-----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, GstI3iXF394DGcegwAtNbM3yqNNFTBqY4QvqkSyo8TepP3telN2U5JNByK/PwFwA SBc5Oo7dr7+O5KVvWv8Mlg== 0000719220-96-000013.txt : 19960809 0000719220-96-000013.hdr.sgml : 19960809 ACCESSION NUMBER: 0000719220-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960808 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: 1934 Act SEC FILE NUMBER: 000-12508 FILM NUMBER: 96605910 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 6/30/96 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12508 S&T BANCORP, INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-1434426 (State or other jurisdiction of (I.R.S.EMPLOYER incorporation or organization) Identification No.) 800 Philadelphia Street, Indiana, PA 15701 (Address of principal executive offices) (Zip Code) (412) 349-2900 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, $2.50 Par Value - 11,029,564 shares as of July 23, 1996 INDEX S&T BANCORP, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements Condensed consolidated balance sheets - June 30, 1996 and December 31, 1995 3 Condensed consolidated statements of income - Three months ended June 30, 1996 and 1995, and 4 Six months ended June 30, 1996 and 1995 Condensed consolidated statements of cash flows - Six months ended June 30, 1996 and 1995 5 Notes to condensed consolidated financial statements 6-9 Item 2. Management's discussion and analysis of financial condition and results of operations 10-16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 17 SIGNATURES 18 S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS [CAPTION] June 30, December 31, 1996 1995 (000's omitted except share data) ASSETS Cash and due from banks $40,156 $39,852 Interest-earning deposits with banks 52 51 Securities available for sale 343,331 315,343 Investment securities 32,428 34,997 Total loans 976,170 976,819 Less allowance for loan losses (16,708) (15,938) Net Loans 959,462 960,881 Premises and equipment 14,807 14,795 Other assets 34,678 34,783 TOTAL ASSETS $1,424,914 $1,400,702 LIABILITIES Deposits: Noninterest-bearing demand $113,070 $116,054 Interest-bearing demand 95,792 96,577 Money market 136,323 123,121 Savings 125,780 123,606 Time 523,335 520,267 Total Deposits 994,300 979,625 Securities sold under repurchase agreements 146,476 122,794 Federal funds purchased 8,800 325 Other borrowed funds 230 340 Long-term borrowing 81,612 96,618 Other liabilities 30,522 34,053 TOTAL LIABILITIES 1,261,940 1,233,755 SHAREHOLDERS' EQUITY Preferred stock, without par value, 10,000,000 shares authorized and none outstanding - - Common stock $2.50 par value, 25,000,000 shares authorized and 11,820,944 issued 29,552 29,552 Additional paid in capital 11,494 11,009 Retained earnings 118,346 111,980 Net unrealized holding gains on securities available for sale 17,645 21,928 Treasury stock (793,198 shares at June 30, 1996 and 578,092 (13,833) (7,182) at December 31, 1995) Deferred compensation (230) (340) TOTAL SHAREHOLDERS' EQUITY 162,974 166,947 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,424,914 $1,400,702 See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME [CAPTION] For Three Months Ended For Six Months Ended June 30, June 30, 1996 1995 1996 1995 (000's omitted except share data) INTEREST INCOME Loans, including fees $21,355 $21,444 $42,714 $41,932 ERR Deposits with banks 1 62 3 131 Federal funds sold 38 14 65 14 Investment securities: Taxable 4,969 4,185 9,522 8,113 Tax-exempt 437 447 890 917 Dividends 712 628 1,411 1,261 Total Interest Income 27,512 26,780 54,605 52,368 INTEREST EXPENSE Deposits Interest-bearing demand 343 372 690 749 Money market 1,353 1,122 2,629 2,196 Savings 761 809 1,502 1,626 Time 7,202 6,740 14,433 12,961 Securities sold under repurchase agreements 1,765 2,318 3,436 4,708 Federal funds purchased 96 201 174 374 Long term borrowing 1,135 1,007 2,400 1635 Other borrowed funds 5 8 10 16 Total Interest Expense 12,660 12,577 25,274 24,265 NET INTEREST INCOME 14,852 14,203 29,331 28,103 Provision for loan losses 1,450 750 2,425 1,500 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,402 13,453 26,906 26,603 NONINTEREST INCOME: Trust fees 689 595 1,381 1,212 Service charges on deposit accounts 866 727 1,674 1,370 Net securities/nonrecurring gains/(losses) 609 177 1,084 359 Other 517 545 1,224 992 Total Noninterest Income 2,681 2,044 5,363 3,933 NONINTEREST EXPENSE Salaries and employee benefits 4,595 4,423 9,338 8,787 Occupancy expense, net 527 517 1,095 1,044 Equipment expense, net 420 496 1,039 1,102 Data processing 377 355 772 714 FDIC assessment 113 511 210 1,021 Other 2,391 2,275 4,666 4,254 Total Noninterest Expense 8,423 8,577 17,120 16,922 INCOME BEFORE INCOME TAXES 7,660 6,920 15,149 13,614 Applicable income taxes 1,908 1,842 3,821 3,615 NET INCOME $5,752 $5,078 $11,328 $9,999 PER COMMON SHARE Net Income $0.52 $0.45 $1.02 $0.89 Dividends 0.24 0.18 0.45 0.35 Average Common Shares Outstanding 11,026 11,239 11,095 11,249 See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS [CAPTION] Six Months Ended June 30 1996 1995 (000's omitted) Operating Activities Net Income $11,328 $9,999 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,425 1,500 Provision for depreciation and amortization 642 688 Net amortizaton of investment security premiums 295 435 Net accretion of loan and deposit discounts (268) (538) Net gains on sales of securities available for sale (1,002) (130) Net investment security gains Increase in deferred income taxes (345) (197) Increase in interest receivable (506) (165) (Decrease) increase in interest payable (462) 2,099 Decrease (increase) in other assets 1,237 (548) Decrease in other liabilities (1,171) (4,614) Net Cash Provided by Operating Activities 12,173 8,529 Investing Activities Net (increase in) redemption of interest-earning deposits with banks (1) 3,657 Proceeds from maturities of investment securitie 1,478 16,811 Proceeds from maturities of securities available for sale 52,492 2,000 Proceeds from sales of securities available for sale 5,889 11,976 Purchases of investment securities (144) (24,706) Purchases of securities available for sale (91,018) (19,086) Net increase in loans (14,426) (57,674) Proceeds from the sale of loans 13,688 34,739 Purchases of premises and equipment (797) (844) Proceeds from the sale of premises and equipment (28) 19 Net Cash Used by Investing Activities (32,867) (33,108) Financing Activities Net increase (decrease) in demand, NOW and savings deposits 11,608 (7,375) Net increase in certificates of deposits 3,068 40,250 Net increase (decrease) in repurchase agreements 23,682 (20,807) Net increase (decrease) in federal funds purchas 8,475 (14,115) (Decrease) increase in long-term borrowing (14,993) 29,695 Acquisition of treasury stock (7,270) (1,720) Sale of treasury stock 1,103 795 Cash dividends paid to shareholders (4,675) (3,826) Net Cash Used by Financing Activities 20,998 22,897 Increase (Decrease) in Cash and Cash Equivalents 304 (1,682) Cash and Cash Equivalents at Beginning of Period 39,852 38,791 Cash and Cash Equivalents at End of Period $40,156 $37,109 See Notes to Condensed Consolidated Financial Statements
S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 NOTE A--BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K for the year ended December 31, 1995. Earnings per common share are based on the average number of shares of common stock outstanding during the periods presented. Financial Accounting Standards Board Statement No.123 Accounting for Stock- Based Compensation is effective in 1996 and allows companies the choice of either changing their accounting for stock-based awards by recognizing compensation cost in earnings for such plans or providing supplemental pro forma footnote disclosures. For year end 1996, S&T is expecting to continue its current accounting treatment of stock-based compensation and provide the supplemental pro forma disclosures related to the fair value approach. As provided in Statement No. 123, pro forma disclosure is not required in interim financial statements. NOTE B--SECURITIES [CAPTION] The amortized cost and estimated market value of securities as of June 30 are as follows: 1996 Available for Sale Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value (000's omitted) Marketable equity securities $37,211 $27,459 ($160) $64,510 Obligations of U.S. government corporations and agencie 225,151 1,825 (2,897) 224,079 Collateralized mortgage obligations of U.S. government corporations and agencies 8,435 78 8,513 U.S. Treasury securities 36,112 842 36,954 Corporate Securities 190 190 307,099 30,204 (3,057) 334,246 Other securities 9,085 9,085 $316,184 $30,204 ($3,057) $343,331
1996 Investment Securities Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value (000's omitted) Obligations of states and political subdivisions $29,933 $540 ($13) $30,460 Corporate securities 2,495 221 2,716 Total $32,428 $761 ($13) $33,176
S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued [CAPTION] NOTE B-SECURITIES The amortized cost and estimated market value of securities as of December 31 are as follows: 1995 Available for Sale Gross Gross Estimated Amortized UnrealizedUnrealized Market Cost Gains Losses Value (000's omitted) Marketable equity securities $37,573 $26,926 ($276) $64,223 Obligations of U.S. government corporations and agencies 172,612 5,113 (143) 177,582 Collateralized mortgage obligations of U.S. government corporations and agencies 10,911 124 11,035 U.S. Treasury securitie 51,205 1,993 53,198 Corporate Securities 190 190 272,491 34,156 (419) 306,228 Other securities 9,115 9,115 Total $281,606 $34,156 ($419) $315,343
1995 Investment Securities Gross Gross Estimated Amortized UnrealizedUnrealized Market Cost Gains Losses Value (000's omitted) Obligations of states and political subdivisions 31,412 949 (12) 32,349 Corporate securities 2,493 350 2,843 33,905 1,299 (12) 35,192 Other securities 1,092 1,092 Total $34,997 $1,299 ($12) $36,284
