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 March 31, 1997
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 - 11,094,179 shares as of April 15, 1997
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
March 31, 1997 and December 31, 1996 3
Condensed consolidated statements of income -
Three months ended March 31, 1997 and 1996 4
Condensed consolidated statements of cash flows -
Three months ended March 31, 1997 and 1996 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,
1997 1996
(000's omitted except share data)
ASSETS
Cash and due from banks $38,142 $33,319
Interest-earning deposits
with banks 104 109
Securities:
Available for sale 352,659 353,780
Held to maturity ( market value
$26,794 in 1997 and $28,943
in 1996) 26,149 28,165
Total Securities 378,808 381,945
Loans, net of allowance for loan
losses of $17,948 in 1997 and
$17,043 in 1996 1,043,085 1,029,085
Premises and equipment 16,097 15,926
Other assets 35,850 35,561
TOTAL ASSETS $1,512,086 $1,495,945
LIABILITIES
Deposits:
Noninterest-bearing demand $118,919 $115,766
Interest-bearing demand 29,570 32,816
Money market 218,573 214,802
Savings 120,754 118,563
Time 526,823 550,327
Total Deposits 1,014,639 1,032,274
Securities sold under repurchase
agreements 144,236 114,205
Federal funds purchased 24,900 775
Long-term borrowings 111,618 136,618
Other borrowed funds 230 230
Other liabilities 37,570 35,567
TOTAL LIABILITIES 1,333,193 1,319,669
SHAREHOLDERS' EQUITY
Preferred stock, without par value,
10,000,000 shares authorized
and none outstanding
Common stock ($2.50 par value)
Authorized-25,000,000 shares
in 1997 and 1996
Issued-11,820,944 shares in
1997 and 1996 29,552 29,552
Additional paid in capital 12,204 11,933
Retained earnings 128,321 124,847
Net unrealized holding gains on
securities available for sale 21,728 23,191
Treasury stock (726,765 shares at
March 31, 1997 and 746,003
at December 31, 1996, at cost) (12,682) (13,017)
Deferred compensation (230) (230)
TOTAL SHAREHOLDERS' EQUITY 178,893 176,276
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,512,086 $1,495,945
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For Three Months Ended
March 31,
1997 1996
(000's omitted except share data)
INTEREST INCOME
Loans, including fees $22,826 $21,359
Deposits with banks 2 2
Federal funds sold 5 27
Investment securities:
Taxable 5,067 4,553
Tax-exempt 332 453
Dividends 786 699
Total Interest Income 29,018 27,093
INTEREST EXPENSE
Deposits 9,751 9,595
Securities sold under repurchase
agreements 1,616 1,671
Federal funds purchased 175 78
Long-term borrowings 1,817 1265
Other borrowed funds 4 5
Total Interest Expense 13,363 12,614
NET INTEREST INCOME 15,655 14,479
Provision for loan losses 1,200 975
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 14,455 13,504
NONINTEREST INCOME:
Service charges on deposit accounts 936 808
Trust fees 632 692
Security gains, net 1,392 475
Other 732 707
Total Noninterest Income 3,692 2,682
NONINTEREST EXPENSE
Salaries and employee benefits 5,003 4,743
Occupancy, net 565 568
Furniture and equipment 595 619
Other taxes 245 226
Data processing 417 395
Amortizaton of intangibles 0 86
FDIC assessment 51 97
Other 2,501 1,963
Total Noninterest Expense 9,376 8,697
INCOME BEFORE INCOME TAXES 8,771 7,489
Applicable income taxes 2,523 1,913
NET INCOME $6,248 $5,576
PER COMMON SHARE
Net Income $0.56 $0.50
Dividends 0.25 0.21
Average Common Shares Outstanding 11,088 11,163
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31
1997 1996
(000's omitted)
Operating Activities
Net Income $6,248 $5,576
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,200 975
Provision for depreciation and amortization 428 323
Net amortizaton of investment security premiums 123 148
Net accretion of loan and deposit discounts 0 (134)
Deferred income taxes (239) (49)
Security gains, net (1,392) (475)
Increase in interest receivable (727) (1,122)
Decrease in interest payable (247) (743)
Decrease in other assets 553 200
Increase in other liabilities 3,166 1,408
Net Cash Provided by Operating Activities 9,113 6,107
Investing Activities
Net decrease in interest-earning
deposits with banks 5 0
Proceeds from maturities of investment securities 2,016 501
Proceeds from maturities of securities available
for sale 13,041 28,038
Proceeds from sales of securities available
for sale 8,580 3,894
Purchases of investment securities 0 (683)
Purchases of securities available for sale (21,482) (50,874)
Net (increase)decrease in loans (15,200) 6,900
Purchases of premises and equipment (599) (341)
Net Cash Used by Investing Activities (13,639) (12,565)
Financing Activities
Net increase in demand, NOW and
savings deposits 5,869 3,996
Net decrease in certificates of deposit (23,504) (522)
Net increase in federal funds purchased 24,125 10,650
Net increase in repurchase agreements 30,031 9,644
Repayments from FHLB long-term borrowings (25,000) (14,991)
Acquisition of treasury stock 0 (7,034)
Sale of treasury stock 607 589
Cash dividends paid to shareholders (2,779) (2,361)
Net Cash Used by Financing Activities 9,349 (29)
Decrease in Cash and Cash Equivalents 4,823 (6,487)
Cash and Cash Equivalents at Beginning of Period 33,319 39,852
Cash and Cash Equivalents at End of Period $38,142 $33,365
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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, 1997 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
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" (Statement No. 123) 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 1997,
S&T will 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.
