The Bottom Line

S&T Bank Struck By $59M Check-Kiting Scheme

Ultimate Financial Impact Could Be Lower

Keith Griffin

June 3, 2020

S&T Bancorp logo

A check-kiting scheme may have hit S&T Bancorp for up to $59 million, according to a filing with the U.S. Securities and Exchange Commission. The Indiana, Pennsylvania-based bank filed a report of unscheduled material events or corporate event last week.

In the filing, S&T says it became aware of a check kiting scheme conducted by a business customer, which resulted in returned deposits totaling approximately $59 million. The ultimate financial impact could be lower and will depend, in part, on S&T’s success in its efforts to recover the funds.

S&T also expects that it may incur a credit loss arising from a loan agreement and line of credit with this business customer. S&T said in the filing it believes that the parent company of the business customer has engaged a restructuring agent. S&T’s total credit loss exposure is $15.1 million, of which $14.3 million is a loan secured by a mortgage on commercial real estate and the remaining $750,000 is a line of credit secured by a lien on business assets. S&T is continuing to evaluate the potential credit loss.

S&T reported these events to appropriate law enforcement and regulatory authorities, the bank said in the filing. Based on S&T’s investigation to date, it believes this incident involves a single business relationship. No details were given on the customer or the nature of its business. The S&T Board of Directors of S&T retained independent outside counsel to conduct an internal review concerning this matter.

“We remain a well-capitalized community bank with great employees and loyal customers,” George Basara, S&T executive vice president and general counsel, told The Tribute-Democrat in Johnstown, Pennsylvania. “And we will continue to serve customers as we have in the past.”

The newspaper added, “Check-kiting is a type of fraud committed against a banking institution. The scheme generally involves several checking accounts and possibly several different banks. The process of kiting is a form of shell game, in which the alleged cash balance is moved from one shell to another. A bank deposits accessible money into an account while waiting for cash to be processed from an account at another bank when in actuality the other account holds no money.”

S&T Bank reported net income of $13.2 million, or $0.34 per diluted share, for the first quarter of 2020 compared to net income of $22.3 million, or $0.62 per diluted share, for the fourth quarter of 2019, and $22.9 million, or $0.66 per diluted share, for the first quarter of 2019. The first quarter of 2020 financial results included one-time expenses of $2.3 million, or $0.05 per diluted share, related to the DNB Financial Corporation merger which closed on Nov. 30, 2019.

S&T Bancorp, Inc. is a $9 billion bank holding company that is headquartered in Indiana, Pennsylvania and trades on the NASDAQ Global Select Market under the symbol STBA. Its principal subsidiary, S&T Bank, was recently named by Forbes as a 2019 World's Best Bank. Established in 1902, S&T Bank operates in five markets including Western Pennsylvania, Eastern Pennsylvania, Northeast Ohio, Central Ohio, and Upstate New York.

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