SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[CAPTION]
(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, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-12508
S&T BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1434426
(State or other jurisdiction of (I.R.S.EMPLOYER
incorporation or organization) Identification No.)
800 Philadelphia Street, Indiana, PA 15701
(Address of principal executive offices) (Zip Code)
(412) 349-2900
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $2.50 Par Value - 11,030,506 shares as of May 10, 1996
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
March 31, 1996 and December 31, 1995 3
Condensed consolidated statements of income -
Three months ended March 31, 1996 and 1995 4
Condensed consolidated statements of cash flows -
Three months ended March 31, 1996 and 1995 5
Notes to condensed consolidated financial statements 6-9
Item 2. Management's discussion and analysis of financial
condition and results of operations 10-16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
(000's omitted except share data)
ASSETS
Cash and due from banks $33,365 $39,852
Interest-earning deposits
with banks 51 51
Securities available for sale 333,044 315,343
Investment securities 33,405 34,997
Total loans 969,125 976,819
Less allowance for loan losses (15,985) (15,938)
Net Loans 953,140 960,881
Premises and equipment 14,727 14,795
Other assets 35,859 34,783
TOTAL ASSETS $1,403,591 $1,400,702
LIABILITIES
Deposits:
Noninterest-bearing demand $106,011 $116,054
Interest-bearing demand 95,450 96,577
Money market 134,748 123,121
Savings 127,144 123,606
Time 519,745 520,267
Total Deposits 983,098 979,625
Securities sold under repurchase
agreements 132,438 122,794
Federal funds purchased 10,975 325
Other borrowed funds 260 340
Long-term borrowing 81,614 96,618
Other liabilities 33,533 34,053
TOTAL LIABILITIES 1,241,918 1,233,755
SHAREHOLDERS' EQUITY
Preferred stock
Common stock $2.50 par value,
25,000,000 shares authorized
and 11,820,944 issued 29,552 29,552
Additional paid in capital 11,282 11,009
Retained earnings 115,240 111,980
Net unrealized holding gains on
securities available for sale 19,758 21,928
Treasury stock (802,880 shares at
March 31, 1996 and 578,092 (13,899) (7,182)
at December 31, 1995)
Deferred compensation (260) (340)
TOTAL SHAREHOLDERS' EQUITY 161,673 166,947
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,403,591 $1,400,702
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For Three Months Ended
March 31,
1996 1995
(000's omitted except share data)
INTEREST INCOME
Loans, including fees $21,359 $20,488
Deposits with banks 2 69
Federal funds sold 27
Investment securities:
Taxable 4,553 3,928
Tax-exempt 453 470
Dividends 699 633
Total Interest Income 27,093 25,588
INTEREST EXPENSE
Deposits
Interest-bearing demand 347 377
Money market 1,276 1,074
Savings 741 817
Time 7,231 6,221
Securities sold under repurchase
agreements 1,671 2,390
Federal funds purchased 78 173
Long term borrowing 1,265 628
Other borrowed funds 5 8
Total Interest Expense 12,614 11,688
NET INTEREST INCOME 14,479 13,900
Provision for loan losses 975 750
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 13,504 13,150
NONINTEREST INCOME:
Trust fees 692 617
Service charges on deposit accounts 808 643
Net securities/nonrecurring gains/(losses) 475 182
Other 707 447
Total Noninterest Income 2,682 1,889
NONINTEREST EXPENSE
Salaries and employee benefits 4,743 4,364
Occupancy expense, net 568 527
Equipment expense, net 619 606
Data processing 395 359
FDIC assessment 97 510
Other 2,275 1,979
Total Noninterest Expense 8,697 8,345
INCOME BEFORE INCOME TAXES 7,489 6,694
Applicable income taxes 1,913 1,773
NET INCOME $5,576 $4,921
PER COMMON SHARE
Net Income $0.50 $0.44
Dividends 0.21 0.17
Average Common Shares Outstanding 11,163 11,260
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31
1996 1995
(000's omitted)
Operating Activities
Net Income $5,576 $4,921
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 975 750
Provision for depreciation and amortization 323 318
Net amortizaton of investment security premiums 148 225
Net accretion of loan and deposit discounts (134) (269)
Net gains on sales of securities available for
sale (475) 37
Net investment security gains
Decrease in deferred income taxes (49) (144)
