SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the fiscal year ended December 31, 1996
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 of organization) Identification No.)
800 Philadelphia Street, Indiana, PA 15701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412)-349-2900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $2.50 per share
(Title of class)
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 Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
form 10-K or any amendment to this form 10-K. { }
The aggregate market value of the voting stock held by nonaffiliates
of the registrant as of February 18, 1997:
Common Stock, $2.50 par value - $364,472,218
The number of shares outstanding of the issuer's classes of common
stock as of February 18, 1997:
Common Stock, $2.50 par value - 11,092,850 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended
December 31, 1996 are incorporated by reference into Part II.
Portions of the proxy statement for the annual shareholders meeting
to be held April 21, 1997 are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS
General
S&T Bancorp, Inc. ("S&T") was incorporated on March 17, 1983 under the
laws of the Commonwealth of Pennsylvania as a bank holding company and has
two wholly owned subsidiaries, S&T Bank and S&T Investment Company, Inc. S&T
is registered as a bank holding company with the Board of Governors of the
Federal Reserve System under the Bank Holding Company Act, as amended.
As of December 31, 1996, S&T had $1.5 billion in total assets, $176 million
in total shareholders' equity and $1.0 billion in total deposits. Deposits are
insured by the Federal Deposit Insurance Corporation to the full extent provided
by law.
Total trust assets were approximately $465 million at December 31, 1996.
Trust services include services as executor and trustee under wills and deeds,
and as guardian and custodian of employee benefit trusts.
S&T Bank is a full service bank with its main office at 800 Philadelphia
Street, Indiana, Pennsylvania, providing service to its customers through a
branch network of thirty-five offices located in Armstrong, Allegheny, Indiana,
Jefferson, Clearfield and Westmoreland counties.
S&T Bank's services include accepting time and demand deposit accounts,
making secured and unsecured commercial and consumer loans, providing letters
of credit, and offering discount brokerage services, personal financial
planning and credit card services. S&T Bank has a relatively stable deposit
base and no material amount of deposits is obtained from a single depositor or
group of depositors (including federal, state and local governments). S&T Bank
does not experience significant fluctuations in deposits.
Employees
As of December 31, 1996, S&T Bank had a total of 586 full-time equivalent
employees. S&T provides a variety of employment benefits and considers its
relationship with its employees to be good.
Supervision and Regulation
General
S&T and S&T Bank are each extensively regulated under both federal and state
law. The following information describes certain aspects of that regulation
applicable to S&T and S&T Bank and does not purport to be complete. To the
extent statutory or regulatory provisions or proposals are described, the
description is qualified in its entirety by reference to the particular
statutory of regulatory provisions or proposals.
On November 26, 1996, S&T announced the signing of a definitive agreement and
plan of merger to acquire Peoples Bank of Unity (Peoples). Peoples is a $291
million state chartered bank, headquartered in Plum Borough, a suburb of
Pittsburgh, Pennsylvania. The merger, which is based on a fixed exchange ratio
of 26.25 shares of S&T common stock for each outstanding share of Peoples (up
to 3,036,075 shares of S&T common stock), will be accounted for as a pooling-
of-interest.
<PAGE>
ITEM 1. BUSINESS- continued
The transaction, which is subject to approval by the appropriate regulatory
authorities, is expected to be completed during the second quarter of 1997.
S&T
As a bank holding company, S&T is subject to regulation under the Bank Holding
Company Act of 1956 ("BHCA") and the examination and reporting requirements
of the Federal Reserve Board. Under the BHCA, a bank holding company may not
directly or indirectly acquire ownership or control of more than five percent of
the voting shares or substantially all of the assets of any additional bank, or
merge or consolidate with another bank holding company, without the prior
approval of the Federal Reserve Board.
The BHCA also generally limits the activities of a bank holding company to
that of banking, managing or controlling banks, or any other activity which is
determined to be so closely related to banking or to managing or controlling
banks as to be a proper incident thereto. S&T is presently engaged in two
nonbanking activities: S&T Investment Company, Inc., which is an investment
holding company, and Commonwealth Trust Credit Life Insurance Company
("CTCLIC"). S&T Investment Company, Inc. was formed in June 1988 to hold and
manage a group of investments previously owned by S&T Bank and to give S&T
additional latitude to purchase other investments. CTCLIC, which is a joint
venture with another financial institution, acts as a reinsurer of credit life,
accident and health insurance policies sold by S&T Bank and the other
institution.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution becomes in danger of default or in
default. For example, under a policy of the Federal Reserve Board with respect
bank holding company operations, a bank holding company is required to serve as
a source of financial strength to its subsidiary depository institutions and
and to commit resources to support such institutions in circumstances where
it might not do so otherwise.
S&T Bank
As a state-chartered commercial bank, the deposits of which are insured by the
Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC"), S&T Bank is subject to the supervision and regulation of the
Pennsylvania Department of Banking ("PADB") and the FDIC. S&T Bank also is
subject to various requirements and restrictions under federal and state law,
including requirements to maintain reserves against deposits, restrictions on
the types, amount and terms and conditions of loans that may be granted, and
limits on the type of other activities in which S&T Bank may engage and the
investments it may make. Various consumer and compliance laws and regulations
also affect S&T Bank's operations.
S&T Bank also is subject to federal laws that limit the amount of transactions
between itself and S&T or S&T's nonbank subsidiaries. Under these provisions,
transactions by a bank subsidiary to any one of its parent company or any
nonbank affiliate generally are limited to ten percent of the bank subsidiary's
capital and surplus, or twenty percent in the aggregate. Further, loans and
extensions of credit generally are required to be secured by eligible
collateral in specified amounts. A bank, such as S&T Bank, is prohibited from
purchasing any "low quality" asset from an affiliate. S&T Bank is in compliance
with these provisions.
As an FDIC-insured bank, S&T Bank also is subject to FDIC insurance
assessments. Currently, the amount of FDIC assessments paid by
individual insured depository institutions ranges from zero to $.27 per $100
of insured deposits, based on their relative risk to the deposit insurance
funds, as measured by the institutions' regulatory capital position and other
supervisory factors. S&T Bank currently pays the lowest premium rate based
upon this risk assessment. However, because legislation enacted in 1996
requires that all insured deposits pay a pro rata portion of the interest
due on the obligations issued by the Financing Corporation, the FDIC is
assessing BIF-insured deposits an additional $.013 per $100 of deposits to
cover those obligations.
<PAGE>
ITEM 1. BUSINESS- continued
S&T Bank also has $168.1 million of deposits subject to the Savings
Association Insurance Fund (SAIF). These deposits are related to a thrift
institution and branches acquired from the Resolution Trust Corporation
in 1991. S&T Bank currently pays an annual premium of $.013 per $100 on
BIF deposits and $.0648 per $100 on SAIF deposits.
Capital
The Federal Reserve Board and the FDIC have issued substantially similar risk-
based and leverage capital guidelines applicable to banking organizations they
supervise. Under the risk-based capital requirements, S&T and S&T Bank each
generally is required to maintain a minimum ratio of total capital to risk-
weighted assets (including certain off-balance sheet activities, such as
standby letters of credit), of eight percent. At least half of the total
capital is to be composed of common equity, retained earnings and qualifying
perpetual preferred stock, less certain intangibles ("Tier 1 capital").
The remainder may consist of certain subordinated debt, certain hybrid capital
instruments and other qualifying preferred stock, and a limited amount of the
loan loss allowance ("Tier 2 capital") and, together with Tier 1 capital,
("Total capital"). At December 31, 1996, S&T's Tier 1 and Total capital ratios
were 13.08 percent and 14.33 percent, respectively, and the ratios of Tier I
capital and Total capital to total risk-adjusted assets for S&T Bank were 9.29
percent and 10.54 percent, respectively.
In addition, each of the federal bank regulatory agencies has established
minimum leverage capital ratio requirements for banking organizations. These
requirements provide for a minimum leverage ratio of Tier 1 capital to adjusted
average quarterly assets equal to three percent for bank and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory rating and are not experiencing significant growth or
expansion. All other banks and bank holding companies will generally be
required to maintain a leverage ratio of at least 100 to 200 basis points above
the stated minimum. S&T's leverage ratio at December 31, 1996 was 10.28
percent, and S&T Bank's leverage ratio was 7.26 percent.
Both the Federal Reserve Board's and the FDIC's risk-based capital standards
explicitly identify concentrations of credit risk and the risk arising from non-
traditional activities, as well as an institution's ability to manage these
risks, as important factors to be taken into account by the agency in assessing
an institution's overall capital adequacy. The capital guidelines also provide
that an institution's exposure to a decline in the economic value of its capital
due to changes in interest rates be considered by the agency as a factor in
evaluating a bank's capital adequacy. The Federal Reserve Board also has
recently issued additional capital guidelines for certain bank holding companies
that engage in trading activities. S&T does not believe that consideration
of these additional factors will affect the regulators' assessment of S&T's or
S&T Bank's capital position.
Payment of Dividends
S&T is a legal entity separate and distinct from its banking and other
subsidiaries. A major portion of the revenues of S&T result from amounts paid
as dividends to S&T by S&T Bank. S&T Bank, in turn, is subject to state laws
and regulations that limit the amount of dividends it can pay to S&T. In
addition, both S&T and S&T Bank are subject to various general regulatory
policies relating to the payment of dividends, including requirements to
maintain adequate capital above regulatory minimums. The Federal Reserve Board
has indicated that banking organizations should generally pay dividends only if
(1) the organization's net income available to common shareholders over the
past year has been sufficient to fund fully the dividends and (2) the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality and overall financial condition.
S&T does not expect that any of these laws, regulations or policies will
materially impact its ability or the ability of S&T Bank to pay dividends.
During the year ended December 31, 1996, S&T Bank paid $10.0 million in
cash dividends to S&T.
<PAGE>
ITEM 1. BUSINESS- continued
Other Safety and Soundness Regulations
The federal banking agencies possess broad powers under current federal
law to take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institution
in question is "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," or "critically undercapitalized," as defined
by the law. As of December 31, 1996, S&T Bank was classified as "well
capitalized." The classification of depository institutions is primarily for
the purpose of applying the federal banking agencies' prompt corrective action
provisions and is not intended to be, and should not be interpreted as, a
representation of overall financial condition or prospects of any financial
institution.
The agencies' prompt corrective action powers can include, among other things,
requiring an insured depository institution to adopt a capital restoration plan
which cannot be approved unless guaranteed by the institution's parent company;
placing limits on asset growth and restrictions on activities, including
restrictions on transactions with affiliates; restricting the interest rates
the institution may pay on deposits; prohibiting the payment of principal or
interest on subordinated debt; prohibiting the holding company from making
capital distributions without prior regulatory approval and, ultimately,
appointing a receiver for the institution. Among other things, only a
"well capitalized" depository institution may accept brokered deposits
without prior regulatory approval.
The PADB also has broad enforcement powers over S&T Bank, including the
power to impose fines and other civil and criminal penalties, and to appoint
a conservator or receiver.
Interstate Banking and Branching
The BHCA currently permits bank holding companies from any state to acquire
banks and bank holding companies located in any other state, subject to certain
conditions, including certain nationwide- and state- imposed concentration
limits. Effective June 1, 1997, S&T Bank will have the ability, subject to
certain restrictions, including state opt-out provisions, to acquire by
acquisition or merger, branches of banks located outside of Pennsylvania, its
home state. States may affirmatively opt-in to permit these transactions
earlier, which Pennsylvania, among other states, has done. The establishment
of de novo interstate branches also will be possible in those states that
expressly permit it. Once a bank has established branches in a state through
an interstate merger transaction, the bank may establish and acquire
additional branches at any location in the state where a bank headquartered
in that state could have established or acquired branches under applicable
federal or state law.
Competition
All phases of S&T Bank's business are highly competitive. S&T Bank's market
area is western Pennsylvania, with a representation in Indiana, Armstrong,
Allegheny, Jefferson, Clearfield and Westmoreland counties. S&T Bank competes
with those local commercial banks which have branches and customer calling
programs in its market area. S&T Bank considers its major competitors to be
First Commonwealth Bank headquartered in Indiana, Pennsylvania; People's
Bank headquartered in Ford City, Pennsylvania; Indiana First Savings Bank
headquartered in Indiana, Pennsylvania; Clearfield Bank and Trust Company,
headquartered in Clearfield, Pennsylvania and Marion Center National Bank,
headquartered in Marion Center, Pennsylvania. The proximity of Indiana to
metropolitan Pittsburgh results in a significant impact on the S&T market
because of media influence and penetration by larger financial institutions,
such as Mellon Bank, National City Bank and PNC Bank.
<PAGE>
BUSINESS--Continued
Distribution of Assets, Liabilities and Shareholders' Equity;
Interest Rates and Interest Differential.
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. This discussion and analysis should be read in conjunction with the
consolidated financial statements, selected financial data and management's
discussion and analysis incorporated by reference. References to assets and
liabilities and changes thereto represent daily average balances for the
periods discussed, unless otherwise noted.
Net interest income represents the difference between the interest and fees
earned on interest-earning assets and the interest paid on interest-bearing
liabilities. Net interest income is affected by changes in the volume of
interest-earning assets and interest-bearing liabilities and changes in interest
yields and rates. Interest on loans to and obligations of state, municipalities
and other public entities is not subject to federal income tax. As such, the
stated (pre-tax) yield on these assets is lower than the yields on taxable
assets of similar risk and maturity. In order to make the pre-tax income and
resultant yields comparable to taxable loans and investments, a taxable
equivalent adjustment was added to interest income in the tables below. This
adjustment has been calculated using the U.S. federal statutory income tax
rate of 35% for 1996, 1995 and 1994. The following table demonstrates the
amount that has been added to interest income per the summary of operations.
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(In thousands of dollars)
<S>
Interest income per consolidated <C> <C> <C>
statements of income $111,431 $107,017 $92,653
Adjustment to fully taxable
equivalent basis 2,856 2,871 2,740
Interest income adjusted to fully
taxable equivalent basis 114,287 109,888 95,393
Interest expense 51,544 49,998 39,346
Net interest income adjusted to fully
taxable equivalent basis $62,743 $59,890 $56,047
</TABLE>
<PAGE>
BUSINESS - Continued
<TABLE>
<CAPTION>
Average Balance Sheet and Net Interest Income Analysis
December
1996 1995 1994
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(In thousands of dollars)
<S>
ASSETS
Interest-earning assets: <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (1)(2) $991,105 $88,056 8.88% $949,896 $86,428 9.10% $844,222 $71,575 8.48%
Taxable investment securities (2) 306,818 23,588 7.69% 273,097 20,483 7.50% 284,222 20,189 7.10%
Tax-exempt investment securities (2)28,448 2,529 8.89% 31,132 2,784 8.94% 35,715 3,335 9.34%
Interest-earning deposits with banks 73 5 6.85% 1,744 143 8.20% 3,267 281 8.60%
Federal funds sold 2,045 109 5.33% 847 50 5.90% 295 13 4.41%
Total interest-earning assets (3) 1,328,489 114,287 8.60%1,256,716 109,888 8.74%1,167,721 95,393 8.17%
Noninterest-earning assets:
Cash and due from banks 32,030 31,651 32,940
Premises and equipment, net 15,052 14,719 15,033
Market value appreciation of
securities available for sale 30,930 21,478 18,441
Other assets 34,455 33,198 17,244
Less allowance for loan losses (16,373) (15,028) (13,914)
$1,424,583 $1,342,734 $1,237,465
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $93,750 $1,338 1.43% $94,332 $1,503 1.59% $100,336 $1,650 1.64%
Money market accounts 137,822 5,520 4.01% 112,230 4,516 4.02% 110,491 3,346 3.03%
Savings deposits 123,122 2,977 2.42% 133,056 3,173 2.38% 146,284 3,452 2.36%
Time deposits 528,023 29,295 5.55% 484,314 27,494 5.68% 444,521 22,793 5.13%
Federal funds purchased 5,812 319 5.49% 7,851 474 6.04% 11,951 524 4.38%
Securities sold under agreements
to repurchase 135,199 7,006 5.18% 150,221 8,482 5.65% 148,588 6,542 4.40%
Long-term borrowings 88,613 5,071 5.72% 73,154 4,326 5.91% 19,254 990 5.14%
Other borrowed funds 264 18 6.82% 388 30 7.73% 753 49 6.51%
Total interest-bearing 1,112,605 51,544 4.63% 1,055,546 49,998 4.74% 982,178 39,346 4.01%
liabilities (3)
Noninterest-bearing liabilities:
Demand deposits 110,933 105,209 102,779
Other 31,946 27,023 11,001
Shareholders' equity 169,099 154,956 141,507
$1,424,583 $1,342,734 $1,237,465
Net interest income $62,743 $59,890 $56,047
Net yield on interest-earning assets 4.72% 4.77% 4.79%
(1) For the purpose of these computations, nonaccruing loans are included
in the daily average loan amounts outstanding.
