SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 - 11,029,564 shares as of July 23, 1996
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
June 30, 1996 and December 31, 1995 3
Condensed consolidated statements of income -
Three months ended June 30, 1996 and 1995, and 4
Six months ended June 30, 1996 and 1995
Condensed consolidated statements of cash flows -
Six months ended June 30, 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
[CAPTION]
June 30, December 31,
1996 1995
(000's omitted except share data)
ASSETS
Cash and due from banks $40,156 $39,852
Interest-earning deposits
with banks 52 51
Securities available for sale 343,331 315,343
Investment securities 32,428 34,997
Total loans 976,170 976,819
Less allowance for loan losses (16,708) (15,938)
Net Loans 959,462 960,881
Premises and equipment 14,807 14,795
Other assets 34,678 34,783
TOTAL ASSETS $1,424,914 $1,400,702
LIABILITIES
Deposits:
Noninterest-bearing demand $113,070 $116,054
Interest-bearing demand 95,792 96,577
Money market 136,323 123,121
Savings 125,780 123,606
Time 523,335 520,267
Total Deposits 994,300 979,625
Securities sold under repurchase
agreements 146,476 122,794
Federal funds purchased 8,800 325
Other borrowed funds 230 340
Long-term borrowing 81,612 96,618
Other liabilities 30,522 34,053
TOTAL LIABILITIES 1,261,940 1,233,755
SHAREHOLDERS' EQUITY
Preferred stock, without par value,
10,000,000 shares authorized
and none outstanding - -
Common stock $2.50 par value,
25,000,000 shares authorized
and 11,820,944 issued 29,552 29,552
Additional paid in capital 11,494 11,009
Retained earnings 118,346 111,980
Net unrealized holding gains on
securities available for sale 17,645 21,928
Treasury stock (793,198 shares at
June 30, 1996 and 578,092 (13,833) (7,182)
at December 31, 1995)
Deferred compensation (230) (340)
TOTAL SHAREHOLDERS' EQUITY 162,974 166,947
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,424,914 $1,400,702
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
For Three Months Ended For Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(000's omitted except share data)
INTEREST INCOME
Loans, including fees $21,355 $21,444 $42,714 $41,932 ERR
Deposits with banks 1 62 3 131
Federal funds sold 38 14 65 14
Investment securities:
Taxable 4,969 4,185 9,522 8,113
Tax-exempt 437 447 890 917
Dividends 712 628 1,411 1,261
Total Interest Income 27,512 26,780 54,605 52,368
INTEREST EXPENSE
Deposits
Interest-bearing demand 343 372 690 749
Money market 1,353 1,122 2,629 2,196
Savings 761 809 1,502 1,626
Time 7,202 6,740 14,433 12,961
Securities sold under repurchase
agreements 1,765 2,318 3,436 4,708
Federal funds purchased 96 201 174 374
Long term borrowing 1,135 1,007 2,400 1635
Other borrowed funds 5 8 10 16
Total Interest Expense 12,660 12,577 25,274 24,265
NET INTEREST INCOME 14,852 14,203 29,331 28,103
Provision for loan losses 1,450 750 2,425 1,500
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 13,402 13,453 26,906 26,603
NONINTEREST INCOME:
Trust fees 689 595 1,381 1,212
Service charges on
deposit accounts 866 727 1,674 1,370
Net securities/nonrecurring
gains/(losses) 609 177 1,084 359
Other 517 545 1,224 992
Total Noninterest Income 2,681 2,044 5,363 3,933
NONINTEREST EXPENSE
Salaries and employee
benefits 4,595 4,423 9,338 8,787
Occupancy expense, net 527 517 1,095 1,044
Equipment expense, net 420 496 1,039 1,102
Data processing 377 355 772 714
FDIC assessment 113 511 210 1,021
Other 2,391 2,275 4,666 4,254
Total Noninterest Expense 8,423 8,577 17,120 16,922
INCOME BEFORE INCOME TAXES 7,660 6,920 15,149 13,614
Applicable income taxes 1,908 1,842 3,821 3,615
NET INCOME $5,752 $5,078 $11,328 $9,999
PER COMMON SHARE
Net Income $0.52 $0.45 $1.02 $0.89
Dividends 0.24 0.18 0.45 0.35
Average Common Shares
Outstanding 11,026 11,239 11,095 11,249
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
Six Months Ended June 30
1996 1995
(000's omitted)
Operating Activities
Net Income $11,328 $9,999
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,425 1,500
Provision for depreciation and amortization 642 688
Net amortizaton of investment security premiums 295 435
Net accretion of loan and deposit discounts (268) (538)
Net gains on sales of securities available for
sale (1,002) (130)
Net investment security gains
Increase in deferred income taxes (345) (197)
Increase in interest receivable (506) (165)
(Decrease) increase in interest payable (462) 2,099
Decrease (increase) in other assets 1,237 (548)
Decrease in other liabilities (1,171) (4,614)