Increase in interest receivable (1,122) (41)
(Decrease) increase in interest payable (743) 685
(Decrease) increase in other assets 200 (1,105)
Increase (decrease) in other liabilities 1,408 (3,207)
Net Cash Provided by Operating Activities 6,107 2,170
Investing Activities
Net redemption of interest-earning
deposits with banks 733
Proceeds from maturities of investment securitie 501 7,654
Proceeds from maturities of securities available
for sale 28,038 2,000
Proceeds from sales of securities available
for sale 3,894 10,640
Purchases of investment securities (683) (13,520)
Purchases of securities available for sale (50,874) (1,337)
Net decrease (increase) in loans 1,411 (19,084)
Proceeds from the sale of loans 5,489 11,200
Purchases of premises and equipment (313) (479)
Proceeds from the sale of premises and equipment (28) 17
Net Cash Used by Investing Activities (12,565) (2,176)
Financing Activities
Net increase (decrease) in demand, NOW and
savings deposits 3,996 (9,642)
Net (decrease) increase in certificates of depos (522) 15,630
Net increase (decrease) in repurchase agreements 9,644 (26,272)
Net increase (decrease) in federal funds purchas 10,650 (8,340)
(Decrease) increase in long-term borrowing (14,991) 24,996
Acquisition of treasury stock (7,034) (983)
Sale of treasury stock 589 387
Cash dividends paid to shareholders (2,361) (1,916)
Net Cash Used by Financing Activities (29) (6,140)
Decrease in Cash and Cash Equivalents (6,487) (6,146)
Cash and Cash Equivalents at Beginning of Period 39,852 38,791
Cash and Cash Equivalents at End of Period $33,365 $32,645
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the three month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the annual report
on Form 10-K for the year ended December 31, 1995.
Earnings per common share are based on the average number of shares of common
stock outstanding during the periods presented.
Financial Accounting Standards Board Statement No.123 Accounting for Stock-
Based Compensation is effective in 1996 and allows companies the choice of
either changing their accounting for stock-based awards by recognizing
compensation cost in earnings for such plans or providing supplemental pro forma
footnote disclosures. For year end 1996, S&T is expecting to continue its
current accounting treatment of stock-based compensation and provide the
supplemental pro forma disclosures related to the fair value approach. As
provided in Statement No. 123, pro forma disclosure is not required in interim
financial statements.
NOTE B--SECURITIES
The amortized cost and estimated market value of securities as of March 31
are as follows:
1996 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Marketable equity
securities $36,535 $27,539 ($145) $63,929
Obligations of U.S. government
corporations and agencie 195,267 2,904 (1,228) 196,943
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 9,880 135 10,015
U.S. Treasury securities 51,152 1,192 52,344
Corporate Securities 190 190
293,024 31,770 (1,373) 323,421
Other securities 9,623 9,623
$302,647 $31,770 ($1,373) $333,044
1996 Investment Securities
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states and
political subdivisions $30,910 $716 ($13) $31,613
Corporate securities 2,495 265 2,760
Total $33,405 $981 ($13) $34,373
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:
1995 Available for Sale
Gross Gross Estimated
Amortized UnrealizedUnrealized Market
Cost Gains Losses Value
(000's omitted)
Marketable equity
securities $37,573 $26,926 ($276) $64,223
Obligations of U.S.
government corporations
and agencies 172,612 5,113 (143) 177,582
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 10,911 124 11,035
U.S. Treasury securitie 51,205 1,993 53,198
Corporate Securities 190 190
272,491 34,156 (419) 306,228
Other securities 9,115 9,115
Total $281,606 $34,156 ($419) $315,343
1995 Investment Securities
Gross Gross Estimated
Amortized UnrealizedUnrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states
and political
subdivisions 31,412 949 (12) 32,349
Corporate securities 2,493 350 2,843
33,905 1,299 (12) 35,192
Other securities 1,092 1,092
Total $34,997 $1,299 ($12) $36,284
During the period ended March 31, 1996, there were $475,076 in realized gains
relative to securities available for sale.
