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, 1998
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
incorporation of organization) (I.R.S. Employer Identification No.)
800 Philadelphia Street, Indiana, PA 15701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (724) 349-1800
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 26, 1999:
Common Stock, $2.50 par value - $660,439,670
The number of shares outstanding of the issuer's classes of common
stock as of February 26, 1999:
Common Stock, $2.50 par value - 27,325,493 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended
December 31, 1998 are incorporated by reference into Part II.
Portions of the proxy statement for the annual shareholders
meeting to be held April 19, 1999 are incorporated by reference
into Part III.
PAGE 1
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, 1998, S&T had $2.1 billion in total assets,
$260 million in total shareholders' equity and $1.4 billion in
total deposits. Deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") to the full extent provided by law.
Total trust assets were approximately $649 million at December
31, 1998. 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 38 offices located in
Armstrong, Allegheny, Indiana, Jefferson, Clarion, 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, 1998, S&T Bank had a total of 665 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 or regulatory provisions or proposals.
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.
PAGE 2
Item 1. BUSINESS -- Continued
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 pur-
chase 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 to bank holding
company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions
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 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 its
parent company or any nonbank affiliate generally are limited to 10%
of the bank subsidiary's capital and surplus, or 20% 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 3
Item 1. BUSINESS -- Continued
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, 1998, S&T's Tier 1
and Total capital ratios were 14.18 percent and 17.09 percent, respectively,
and the ratios of Tier 1 capital and Total capital to total risk-adjusted
assets for S&T Bank were 10.42 percent and 11.68 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, 1998 was
10.68 percent, and S&T Bank's leverage ratio was 7.48 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, 1998, S&T Bank paid $17.5 million in cash dividends to S&T.
PAG3 4
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," "undercapital-
ized," "significantly undercapitalized," or "critically under-
capitalized," as defined by the law. As of December 31, 1998,
S&T Bank was classified as "well capitalized." The classific-
ation 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
nation-wide and state-imposed concentration limits. Effective
June 1, 1997, S&T Bank has 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 represent-
ation in Indiana, Armstrong, Allegheny, Jefferson, Clarion,
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, PA; People's Bank headquartered in Ford City, PA; Indiana
First Savings Bank headquartered in Indiana, PA; Clearfield Bank
and Trust Company, headquartered in Clearfield, PA and Marion Center
National Bank, headquartered in Marion Center, PA. 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 5
Item 1. 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, municipal-
ities 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 1998, 1997 and 1996. The following table demonstrates the amount
that has been added to interest income per the summary of operations.
[CAPTION]
<TABLE>
Year Ended December 31
1998 1997 1996
(In thousands of dollars)
<S> <C> <C> <C>
Interest income per consolidated
statements of income $151,438 $141,101 $132,442
Adjustment to fully taxable
equivalent basis 3,048 3,335 3,469
Interest income adjusted to fully
taxable equivalent basis 154,486 144,436 135,911
Interest expense 69,156 62,284 58,589
Net interest income adjusted to fully
taxable equivalent basis $85,330 $82,152 $77,322
</TABLE>
PAGE 6
Item 1. BUSINESS -- Continued
Average Balance Sheet and Net Interest Income Analysis
[CAPTION]
<TABLE>
December 31
1998 1997 1996
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(IN THOUSANDS OF DOLLARS)
ASSETS
<S> <C> >C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning
assets:
Loans (1)(2) $1,314,984 $115,993 8.82% $1,234,733 $109,781 8.89% $1,131,186 $100,373 8.87%
Taxable investment
securities 502,889 35,784 7.12% 405,840 30,663 7.56% 411,560 30,871 7.50%
Tax-exempt investment
securities (2) 28,459 2,395 8.42% 41,850 3,461 8.27% 52,026 4,332 8.33%
Interest-earning
deposits with banks 83 6 7.23% 111 8 7.21% 73 5 6.85%
Federal funds sold 5,812 308 5.30% 9,528 523 5.49% 6,097 330 5.41%
Total interest-earning
assets (3) 1,852,227 154,486 8.34% 1,692,062 144,436 8.54% 1,600,942 135,911 8.49%
Noninterest-earning
assets:
Cash and due from
banks 39,395 36,185 38,741
Premises and equip-
ment, net 20,905 19,752 19,419
Market value appreci-
ation of securities
available for sale 60,811 46,626 33,524
Other assets 44,755 38,971 36,972
Less allowance for loan
losses (23,562) (19,802) (17,630)
$1,994,531 $1,813,794 $1,711,968
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW/Money market
accounts $327,851 $10,146 3.09% $294,356 $8,772 2.98% $242,838 $7,628 3.14%
Savings deposits 172,525 3,914 2.27% 187,394 4,340 2.32% 206,287 5,049 2.45%
Time deposits 642,681 35,510 5.53% 626,192 34,854 5.57% 605,693 33,448 5.52%
Federal funds
purchased 7,007 383 5.47% 8,369 472 5.64% 5,812 319 5.49%
Securities sold
under agreements
to repurchase 170,961 8,968 5.25% 126,481 6,602 5.22% 135,199 7,006 5.18%
Long-term borrowing 185,959 10,226 5.50% 123,722 7,227 5.84% 88,613 5,071 5.72%
Other borrowed funds 130 9 6.92% 230 17 7.39% 641 68 10.61%
Total interest-bearing
liabilities (3) 1,507,114 69,156 4.59% 1,366,744 62,284 4.56% 1,285,083 58,589 4.56%
Noninterest-bearing
liabilities:
Demand deposits 183,435 161,339 151,863
Other 47,423 42,048 34,235
Shareholders' equity 256,559 243,663 217,138
$1,994,531 $1,813,794 $1,688,319
Net interest income $85,330 $82,152 $77,322
Net yield on interest-
earning assets 4.61% 4.85% 4.83%
</TABLE>
(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 1998, 1997 and 1996.
(3) Yields are calculated using historical cost basis.
PAGE 7
Item 1. BUSINESS -- Continued
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:
[CAPTION]
<TABLE>
1998 Compared to 1997 1997 Compared to 1996
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
(In thousands of dollars)
Interest earned on:
Loans (2) $7,135 ($923) $6,212 $9,188 $220 $9,408
Taxable investment
securities 7,332 (2,211) 5,121 (429) 221 (208)
Tax-exempt investment
securities (2) (1,107) 41 (1,066) (847) (24) (871)
Interest-earning
deposits (2) 0 (2) 3 0 3
Federal funds sold (204) (11) (215) 186 7 193
Total interest-earning
assets $13,154 ($3,104) $10,050 $8,101 $424 $8,525
Interest paid on:
NOW/Money market
accounts $3,597 ($2,223) $1,374 $1,141 $3 $1,144
Savings deposits (344) (82) (426) (462) (247) (709)
Time deposits 918 (262) 656 1,132 274 1,406
Securities sold under
agreements to
repurchase 2,322 44 2,366 (452) 48 (404)
Federal funds purchased (77) (12) (89) 140 13 153
Long-term borrowings 3,635 (636) 2,999 2,009 147 2,156
Other borrowed funds (7) (1) (8) (44) (7) (51)
Total interest-bearing
liabilities $10,044 ($3,172) $6,872 $3,464 $231 $3,695
Change in net interest
income $3,178 $4,830
</TABLE>
(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 1998, 1997 and 1996.
PAGE 8
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, 1998 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
frames, 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:
Monthly loan prepayments above contractual requirements
5 year ARM - Commercial Real Estate 1.50 %
Fixed Rate - Commercial Real Estate 1.25
Residential Real Estate 1.75
New Indirect Auto Loans 2.00
Other Installment Loans 2.75
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
Swaps
Reflects that portion of borrowings whose interest
rate risk is reduced due to the effects of interest
rate swaps.
PAGE 9
Item 1. BUSINESS -- Continued
[CAPTION]
<TABLE>
Interest Rate Sensitivity
December 1998
(thousands of dollars)
GAP 1-6 Months 7-12 Months 13-24 Months >2 Years
<S> <C> <C> <C> <C>
Repricing Assets:
Cash/Due From Banks $0 $0 $0 $48,789
Federal Funds 19,300 0 0 0
Securities 112,486 87,599 211,319 180,084
Net Loans 537,401 153,269 211,043 437,520
Other Assets 0 0 0 70,804
Total $669,187 $240,868 $422,362 $737,197
Repricing Liabilities:
Demand $0 $0 $0 $215,666
NOW 15,424 15,424 30,846 61,694
Money Market 239,341 0 0 0
Savings/Clubs 21,060 21,060 42,122 84,243
Certificates 244,034 142,927 143,355 102,868
Repos & Short-term
Borrowings 128,262 564 0 0
Long-term Borrowings 19,600 0 0 220,468
Swaps 0 0 10,000 0
Other Liabilities/Equity 0 0 0 310,656
Total $667,721 $179,975 $226,323 $995,595
GAP $1,466 $60,893 $196,039 ($258,398)
Cumulative GAP $1,466 $62,359 $258,398 $0
</TABLE>
<TABLE>
Immediate
Rate Sensitive Assets/Rate Current Policy Core Deposits
Sensitive Liabilities Month Guideline Repricing
<S> <C> <C> <C>
Cumulative 6 months 1.00 .85-1.15 0.72
Cumulative 12 months 1.07 .85-1.15 0.85
</TABLE>
S&T's six month and one year gap position at December 31,
1998 is asset sensitive. Asset sensitive means that more assets
than liabilities of S&T will reprice during the measured time
frames. The implications of an asset sensitive position will
differ depending upon the current trend of market interest rates.
For example, an asset sensitive position in a declining
interest rate environment, the yields on repricing assets can
theoretically be expected to decline more quickly than the cost
of S&T repricing liabilities. This situation would cause a
decrease to S&T's interest rate spreads, net interest income
and to operating income. Liquidity impacts in this scenario,
other than decreased yields, would not be material unless
serious ongoing declines in operating results caused depositors,
lenders and investors to lose confidence.
Conversely, an asset sensitive gap position in a rising
interest rate scenario would theoretically have a positive impact
to interest rate spreads, net 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.
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 2%, 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 10
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 portfolios 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, 1998,
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.
The following table sets forth the carrying amount of
securities at the dates indicated:
[CAPTION]
<TABLE>
December 31
1998 1997 1996
(In thousands of dollars)
<S> <C> <C> <C>
Available for Sale
Marketable equity securities $115,532 $101,639 $75,805
Obligations of U.S. government corporations
and agencies 357,417 341,288 235,924
Collateralized mortgage obligations of
U.S. government corporations and agencies 0 0 4,182
Mortgage-backed securities 8,715 14,542 47,462
U.S. Treasury securities 27,952 39,473 58,742
Corporate securities 36,353 11,064 14,550
Other securities 19,172 13,111 13,136
TOTAL $565,141 $521,117 $449,801
Held to Maturity
Obligations of states and political
subdivisions $21,009 $37,497 $46,334
Corporate securities 1,999 1,998 1,998
Other securities 3,337 7,608 1,928
TOTAL $26,345 $47,103 $50,260
</TABLE>
PAGE 11
Item 1. BUSINESS -- Continued
The following table sets forth the maturities of securities
at December 31, 1998, 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 1998 have been made in calculating yields on obligations of
state and political subdivisions.
