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, 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 - 14,130,638 shares as of July 29, 1997
INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed consolidated balance sheets -
June 30, 1997 and December 31, 1996 3
Condensed consolidated statements of income -
Three months ended June 30, 1997 and 1996 4
and six months ended June 30, 1997 and 1996
Condensed consolidated statements of cash flows -
Six months ended June 30, 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 10-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
(000's omitted except share data)
ASSETS
Cash and due from banks $45,574 $40,710
Interest-earning deposits
with banks 102 109
Federal funds sold 800 6,465
Securities:
Available for sale 412,978 449,801
Held to maturity ( market value
$48,455 in 1997 and $51,343
in 1996) 47,523 50,260
Total Securities 460,501 500,061
Loans, net of allowance for loan
losses of $19,970 in 1997 and
$18,729 in 1996 1,215,553 1,181,407
Premises and equipment 19,678 20,038
Other assets 38,634 38,255
TOTAL ASSETS $1,780,842 $1,787,045
LIABILITIES
Deposits:
Noninterest-bearing demand $166,587 $159,268
Interest-bearing demand 35,063 52,659
Money market 260,611 230,143
Savings 189,496 198,195
Time 629,014 630,102
Total Deposits 1,280,771 1,270,367
Securities sold under repurchase
agreements 106,735 114,205
Federal funds purchased 0 775
Long-term borrowings 111,618 136,618
Other borrowed funds 230 230
Other liabilities 42,885 38,732
TOTAL LIABILITIES 1,542,239 1,560,927
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 14,857,019 issued 37,142 37,142
Additional paid in capital 19,319 19,044
Retained earnings 166,548 157,982
Net unrealized holding gains on
securities available for sale 28,502 25,197
Treasury stock (726,396 shares at
June 30, 1997 and 746,003
at December 31, 1996, at cost) (12,678) (13,017)
Deferred compensation (230) (230)
TOTAL SHAREHOLDERS' EQUITY 238,603 226,118
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,780,842 $1,787,045
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For Three Months Ended For Six Months Ended
June 30, June 30,
1997 1996 1997 1996
(000's omitted except share data)
INTEREST INCOME
Loans, including fees $27,069 $24,368 $53,334 $48,590
Deposits with banks 2 1 4 3
Federal funds sold 278 100 409 183
Investment securities:
Taxable 6,043 6,810 12,640 13,256
Tax-exempt 581 739 1,191 1,503
Dividends 835 712 1,621 1,411
Total Interest Income 34,808 32,730 69,199 64,946
INTEREST EXPENSE
Deposits:
Interest-bearing demand 336 441 694 886
Money market 1,756 1,442 3,374 2,805
Savings 1,115 1,283 2,247 2,566
Time 8,455 8,204 16,766 16,468
Securities sold under repurchase
agreements 1,688 1,765 3,304 3,436
Federal funds purchased 65 96 240 174
Long-term borrowings 1,615 1,135 3,438 2,400
Other borrowed funds 4 18 8 39
Total Interest Expense 15,034 14,384 30,071 28,774
NET INTEREST INCOME 19,774 18,346 39,128 36,172
Provision for loan losses 800 1,600 2,350 2,650
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 18,974 16,746 36,778 33,522
NONINTEREST INCOME:
Trust fees 777 689 1,409 1,381
Service charges on deposit
accounts 1,090 974 2,143 1,876
Net securities/other gains 2,038 624 3,540 1,117
Other 568 594 1,401 1,381
Total Noninterest Income 4,473 2,881 8,493 5,755
NONINTEREST EXPENSE
Salaries and employee benefits 6,268 5,371 11,963 10,844
Occupancy expense, net 648 666 1,350 1,384
Equipment expense, net 1,285 593 2,022 1,382
Data processing 648 445 1,135 927
FDIC assessment 62 114 118 211
Other 2,745 2,846 6,014 5,521
Total Noninterest Expense 11,656 10,035 22,602 20,269
INCOME BEFORE INCOME TAXES 11,791 9,592 22,669 19,008
Applicable income taxes 3,478 2,471 6,615 4,950
NET INCOME $8,313 $7,121 $16,054 $14,058
PER COMMON SHARE
Net Income $0.59 $0.51 $1.14 $1.00
Dividends 0.28 0.24 0.53 0.45
Average Common Shares Outstanding 14,130 14,062 14,127 14,131
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
1997 1996
(000's omitted)
Operating Activities
Net Income $16,054 $14,058
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 2,350 2,650
Provision for depreciation and amortization 1,115 928