The amortized cost and estimated market value of securities at March 31, 1996,
by contractual maturity, are shown below:
Estimated
Amortized Market
Available for Sale Cost Value
(000's omitted)
Due in one year or less $60,324 $60,424
Due after one year through
five years 185,289 187,631
Due after five years through
ten years 8,556 9,086
Due after ten years 2,321 2,351
Total $256,490 $259,492
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE B-SECURITIES
Estimated
Amortized Market
Held to Maturity Cost Value
(000's omitted)
Due in one year or less $9,626 $9,720
Due after one year through
five years 18,622 19,285
Due after five years through
ten years 5,157 5,368
Total $33,405 $34,373
At March 31, 1996 and December 31, 1995 investment securities with a
principal amount of $208,028,000 and $203,063,000 respectively, were
pledged to secure repurchase agreements and public and trust fund
deposits.
NOTE C--LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of the loan portfolio was as follows:
March 31, 1996 December 31, 1995
(000's omitted)
Real estate - construction $20,636 $23,712
Real estate - mortgages:
Residential 379,162 377,258
Commercial 196,819 191,885
Commercial - industrial
and agricultural 226,923 234,779
Consumer installment 145,585 149,185
Total Loans $969,125 $976,819
Changes in the allowance for loan losses for the three months ended March 31
were as follows:
1996 1995
(000's omitted)
Balance at beginning
of period $15,938 $14,331
Charge-offs (1,176) (411)
Recoveries 248 206
Net charge-offs (928) (205)
Provision for loan losses 975 750
Balance at end of period $15,985 $14,876
At March 31, 1996, the recorded investment in loans that are considered
to be impaired under Statement No. 114 was $7,400,000 of which $835,000
were on a nonaccrual basis. The allowance for loan losses related to
these impaired investments was $3,002,000.
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
NOTE D--FINANCIAL INSTRUMENTS
S&T, in the normal course of business, commits to extend credit and issue
standby letters of credit. The obligations are not recorded in S&T's
financial statements. Loan commitments and standby letters of credit
are subject to normal credit underwriting policies and procedures and
generally require collateral based upon management's evaluation of each
customer's financial condition and ability to satisfy completely the terms
of the agreement. S&T's exposure to credit loss in the event the customer
does not satisify the terms of agreement equals the notional amount of the
obligation less the value of any collateral. Unfunded loan commitments
totaled $190,226,000 and obligations under standby letters of credit totaled
$59,498,000 at March 31, 1996.
At March 31, 1996, S&T had marketable equity securities totaling $339,140
at amortized cost and $776,200 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.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is presented so
that shareholders may review in further detail the
financial condition and results of operations of S&T
Bancorp, Inc. and subsidiaries (S&T). This discussion
and analysis should be read in conjunction with the
condensed consolidated financial statements and the
selected financial data presented elsewhere in this
report.
Financial Condition
Total assets at March 31, 1996 were $1.4 billion, the
same as December 31, 1995. Total assets averaged $1.4
billion in the first three months of 1996, a $61.2
million increase from the 1995 full year average.
Average loans and average securities increased $21.2
million and $17.3 million, respectively, in the first
three months of 1996 compared to the 1995 full year
averages. Funding for this loan and security growth
was primarily provided by a $41.4 million increase in
average deposits, a $5.6 million increase in average
retained earnings, offset by a $9.3 million decrease
in average borrowings.
Lending Activity
Total loans at March 31, 1996 were $969.1 million, a
1% or $7.7 million decrease from December 31, 1995.