<TABLE>
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
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale
Marketable equity securities $115,532
Obligations of U.S. government
corporations and agencies $10,170 7.47% $242,703 6.25% $104,545 7.39%
Mortgage-backed securities 194 6.49% 4,632 7.64% $3,889 7.51%
U.S. Treasury securities 12,712 7.27% 8,571 7.20% 6,669 7.81%
Corporate securities 615 8.70% 26,177 6.59% 9,560 6.19%
Other securities 19,172
TOTAL $23,691 $277,451 $125,406 $3,889 $134,704
Weighted Average Rate 7.39% 6.31% 7.33% 7.51%
Held to Maturity
Obligations of states and
political subdivisions $4,934 7.46% $12,436 8.50% $3,639 8.87%
Corporate securities 1,999 7.15%
Other securities $3,337
TOTAL $4,934 $14,435 $3,639 $0 $3,337
Weighted Average Rate 7.46% 8.31% 8.87% 0.00%
</TABLE>
PAGE 12
Item 1. BUSINESS -- Continued
Loan Portfolio
The following table shows S&T's loan distribution at the end
of each of the last five years:
[CAPTION]
<TABLE>
December 31
1998 1997 1996 1995 1994
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Domestic Loans:
Commercial, mortgage
and industrial $672,742 $582,401 $496,863 $450,932 $416,036
Real estate-construction 87,246 47,967 35,508 30,191 35,660
Real estate-mortgage 492,570 512,417 513,424 461,822 413,533
Installment 113,351 130,968 154,341 160,437 161,105
TOTAL LOANS $1,365,909 $1,273,753 $1,200,136 $1,103,382 $1,026,334
</TABLE>
The following table shows the maturity of loans (excluding
residential mortgages of 1-4 family residences and installment
loans) outstanding as of December 31, 1998. Also provided are
the amounts due after one year classified according to the
sensitivity to changes in interest rates.
[CAPTION]
<TABLE>
Maturing
After One
Within But Within After
One Year Five Years Five Years Total
<in thousands of dollars)
<S> <C> <C> <C> <C>
Commercial, mortgage
and industrial $259,634 $204,121 $208,987 $672,742
Real estate-construction 18,199 33,849 35,198 87,246
TOTAL $277,833 $237,970 $244,185 $759,988
Fixed interest rates $92,797 $62,036
Variable interest rates 145,173 182,149
TOTAL $237,970 $244,185
</TABLE>
PAGE 13
Item 1. BUSINESS -- Continued
Nonaccrual, Past Due and Restructured Loans
The following table summarizes S&T's nonaccrual, past due
and restructured loans:
[CAPTION]
<TABLE>
December 31
1998 1997 1996 1995 1994
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,933 $3,602 $10,268 $4,748 $3,894
Accruing loans past
due 90 days or more $0 $0 $0 $0 $0
</TABLE>
At December 31, 1998, $2,933,000 of nonaccrual loans were secured.
Interest income that would have been recorded under original terms
totaled $337,000. No interest income was recorded on these loans.
It is S&T's policy to place loans on nonaccrual status when collection
of interest or principal is doubtful, or generally when interest or
principal are 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, 1998, there were no impaired loans that 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.
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. Charged-off and recovered loan amounts are applied to
the allowance for loan losses. Quarterly updates are presented to
the S&T Board of Directors as to the status of loan quality.
Additional amounts are added through a charge to current earnings
through the provision for loan losses, based upon management's assess-
ment about the adequacy of the allowance for loan losses for probable
loan losses. A quantitative analysis is utilized to support the
adequacy of the allowance for loan losses. This analysis includes
review of the high and low historical charge-off rates for loan
categories, fluctuations and trends in the amount of classified loans
and economic factors. Economic factors consider the level of S&T's
historical charge-offs that have occurrence within the credits economic
life cycle. 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.
Significant to this analysis and assessment is the shift in
loan portfolio composition to an increased mix of commercial loans.
These loans are generally larger in size and due to our continuing
growth, many are not well seasoned and could be more vulnerable to
an economic slowdown. Management relies on its risk rating process
to monitor trends which may be occurring relative to commercial
loans to assess potential weaknesses within specific credits.
Current economic factors and trends in risk ratings are considered
in the determination of the allowance for loan losses.
This analysis and 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 commit-
ment. Categories of smaller individual loans are allocated based upon
historical losses and current delinquency levels.
PAGE 14
Item 1. BUSINESS -- Continued
The unallocated component is primarily subjective based
upon management's assessment of nonquantifiable factors that
make historical trend analyses difficult:
Economic factors
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 and impaired loans.
Peer analysis.
The allowance 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
1998 1997 1996 1995 1994
1.95% 1.60% 1.56% 1.55% 1.48%
S&T has considered impaired loans in its determination of
the allowance for loan losses. The allowance for loan losses for
all impaired loans totaled $133,000 and $914,000 at December 31,
1998 and 1997, respectively, and is included in the allowance
allocated specifically to commercial loans.
Asset quality is a major corporate objective at S&T.
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.
This table summarizes S&T's loan loss experience for each of
the five years ended December 31:
[CAPTION]
<TABLE>
Year Ended December 31
1998 1997 1996 1995 1994
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at January 1: $20,427 $18,729 $17,065 $15,169 $14,242
Charge-offs:
Commercial, mortgage
and industrial 2,905 1,654 2,986 1,313 2,333
Real estate-mortgage 1,497 1,056 405 148 196
Installment 1,597 1,771 2,145 1,578 1,258
5,999 4,481 5,536 3,039 3,787
Recoveries:
Commercial, mortgage
and industrial 713 517 1,591 294 505
Real estate-mortgage 389 221 105 107 188
Installment 597 441 329 314 421
1,699 1,179 2,025 715 1,114
Net charge-offs 4,300 3,302 3,511 2,324 2,673
Provision for loan losses 10,550 5,000 5,175 4,220 3,600
Balance at December 31: $26,677 $20,427 $18,729 $17,065 $15,169
Ratio of net charge-offs
to average loans outstanding 0.33% 0.27% 0.31% 0.22% 0.28%
</TABLE>
PAGE 15
Item 1. BUSINESS -- Continued
[CAPTION]
<TABLE>
This table shows allocation of the allowance for loan losses as of the end of each of the last five years:
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994
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> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, mortgage
and industrial $16,850 49% $13,556 46% $9,605 41% $8,579 41% $9,578 41%
Real estate-construc-
tion 0 7% 0 4% 0 3% 0 3% 0 3%
Real estate-mortgage 1,096 36% 763 40% 1,680 43% 1,321 42% 1,215 40%
Installment 2,635 8% 1,865 10% 1,859 13% 1,803 14% 1,510 16%
Unallocated 6,096 0% 4,243 0% 5,585 0% 5,362 0% 2,866 0%
TOTAL $26,677 100% $20,427 100% $18,729 100% $17,065 100% $15,169 100%
</TABLE>
Deposits
The daily average amount of deposits and rates paid on such
deposits is summarized for the periods indicated in the following table:
[CAPTION] Year Ended December 31
<TABLE>
1998 1997 1996
Amount Rate Amount Rate Amount Rate
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $183,435 $161,339 $151,863
NOW/ Money market
accounts 327,851 3.09% 294,356 2.98% 242,838 3.14%
Savings deposits 172,525 2.27% 187,394 2.32% 206,287 2.45%
Time deposits 642,681 5.53% 626,192 5.57% 605,693 5.52%
TOTAL $1,326,492 $1,269,281 $1,206,681
</TABLE>
Maturities of time certificates of deposit of $100,000 or more
outstanding at December 31, 1998, are summarized as follows:
(In thousands of dollars)
[CAPTION]
<TABLE>
<S> <C>
3 Months or less $39,268
Over 3 through 6 months 9,887
Over 6 through 12 months 16,301
Over 12 months 25,716
TOTAL $91,172
</TABLE>
Return on Equity and Assets
The table below shows consolidated operating and capital ratios
of S&T for each of the last three years:
[CAPTION]
<TABLE>
Year Ended December 31
1998 1997 1996
<S> <C> <C> <C>
Return on average assets 1.90% 1.84% 1.65%
Return on average equity 14.80% 13.71% 13.01%
Dividend payout ratio 46.14% 42.54% 37.77%
Equity to asset ratio 12.55% 13.55% 12.65%
</TABLE>
PAGE 16
Item 1. BUSINESS -- Continued
Short-Term Borrowings
The following table shows the distribution of S&T'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)
Balance at December 31:
1998 $138,825
1997 179,449
1996 114,980
Weighted average interest rate at year end:
1998 4.63%
1997 5.82%
1996 5.68%
Maximum amount outstanding at any month's end:
1998 $251,030
1997 195,024
1996 180,776
Average amount outstanding during the year:
1998 $177,968
1997 134,851
1996 141,012
Weighted average interest rate during the year:
1998 5.29%
1997 5.31%
1996 5.24%
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 17
Item 2. PROPERTIES
S&T operates 38 banking offices in Indiana, Armstrong,
Allegheny, Jefferson, Clearfield, Clarion, Westmoreland
and surrounding counties in Pennsylvania. S&T owns land
and banking offices at the following locations: 800
Philadelphia Street, 2175 Route 286 South in Indiana;
Route 119 South & Lucerne Road and 34 North Main Street
in Homer City; 232 North Hampton Avenue in Punxsutawney;
133 Philadelphia Street in Armagh; Route 119 in Black
Lick; 256 Main Street and Route 36 & I-80 in Brookville;
456 Main Street in Brockway; Route 28 & Carrier Street
in Summerville; 602 Salt Street in Saltsburg; 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 South Chestnut Street in Derry; 109 Grant
Avenue in Vandergrift; 100 South Fourth Street in
Youngwood; 701 East Pittsburgh Street in Greensburg;
2190 Hulton Road in East Oakmont; 4385 Old William Penn
Highway in Monroeville; 7660 Saltsburg Road in Plum;
12262 Frankstown Road in Penn Hills; 410 Main Street in
Clarion; and 301 Unity Center Road in Unity. Land is
leased where S&T owns the banking offices at 1107 Wayne
Avenue and remote ATM buildings at 435 South Seventh Street
and 1176 Grant Street, all in Indiana; 8th and Merle Street
and Gemmel Student Center in Clarion; 730 East Pittsburgh
Street in Greensburg; and 523 Franklin Avenue in Vandergrift.
In addition, S&T leases land and banking offices at the
following locations: Chestnut Ridge Plaza in Blairsville;
324 North Fourth Street and 2850 Route 286 South and Hospital
Road in Indiana; the Mall Office in DuBois; 229 Westmoreland
Mall; 2388 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 S&T's business generates 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 S&T 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 S&T 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 or otherwise.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Stock Prices and Dividend Information on page 54 and
Dividend and Loan Restrictions on page 44 of the Annual
Report for the year ended December 31, 1998, incorporated
herein by reference.
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data on pages 54 and 55 of the
Annual Report for the year ended December 31, 1998,
incorporated herein by reference.
PAGE 18
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 21 through
30 of the Annual Report for the year ended December 31,
1998, incorporated herein by reference.