Net amortizaton of investment security premiums 263 295
Net accretion of loan and deposit discounts 0 (268)
Net gains on sales of securities available
for sale (3,438) (1,035)
Decrease (increase) in deferred income taxes 93 (345)
Increase in interest receivable (24) (220)
Decrease in interest payable (252) (573)
Decrease in other assets 1,321 949
Decrease in other liabilities (260) (1,171)
Net Cash Provided by Operating Activities 17,222 15,268
Investing Activities
Net redemption (increase in) interest-earning
deposits with banks 7 (1)
Net decrease in federal funds sold 5,665 340
Proceeds from maturities of investment securities 2,731 3,020
Proceeds from maturities of securities available
for sale 67,696 58,685
Proceeds from sales of securities available
for sale 38,202 23,601
Purchases of investment securities 0 (1,603)
Purchases of securities available for sale (60,763) (107,856)
Net increase in loans (39,640) (29,686)
Proceeds from the sale of loans 3,144 13,688
Purchases of premises and equipment (114) (999)
Proceeds from the sale of premises and equipment (641) (28)
Net Cash Used by Investing Activities 16,287 (40,839)
Financing Activities
Net increase in demand, NOW and
savings deposits 11,492 17,010
Net (decrease) increase in certificates of deposit (1,088) 3,068
Net (decrease) increase in federal funds purchased (775) 8,475
Net (decrease) increase in repurchase agreements (7,470) 23,682
Repayments from FHLB long-term borrowings (25,000) (14,993)
Acquisition of treasury stock (4) (7,270)
Sale of treasury stock 619 1,103
Decrease in obligation under capital lease (119) (143)
Cash dividends paid to shareholders (6,300) (5,369)
Net Cash Used by Financing Activities (28,645) 25,563
Increase (decrease) in Cash and Cash Equivalents 4,864 (8)
Cash and Cash Equivalents at Beginning of Period 40,710 46,477
Cash and Cash Equivalents at End of Period $45,574 $46,469
See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
give retroactive effect to the merger of Peoples Bank of Unity with and into
S&T Bancorp, Inc. The merger which was consumated on May 2, 1997 resulted
in S&T issuing a total of 3,036,075 shares of common stock. The merger
was accounted for on a pooling of interest basis and the financial
statements are presented as if the merger had been consummated for all the
periods presented, and 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 principals 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, 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. 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 June 30
are as follows:
1997 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 $246,188 $1,571 ($1,152) $246,607
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 17,218 220 17,438
U.S. Treasury securities 38,127 1,121 (3) 39,245
Corporate securities 11,752 47 11,799
Debt securities available
for sale 313,285 2,959 (1,155) 315,089
Marketable equity
securities 45,697 42,116 (71) 87,742
Other securities 10,147 10,147
Total $369,129 $45,075 ($1,226) $412,978
1997 Held To Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states and
political subdivisions $42,568 $777 ($46) $43,299
Corporate securities 1,998 201 2,199
Debt securities held to
maturity 44,566 978 (46) 45,498
Other securities 2,957 2,957
Total $47,523 $978 ($46) $48,455
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 $234,632 $2,408 ($1,116) $235,924
Collateralized mortgage
obligations of U.S.
government corporations
and agencies 51,503 408 (267) 51,644
U.S. Treasury securities 57,187 1,555 58,742
Corporate securities 14,463 143 (56) 14,550
Debt securities available
for sale 357,785 4,514 (1,439) 360,860
Marketable equity
securities 40,161 35,868 (224) 75,805
Other securities 13,136 13,136
Total $411,082 $40,382 ($1,663) $449,801
1996 Held To Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(000's omitted)
Obligations of states
and political
subdivisions 46,334 919 (52) 47,201
Corporate securities 1,998 216 2,214
Debt securities held
to maturity 48,332 1,135 (52) 49,415
Other securities 1,928 1,928
Total $50,260 $1,135 (52) $51,343
During the period ended June 30, 1997, there were $3,437,545 in realized
gains relative to securities available for sale.