(2) Tax-exempt income is on an FTE basis, including the dividend received
deduction for equity securities, using the statutory federal income tax
rate of 35% for 1996, 1995, and 1994.
(3) Yields are calculated using historical cost basis.
</TABLE>
<PAGE>
Item 1. BUSINESS--Continued
<TABLE>
<CAPTION>
The following tables set forth for the periods indicated
a summary of the changes in interest earned and interest paid
resulting from changes in volume and changes in rates:
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
Volume Rate Net Volume Rate Net
<S> (In thousands of dollars)
Interest earned on: <C> <C> <C> <C> <C> <C>
Loans (2) $3,750 ($2,121) $1,628 $8,959 $5,894 $14,853
Taxable investment securities (2) 2,529 576 3,105 (790) 1,084 294
Tax-exempt investment securities (2) (240) (15) (255) (428) (123) (551)
Interest-earning deposits (137) (1) (138) (131) (7) (138)
Federal funds sold 71 (12) 59 24 13 37
Total interest-earning assets $5,973 ($1,573) $4,399 $7,634 $6,861 $14,495
Interest paid on:
Demand deposits ($9) ($156) ($165) ($99) ($48) ($147)
Money market accounts 1,030 (25) 1,004 53 1,117 1,170
Savings deposits (237) 41 (196) (312) 33 (279)
Time deposits 2,481 (680) 1,801 2,040 2,661 4,701
Securities sold under agreements
to repurchase (848) (628) (1,476) 72 1,868 1,940
Federal funds purchased (123) (32) (155) (180) 130 (50)
Long-term borrowings 914 (169) 745 2,771 565 3,336
Other borrowed funds (10) (2) (12) (24) 5 (19)
Total interest-bearing liabilities $3,198 ($1,651) $1,546 $4,321 $6,331 $10,652
Change in net interest income $2,853 $3,843
(1) The change in interest due to both volume and rate has been
allocated to volume and rate changes in proportion to the relationship
of the absolute dollar amounts of the change in each.
(2) Tax-exempt income is on an FTE basis using the statutory federal
income tax rate of 35% for 1996, 1995 and 1994.
</TABLE>
<PAGE>
Item 1. BUSINESS--Continued
INFLATION AND CHANGING INTEREST RATES
The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventory. Fluctuations in interest rates and the efforts of the
Federal Reserve Board to regulate money and credit conditions have a greater
effect on a financial institution's profitability than do the effects of
higher costs for goods and services. Through its asset/liability management
committee ("ALCO"), S&T is positioned to cope with changing interest rates
and inflationary trends. ALCO monitors and manages interest rate
sensitivity through gap, simulation and duration analysis.
The schedule below presents S&T's interest rate sensitivity at December
31, 1996 using gap analysis. The gap and cumulative gap represents the net
position of assets and liabilities subject to repricing in specified time
periods, as measured by a ratio of rate sensitive assets to rate sensitive
liabilities. ALCO policy guidelines for cumulative gap in the six and
twelve month time frame, annually approved by the S&T Board of Directors,
is currently a .85 to 1.15 range. Management believes this range provides
an acceptable and manageable level of interest rate risk for S&T.
Significant to gap analysis is the expected rate of asset prepayment,
calls on securities and the behavior of depositors during periods of
changing interest rates. For example, in periods of declining interest
rates, borrowers can be expected to accelerate loan prepayments and
refinancings; depositors will tend to hold those certificates of deposits
with rates currently higher than the market. Conversely, in a rising interest
rate scenario, borrower refinancings and prepayments typically decrease, while
deposit shifting and early withdrawals tend to accelerate as depositors
position funds to earn higher yields.
ALCO continually monitors these historical behavior patterns through
periods of changing interest rates, and uses this information to
develop loan prepayments and decay rates for Core Deposits (demand, NOW,
savings). The gap analysis below incorporates a flat rate scenario, and
the following significant assumptions:
<TABLE>
<CAPTION>
Monthly loan prepayments above contractual requirements
<S> <C>
5 year ARM - Commercial Real Estate 0.50 %
Fixed Rate - Commercial Real Estate 1.25
Residential Real Estate 1.00
New Indirect Auto Loans 2.00
Other Installment Loans 2.25
Deposit behavioral patterns/decay rate assumptions
NOW and Savings - Year #1 25.00 %
Now and Savings - Year #2 25.00
Now and Savings - beyond Year #2 50.00
Money market pricing is indexed and tiered to market
interest rates NA
S&T has not historically experienced fluctuations in
demand deposit balances during periods of interest
rate fluctuations. NA
</TABLE>
Swaps
Reflects that portion of borrowings whose interest rate risk is reduced
due to the effects of interest rate swaps.
<PAGE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity
December 1996
(thousands of dollars)
<S> <C> <C> <C> <C>
GAP 1-6 Months 7-12 Months 13-24 Months >2 Years
Repricing Assets:
Cash/Due From Bank $0 $0 $0 $33,319
Securities 69,546 17,922 60,857 233,731
Net Loans 448,162 108,542 132,407 339,971
Other Assets 0 0 0 51,488
Total $517,708 $126,464 $193,264 $658,509
Repricing Liabilities:
Demand $0 $0 $0 $115,766
NOW 12,028 12,028 24,054 48,109
Money Market 151,400 0 0 0
Savings/Clubs 14,820 14,820 29,640 59,282
Certificates 206,151 108,929 91,943 143,304
Repos & Short-term
Borrowings 85,649 331 0 0
Long-term Borrowin 98,730 0 0 38,118
Swaps 2,000 2,000 0 25,000
Other Liab./Equity 0 0 0 211,843
Total $570,778 $138,108 $145,637 $641,422
GAP ($53,070) ($11,644) $47,627 $17,087
Cumulative GAP ($53,070) ($64,714) ($17,087) $0
</TABLE>
<TABLE>
<CAPTION>
Immediate
Rate Sensitive Assets/Rate Sensitive Current Policy Core Deposit
Liabilities Month Guideline Repricing
<S> <C> <C> <C>
Cumulative 6 months 0.91 .85-1.15 0.68
Cumulative 12 months 0.91 .85-1.15 0.74
</TABLE>
S&T's six month and one year gap position at December 31, 1996 is liability
sensitive. This means that more liabilities than assets of S&T will reprice
during the measured time frames. The implications of this liability sensitive
position will differ depending upon the current trent of market interest rates.
For example, in a declining interest rate environment, the cost of S&T
repricing liabilities can theoretically be expected to decline more quickly
than the yields on repricing assets. This situation would cause an increase
to S&T interest rate spreads, net interest income and to operating income.
Liquidity impacts would not be material in the short-term; in the long-term,
improved operating income is always beneficial to liquidity issues.
Conversely, a liability sensitive gap position in a rising interest rate
scenario would theoretically have a negative impact to interest rate spreads,
net income and to operating income. Liquidity impacts in this scenario, other
than increase costs, would not be material unless serious ongoing declines in
operating results caused depositors, lenders and investors to lose confidence.
Gap analysis usefulness as a measurement of interest rate risk is limited
because the time period measured is static. Simulation provides a more
dynamic modeling tool for interest rate risk since this technique can
incorporate future assumptions about interest rates, volume fluctuations and
customer behaviors. ALCO uses simulation to measure changes in net interest
income during a 3%, plus or minus, change in current market interest rates
(Rate Shock Analysis). Current ALCO policy guidelines require that declines in
forecasted net interest income do not exceed 3% as a result of Rate Shock
Analysis.
Duration techniques are a relatively new addition to S&T's interest rate risk
monitoring tools. Duration modeling is primarily used to assist in match
fundings for large commercial loans, security purchases and segments of the
installment loan portfolios.
<PAGE>
Item 1. BUSINESS--Continued
Securities
S&T invests in various securities in order to provide a source of liquidity,
increase net interest income and as an ALCO tool to quickly reposition the
balance sheet for interest rate risk purposes. Securities are subject to similar
interest rate and credit risks as loans. In addition, by their nature,
securities classified as available for sale are also subject to market value
risks that could negatively affect the level of liquidity available to S&T,
as well as equity.
Risks associated with various securities portfolio are managed and monitored by
investment policies annually approved by the S&T Board of Directors, and
administered through ALCO and the Chief Investment Officer. As of December 31,
1996, management is not aware of any risk associated with securities that
would be expected to have a significant, negative effect to S&T's statement
of condition or statement of operations.
<TABLE>
<CAPTION>
The following table sets forth the carrying amount of securities at the dates indicated:
December 31
1996 1995 1994
<S> (In thousands of dollars)
Available for Sale <C> <C> <C>
Marketable equity securities $73,458 $64,223 $46,418
Obligations of U.S. government corporations
and agencies 231,776 177,582
Collateralized mortgage obligations of
U.S. government corporations and agencies 4,182 11,035 4,550
U.S. Treasury securities 30,928 53,198 67,936
Corporate securities 300 190
Other securities 13,136 9,115
TOTAL $353,780 $315,343 $118,904
Held to Maturity
U.S. Treasury bonds and obligations of
U.S. government corporations and agencies $130,456
Collateralized mortgage obligations of
U.S. government corporations and agencies 14,451
Obligations of states and political subdivisions $24,239 $31,412 32,816
Corporate securities 1,998 2,493 4,038
Other securities 1,928 1,092 5,459
TOTAL $28,165 $34,997 $187,220
</TABLE>
<PAGE>
Item 1. BUSINESS--Continued
During the fourth quarter of 1995, management reclassified the securities
portfolio allowed by the "one time" amnesty per Financial Accounting Standards
Board Statement No. 115. The reclassified securities were from the held to
maturity category to the available for sale category. The transferred
securities had an amortized cost of $154.2 million and a market value of
$159.5 million. The resulting net of tax effect of the reclassification
to S&T's equity was $3.4 million.
The following table sets forth the maturities of securities at
December 31, 1996, and the weighted average yields of such securities
(calculated on the basis of the cost and effective yields weighted for
the scheduled maturity of each security). Tax-equivalent adjustments
(using a 35% federal income tax rate) for 1996 have been made in
calculating yields on obligations of state and political subdivisions.
<TABLE>
<CAPTION>
Maturing
Within After One But After Five But After No Fixed
One Year Within Five Years Within Ten Years Ten Years Maturity
Amount Yield Amount Yield Amount Yield Amount Yield Amount
<S> (In thousands of dollars)
Available for Sale <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marketable equity securities $73,458
Obligations of U.S. government
corporations and agencies $65,678 7.55% $166,098 7.42%
Collateralized mortgage obligations
of U.S. government corporations
and agencies 2,517 9.09% 754 7.03% $911 8.54%
U.S. Treasury securities $15,080 6.61% 9,432 7.61% 6,416 7.81%
Corporate securities 100 8.10% 200 7.35%
Other securities 13,136
TOTAL $15,080 $77,727 $173,468 $911 $86,594
Weighted Average Rate 6.61% 7.61% 7.43% 8.54%
Held to Maturity
Obligations of states and political
subdivisions $1,400 10.10% $8,643 8.81% $9,874 8.69% $4,322 8.66%
Corporate securities 1,998 9.90%
Other securities $1,928
TOTAL $1,400 $10,641 $9,874 $4,322 $1,928
Weighted Average Rate 10.10% 9.01% 8.69% 8.66%
</TABLE>
<PAGE>
Item 1. BUSINESS-- Continued
Loan Portfolio
<TABLE>
<CAPTION>
The following table shows S&T's loan distribution at the end of each of the
last five years:
December 31
1996 1995 1994 1993 1992
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Domestic Loans:
Commercial, financial
and agricultural $237,882 $234,779 $197,028 $178,723 $175,475
Real estate-construction 24,984 23,712 32,714 23,705 9,400
Real estate-mortgage 638,282 569,143 543,894 457,462 374,055
Installment 144,980 149,185 150,772 136,819 133,124
TOTAL LOANS $1,046,128 $976,819 $924,408 $796,709 $692,054
</TABLE>
<TABLE>
<CAPTION>
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences and installment loans) outstanding
as of December 31, 1996. Also provided are the amounts due after one
year classified according to the sensitivity to changes in interest rates.
Maturing
Within After One But After
One Year Within Five Years Five Year Total
(In thousands of dollars)
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $155,392 $64,990 $17,500 $237,882
Real estate-construction 8,826 4,580 11,578 24,984
Real estate-mortgage 41,673 76,188 110,821 228,682
TOTAL $205,891 $145,758 $139,899 $491,548
Fixed interest rates $46,608 $36,351
Variable interest rates 99,150 103,548
TOTAL $145,758 $139,899
</TABLE>
<PAGE>
Item 1. BUSINESS--Continued
Nonaccrual, Past Due and Restructured Loans
<TABLE>
<CAPTION>
The following table summarizes S&T's nonaccrual, past due and restructured
loans:
December 31
1996 1995 1994 1993 1992
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $8,280 $2,844 $1,922 $2,481 $2,983
Accruing loans past
due 90 days or more $0 $0 $0 $323 $605
</TABLE>
At December 31, 1996, $8,280,000 of nonaccrual loans were secured. Interest
income that would have been recorded under original terms totaled $399,000.
No interest income was recorded on these loans. It is S&T's policy to place
loans on nonaccrual status when the interest and principal is 90 days or more
past due. The accrual of interest on impaired loans is discontinued when,
in management's opinion, the borrower may be unable to meet payments as they
become due. At December 31, 1996, $6,000,000 of impaired loans were on
nonaccrual. There are no foreign loan amounts required to be included in this
table. There were no restructured loans in the periods presented.
<PAGE>
Item 1. BUSINESS-Continued
Summary of Loan Loss Experience
Management evaluates the degree of loss exposure for loans on a continuous
basis through a formal loan policy as administered by the Loan Administration
Department and various management and director committees. Problem loans are
identified and continually monitored through detailed reviews of specific large
dollar loans, and the analysis of delinquency and charge-off levels of
consumer loan portfolios. Quarterly updates are presented to the S&T Board
of Directors as to the status of loan quality.
Charged-off and recovered loan amounts are applied to the allowance for loan
losses. Additional amounts are added through a charge to current earnings
through the provision for loan losses, based upon management's assessment about
the adequacy of the allowance for loan losses for probable loan losses. In
addition to the identification and monitoring of problem loans, management also
assesses other subjective factors such as economic conditions and business
trends, concentrations, growth and composition of the loan portfolio and
effectiveness of the Loan Administration Department. This assessment results
in an allowance for loan losses consisting of two components, allocated and
unallocated.