Financial Accounting Standards Board Statement No. 128 "Accounting for Earnings
per Share" (Statement No. 128) is effective in 1997 and provides specific
computation, presentation and disclosure requirements for earnings per share.
The statement's objective is to simplify the computation of earnings per share
and to make the U.S. standard for computing earnings per share more compatible
with the standards of other countries and with that of the International
Accounting Standards Committee. Early adoption is not permitted and Statement
No. 128 will not have a material affect on S&T's financial position or results
of operations.
NOTE B--SECURITIES
The amortized cost and estimated market value of securities as of March 31
are as follows:
1997 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Marketable equity
securities $42,543 $34,902 ($233) $77,212
Obligations of U.S. government
corporations and agencies 234,509 1,088 (2,841) 232,756
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 1,140 1 (1) 1,140
U.S. Treasury securities 30,008 510 30,518
Corporate Securities 300 300
Debt securities available
for sale 308,500 36,501 (3,075) 341,926
Other securities 10,733 10,733
Total $319,233 $36,501 ($3,075) $352,659
1997 Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states and
political subdivisions $22,622 $465 ($4) $23,083
Corporate securities 1,998 184 2,182
Debt securities held to
maturity 24,620 649 (4) 25,265
Other securities 1,529 1,529
Total $26,149 $649 ($4) $26,794
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:
1996 Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of U.S.
government corporations
and agencies 230,567 2,325 (1,116) 231,776
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 4,176 7 (1) 4,182
U.S. Treasury securities 30,042 886 30,928
Corporate Securities 300 300
Debt securities available
for sale 265,085 3,218 (1,117) 267,186
Marketable equity
securities 39,879 33,803 (224) 73,458
Other securities 13,136 13,136
Total $318,100 $37,021 ($1,341) $353,780
1996 Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states
and political
subdivisions 24,239 569 (7) 24,801
Corporate securities 1,998 216 2,214
Debt securities held
to maturity 26,237 785 (7) 27,015
Other securities 1,928 1,928
Total $28,165 $785 ($7) $28,943
During the period ended March 31, 1997, there were $1,391,696 in realized
gains relative to securities available for sale.