Average loans increased $21.2 million, or 2% to $971.1
million for the three months ended March 31, 1996 from
the 1995 full year average. Changes in the
composition of the loan portfolio during 1996 included
increases of $4.9 million of commercial real-estate
loans, $1.9 million of residential mortgages, offset
by decreases of $3.6 million of installment loans and
$7.9 million of commercial loans.
The slight decline in overall loan volumes for the
first three months of 1996 can be attributed to higher
level of prepayments and refinancings. Borrowers
perceived the first quarter of 1996 to be the bottom
of the interest rate cycle and significantly increased
refinancing activities in order to lock in lower loan
rates. At the same time, competitive pressures in the
market pushed new loan rates to levels that were
sometimes below the risk adjusted yields that could be
obtained from investment securities with similar
duration.
Commercial real estate loans comprise 20% of the loan
portfolio. Although real estate loans can be an area
of higher risk, management believes these risks are
mitigated by limiting the percentage amount of
portfolio composition, a rigorous underwriting review
by loan administration and the fact the many of the
commercial real estate loans are owner-occupied and/or
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
seasoned properties that were refinanced from other
banks.
Residential mortgage lending continued to be a
strategic area of focus during the first quarter of
1996 through the establishment of a centralized
mortgage origination department, product redesign and
the utilization of commission compensated originators.
Management believes that if a downturn in the local
residential real estate market occurs, the impact of
declining values on the real estate loan portfolio
will be negligible because of S&T's conservative
mortgage lending policies. These policies generally
require a maximum term of twenty years for fixed rate
mortgages and private mortgage insurance for loans
with less than a 20% down payment. At March 31, 1996
the residential mortgage portfolio had a 36%
composition of adjustable rate mortgages.
Installment loan decreases are primarily associated
with significantly lower volumes in the indirect auto
loan category. Pricing pressures were unusually
intense in this market during the quarter and the
decision was made to temporarily deploy investable
funds into other, higher yielding and lower risk
earning assets.
In addition to prepayment and refinancing activity,
the decrease in commercial loan volumes for the
quarter can be partially attributed to $5.5 million of
loan participations during the quarter. S&T began to
expand the participation of select commercial loans in
1995 and has developed a network of banks seeking to
participate in larger commercial loans. Total
commercial loan participations sold in 1995 were $32.3
million. The rationale for these participations
included credit risk diversification, servicing income
generation and the development of alternative funding
sources.
Management intends to continue to pursue quality loans
in all lending categories within our market area in
order to honor our commitment to provide the best
service possible to our customers. S&T's loan
portfolio primarily represents loans to businesses and
consumers in our market area of Western Pennsylvania
rather than to borrowers in other areas of the country
or to borrowers in other nations. S&T has not
concentrated its lending activities in any industry or
group. During the past several years, management has
concentrated on building an effective credit and loan
administration staff which assists management in
evaluating loans before they are made and identifies
problem loans early.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Security Activity
Average securities increased $17.3 million in the
first three months of 1996 compared to the 1995 full
year average. Security yields during the period
offered reasonable investment alternatives to the
depressed yields in the market for new loans. The
change in composition of the average investment
portfolio was all related to increases in average
taxable securities; tax-exempt state and municipal
securities average balances were relatively unchanged.
The increase in average taxable investment securities
was principally comprised of $29.5 million of U.S.
government agencies securities, $3.2 of common stocks
and $1.6 million of Federal Home Loan Bank (FHLB)
stock. Offsetting these increases were average
decreases of $8.6 million in U.S. Treasury securities,
$7.2 million in collateral mortgage obligations
(CMO's) and $1.2 in other corporate securities.
Equity purchases of common stocks were made in order
to take advantage of the higher yields and the
dividends received deduction for corporations; the
FHLB stock is a membership and borrowing requirement.
The equities portfolio is currently yielding 10.6% on
a fully taxable equivalent (FTE) basis and has $27.4
million of unrealized gains net of nominal unrealized
losses.