Item 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures about Market
Risk on pages 27 and 28 of the Annual Report for the year
ended December 31, 1998, 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 31 through 53 and page 55 of the Annual
Report for the year ended December 31, 1998, incorpor-
ated herein by reference.
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
There have been no changes in accountants or disagree-
ments 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 19, 1999, annual meeting
of shareholders, incorporated herein by reference.
<TABLE>
Executive Officers
Number of
Shares
For the Officer Beneficially
Name Corporation Since Owned (1) Age
<S> <C> <C> <C> <C>
Robert D. Duggan Chairman 1983 180,927 66
and Director
James C. Miller President, Chief 1983 154,516 53
Executive Officer
and Director
James G. Barone Executive Vice 1992 50,682 51
President,
Secretary and
Treasurer
Robert E. Rout Executive Vice 1993 39,014 46
President and
Chief Financial
Officer
Bruce W. Salome Executive Vice 1991 76,773 52
President
Edward C. Hauck Executive Vice 1991 47,090 46
President
</TABLE>
PAGE 19
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -- Continued
Executive Officers (continued)
Number of
Shares
For the Officer Beneficially
Name Corporation Since Owned (1) Age
David L. Krieger Executive Vice 1984 22,680 55
President
J. Jeffrey Smead Executive Vice 1992 53,731 47
President
William H. Klumpp Senior Vice 1994 14,971 55
President
Edward A. Onderick Senior Vice 1989 56,774 54
President
David P. Ruddock Senior Vice 1998 6,038 37
President
(1) May include shares held by spouse, other family members,
as trustee or through a corporation, and nonstatutory
stock options vesting within 60 days of the date of this
10-K Report. The reporting person may disclaim beneficial
ownership of such shares.
PAGE 20
Item 11. EXECUTIVE COMPENSATION
Remuneration of Executive Officers on pages 7 and 8 of
the proxy statement for the April 19, 1999, annual meeting
of shareholders, 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 19, 1999, annual
meeting of shareholders, incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others on pages 10 and
11 of the proxy statement for April 19, 1999, annual
meeting with shareholders, 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, 1998,
are incorporated by reference in Part II, Item 8:
Page
Reference
Report of Ernst & Young LLP, Independent Auditors 53
Consolidated Balance Sheets
December 31, 1998 and 1997 31
Consolidated Statements of Income
Year ended December 31, 1998, 1997, and 1996 32
Consolidated Statements of Changes in Shareholders' Equity
Year ended December 31, 1998, 1997, and 1996 33
Consolidated Statements of Cash Flows
Year ended December 31, 1998, 1997, and 1996 34
Notes to Consolidated Financial Statements
December 31, 1998 35-52
Quarterly Selected Financial Data 55
PAGE 21
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 been omitted.
(3) Listings of Exhibits - See Item 14 (c) below
(b) Reports on Form 8-K
Form 8-K dated September 21, 1998 was filed by S&T
Bancorp, Inc. announcing a two-for-one stock split
which was effected in the form of a 100% stock
dividend.
(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. dated May 5, 1983,
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
(No. 33-02600) dated January 15, 1986, incorporated herein
by reference.
(3.3) Amendment to Articles of Incorporation of S&T Bancorp, Inc.
effective May 8, 1989 - filed herewith.
(3.4) Amendment to Articles of Incorporation of S&T Bancorp, Inc.
effective July 21, 1995 - filed herewith.
(3.5) Amendment to Articles of Incorporation of S&T Bancorp, Inc.
effective June 18, 1998 - filed herewith.
(3.6) By-Laws of S&T Bancorp, Inc., as amended, - filed herewith.
(13) Annual Report for the year ended December 31, 1998,
pages 21-55 filed herewith.
(21) Subsidiaries of the Registrant - filed herewith.
(23.1) Consent of Ernst & Young LLP, Independent Auditors -
filed herewith.
(23.2) Consent of S.R. Snodgrass, A.C., Independent Auditors -
filed herewith.
(99) Report of S.R. Snodgrass, A.C., Independent Auditors -
filed herewith.
PAGE 22
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/ James C. Miller 03/15/99
James C. Miller, Date
President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Robert E. Rout 03/15/99
Robert E. Rout, Date
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
PAGE 23
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.
/s/ Thomas A. Brice 03/15/99 /s/ Joseph A. Kirk 03/15/99
Thomas A. Brice, Director Date Joseph A. Kirk, Director Date
/s/ James L. Carino 03/15/99 /s/ Frank W. Jones 03/15/99
James L. Carino, Director Date Frank W. Jones, Director Date
/s/ John J. Delaney 03/15/99 /s/ James C. Miller 03/15/99
John J. Delaney, Director Date James C. Miller, President, Date
Chief Executive Officer and
Director
/s/ Robert D. Duggan 03/15/99 /s/ Alan Papernick 03/15/99
Robert D. Duggan, Chairman Date Alan Papernick, Director Date
/s/ William J. Gatti 03/15/99 /s/ W. Parker Ruddock 03/15/99
William J. Gatti, Director Date W. Parker Ruddock, Director Date
/s/ Ruth M. Grant 03/15/99 /s/ Myles D. Sampson 03/15/99
Ruth M. Grant, Director Date Myles D. Sampson, Director Date
/s/ Jeffrey D. Grube 03/15/99 /s/ Charles A. Spadafora 03/15/99
Jeffrey D. Grube, Director Date Charles A. Spadafora, Date
Director
/s/ Herbert L. Hanna 03/15/99 /s/ Christine J. Toretti 03/15/99
Herbert L. Hanna, Director Date Christine J. Toretti, Date
Director
PAGE 24
The first paragraph of the provisions of the Articles of Incorporation
of the Corporation relating to the authorized capital stock of the
Corporation, shall be amended to read as follows:
Total Number of Authorized Shares. The Corporation shall be
authorized to issue 15,000,000 shares of common stock, $2.50 par
value per share.
9. Classification of Directors
The Board of Directors of the Corporation shall be divided into
three classes, the respective terms of office of which shall end
in successive years. The number of directors in each class shall
be specified in the By-Laws and shall be as equal as possible.
The directors of each class shall be elected for terms of three (3)
years and until the election and qualification of their successors
or until their earlier resignation, death or removal or disqualifi-
cation from office. At each annual meeting of shareholders, the
directors of only one class shall be elected, except directors who
may be elected to fill vacancies. Vacancies in the Board of
Directors, including vacancies resulting from an increase in the
number of directors, shall be filled only by a majority of the
remaining members of the Board of Directors, though less than a
quorum, and each person so elected shall be a director until his or
her successor is elected by the shareholders or until his or her
earlier death, resignation or removal or disqualification from
office. Notwithstanding anything contained in the Articles of
Incorporation or in the By-Laws of the Corporation to the contrary
the affirmative vote of at least sixty-six and two-thirds (66 2/3)
percent of the outstanding shares of common stock entitled to vote
generally in the election of directors, voting together as a single
class, shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Article 9.
The first paragraph of the provisions of the Articles of Incorp-
oration of the Corporation relating to the authorized capital stock
of the Corporation, shall be amended to read in their entirety as
follows:
Total Number of Authorized Shares. The Corporation shall be
authorized to issue 25,000,000 shares of common stock, $2.50 par
value per share, and 10,000,000 shares of preferred stock, without
par value ("Preferred Stock").
Issuance and Designation of Shares of Preferred Stock. The Board
of Directors of the Corporation is authorized, subject to limitaions
prescribed by law and the provisions of these Articles of Incorporation,
to provide for the issuance of the shares of Preferred Stock in series,
and by filing a statement with the Pennsylvania Department of State
pursuant to the applicable law of the Commonwealth of Pennsylvania, to
establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights
of the shares of each such series and the qualificaitons, limitations or
restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
date upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of that
series; and
(h) Any other relative rights, preferences and limitations of that
series.
Dividends on Preferred Stock. Dividends on outstanding shares of
Preferred Stock shall be paid or declared and set apart for payment
before any dividends shall be paid or declared and set apart for payment
on the common shares with respect to the same dividend period.
Liquidation Distributions to Holders of Preferred Stock. If upon
any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the assets available for distribution to holders of
shares of Preferred Stock of all series shall be insufficient to pay
such holders the full preferential amount to which they are entitled,
then such assets shall be distributed ratably among the shares of all
series of Preferred Stock in accordance with the respective preferential
amounts (including unpaid cumulative dividends, if any) payable with
respect thereto.
The first paragraph of the provisions of the Articles of Incorporation
of the corporation, relating to the authorized capital stock of the corpor-
ation, shall be amended to read as follows:
Total Number of Authorized Shares. The Corporation shall be authorized
to issue 50,000,000 shares of common stock, $2.50 par value per share, and
10,000,000 shares of preferred stock, without par value.
INDEX
TO BY-LAWS OF
S&T BANCORP, INC.
ARTICLE I - MEETINGS OF SHAREHOLDERS
Section 101. Place of Meetings
Section 102. Annual Meetings
Section 103. Special Meetings
Section 104. Conduct of Shareholders' Meetings
ARTICLE II - DIRECTORS AND BOARD MEETINGS
Section 201. Management by Board of Directors
Section 202. Nomination for Directors
Section 203. Directors Must be Shareholders
Section 204. Eligibility and Mandatory Retirement
Section 205. Number of Directors
Section 206. Classification of Directors
Section 207. Vacancies
Section 208. Resignations
Section 209. Compensation of Directors
Section 210. Regular Meetings
Section 211. Special Meetings
Section 212. Chairman of the Board
Section 213. Vice Chairman of the Board
Section 214. Reports and Records
ARTICLE III - COMMITTEES
Section 301. Committees
Section 302. Executive Committee
Section 303. Audit Committee
Section 304. Appointment of Committee Members
Section 305. Organization and Proceedings
ARTICLE IV - OFFICERS
Section 401. Officers
Section 402. President
Section 403. Vice President
Section 404. Secretary
Section 405. Treasurer
Section 406. Assistant Officers
Section 407. General Powers
Page Two
Index to S&T Bancorp, Inc. By-Laws
ARTICLE V - INDEMNIFICATION
Section 501. Indemnification
Section 502. Insurance and Fund for Payment of Expenses
Section 503. Advancement of Expenses
ARTICLE VI - SHARES OF CAPITAL STOCK
Section 601. Authority to Sign Share Certificates
Section 602. Lost or Destroyed Certicates
ARTICLE VII - GENERAL
Section 701. Fiscal Year
Section 702. Record Date
Section 703. Absentee Participation in Meetings
Section 704. Emergency By-Laws
Section 705. Severability
ARTICLE VIII - AMENDMENT OR REPEAL
Section 801. Amendment or Repeal by the Board of Directors
ARTICLE IX - PENNSYLVANIA BUSINESS CORPORATION LAW AMENDMENT
Section 901. Applicability of Certain Provisions of the
Pennsylvania Business Corporation Law
Page
BYLAWS
OF
S&T BANCORP, INC.
These By-Laws are supplemental to the Pennsylvania Banking Code and other
applicable provisions of law, as the same shall from time to time be in
effect.
ARTICLE I. MEETINGS OF SHAREHOLDERS.