The amortized cost and estimated market value of debt securities at June 30,
1997, by contractual maturity, are shown below:
Estimated
Amortized Market
Available for Sale Cost Value
Due in one year or less $15,034 $15,213
Due after one year through
five years 87,341 88,663
Due after five years through
ten years 202,219 202,436
Due after ten years 8,691 8,777
Total $313,285 $315,089
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 $5,670 $5,703
Due after one year through
five years 21,403 21,928
Due after five years through
ten years 13,593 13,904
Due after ten years 3,900 3,963
Total $44,566 $45,498
At June 30, 1997 and December 31, 1996 investment securities with a
principal amount of $197,566,000 and $181,489,000 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:
June 30, 1997 December 31, 1996
(000's omitted)
Real estate - construction $39,030 $35,508
Real estate - mortgages:
Residential 518,768 513,424
Commercial 269,789 250,132
Commercial - industrial
and agricultural 272,115 246,731
Consumer installment 135,821 154,341
Gross Loans 1,235,523 1,200,136
Allowance for loan losses (19,970) (18,729)
Total Loans $1,215,553 $1,181,407
Changes in the allowance for loan losses for the six months ended June 30
were as follows:
1997 1996
(000's omitted)
Balance at beginning
of period $18,729 $16,695
Charge-offs (1,524) (3,333)
Recoveries 415 1,578
Net charge-offs (1,109) (1,755)
Provision for loan losses 2,350 2,650
Balance at end of period $19,970 $17,590
At June 30, 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 $13,065,000 and $10,687,000, respectively, after cumulative charge-offs of
$3,690,000 at June 30, 1997 and $3,458,000 at December 31, 1996. Of these impaired
investments, $6,000,000 were on nonaccrual at June 30, 1997 and $6,487,000 at December 31,
1996. The average recorded investment in impaired loans at June 30, 1997 and December 31,
1996 was $12,300,000 and $4,256,000, respectively. S&T Bank has recorded an allowance
for loan losses for all impaired loans totaling $3,000,000 and $2,605,000 at
June 30, 1997 and December 31, 1996, respectively. Interest income on impaired loans
of $600,000 and $1,103,000 was recognized at June 30, 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 $259,653,000 and obligations under standby letters of credit totaled
$51,644,000 at June 30, 1997.
At June 30, 1997, S&T had no marketable equity securities, totaling $1,212,952
at amortized cost and $1,872,177 at estimated market value, that were subject
to covered call option contracts. The purpose of these contracts was to
gererate 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
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. All prior period amounts have been restated
to reflect the pooling of interests transaction with
Peoples Bank of Unity (Peoples) which closed on May 2,
1997.
Financial Condition
Total assets at June 30, 1997 were $1.8 billion,
relatively unchanged from December 31, 1996. Total
assets averaged $1.8 billion in the first six months
of 1997, a $68.4 million increase from the 1996 full
year average. Average loans increased $83.4 million
and average securities and federal funds decreased $20.0
million in the first six months of 1997 compared to the
1996 full year averages. Funding for this loan growth
was primarily provided by the $20.0 million decrease in
securities and federal funds, a $19.0 million increase in
average deposits, a $17.4 million increase in average
retained earnings and a $27.6 million increase in average
borrowings.
Lending Activity
Total loans at June 30, 1997 were $1.2 billion, a
$35.4 million or 2.9% increase from December 31, 1996.
Average loans increased $83.4 million, or 7% to $1.2
billion for the six months ended June 30, 1997 from
the 1996 full year average. Changes in the
composition of the loan portfolio during 1997 included
increases of $25.4 million of commercial loans, $8.9
million of residential mortgages and $19.6 million of
commercial real estate loans, offset by a decrease of
$18.5 million of installment loans.
Commercial real estate loans comprise 22% 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 six months of
1997 through a centralized mortgage origination
department, ongoing 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, 1997
the residential mortgage portfolio had a 28%
composition of adjustable rate mortgages.