The amortized cost and estimated market value of debt securities at March 31,
1997,by contractual maturity, are shown below:
Estimated
Amortized Market
Available for Sale Cost Value
(000's omitted)
Due in one year or less $18,025 $18,078
Due after one year through
five years 61,086 61,719
Due after five years through
ten years 186,309 184,379
Due after ten years 537 538
Total $265,957 $264,714
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 $390 $392
Due after one year through
five years 10,056 10,407
Due after five years through
ten years 10,692 10,941
Due after ten years 3,482 3,525
Total $24,620 $25,265
At March 31, 1997 and December 31, 1996 investment securities with a
principal amount of $209,217,000 and $167,691,000 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, 1997 December 31, 1996
(000's omitted)
Real estate - construction $25,383 $24,984
Real estate - mortgages:
Residential 409,954 409,600
Commercial 242,062 228,682
Commercial - industrial
and agricultural 243,562 237,882
Consumer installment 140,072 144,980
Gross Loans 1,061,033 1,046,128
Allowance for loan losses ($17,948) ($17,043)
Net Loans $1,043,085 $1,029,085
Changes in the allowance for loan losses for the three months ended March 31
were as follows:
1997 1996
(000's omitted)
Balance at beginning
of period $17,043 $15,938
Charge-offs (489) (1,176)
Recoveries 194 248
Net charge-offs (295) (928)
Provision for loan losses 1,200 975
Balance at end of period $17,948 $15,985
At March 31, 1997 and December 31, 1996, the recorded investment in loans that
are considered to be impaired under FASB Statement No. 114, as amended by
FASB Statement No. 118, was $11,500,000 and $10,200,000, respectively, after
charge-offs of $3,400,000. Of these impaired investments, $6,000,000 were
on nonaccrual at March 31, 1997 and December 31, 1996. The average recorded
investment in impaired loans at March 31, 1997 and December 31, 1996 was
$10,900,000 and $3,900,000, respectively. S&T Bank has recorded an allowance
for loan losses for all impaired loans totaling $3,000,000 and $2,600,000 at
March 31, 1997 and December 31, 1996, respectively. Interest income on
impaired loans of $300,000 and $1,100,000 was recognized at March 31, 1997
and December 31, 1996, respectively. Of this interest income recognized on
impaired loans, primarily all was recognized using a cash basis method of
accounting.
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 $221,029,000 and obligations under standby letters of credit totaled
$52,684,000 at March 31, 1997.
At March 31, 1997, S&T had no marketable equity securities that were subject
to covered call 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.
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, 1997 were $1.5 billion, increasing slightly from
December 31, 1996. Total assets averaged $1.5 billion in the first three
months of 1997, a $73.0 million increase from the 1996 full year average.
Average loans and average securities increased $62.1 million and $6.4
million, respectively, in the first three months of 1997 compared to the
1996 full year averages. Funding for this loan and security growth was
primarily provided by a $15.1 million increase in average deposits, a
$12.7 million increase in average retained earnings and a $41.9 million
increase in average borrowings.
Lending Activity
Total loans at March 31, 1997 were $1.1 billion, a $14.8 million or 1.4%
increase from December 31, 1996. Average loans increased $62.1
million, or 6% to $1.1 billion for the three months ended March 31, 1997
from the 1996 full year average. Changes in the average composition of
the loan portfolio during 1997 included increases of $7.5 million of
commercial loans, $20.9 million of residential mortgages and $34.7
million of commercial real estate loans offset by a decrease of $1.0
million of installment loans.
Commercial real estate loans comprise 23% 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 that many of the 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 three months of 1997 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, 1997 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
have been unusually intense in the indirect market during the last
eighteen months and the decision was made to temporarily deploy
investable funds into other higher yielding and lower risk earning assets.
In the second quarter of 1996, S&T implemented an indirect auto leasing
program and currently has $4.0 million of outstanding auto leases.
Loan underwriting standards for S&T are established by a formal policy
administered by the S&T Bank Credit Administration Department, and
subject to the periodic review and approval of the S&T Bank Board of
Directors.
Rates and terms for commercial real estate and equipment loans
normally are negotiated, subject to such variables as economic conditions,
marketability of collateral, credit history of the borrower and
future cash flows. The loan to value policy guideline for commercial
loans is generally 75%.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The residential, first lien, mortgage loan to value policy guideline is 80%.
Higher loan to value loans can be approved with the appropriate private
mortgage insurance coverage. Second lien positions are sometimes
incurred with home equity loans, but normally only to the extent that the
combined credit exposure for both first and second liens do not exceed
100% of loan to value.
A variety of unsecured and secured installment loan and credit card
products are offered by S&T. However, the bulk of the consumer loan
portfolio is automobile loans. Loan to value guidelines for direct loans are
80% and 67% for new and used automobiles, respectively. Loan to value
policy guidelines for automobile loans purchased from dealers on a third
party basis are 125% of dealer invoice for new automobiles and 125% of
black book" dealer value for used automobiles.
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.
Security Activity
Average securities increased $6.4 million in the first three months of 1997
compared to the 1996 full year average. The increase in the average
investment portfolio was all related to increases in average taxable
securities, partially offset by a decline in tax-exempt state and municipal
securities average balances of $5.2 million. The increase in average
taxable investment securities was principally comprised of $20.0 million
of U.S. government agencies securities, $3.2 of common stocks and $4.4
million of Federal Home Loan Bank (FHLB) stock. Offsetting these
increases were average decreases of $10.1 million in U.S. Treasury
securities, $5.7 million in collateral mortgage obligations (CMO's) and
$0.2 million in other corporate securities.