Section 101. Place of Meetings. All meetings of the shareholders
shall be held at such place or places, within or without the Commonwealth
of Pennsylvania, as shall be determined by the Board of Directors from
time to time.
A written or printed notice of every such meeting shall be mailed,
charges prepaid, at least ten days before the date of the meeting, (a) in
the case of an individual, to his last known residence or place of business,
(b) in the case of an unincorporated association, or a corporation organized
under the laws of the Commonwealth of Pennsylvania, to its principle office,
and (c) in the case of a corporation incorporated under the laws of some
other state, to its registered office in Pennsylvania, or if there is no
registered office in Pennsylvania, to its home office in the State of its
incorporation or in any other State.
Section 102. Annual Meetings. The annual meeting of the shareholders
for the election of Directors and the transacton of such other business
as may properly come before the meeting shall be held on such day, at
such hour, and at such place, consistent with applicable laws, as the
Board shall from time to time designate or as may be designated at any
notice from the Secretary calling the meeting. Any business which is a
proper subject for shareholder action may be transacted at the annual
meeting, irrespective of whether the notice of said meeting contains any
reference thereto, except as otherwise provided by applicable law.
Page 1
Section 103. Special Meetings. Special meetings of the shareholders
may be called at any time by the Board of Directors, the President or by
the shareholders entitled to cast at least one-fifth (1/5) of the vote
which all shareholders are entitled to cast at the particular meeting.
A written or printed notice for every special meeting, specifying the purpose
and time and place thereof, shall be mailed by the Secretary to the share-
holders of record, in the manner provided in Section I of this Article, at
least ten (10) days before the date of such meeting.
Section 104. Conduct of Shareholders' Meeting. The Chairman of the
Board, a Vice Chairman, the President, or such other appropriate officer,
shall preside at all shareholders' meetings. The Officer presiding over
the shareholders' meeting may establish such rules and regulations for the
conduct of the meeting as he/she may deem to be reasonably necessary or
desirable for the orderly and expeditious conduct of the meeting. Unless
the Officer presiding over the shareholders' meeting otherwise requires,
shareholders need not vote by ballot on any question.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
Section 201. Management by Board of Directors. The business and affairs
of the Corporation shall be managed by its Board of Directors. The Board of
Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute, regulations, the Article of
Incorporation or these By-Laws directed or required to be exercised or
done by the shareholders.
Section 202. Nomination for Directors. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any holder
or holders of any outstanding class of shares of the Corporation entitled to
vote for the election of directors. Nominations for directors to be elected
at an annual meeting of shareholders, other than those made by the Board of
Directors or authorized Committee thereof, must be submitted to the Secretary
of the Corporation in writing not earlier than the close of business on the
120th day, nor later than the close of business on the 60th day, immediately
preceding the date of the meeting. Such notification shall contain the
following information: (a) name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Corporation that are registered in the name
of each proposed nominee; (d) the name and residence address of the notifying
shareholder; (e) the number of shares of capital stock of the Corporation
owned by the notifying shareholders and (f) such other information regarding
the proposed nominee as would be required to be included in a proxy statement
under Section 14(a) of the Securities Exchange Act of 1934, as amended (or
any successor provision or statue), if proxies were solicited in connection
with such proposed nominee's election. Nominations not made in accordance
herewith may, in his or her discretion, be disregarded by the Presiding
Officer of the meeting, and upon his or her instruction, the vote tellers
may disregard all votes cast for each such nominee. In the event the same
person is nominated by more than one shareholder, the nomination shall be
honored, and all shares of capital stock of the Corporation shall be
counted if at least one nomination for that person complies herewith.
Page 2
Section 203. Directors Must be Shareholders. Every Director must be
a shareholder of the Corporation and shall own in his/her own right the
number of shares (if any) required by law in order to qualify as such
Director. Any Director shall forthwith cease to be a Director when he/
she no longer holds such shares, which fact shall be reported to the Board
of Directors by the Secretary, whereupon the Board of Directors shall
declare the seat of such Director vacated.
Section 204. Eligibility and Mandatory Retirement. Commencing with the
annual meeting of the shareholders in 1983, no person shall be eligible to
be newly elected or appointed as a Director after he/she shall have attained
the age of seventy years on or prior to the date of his/her election. Any
Director of this Corporation who attains the age of seventy years shall be
retired as of the next Annual Meeting following the attainment of age seventy
without any action on his/her part. Upon retirement from the Board of
Directors due to age, as described above, said Director may be appointed by
the active Board as a Director Emeritus.
Page 3
Section 205. Number of Directors. The Board of Directors shall consist
of not less than twelve (12) nor more than twenty-five (25) persons, the
exact number to be fixed and determined from time to time by resolution of a
majority of the full Board of Directors. Notwithstanding anything contained
in these By-Laws or in the Certificate of Incorporation of the Corporation
to the contrary, either (i) the affirmative vote of at least sixty-six and
two-thirds (66 2/3) percent of the outstanding shares of Common Stock
entitled to vote generally in the election of directors voting together as
a single class, or (ii) the affirmative vote of a majority of the full
Board of Directors shall be required to alter, amend, adopt any provision
inconsistent with or repeal this Section 205.
Section 206. Classification of Directors. The Directors shall be
divided into three (3) classes, as equal in number as possible, known as
Class 1, Class 2, and Class 3. Each class shall consist of not more than
nine (9) Directors. The Directors of each class shall be elected for a
term of three (3) years and, after expiration of such terms, their successors
shall thereafter be elected every three (3) years for three (3) year terms.
Each Director shall serve until his or her successor shall have been elected
and shall qualify, even though his or her term of office has herein provided,
has otherwise expired, except in the event of his/her earlier death,
resignation, removal or disqualification from office. Notwithstanding
anything contained in these By-Laws or in the Certificate of Incorporation
of the Corporation to the contrary, either (i) the affirmative vote of at
least sixty-six and two-thirds (66 2/3) percent of the outstanding shares
of Common Stock entitled to vote generally in the election of directors,
voting together as a single class, or (ii) the affirmative vote of a majority
of the full Board of Directors shall be required to alter, amend, adopt any
provision inconsistent with or repeal this Section 206.
Page 4
Section 207. Vacancies. Any Director elected to fill a vacancy in the
Board of Directors shall become a member of the same Class of Director
in which the vacancy existed unless the vacancy is due to an increase in
number of Directors, in which case a majority of the members of the
Board of Directors shall designate such directorship as belonging to
Class 1, Class 2, or Class 3 so as to maintain the three (3) classes of
Directors as equal in number as possible. Notwithstanding anything
contained in these By-Laws or in the Certificate of the Corporation to
the contrary, either (i) the affirmative vote of at least sixty-six and
two-thirds (66 2/3) percent of the outstanding shares of Common Stock
entitled to vote generally in the election of directors, voting together
as a single class, or (ii) the affirmative vote of a majority of the
full Board of Directors shall be required to alter, amend, adopt any
provision inconsistent with or repeal this Section 207.
Section 208. Resignation. Any Director may resign at any time. Such
resignations shall be in writing, but the acceptance thereof shall not be
necessary to make it effective.
Section 209. Compensation of Directors. No Director shall be entitled
to any salary as such; but the Board of Directors may fix, from time to time,
a reasonable annual fee for acting as a Director and a reasonable fee to be
paid each Director for his/her services in attending meetings of the Board
and meetings of committees appointed by the Board. The Corporation may
reimburse Directors for expenses related to their duties as a member of the
Board.
Section 210. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such place within the Commonwealth of Pennsylvania
as a majority of the directors may from time to time designate, or as may be
designated in the notice calling the meeting. The Board of Directors shall
meet for reorganizaiton at the first regular meeting following the annual
meeting of shareholders at which the Directors are elected. Subsequent
regular meetings of the Board of Directors shall be held at a time and
place designated by the Board of Directors. At least two days notice
of regular meetings shall be given.
Page 5
A majority of the members of the Board of Directors shall constitute
a quorum for the transaction of business. If at the time fixed for the
meeting, including the meeting to organize the new Board following the
annual meeting of shareholders, a quorum is not present, the Directors
in attendance may adjoun the meeting form time to time until a quorum
is obtained.
Except as otherwise provided herein, a majority of those Directors
present and voting at any meeting of the Board of Directors, shall
decide each matter considered. A director cannot vote by proxy, or
otherwise act by proxy at a meeting of the Board of Directors.
Section 211. Special Meetings. Special meetings of the Board of
Directors may be called by the President or at the request of three (3)
or more members of the Board of Directors. A special meeting of the
Board of Directors shall be deemed to be any meeting other than the
regular meeting of the Board of Directors. Written or printed notice of
the time and place of every special meeting, which need not specify the
business to be transacted there, shall be given by the Secretary to
each member of the Board at least twenty-four (24) hours before the time
of such meeting excepting the Organizational Meeting following the
election of Directors.
Section 212. Chairman of the Board. The Chairman of the Board, a
Vice Chairman, the President, or such other appropriate officer, shall
preside at all meetings of the Board of Directors.
Section 213. Vice Chairman of the Board. The Board of Directors
may elect one (1) or more Vice Chairman of the Board as the Board of
Directors may from time to time deem advisable. The Vice Chairman of
the Board shall have such duties as are prescribed by the Board of
Directors.
Section 214. Reports and Records. The reports of Officers and
Committees and the records of the proceedings of all Committees shall
be filed with the Secretary of the Corporation and presented to the
Board of Directors, if practical, at its next regular meeting. The
Board of Directors shall keep complete records of its proceedings
in a minute book kept for that purpose. When a Director shall
request it, the vote of each Director upon a particular question shall
be recorded in the minutes.
Page 6
ARTICLE III. COMMITTEES
Section 301. Committees. The following two (2) Committees of the Board
of Directors shall be established by the Board of Directors in addition
to any other Committee the Board of Directors may in its discretion
establish: Executive, Audit Committee.
Section 302. Executive Committee. The Executive Committee shall
consist of the President and any three (3) or more Directors. A
majority of the members of the Executive Committee shall constitute
a quorum, and actions of a majority of those present at a meeting at
which a quorum is present shall be actions of the Committee. Meetings
of the Committee may be called at any time by the Chairman, President
or Secretary of the Committee, and shall be called whenever two (2) or
more members of the Committee so request in writing. The Executive
Committee shall have and exercise the authority of the Board of
Directors in the management of the Board.
Section 303. Audit Committee. The Audit Committee shall consist of
at least three (3) Directors, none of whom shall be Officers of the
Corporation. Meetings of the Committee may be called at any time by
the Chairman or Secretary of the Committee, and shall be called when-
ever two (2) or more members of the Committee so request in writing. A
majority of the members of the Committee shall constitute a quorum, and
actions of a majority of those present at a meeting at which a quorum
is present shall be actions of the Committee. The Committee shall
supervise the audit of the books of the Corporation and recommend for
approval by the Board the services of a reputable Certified Public
Accounting firm to examine the affairs of the Corporation.
Page 7
Section 304. Appointment of Committee Members. The President shall
appoint, subject to the approval of the Board of Directors, the members
of the Executive and Audit Committees, and the Chairman of such Committee,
to serve for the ensuing year. The Board of Directors may appoint, from
time to time, other Committees, for such purposes and with such powers
as the Board may determine.