During the period ended June 30, 1996, there were $1,001,633 in realized gains relative to securities available for sale. The amortized cost and estimated market value of securities at June 30, 1996, by contractual maturity, are shown below: [CAPTION] Estimated Amortized Market Available for Sale Cost Value (000's omitted) Due in one year or less $32,050 $32,240 Due after one year through five years 73,949 75,156 Due after five years through ten years 162,155 160,591 Due after ten years 1,734 1,749 Total $269,888 $269,736
S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued [CAPTION] NOTE B-SECURITIES Estimated Amortized Market Held to Maturity Cost Value (000's omitted) Due in one year or less $4,953 $4,987 Due after one year through five years 9,922 10,314 Due after five years through ten years 12,562 12,845 Due after ten years 4,991 5,030 Total $32,428 $33,176
At June 30, 1996 and December 31, 1995 investment securities with a principal amount of $221,887,000 and $203,063,000 respectively, were pledged to secure repurchase agreements and public and trust fund deposits. NOTE C--LOANS AND ALLOWANCE FOR LOAN LOSSES The composition of the loan portfolio was as follows: [CAPTION] June 30, 1996 December 31, 1995 (000's omitted) Real estate - construction $23,684 $23,712 Real estate - mortgages: Residential 385,916 377,258 Commercial 201,324 191,885 Commercial - industrial and agricultural 226,556 234,779 Consumer installment 138,690 149,185 Total Loans $976,170 $976,819
Changes in the allowance for loan losses for the six months ended June 30 were as follows: [CAPTION] 1996 1995 (000's omitted) Balance at beginning of period $15,938 $14,331 Charge-offs (3,214) (1,156) Recoveries 1,559 383 Net charge-offs (1,655) (773) Provision for loan losses 2,425 1,500 Balance at end of period $16,708 $15,058
At June 30, 1996, the recorded investment in loans that are considered to be impaired under Statement No. 114 was $5,500,000 of which $19,000 were on a nonaccrual basis. The allowance for loan losses related to these impaired investments was $2,043,000. S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Continued NOTE D--FINANCIAL INSTRUMENTS S&T, in the normal course of business, commits to extend credit and issue standby letters of credit. The obligations are not recorded in S&T's financial statements. Loan commitments and standby letters of credit are subject to normal credit underwriting policies and procedures and generally require collateral based upon management's evaluation of each customer's financial condition and ability to satisfy completely the terms of the agreement. S&T's exposure to credit loss in the event the customer does not satisify the terms of agreement equals the notional amount of the obligation less the value of any collateral. Unfunded loan commitments totaled $200,703,000 and obligations under standby letters of credit totaled $59,593,000 at June 30, 1996. At June 30, 1996, S&T had marketable equity securities totaling $4,500 at amortized cost and $388,750 at estimated market value, that were subject to covered call option contracts. The purpose of these contracts was to generate fee income for S&T. NOTE E - LITIGATION S&T, in the normal course of business, is subject to various legal proceedings in which claims for monetary damages are asserted. No material losses are anticipated by management as a result of these legal proceedings. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is presented so that shareholders may review in further detail the financial condition and results of operations of S&T Bancorp, Inc. and subsidiaries (S&T). This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the selected financial data presented elsewhere in this report. Financial Condition Total assets at June 30, 1996 were $1.4 billion, increasing slightly from December 31, 1995. Total assets averaged $1.4 billion in the first six months of 1996, a $70.9 million increase from the 1995 full year average. Average loans and average securities increased $22.4 million and $26.8 million, respectively, in the first six months of 1996 compared to the 1995 full year averages. Funding for this loan and security growth was primarily provided by a $51.3 million increase in average deposits, a $11.2 million increase in average retained earnings, offset by a $7.7 million decrease in average borrowings. Lending Activity Total loans at June 30, 1996 were $976.2 million, a slight decrease from December 31, 1995. Average loans increased $22.4 million, or 2% to $972.3 million for the six months ended June 30, 1996 from the 1995 full year average. Changes in the composition of the loan portfolio during 1996 included increases of $9.4 million of commercial real-estate loans, $8.6 million of residential mortgages, offset by decreases of $10.4 million of installment loans and $8.2 million of commercial loans. The slight decline in overall loan volumes for the first six months of 1996 can be attributed to higher level of prepayments and refinancings. Borrowers perceived the first half of 1996 to be the bottom of the interest rate cycle and