Allowance for Loan Losses
The allowance for loan losses increased to $16.0
million or 1.65% of total loans at March 31, 1996,
essentially the same as December 31, 1995. The
adequacy of the allowance for loan losses is
determined by management through evaluation of the
loss potential on individual nonperforming, delinquent
and high-dollar loans, review of economic conditions
and business trends, historical loss experience,
growth and composition of the loan portfolio as well
as other relevant factors. The balance of
nonperforming loans, at March 31, 1996 which includes
nonaccrual loans past due 90 days or more, was $2.9
million, or 0.30% of total loans. This compares to
nonperforming loans of $2.8 million or 0.29% of total
loans at December 31, 1995. Asset quality is 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 $41.4 million, or
4% for the three months ended March 31, 1996 as
compared to the 1995 average. Changes in the average
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
deposit mix included a $34.6 million increase in time
deposits and a $15.6 million increase in money market
accounts, offset by a $9.0 million decrease savings
accounts. During the second half of 1995, S&T issued
$25.0 million of retail certificates of deposits
through two brokerage firms, further broadening the
availability of reasonably priced deposit funds.
Demand and NOW average balances were essentially flat.
In addition, money market accounts were recently
repriced in order to be more competitive with money
funds offered by brokerage firms.
Special rate deposits of $100 thousand and over were
7% of total deposits at March 31, 1996 and December
31, 1995 and primarily represent deposit relationships
with local customers in our market area. Management
believes that the S&T deposit base is stable and that
S&T has the ability to attract new deposits,
mitigating a funding dependency on volatile
liabilities. In addition, S&T has the ability to
access both public and private markets to raise
long-term funding if necessary.
Borrowings
Average borrowings decreased $9.3 million for the
three months ended March 31, 1996 compared to the 1995
annual average and were comprised of retail repurchase
agreements (REPO's), wholesale REPO's, federal funds
purchased and long-term borrowings. S&T defines
repurchase agreements with its local, retail customers
as retail REPOS; wholesale REPOS are those transacted
with other banks and brokerage firms with terms
normally ranging from 1 to 14 days.
The average balance in retail and wholesale REPOS
decreased approximately $25.9 million for the first
three months of 1996 compared to the full year 1995
average. Some retail REPO funds have shifted back to
deposits as a result of the Federal Deposit Insurance
Corporation (FDIC) insurance premium reduction; more
comparable rates can now be offerred on deposits. In
addition, core deposit increases and more moderate
loan growth have decreased the usage of wholesale REPO
fundings.
Average long-term borrowings have increased $16.7
million in the first quarter of 1996 as compared to
the full year 1995 average. At March 31, 1996, S&T
had long-term borrowings outstanding of $8.1 million
at a fixed rate and $73.5 million at an adjustable
rate with the FHLB. The purpose of these borrowings
was to provide matched, fixed rate fundings for newly
originated loans, to mitigate the risk associated with
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
volatile liability fundings and to take advantage of
lower cost funds through the FHLB's Community
Investment Program. All other long-term borrowings
are related to the funding of the S&T Employee Stock
Ownership Plan (ESOP) loan. The loan was used by the
ESOP to acquire treasury stock from S&T. This loan is
recorded in the financial statements as other borrowed
funds, offset by a reduction in shareholders' equity
to reflect S&T's guarantee of the ESOP borrowing. The
balance of the ESOP loan at March 31, 1996 was $0.3
million. The terms of this loan require annual
principal payments and quarterly interest payments at
a rate equal to 80% of the lender's prime rate.
Capital Resources
Shareholders' equity decreased $5.3 million at March
31, 1996, compared to December 31, 1995. The bulk of
this decrease is related to a program announced in the
fourth quarter of 1995 to annually acquire up to
350,000 shares, or approximately 3%, of S&T's common
stock as treasury shares. In the first quarter of
1996, S&T acquired 249,019 treasury shares on the open
market in order to fund the employee stock option
plan, the dividend reinvestment plan for shareholders
and other general corporate purposes. This treasury
stock activity caused a $6.4 million decline in
shareholders equity. Net income was $5.6 million and
dividends to shareholders were $2.3 million for the
three months ended March 31, 1996. During the first
three months of 1996, S&T paid 41% of 1996 net income
in dividends, equating to an annual dividend rate of
0.84 per share.