Section 305. Organization and Proceedings. Each Committee of the
Board of Directors shall effect its own organization by the appointment
of a Secretary and such other Officers, except Chairman and Vice
Chairman, as it may deem necessary. A record of proceedings of all
Committees shall be kept by the Secretary of such Committee and filed
and presented as provided in Section 214 of these By-Laws.
ARTICLE IV. OFFICERS
Section 401. Officers. The Officers of the Corporation shall be a
Chairman, one (1) or more Vice Chairman, a President, one (1) or more
Vice presidents, a Secretary, a Treasurer, and such other Officers and
Assistant Officers as the Board of Directors may from time to time deem
advisable. Except for the President, Secretary, Treasurer, the Board
may refrain from filling any of the said offices at any time and from
time to time. The same individual may hold any two (2) or more offices
except both the offices of President and Treasurer. The following
Officers shall be elected by the Board of Directors at the time, in the
manner and for such terms as the Board of Directors from time to time
shall determine: President, Executive Vice President, Senior Vice President,
Adminstrative Vice President, Secretary, and Treasurer. The President may,
subject to the change by the Board of Directors, appoint such Officers and
Assistant Officers as he/she may deem advisable provided such Officers
or Assistant Officers have a title not higher than Vice President, who
shall hold office for such periods as the President shall determine.
Any Officer may be removed at any time, with or without cause, and
regardless of the term for which such Officers was elected, but without
prejudice to any contract right of such Officer. Each Officer shall
hold his office for the current year for which he was elected or
appointed by the board unless he shall resign, becomes disqualified, or
be removed at the pleasure of the Board of Directors.
Page 8
Section 402. President. The President shall have general supervision
of all the departments and business of the Corporation and shall prescribe
the duties of the other Officers and Employees and see to the proper
performance thereof. The President shall be responsible for having all
orders and resolutions of the Board of Directors carried into effect. The
President shall execute on behalf of the Corporation and may affix or cause
to be affixed a seal to all authorized documents and instruments requiring
such execution, except to the extent that signing and execution thereof shall
have been delegated to some other Officer or Agent of the Corporation by the
Board of Directors or by the President. The President shall be a member of
the Board of Directors. In the absence or disability of the Chairman of
the Board or his/her refusal to act, a Vice Chairman, the President or
other appropriate officer shall preside at meetings of the Board. In
general, the President shall perform all the duties and exercise all
the powers and authorities incident to such officer or as prescribed by
the Board of Directors.
Section 403. Vice President. The Vice President shall perform such
duties, do such acts and be subject to such supervision as may be prescribed
by the Board of Directors or the President. In the event of the absence or
disability of the President or his/her refusal to act, the Vice President,
in the order of their rank, and within the same rank in the order of their
authority, shall perform the duties and have the powers and authorities of
the President, except to the extent inconsistent with applicable law.
Section 404. Secretary. The Secretary shall act under the supervision
of the President or such other Officers as the President may designate.
Unless a designation to the contrary is made at a meeting, the Secretary
shall attend all meetings of Board of Directors and all meetings of the
shareholders and record all proceedings of such meetings in a book to be
kept for that purpose, and shall perform like duties for the standing
Committees when required by these By-Laws or otherwise. The Secretary
shall give, or cause to be given, notice of all meetings of shareholders
and of the Board of Directors. The Secretary shall keep a seal of the
Corporation, and, when authorized by the Board of Directors or the
President, cause it to be affixed to any documents and instruments
requiring it. The Secretary shall perform such other duties as may be
prescibed by the Board of Directors, President, or such other Supervising
Officer as the President may designate.
PAGE 9
Section 405. Treasurer. The Treasurer shall act under the supervision
of the President, or such other Officer as the President may designate.
The Treasurer shall have custody of the Corporation's funds and such other
duties as may be prescribed by the Board of Directors, President or such
other Supervising Officer as the President may designate.
Section 406. Assistant Officer. Unless otherwise provided by the
Board of Directors, each assistant officer shall perform such duties as
shall be prescribed by the Board of Directors, the President or the
Officer to whom he/she is an Assistant. In the event of the absence or
disability of an Officer or his/her refusal to act, his/her Assistant
Officer shall, in the order of their rank, and within the same rank in
the order of their seniority, have the powers and authorities of such
Officer.
Section 407. General Powers. The Officers are authorized to do and
perform such corporate acts as are necessary in the carrying on of the
business of the Corporation, subject always to the direction of the
Board of Directors.
ARTICLE V. INDEMNIFICATION
Section 501. Imdemnification. Each person who at any time is or
shall have been a director or officer of the Corporation or any of its
subsidiaries, or is serving or shall have served at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, and
his or her heirs, executors and administrators, shall be indemnified by
the Corporation in accordance with and to the full extent authorized or
permitted by the laws of the Commonwealth of Pennsylvania as in effect
at the time of such indemnification or as may hereafter be amended (but
in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto).
PAGE 10
The foregoing right of indemnification shall constitute a contract between
the Corporation and each of such persons and shall not be deemed exclusive of
any other rights to which any director, officer, employee, agent or other
person may be entitled in any capacity as a matter of law or under any by-law,
agreement, vote of shareholders or disinterested directors, or otherwise,
and shall not be affected adversely by any amendment of these Bylaws wih
respect to any action or inaction occurring prior to such amendment. The
Corporation may, by action of its Board of Directors and to the extent
provided in such action, indemnify employees and other persons as though
they were directors and officers eligible for indemnification under this
section.
Section 502. Insurance and fund for Payment of Expenses. If
authorized by the Board of Directors, the Corporation may purchase and
maintain insurance on behalf of any person to the full extent authorized
or permitted by the laws of the Commonwealth of Pennsylvania. The
Corporation may create a fund of any nature which may, but need not be,
under the control of a trustee, or otherwise may secure in any manner its
indemnification and advancement of expenses obligation, whether arising
under this Ariticle V or otherwise.
Section 503. Advancement of Expenses. The right to indemnification
provided in Section 501 hereof shall include the right to be paid by the
Corporation in advance of final disposition the expenses (including but
not limited to attorneys' fees) incurred in defending any action or
proceeding for which the Corporation is providing indemnification;
provided, however, that if and to the extent the laws of the Commonwealth
of Pennsylvania shall require and advancement of expenses shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf
of such person, to repay any amounts advanced if it is ultimately
determined that such person is not entitled to indemnification by the
Corporation pursuant to these Bylaws or otherwise.
PAGE 11
ARTICLE VI. SHARES OF STOCK.
Section 601. Authority to Sign Share Certificates. Every share
certificate of the Corporation shall be signed by the President and
Treasurer or one of the Assistant Treasurers. Certificates may be
signed by a facsimile signature of the President and Treasurer or one
of the Assistant Treasurers of the Corporation.
Section 602. Lost or Destroyed Certificates. Any person claiming a
share certificiate to be lost, destroyed or wrongfully taken shall
receive a replacement certificate if such person shall have: (a) requested
such replacement certificate before the Corporation has notice that the
shares have been aquired by a bona fide purchaser; (b) provided the
Corporation with an indemnity agreement satisfactory in form and substance
to the Board of Directors, or the President or the Secretary; and (c)
satisfied any other reasonable requirements (including providing an affidavit
and a surety bond) fixed by the Board of Directors, or the President or the
Secretary.
ARTICLE VII. GENERAL
Section 701. Fiscal Year. The fiscal year of the Corporation shall begin
on the first (1st) day of January in each year and end on the thirty-first
(31st) day of December in each year.
Section 702. Record Date. The Board of Directors may fix any time
whatesoever (whether or not the same is more than fifty (50) days) prior to
the date of any meeting of shareholders, or the date for the payment of any
dividend or distribution, or the date for the allotment of rights, or the
date when any change or conversion or exchange of shares will be made or will
go into effect, as a record date for the determination of the shareholders
entitled to notice of, or to vote at, any such meetings, or entitled
to receive payment of any such dividend or distribution, or to
exercise the rights in respect to any such change, conversion or exchange of
shares.
Section 703. Absentee Participation in Meetings. One (1) or more
Directors may participate in a meeting of the Board of Directors, or of a
Committee of the Board, by means of a conference telephone or similar
communication equipment, by means of which all persons participating in the
meeting can hear each other.
Section 704. Emergency By-Laws. In the event of any emergency resulting
from a nuclear attack or similar disaster, and during the continuance of such
emergency, the following Bylaw provisions shall be in effect, notwithstanding
any other provisions of the Bylaws:
(a) A meeting of the Board of Directors or any of any Committee thereof
may be called by any Officer or Director upon one (1) hour's notice to all
persons entitled to notice whom, in the sole judgment of the notifier, it is
feasible to notify;
(b) The Director or Directors in attendance at the meeting of the Board
of Directors or of any Committee thereof shall constitute a quorum; and
(c) These Bylaws may be amended or repealed, in whole or in part, by a
majority vote of the Directors attending any meeting of the Board of
Directors, provided such amendment or repeal shall only be effective for the
duration of such emergency.
Section 705. Severability. If any provision of these By-Laws is illegal
or unenforceable as such, such illegality or unforceability shall not effect
any other provision of these By-Laws and such other provisions shall continue
in full force and effect.
PAGE 13
ARTICLE VIII. AMENDMENT OR REPEAL.
Section 801. Amendment or Repeal by the Board of Directors. These By-Laws
may be amended or repealed, in whole or in part, by a majority vote of members
of the Board of Direcotrs at any regular or special meeting of the Board duly
governed. Notice need not be given of the purpose of the meeting of the Board
of Direcotrs at which the amendment is to be considered.
ARTICLE IX. APPLICABILITY OF CERTAIN PROVISIONS OF THE PENNSYVANIA BUSINESS
CORPORATION LAW.
Section 901. 1990 Anti-takeover Amendments. Subchapters G (relating to
Control Share Acquisition), H (relating to Disgorgement by Certain Controlling
Shareholders Following Attempts to Acquire Control), I (relating to Severance
Compensaion for Employees Terminated Following Certain Control-Share
Acquisitions), and J (relating to the status of Labor Contracts following
certian Business Combination Transactions) of Chapter 25 of the Pennsylvania
Business Corporation Law of 1988 (the "BCL") shall not be applicable to the
Corporation.
Section 511(d), (e), and (f), and Sections 1721(e), (f) and (g) of the BCL
shall not be applicable to the Corporation. The Corporation shall be governed
by Sections 1721(c) and (d) of the BCL. In adopting this paragraph of this
Section 901, while intending thereby to indicate the importance of all of the
shareholders' interest the Board of Directors does not intend to limit its
ability to to opose a tender offer, or limit its discretion when considering
whether to oppose a tender offer, in accordance with Section 8(A) of the
Corporation's Articles of Incorporation or otherwise; nor does it intend to
limit the factors and interests which it, committees of the Board, and
individual directors may consider in considering the best interests of the
Corporation, either as provided in Section 8(A) of the Corporation's Articles
of Incorporation or otherwise; nor does it intend to impose limits upon the
ability of the Board, committees of the Board and individual directors in
considering the best interest of the Corporation or the effects of any action,
to consider and to balance and weigh such factors and interest to the extent
they deem appropriate, either as provided in Section 8(A) of the Corporation's
Articles of Incorporation or otherwise; nor does it intend to limit the
discretion of the Board, committees of the Board, or individual directors in
exercising the powers vested in the Corporation, including, but not limited
to, their ability to take the actions described in Section 8(B) of the
Corporations Articles of Incorporation.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
S&T Bancorp, Inc. and Subsidiaries
Financial Condition
The $160.2 million growth of average earning assets in 1998 was
primarily the result of an excellent lending year for S&T
Bancorp, Inc. (S&T), combined with increases in the investment
portfolio to maximize net interest income by taking advantage of
low, short-term funding rates and investing in U.S. government
agency securities. Average loan balances increased by $80.3
million during 1998 and average securities and federal funds
increased $79.9 million during 1998. The bulk of funding for this
loan and security growth was provided by a $57.2 million increase
in average deposits, a $12.9 million increase in average earnings
retained and a $105.3 million increase in average borrowings.