significantly increased refinancing activities in order to lock in lower loan rates. At the same time, competitive pressures in the market pushed new loan rates to levels that were sometimes below the risk adjusted yields that could be obtained from investment securities with similar duration. Commercial real estate loans comprise 21% of the loan portfolio. Although real estate loans can be an area of higher risk, management believes these risks are mitigated by limiting the percentage amount of portfolio composition, a rigorous underwriting review by loan administration and the fact the many of the S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS commercial real estate loans are owner-occupied and/or seasoned properties that were refinanced from other banks. Residential mortgage lending continued to be a strategic area of focus during the first half of 1996 through the establishment of a centralized mortgage origination department, product redesign and the utilization of commission compensated originators. Management believes that if a downturn in the local residential real estate market occurs, the impact of declining values on the real estate loan portfolio will be negligible because of S&T's conservative mortgage lending policies. These policies generally require a maximum term of twenty years for fixed rate mortgages and private mortgage insurance for loans with less than a 20% down payment. At June 30, 1996 the residential mortgage portfolio had a 36% composition of adjustable rate mortgages. Installment loan decreases are primarily associated with significantly lower volumes in the indirect auto loan category and the sale of the student loan portfolio in the second quarter of 1996. Pricing pressures were unusually intense in this market during the first half of 1996 and the decision was made to temporarily deploy investable funds into other, higher yielding and lower risk earning assets. The bulk of the student loan portfolio was sold in the second quarter of 1996 because of newly issued government regulations and restrictions that significantly reduced much of the profit potential associated with the product. In addition to prepayment and refinancing activity, the decrease in commercial loan volumes for the period can be partially attributed to $5.5 million of loan participations during the first half of 1996 and $8.8 million in the second half of 1995. S&T began to expand the participation of select commercial loans in 1995 and has developed a network of banks seeking to participate in larger commercial loans. The rationale for these participations included credit risk diversification, servicing income generation and the development of alternative funding sources. Management intends to continue to pursue quality loans in all lending categories within our market area in order to honor our commitment to provide the best service possible to our customers. S&T's loan portfolio primarily represents loans to businesses and consumers in our market area of Western Pennsylvania rather than to borrowers in other areas of the country or to borrowers in other nations. S&T has not S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS concentrated its lending activities in any industry or group. During the past several years, management has concentrated on building an effective credit and loan administration staff which assists management in evaluating loans before they are made and identifies problem loans early. Security Activity Average securities increased $26.8 million in the first half of 1996 compared to the 1995 full year average. Security yields during the period offered reasonable investment alternatives to the depressed yields in the market for new loans. The change in composition of the average investment portfolio was all related to increases in average taxable securities; tax-exempt state and municipal securities average balances decreased $0.5 million . The increase in average taxable investment securities was principally comprised of $43.9 million of U.S. government agencies securities, $3.4 of common stocks and $1.2 million of Federal Home Loan Bank (FHLB) stock. Offsetting these increases were average decreases of $12.2 million in U.S. Treasury securities, $8.0 million in collateral mortgage obligations (CMO's) and $1.0 in other corporate securities. Equity purchases of common stocks were made in order to take advantage of the higher yields and the dividends received deduction for corporations; the FHLB stock is a membership and borrowing requirement. The equities portfolio is currently yielding 10.7% on a fully taxable equivalent (FTE) basis and has $27.3 million of unrealized gains net of nominal unrealized losses. Allowance for Loan Losses The allowance for loan losses increased to $16.7 million or 1.71% of total loans at June 30, 1996, as compared to December 31, 1995. The adequacy of the allowance for loan losses is determined by management through evaluation of the loss potential on individual nonperforming, delinquent and high-dollar loans, review of economic conditions and business trends, historical loss experience, growth and composition of the loan portfolio as well as other relevant factors. The balance of nonperforming loans, at June 30, 1996 which includes nonaccrual loans past due 90 days or more, was $2.4 million, or 0.24% of total loans. This compares to nonperforming loans of $2.8 million or 0.29% of total loans at December 31, 1995. Asset quality is the major corporate objective at S&T and management believes that the total allowance for loan losses is adequate to absorb probable loan losses. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Deposits Average total deposits increased by $51.3 million, or 6% for the six months ended June 30, 1996 as compared to the 1995 average. Changes in the average deposit mix included a $37.2 million increase in time deposits, $19.8 million increase in money market accounts, and a $2.2 million increase in demand accounts offset by a $7.9 million decrease in savings accounts. During the second half of 1995, S&T issued $25.0 million of retail certificates of deposits through two brokerage firms, further broadening the availability of reasonably priced deposit funds. At June 30, 1996, there were $15.0 million of brokered retail certificates of deposits outstanding. In addition, money market accounts were recently repriced in order to be more competitive with money funds offered by brokerage firms. Special rate deposits of $100 thousand and over were 8% of total deposits at June 30, 1996 and 7% of total deposits at December 31, 1995 and primarily represent deposit relationships with local customers in our market area. Management believes that the S&T deposit base is stable and that S&T has the ability to attract new deposits, mitigating a funding dependency on volatile liabilities. In addition, S&T has the ability to access both public and private markets to raise long-term funding if necessary. Borrowings Average borrowings decreased $7.7 million for the six months ended June 30, 1996 compared to the 1995 annual average and were comprised of retail repurchase agreements (REPO's), wholesale REPO's, federal funds purchased and long-term borrowings. S&T defines repurchase agreements with its local, retail customers as retail REPOS; wholesale REPOS are those transacted with other banks and brokerage firms with terms normally ranging from 1 to 14 days. The average balance in retail and wholesale REPOS decreased approximately $18.7 million for the first six months of 1996 compared to the full year 1995 average. Some retail REPO funds have shifted back to deposits as a result of the Federal Deposit Insurance Corporation (FDIC) insurance premium reduction; more comparable rates can now be offered on deposits. In addition, core deposit increases and more moderate loan growth have decreased the usage of wholesale REPO fundings. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Average long-term borrowings have increased $12.5 million in the first six months of 1996 as compared to the full year 1995 average. At June 30, 1996, S&T had long-term borrowings outstanding of $8.1 million at a fixed rate and $73.5 million at an adjustable rate with the FHLB. The purpose of these borrowings was to provide matched, fixed rate fundings for newly originated loans, to mitigate the risk associated with volatile liability fundings and to take advantage of lower cost funds through the FHLB's Community Investment Program. All other long-term borrowings are related to the funding of the S&T Employee Stock Ownership Plan (ESOP) loan. The loan was used by the ESOP to acquire treasury stock from S&T. This loan is recorded in the financial statements as other borrowed funds, offset by a reduction in shareholders' equity to reflect S&T's guarantee of the ESOP borrowing. The balance of the ESOP loan at June 30, 1996 was $0.2 million. The terms of this loan require annual principal payments and quarterly interest payments at a rate equal to 80% of the lender's prime rate. Capital Resources Shareholders' equity decreased $4.0 million at June 30, 1996, compared to December 31, 1995. The bulk of this decrease is related to a program announced in the fourth quarter of 1995 to annually acquire up to 350,000 shares, or approximately 3%, of S&T's common stock as treasury shares. In the first half of 1996, S&T acquired 256,904 treasury shares on the open market in order to fund the employee stock option plan, the dividend reinvestment plan for shareholders and other general corporate purposes. This treasury stock activity caused a $7.3 million decline in shareholders equity. Net income was $11.3 million and dividends paid to shareholders were $4.7 million for the six months ended June 30, 1996. During the first half of 1996, S&T paid 41% of 1996 net income in dividends, equating to an annual dividend rate of $0.96 per share. The book value of S&T's common stock decreased slightly from $14.85 at December 31, 1995 to $14.78 at June 30,1996 due to a decrease in shareholders' equity