The CMOs are principally Planned Amortization Class tranches of
U.S. government agencies and were purchased during 1992 as
alternatives to loans in a period of declining loan demand, and due to
their attractive rates and reasonable risk factors. Declining interest rates
have caused an acceleration of principal prepayments for these
securities and $1.1 million are remaining at March 31, 1997. The equity
securities portfolio is primarily comprised of bank holding companies, as
well as preferred and utility stocks, to take advantage of the dividends
received deduction for corporations. During 1997, the equity portfolio
yielded 10.7% on a fully taxable equivalent basis and had unrealized
gains net of nominal unrealized losses, of $34.7 million. The equity
securities portfolio consists of securities traded on the various stock
markets and are subject to change in market value. The FHLB capital
stock is a membership and borrowing requirement and is acquired and
sold at stated value.
S&T's policy for security classification included U.S. treasuries, U.S.
government agencies, mortgage-backed securities, CMOs and corporate
equities as available for sale. Municipal securities and other debt
securities are classified as held to maturity. At March 31, 1997,
unrealized gains, net of unrealized losses for securities classified as
available for sale were approximately 33.4 million.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Allowance for Loan Losses
The allowance for loan losses increased to $17.9 million or 1.69% of total
loans at March 31, 1997, as compared to $17.0 million or 1.63% of total
loans at December 31, 1996. 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, 1997 which includes
nonaccrual loans past due 90 days or more, was $5.8 million, or 0.55% of
total loans. This compares to nonperforming loans of $8.6 million or
0.79% of total loans at December 31, 1996. The decrease is attributable
to one commercial real estate loan that went into nonperforming status in
the fourth quarter of 1996, was resolved in the first quarter of 1997, and is
now back in the performing category. Asset quality is a 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 $15.1 million, or 6% for the three
months ended March 31, 1997 as compared to the 1996 average.
Changes in the average deposit mix included a $6.2 million increase in
time deposits, $16.0 million increase in money market accounts, and a
$0.1 million increase in demand accounts offset by a $4.3 million
decrease in savings accounts and $2.9 million decrease in NOW
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 March 31, 1997,
there were $16.6 million of these 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 6% of total
deposits at March 31, 1997 and 9% of total deposits at December 31,
1996 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 increased $41.9 million for the three months ended
March 31, 1997 compared to the 1996 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.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The average balance in retail and wholesale REPOS decreased
approximately $7.9 million for the first three months of 1997 compared to
the full year 1996 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 and the availability of reasonably priced longer
term borrowings have decreased the usage of wholesale REPO
fundings.
Average long-term borrowings have increased $43.0 million in the first
three months of 1997 as compared to the full year 1996 average. At
March 31, 1997, S&T had long-term borrowings outstanding of $38.1
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 March 31, 1997 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 increased $2.6 million at March 31, 1997, compared
to December 31, 1996. Net income was $6.2 million and dividends paid
to shareholders were $2.8 million for the three months ended March 31,
1997. During the first three months of 1997, S&T paid 44% of 1997 net
income in dividends, equating to an annual dividend rate of $1.00 per
share.
The book value of S&T's common stock increased slightly from $15.92 at
December 31, 1996 to $16.12 at March 31,1997. Equity associated with
the available for sale securities portfolio decreased $1.5 million during the
first three months of 1997 due to rising interest rates and the resulting
decline in values of debt securities. The market price of S&T's common
stock was $30.50 per share at March 31, 1997, approximately
unchanged from $30.75 per share at December 31, 1996.
S&T continues to maintain a strong capital position with a leverage ratio
of 10.4% 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 14.6%
respectively, at March 31, 1997. These ratios place S&T well above the
Federal Reserve Board's risk-based capital guidelines of 4.0% and 8.0%
for Tier 1 and Total, respectively.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 31, 1997 compared to
Three months ended March 31, 1996
Net Income
Net income increased to $6.2 million or $0.56 per share in the first three
months of 1997 from $5.6 million or $0.50 per share for the same period
of 1996. The significant improvement during the first three months of
1997 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 $1.1
million or 8% in the first three months of 1997 compared to the same
period of 1996. The net yield on interest-earning assets was steady at
4.71% in the first three months of 1997 and 1996.
Net interest income was positively affected by a $66.9 million, or 5%
increase in average earning assets. 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.