<TABLE>
1998 1997
Loan Loan
Loan Balance Loan Balance
Loan Portfolio (in millions) Balance Percentage Balance Percentage
<S> <C> <C> <C> <C>
Commercial, Mortgage and
Industrial $ 760.0 56% $ 630.4 50%
Residential Real Estate
Mortgage 492.6 36 512.4 40
Installment 113.3 8 131.0 10
Total Loans $1,365.9 100% $1,273.8 100%
</TABLE>
Lending Activity
Total loans at December 31, 1998 were $1.4 billion, a $92.1
million or 7.2% increase from December 31, 1997. Increases in
average loans for 1998 and 1997 were $80.3 million and $103.5
million, respectively.
Changes in the composition of the loan portfolio during 1998
included increases of $129.6 million of commercial loans offset
by decreases of $19.8 million of residential mortgages and a
$17.7 million decrease in installment loans. Composition changes
include decreases from the effects of $10.9 million of 1-4 family
mortgage loans and $15.2 million of commercial loans that were
sold or participated in 1998.
Commercial loans currently comprise 56% of the loan portfolio.
Although commercial loans can be an area of higher risk,
management believes these risks are properly managed by limiting
the percentage amount of portfolio composition, a rigorous
underwriting review by loan administration and the fact that many
of the commercial loans are secured by real estate and are owner
occupied.
Residential mortgage lending continued to be a strategic focus
for 1998 through the establishment of a centralized mortgage
origination department, product redesign, secondary market
activities 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 residential real estate loan portfolio will be
properly managed because of S&T's conservative mortgage lending
policies for portfolio loans which generally require a maximum
term of 20 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 23% of the residential mortgage portfolio in 1998.
During the fourth quarter of 1997, S&T sold $12.7 million of
long-term, lower-yielding 1-4 family mortgages, acquired from the
Peoples Bank of Unity (Peoples) merger, to the Federal National
Mortgage Association (FNMA). S&T retained the ongoing servicing
rights on the mortgages sold and will originate 1-4 family
mortgages in the future to be sold to FNMA. The rationale for
these sales is to mitigate interest rate risk associated with
holding long-term residential mortgages in the loan portfolio, to
generate fee revenue from servicing, and still maintain the
primary customer relationship. During 1998, S&T sold $10.9
million of 1-4 family mortgages to FNMA. Fees and gains from
mortgage servicing activities were $0.3 million in 1998. S&T will
continue to sell longer-term loans to FNMA in the future on a
selective basis, especially during periods of lower interest
rates.
Installment loan decreases are primarily associated with
significantly lower volumes in the indirect auto loan category.
During the fourth quarter of 1998, S&T exited the indirect
automobile business. Pricing pressures were unusually intense in
the indirect market during 1998 and 1997, and the decision was
made to deploy investable funds and staff resources into other,
higher yielding and lower risk earning assets. Installment loans
have also decreased due to recent changes in government
regulations which have significantly decreased the profit
potential of guaranteed student loans. The remaining student loan
portfolio of $7.0 million was sold in 1997. S&T will continue to
distribute student loan applications for customer convenience,
but will not fund or hold the loans.
Loan underwriting standards for S&T are established by a formal
policy administered by the S&T Bank Credit Administration Department,
and subject to the periodic review and approval of the S&T Bank
Board of Directors.
PAGE 21
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 real estate 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 does not exceed 100% 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 90%-100% of invoice for new
automobiles and 80-90% of "NADA" value for used automobiles. Loan
to value policy guidelines for automobile loans purchased from
dealers on a third-party basis were 90%-125% of invoice for new
automobiles and 100%-125% of "Black Book" value for used
automobiles. As noted previously, S&T exited the indirect
automobile business in the fourth quarter of 1998 and will allow
the remaining portfolio of $33.7 million to amortize through
normal payments and payoffs.
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 $83.8 million in 1998 and decreased
$16.0 million in 1997. The 1998 increase is due to increasing the
investment portfolio to maximize net interest income by taking
advantage of low, short-term funding rates and investing in U.S.
government agency securities, classified as available for sale.
Interest rate risk associated with this strategy is managed and
monitored through S&T's Asset Liability Committee (ALCO). The
1997 decrease is attributable to utilizing funds from the
maturities and sales of securities to fund loan growth and
balance sheet repositioning activities following the Peoples
merger.
The largest components of the 1998 increase included $98.9
million of U.S. government agency securities, $3.4 million in
other corporate securities, $3.5 million in corporate equities
and $4.8 million in Federal Home Loan Bank (FHLB) stock. The FHLB
stock is a membership and borrowing requirement. Offsetting these
increases are decreases of $13.2 million in U.S. treasury
securities, $0.2 million in mortgage-backed securities and $13.4
million in tax-exempt state and municipal securities.
During 1998, S&T sold $20.3 million of equity securities
classified as available for sale. The sales were made in order to
maximize returns when market opportunities are presented.
Additionally, S&T may receive an exchange of shares relative to a
merger; gains and losses are recognized on shares held of
acquired institutions in accordance with Emerging Issues Task
Force #91-5, Nonmonetary Exchange of Cost-Method Investments
(EITF 91-5). 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 1998, the equity portfolio
yielded 10.2% on a fully taxable equivalent basis and had
unrealized gains at December 31, 1998, net of nominal unrealized
losses, of $55.1 million.
S&T's policy for security classification includes U.S.
treasuries, U.S. government agencies, mortgage-backed securities
and marketable equity securities as available for sale. Municipal
securities and other corporate debt securities are classified as
held to maturity. At December 31, 1998, unrealized gains, net of
nominal unrealized losses, for securities classified as available
for sale were approximately $61.5 million.
Nonearning Assets
Average nonearning assets increased $5.8 million in 1998 and $2.0
million in 1997. The 1998 and 1997 increases can be primarily
attributed to an increase in cash and due from and in accrued
interest receivable on a higher earning asset balance. Cash and
due from growth is primarily related to increased federal reserve
requirements and check clearing balances resulting from demand
deposit growth and higher level of cash management activities for
customers.
Allowance for Loan Losses
The year-end balance in the allowance for loan losses increased
to $26.7 million or 1.95% of total loans at December 31, 1998 as
compared to $20.4 million or 1.60% of total loans at December 31,
1997.
PAGE 22
<TABLE>
1998 1997
Loan Loan
Allowance Balance Allowance Balance
Allowance for Loan Loss Balance Percentage Balance Percentage
(in millions)
<S> <C> <C> <C> <C>
Commercial, Mortgage and
Industrial $16.9 56% $13.5 50%
Residential Real Estate
Mortgage 1.1 36 0.8 40
Installment 2.6 8 1.9 10
Unallocated 6.1 - 4.2 -
Total Allowance for Loan
Losses $26.7 100% $20.4 100%
</TABLE>
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; and growth and composition of the loan portfolio, as
well as other relevant factors.
A quantitative analysis is utilized to support the adequacy of
the allowance for loan losses. This analysis includes review of
the high and low historical charge-off rates for loan categories,
fluctuations and trends in the amount of classified loans and
economic factors. Economic factors consider the level of S&T's
historical charge-offs that have occurrence within the credits
economic life cycle.
Significant to this analysis is the shift in loan portfolio
composition to an increased mix of commercial loans. These loans
are generally larger in size and, due to our continuing growth,
many are not well seasoned and could be more vulnerable to an
economic slowdown. Management relies on its risk rating process
to monitor trends which may be occurring relative to commercial
loans to assess potential weaknesses within specific credits.
Current economic factors and trends in risk ratings are
considered in the determination of the allowance for loan losses.
Net loan charge-offs totaled $4.3 million in 1998, including $2.0
million related to a floor plan loan to an automobile dealership,
compared to $3.3 million in 1997. The balance of nonperforming
loans, which includes nonaccrual loans past due 90 days or more,
at December 31, 1998, was $2.9 million or 0.21% of total loans.
This compares to nonperforming loans of $3.6 million or 0.28% of
total loans at December 31, 1997.
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 $57.2 million in 1998 and
$39.0 million in 1997. The mix of average deposits in 1998
changed, with time deposits and money market accounts increasing
$16.5 million and $31.5 million, respectively, while interest-
bearing demand and savings accounts decreased $12.9 million.
Noninterest-bearing deposits increased by $22.1 million or 13.7%
in 1998 and were approximately 14% and 13% of total deposits
during 1998 and 1997, respectively. Some of the changes can be
partially explained by strategic initiatives to increase demand
accounts and cash management services. 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. In September 1998, S&T
purchased a branch in Clarion, Pa. and assumed $39.0 million of
deposits.
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 7% of total deposits during 1998 and 1997,
respectively, and primarily represent deposit 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 $25.0 million
of retail certificates of deposit through two brokerage firms,
further broadening the availability of reasonably priced funding
sources. At December 31, 1998, there were $11.6 million of these
brokered retail certificates of deposit outstanding.
Borrowings
Average borrowings increased $105.3 million in 1998 and were
comprised of securities sold under repurchase agreements (REPOS),
federal funds purchased and long-term borrowings at the FHLB. S&T
defines REPOS with its retail customers as retail REPOS;
wholesale REPOS are those transacted with other banks and
brokerage firms with terms normally ranging from one to 14 days.
The average balance in retail REPOS increased approximately $9.1
million for 1998 and decreased $11.3 million for 1997. The 1998
increase is primarily attributable to new REPO sweep
relationships in our cash management department. S&T views retail
REPOS as a relatively stable source of funds since most of these
accounts are with local, long-term customers.
PAGE 23
Wholesale REPOS and federal funds purchased averaged $87.1
million in 1998, an increase of $34.1 million from the 1997
averages. The aforementioned increase in the investment portfolio
increased the usage of wholesale REPO fundings in 1998.
The interest rate risk of various funding strategies is managed
through ALCO. During 1997, ALCO authorized three additional long-
term borrowings of $11.0 million at a fixed rate and $50.0
million at an adjustable rate with the FHLB. At December 31,
1998, S&T had long-term borrowings outstanding of $60.8 million
at a fixed rate and $119.6 million at an adjustable rate with the
FHLB. The purpose of these borrowings was to provide matched
fundings for newly originated loans, to mitigate the risk
associated with volatile liabilities, to take advantage of lower
cost funds through the FHLB's Community Investment Program and to
fund stock buy-backs.