The allocated component of the allowance for loan losses reflects expected
losses resulting from the analysis of individual loans developed through
specific ratings and allocations, and historical loss experience for categories
of loans. The specific allocations are based upon regular analysis of loans and
commitments over a fixed dollar amount and the internal credit rating for the
loan or commitment. Categories of smaller individual loans are allocated
based upon historical losses and current delinquency levels.
The unallocated component is primarily subjective based upon management's
assessment of nonquantifiable factors that make historical trend analyses
difficult:
Loan concentration in western Pennsylvania.
Significant commercial loan volume increases in the last three years in
new markets with new customers.
The introduction of several new consumer products.
Increased commercial real estate lending.
Recent increases in charged-off, nonperforming and delinquent loans.
Peer analysis.
The provision for loan losses in each of the years presented below considered
management's assessment of the factors noted above along with the growth in the
loan portfolio. The additions to the allowance charged to operating expense has
maintained the allowance as a percent of loans at the following levels at the
end of each year presented.
Year Ended December 31
1996 1995 1994 1993 1992
1.63% 1.63% 1.55% 1.69% 1.74%
The Company has considered impaired loans in its determination of the allowance
for loan losses. The allowance for loan losses for all impaired loans totaled
$2,600,000 and $1,800,000 at December 31, 1996 and 1995, respectively, and is
included in the allowance allocated specifically to commercial loans.
Based on the evaluation of loan quality and assessment of risk characteristics,
management believes that the allowance for loan losses is adequate to absorb
probable loan losses.
<TABLE>
<CAPTION>
This table summarizes S&T's loan loss experience for each of the five years
ended December 31:
Year Ended December 31
1996 1995 1994 1993 1992
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at January 1: $15,938 $14,331 $13,480 $12,029 $9,321
Charge-offs:
Commercial, financial and 1,480 1,054 2,287 1,185 1,469
agricultural
Real estate-mortgage 1,788 325 239 644 553
Installment 1,920 1,510 1,201 835 1,349
5,188 2,889 3,727 2,664 3,371
Recoveries:
Commercial, financial and
agricultural 1,409 288 505 241 51
Real estate-mortgage 277 104 156 171 19
Installment 307 304 417 103 231
1,993 696 1,078 515 301
Net charge-offs 3,195 2,193 2,649 2,149 3,070
Provision for loan losses 4,300 3,800 3,500 3,600 5,778
Balance at December 31: $17,043 $15,938 $14,331 $13,480 $12,029
Ratio of net charge-offs to
average loans outstanding 0.32% 0.23% 0.31% 0.29% 0.48%
</TABLE>
<PAGE>
Item 1. BUSINESS--Continued
<TABLE>
<CAPTION>
This table shows allocation of the allowance for loan losses as of the end of
each of the last five years:
December 31, 1996 December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
(In thousands of dollars)
<S>
Commercial, financial <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
and agricultural $9,383 23% $8,335 24% $9,376 21% $9,304 23% $7,249 25%
Real estate-construction 0 2% 0 3% 0 4% 0 3% 0 1%
Real estate-mortgage 708 61% 701 58% 732 59% 678 57% 606 54%
Installment 1,761 14% 1,627 15% 1,381 16% 1,193 17% 1,125 19%
Unallocated 5,191 0% 5,275 0% 2,842 0% 2,305 0% 3,049 1%
TOTAL $17,043 100% $15,938 100% $14,331 100% $13,480 100% $12,029 100%
</TABLE>
In 1995, S&T adopted Financial Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan", (Statement No. 114 as
amended by Financial Accounting Standards Board Statement No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures
(Statement No. 118)). The adoption of these accounting pronouncements did not
have a material impact on the comparability for the table of loan loss
experience or the table for allocation of the allowance for loan losses
presented above.
Deposits
<TABLE>
<CAPTION>
The daily average amount of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
Year Ended December 31
1996 1995 1994
Amount Rate Amount Rate Amount Rate
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $110,933 $105,209 $102,779
Interest-bearing demand deposits 93,750 1.43% 94,332 1.59% 100,336 1.64%
Money market accounts 137,821 4.01% 112,230 4.02% 110,491 3.03%
Savings deposits 123,122 2.42% 133,056 2.38% 146,284 2.36%
Time deposits 528,023 5.55% 484,314 5.68% 444,521 5.13%
TOTAL $993,649 4.44% $929,141 4.45% $904,411 3.90%
</TABLE>
<TABLE>
<CAPTION>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1996, are summarized as follows:
(In thousands of dollars)
<S> <C>
3 Months or less $47,696
Over 3 through 6 months 11,059
Over 6 through 12 months 10,345
Over 12 months 19,947
TOTAL $89,047
</TABLE>
Return on Equity and Assets
<TABLE>
<CAPTION>
The table below shows consolidated operating and capital ratios of S&T
for each of the last three years:
Year Ended December 31
1996 1995 1994
<S> <C> <C> <C>
Return on average assets 1.63% 1.54% 1.49%
Return on average equity 13.75% 13.21% 13.03%
Dividend payout ratio 42.90% 38.43% 34.85%
Equity to asset ratio 11.78% 11.92% 10.94%
</TABLE>
<PAGE>
Short-Term Borrowings
<TABLE>
<CAPTION>
The following table shows the distribution of the Company's short-term
borrowings and the weighted average interest rates thereon at the end of
each of the last three years. Also provided are the maximum amount of
borrowings and the average amounts of borrowings as well as weighted average
interest rates for the last three years.
Federal Funds
Purchased and
Securities
Sold Under
Agreements
to Repurchase
(In thousands of dollars)
<S> <C>
Balance at December 31:
1996 $114,980
1995 123,119
1994 189,461
Weighted average interest rate at year end:
1996 5.68%
1995 5.57%
1994 5.58%
Maximum amount outstanding at any month's end:
1996 $180,776
1995 195,811
1994 219,614
Average amount outstanding during the year:
1996 $141,012
1995 158,072
1994 160,539
Weighted average interest rate during the year:
1996 5.24%
1995 5.79%
1994 4.25%
</TABLE>
S&T defines repurchase agreements with its 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.
<PAGE>
Item 2.PROPERTIES
The Company operates thirty-five banking offices in Indiana, Armstrong,
Allegheny, Jefferson, Clearfield, Westmoreland and surrounding counties in
Pennsylvania. The Company owns land and banking offices at the following
locations: 800 Philadelphia Street, 645 Philadelphia Street and 2175 Route
286, South in Indiana; Route 119 S. & Lucerne Road and 34 North Main Street in
Homer City; 539 West Mahoning Street, 100 West Mahoning Street and 232 North
Hampton Avenue in Punxsutawney; 133 Philadelphia Street in Armagh; Route 119
South in Black Lick; 256 Main Street and Route 36 & I-80 in Brookville; 456
Main Street in Brookway; Route 28 & Carrier Street in Summerville; 602 Salt
Street in Saltsburg; 12-14 West Long Avenue, 35 West Scribner Avenue, Treasure
Lake and 614 Liberty Boulevard in DuBois; 418 Main Street in Reynoldsville;
205 East Market Street in Blairsville; 85 Greensburg Street in Delmont; 100
Chestnut Street in Derry; Second Avenue and Hicks Street in Leechburg; 109
Grant Avenue in Vandergrift; 100 South Fourth Street in Youngwood; and 701 East
Pittsburgh Street in Greensburg. Land is leased where the Company owns the
banking office at 1107 Wayne Avenue and remote ATM building at 435 South
Seventh Street and 1176 Grant Street, all in Indiana. In addition, the Company
leases land and banking offices at the following locations: Chestnut
Ridge Plaza in Blairsville; 324 North Fourth Street and 2850 Route 286 South in
Indiana; the Mall Office in DuBois, 229 Westmoreland Mall; 2320 Route 286 in
Holiday Park; Route 268 Hilltop Plaza in Kittanning and a remote ATM location
at the Main Street Mall in DuBois.
Item 3.LEGAL PROCEEDINGS
The nature of the Company's business gnerates a certain amount of litigation
involving matters arising in the ordinary course of business. However, in the
opinion of management, there are no proceedings pending to which the Company is
a party or to which its property is subject, which, if determined adverse,
would be material in relation to its shareholders' equity or financial
condition. In addition, no material proceedings are pending nor are known
to be threatened or contemplated against the Company by governmental
authorities or other parties.
Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters during the fourth quarter of the fiscal year covered by
this report that were submitted to a vote of the security holders through
solicitation of proxies of otherwise.
PART II
Item 5.MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Stock Prices and Dividend Information on page 44 and Dividend
and Loan Restrictions on page 35 of the Annual Report for the
year ended December 31, 1996, are incorporated herein by reference.
Item 6.SELECTED FINANCIAL DATA
Selected Financial Data on page 44 and 45 of the Annual Report for
the year ended December 31, 1996, is incorporated herein by reference.
<PAGE>
Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition
and Results of Operations on pages 46 through 58 of the Annual
Report for the year ended December 31, 1996, is incorporated
herein by reference.
Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Report of Independent
Auditors and Quarterly Selected Financial Data on pages 22 through
43 and 45 of the Annual Report for the year ended December 31, 1996,
are incorporated herein by reference.
Item 9.CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There have been no changes in accountants or disagreements with
accountants on accounting and financial disclosures.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Election of Directors on pages 4 through 5 of the proxy statement for the
April 21, 1997 annual meeting of shareholders are incorporated herein by
reference.
Executive Officers
Number of
Shares
For the Officer Beneficially
Name Corporation Since Owned * Age
Robert D. Duggan Chairman, 1983 97,420 64
President, Chief
Executive Officer
and Director
James C. Miller Executive Vice 1983 64,170 51
President and
Director
James G. Barone Secretary 1992 30,871 49
and Treasurer
Robert E. Rout Chief Financial 1993 20,588 44
Officer
Bruce W. Salome Vice 1991 30,650 50
President
Edward C. Hauck Vice 1991 16,758 44
President
<PAGE>
Executive Officers (continued)
Number of
Shares
For the Officer Beneficially
Name Corporation Since Owned * Age
David L. Krieger Vice 1984 33,089 53
President
Edward A. Onderick Vice 1989 21,742 52
President
J. Jeffrey Smead Vice 1992 23,410 45
President, Formerly
Executive Vice
President of First
National Bank of
Pennsylvania
William H. Klumpp Vice 1994 16,067 53
President, Formerly
Senior Vice President
of Huntington National
Bank
*Includes vested stock options
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Remuneration of Executive Officers on pages 7 through 9 of
the proxy statement for the April 21, 1997, annual meeting of
shareholders is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Principal Beneficial Owners of Common Stock on page 3 of the
proxy statement for the April 21, 1997, annual meeting of
shareholders is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others on pages 11 and 12 of the
proxy statement for April 21, 1997, annual meeting with shareholders
is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of financial statements and financial statement schedules
(1) The following Consolidated Financial Statements and Report of
Independent Auditors of S&T Bancorp, Inc. and subsidiaries included
in the annual report of the registrant to its shareholders for
the year ended December 31, 1996, are incorporated by reference
in Part II, Item 8:
<TABLE>
Page
Reference
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 43
Consolidated Balance Sheets
December 31, 1996 and 1995 22
Consolidated Statements of Income
Years ended December 31, 1996, 1995 and 1994 23
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994 24
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994 25
Notes to Consolidated Financial Statements
December 31, 1996 26-42
Quarterly Selected Financial Data 45
</TABLE>
<PAGE>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)
(2) Schedules to the consolidated financial statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable, and therefore have not been omitted.
(3) Listings of Exhibits - See Item 14 (c) below
(b) Reports on Form 8-K
Form 8-K dated November 25, 1996 was filed as S&T Bancorp, Inc. (S&T) signed
a definitive agreement in which Peoples Bank of Unity will be merged into S&T's
subsidiary, S&T Bank. Subject to regulatory approvals and approval of the
shareholders of both companies, the transaction is expected to close in the
second quarter of 1997.
(c) Exhibits
(3.1) Articles of Incorporation of S&T Bancorp, Inc. filed as
Exhibit B to Registration Statement (No. 2-83565) on Form S-4 of
S&T Bancorp, Inc. and incorporated herein by reference.
(3.2) Amendment to Articles of Incorporation of S&T Bancorp, Inc.
filed as Exhibit 3.2 to Form S-4 Registration Statement dated January
15, 1986 and incorporated herein by reference.
(3.3) By-laws of S&T Bancorp, Inc., as amended, filed as Exhibit
3.3 to Form S-4 Registration Statement dated January 15, 1986 and
incorporated herein by reference.
(10.1) Deferred compensation arrangement with former director
filed as Exhibit 10.1 to Form 10-K dated December 31, 1983
and incorporated herein by reference.
(10.3) Employment Agreement dated December 9, 1985 between S&T Bancorp,
Inc. and Waid H. Nevins filed as Exhibit 10.1 to Form S-4 Registration
Statement dated January 15, 1986 and incorporated herein by reference.
(10.5) Sixth amendment to the Thrift Plan for Employees of S & T
Bank to be effective December 31, 1988, approved by the Board of
Directors at the November 21, 1988 meeting and incorporated
herein by reference.
(13) Annual Report for the year ended December 31, 1996 -
incorporated herein by reference.
(22) Subsidiaries of the Registrant - filed herewith
S&T Bank, a bank incorporated under the laws of Pennsylvania.
S&T Investment Company, Inc., an investment holding company
incorporated under the laws of Delaware.
(23.1) Consent of Ernst & Young LLP, Independent Auditors - filed herewith.