Net Cash Provided by Operating Activities 12,173 8,529
Investing Activities
Net (increase in) redemption of interest-earning
deposits with banks (1) 3,657
Proceeds from maturities of investment securitie 1,478 16,811
Proceeds from maturities of securities available
for sale 52,492 2,000
Proceeds from sales of securities available
for sale 5,889 11,976
Purchases of investment securities (144) (24,706)
Purchases of securities available for sale (91,018) (19,086)
Net increase in loans (14,426) (57,674)
Proceeds from the sale of loans 13,688 34,739
Purchases of premises and equipment (797) (844)
Proceeds from the sale of premises and equipment (28) 19
Net Cash Used by Investing Activities (32,867) (33,108)
Financing Activities
Net increase (decrease) in demand, NOW and
savings deposits 11,608 (7,375)
Net increase in certificates of deposits 3,068 40,250
Net increase (decrease) in repurchase agreements 23,682 (20,807)
Net increase (decrease) in federal funds purchas 8,475 (14,115)
(Decrease) increase in long-term borrowing (14,993) 29,695
Acquisition of treasury stock (7,270) (1,720)
Sale of treasury stock 1,103 795
Cash dividends paid to shareholders (4,675) (3,826)
Net Cash Used by Financing Activities 20,998 22,897
Increase (Decrease) in Cash and Cash Equivalents 304 (1,682)
Cash and Cash Equivalents at Beginning of Period 39,852 38,791
Cash and Cash Equivalents at End of Period $40,156 $37,109
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 six month period ended June 30, 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
[CAPTION]
The amortized cost and estimated market value of securities as of June 30
are as follows:
1996 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Marketable equity
securities $37,211 $27,459 ($160) $64,510
Obligations of U.S. government
corporations and agencie 225,151 1,825 (2,897) 224,079
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 8,435 78 8,513
U.S. Treasury securities 36,112 842 36,954
Corporate Securities 190 190
307,099 30,204 (3,057) 334,246
Other securities 9,085 9,085
$316,184 $30,204 ($3,057) $343,331
1996 Investment Securities
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states and
political subdivisions $29,933 $540 ($13) $30,460
Corporate securities 2,495 221 2,716
Total $32,428 $761 ($13) $33,176
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
[CAPTION]
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 June 30, 1996, there were $1,001,633 in realized gains
relative to securities available for sale.
The amortized cost and estimated market value of securities at June 30, 1996,
by contractual maturity, are shown below:
[CAPTION]
Estimated
Amortized Market
Available for Sale Cost Value
(000's omitted)
Due in one year or less $32,050 $32,240
Due after one year through
five years 73,949 75,156
Due after five years through
ten years 162,155 160,591
Due after ten years 1,734 1,749
Total $269,888 $269,736
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Continued
[CAPTION]
NOTE B-SECURITIES
Estimated
Amortized Market
Held to Maturity Cost Value
(000's omitted)
Due in one year or less $4,953 $4,987
Due after one year through
five years 9,922 10,314
Due after five years through
ten years 12,562 12,845
Due after ten years 4,991 5,030
Total $32,428 $33,176
At June 30, 1996 and December 31, 1995 investment securities with a
principal amount of $221,887,000 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:
[CAPTION]
June 30, 1996 December 31, 1995
(000's omitted)
Real estate - construction $23,684 $23,712
Real estate - mortgages:
Residential 385,916 377,258
Commercial 201,324 191,885
Commercial - industrial
and agricultural 226,556 234,779
Consumer installment 138,690 149,185
Total Loans $976,170 $976,819
Changes in the allowance for loan losses for the six months ended June 30
were as follows:
[CAPTION]
1996 1995
(000's omitted)
Balance at beginning
of period $15,938 $14,331
Charge-offs (3,214) (1,156)
Recoveries 1,559 383
Net charge-offs (1,655) (773)
Provision for loan losses 2,425 1,500
Balance at end of period $16,708 $15,058
At June 30, 1996, the recorded investment in loans that are considered
to be impaired under Statement No. 114 was $5,500,000 of which $19,000
were on a nonaccrual basis. The allowance for loan losses related to
these impaired investments was $2,043,000.
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 $200,703,000 and obligations under standby letters of credit totaled
$59,593,000 at June 30, 1996.