Installment loan decreases are primarily associated
with significantly lower volumes in the indirect auto
loan category and a $6.8 million sale of the student
loan portfolio. Pricing pressures have been
unusually intense in the indirect market during the
last twenty-one 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 $4.3 million of
outstanding auto leases. Recent changes in
government regulations have significantly decreased
the profit potential of guaranteed student loans. S&T
will continue to distribute student loan applications
for customer convenience, but will not fund or hold
the loans.
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%.
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 decreased $29.2 million in the
first six months of 1997 compared to the 1996 full
year average. The decrease in the average investment
portfolio was all related to decreases in average
taxable securities and tax-exempt state and municipal
securities average balances of $7.8 million. The
decrease in average taxable investment securities was
principally comprised of $29.3 million of U.S.
Treasury securities, $48.2 million of mortgage backed
securities and $2.6 million in other corporate
securities. Offsetting these decreases were average
increases of $51.8 million in U.S. Government Agency
securities, $3.8 million of common stocks and $3.1
million of Federal Home Loan Bank (FHLB) stock.
During 1997 S&T sold $27.9 million of mortgaged backed
securities and $6.0 million of U.S. agency securities
classified as available for sale. These sales were
made as part of a balance sheet restructuring in order
to integrate the investment and asset/liability
management strategies of S&T and Peoples following the
merger. The equity securities sales of $4.3 million were
made in order to maximize returns when market opportunities
are presented.
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 $42.0 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
June 30, 1997, unrealized gains, net of unrealized
losses for securities classified as available for sale
were approximately $43.8 million.
Allowance for Loan Losses
The allowance for loan losses increased to $20.0
million or 1.62% of total loans at June 30, 1997, as
compared to $18.7 million or 1.56% 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 June 30, 1997
which includes nonaccrual loans past due 90 days or
more, was $7.2 million, or 0.58% of total loans. This
compares to nonperforming loans of $10.3 million or
0.86% 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 $19.0 million, or
2% for the six months ended June 30, 1997 as compared
to the 1996 average. Changes in the average deposit
mix included a $7.5 million increase in
time deposits, $13.4 million increase in money market
accounts, $3.6 million in NOW accounts and a $5.5
million increase in demand accounts, offset by a $11.0
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,
1997, there were $21.6 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 June 30, 1997 and 8% 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 $27.6 million for the six
months ended June 30, 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.
The average balance in retail REPOS increased
approximately $6.0 million for the first six months of
1997 compared to the full year 1996 average. This
increase is primarily attributable to new REPO sweep
relationships in our cash management department. S&T
views retail REPOS as a relatively stable source of
funds since most of these accounts are with local,
long-term customers.
Wholesale REPOS and federal funds purchased decreased
$10.8 million for the first six months of 1997
compared to the full year 1996 average. The
availability and more favorable pricings of other
funding sources has allowed S&T to meet the funding
demands of loan growth without depending upon large
amounts of wholesale REPOS. Core deposit increases,
securities sales and the availability of reasonably
priced longer term borrowings decreased the usage of
wholesale REPO fundings in 1997.
Average long-term borrowings have increased $32.4
million in the first six months of 1997 as compared to
the full year 1996 average. At June 30, 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 June 30, 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 $12.5 million at June
30, 1997, compared to December 31, 1996. Net income
was $16.1 million and dividends paid to shareholders
were $7.9 million for the six months ended June 30,
1997. During the first six months of 1997, S&T paid
39% of 1997 net income in dividends, equating to an
annual dividend rate of $1.12 per share.
The book value of S&T's common stock increased from
$16.02 at December 31, 1996 to $16.89 at June 30,1997.
Equity associated with the available for sale
securities portfolio increased $3.3 million during the
first six months of 1997 due to stabilized interest
rates and the resulting increase in values of debt and
equity securities. The market price of S&T's common
stock was $33.50 per share at June 30, 1997, an
increase from $30.75 per share at December 31, 1996.
S&T continues to maintain a strong capital position
with a leverage ratio of 11.9% as compared to the
minimum regulatory guideline of 3.0%. S&T's risk-based
capital Tier I and Total ratios were 15.3% and 16.6%
respectively, at June 30, 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 I and
Total, respectively.
