-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JFGBvNdCOQcxK7kBZujgpUCUWGwygO68RD6OorJaxzi0JAguxljJHtFPieN0/y5E bSXU86vCRs/R5dJe3LwXlw== 0000719220-97-000013.txt : 19971111 0000719220-97-000013.hdr.sgml : 19971111 ACCESSION NUMBER: 0000719220-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971110 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: S&T BANCORP INC CENTRAL INDEX KEY: 0000719220 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 251434426 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12508 FILM NUMBER: 97711671 BUSINESS ADDRESS: STREET 1: 800 PHILADELPHIA ST STREET 2: P O BOX 190 CITY: INDIANA STATE: PA ZIP: 15701 BUSINESS PHONE: 4123492900 MAIL ADDRESS: STREET 1: 800 PHILADELPHIA STREET CITY: INDIANA STATE: PA ZIP: 15701 10-Q 1 FORM 10-Q 9/30/97 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 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 - 14,138,145 shares as of October 24, 1997 INDEX S&T BANCORP, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed consolidated balance sheets - September 30, 1997 and December 31, 1996 3 Condensed consolidated statements of income - Three months ended September 30, 1997 and 1996 4 and nine months ended September 30, 1997 and 1996 Condensed consolidated statements of cash flows - Nine months ended September 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
September 30, December 31, 1997 1996 (000's omitted except share data) ASSETS Cash and due from banks $43,400 $40,710 Interest-earning deposits with banks 104 109 Federal funds sold 0 6,465 Securities: Available for sale 441,266 449,801 Held to maturity ( market value $50,334 in 1997 and $51,343 in 1996) 49,299 50,260 Total Securities 490,565 500,061 Loans, net of allowance for loan losses of $20,392 in 1997 and $18,729 in 1996 1,238,663 1,181,407 Premises and equipment 19,235 20,038 Other assets 40,185 38,255 TOTAL ASSETS $1,832,152 $1,787,045 LIABILITIES Deposits: Noninterest-bearing demand $167,462 $159,268 Interest-bearing demand 37,728 52,659 Money market 264,774 230,143 Savings 176,576 198,195 Time 643,351 630,102 Total Deposits 1,289,891 1,270,367 Securities sold under repurchase agreements 121,425 114,205 Federal funds purchased 935 775 Long-term borrowings 123,118 136,618 Other borrowed funds 230 230 Other liabilities 46,421 38,732 TOTAL LIABILITIES 1,582,020 1,560,927 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-14,857,019 shares in 1997 and 1996 37,142 37,142 Additional paid in capital 19,333 19,044 Retained earnings 171,239 157,982 Net unrealized holding gains on securities available for sale 35,212 25,197 Treasury stock (719,874 shares at September 30, 1997 and 746,003 at December 31, 1996, at cost) (12,564) (13,017) Deferred compensation (230) (230) TOTAL SHAREHOLDERS' EQUITY 250,132 226,118 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,832,152 $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 Nine Months Ended September 30, September 30, 1997 1996 1997 1996 (000's omitted except per share data) INTEREST INCOME Loans, including fees $27,670 $25,134 $81,003 $73,724 Deposits with banks 2 0 6 3 Federal funds sold 92 40 501 223 Investment securities: Taxable 6,364 6,948 19,004 20,204 Tax-exempt 550 701 1,741 2,204 Dividends 811 725 2,432 2,136 Total Interest Income 35,489 33,548 104,687 98,494 INTEREST EXPENSE Deposits : Interest-bearing demand 342 450 1,036 1,335 Money market 1,993 1,528 5,367 4,333 Savings 1,075 1,268 3,322 3,834 Time 9,027 8,376 25,793 24,846 Securities sold under repurchase agreements 1,538 1,889 4,842 5,325 Federal funds purchased 64 100 304 274 Long-term borrowings 1,704 1,165 5,142 3,564 Other borrowed funds 5 16 13 55 Total Interest Expense 15,748 14,792 45,819 43,566 NET INTEREST INCOME 19,741 18,756 58,868 54,928 Provision for loan losses 750 1,225 3,100 3,875 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 18,991 17,531 55,768 51,053 NONINTEREST INCOME: Service charges on deposit accounts 896 738 2,305 2,119 Trust fees 1,174 1,059 3,317 2,937 Net securities/other gains(losses) 378 612 3,917 1,729 Other 777 821 2,178 2,201 Total Noninterest Income 3,224 3,231 11,717 8,986 NONINTEREST EXPENSE Salaries and employee benefits 5,540 5,265 17,503 16,093 Occupancy, net 638 633 1,989 2,017 Furniture and equipment 559 666 2,580 2,048 Data processing 510 544 1,645 1,471 FDIC assessment 58 989 176 1,200 Other 2,686 2,832 8,699 8,369 Total Noninterest Expense 9,991 10,929 32,592 31,198 INCOME BEFORE INCOME TAXES 12,224 9,833 34,893 28,841 Applicable income taxes 3,575 2,586 10,190 7,536 NET INCOME $8,649 $7,247 $24,703 $21,305 PER COMMON SHARE Net Income $0.61 $0.51 $1.75 $1.51 Dividends 0.28 0.24 0.81 0.69 Average Common Shares Outstanding 14,132 14,077 14,129 14,113 See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1997 1996 (000's omitted) Operating Activities Net Income $24,703 $21,304 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,100 3,875 Provision for depreciation and amortization 1,643 1,364 Net amortizaton of investment security premiums 470 417 Net accretion of loan and deposit discounts 