At June 30, 1996, S&T had marketable equity securities totaling $4,500
at amortized cost and $388,750 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.
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 June 30, 1996 were $1.4 billion,
increasing slightly from December 31, 1995. Total
assets averaged $1.4 billion in the first six
months of 1996, a $70.9 million increase from the 1995
full year average. Average loans and average
securities increased $22.4 million and $26.8 million,
respectively, in the first six months of 1996 compared
to the 1995 full year averages. Funding for this loan
and security growth was primarily provided by a $51.3
million increase in average deposits, a $11.2 million
increase in average retained earnings, offset by a
$7.7 million decrease in average borrowings.
Lending Activity
Total loans at June 30, 1996 were $976.2 million, a
slight decrease from December 31, 1995. Average loans
increased $22.4 million, or 2% to $972.3 million for
the six months ended June 30, 1996 from the 1995 full
year average. Changes in the composition of the loan
portfolio during 1996 included increases of $9.4
million of commercial real-estate loans, $8.6 million
of residential mortgages, offset by decreases of $10.4
million of installment loans and $8.2 million of
commercial loans.
The slight decline in overall loan volumes for the
first six months of 1996 can be attributed to higher
level of prepayments and refinancings. Borrowers
perceived the first half 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 21% 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
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
commercial real estate loans are owner-occupied and/or
seasoned properties that were refinanced from other
banks.
Residential mortgage lending continued to be a
strategic area of focus during the first half 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 June 30, 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 and the sale of the student loan
portfolio in the second quarter of 1996. Pricing
pressures were unusually intense in this market during
the first half of 1996 and the decision was made to
temporarily deploy investable funds into other, higher
yielding and lower risk earning assets. The bulk of
the student loan portfolio was sold in the second
quarter of 1996 because of newly issued government
regulations and restrictions that significantly
reduced much of the profit potential associated with
the product.
In addition to prepayment and refinancing activity,
the decrease in commercial loan volumes for the period
can be partially attributed to $5.5 million of loan
participations during the first half of 1996 and $8.8
million in the second half of 1995. 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. 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
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 $26.8 million in the
first half 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 decreased $0.5 million . The
increase in average taxable investment securities was
principally comprised of $43.9 million of U.S.
government agencies securities, $3.4 of common stocks
and $1.2 million of Federal Home Loan Bank (FHLB)
stock. Offsetting these increases were average
decreases of $12.2 million in U.S. Treasury
securities, $8.0 million in collateral mortgage
obligations (CMO's) and $1.0 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 10.7% on
a fully taxable equivalent (FTE) basis and has $27.3
million of unrealized gains net of nominal unrealized
losses.
Allowance for Loan Losses
The allowance for loan losses increased to $16.7
million or 1.71% of total loans at June 30, 1996, as
compared to 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 June 30, 1996
which includes nonaccrual loans past due 90 days or
more, was $2.4 million, or 0.24% 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.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Deposits
Average total deposits increased by $51.3 million, or
6% for the six months ended June 30, 1996 as compared
to the 1995 average. Changes in the average deposit
mix included a $37.2 million increase in time deposits,
$19.8 million increase in money market
accounts, and a $2.2 million increase in demand
accounts offset by a $7.9 million decrease in 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. At June 30, 1996,
there were $15.0 million of brokered retail
certificates of deposits outstanding. 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
8% of total deposits at June 30, 1996 and 7% of total
deposits at 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 $7.7 million for the six
months ended June 30, 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 $18.7 million for the first
six 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 offered on deposits. In
addition, core deposit increases and more moderate
loan growth have decreased the usage of wholesale REPO
fundings.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Average long-term borrowings have increased $12.5
million in the first six months of 1996 as compared to
the full year 1995 average. At June 30, 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
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 June
30, 1996 was $0.2 million. The terms of this loan
require annual principal payments and quarterly
interest payments at a rate equal to 80% of the
lender's prime rate.
Capital Resources
Shareholders' equity decreased $4.0 million at June
30, 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 half of 1996,
S&T acquired 256,904 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 $7.3 million decline in
shareholders equity. Net income was $11.3 million and
dividends paid to shareholders were $4.7 million for
the six months ended June 30, 1996. During the first
half of 1996, S&T paid 41% of 1996 net income in
dividends, equating to an annual dividend rate of
$0.96 per share.