(d) Financial Statement Schedules
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
/s/ Robert Duggan 03/17/97
Robert D. Duggan, Chairman, Date
President and Chief Executive Officer
(Principal Executive Officer)
/s/ James C. Miller 03/17/97
James C. Miller, Executive Vice President Date
(Executive Officer)
/s/ Robert E. Rout 03/17/97
Robert E. Rout, Chief Financial Officer Date
(Principal Financial and Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
03/17/97 /s/ Paul B. Johnston 03/17/97
Thomas A. Brice, Director Date Paul B.Johnston, Director Date
/s/ Forrest L. Brubaker 03/17/97 /s/ Joseph A. Kirk 03/17/97
Forrest L. Brubaker, Director Date Joseph A. Kirk, Director Date
/s/ James L. Carino 03/17/97 03/17/97
James L. Carino, Director Date Samuel Levy, Director Date
/s/ John J. Delaney 03/17/97 /s/ James C. Miller 03/17/97
John J. Delaney, Director Date James C. Miller, Date
Executive Vice President
/s/ Robert D. Duggan 03/17/97 03/17/97
Robert D. Duggan, Chairman, Date W. Parker Ruddock, Date
President, Chief Executive Director
Officer and Director
/s/ Thomas W. Garges, Jr. 03/17/97 /s/ Charles A. Spadafora 03/17/97
Thomas W. Garges, Jr., Date Charles A. Spadafora, Date
Director Director
/s/ William J. Gatti 03/17/97 /s/ Christine J. Torretti 03/17/97
William J. Gatti, Director Date Christine J. Torretti, Date
Director
03/17/97 /s/ Harold W. Widdowson, 03/17/97
Herbert L. Hanna, Director Date Harold W. Widdowson, Director Date
<PAGE>
Financial Highlights
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
For The Year 1996 1995 Change
Net Income $23,249 $20,469 $2,780 14 %
Return on Average Assets 1.63 % 1.54 % 0.09 % 6
Return on Average Equity 13.75 13.21 0.54 4
Per Share
Net Income $2.10 $1.82 $0.28 15 %
Dividends Declared 0.94 0.74 0.20 27
Book Value at December 31 15.92 14.85 1.07 7
Market Value at December 31 30.75 30.50 0.25 1
At Year End
Assets $1,495,945 $1,400,702 $95,243 7 %
Net Loans 1,029,085 960,881 68,204 7
Deposits 1,032,274 979,625 52,649 5
Shareholders' Equity 176,276 166,947 9,329 6
Trust Assets (at market value) 465,249 416,281 48,968 12
Allowance for Loan Losses/
Total Loans 1.63 % 1.63 % -- --
Nonperforming Loans/Total Loans 0.79 0.29 0.50 172
</TABLE>
<PAGE>
Consolidated Balance Sheets
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except per share data)
<TABLE>
December 31
<S> 1996 1995
Assets <C> <C>
Cash and due from banks $33,319 $39,852
Interest-earning deposits with banks 109 51
Securities:
Available for sale 353,780 315,343
Held to maturity (market value $28,943
in 1996 and $36,284 in 1995) 28,165 34,997
Total securities 381,945 350,340
Loans, net of allowance for loan losses
of $17,043 in 1996 and $15,938 in 1995 1,029,085 960,881
Premises and equipment 15,926 14,795
Other assets 35,561 34,783
Total Assets $1,495,945 $1,400,702
Liabilities
Deposits
Noninterest-bearing $115,766 $116,054
Interest-bearing 916,508 863,571
Total Deposits 1,032,274 979,625
Securities sold under repurchase agreements 114,205 122,794
Federal funds purchased 775 325
Long-term borrowings 136,618 96,618
Other borrowed funds 230 340
Other liabilities 35,567 34,053
Total Liabilities 1,319,669 1,233,755
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 1996 and 1995
Issued-11,820,944 shares in 1996 and 1995 29,552 29,552
Additional paid in capital 11,933 11,009
Retained earnings 124,847 111,980
Net unrealized holding gains
on securities available for sale 23,191 21,928
Treasury stock (746,003 shares in 1996
and 578,092 shares in 1995, at cost) (13,017) (7,182)
Deferred compensation (230) (340)
Total Shareholders' Equity 176,276 166,947
Total Liabilities and Shareholders' Equity $1,495,945 $1,400,702
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Income
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except per share data)
<TABLE>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Interest Income
Loans, including fees $87,176 $85,497 $70,911
Deposits with banks 5 143 281
Federal funds sold 109 50 13
Investment securities:
Taxable 19,066 16,480 16,753
Tax-exempt 1,644 1,809 2,143
Dividends 3,431 3,038 2,553
Total Interest Income 111,431 107,017 92,654
Interest Expense
Deposits 39,130 36,686 31,241
Securities sold under repurchase agreements 7,006 8,482 6,542
Federal funds purchased 319 474 524
Long-term borrowings 5,071 4,326 990
Other borrowed funds 18 30 49
Total Interest Expense 51,544 49,998 39,346
Net Interest Income 59,887 57,019 53,308
Provision for Loan Losses 4,300 3,800 3,500
Net Interest Income After Provision
for Loan Losses 55,587 53,219 49,808
Noninterest Income
Service charges on deposit accounts 3,613 2,930 2,464
Trust fees 2,839 2,401 2,212
Security gains, net 2,172 729 421
Other 2,570 2,249 1,817
Total Noninterest Income 11,194 8,309 6,914
Noninterest Expense
Salaries and employee benefits 18,565 18,062 16,614
Occupancy, net 2,337 2,082 2,013
Furniture and equipment 1,778 1,918 1,912
Other taxes 916 868 815
Data processing 1,596 1,433 1,334
Amortization of intangibles 314 343 343
FDIC assessment 1,197 1,247 2,028
Other 8,808 7,570 6,536
Total Noninterest Expense 35,511 33,523 31,595
Income Before Income Taxes 31,270 28,005 25,127
Applicable Income Taxes 8,021 7,536 6,683
Net Income $23,249 $20,469 $18,444
Per Common Share:
Net Income $2.10 $1.82 $1.63
Dividends Declared 0.94 0.74 0.61
Average Common Shares Outstanding 11,072,542 11,243,432 11,283,714
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Common Additional Retained Net Unrealized Treasury Deferred
Stock Paid-In Earnings Gain on Stock Compensation
Capital Securities
Available for
Sale
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $14,776 $24,279 $88,203 ($5,365) ($800)
Net income for 1994 18,444
Cash dividends declared
($0.61 per share) (6,823)
Treasury stock acquired
(70,300 shares) (1,361)
Treasury stock sold
(75,703 shares) 714 744
Deferred ESOP
benefits expense 370
Transfer to reflect a
two-for-one stock split 14,776 (14,776) <C>
Adoption of FASB No. 115 14,830
Net change in unrealized
holding gains on securities
available for sale (6,424)
Balance at December 31, 1994 29,552 10,217 99,824 8,406 (5,982) (430)
Net income for 1995 20,469
Cash dividends declared
($0.74 per share) (8,313)
Treasury stock acquired
(97,689 shares) (2,076)
Treasury stock sold
(74,820 shares) 792 876
Deferred ESOP
benefits expense 90
Net change in unrealized
holding losses on securities
available for sale 13,522
Balance at December 31, 1995 29,552 11,009 111,980 21,928 (7,182) (340)
Net income for 1996 23,249
Cash dividends declared
($0.94 per share) (10,382)
Treasury stock acquired
(257,525 shares) (7,287)
Treasury stock sold
(89,614 shares) 924 1,452
Deferred ESOP
benefits expense 110
Net change in unrealized
holding gains on securities
available for sale 1,263
Balance at December 31, 1996$29,552 $11,933 $124,847 $23,191 ($13,017) ($230)
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands)
<TABLE>
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net Income $23,249 $20,469 $18,444
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 4,300 3,800 3,500
Provision for depreciation and amortization 1,946 1,337 1,980
Net amortization of investment security premiums 543 775 1,256
Net accretion of loan and deposit discounts (343) (896) (1,037)
Deferred income taxes (530) (415) 375
Securities gains, net (2,172) (729) (421)
Increase in interest receivable (151) (1,023) (1,661)
(Decrease) increase in interest payable (252) 2,749 1,112
Increase in other assets (294) (1,823) (2,735)
Increase (decrease) in other liabilities 3,170 (2,975) 5,151
Net Cash Provided by Operating Activities 29,466 21,269 25,964
Investing Activities
Net (increase) decrease in interest-earnings
deposits with banks (58) 3,773 (671)
Proceeds from maturities of investment securities 7,617 18,244 42,947
Proceeds from maturities of securities available for sale 74,825 19,204 26,000
Proceeds from sales of securities available for sale 9,090 19,532 34,350
Purchases of investment securities (2,772) (25,260) (31,900)
Purchases of securities available for sale (119,417) (55,175) (26,302)
Net increase in loans (72,161) (53,708)(129,311)
Purchases of premises and equipment (2,763) (1,786) (1,809)
Net Cash Used in Investing Activities (105,639) (75,176) (86,696)
Financing Activities
Net increase (decrease) in demand, NOW and savings
deposits 22,590 6,098 (537)
Net increase in certificates of deposit 30,060 70,286 5,519
Net (decrease)increase in federal funds purchased 450 (19,265) (2,610)
Net (decrease)increase in repurchase agreements (8,589) (47,077) 42,140
Proceeds from FHLB long-term borrowings 55,000 53,200 28,418
Repayments from FHLB long-term borrowings (14,987) 0 (13)
Acquisition of treasury stock (7,287) (2,076) (1,361)
Sale of treasury stock 2,376 1,669 1,458
Cash dividends paid to shareholders (9,973) (7,867) (6,427)
Net Cash Provided by Financing Activities 69,640 54,968 66,587
(Decrease) increase in Cash and Cash Equivalents (6,533) 1,061 5,855
Cash and Cash Equivalents at Beginning of Year 39,852 38,791 32,936
Cash and Cash Equivalents at End of Year $33,319 $39,852 $38,791
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note A - Accounting Policies
The financial statements of S&T Bancorp, Inc. and subsidiaries (S&T)
have been prepared in accordance with generally accepted accounting
principles. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results
could differ from those estimates. The more significant
accounting policies are described below.
Principles of Consolidation
The consolidated financial statements include the accounts
of S&T and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. The
investment in the subsidiaries is carried at S&T Bancorp,
Inc.'s equity in the underlying net assets.
Securities
Management determines the appropriate classification of securities
at the time of purchase. If management has the intent and S&T
has the ability at the time of purchase to hold securities until
maturity, they are classified as held to maturity and are stated
stated at cost adjusted for amortization of premiums and accretion
of discounts. All obligations of states and political subdivisions
and corporate securities are classified in this category. Securities
to be held for indefinite periods of time are classified as available
for sale and are recorded at market value. All U.S. treasury
securities, U.S. government corporations and agencies, collateralized
mortgage obligations and marketable equity securities are classified
in this category. Gains or losses on the disposition of securities are
based on the specific identification method. S&T does not engage
in any securities trading activity.
Loans Interest on loans is accrued and credited to operations
based on the principal amount outstanding. Accretion of
discount on loans is included in interest income. Loan
origination fees and direct loan origination costs are
deferred and amortized as an adjustment of loan yield over
the respective lives of the loans. Loans are placed on
nonaccrual and interest is discontinued when collection of
interest or principal is doubtful, or generally when interest
and principal are 90 days or more past due.
Impaired loans are defined by management as commercial and
commercial real estate loans for which it is probable that the
Bank will not be able to collect all amounts due according to
the contractual terms of the loan agreement. Residential real
estate mortgages and consumer installment loans are large
groups of smaller balance homogenous loans and are separately
measured for impairment collectability. Factors considered by
management in determining impairment include payment status and
underlying collateral value. All impaired loans are classified
as substandard for risk classification purposes. Impaired loans
are charged-off, to the estimated value of collateral associated
with the loan, when management believes principal and interest
are deemed uncollectible. The accrual of interest on impaired
loans is discontinued when, in management's opinion, the
borrower may be unable to meet the payments as they become due.
When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized
only to the extent that cash payments are received.
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
considered to be uncollectible are charged against the
allowance and recoveries, if any, are credited to the
allowance. The allowance for loan losses is maintained at a
level believed adequate by management to absorb probable
losses in the loan portfolio. Management's determination of
the adequacy of the allowance is based on periodic
evaluations of the loan portfolio, past loan loss
experience, current economic conditions, volume, growth and
composition of the loan portfolio and other relevant factors.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. The provision for depreciation is computed
generally by the straight-line method for financial
reporting purposes and by accelerated methods for federal
income tax purposes.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Other Real Estate
Other real estate is included in other assets and is
comprised of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of a foreclosure
and loans classified as in-substance foreclosure. These
properties are carried at the lower of cost or fair value less
cost of resale. Loan losses arising from the acquisition of
such property are charged against the allowance for loan
losses. Gains or losses realized subsequent to acquisition
are recorded in the results of operations.
Income Taxes
Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized
or settled.
Trust Assets and Income
Assets held in a fiduciary capacity by the subsidiary bank,
S&T Bank (Bank), are not assets of the Bank and are therefore
not included in the consolidated financial statements.
Trust fee income is reported on the accrual basis.
Pensions
Pension expense for the Bank's defined benefit pension plan
is actuarially determined using the projected unit credit
actuarial cost method. The funding policy for the plan is
to contribute amounts to the plan sufficient to meet the
minimum funding requirements of the Employee Retirement
Income Security Act of 1974, plus such additional amounts as
may be appropriate, subject to federal income tax
limitations.
Treasury Stock
The purchase of S&T common stock is recorded at cost. At
the time of reissue, the treasury stock account is reduced
using the average cost method.
Per Share Amounts Net income per common share is based on
the weighted average number of shares of common stock
outstanding during the year.
Cash Flow Information
S&T considers cash and due from banks as cash and cash
equivalents. For the years ended December 31, 1996, 1995,
and 1994, cash paid for interest was $51,796,000,
$47,250,000 and $38,234,000, respectively. Cash paid during
1996 for income taxes was $8,520,000 compared to $7,662,000
for 1995 and $6,404,000 for 1994.
New Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board (FASB)
issued FAS 123 "Accounting for Stock-Based Compensation" which
is effective for S&T's fiscal year ending December 31, 1996.
FAS 123 defines a fair value-based method of accounting for
stock-based employee compensation plans. Under the fair value-
based method, compensation cost is measured at the grant date
based upon the value of the award and is recognized over the
service period. The standard also allows an entity to continue to
measure compensation costs for its plans as prescribed in APB
Opinion No. 25, "Accounting For Stock Issued to Employees"
(APB 25). S&T has elected to continue to apply APB 25 and
has disclosed to pro forma effect on earnings with FAS 123
applied which is reflected in Note P.
Financial Accounting Standards Board Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (Statement No. 125) is effective
in 1997 and provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments
of liabilities. Statement No. 125 as amended by FASB Statement
No. 127, "Deferral of Effective Date of Certain Provisions of
Statement No. 125" is generally to be applied to transactions
occurring after December 31, 1996 with certain provisions
having been delayed until 1998. Statement No. 125 is not
expected to materially effect S&T's financial position or
results of operation.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note B - Fair Values of Financial Instruments
S&T utilized quoted market values, where available, to
assign fair value to its financial instruments. In cases
where quoted market values were not available, S&T used
present value methods to estimate the fair value of its
financial instruments. These estimates of fair value are
significantly affected by the assumptions made and,
accordingly, do not necessarily indicate amounts which
could be realized in a current market exchange. S&T does
not expect to realize the estimated amounts disclosed.
The following methods and assumptions were used by S&T in
estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents and other short-term assets: The
carrying amounts reported in the consolidated balance
sheet for cash and due from banks, interest-earning
deposits with banks and federal funds sold approximate
those assets' fair values.
Securities: Fair values for investment securities and
securities available for sale are based on quoted market
prices.
Loans: For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are
based on carrying values. The fair values for other loans
are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with
similar terms to borrowers as measured by net credit
losses and the loss of interest income from nonaccrual
loans. The carrying amount of accrued interest
approximates its fair value.
Deposits: The fair values disclosed for demand deposits
(e.g., noninterest and interest-bearing demand, money
market and savings accounts) are, by definition, equal to
the amount payable on demand. The carrying amounts for
variable-rate, fixed-term certificates of deposits and
other time deposits approximate their fair value at year-
end. Fair values for fixed-rate certificates of
deposit and other time deposits are based on the
discounted value of contractual cash flows, using interest
rates currently being offered for deposits of similar
remaining maturities.
Short-term borrowings and other borrowed funds: The
carrying amounts of federal funds purchased, borrowings
under repurchase agreements and other borrowings
approximate their fair values.
Long-term borrowings: The fair values disclosed for
long-term borrowings are estimated using current interest
rates for long-term borrowings of similar remaining
maturities.
Loan commitments and standby letters of credit: Estimates
of the fair value of these off-balance sheet items were
not made because of the short-term of these arrangements
and the credit standing of the counterparties. Also,
unfunded loan commitments relate principally to variable
rate commercial loans, and fees are not normally assessed
on these balances.