0 (343) Net gains on sales of securities available for sale (3,813) (1,646) Increase (decrease)in deferred income taxes 38 (521) Increase in interest receivable (1,226) (1,213) Increase in interest payable 189 643 Decrease in other assets 1,139 1,066 Increase (decrease)in other liabilities (891) 40 Net Cash Provided by Operating Activities 25,352 24,986 Investing Activities Net redemption(increase in)interest-earning deposits with banks 5 (31) Net decrease in federal funds sold 6,465 7,015 Proceeds from maturities of held to maturity securities 952 9,152 Proceeds from maturities of securities available for sale 86,985 67,772 Proceeds from sales of securities available for sale 38,480 38,450 Purchases of held to maturity securities 0 (1,993) Purchases of securities available for sale (98,124) (121,655) Net increase in loans (70,541) (74,673) Proceeds from the sale of loans 10,185 15,991 Purchases of premises and equipment (167) (1,949) Proceeds from the sale of premises and equipment (673) (82) Net Cash Used by Investing Activities (26,433) (62,003) Financing Activities Net increase in demand, NOW and savings deposits 6,275 16,741 Net increase in certificates of deposit 13,249 13,716 Net increase in repurchase agreements 7,220 22,121 Net increase in federal funds purchased 160 15,450 Decrease in long-term borrowings (13,500) (14,987) Acquisition of treasury stock (4) (7,289) Sale of treasury stock 748 1,671 Cash dividends paid to shareholders (10,258) (8,015) Decrease in obligation under capital lease (119) (218) Net Cash Used by Financing Activities 3,771 39,190 Increase in Cash and Cash Equivalents 2,690 2,173 Cash and Cash Equivalents at Beginning of Period 40,710 46,477 Cash and Cash Equivalents at End of Period $43,400 $48,650 See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 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 nine month period ended September 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 September 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 $269,134 $2,544 ($363) $271,314 Collateralized mortgage obligations of U.S. government corporations and agencies 15,238 335 15,573 U.S. Treasury securities 38,087 1,335 39,422 Corporate Securities 11,251 197 (11) 11,437 Debt securities available for sale 333,710 4,411 (374) 337,746 Marketable equity securities 42,392 50,168 (33) 92,527 Other securities 10,993 10,993 Total $387,095 $54,579 ($407) $441,266 1997 Held To Maturity Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value (000's omitted) Obligations of states and political subdivisions $39,538 $835 ($12) $40,361 Corporate securities 1,998 212 2,210 Debt securities held to maturity 41,536 1,047 (12) 42,571 Other securities 7,763 7,763 Total $49,299 $1,047 ($12) $50,334
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 securitie 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 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 September 30, 1997, there were $3,813,153 in realized gains relative to securities available for sale. The amortized cost and estimated market value of securities at September 30, 1997, by contractual maturity, are shown below:
Estimated Amortized Market Available for Sale Cost Value (000's omitted) Due in one year or less $20,067 $20,284 Due after one year through five years 86,430 87,986 Due after five years through ten years 218,970 221,052 Due after ten years 8,242 8,424 Total $333,710 $337,746
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 $6,215 $6,278 Due after one year through five years 18,770 19,328 Due after five years through ten years 13,609 13,954 Due after ten years 2,942 3,011 Total $41,536 $42,571
At September 30, 1997 and December 31, 1996 investment securities with a principal amount of $214,230,000 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:
September 30, 1997 December 31, 1996 (000's omitted) Real estate - construction $48,105 $35,508 Real estate - mortgages: Residential 520,989 513,424 Commercial 299,055 250,132 Commercial - industrial and agricultural 258,009 246,731 Consumer installment 132,897 154,341 Gross Loans 1,259,055 1,200,136 Allowance for loan losses ($20,392) ($18,729) Total Loans 1,238,663 1,181,407
Changes in the allowance for loan losses for the nine months ended September 30 were as follows: 1997 1996 (000's omitted) Balance at beginning of period $18,729 $17,065 Charge-offs (2,137) (4,057) Recoveries 699 1,727 Net charge-offs (1,438) (2,330) Provision for loan losses 3,100 3,875 Balance at end of period $20,392 $18,610 At September 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 $14,600,000 and $10,687,000, respectively, after cumulative charge-offs of $3,690,000 at September 30, 1997 and $3,458,000 at December 31, 1996. Of these impaired investments, none were on nonaccrual at September 30, 1997 and $6,487,000 at December 31, 1996. The average recorded investment in impaired loans at September 30, 1997 and December 31, 1996 was $11,000,000 and $4,256,000, respectively. S&T Bank has recorded an allowance for loan losses for all impaired loans totaling $2,700,000 