Another ALCO strategy used to manage interest rate risk is the
use of interest rate swaps. At December 31, 1998, S&T had
notional values totaling $10.0 million in 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.
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 1998 and 24% in 1997. These
increases were a result of management's effort to expand the
marketing of trust products and services and general increases in
the debt and equity markets during the periods.
Results of Operations
Year Ended December 31, 1998
Net Income
Net income was a record $38.0 million or $1.35 per diluted
earnings per share in 1998, representing a 15% increase from the
$33.4 million or $1.17 per diluted earnings per share in 1997.
The return on average assets increased to 1.90% for 1998, as
compared to 1.84% for 1997. The return on average equity
increased to 14.80% for 1998, compared to 13.71% for 1997.
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 $3.2 million or 4% for 1998 compared to 1997. The net
yield on interest-earning assets decreased to 4.61% in 1998 as
compared to 4.85% in 1997. The decline in the net yield on
interest-earning assets during 1998 was primarily attributed to
the balance sheet growth with securities, as well as the Modified
Dutch Tender Offer earlier this year that repurchased
approximately 880,000 shares of S&T common stock. Net interest
income was positively affected by $160.2 million or a 9% increase
in average earning assets.
In 1998, average loans increased $80.3 million and average
securities increased $83.8 million, comprising most of the
earning asset growth. The yields on average loans increased by
seven basis points and the yields on average securities declined
30 basis points.
Average interest-bearing deposits provided $57.2 million of the
funds for the growth in average earning assets, at a cost of
4.34% in 1998 as compared to 4.33% in 1997.
Average increases of $106.7 million in REPOS and other borrowed
funds provided additional funding. The cost of these funds
decreased 15 basis points during 1998. During 1998, more longer-
term borrowings were utilized in order to mitigate interest rate
risk.
Also positively affecting net interest income was a $19.8 million
increase to average net free funds. Average net free funds are
the excess of demand deposits, other noninterest-bearing
liabilities and shareholders' equity over nonearning assets.
Maintaining consistent spreads between earning assets and costing
liabilities is very significant to S&T's financial performance
since net interest income comprised 86% 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.
PAGE 24
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 $10.6 million for 1998 compared to $5.0 million in
1997. The provision expense and the adequacy of the allowance for
loan losses is determined based upon 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. Also affecting
the amount of provision expense is loan growth, portfolio
composition and trends within risk ratings.
Credit quality statistics are an important factor in determining
the amount of provision expense. Net loan charge-offs totaled
$4.3 million for 1998 compared to $3.3 million for 1997. Included
in the charge-offs for 1998 is $2.0 million related to a floor
plan loan to one automobile dealership. Nonperforming loans to
total loans decreased to 0.21% at December 31, 1998.
Also affecting the amount of provision expense is loan growth
and portfolio composition. Most of the loan growth in 1998 is
attributable to larger-sized commercial loans.
Noninterest Income
Noninterest income increased $8.0 million or 49% in 1998 compared
to 1997. Increases included $0.5 million or 15% in trust income,
$0.9 million or 21% in service charges and fees, a $1.3 million
or 40% increase in other income and a $5.3 million or 97%
increase in security gains.
The increase in trust income was attributable to bank-wide
incentive programs and expanded marketing efforts designed to
develop new trust business and to develop new relationships
within the Allegheny County market.
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, as well as the implementation of
foreign ATM convenience fees in the fourth quarter of 1997.
The increase in other income was a result of increased
performance for brokerage and insurance commissions, letters of
credit fees, covered calls, debit card commissions, and mortgage
servicing income, as well as $0.4 million of nonrecurring gains
recognized from oil and gas producing properties that were sold
during the third quarter of 1998. These areas were the focus of
several 1998 strategic initiatives and product enhancements
implemented in order to expand this source of revenue.
S&T recognized $10.7 million of gains on equity securities during
1998. Gains of $5.2 million were the result of EITF 91-5. This
accounting pronouncement requires the mark to market of equity
securities when an acquisition of the company in which securities
are owned occurs. EITF 91-5 gains recognized included $2.6
million from the First Union/Corestates merger, $0.4 million
from the CFX/Peoples Heritage merger and $2.2 million from the
First Commonwealth/Southwest merger. The remaining security gains
were primarily attributable to the sale of equity securities in
order to maximize returns by taking advantage of market
opportunities when presented.
Noninterest Expense
Noninterest expense decreased $1.2 million or 3% in 1998 compared
to 1997. The decrease is primarily attributable to $2.2 million
of merger-related and other nonrecurring expenses associated with
the acquisition of Peoples during 1997. Merger-related and other
nonrecurring expenses included costs for severance and early
retirement programs, the write-off and conversion of data
processing systems, as well as legal, accounting and investment
banker expenses. Other expenses of $0.9 million were provided for
during 1998 and included $0.2 million of consulting fees for the
redesigning of retail loan delivery services, $0.3 million for
Year 2000 project costs and $0.3 million of costs associated with
the conversion of data processing systems for a branch purchase.
Recurring expenses were relatively flat during 1998 as compared
to 1997 and reflect normal activity increases. Severance and
early retirement programs were implemented in May 1997 in order
to eliminate duplicate positions following post-merger
restructuring and consolidation of operations. Average full-time
equivalent staff decreased from 665 to 659 in 1998. 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 42% and 44% in 1998 and 1997,
respectively.
Federal Income Taxes
Federal income tax expense increased $2.6 million to $16.2
million in 1998 as a result of higher pretax income in 1998. The
1998 effective tax rate of 30% 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 with
Low Income Housing Tax Credit (LIHTC) projects. S&T currently
does not incur any alternative minimum tax.
PAGE 25
Results of Operations
Year Ended December 31, 1997
Net Income
Net income was a record $33.4 million or $1.17 per diluted
earnings per share in 1997, representing a 17% increase from the
$28.2 million or $1.00 per diluted earnings per share in 1996.
The return on average assets increased to 1.84% for 1997, as
compared to 1.65% for 1996. The return on average equity
increased to 13.71% for 1997, compared to 13.01% for 1996.
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 $4.8 million or 6% for 1997 compared to 1996. The net
yield on interest-earning assets was essentially unchanged,
increasing by two basis points to 4.85%. Net interest income was
positively affected by the $91.1 million or 6% increase in
average earning assets.
In 1997, average loans increased $103.5 million, offset by an
average securities decrease of $16.0 million, comprising most of
the earning asset growth. The yields on average loans increased
by two basis points while the yields on average securities
remained constant.
Average interest-bearing deposits provided $39.0 million of the
funds for the growth in average loans, at a cost of 4.33%,
relatively unchanged from 1996. The cost of REPOS and other
borrowed funds increased 12 basis points during 1997. During
1997, more longer-term borrowings were utilized in order to
mitigate interest rate risk.
Also positively affecting net interest income was a $33.1 million
increase to average net free funds. Average net free funds are
the excess of demand deposits, other noninterest-bearing
liabilities and shareholders' equity over nonearning assets.
Maintaining consistent spreads between earning assets and costing
liabilities is very significant to S&T's financial performance
since net interest income comprised 88% 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
against which loan losses are charged. The provision for loan
losses was $5.0 million for 1997 compared to $5.2 million in
1996. The 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
$3.3 million for 1997 compared to $3.5 million for 1996.
Nonperforming loans to total loans decreased to 0.28% at December
31, 1997.
Also affecting the amount of provision expense is loan growth.
Despite a $103.5 million or 9% increase in average loans, S&T's
allowance for loan losses to total loans was 1.60% at December
31, 1997, as compared to 1.56% at December 31, 1996.
Noninterest Income
Noninterest income increased $4.4 million or 37% in 1997 compared
to 1996. Increases included $0.3 million or 12% in trust income,
$0.5 million or 14% in service charges and fees, a $0.2 million
or 5% increase in other income and a $3.4 million or 147%
increase in security and nonrecurring gains.
The increase in trust income was attributable to bank-wide
incentive programs and expanded marketing efforts designed to
develop new trust business and to develop new relationships
within the Allegheny County market. 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, as well as the implementation of foreign ATM convenience
fees in the fourth quarter of 1997. The increase in other income
was a result of increased performance for brokerage activities,
letters of credit and fees on covered call options. These areas
were the focus of several 1997 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. Also
included is $0.5 million of gains related to the donation of
appreciated equity securities to the S&T Charitable Foundation.
Nonrecurring gains included $0.3 million of gains from student
loan and residential mortgage loan sales.
PAGE 26
Noninterest Expense
Noninterest expense increased $0.8 million or 2% in 1997 compared
to 1996. The increase is primarily attributable to increased
employment, occupancy, data processing and other expenses
associated with the acquisition of Peoples during the second
quarter of 1997, offset by higher Federal Deposit Insurance
Corporation (FDIC) insurance expense in 1996 relating to the one-
time surcharge on any financial institution holding Savings
Association Insurance Fund (SAIF) deposits. 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 44% and 48% in 1997 and 1996,
respectively.
Staff expense increased 5% or $1.1 million in 1997. The increase
resulted from normal merit increases, and costs for severance and
early retirement programs related to the acquisition of Peoples
that eliminated duplicate positions. Average full-time equivalent
staff decreased from 677 to 665 in 1997. Severance and early
retirement programs were implemented in May 1997.
Occupancy and equipment expense, data processing and other
expenses increased 4% or $0.7 million in 1997 as compared to
1996. The increase is primarily attributable to a $0.8 million
funding of S&T's Charitable Foundation, and to accounting,
professional consulting and legal fees related to the acquisition
of Peoples, offset by reduced FDIC insurance costs. The donation
to the S&T Charitable Foundation will allow S&T to fund community
contributions well into the future and help control future costs.
Expense increases to occupancy, equipment, marketing and data
processing include merger costs. Recurring costs and other
charges were not significant and reflect normal activity
increases, organization expansion and fee increases from vendors.
Offsetting these costs was a $0.3 million reduction of goodwill
amortization relating to a 1991 branch acquisition.
FDIC premium expense decreased by 80% during 1997 as a result of
recapitalization legislation passed in September 1996. S&T Bank
pays an annual premium of $.013 per $100 in Bank Insurance Fund
(BIF) deposits and $.0648 per $100 on SAIF deposits, the lowest
premium possible under the FDIC's risk assessment program for
determining deposit insurance premiums. The SAIF fund was
recapitalized by imposing a one-time surcharge of 65.6 basis
points on any financial institution holding SAIF deposits. This
surcharge resulted in an expense of $0.9 million during the third
quarter of 1996. S&T Bank has $168.1 million of deposits subject
to the SAIF. These deposits are related to a thrift institution
and branches acquired from the Resolution Trust Corporation in
1991.
Federal Income Taxes
Federal income tax expense increased $3.6 million to $13.6
million in 1997 as a result of higher pretax income in 1997 and
nondeductible merger related expenses. The 1997 effective tax
rate of 29% 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 with 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,
1998, the total of such assets was approximately $671.0 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 7% of deposits at December 31, 1998 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
PAGE 27
to deposits, volatile liabilities and liquidity ratio. As of
December 31, 1998, 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 "Statement of Cash Flows" (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
sources and uses of funds 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 mortgage-backed
securities 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 rate sensitive liabilities for the six-month
and 12-month intervals ended December 31, 1998 of 1.00% and
1.07%, respectively. Assuming immediate repricings for interest-
bearing demand, savings and money market accounts, these ratios
would be 0.72% and 0.85%, respectively.