Estimates of fair value have not been made for items which
are not defined as financial instruments, including such
items as S&T's core deposit intangibles and the value of
its trust operation. S&T believes it is impracticable to
estimate a representational fair value for these types of
assets, which represent significant value to S&T.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
<TABLE>
<CAPTION>
The following table indicates the estimated fair value of S&T's
financial instruments as of December 31:
1996 1995
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
<S> <C> <C> <C> <C>
Assets
Cash $33,319 $33,319 $39,852 $39,852
Securities available for sale 353,780 353,780 315,343 315,343
Held to maturity 28,943 28,165 36,284 34,997
Loans 1,043,938 1,046,128 974,550 976,819
Liabilities
Deposits $1,037,534 $1,032,274 $986,043 $979,625
Securities sold under repurchase
agreements 114,205 114,205 122,794 122,794
Federal funds purchased 775 775 325 325
Long-term borrowing 136,518 136,618 97,146 96,618
Other borrowed funds 230 230 340 340
Off-balance sheet
Interest rate swaps $362 $0 $0 $0
</TABLE>
Note C - Derivative Financial Instruments
S&T does not extensively use derivative financial instruments
and has three types: interest rate swaps, structured notes and
collateralized mortgage obligations (CMOs).
S&T has three interest rate swaps at notional values totaling
$29.0 million, paying a fixed rate and receiving a variable
rate. The purpose of these transactions is to provide
matched, fixed rate funding for newly originated loans, and
to mitigate the risk associated with volatile liability
funding. The effective rate of these combined swaps was
5.29% at December 31, 1996. Interest rate swaps are not
reported in the consolidated balance sheets. Differences
between interest received and interest paid is reported
as a component of borrowing expense in the consolidated
income statement.
S&T's structured notes are comprised of $10.0 million of
Federal Home Loan Bank (FHLB) step-up notes at December
31, 1996. These notes provide a higher interest rate,
but are subject to call after the first step-up period.
Lower market interest rates at the step-up period could
cause the structured notes to be redeemed earlier than
stated maturities. Ranges of expected maturities and interest
rates for structured notes are 6 years to 7 years and 4.9%
to 8.0%, respectively. Fair values for structured notes
were $9.9 million at December 31, 1996. Structured notes
are classified as securities available for sale in the
consolidated balance sheets.
The CMOs are principally Planned Amortization Class (PAC)
tranches of U.S. government agencies and were purchased
during 1992 as alternatives to loans in a period of
declining interest rates. At December 31, 1996, $4.2
million are remaining with expected maturity ranges of .4
years to .9 years and yields of 7.0% to 9.1%. CMOs are
classified as securities available for sale in the
consolidated balance sheets.
Note D - Restrictions on Cash and Due from Bank Accounts
The Board of Governors of the Federal Reserve Bank impose
certain reserve requirements on all depository
institutions. These reserves are maintained in the form of
vault cash or as a noninterest-bearing balance with the
Federal Reserve Bank. Required reserves averaged
$13,469,000 during 1996.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note E - Securities
<TABLE>
<CAPTION>
The following table indicates the composition of the securities portfolio at
December 31:
1996 Available for Sale
Gross Gross
Amortized Unrealized Unrealize Market
<S> Cost Gains Losses Value
Obligations of U.S. government <C> <C> <C> <C>
corporations and agencies $230,567 $2,325 ($1,116)$231,776
Collateralized mortgage obligations of U.S.
government corporations and agencies 4,176 7 (1) 4,182
U.S. treasury securities 30,042 886 30,928
Corporate securities 300 300
Debt securities available for sale 265,085 3,218 (1,117) 267,186
Marketable equity securities 39,879 33,803 (224) 73,458
Other securities 13,136 13,136
Total $318,100 $37,021 ($1,341)$353,780
Held to Maturity
Obligations of states and political subdivisions $24,239 $569 ($7) $24,801
Corporate securities 1,998 216 2,214
Debt securities held to maturity 26,237 785 (7) 27,015
Other securities 1,928 1,928
Total $28,165 $785 $(7) $28,943
1995 Available for Sale
Gross Gross
Amortized Unrealized Unrealize Market
Cost Gains Losses Value
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 securities 51,205 1,993 53,198
Corporate securities 190 190
Debt securities available for sale 234,918 7,230 (143) 242,005
Marketable equity securities 37,573 26,926 (276) 64,223
Other securities 9,115 9,115
Total $281,606 $34,156 ($419)$315,343
Held to Maturity
Obligations of states and political subdivisions $31,412 $949 ($12) $32,349
Corporate securities 2,493 350 2,843
Debt securities held to maturity 33,905 1,299 (12) 35,192
Other securities 1,092 1,092
Total $34,997 $1,299 ($12) $36,284
</TABLE>
<TABLE>
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
During the forth quarter of 1995, Management reclassified the
securities portfolio allowed by the "one time" amnesty per
Financial Accounting Standards Board Statement No. 115. The
reclassified securities were from the held to maturity category
to the available for sale category. The transferred securities
had an amortized cost of $154.2 million and a market value of
$159.5 million. The resulting net of tax effect of the
reclassification to S&T's equity was $3.4 million.
There were $2,364,000, $1,636,000 and $1,136,000 in gross realized
gains and $192,000, $907,000 and $721,000 in gross realized losses
in 1996, 1995 and 1994, respectively, relative to securities
available for sale.
The CMOs are principally Planned Amortization Class (PAC) tranches of
U.S. government agencies and were purchased during 1992 as alternatives
to loans in a period of declining interest rates.
The amortized cost and estimated market value of debt securities
at December 31, 1996, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties
Amortized Market
Cost Value
<S> <C> <C>
Available for Sale
Due in one year or less $15,007 $15,080
Due after one year through five years 76,360 77,728
Due after five years through ten years 172,809 173,467
Due after ten years 909 911
Total $265,085 $267,186
Amortized Market
Held to Maturity Cost Value
Due in one year or less $1,400 $1,404
Due after one year through five years 10,641 11,060
Due after five years through ten years 9,874 10,171
Due after ten years 4,322 4,380
Total $26,237 $27,015
</TABLE>
At December 31, 1996 and 1995 securities with principal amounts of $167,691,000
and $203,063,000 respectively, were pledged to secure repurchase agreements
and public and trust fund deposits.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note F - Loans
The following table indicates the composition of the loan
portfolio at December 31:
1996 1995
<TABLE>
<S> <C> <C>
Real estate-construction $24,984 $23,712
Real estate-mortgages:
Residential 409,600 377,258
Commercial 228,682 191,885
Commercial-industrial and agricultural 237,882 234,779
Consumer installment 144,980 149,185
Gross Loans 1,046,128 976,819
Allowance for loan losses (17,043) (15,938)
Net Loans 1,029,085 960,881
</TABLE>
<TABLE>
<CAPTION>
The following presents changes in the allowance for loan
losses for the years ended December 31:
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $15,938 $14,331 $13,480
Charge-offs (5,188) (2,889) (3,727)
Recoveries 1,993 696 1,078
Net charge-offs (3,195) (2,193) (2,649)
Provision for loan losses 4,300 3,800 3,500
Balance at end of year $17,043 $15,938 $14,331
</TABLE>
The Bank has granted loans to certain officers and directors
of S&T as well as certain affiliates of the officers and
directors in the ordinary course of business. These loans
were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable transactions with unrelated person and did not
involve more than normal risk of collectibility. The aggregate
dollar amounts of these loans were $28,249,000 and
$27,580,000 at December 31, 1996 and 1995, respectively.
During 1996, $25,845,000 of new loans were funded and
repayments totaled $25,176,000.
During 1996, S&T Bank acquired automobile loans and leases on
a third-party basis from companies owned by two directors of
S&T totaling $6,600,000. These loans were acquired on
substantially the same terms as those prevailing at the time
for comparable transactions with others.
The principal balances of loans on nonaccrual were $8,280,000
and $2,844,000 at December 31, 1996 and 1995, respectively.
At December 31, 1996 there were no commitments to lend
additional funds on nonaccrual loans. Other real estate
owned, which is included in other assets, was $361,000 at
December 31, 1996 and $542,000 at December 31, 1995.
At December 31,1996 and 1995, the recorded investment in loans
that are considered to be impaired under FASB Statement No. 114,
as amended by FASB Statement No. 118 was $10,200,000 and
$3,400,000, respectively, after charge-offs of $3,400,000 and
$2,600,000. Of these impaired investments, $6,000,000 and $2,300,000,
respectively, was on nonaccrual. The average recorded investment in
impaired loans during 1996 and 1995 was $3,900,000 and $2,500,000,
respectively. S&T Bank has recorded an allowance for loan losses
for all impaired loans totaling $2,600,000 and $1,800,000 at
December 31, 1996 and 1995, respectively. Interest income on impaired
loans of $1,100,000 and $500,000 was recognized in 1996 and 1995,
respectively. Of this interest income recognized on impaired
loans, primarily all was recognized using a cash basis method
of accounting.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note G - Premises and Equipment
<TABLE>
<CAPTION>
The following is a summary of the premises and equipment accounts
at December 31:
1996 1995
<S> <C> <C>
Land $2,191 $1,987
Premises 14,353 13,140
Furniture and equipment 10,149 9,804
Leasehold improvements 2,464 2,391
29,157 27,322
Accumulated depreciation (13,231) (12,527)
Total $15,926 $14,795
</TABLE>
Certain banking facilities and equipment are leased under
short-term lease arrangements expiring at various dates to
the year 2007. All such leases are accounted for as operating
leases. Rental expense for premises and equipment amounted
to $1,136,000, $1,104,000 and $1,009,000 in 1996, 1995 and 1994,
respectively. Minimum annual rentals for each of the years
1997-2001 are approximately $486,000,$394,000,$288,000,
$266,000 and $202,000, respectively, and $401,000 for the years
thereafter. Included in the above are leases entered into
with a director of S&T for which rental expense totaled
$302,600, $296,400 and $292,200 in 1996, 1995 and 1994,
respectively.
Note H - Deposits
<TABLE>
<CAPTION>
The following table indicates the composition of deposits at December 31:
1996 1995
<S> <C> <C>
Noninterest-bearing demand $115,766 $116,054
Interest-bearing demand 32,816 96,577
Money market 214,802 123,121
Savings 118,563 123,605
Time deposits 550,327 520,268
Total $1,032,274 $979,625
</TABLE>
The aggregate of all time deposits over $100,000 amounted to
$89,047,000 and $72,021,000 for December 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
The following table indicates the scheduled maturities of
time deposits at December 31: 1996 1995
<S> <C> <C>
Due in one year $315,080 $219,426
Due in one to two years 91,943 149,079
Due in two to three years 85,824 65,254
Due in three to four years 27,624 42,598
Due in four to five years 12,503 27,091
Due after five years 17,353 16,820
Total $550,327 $520,268
</TABLE>
<PAGE>
Note I - Long-Term Debt
<TABLE>
<CAPTION>
The following table is a summary of long-term debt with
the Federal Home Loan Bank (FHLB):
1996 1995
Average Average
Balance Rate Balance Rate
<S> <C> <C> <C> <C>
Due in one year $36,000 5.43 % $15,000 4.82 %
Due in one to two years 25,000 5.60 36,000 5.97
Due in two to three years - - 25,000 5.90
Due in three to four years 12,500 5.32 - -
Due in four to five years 55,000 5.52 12,500 5.63
Due after five years 8,118 6.63 8,118 6.63
Total $136,618 5.56 % $96,618 5.78 %
</TABLE>
The purpose of these borrowings were to match-fund selected new
loan originations, to mitigate interest rate sensitivity risks
and take advantage of discounted borrowing rates through the
FHLB for community investment projects.
S&T maintains a Flexline of credit for 10% of total assets with
the FHLB which expires December 31, 1997. S&T pledged all 1-4
family and multi-family mortgage loans as collateral for any
current or future FHLB advances. The total carring amount of
the collateral was $376,274,000 at December 31, 1996.
Note J - Short-Term Debt
Federal funds purchased and securities sold under repurchase
agreements (REPOS) generally mature within one to fourteen days
from the transaction date. S&T defines REPOS with its retail
customers as retail REPOs and wholesale REPOS are those
transacted with other banks. Information concerning
federal funds purchased and REPOS is summarized as follows:
<TABLE>
1996 1995
<S> <C> <C>
Average balance during the year $141,012 $158,072
Average interest rate during the year 5.24 % 5.79%
Maximum month-end balancing during the year 180,776 195,811
Average interest rate at year end 5.68 % 5.57%
</TABLE>
<PAGE>
Note K - Dividend and Loan Restrictions
Certain restrictions exist regarding the ability of the subsidiaries
to transfer funds to S&T in the form of dividends and loans.
Dividends that may be paid by the subsidiaries to S&T are limited
to the retained earnings of the subsidiaries which amounted to
$120,503,412 at December 31, 1996. The amount of dividends that
may be paid to S&T is further restricted by regulatory guidelines
concerning minimum capital requirements.
Federal law prohibits S&T from borrowing from the subsidiaries
unless such loans are collateralized by specific obligations.
Further, such loans are limited to 10% of the subsidiaries'
capital and additional paid in capital, as defined. At
December 31, 1996, the maximum amount available for transfer
from the subsidiaries to S&T in the form of loans and
dividends approximated 72% of consolidated net assets.
Note L - 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.
Note M - Financial Instruments and Credit Risk
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
S&T's 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
satisfy the terms of the agreement equals the notional amount
of the obligation less the value of any collateral. Unfunded
loan commitments totaled $228,031,000 and $176,919,000 at
December 31, 1996 and 1995, respectively; and obligations under
standby letters of credit totaled $60,173,000 and $67,359,000
at December 31, 1996 and 1995, respectively.
S&T attempts to limit its exposure to concentrations of credit
risk by diversifying its loan portfolio. S&T defines
concentrations of credit risk as loans to a specific industry
or group in excess of 10% of total loans. S&T has no
concentration of credit risk by industry or group. However,
geographic concentrations exist because S&T provides a full
range of banking services including commercial, consumer and
mortgage loans to individuals and corporate customers in its
six-county market area in western Pennsylvania.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note N - Income Taxes
Income tax expense (credits) for the years ended December 31 are
comprised of:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Current $8,551 $7,951 $6,308
Deferred (530) (415) 375
Total $8,021 $7,536 $6,683
</TABLE>
The provision for income taxes differs from the amount
computed by applying the statutory federal income tax rate to
income before income taxes. The statutory to effective tax
rate reconciliation for the years ended December 31 is as
follows:
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Statutory tax rate 35% 35% 35%
Tax-exempt interest income
and dividend exclusion (6) (7) (7)
Low income housing tax credits (3) (1) (1)
Effective tax rate 26% 27% 27%
</TABLE>
Income taxes applicable to security gains were $760,000 in
1996, $255,000 in 1995 and $147,000 in 1994.
Significant components of S&T's temporary differences were as
follows at December 31:
<TABLE>
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Net unrealized holding gains
on securities available for sale (12,488) (11,808)
Fixed assets (560) (501)
Accretion on acquired loans (363) (464)
Prepaid pension (428) (359)
Prepaid hospitalization (102) (102)
Point recognition (688) (631)
Total deferred tax liabilities (14,629) (13,865)
Deferred tax assets:
Allowance on loan losses 5,755 5,368
Loan fees 147 131
Interest expense on increasing rate CDs 171 161
Deferred compensation 462 353
Goodwill 392 321
Other 89 68
Total deferred tax assets 7,016 6,402
Net deferred tax liability (7,613) (7,463)
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note O - Employee Benefits
The Bank maintains a defined benefit pension plan covering
substantially all employees. The benefits are based on years
of service and the employee's compensation during the last ten
years of employment. Contributions are intended to provide
for benefits attributed to employee service to date and for
those benefits expected to be earned in the future. Trustee
pension plan assets consist primarily of equity and fixed income
securities and short-term investments.