RESULTS OF OPERATIONS
Six months ended June 30, 1997 compared to
Six months ended June 30, 1996
Net Income
Net income increased to $16.1 million or $1.14 per
share in the first six months of 1997 from $14.1
million or $1.00 per share for the same period of
1996. The significant improvement during the first
six months of 1997 was the result of higher net
interest income, increased noninterest income, higher
security gains, partially offset by higher operating
expense.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $2.8 million or 7% in the first six
months of 1997 compared to the same period of 1996.
The net yield on interest-earning assets was 4.92% in
the first six months of 1997 as compared to 4.88% in
the same period of 1996.
Net interest income was positively affected by a $87.0
million, or 6% 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 half of 1997, average loans increased
$111.8 million, comprising most of the earning asset
growth, offset by a decrease of $33.3 million in
average securities. The yields on average loans
remained relatively unchanged and average securities
increased by 19 basis points during the period. The
yield increase for securities is partially a result of
selling lower yielding investments as part of the
People's merger portfolio and balance sheet
restructuring.
Average interest bearing deposits provided $23.9
million of the funds for the growth in loans
and securities; cost of deposits totaled 4.26%, relatively
unchanged from 1996. The cost of REPOS and other
borrowed funds increased 5 basis points to 5.47%.
Also positively affecting net interest income was a
$29.6 million increase to average net free funds.
Average net free funds are the excess of demand
deposits, other non-interest bearing liabilities and
shareholders' equity over non-earning assets.
Maintaining consistent spreads between earning assets
and costing liabilities is very significant to S&T's
financial performance since net interest income
comprises 89% 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 decreased slightly to
$2.4 million for the first six months of 1997 as
compared to $2.7 million in the same period of 1996.
The decrease 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 $1.1 million for the first six
months of 1997 compared to $1.8 million for the same
period 1996. Nonperforming loans to total loans
increased to 0.58% at June 30, 1997 as compared to
0.34% at June 30, 1996.
Also affecting the amount of provision expense is loan
growth. Despite a $83.4 or 7% increase in average
loans, S&T's allowance for loan losses to total loans
remained relatively constant at 1.62% at June 30, 1997
compared to 1.61% at June 30, 1996.
Noninterest Income
Noninterest income increased $2.7 million or 48% in
the first six months of 1997 compared to the same
period of 1996. Increases included $0.3 million or
14% in service charges and fees and $2.4 million in
security gains. Trust and other income
remained constant during the first half of 1997.
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.
Security gains were taken on available for sale
equities securities in the first six months of 1997 in
order to maximize returns by taking advantage of
market opportunities when presented. These
security gains helped to offset $2.2 million of merger
related and nonrecurring expenses related to the
acquisition of Peoples. Unrealized gains, net of
unrealized losses, in the available for sale equities
portfolio totaled $43.8 million at June 30, 1997.
Noninterest Expense
Noninterest expense increased $2.3 million or 12% at
June 30, 1997 compared to June 30, 1996. The increase
is primarily attributable to $2.2 million of merger
related and other nonrecurring expenses associated
with the acquisition of Peoples during the second
quarter of 1997. Merger related and other nonrecurring
expenses included costs for severance and early
retirement programs that eliminated 38 duplicate
positions, the write-off and conversion of data
processing systems, as well as legal, accounting and
investment banker expenses.
Recurring expense increases included $0.5 million
resulting from normal year-end merit increases, offset
by a $0.1 million decrease in FDIC insurance, a $0.2
million reduction of goodwill amortization relating to
a 1991 branch acquisition, a $0.1 million reduction in
ongoing data processing costs and smaller decreases in
several expense categories totaling $0.1 million.
Average full -time equivalent staff decreased from 669
to 665. Severance and early retirement programs were
implemented in May 1997, therefore the full effect of
these programs are not yet fully reflected in the year
to date full-time equivalent staff averages.
Federal Deposit Insurance Corporation (FDIC) premium
expense decreased by 44% at June 30, 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.
Federal Income Taxes
Federal income tax expense increased $1.7 million at
June 30, 1997 as compared to June 30, 1996 primarily
as a result of higher pre-tax income in 1997. The
effective tax rate for the first six 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).
