or $0.6 million, and a $0.3 million contribution to the S&T charitable Foundation. Offsetting these increases was a $0.4 million decrease to Federal Deposit Insurance Corporation (FDIC) premiums. The staff expense increase resulted from normal merit increases and higher incentive payouts relative to commercial loan volume, offset by higher deferral of loan origination costs, also resulting from commercial loan activity. Average full-time S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS equivalent staff increased from 554 to 567 as compared to the same period of 1994. In the third quarter of 1995, FDIC premiums were reduced from 23bp to 4bp resulting in expense savings for S&T estimated at $1.4 million annually. Federal Income Taxes Federal income tax expense increased $0.7 million or 15% at September 30, 1995 as compared to September 30, 1994 as a result of higher pre-tax income in 1995. The effective tax rate of 27% was below the 35% statutory tax rate due to the tax benefits resulting from tax exempt interest, excludable dividend income and low income housing tax credits (LIHTC). Three months ended September 30, 1995 compared to Three months ended September 30, 1994 Net Income Net income was $5.2 million or $0.46 per share for the third quarter of 1995 compared to $4.7 million or $0.42 per share in the third quarter of 1994, a 10% improvement. Net Interest Income On a fully taxable equivalent basis, net interest income for the third quarter of 1995 increased $0.8 million from the third quarter of 1994. This improvement in net interest income resulted from a higher level of earning assets while maintaining fairly consistent spreads. Average earning assets increased by $99.4 million as compared to the third quarter of 1994, primarily as a result of a $102.5 million or 12% increase in average loans. The bulk of funding for this loan growth came from increased borrowings and slightly higher deposits. Net interest margin on a fully taxable equivalent basis was 4.74% for the third quarter of 1995, as compared to 4.85% for the same period of 1994. Provision for Loan Losses The provision for loan losses was $1.1 million in the third quarter of 1995 compared to $0.8 million in the same period of 1994. The increase was the result of management's assessment of economic conditions, credit quality statistics, loan administration effectiveness and other factors that would have an impact on probable losses in the loan portfolio. S&T BANCORP, INC, AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Noninterest Income Noninterest income increased 29% or $0.5 million to $2.1 million for the third quarter of 1995 compared to the same period of 1994. The increase is primarily attributable to an increase in service charges on deposit accounts, trust income and security gains, offset by a slight decrease in other income. The $0.2 million increase in service charges and fees on deposit accounts are attributable to pricing and product changes for fee based services. Management continually reviews pricing, product enhancements, collections and market conditions in order to effectively increase service revenues. Trust income increased $0.1 million for the third quarter of 1995 compared to the same period of 1994. The increase was attributable to a bank wide incentive program and expanded marketing efforts to develop new trust business. The $0.3 million increase in security gains resulted from the sale of various equity securities. Selected bank stocks were sold in order to take advantage of market opportunities and to reduce the over concentrations created from recently announced bank mergers. The decrease of $0.1 million in other income is attributable to lower letter of credit origination's during the third quarter of 1995. Noninterest Expense Noninterest expense increased 6% or $0.3 million at September 30, 1995 as compared to the same period of 1994. The increase is primarily attributable to increases in employment costs, occupancy, and other noninterest expenses offset by the $0.5 million FDIC premium refund. Employment costs increased 6% or $0.3 million in the third quarter of 1995 compared to the third quarter of 1994. The increase resulted from normal merit increases, partially offset by a higher deferral of loan origination costs resulting from commercial loan activity. Occupancy, furniture and equipment expenses increased 5% or $0.1 million in the third quarter of 1995 compared to the same period of 1994. The increase is a result of recent renovations, higher utility costs and the addition of a new branch office located in a Wal*Mart Super Center. Other expenses increased 20% or $0.4 million in the third quarter of 1995 as compared to the same period of 1994. The increase is attributable to a $0.3 million funding of S&T's Charitable Foundation and partnership losses from LIHTC investments. The S&T BANCORP, INC, AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS funding of the Charitable Foundation will allow us to fund community contributions well into the future from the Foundation and help us to control future costs. The LIHTC partnership losses are offset by tax credits. Other expenses were also positively affected by the aforementioned $0.5 million reduction in FDIC premiums. Federal income Taxes S&T recognized federal income tax expense of $2.0 million for the quarter ending September 30, 1995 and $1.8 million for the quarter ending September 30, 1994. The third quarter effective tax rate of 28% was below the 35% statutory tax rate due to the tax benefits resulting from tax exempt interest, excludable dividend income and LIHTC. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. S&T Bancorp, Inc. (REGISTRANT) /s/ Robert E. Rout Date: October 31, 1995 Robert E. Rout Principal Accounting Officer