<TABLE>
<CAPTION>
The following table summarizes the components of net periodic
pension expense for the Bank's defined benefit plan:
1996 1995 1994
<S> <C> <C> <C>
Service cost-benefits earned
during the period $880 $671 $687
Interest cost on projected
benefit obligation 1,126 1,048 917
Actual return on plan assets (2,260) (3,350) 259
Net amortization and deferral (14) (14) (14)
Difference between expected and
actual return on assets 884 2,242 (1,391)
Net periodic pension expense $616 $597 $458
</TABLE>
<TABLE>
<CAPTION>
The following table sets forth the plan's funded status at December 31:
1996 1995
<S> <C> <C>
Actuarial present value of the accumulated
benefit obligation, including vested benefits
of $12,399 in 1996 and $12,149 in 1995. (13,546) (13,225)
Actuarial present value of projected
benefit obligation (17,524) (17,140)
Plan assets at fair value 19,751 17,273
Plan assets in excess of projected
benefit obligation 2,227 133
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions (1,538) 322
Unamortized prior service cost (34) (36)
Balance of initial unrecognized net liability (45) (57)
Accrued pension cost included in other liablities $610 $362
</TABLE>
<TABLE>
<CAPTION>
Below are actuarial assumptions used in accounting for the plan:
1996 1995 1994
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 6.5% 8.0%
Rate of increase in future compensation levels 5.0% 6.0% 5.0%
Expected long-term rate of return on plan assets 8.0% 8.0% 8.0%
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
S&T also has a supplemental retirement plan (SERP) for certain
key employees. The SERP is unfunded. The balance of actuarial
present value of projected benefit obligations related to the
SERP are $1,332,000 and $1,289,000 at December 31, 1996 and 1995,
respectively. Accrued pension cost related to the SERP was
$1,320,000 and $1,009,000 at December 31, 1996 and 1995. Net
periodic pension cost related to the SERP was $238,000, $201,000
and $117,000 at December 31, 1996, 1995 and 1994, respectively.
The actuarial assumptions are the same as those used in the
previous table. The Bank maintains a Thrift Plan (Plan) in which substantially
all employees are eligible to participate. The Bank makes
matching contributions to the Plan up to 3% of participants'
eligible compensation and may make additional contributions
as limited by the Plan. Contributions to the Plan are cash
or unallocated Employee Stock Option Plan (ESOP) shares.
Expense related to these contributions amounted to $950,000,
$856,000 and $537,000 in 1996, 1995 and 1994, respectively.
On December 30, 1988, S&T sold 280,000 shares of common stock,
which were held in treasury, to its newly created ESOP for
$2,800,000. The funds were obtained by the ESOP through a loan
from a bank. S&T has guaranteed the loan which has a maximum
term of 10 years and bears interest at 80% of the lender's prime
rate. The loan terms require quarterly interest and annual
principal payments. The balance of this loan was $230,000 and
$340,000 on December 31, 1996, and 1995, respectively, and was
included in other borrowed funds with an offsetting reduction in
shareholders' equity shown as deferred compensation in the
accompanying consolidated balance sheets. At December 31, 1996
the ESOP held 23,000 shares of S&T common stock that was unearned
or unallocated, with a fair market value of $707,000. These
unearned shares are released upon reduction of the ESOP debt and
must be fully allocated by December 31, 1998.
The ESOP covers substantially all regular full-time employees.
S&T is obligated to make annual contributions sufficient to
enable the ESOP to repay the loan, including interest.
Interest expense totaled $19,000 in 1996, $30,000 in 1995 and
$49,000 in 1994. Dividends received by the ESOP from S&T for
unallocated shares amounted to $24,000 in 1996, $33,000 in 1995
and $48,000 in 1994, which were used for debt service. Dividends
on allocated shares are paid to the participants' accounts in
the Plan. Deferred compensation arising from the guarantee of
the ESOP borrowing will be charged to operations as contributions
are made to the ESOP.
Since the ESOP was established prior to the issuance of SOP 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," ESOP
compensation expense is currently based upon the cost of unearned
shares as prescribed by SOP 76-3, "Accounting Practices for Certain
Employee Stock Ownership Plans." The earnings per share effects of
unearned ESOP shares are not material. The expense associated with
the release of ESOP shares in 1996, 1995 and 1994 was $110,000,
$90,000 and $370,000, respectively. No allocated ESOP shares are
subject to repurchase obligations.
Note P - Incentive Stock Plan and Dividend Reinvestment Plan
S&T adopted an Incentive Stock Plan in 1992 (Stock Plan) that
provides for granting incentive stock options, nonstatutory
stock options, and stock appreciation rights (SARs). On
October 17, 1994, the Stock Plan was amended to include
outside directors. The Stock Plan covers a maximum of 600,000
shares of S&T common stock and expires ten years from the date of
board approval.
S&T grants stock options at exercise prices not less than the
greater of the fair market value of common stock on stock on
the date of grant or the par value of S&T common stock. SARs
may be granted concurrently with the grant of nonstatutory
stock options (Related SARs) or independently. SARs entitle
the holder to receive either cash or shares of S&T common
stock equal to the excess of the fair market value of the
shares subject to the option over the fair market value of a
share of common stock on the grant date.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Stock options and SARs granted under the Stock Plan are not
exercisable before the six month vesting period from the date of
grant. There were no SARs or Related SARs issued or outstanding
at December 31, 1996 and 1995. The following table summarizes
the changes in the incentive stock options outstanding during
1996, 1995 and 1994:
<TABLE>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Number Option Number Option Number Option
of shares price of shares price of shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 411,500 $20.90 250,500 $17.27 128,000 $15.61
Granted 166,500 30.88 165,000 26.25 122,500 19.00
Exercised (22,000) 15.10 (4,000) 13.63 -- --
Outstanding at end
of year 556,000 $24.12 411,500 $20.90 250,500 $17.27
Exercisable at end
of year 389,500 $21.23 246,500 $17.33 128,000 $15.61
</TABLE>
The grant price of all options are equal to the fair market
value of S&T common stock at the grant date.
<TABLE>
<CAPTION>
The following table summarizes the range of exercise prices at
December 31:
1996 1995 1994
Contractual Contractual Contractual
Shares Exercise Remaining Shares Exercise Remaining Shares Exercise Remaining
Outstanding Price Life(Years)Outstanding Price Life(Years)Outstanding Price Life(Years)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 40,000 $13.63 6 54,000 $13.63 6 58,000 $13.63 6
1993 64,000 17.25 7 70,000 17.25 7 70,000 17.25 7
1994 120,500 19.00 8 122,500 19.00 8 122,500 19.00 8
1995 165,000 26.25 9 165,000 26.25 9 - - -
1996 166,500 30.88 10 - - - - - - -
Total 556,000 $24.12 8.6 411,500 $20.90 7.8 250,500 $17.27 7.3
</TABLE>
Options are granted in December and have a six month vesting
period and a ten year contractual life.
S&T accounts for stock options in accordance with APB 25.
The following proforma information regarding net income
and earnings per share assumes the adoption of Statement
No. 123 for stock options granted subsequent to December 31,
1994. (Disclosure is not required for options granted prior
to 1995). The estimated fair value of the options is
amortized to expense over the option and vesting period. The
fair value was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-
average assumptions for 1996 and 1995, respectively: risk-
free interest rates of 6.12% and 5.44%; a dividend yield of
3.0%; volatility factors of the expected market price of
S&T's common stock of .161 and a weighted-average expected
life of 5 years.
<TABLE>
1996 1995
<S> <C> <C>
Proforma net income $22,749 $20,434
Proforma earnings per share $2.05 $1.82
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because S&T's employee stock options have characteristics
significantly different from those of traded options, and
because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
S&T also sponsors a dividend reinvestment plan (Dividend Plan)
whereby shareholders may purchase shares of S&T common stock
at market value with reinvested dividends and voluntary cash
contribution. The Dividend Plan covers a maximum of 400,000
shares of S&T common stock. At December 31, 1996, 29,786
shares were available for purchase under the Dividend Plan.
Note Q - S&T Bancorp, Inc. (parent company only)
Condensed Financial Information
<TABLE>
<CAPTION>
Balance Sheets at December 31:
<S> 1996 1995
Assets <C> <C>
Cash $2,526 $273
Investments in
Bank subsidiary 107,761 108,184
Nonbank subsidiaries 68,995 61,198
Total Assets $179,282 $169,655
Liabilities
Dividends payable $2,769 $2,361
Other borrowed funds 230 340
Other liabilities 7 7
Total Liabilities 3,006 2,708
Total Shareholders' Equity 176,276 166,947
Total Liabilities and
Shareholders' Equity $179,282 $169,655
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
<TABLE>
<CAPTION>
Statements of Income for the years ended December 31:
1996 1995 1994
<S> <C> <C> <C>
Dividends from bank subsidiary $10,381 $8,313 $6,823
Investment income 64 38 38
Income before equity
in undistributed net income
of subsidiaries 10,445 8,351 6,861
Equity in undistributed net income of:
Bank subsidiary 8,411 8,757 8,480
Nonbank subsidiaries 4,393 3,361 3,103
Net Income $23,249 $20,469 $18,444
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows for the years ended December 31:
1996 1995 1994
<S> <C> <C> <C>
Operating Activities
Net Income $23,249 $20,469 $18,444
Equity in undistributed
net income of subsidiaries (12,804) (12,120) (11,583)
Change in other assets/liabilities (408) (445) (396)
Total Provided by Operating Activities 10,037 7,904 6,465
Investing Activities
Distributions from (to) bank subsidiaries 7,100 550 (1,000)
Total Used in Investing Activities 7,100 550 (1,000)
Financing Activities
Dividends (9,972) (7,867) (6,427)
(Acquisition) sale of treasury stock (4,912) (407) 97
Total Used in Financing Activities (14,884) (8,274) (6,330)
Increase (decrease) in Cash 2,253 180 (865)
Cash at Beginning of Year 273 93 958
Cash at End of Year $2,526 $273 $93
</TABLE>
Note R - Regulatory Matters
S&T is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
the minimum capital requirements can initiate certain mandatory
and possibly additional discretionary actions by regulators that,
if undertaken, could have a direct material effect on S&T's
financial statements. Under capital guidelines and the regulatory
framework for prompt corrective action, S&T must meet
specific capital guidelines that involve quantitative measures
of the S&T's assets, liabilities and certain off-balance-
sheet items as calculated under regulatory accounting practices.
S&T's capital amounts and classification are also subject
to qualitative judgments by the regulators about components,
risk weightings and other factors.
<PAGE>
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Quantitative measures established by regulation to ensure capital
adequacy require S&T to maintain minimum amounts and ratios
of Tier I and Total capital to risk-weighted assets and of Tier I
capital to average assets. As of December 31, 1996 and 1995
S&T meets all capital adequacy requirements to which it is
subject. To be classified as well capitalized, S&T must
maintain minimum Tier I risk-based, Total risk-based, and
Tier I leverage ratios as set forth in the table below.
<TABLE>
<CAPTION>
The following table summarizes S&T's capital amounts and ratios: To Be Well
Capitalixed Under
For Capital Prompt Corrective
Actual Adequacy Purposed Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $167,719 14.33 % $93,661 8.00 %$117,076 10.00%
Tier I Capital
(to Risk Weighted Assets) 153,085 13.08 46,830 4.00 70,245 6.00%
Tier I Capital
(to Average Assets) 153,085 10.28 59,592 4.00 74,490 5.00%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) 157,882 14.98 84,336 8.00 105,420 10.00%
Tier I Capital
(to Risk Weighted Assets) 144,704 13.73 42,168 4.00 63,252 6.00%
Tier I Capital
(to Average Assets) 144,704 10.38 55,776 4.00 69,720 5.00%
</TABLE>
The most recent notification from the Federal Deposit Insurance
Corporation categorized S&T Bank as well capitalized under the
regulatory framework for prompt corrective action. At December
31, 1996 S&T Bank's Tier I and Total capital ratios were 9.29%
and 10.54%, respectively and Tier I capital to average assets
was 7.26%. At December 31, 1995, S&T Bank's Tier I and Total
capital ratios were 10.05% and 11.30%, respectively and Tier I
capital to average assets was 7.53%.
Note S - Acquisition
On November 26, 1996, S&T announced the signing of a definitive
Agreement and Plan of Merger to acquire Peoples Bank of Unity.
Peoples is a $290 million state chartered bank, headquartered
in Plum Borough, a suburb of Pittsburgh, Pennsylvania. The
merger, which is based on a fixed exchange ratio of 26.25 shares
of S&T common stock for each outstanding share of Peoples.
Peoples shareholders will receive up to 3,036,075 shares of S&T
Common Stock for 115,660 shares of Peoples Common Stock out-
standing. The transaction will be accounted for as a pooling-
of-interests.
The transaction, which is subject to approval by the appropriate
regulatory authorities, is expected to be completed during the
second quarter of 1997.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
S&T Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of S&T Bancorp,
Inc. and subsidiaries (S&T) as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of S&T's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assuance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of S&T Bancorp, Inc.
and subsidiaries at December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Pittsburgh, Pennsylvania
January 17, 1997
<PAGE>
Stock Prices and Dividend Information
Selected Financial Information
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except per share data)
Stock Prices and Dividend Information
S&T Bancorp, Inc.'s common stock is listed on the Nasdaq
National Market System. The range of sales prices for the
years 1996 and 1995 are as follows and are based upon
information obtained from Nasdaq. As of the close of
business January 17, 1997, there were 2,615 shareholders of
record of S&T Bancorp, Inc. Dividends paid by S&T are
provided from the Bank's dividends to S&T. In addition, the
payment of dividends by the Bank to S&T is subject to the
restrictions described in Note K to the Consolidated Financial
Statements. The cash dividends declared shown below
represent the historical per share amounts for S&T Bancorp,
Inc. common stock.
<TABLE> Price Range of Cash Dividends
Common Stock Declared
1996 Low High
<S> <C> <C> <C>
Fourth Quarter $30.00 $31.75 $0.25
Third Quarter 29.75 31.50 0.24
Second Quarter 29.50 31.00 0.24
First Quarter 28.00 30.75 0.21
1995
Fourth Quarter $24.63 $30.50 $0.21
Third Quarter 23.88 25.00 0.18
Second Quarter 20.00 23.75 0.18
First Quarter 19.50 20.25 0.17
</TABLE>
Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31:
1996 1995 1994 1993 1992
Income Statement:
<S> <C> <C> <C> <C> <C>
Interest income $111,431 $107,017 $92,654 $86,923 $89,056
Interest expense 51,544 49,998 39,346 36,965 43,099
Provisions for loan losses 4,300 3,800 3,500 3,600 5,778
Net interest income after
provision for loan losses 55,587 53,219 49,808 46,358 40,179
Noninterest income 11,194 8,309 6,914 6,571 6,362
Noninterest expense 35,511 33,523 31,595 30,768 27,374
Income before income taxes 31,270 28,005 25,127 22,161 19,167
Applicable income taxes 8,021 7,536 6,683 5,818 4,886
Net income $23,249 $20,469 $18,444 $16,343 $14,281
Per share data: (1)
Net income $2.10 $1.82 $1.63 $1.45 $1.28
Dividends declared 0.94 0.74 0.61 0.50 0.40
Book value 15.92 14.85 12.57 10.75 9.73
</TABLE>
(1) Per share amounts have been restated to record the
effect of a two-for-one common stock split in the form
of a 100% stock dividend distributed on September 15, 1994.