from the stock buyback and the effect of Financial Accounting Standards Board Statement No. 115, Statement on Accounting for Certain Investments in Debt and Equity Securities" (FAS 115). Equity associated with FAS 115 decreased $4.3 million during the first half of 1996 due to rising interest rates and the resulting decline in values of the available for sale securities portfolio. The market price of S&T's common stock was relatively unchanged at $30.75 S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS per share at June 30, 1996 as compared to $30.50 per share at December 31, 1995. S&T continues to maintain a strong capital position with a leverage ratio of 10.2% as compared to the minimum regulatory guideline of 3.0%. S&T's risk-based capital Tier I and Total ratios were 13.5% and 14.7% respectively, at June 30, 1996. These ratios place S&T well above the Federal Reserve Board's risk-based capital guidelines of 4.0% and 8.0% for Tier I and Total, respectively. RESULTS OF OPERATIONS Six months ended June 30, 1996 compared to Six months ended June 30, 1995 Net Income Net income increased to $11.3 million or $1.02 per share in the first six months of 1996 from $10.0 million or $0.89 per share for the same period of 1995. The significant improvement during the first six months of 1996 was the result of higher net interest income, increased noninterest income, partially offset by higher provision and operating expense. Net Interest Income On a fully taxable equivalent basis, net interest income increased $1.3 million or 4% in the first six months of 1996 compared to the same period of 1995. The net yield on interest-earning assets decreased slightly from 4.79% to 4.72%. Net interest income was positively affected by a $49.1 million, or 4% increase in average earning assets. Maintaining consistent spreads between earning assets and costing liabilities is very significant to S&T's financial performance since net interest income comprises 88% of operating revenue. A variety of asset/liablity management strategies were successfully implemented, within prescribed ALCO risk parameters, that enabled S&T to maintain a net interest margin consistent with historical levels. During the same period, earning assets increased primarily through both new loan originations and securities purchases. The bulk of funding for this asset growth was provided by deposits, borrowings and retained earnings. The level and mix of funds is continually monitored by ALCO in order to mitigate the interest rate sensitivity and liquidity risks of the balance sheet. S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Provision for Loan Losses The provision for loan losses increased to $2.4 million for the first six months of 1996 compared to $1.5 million in the same period of 1995. The increase was the result of management's assessment of economic conditions, credit quality statistics, loan administration effectiveness and other factors that would have an impact on future probable losses in the loan portfolio. Net loan charge-offs totaled $1.7 million forthe first six months of 1996 compared to $0.8 million for the same period of 1995. S&T's allowance for loan losses at June 30, 1996 was $16.7 million, or 1.71% or total loans compared to $15.1 million, or 1.59% of total loans at June 30, 1995. Nonperforming loans to total loans increased slightly, by 1 bp to 0.24% at June 30, 1996. Noninterest Income Noninterest income increased 36% in the first six months of 1996 compared to the same period of 1995. Increases included $0.2 million or 14% in trust income, $0.3 million or 22% in service charges and fees, $0.2 million or 23% in other income and a $0.7 million in security/nonrecurring gains. The increase in trust income was attributable to a bank wide incentive program and expanded marketing efforts designed to develop new trust business. The increase in service charges on deposit accounts was primarily the result of the introduction of new cash management services and management's continual effort to implement reasonable fees for services performed and to manage closely the collection of these fees. Other income increases included insurance sales, brokerage, equity call fees and letters of credit. Security gains were taken on available for sale equities securities in the first half of 1996 in order to maximize returns by taking advantage of market opportunities when presented. Unrealized gains, net of unrealized losses in the available for sale equities portfolio totaled $27.3 million at June 30, 1996. Noninterest Expense Noninterest expense increased $0.2 million or 1% at June 30, 1996 compared to June 30, 1995. The increase is primarily attributable to employment and other expense, offset by the reduction in FDIC insurance premium. The $0.6 million increase in employment expense resulted from normal merit increases, higher S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS incentive payouts relative to commercial loan volume and trust sales, offset by lower deferral of loan