The book value of S&T's common stock decreased
slightly from $14.85 at December 31, 1995 to $14.78 at
June 30,1996 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 $4.3 million during
the first half 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
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
per share at June 30, 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 10.2% as compared to the
minimum regulatory guideline of 3.0%. S&T's
risk-based capital Tier I and Total ratios were 13.5%
and 14.7% respectively, at June 30, 1996. 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
Six months ended June 30, 1996 compared to
Six months ended June 30, 1995
Net Income
Net income increased to $11.3 million or $1.02 per
share in the first six months of 1996 from $10.0
million or $0.89 per share for the same period of
1995. The significant improvement during the first
six 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 $1.3 million or 4% in the first six
months of 1996 compared to the same period of 1995.
The net yield on interest-earning assets decreased
slightly from 4.79% to 4.72%. Net interest income was
positively affected by a $49.1 million, or 4% 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 88% 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.
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 increased to $2.4
million for the first six months of 1996 compared to
$1.5 million in the same period of 1995. 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 $1.7
million forthe first six months of 1996 compared to
$0.8 million for the same period of 1995. S&T's
allowance for loan losses at June 30, 1996 was $16.7
million, or 1.71% or total loans compared to $15.1
million, or 1.59% of total loans at June 30, 1995.
Nonperforming loans to total loans increased slightly,
by 1 bp to 0.24% at June 30, 1996.
Noninterest Income
Noninterest income increased 36% in the first six
months of 1996 compared to the same period of 1995.
Increases included $0.2 million or 14% in trust
income, $0.3 million or 22% in service charges and
fees, $0.2 million or 23% in other income and a $0.7
million in security/nonrecurring 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 half 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 $27.3 million at June 30,
1996.
Noninterest Expense
Noninterest expense increased $0.2 million or 1% at
June 30, 1996 compared to June 30, 1995. The increase
is primarily attributable to employment and other
expense, offset by the reduction in FDIC insurance
premium. The $0.6 million increase in employment
expense resulted from normal merit increases, higher
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
incentive payouts relative to commercial loan volume
and trust sales, offset by lower deferral of loan
origination costs, resulting from a slowdown in new
installment loan activity. Average full-time
equivalent staff increased from 558 to 564 as compared
to the same period of 1995.
Other expense increased $0.4 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 $0.8 million for the first half
of 1996. 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
6% at June 30, 1996 as compared to June 30, 1995 as a
result of higher pre-tax income in 1996. The
effective tax rate for the first half of 1996 was 25%
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 June 30, 1996 compared to
Three months ended June 30, 1995
Net Income
Net income increased to $5.8 million or $0.52 per
share for the second quarter of 1996 from $5.1 million
or $0.45 per share for the second quarter of 1995, a
13% improvement.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $0.5 million or 5% in the second
three months of 1996 compared to the same period of
1995. This improvement in net interest income resulted
from a higher level of earning assets while
maintaining fairly consistent spreads.
Average earning assets increased by $68.0 million as
compared to the second quarter of 1995, primarily as a
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
result of an increase in new loan originations and
securities purchases. The bulk of funding for this
asset growth was provided by deposits, borrowings and
retained earnings.
Net interest margin on a fully taxable equivalent
basis was 4.74% for the second quarter of 1996, as
compared to 4.78% for the same period of 1995.
Provision for Loan Losses
The provision for loan losses was $1.5 million in the
second quarter of 1995 compared to $0.8 million in the
same period of 1995. Net loan charge-offs totaled
$0.7 million for the second quarter of 1996 and $0.6
million in the second quarter of 1995.
Noninterest Income
Noninterest income increased $0.6 million or 31% in
the second quarter of 1996 compared to the same period
of 1995. Increases included $0.1 million or 16% in
trust income, $0.1 million or 19% in service charges
and fees and $0.4 million in security/nonrecurring
gains, offset by a slight 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 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.
Security/nonrecurring gains increased $0.4 million in
the second quarter of 1996 as compared to the same
period of 1995. Security gains were taken on
available for sale securities in the second quarter of
1996 in order to take advantage of market
opportunities when presented. Included in this
category is a $0.1 million gain from the
aforementioned sale of student loans.
Noninterest Expense
Noninterest expense decreased $0.2 million or 2% at
June 30, 1996 compared to June 30, 1995. The decrease
is primarily attributable to the aforementioned
reduction in FDIC premiums, offset by an increase in
employment costs and other expense.
Employment costs increased 4% or $0.2 million in the
second quarter of 1996 compared to the same period of
1995. The increase resulted from normal merit
increases. Other expenses increased $0.1 million or
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
5% primarily due to higher legal, postage and loan
related expenses.
Federal Income Taxes
Federal income tax expense increased $0.1 million or
4% at June 30, 1996 as compared to June 30, 1995 as a
result of higher pre-tax income in 1996. The second
quarter effective tax rate of 25% 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.
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)
Date: May 8, 1996 /s/Robert E. Rout
Principal Accounting Officer