<PAGE>
Selected Financial Data
Quarterly Selected Financial Data
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Balance sheet totals (period end):
Years Ended December 31:
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total assets $1,495,945 $1,400,702 $1,293,737 $1,194,037 $1,106,755
Securities 381,945 350,340 306,124 339,129 355,197
Net loans 1,029,085 960,881 910,077 783,229 679,960
Total deposits 1,032,274 979,625 903,240 898,258 899,597
Securities sold under
repurchase agreements 114,205 122,794 169,871 127,731 85,013
Other liabilities 173,190 131,336 79,039 46,955 13,199
Total shareholders' equity 176,276 166,947 141,587 121,093 108,946
</TABLE>
Quarterly Selected Financial Data
<TABLE>
1996 1995
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Income Statement:
Interest income $28,591 $28,235 $27,512 $27,093 $27,472 $27,177 $26,780 $25,588
Interest expense 13,254 13,017 12,659 12,614 12,911 12,822 12,577 11,688
Provision for loan losses 1,050 825 1,450 975 1,200 1,100 750 750
Net interest income after
provision for loan losses 14,287 14,393 13,403 13,504 13,361 13,255 13,453 13,150
Noninterest income 2,828 3,003 2,680 2,683 2,277 2,099 2,044 1,889
Noninterest expense 9,037 9,353 8,423 8,698 8,441 8,160 8,577 8,345
Income before income taxes 8,078 8,043 7,660 7,489 7,197 7,194 6,920 6,694
Applicable income taxes 2,125 2,075 1,908 1,913 1,935 1,986 1,842 1,773
Net income $5,953 $5,968 $5,752 $5,576 $5,262 $5,208 $5,078 $4,921
Per Share Data:
Net income $0.54 $0.54 $0.52 $0.50 $0.47 $0.46 $0.45 $0.44
Dividends declared 0.25 0.24 0.24 0.21 0.21 0.18 0.18 0.17
Book value 15.92 15.28 14.78 14.67 14.85 14.08 13.57 13.09
Average Balance sheet totals:
Total assets $1,464,554 $1,429,681 $1,410,836 $1,392,808 $1,373,584 $1,341,785 $1,319,079 $1,288,334
Liabilities 335,310 343,518 340,645 321,501 341,003 310,172 301,908 290,507
Net loans 1,010,030 975,644 957,693 955,218 955,003 941,364 929,544 913,028
Total deposits 1,013,513 999,893 990,370 970,535 959,491 939,319 914,939 902,076
Securities sold under
repurchase agreements 134,260 143,382 136,539 126,536 126,461 149,506 156,909 168,479
Other liabilities 140,141 119,059 119,641 127,677 124,230 95,391 95,332 71,037
Total shareholders' equity 176,641 167,347 164,285 168,061 163,402 157,569 151,899 146,742
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and
Results of Operations
Financial Condition
The $71.8 million growth of average earning assets in
1996 was primarily the result of an excellent lending
year for S&T Bancorp, Inc. (S&T) and increase in securities.
Average loan and average security balances increased by
$41.2 million and $31.0 million, respectively, during 1996.
The bulk of funding for this loan and security growth was
primarily provided by a $64.5 million increase in deposits,
a $14.1 million increase to average earnings retained,
offset by a $1.7 million decrease in average borrowings.
Lending Activity
Increases in average loans for 1996 and 1995 were
$41.2 million and $105.7 million, respectively.
Changes in the average composition of the loan
portfolio during 1996 included increases of $12.3
million of commercial loans, $29.8 million of residential
mortgages offset by a $0.9 million decrease in installment
loans. Composition changes include decreases from the
effects of $13.1 million of commercial loans and $8.2
million of student loans that were sold or
participated in 1996.
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. Total commercial loan participations sold in
1996 and 1995 were $13.1 million and $32.3 million,
respectively. The rationale for these participations
included credit risk diversification, servicing income
generation and the development of alternative funding
sources.
Commercial real estate loans currently comprise 21.9%
of the loan portfolio. Although commercial 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 being
refinanced from other banks.
Residential mortgage lending continued to be a
strategic focus for 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
mortgage lending policies which 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. Adjustable rate mortgages
with repricing terms of one, three and five years
comprised 36% of the residential mortgage portfolio
in 1996.
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 the indirect
market during 1996 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 $3.7 million of
outstanding auto leases. Also during the second quarter
of 1996, $8.2 million of the student loan portfolio was
sold because of newly issued government regulations
<PAGE>
and restrictions significantly reduced much of the
profit potential associated with the product.
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%.
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 auto-
mobiles and 125% of "black book" dealer value for used
automobiles.
Management intends to continue to pursue quality loans
in all lending categories within our market area in
order to honor our commitment to provide the best
service possible to our customers. S&T's loan
portfolio primarily represents loans to businesses and
consumers in our market area of western Pennsylvania
rather than to borrowers in other areas of the country
or to borrowers in other nations. S&T has not
concentrated its lending activities in any industry or
group. During the past several years, management has
concentrated on building an effective credit and loan
administration staff which assists management in
evaluating loans before they are made and identifies
problem loans early.
Security Activity
Average securities increased $31.0 million in 1996 and
decreased $15.7 million in 1995. The 1996 increase is
attributable to security yields being reasonable
investment alternatives to the depressed yields
in the market for new loans during the first half of
1996. The 1995 decrease was the result of utilizing
funds from the maturities and sales of securities to
fund loan growth. Loans typically provide higher yields
and have the potential of developing other banking
relationships. The largest components of the 1996
increase included $38.4 million of U.S. treasury and
agency securities, $4.5 million in corporate equities
and $1.5 million in Federal Home Loan Bank (FHLB)
capital stock, offset by decreases of $9.5 million of
collateralized mortgage obligations (CMOs), $2.7 million
in tax-exempt state and municipal securities and $1.2
million in corporate debt securities.
The CMOs are principally Planned Amortization Class
(PAC) tranches of U.S. government agencies and were
purchased during 1992 as alternatives to loans in a
<PAGE>
period of declining loan demand, and due to their
attractive rates and reasonable risk factors.
Declining interest rates have caused an acceleration
of principal prepayments for these securities and
$4.2 million are remaining at December 31, 1996. 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 1996,
the equity portfolio yielded 10.6% on a fully
taxable equivalent basis and had unrealized gains, net
of nominal unrealized losses, of $33.6 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 includes
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 December 31, 1996, unrealized gains, net
of nominal unrealized losses, for securities
classified as available for sale were approximately
$35.7 million.
Nonearning Assets
Average nonearning assets increased $1.3 million in
1996 and $2.6 million in 1995. The 1996 increase can
be primarily attributed to an increase in accrued
interest receivable on a higher earning asset balance.
The 1995 increase can be primarily attributed to
low income housing tax credit (LIHTC) limited
partnerships entered into during 1995, as well as
an increase in accrued interest receivable on a
higher earning asset balance.
Allowance for Loan Losses
The year-end balance in the allowance for loan losses
increased to $17.0 million or 1.63% of total loans at
December 31, 1996 as compared to $15.9 million or
1.63% of total loans at 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, which includes nonaccrual loans
past due 90 days or more, at December 31, 1996 was
$8.3 million or 0.79% of total loans. This compares to
nonperforming loans of $2.8 million or 0.29% of total
loans at December 31, 1995. The increase in non-
performing loans is primarily related to one commercial
real estate loan in which management believes S&T
is adequately collateralized by real property. 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 $64.5 million in
1996 and $24.7 million in 1995. The mix of average
deposits in 1996 changed with time deposits and money
market accounts increasing $43.7 million and $25.6
million, respectively, while interest-bearing
demand and savings accounts decreased $10.5 million.
Noninterest-bearing deposits increased by $5.7 million
to 5.4% in 1996 and were approximately 11% and 12%
<PAGE>
of total deposits during 1996 and 1995. Some of these
changes can be partially explained by customers
shifting funds to higher-yielding, longer-term
certificates of deposits as interest rates increase.
In addition, a new, successful strategy for money
market account pricing was implemented in order to
make these accounts more competitive with money
funds offered at brokerage firms.
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. Special rate deposits of $100,000 and
over were 9% and 7% of total deposits during 1996 and
1995, respectively, and primarily represent relationships
with local customers in our market area. In addition,
S&T has the ability to access both public and private
markets to raise long-term funding if necessary.
During 1995, S&T issued $25 million of retail
certificates of deposits through two brokerage firms,
further broadening the availability of reasonably
priced funding sources. At December 31, 1996, there
were $16.9 million of these brokered retail certificates
of deposits outstanding.
Borrowings
Average borrowings increased $1.7 million in 1996 and
were comprised of retail repurchase agreements
(REPOS), wholesale REPOS, federal funds purchased and
long-term borrowings. S&T defines repurchase
agreements with its 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 decreased
approximately $18.1 million for 1996 and increased
$19.3 million for 1995. S&T views retail REPOS as a
relatively stable source of funds since most of
these accounts are with local, long-term customers.
During 1996, there was an increase of funds migration
from retail REPOS to special rate deposits. The
recent reduction in Federal Deposit Insurance
Corporation (FDIC) insurance premiums have allowed
these two products to become more comparable in price.
Wholesale REPOS and federal funds purchased averaged
$70.5 million in 1996, a slight increase of $0.9 million
from the 1995 averages. The increase in core deposits
and more moderate loan growth during 1996 have decreased
the usage of these types of fundings.
The interest rate risk of various funding strategies
is managed through S&T's Asset Liability Committee
(ALCO). During 1996, ALCO authorized three additional
long-term borrowings of $30.0 million at a fixed rate
and $25.0 million at an adjustable rate with the FHLB.
At December 31, 1996, S&T had long-term borrowings
outstanding of $38.1 million at a fixed rate and $98.5
million at an adjustable rate with the FHLB. The
purpose of these borrowings was to provide matched,
fixed rate fundings for newly originated loans, and to
mitigate the risk associated with volatile liability
fundings.
Another ALCO strategy used to manage interest rate
risk is the use of interest rate swaps. At December
31, 1996, S&T had $29.0 million of notional value
interest rate swaps. S&T pays a fixed rate of 5.3%
on these instruments and receives a variable rate
based upon the London Interbank Offer Rate. The
purpose of these off-balance sheet arrangements is
to lock-in funding costs of fixed rate loans.
<PAGE>
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 December 31, 1996 and 1995 was $0.2
million and $0.3 million, respectively. 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.
Trust Assets
The year-end market value balance of the S&T Bank
trust department assets, which are not accounted for
as part of the assets of S&T, increased 12% in 1996
and 20% in 1995. These increases were primarily the
result of management's effort to expand the marketing
of trust products and services during the periods.
RESULTS OF OPERATIONS
Year Ended December 31, 1996
Net Income
Net income was a record $23.2 million or $2.10 per
share in 1996, representing an 15% increase from the
$20.5 million or $1.82 per share in 1995. The return
on average assets increased to 1.63% for 1996 as
compared to 1.54% for 1995. The return on average
equity increased to 13.75% for 1996 compared to 13.21%
for 1995. Increases to the net interest margin and
other revenue contributed significantly to this
enhanced earnings performance.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $2.9 million or 5% for 1996 compared
to 1995. The net yield on interest-earning assets
decreased slightly by 5 basis points to 4.72%, but
net interest income was positively affected by the
$71.8 million or 6% increase in average earning
assets.
In 1996, average loans increased $41.2 million and
average securities increased $31.0 million, comprising
most of the earning asset growth. The yields on
average loans decreased by 22 bp and average securities
increased by 14 bp during this period.
<PAGE>
Average interest bearing deposits provided $58.8
million of the funds for the growth in average loans
and average securities at a cost of 4.43%, relatively
unchanged from 1995. However, the effects of declines
in average loan yields were partially offset by a
35 bp decrease in the cost of REPOS and other
borrowed funds, and the aforementioned increase in
securities yields.
Also positively offsetting net interest income was a
$14.7 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.
<PAGE>
Maintaining consistent spreads between earning assets
and costing liabilities is very significant to S&T's
financial performance since net interest income
comprises 84% of operating revenue. The level and mix
of earning assets and funds is continually monitored
by ALCO in order to mitigate the interest rate
sensitivity and liquidity risks of the balance sheet.
A variety of asset/liability 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 is an amount added to
the allowance for loan losses against which loan
losses are charged. The provision for loan losses
was $4.3 million for 1996 compared to $3.8 million
in 1995. The increased provision expense is the
result of management's assessment of economic
conditions, credit quality statistics, loan
administration effectiveness and other factors that
would have an impact on 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 $3.2 million for 1996 compared to
$2.2 million for 1995. The increase in net charge-offs
is primarily related to partial charge-offs for two
problem commercial loans. The partial charge-offs
were made in order to reflect the net loan balances
closer to the market value of collateral for these
loans. Nonperforming loans to total loans increased
to 0.79% at December 31, 1996, primarily due to
one large commercial real estate loan being
classified as nonperforming in December, 1996.
Also affecting the amount of provision expense is
loan growth. Despite a $69.3 or 7% increase in loans,
and a $1.0 million increase in net charge-offs, S&T's
allowance for loan losses to total loans was 1.63% at
December 31, 1996, unchanged from December 31, 1995.
Noninterest Income
Noninterest income increased $2.9 million or 35% in
1996 compared to 1995. Increases included $0.4 million
or 18% in trust income, $0.7 million or 23% in service
charges and fees, a $0.4 million or 23% increase in
other income, and a $1.3 million or 135% increase in
security and nonrecurring gains.
<PAGE>
The increase in trust income was attributable to
bankwide incentive programs 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.
The increase in other income was a result of increased
performance for brokerage activities, letters of
credit and equity call fees. These areas were the
focus of several 1996 strategic initiatives and
product enhancements implemented in order to expand
this source of revenue.
Security and nonrecurring gains were primarily
attributable to the sales of equity securities in
order to maximize returns by taking advantage of
market opportunities when presented.
<PAGE>
Noninterest Expense
Noninterest expense increased $2.0 million or 6% in
1996 compared to 1995. The increase is primarily
attributable to increased employment and other
expenses. S&T's efficiency ratio, which measures
noninterest expense as a percent of recurring
noninterest income plus net interest income on a fully
taxable equivalent basis, was 48.53% and 50.10% in
1996 and 1995, respectively.
Staff expense increased 3% or $0.5 million in 1996.
The increase resulted from normal merit increases,
higher incentive payments relative to commercial loan
activity and several new hires relating to the opening
of the new Greensburg office. Offsetting these
increases is a higher deferral of loan origination
costs resulting from increased commercial loan
activity and lower benefit costs. Average full-time
equivalent staff increased from 567 to 572 in 1996.
S&T maintains a defined benefit retirement plan for
employees. Accounting guidelines of the Financial
Accounting Standards Board require certain assumptions
to be made about long-term interest rates in order to
apply present value calculations. S&T utilized a
discount rate that approximated the present value
yield on long-term treasury bonds of 7.0% in 1996 and
6.5% in 1995.
Other expenses increased 14% or $1.3 million in 1996
as compared to 1995. The increase is primarily
attributable to a $0.8 million increase in accounting,
professional consulting and legal fees. During 1996,
a $0.5 million legal accrual was established for the
potential loss related to a lawsuit initiated by
bankruptcy trustees of a former S&T loan customer. At
issue is the foreclosure rights of S&T for property
pledged as loan collateral. S&T is currently
appealing the initial court ruling. Other increases
in legal, as well as increases in accounting and
professional consulting fees are a result of the
additional services related to merger negotiations
with the Peoples Bank of Unity (Peoples Bank). A
definitive agreement for the merger was announced on
November 26, 1996 and is expected to consummate in the
second quarter 1997. Expense increases to occupancy,
equipment, marketing, data processing, and other were
not significant and reflect normal changes due to
activity increases, organization expansion, and fee
increases from vendors.