and $2,605,000 at September 30, 1997 and December 31, 1996, respectively. Interest income on impaired loans of $1,000,000 and $1,103,000 was recognized at September 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 $278,838,000 and obligations under standby letters of credit totaled $51,590,000 at September 30, 1997. At September 30, 1997, S&T had no marketable equity securities, totaling $1,573,324 at amortized cost and $3,990,538 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 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 interest transaction with Peoples Bank of Unity (Peoples) which closed on May 2, 1997. Financial Condition Total assets averaged $1.8 billion in the first nine months of 1997, a $80.4 million increase from the 1996 full year average. Average loans increased $94.6 million and average securities and federal funds decreased $22.2 million in the first nine months of 1997 compared to the 1996 full year averages. Funding for this loan growth was primarily provided by the aforementioned decrease in average securities and federal funds, a $33.1 million increase in average deposits, a $21.8 million increase in average retained earnings and a $19.6 million increase in average borrowings. Lending Activity Total loans at September 30, 1997 were $1.3 billion, a $58.9 million or 4.9% increase from December 31, 1996. Average loans increased $94.6 million, or 8% to $1.2 billion for the nine months ended September 30, 1997 from the 1996 full year average. Changes in the composition of the loan portfolio during 1997 included increases of $11.3 million of commercial loans, $9.0 million of residential mortgages and $60.1 million of commercial real estate loans, offset by a decrease of $21.5 million of installment loans. Commercial real estate loans comprise 24% 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 nine 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 September 30, 1997 the residential mortgage portfolio had a 27% composition of adjustable rate mortgages. Installment loan decreases are primarily associated with significantly lower volumes in the indirect auto loan category and a $7.0 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. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 $28.3 million in the first nine months of 1997 compared to the 1996 full year average. The decrease in the average investment portfolio was related to decreases in average taxable securities of $19.5 million and tax-exempt state and municipal securities average balances of $8.8 million. The decreases in average taxable investment securities were principally comprised of $34.0 million of U.S. Treasury securities, $45.1 million of mortgage backed securities and $2.0 million in other corporate securities. Offsetting these decreases were average increases of $54.5 million in U.S. Government Agency securities, $4.4 million of common stocks and $2.7 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 $4.9 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 10.6% on a fully taxable equivalent basis and had unrealized gains net of nominal unrealized losses, of $50.1 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 BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 September 30, 1997, unrealized gains, net of unrealized losses for securities classified as available for sale were approximately $54.2 million. Allowance for Loan Losses The allowance for loan losses increased to $20.4 million or 1.62% of total loans at September 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 September 30, 1997 which includes nonaccrual loans past due 90 days or more, was $4.1 million, or 0.32% 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 $33.1 million, or 3% for the nine months ended September 30, 1997 as compared to the 1996 average. Changes in the average deposit mix included a $16.0 million increase in time deposits, $26.6 million increase in money market accounts and a $7.9 million increase in demand accounts, offset by a $14.4 million decrease in savings accounts and a $3.0 million decrease in NOW accounts. Special rate deposits of $100 thousand and over were 8% of total deposits at September 30, 1997 and December 31, 1996 and primarily represent deposit relationships with local customers in our market area. Retail time deposit increases of $13.1 million were the result of expanded promotional programs. 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 September 30, 1997, there were $26.6 million of these brokered retail certificates of deposits outstanding. Money market accounts were recently repriced in order to be more competitive with money funds offered by brokerage firms. As a result of this repricing and proactive sales activities to high-balance deposit customers, S&T has experienced a significant shift in funds from savings to money market accounts. Although this strategy tends to increase cost of funds, management believes it is necessary for customer retention and the development of long-term relationships. The decrease in NOW balances is attributable to the implementation of a NOW money market sweep product on the accounts acquired from Peoples that reduces the amount of Federal Reserve Requirements. 