RESULTS OF OPERATIONS
Three months ended June 30, 1997 compared to
Three months ended June 30, 1996
Net Income
Net income increased to $8.3 million or $0.59 per
share in the second quarter of 1997 from $7.1 million
or $0.51 per share for the same period of 1996, a 16%
improvement. This significant improvement is due to
higher net interest income, lower provision expense,
higher noninterest income, offset by significantly
higher nonrecurring noninterest expense resulting from
the acquisition of Peoples in May 1997.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $1.4 million or 7% in the second
quarter of 1997 compared to the same period of 1996.
This improvement in net interest income resulted from
a higher level of earning assets while maintaining
fairly consistent spreads.
Average earning assets increased by $75.5 million as
compared to the second quarter of 1996, primarily as a
result $111.7 million of loan growth. Funding for
this asset growth was provided by available for sale
securities sales, deposits, borrowings and retained
earnings.
Net interest margin on a fully taxable equivalent
basis was 4.97% for the second quarter of 1997, as
compared to 4.92% for the same period of 1996. The
improvement in the net interest margin is primarily
the result of the aforementioned balance sheet
restructuring that increased earning asset yields.
Funding costs and mix were also positively affected by
this restructuring, as well as a $14.5 million
increase in core deposits.
Provision for Loan Losses
The provision for loan losses decreased to $0.8
million for the second quarter of 1997 compared to
$1.6 million in the same period of 1996. Net loan
charge-offs totaled $0.8 million for the second of
1997 compared to $0.7 million for the same period
1996. The extra provision expense in 1996 was a
result of an effort to maintain S&T's allowance for
loan losses to total loans at a relatively consistant
level with loan growth and 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.
Noninterest Income
Noninterest income increased $1.6 million or 55% in
the second quarter of 1997 compared to the same period
of 1996. Increases included $1.4 million in
security/nonrecurring gains, $0.1 million in service
charges and fees and $0.1 million in trust income.
Other income remained constant during the second
quarter of 1997.
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. The increase in trust fees is
attributable to a change in methodology and timing of
tax preparation fees collected in the second quarter
of 1997.
Security gains were taken on available for sale
equities securities in the second of 1997 in order to
maximize returns by taking advantage of market
opportunities when presented. The extra security
gains helped to offset $1.8 million of merger related
and nonrecurring expenses related to the acquisition
of Peoples.
S&T BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
CONDITION AND RESULTS OF OPERATIONS
Noninterest Expense
Noninterest expense increased $1.6 million or 16% in
the second quarter of 1997 as compared to 1996. The
increase is primarily attributable to the
aforementioned merger related and other nonrecurring
expenses associated with the acquisition of Peoples
during the second quarter of 1997.
Recurring noninterest expense changes included $0.2
million for merit increases, offset by lower FDIC
insurance expense, the elimination of goodwill
amortization from a 1991 branch acquisition and
smaller expense reductions in several other categories
of noninterest expense totaling $0.1 million.
Federal Income Taxes
Federal income tax expense increased $1.0 million at
June 30, 1997 as compared to June 30, 1996 primarily
as a result of higher pre-tax income in 1997. The
effective tax rate for the second quarter 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
Form 8-K dated May 13, 1997
On May 2, 1997, S&T Bancorp, Inc. completed the merger of Peoples
Bank of Unity into its principal subsidiary, S&T Bank. Peoples Bank of
Unity, had assets of $287 million, operated six offices in the eastern
suburbs of Pittsburgh, including Plum Borough, Penn Hills, Monroeville,
Oakmont and Holiday Park. All of these offices now operate under the
S&T Bank name.
Under the terms of the merger agreement, Peoples Bank shareholders
received 26.25 S&T common shares for each of the 115,660 outstanding
Peoples Bank common shares. This resulted in a tax-free exchange,
and the merger was accounted for as a pooling-of-interest. Based
upon the market price of S&T Bancorp common stock on May 2, 1997,
the transaction has a value of approximately $102 million.
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: August 14, 1997 /s/ Robert E. Rout
Robert E. Rout
Senior Vice President
and Chief Financial Officer)