The book value of S&T's common stock decreased
slightly from $14.85 at December 31, 1995 to $14.67 at
March 31,1996 due to a decrease in shareholders'
equity from the stock buyback and the effect of
Financial Accounting Standards Board Statement No.
115, "Statement on Accounting for Certain Investments
in Debt and Equity Securities" (FAS 115). Equity
associated with FAS 115 decreased $2.2 during the
first quarter of 1996 due to rising interest rates and
the resulting decline in values of the available for
sale securities portfolio. The market price of S&T's
common stock was relatively unchanged at $30.75 per
share at March 31, 1996 as compared to $30.50 per
share at December 31, 1995.
S&T continues to maintain a strong capital position
with a leverage ratio of 10.1% as compared to the
minimum regulatory guideline of 3.0%. S&T's
risk-based capital Tier I and Total ratios were 13.3%
and 14.5% respectively, at March 31, 1996. These
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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, 1996 compared to
Three months ended March 31, 1995
Net Income
Net income increased to $5.6 million or $0.50 per
share in the first three months of 1996 from $4.9
million or $0.44 per share for the same period of
1995. The significant improvement during the first
three months of 1996 was the result of higher net
interest income, increased noninterest income,
partially offset by higher provision and operating
expense.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $.6 million or 4% in the first three
months of 1996 compared to the same period of 1995.
The net yield on interest-earning assets decreased
slightly from 4.81% to 4.71%. Net interest income was
positively affected by a $61.8 million, or 3% increase
in average earning assets.
Maintaining consistent spreads between earning assets
and costing liabilities is very significant to S&T's
financial performance since net interest income
comprises 87% of operating revenue. A variety of
asset/liablity management strategies were successfully
implemented, within prescribed ALCO risk parameters,
that enabled S&T to maintain a net interest margin
consistent with historical levels.
During the same period, earning assets increased
primarily through both new loan originations and
securities purchases. The bulk of funding for this
asset growth was provided by deposits, borrowings and
retained earnings. The level and mix of funds is
continually monitored by ALCO in order to mitigate the
interest rate sensitivity and liquidity risks of the
balance sheet.
Provision for Loan Losses
The provision for loan losses increased to $1.0
million for the first three months of 1996 compared to
$0.8 million in the same period of 1995. The increase
was the result of management's assessment of economic
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 $0.9
million for the first three months of 1996 compared to
$0.2 million for the same period of 1995. S&T's
allowance for loan losses at March 31, 1996 was $16.0
million, or 1.65% or total loans compared to $14.9
million, or 1.60% of total loans at March 31, 1995.
Nonperforming loans to total loans increased slightly,
by 6 bp to 0.30% at March 31, 1996.
Noninterest Income
Noninterest income increased 29% in the first three
months of 1996 compared to the same period of 1995.
Increases included $0.1 million or 12% in trust
income, $0.2 million or 26% in service charges and
fees, $0.3 million or 58% in other income and a $0.3
million in security gains.
The increase in trust income was attributable to a
bank wide incentive program and expanded marketing
efforts designed to develop new trust business. The
increase in service charges on deposit accounts was
primarily the result of the introduction of new cash
management services and management's continual effort
to implement reasonable fees for services performed
and to manage closely the collection of these fees.
Other income increases included insurance sales,
brokerage, equity call fees and letters of credit.
Security gains were taken on available for sale
equities securities in the first quarter of 1996 in
order to maximize returns by taking advantage of
market opportunities when presented. Unrealized
gains, net of unrealized losses in the available for
sale equities portfolio totaled $27.4 million at March
31, 1996.