During 1995, FDIC premiums were eliminated resulting
in expense savings of $0.8 million for the first half
of 1996. However, S&T had $168 million of Oakar
deposits subject to the Savings Association Insurance
Fund (SAIF) rate of 23 basis points. On September 30,
1996, legislation was passed for recapitalization of
the SAIF fund. The SAIF fund was recapitalized by
imposing a one-time surcharge of 65.7 basis points on
any financial institution holding SAIF deposits. This
surcharge resulted in expense of $0.9 million to S&T.
For future years, the insurance rate for SAIF deposits
is expected to be significantly lower.
Federal Income Taxes
Federal income tax expense increased $0.5 million to
$8.0 million in 1996 as a result of higher pretax
income in 1996. The 1996 effective tax rate of 26% was
below the 35% statutory tax rate due to the tax
benefits resulting from tax-exempt interest,
excludable dividend income and the tax benefits
associated from LIHTC projects. S&T currently does not
incur any alternative minimum tax.
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1995
Net Income
Net income was a record $20.5 million or $1.82 per
share in 1995, representing an 11% increase from the
$18.4 million or $1.63 per share in 1994. The return
on average assets increased to 1.54% for 1995 as
compared to 1.49% for 1994. The return on average
equity increased to 13.21% for 1995 compared to 13.03%
for 1994. An improved net interest margin contributed
significantly to this enhanced earnings performance.
Net Interest Income
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. 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. A variety of
asset/liability management strategies were
successfully implemented, within prescribed ALCO risk
parameters, that enabled S&T to maintain a net
interest margin consistent with historical levels.
On a fully taxable equivalent basis, net interest
income increased $3.8 million or 7% for 1995 compared
to 1994. The net yield on interest-earning assets
decreased slightly by 2 basis points to 4.77%, but net
interest income was positively affected by the $89.0
million or 8% increase in average earning assets.
In 1995, the $89.0 million of average earning asset
growth was primarily due to average loans increasing
$105.7 million, or 13%. Partially offsetting the
effects of increases in average loans was a $15.7
million decrease in average securities. Also during
this period, the yields on average loans increased 62
basis points and the yields on average securities
increased by 40 basis points.
Funding for the 1995 loan growth was provided by a
variety of sources, including the $15.7 decrease in
average securities. S&T benefited from the increased
yields in average earning assets, but funding costs
also increased, thereby offsetting any positive
effects to the net yield. Average deposits increased
$22.3 million in volume and 55 bp in interest costs.
Average REPOS and other borrowed funds increased $51.1
million and 126 bp. Average net free funds, the excess
of demand deposits, other non-interest bearing liabilities
and shareholders' equity over non-earning assets,
increased by $15.4 million, partially offsetting the
effect of increased costs for deposits and other
borrowings.
Provision for Loan Losses
The provision for loan losses is an amount added to
the allowance against which loan losses are charged.
The provision for loan losses was $3.8 million for
1995 compared to $3.5 million in 1994. Provision
expense is the result of management's assessment of
economic conditions, credit quality statistics, loan
administration effectiveness and other factors that
would have an impact on probable losses in the loan
<PAGE>
portfolio. Net loan charge-offs totaled $2.2 million
for 1995 compared to $2.6 million for 1994. S&T's
allowance for loan losses at December 31, 1995 was
$15.9 million, or 1.63% of total loans compared to
$14.3 million, or 1.55% of total loans at December 31,
1994. Nonperforming loans to total loans increased 8
basis points or 38% since December 31, 1994 to 0.29%
at December 31, 1995.
Noninterest Income
Noninterest income increased $1.4 million or 20% in
1995 compared to 1994. Increases included $0.2 million
or 9% in trust income, $0.5 million or 19% in service
charges and fees, a $0.2 million or 11% increase in
other income, and a $0.5 million or 128% increase in
nonrecurring gains.
The increase in trust income was attributable to
bankwide incentive programs and expanded marketing
efforts designed to develop new trust business. The
increase in service charges on deposit accounts was
primarily the result of management's continual effort
to implement reasonable fees for services performed
and to manage closely the collection of these fees.
The increase in other income was a result of increased
performance for brokerage activities, debit/credit
cards and credit insurance. These areas were the focus
of several 1995 strategic initiatives and product
enhancements implemented in order to expand this
source of revenue.
Nonrecurring gains were primarily attributable to the
sales of equity securities and a $0.2 million gain
from the aforementioned student loan sale.
Noninterest Expense
Noninterest expense increased $1.9 million or 6% in
1995 compared to 1994. The increase is primarily
attributable to increased employment and other
expenses, offset by a decrease in Federal Deposit
Insurance Corporation (FDIC) premiums. S&T's
efficiency ratio, which measures noninterest expense
as a percent of recurring noninterest income plus net
interest income on a fully taxable equivalent basis,
was 50.10% and 50.52% in 1995 and 1994, respectively.
Staff expense increased 9% or $1.4 million in 1995.
The increase resulted from normal merit increases,
higher incentive payments relative to commercial loan
activity, several new hires relating to strategic
initiatives in the lending, trust and cash management
functions and changes in the thrift plan
contributions. Offsetting these increases is a higher
deferral of loan origination costs resulting from
commercial loan activity. Average full-time equivalent
staff increased from 552 to 567 in 1995.
S&T maintains a defined benefit retirement plan for
employees. Accounting guidelines of the Financial
Accounting Standards Board require certain assumptions
to be made about long-term interest rates in order to
apply present value calculations. S&T utilized a
discount rate that approximated the present value
yield on long-term treasury bonds of 6.5% in 1995 and
8.0% in 1994.
Other expenses increased 14% or $1.1 million in 1995
as compared to 1994. The increase is primarily
attributable to a $0.3 million funding of S&T's
<PAGE>
Charitable Foundation, $0.3 million increase in
marketing and customer relations, and a $0.2 million
increase of partnership losses from LIHTC investments.
The funding of the Charitable Foundation will allow
S&T to fund community contributions well into the
future from the Foundation and help control future
costs. The LIHTC partnership losses are offset by tax
credits. During 1995, FDIC premiums were reduced
from 23 basis points to 4 basis points resulting in
expense savings of $0.8 million for the year.
Federal Income Taxes
Federal income tax expense increased $0.9 million to
$7.5 million in 1995 as a result of higher pretax
income in 1995. The 1995 effective tax rate of 27% was
below the 35% statutory tax rate due to the tax
benefits resulting from tax-exempt interest,
excludable dividend income and the tax benefits
associated from LIHTC projects. S&T currently does not
incur any alternative minimum tax.
Liquidity and Interest Rate Sensitivity
Liquidity refers to the ability to satisfy the
financial needs of depositors who want to withdraw
funds or borrowers needing access to funds to meet
their credit needs. Interest rate sensitivity
management seeks to avoid fluctuating net interest
margins and to enhance net interest income through
periods of changing interest rates. ALCO is
responsible for establishing and monitoring the
liquidity and interest rate sensitivity guidelines,
procedures and policies.
The principal sources of asset liquidity are cash and
due from banks, interest-earning deposits with banks,
federal funds, investment securities that mature
in one year or less and the market value of securities
available for sale. At December 31, 1996, the total of
such assets was approximately $474.6 million or 32% of
consolidated assets. However, liability liquidity is
much more difficult to quantify, but is further
enhanced by a stable core deposit base, access to
credit lines at other financial institutions and S&T's
ability to renew maturing deposits. Certificates of
deposit in denominations of $100,000 or more
represented 9% of deposits at December 31, 1996 and
were outstanding primarily to local customers. S&T's
ability to attract deposits and borrowed funds depends
primarily on continued rate competitiveness,
profitability, capitalization and overall financial
condition.
Beyond the issue of having sufficient sources to fund
unexpected credit demands or deposit withdrawals,
liquidity management also is an important factor in
monitoring and managing interest rate sensitivity
issues through ALCO. Through forecast and simulation
models, ALCO is also able to project future funding
needs and develop strategies for acquiring funds at a
reasonable cost.
ALCO uses a variety of measurements to monitor the
liquidity position of S&T. These include liquidity
gap, net alternative funding resources, net loans to
assets, net loans to deposits, volatile liabilities
and liquidity ratio. As of December 31, 1996, all of
these measurements were in compliance with ALCO policy
limitations.
Because the assets and liabilities of S&T are
primarily monetary in nature, the presentation and
analysis of cash flows in formats prescribed by
Financial Accounting Standards Board Statement No.
95 , "Accounting for Statements of Cash Flows"
<PAGE>
(Statement No. 95), are less meaningful for managing
bank liquidity than for other non-financial
companies. Funds are typically provided from current
earnings, maturity and sales of securities available
for sale, loan repayments, deposits and borrowings.
The primary uses of funds include new loans,
repayment of borrowings, the purchase of securities
and dividends to shareholders. The level and mix of
funds sources and uses are constantly monitored and
adjusted by ALCO in order to maintain credit,
liquidity and interest rate risks within prescribed
policy guidelines while maximizing earnings.
ALCO monitors and manages interest rate sensitivity
through gap, simulation and duration analyses in order
to avoid unacceptable earnings fluctuations due to
interest rate changes. S&T's gap model includes
certain management assumptions based upon past
experience and the expected behavior of customers
during various interest rate scenarios. The
assumptions include principal prepayments for
mortgages, installment loans and CMOs and classifying
the demand, savings and money market balances by
degree of interest rate sensitivity. Utilizing the
above assumptions results in ratios of interest rate
sensitive assets to interest sensitive liabilities for
the six-month and twelve-month intervals ended
December 31, 1996 of .91% for both periods.
Assuming immediate repricings for interest-bearing
demand, savings and money market accounts, these
ratios would be .68% and .74%, respectively.
Capital Resources
The primary source of equity growth for S&T is
earnings retention. Hence, capital growth is a
function of net income less dividends paid to
shareholders, and treasury stock activities.
Shareholders' equity increased $9.3 million at
December 31, 1996 compared to December 31, 1995. Net
income was $23.2 million and dividends declared to
shareholders were $10.3 million for 1996. S&T paid 43%
of 1996 net income in dividends, equating to an annual
dividend rate of $0.94 per share. Also affecting
capital was an increase of $1.3 million in unrealized
gains on securities available for sale and the net
acquisition of treasury shares of $4.9 million.
The book values of S&T's common stock increased 7.2%
from $14.85 at December 31, 1995 to $15.92 at December
31, 1996 primarily due to the increase in
shareholders' equity from retained earnings and the
increase in unrealized holding gains on securities
available for sale.
S&T continues to maintain a strong capital position
with a leverage ratio of 10.3% as compared to the 1996
minimum regulatory guideline of 3.0%. S&T's risk-based
capital Tier 1 and Total ratios were 13.1% and 14.3%,
respectively, at December 31, 1996, which places S&T
well above the Federal Reserve Board's risk-based
capital guidelines of 4.0% and 8.0% for Tier 1 and
Total, respectively. In addition, management believes
that S&T has the ability to raise additional capital
if necessary. S&T sponsors an Employee Stock Ownership
Plan (ESOP). The ESOP shares are allocated to
employees as part of S&T's contributions to its
employee thrift and profit sharing plans. At December
31, 1996, 23,000 unallocated shares were held by the
ESOP for future allocation to employees.
During the fourth quarter of 1994, S&T announced a
program to annually acquire up to 3% of its common
stock as treasury shares. In 1996, S&T acquired
257,525 treasury shares on the open market, and used
89,614 treasury shares to fund the employee stock
<PAGE>
option plan, its dividend reinvestment plan for
shareholders and other general corporate purposes. The
stock repurchase program was rescinded on November 25,
1996 in conjunction with the signing of the
definitive merger agreement with Peoples Bank.
In April 1993, shareholders approved the S&T Incentive
Stock Plan authorizing the issuance of a maximum of
600,000 shares of S&T's common stock in order to
assist in attracting and retaining employees of
outstanding ability and to promote the identification
of their interests with those of the shareholders of
S&T. On December 19, 1994, the Stock Plan was amended
to include outside directors. As of December 31, 1996,
582,000 nonstatutory stock options had been granted
to key employees and outside directors; 389,500 of
these options are currently exercisable.
Regulatory Matters
S&T and S&T Bank are subject to periodic examinations
by one or more of the various regulatory agencies.
During 1996, an examination was conducted by the
Pennsylvania Department of Banking. This examination
included, but was not limited to, procedures designed
to review lending practices, credit quality,
liquidity, operations and capital adequacy of S&T and
its subsidiaries. No comments were received from the
Pennsylvania Department of Banking which would have a
material effect on S&T's liquidity, capital resources
or operations. As further discussed in Note R to the
financial statements, S&T's current capital position
and results of regulatory examination allows it to
pay the lowest possible rate for FDIC deposit insurance.
Inflation
Management is aware of the significant effect
inflation has on interest rates and can have on
financial performance. S&T's ability to cope with this
is best determined by analyzing its capability to
respond to changing interest rates and its ability to
manage noninterest income and expense. S&T monitors
its mix of interest rate sensitive assets and
liabilities through ALCO in order to reduce the impact
of inflation on net interest income. Management also
controls the effects of inflation by reviewing the
prices of its products and services, by introducing
new products and services and by controlling overhead
expenses.
Business Uncertainties
Due to the static economy in S&T's mature market area
and the potential for decline, management believes
that values of loan collateral and the ability of
borrowers to repay could be adversely affected in an
economic downturn. However, because of S&T's adequate
allowance for loan losses, earnings strength and
strong capitalization, as well as the strength of
other businesses in our market area, management does
not expect a decline in S&T's ability to
satisfactorily perform if further decline in our
economy occurs. In addition, S&T's recent acquisitions
provide expanded market opportunities in areas with
better growth potential.
"Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995
The statements in this Annual Report 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.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No.33-60530 and Form S-3, No. 3-44164) pertaining to the 1992
Incentive Stock Plan and the Dividend Reinvestment Plan of S&T Bancorp, Inc.
and subsidiaries, respectively, and in the related Prospectuses of our
report dated January 17, 1997, with respect to the consolidated financial
statements of S&T Bancorp, Inc. and subsidiaries incorporated by reference
in this Annual Report (Form 10-K) for the year ended December 31, 1996.
Pittsburgh, Pennsylvania
March 13, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 33,319
<INT-BEARING-DEPOSITS> 109
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 353,780
<INVESTMENTS-CARRYING> 28,165
<INVESTMENTS-MARKET> 28,943
<LOANS> 1,046,128
<ALLOWANCE> 17,043
<TOTAL-ASSETS> 1,495,945
<DEPOSITS> 1,032,274
<SHORT-TERM> 114,980
<LIABILITIES-OTHER> 35,567
<LONG-TERM> 136,848
0
0
<COMMON> 29,552
<OTHER-SE> 146,724
<TOTAL-LIABILITIES-AND-EQUITY> 1,495,945
<INTEREST-LOAN> 87,176
<INTEREST-INVEST> 24,141
<INTEREST-OTHER> 114
<INTEREST-TOTAL> 111,431
<INTEREST-DEPOSIT> 39,130
<INTEREST-EXPENSE> 12,414
<INTEREST-INCOME-NET> 59,887
<LOAN-LOSSES> 4,300
<SECURITIES-GAINS> 2,172
<EXPENSE-OTHER> 35,511
<INCOME-PRETAX> 31,270
<INCOME-PRE-EXTRAORDINARY> 31,270
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,249
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 4.72
<LOANS-NON> 8,280
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 15,938
<CHARGE-OFFS> 5,188
<RECOVERIES> 1,993
<ALLOWANCE-CLOSE> 17,043
<ALLOWANCE-DOMESTIC> 17,043
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,191
</TABLE>