In the first quarter of 1997, average loans increased $62.1 million and
average securities increased $6.4 million, comprising most of the earning
asset growth. The yields on average loans remained constant and
average securities increased by 17 bp during this period.
Average interest bearing deposits provided $14.9 million of the funds for
the growth in average loans and average securities at a cost of 4.41%,
relatively unchanged from 1996. The cost of REPOS and other
borrowed funds were also relatively unchanged at 5.39%.
Also positively affecting net interest income was a $10.0 million increase
to average net free funds. Average net free funds are the excess of
demand deposits, other non-interests bearing liabilities and shareholders'
equity over non-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.
Provision for Loan Losses
The provision for loan losses increased slightly to $1.2 million for the first
three months of 1997 compared to $1.0 million in the same period of
1996. 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.
Credit quality statistics are an important factor in determining the amount
of provision expense. Net loan charge-offs totaled $0.3 million for the
first three months of 1997 compared to $0.9 million for the same period
1996. Nonperforming loans to total loans increased to 0.55% at March
31, 1997 as compared to 0.30% at March 31, 1996.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Also affecting the amount of provision expense is loan growth. Despite a
$62.1 or 6% increase in loans. S&T's allowance for loan losses to total
loans, remained relatively constant at 1.69% at March 31, 1997 compared
to 1.65% at March 31, 1996.
Noninterest Income
Noninterest income increased $1.0 million or 38% in the first three
months of 1997 compared to the same period of 1996. Increases
included $0.1 million or 16% in service charges and fees, $0.1 million or
3% in other income and $0.9 million in security/nonrecurring gains, offset
by a decrease of $0.1 million or 9% in trust income.
The increase in service charges on deposit accounts was primarily the
result of expanding new cash management relationships 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 safe deposit box fees, credit/debit card fees
and letters of credit. The decrease in trust income was primarily
attributable to a change in timing and methodology for billing tax
preparation fees.
Security gains were taken on available for sale equities securities in the
first three months of 1997 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
$34.7 million at March 31, 1997.
Noninterest Expense
Noninterest expense increased $0.7 million or 8% at March 31, 1997
compared to March 31, 1996. The increase is primarily attributable to
employment and other expense. The $0.3 million increase in
employment expense resulted from normal merit increases and staffing
increases, offset by higher deferral of loan origination costs resulting
from new loan activity. Average full-time equivalent staff increased from
564 to 573 as compared to the same period of 1996. Other expenses
increased $0.4 million primarily due to higher legal, accounting and
professional consulting fees that are a result of additional services related
to the pending merger with Peoples Bank of Unity. A definitive
agreement for the merger was announced on November 26, 1996 and is
expected to consummate in the second quarter of 1997. Expense
increases to marketing, data processing and other expenses were not
significant and reflect normal changes due to activity increases,
organization expansion and fee increases from vendors.
Federal Deposit Insurance Corporation (FDIC) premium expense
decreased by 37% at March 31, 1997 as compared to the same period
last year as a result of recapitalization legislature passed in September
1996. S&T Bank currently pays an annual premium of $.013 per $100 on
Bank Insurance Fund deposits and $.0648 per $100 on Savings Association
Insurance Fund (SAIF) deposits, the lowest premium possible under the FDIC's
risk assessment program for determining deposit insurance premiums. S&T
Bank has $168.1 million of deposits subject to the SAIF. These deposits
are related to a thrift institution and branches acquired from the
Resolution Trust Corporation in 1991.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Federal Income Taxes
Federal income tax expense increased $0.6 million at March 31, 1997
as compared to March 31, 1996 primarily as a result of higher pre-tax
income in 1997. The effective tax rate for the first three months of 1997
was 29%, which is below the 35% statutory rate due to benefits resulting
from tax-exempt interest, excludable dividend income and low income
housing tax credits (LIHTC).
Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
The statements in this Form 10-Q which are not historical fact are
forward looking statements that involve risks and uncertainties, including,
but not limited to, the interest rate environment, the effect of federal and
state banking and tax regulations, the effect of economic conditions, the
impact of competitive products and pricing, and other risks detailed in
S&T's Securities and Exchange Commission filings.
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 thereunto duly
authorized.
S&T Bancorp, Inc.
(Registrant)
Date: April 30, 1997 /s/ Robert E. Rout
Robert E. Rout
(Senior Vice President
and Chief Financial
Officer)