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. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Borrowings Average borrowings increased $19.6 million for the nine months ended September 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 $7.6 million for the first nine 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 decreased $18.3 million for the first nine 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 $30.3 million in the first nine months of 1997 as compared to the full year 1996 average. At September 30, 1997, S&T had long-term borrowings outstanding of $49.6 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 September 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 $24.0 million at September 30, 1997, compared to December 31, 1996. Net income was $24.7 million and dividends paid to shareholders were $10.3 million for the nine months ended September 30, 1997. During the first nine months of 1997, S&T paid 42% 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 $17.69 at September 30,1997. Equity associated with the available for sale securities portfolio increased $10.0 million during the first nine 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 $38.25 per share at September 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 11.8% as compared to the minimum regulatory guideline of 3.0%. S&T's risk-based capital Tier I and Total ratios were 17.1% and 18.4% respectively, at September 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. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Nine months ended September 30, 1997 compared to Nine months ended September 30, 1996 Net Income Net income increased to $24.7 million or $1.75 per share in the first nine months of 1997 from $21.3 million or $1.51 per share for the same period of 1996. The significant improvement during the first nine 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 $3.8 million or 7% in the first nine months of 1997 compared to the same period of 1996. The net yield on interest-earning assets was 4.90% in the first nine months of 1997 as compared to 4.85% in the same period of 1996. Net interest income was positively affected by a $85.6 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 nine months of 1997, average loans increased $110.3 million, comprising most of the earning asset growth, offset by a decrease of $31.6 million in average securities. The yields on average loans remained relatively unchanged and average securities increased by 5 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 $29.9 million of the funds for the growth in loans; cost of deposits totaled 4.30%, relatively unchanged from 1996. The cost of REPOS and other borrowed funds increased 9 basis points to 5.51%. More longer-term borrowings were utilized in 1997 in order to mitigate interest rate risk. Also positively affecting net interest income was a $32.7 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 $3.1 million for the first nine months of 1997 as compared to $3.9 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. Also, during the third quarter of 1996, prior to the merger, Peoples significantly increased its loan loss reserve on the recommendation of external auditors. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Credit quality statistics are an important factor in determining the amount of provision expense. Net loan charge-offs totaled $1.4 million for the first nine months of 1997 compared to $2.3 million for the same period 1996. Nonperforming loans to total loans was 0.32% at September 30, 1997 and 1996. Also affecting the amount of provision expense is loan growth. Despite a $94.6 or 8% increase in average loans, S&T's allowance for loan losses to total loans remained relatively constant at 1.62% at September 30, 1997 compared to 1.60% at September 30, 1996. Noninterest Income Noninterest income increased $2.7 million or 30% in the first nine months of 1997 compared to the same period of 1996. Increases included $0.4 million or 13% in service charges and fees, $0.2 million in trust income and $2.1 million in security gains. Other income remained constant during the first nine months 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 expanded marketing efforts to develop new trust business and to develop new relationships within the Allegheny county market. Security gains were taken on available for sale equities securities in the first nine 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 $50.1 million at September 30, 1997. Noninterest Expense Noninterest expense increased $1.4 million or 4% at September 30, 1997 compared to September 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, offset by higher FDIC insurance expense in 1996 relating to the one-time surcharge of 65.6 basis points on any financial institution holding Savings Association Insurance Fund (SAIF) deposits. 