origination costs, resulting from a slowdown in new installment loan activity. Average full-time equivalent staff increased from 558 to 564 as compared to the same period of 1995. Other expense increased $0.4 million primarily due to higher legal, postage, loan related costs and partnership losses from low income housing tax credit (LIHTC) projects. LIHTC partnership losses are offset by tax credits. During 1995, FDIC premiums were eliminated resulting in expense savings of $0.8 million for the first half of 1996. Currently, S&T has $183 million of Oakar deposits subject to the Savings Association Insurance Fund (SAIF) rate of 23 basis points, and a possible surcharge of 80 basis points, or $1.5 million in 1996 if legislation is passed for recapitalization of the SAIF fund. Federal Income Taxes Federal income tax expense increased $0.2 million or 6% at June 30, 1996 as compared to June 30, 1995 as a result of higher pre-tax income in 1996. The effective tax rate for the first half of 1996 was 25% below the 35% statutory rate due to benefits resulting from tax exempt interest, excludable dividend income and LIHTC's. RESULTS OF OPERATIONS Three months ended June 30, 1996 compared to Three months ended June 30, 1995 Net Income Net income increased to $5.8 million or $0.52 per share for the second quarter of 1996 from $5.1 million or $0.45 per share for the second quarter of 1995, a 13% improvement. Net Interest Income On a fully taxable equivalent basis, net interest income increased $0.5 million or 5% in the second three months of 1996 compared to the same period of 1995. This improvement in net interest income resulted from a higher level of earning assets while maintaining fairly consistent spreads. Average earning assets increased by $68.0 million as compared to the second quarter of 1995, primarily as a S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS result of an increase in new loan originations and securities purchases. The bulk of funding for this asset growth was provided by deposits, borrowings and retained earnings. Net interest margin on a fully taxable equivalent basis was 4.74% for the second quarter of 1996, as compared to 4.78% for the same period of 1995. Provision for Loan Losses The provision for loan losses was $1.5 million in the second quarter of 1995 compared to $0.8 million in the same period of 1995. Net loan charge-offs totaled $0.7 million for the second quarter of 1996 and $0.6 million in the second quarter of 1995. Noninterest Income Noninterest income increased $0.6 million or 31% in the second quarter of 1996 compared to the same period of 1995. Increases included $0.1 million or 16% in trust income, $0.1 million or 19% in service charges and fees and $0.4 million in security/nonrecurring gains, offset by a slight decrease in other income. The increase in trust income was attributable to a bank wide incentive program and expanded marketing efforts designed to develop new trust business. The increase in service charges on deposit accounts was primarily the result of new cash management services and management's continual effort to implement reasonable fees for services performed and to manage closely the collection of these fees. Security/nonrecurring gains increased $0.4 million in the second quarter of 1996 as compared to the same period of 1995. Security gains were taken on available for sale securities in the second quarter of 1996 in order to take advantage of market opportunities when presented. Included in this category is a $0.1 million gain from the aforementioned sale of student loans. Noninterest Expense Noninterest expense decreased $0.2 million or 2% at June 30, 1996 compared to June 30, 1995. The decrease is primarily attributable to the aforementioned reduction in FDIC premiums, offset by an increase in employment costs and other expense. Employment costs increased 4% or $0.2 million in the second quarter of 1996 compared to the same period of 1995. The increase resulted from normal merit increases. Other expenses increased $0.1 million or S&T BANCORP, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 5% primarily due to higher legal, postage and loan related expenses. Federal Income Taxes Federal income tax expense increased $0.1 million or 4% at June 30, 1996 as compared to June 30, 1995 as a result of higher pre-tax income in 1996. The second quarter effective tax rate of 25% was below the 35% statutory tax rate due to the tax benefits resulting from tax exempt interest, excludable dividend income and low income housing tax credits. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. S&T Bancorp, Inc. (REGISTRANT) Date: May 8, 1996 /s/Robert E. Rout Principal Accounting Officer EX-27 2
5 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-31-1995 JUN-30-1996 40,156 375,759 34,678 (16,708) 0 1,392,137 28,026 (13,219) 1,424,914 1,261,940 0 29,552 0 0 133,422 1,424,914 54,605 59,968 29,331 0 17,120 2,425 25,274 15,149 3,821 0 0 0 0 11,328 1.02 1.02
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