Noninterest Expense
Noninterest expense increased $0.4 million or 4% at
March 31, 1996 compared to March 31, 1995. The
increase is primarily attributable to employment and
other expense, offset by the reduction in FDIC
insurance premium. The $0.4 million increase in
employment expense resulted from normal merit
increases, higher incentive payouts relative to
commercial loan volume and trust sales, and lower
deferral of loan origination costs, resulting from a
first quarter slowdown in new installment loan
activity. Average full-time equivalent staff
increased from 555 to 564 as compared to the same
period of 1995.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Other expense increased $0.3 million primarily due to
higher legal, postage, loan related costs and
partnership losses from low income housing tax credit
(LIHTC) projects. LIHTC partnership losses are offset
by tax credits.
During 1995, FDIC premiums were eliminated resulting
in expense savings of $0.4 million for the quarter.
Currently, S&T has $183 million of Oakar deposits
subject to the Savings Association Insurance Fund
(SAIF) rate of 23 basis points, and a possible
surcharge of 80 basis points, or $1.5 million in 1996
if legislation is passed for recapitalization of the
SAIF fund.
Federal Income Taxes
Federal income tax expense increased $0.2 million or
7% at March 31, 1996 as compared to March 31, 1995 as
a result of higher pre-tax income in 1995. The first
quarter effective tax rate of 26% was below the 35%
statutory rate due to benefits resulting from tax
exempt interest, excludable dividend income and
LIHTC's.
RESULTS OF OPERATIONS
Three months ended March 31, 1995 compared to
Three months ended March 31, 1994
Net Income
Net income increased to $4.9 million or $0.44 per
share in the first three months of 1995 from $4.5
million or $0.39 per share for the same period of
1994. The significant improvement during the first
three months of 1995 was the result of higher net
interest income and increased noninterest income,
partially offset by higher provision expense.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $1.2 million or 9% in the first three
months of 1995 compared to the same period of 1994.
The net yield on interest-earning assets improved 6
basis points to 4.81%. Net interest income was also
positively affected by a $83.8 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 enabled S&T to
maintain consistent spreads. The earning asset
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
increase is primarily attributable to a $122 million
or 16% 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 $0.8
million for the first three months of 1995 compared to
$0.6 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 $0.2
million for the first three months of 1995 compared to
$0.3 million for the same period of 1994. S&T's
allowance for loan losses at March 31, 1995 was $14.9
million, or 1.60% of total loans compared to $13.8
million, or 1.70% of total loans at March 31, 1994.
Nonperforming loans to total loans decreased 14 bp or
37% since March 31, 1994 to 0.24% at March 31, 1995.
Noninterest Income
Noninterest income increased slightly in the first
three months of 1995 compared to the same period of
1994. Increases included $0.1 million or 14% in trust
income and $0.1 million or 17% in service charges and
fees, offset by a $0.1 million or 21% 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 and
lower volumes for credit insurance sales in the first
quarter of 1995.
Security/nonrecurring gains were relatively unchanged
for the two quarters. Security losses were taken on
available for sale securities in the first quarter of
1995 in order to reinvest in higher-yielding
investment securities. These losses were almost
offset by gains from the sale of various equity
securities that were made in order to take advantage
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
of market opportunities. Included in this category is
a $219 thousand gain from the aforementioned sale of
student loans.
Noninterest Expense
Noninterest expense increased $0.2 million or 2% at
March 31, 1995 compared to March 31, 1994. The
increase is primarily attributable to employment costs
which increased 4% or $0.2 million in the first three
months of 1995 compared to the same period of 1994.
The 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 equivalent staff increased from 537
to 555 as compared to the same period of 1994.
Federal Income Taxes
Federal income tax expense increased $0.4 million or
32% at March 31, 1995 as compared to March 31, 1994 as
a result of higher pre-tax income in 1995. The first
quarter effective tax rate of 26% was below the 35%
statutory tax rate due to the tax benefits resulting
from tax exempt interest, excludable dividend income
and low income housing tax credits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.
S&T Bancorp, Inc.
(REGISTRANT)
Date: May 10, 1996 Robert E. Rout
Principal Accounting Officer