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 changes included a $0.7 million increase resulting from normal year-end staff merit increases, a $0.3 million reduction of goodwill amortization relating to a 1991 branch acquisition, a $0.2 million increase in ongoing data processing costs and smaller increases in several expense categories totaling $0.3 million. Average full-time equivalent staff decreased from 675 to 667. 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 85% or $1.0 million at September 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 SAIF deposits, the lowest premium possible under S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 $2.7 million at September 30, 1997 as compared to September 30, 1996 primarily as a result of higher pre-tax income in 1997 and nondeductible merger related expenses. The effective tax rate for the first nine 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 September 30, 1997 compared to Three months ended September 30, 1996 Net Income Net income increased to $8.6 million or $0.61 per share in the third quarter of 1997 from $7.2 million or $0.51 per share for the same period of 1996, a 19% 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 $1.0 million or 5% in the third 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 $78.9 million as compared to the third quarter of 1996, primarily as a result $107.4 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 4.85% for the third quarter of 1997, as compared to 4.90% for the same period of 1996. The decrease in the net interest margin is primarily the result of the aforementioned balance sheet restructuring that increased long-term borrowings. Provision for Loan Losses The provision for loan losses decreased to $0.8 million for the third quarter of 1997 compared to $1.2 million in the same period of 1996. Net loan charge- offs totaled $0.3 million for the third quarter of 1997 compared to $0.6 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. During the third quarter of 1996, prior to the merger, Peoples significantly increased its loan loss reserve on the recommendation of external auditors. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Noninterest Income Noninterest income remained constant at $3.2 million in the third quarter of 1997 and 1996. Component changes included a $0.2 million decrease in security/nonrecurring gains, $0.1 million increase in service charges and fees and $0.1 million in trust income. Other income remained constant during the third 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 expanded marketing efforts to develop new trust business and to develop new relationships within the Allegheny county market. Security gains were taken on available for sale equities securities in the third quarter of 1997 in order to maximize returns as market opportunities were presented. Noninterest Expense Noninterest expense decreased $0.9 million or 9% in the third quarter of 1997 as compared to1996. The decrease is primarily attributable to the aforementioned FDIC one-time surcharge during the third quarter of 1996. Recurring noninterest expense changes included $0.3 million for annual staff 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 September 30, 1997 as compared to September 30, 1996 primarily as a result of higher pre-tax income in 1997. The effective tax rate for the third quarter of 1997 was 29%, which is below the 35% statutory rate due to benefits resulting from tax-exempt interest, excludable dividend income and 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 September 12, 1997 On September 18, 1997, the Board of Directors of S&T Bancorp announced that it has accepted Robert D. Duggan's retirement plans. Duggan intends to retire as chief executive officer of the Corporation and S&T Bank, effective December 31, 1997. Duggan has been the chief executive officer of S&T Bancorp and S&T Bank since 1982. He will remain the chairman of both Boards of Directors. James C. Miller, president and chief operating officer of S&T Bancorp and S&T Bank, will become chief executive officer of both organizations, effective January 2, 1998. Mr. Miller has been the chief operating officer of the holding company and the bank since 1993. Mr. Miller joined S&T Bank in 1983, when S&T acquired Univank in Brookville, PA where he was an Executive Vice President. On September 12, 1997, Robert D. Duggan, chairman and chief executive officer of S&T Bancorp, announced that Jeffrey D. Grube and Alan Papernick have been appointed to the S&T Bancorp Board of Directors. 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: November 10, 1997 /s/ Robert E. Rout Robert E. Rout Senior Vice President and Chief Financial Officer) EX-27 2
9 "This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements." YEAR DEC-31-1997 SEP-30-1997 43400 104 0 0 441266 49299 50334 1259055 20392 1832152 1289891 122360 46421 123348 0 0 37142 212990 1832152 81003 23177 507 104687 35518 10301 58868 3100 3917 32592 34893 0 0 0 24703 1.75 1.75 4.90 4064 4064 0 0 18729 2137 699 20392 20392 0 0
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