In addition to the gap analysis, S&T performs an earnings
sensitivity analysis to identify more dynamic interest rate risk
exposures. The earnings simulation model is used to estimate the
effect that specific interest rate changes would have on 12
months of net interest income. Derivative financial instruments
are included in this exercise. The model incorporates management
assumptions regarding the level of interest rate or balance
changes on indeterminate maturity deposit products (savings,
money market, NOW and demand deposits) for a given level of
market rate changes. These assumptions have been developed
through a combination of historical analysis and future expected
customer behavior. Interest rate caps and floors on all products
are included to the extent that they become effective in the 12-
month simulation period. Additionally, changes in prepayment
behavior of the residential mortgage portfolio in each rate
environment are captured using management estimates. Finally, the
impact of planned growth and anticipated new business activities
is factored into the simulation model.
S&T's policy objective is to limit the change in net interest
income to 3% from an immediate and sustained parallel change in
interest rates of 200 basis points. As of December 31, 1998 and
1997, respectively, S&T had the following estimated earnings
sensitivity profile:
<TABLE>
Immediate
Change in Rates
(in millions) +200bp -200bp
<S> <C> <C>
1998 Pretax earnings change $(2.1) $0.2
1997 Pretax earnings change 1.2 (0.8)
</TABLE>
Results of the gradual simulation model, showing changes from
current rates by 200 basis points over a 12-month period as of
December 31, 1998 and 1997, respectively, are presented below.
<TABLE>
Gradual
Change in Rates
(in millions) +200bp -200bp
<S> <C> <C>
1998 Pretax earnings change $(1.3) $(0.9)
1997 Pretax earnings change 0.5 0.2
</TABLE>
Capital Resources
Shareholders' equity increased $0.5 million at December 31, 1998
compared to December 31, 1997. 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.
Net income was $38.0 million and dividends declared to
shareholders were $18.3 million for 1998. S&T paid 46% of 1998
net income in dividends, equating to an annual dividend rate of
$0.66 per share. The slight increase in capital is attributable
to the conclusion of the Modified Dutch Auction in which S&T
repurchased approximately 880,000 shares of its common stock.
During 1998, S&T repurchased an additional 238,000 shares of its
common stock. An authorization to buy back up to 1,000,000
additional shares in 1999 was authorized by the S&T Board of
Directors. Also affecting capital was a decrease of $0.6 million
in unrealized gains on securities available for sale.
On September 21, 1998, the Board of Directors of S&T approved a
two-for-one common stock split which was distributed in the form
of a 100% stock dividend.
PAGE 28
The new shares were distributed on October 30, 1998 to shareholders
of record on October 15, 1998. The split increased the number of
shares outstanding to 27,578,220.
The book values of S&T's common stock increased 2% from $9.20 at
December 31, 1997 to $9.38 at December 31, 1998, primarily due to
the increase in shareholders' equity from retained earnings, offset
by the slight decrease in unrealized holding gains on securities
available for sale and by the aforementioned Modified Dutch Auction.
S&T continues to maintain a strong capital position with a
leverage ratio of 10.7% as compared to the 1998 minimum
regulatory guideline of 3%. S&T's risk-based capital Tier 1 and
Total ratios were 14.2% and 17.1%, respectively, at December 31,
1998, which places S&T well above the Federal Reserve Board's
risk-based capital guidelines of 4% and 8% for Tier 1 and Total,
respectively. Included in the total ratio is 45% of the pretax
unrealized holding gains on available for sale equity securities
as prescribed by banking regulations effective October 1, 1998.
In addition, management believes that S&T has the ability to
raise additional capital if necessary. S&T sponsored an ESOP. The
ESOP shares were allocated to employees as part of S&T's
contributions to its employee thrift and profit sharing plans. At
December 31, 1998, the remaining unallocated shares held by the
ESOP were allocated to employees as prescribed by the plan.
In April 1993, shareholders approved the S&T Incentive Stock Plan
authorizing the issuance of a maximum of 1,200,000 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 October 17, 1994, the Stock Plan was amended to
include outside directors. On April 21, 1997, shareholders
approved an amendment to the plan increasing the number of
authorized shares to 3,200,000. As of December 31, 1998,
1,869,822 nonstatutory stock options had been granted to key
employees and outside directors; 945,772 of these options are
currently exercisable.
Year 2000
The Year 2000 Issue is the result of computer programs having
been written using two digits rather than four to define the
applicable year. Any of S&T's computer programs or hardware that
have date-sensitive software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices or
engage in similar normal business activities.
Based on recent assessments, S&T determined that it will be
required to modify or replace some portions of hardware and
software so that those systems will properly utilize dates beyond
December 31, 1999. S&T presently believes that with modifications
and replacement of existing hardware and software, the Year 2000
Issue can be mitigated. However, if such modifications and
replacements are not made, or are not completed timely, the Year
2000 Issue could have a material impact on the operations of S&T.
S&T's plan to resolve the Year 2000 Issue involves four phases:
assessment, remediation, testing and implementation. In June
1997, S&T management formed a task force (Y2K Task Force) to
evaluate the process of preparing its computer systems and
applications for the Year 2000. This process involves modifying
or replacing certain hardware and software maintained by S&T, as
well as communicating with external service providers and
customers to ensure that they are taking the appropriate action
to remedy their Year 2000 issues. To date, the Y2K Task Force has
completed its assessment of the Year 2000 Issue with internal
systems and third-party vendors. Assessment of the effect of the
Year 2000 Issue on commercial business customers is still being
evaluated.
Significant to S&T's data processing abilities are the services
provided by M&I Data Services (M&I) and Sungard Trust Services
(Sungard) which provide the majority of computer services for S&T
customer accounts and transactions. M&I and Sungard are also
currently involved in a similar Year 2000 assessment and
remediation. S&T converted to both M&I's and Sungard's Year 2000
compliant software systems in the fourth quarter of 1998.
All internal data processing systems are in the process of being
tested for Year 2000 compliance. The testing also includes
validations of third-party software/hardware vendors that have
provided assurance or certifications of compliance. To date, 95%
of the testing for critical systems has been completed and
software/hardware replacements have been scheduled where problems
have been identified. The testing is expected to be completed in
the first quarter of 1999; the remediation of critical internal
systems was completed by December 31, 1998.
The effect of Year 2000 on the businesses of commercial customers
is unknown and is currently being evaluated as part of this risk
assessment process. The assessment identified 31 high-risk
commercial customers as being significant to S&T's future
financial performance. Each of these significant business
customers are being called
PAGE 29
upon and interviewed to determine their respective company's
awareness and preparedness for the Year 2000 Issue. Results of
these interviews are reported to the S&T Senior Loan Committee
and credit administration so that remedial action can be taken
when appropriate. Communications to all commercial customers
via mail and calling officers has been ongoing to ensure
effective planning to meet the Year 2000 compliance requirements.
Management and the Y2K Task Force have completed substantially
all of the critical systems and application changes by the end of
1998 and believe that its level of preparedness is appropriate.
S&T has also developed contingency plans for mission critical
systems or applications which are either internal systems or
services provided by external sources. These plans involve altern-
ative processing plans in the event of system or application
failure. S&T expects to finalize these contingency plans during
the first quarter of 1999. S&T has estimated the total cost of the
project to be $0.3 million and is not expected to materially impact
future operations. Purchased hardware and software will be capitalized
in accordance with normal policy. Personnel and all other costs
related to the project will be expensed as incurred. The Y2K Task
Force reports to the S&T Board of Directors each quarter.
Regulatory Matters
S&T and S&T Bank are subject to periodic examinations by one or
more of the various regulatory agencies. During 1998, 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. S&T's current capital
position and results of regulatory examination allow 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 pricings, and other risks
detailed in S&T's Securities and Exchange Commission filings.
PAGE 30
Consolidated Balance Sheets
S&T Bancorp, Inc. and Subsidiaries
<TABLE>
December 31 1998 1997
(dollars in thousands, except per share data)
<S> <C> <C>
Assets
Cash and due from banks $ 48,736 $ 35,951
Interest-earning deposits with banks 53 102
Federal funds sold 19,300 -
Securities:
Available for sale 565,141 521,117
Held to maturity (market value $27,161
in 1998 and $48,101 in 1997) 26,345 47,103
Total Securities 591,486 568,220
Loans, net of allowance for loan losses
of $26,677 in 1998 and $20,427 in 1997 1,339,232 1,253,326
Premises and equipment 20,932 20,613
Other assets 49,872 42,079
Total Assets $2,069,611 $1,920,291
Liabilities
Deposits:
Noninterest-bearing $ 215,659 $ 165,727
Interest-bearing 1,164,404 1,118,931
Total Deposits 1,380,063 1,284,658
Securities sold under repurchase agreements 138,825 170,124
Federal funds purchased - 9,325
Long-term borrowings 240,068 144,218
Other liabilities 51,018 51,848
Total Liabilities 1,809,974 1,660,173
Shareholders' Equity
Preferred stock, without par value, 10,000,000
shares authorized and none outstanding - -
Common stock ($2.50 par value)
Authorized-50,000,000 shares in 1998 and
25,000,000 in 1997
Issued-29,714,038 shares in 1998 and
14,857,019 in 1997 74,285 37,142
Additional paid-in capital 21,234 19,369
Retained earnings 158,274 175,707
Accumulated other comprehensive income 39,961 40,524
Treasury stock (2,038,459 shares in 1998
and 1,431,728 shares in 1997, at cost) (34,117) (12,494)
Deferred compensation - (130)
Total Shareholders' Equity 259,637 260,118
Total Liabilities and Shareholders' Equity $2,069,611 $1,920,291
See Notes to Consolidated Financial Statements
</TABLE>
PAGE 31
Consolidated Statements of Income
S&T Bancorp, Inc. and Subsidiaries
<TABLE>
Year Ended December 31 1998 1997 1996
(dollars in thousands, except per share data)
Interest Income
<S> <C> <C> <C>
Loans, including fees $115,081 $108,891 $ 99,493
Deposits with banks 6 8 5
Federal funds sold 308 523 330
Investment securities:
Taxable 29,984 25,421 26,349
Tax-exempt 1,557 2,250 2,834
Dividends 4,502 4,008 3,431
Total Interest Income 151,438 141,101 132,442
Interest Expense
Deposits 49,570 47,966 46,125
Securities sold under repurchase agreements 8,968 6,602 7,006
Federal funds purchased 383 472 319
Long-term borrowings 10,226 7,227 5,071
Other borrowed funds 9 17 68
Total Interest Expense 69,156 62,284 58,589
Net Interest Income 82,282 78,817 73,853
Provision for Loan Losses 10,550 5,000 5,175
Net Interest Income After Provision
for Loan Losses 71,732 73,817 68,678
Noninterest Income
Service charges on deposit accounts 5,548 4,603 4,039
Trust fees 3,661 3,181 2,839
Security gains, net 10,722 5,446 2,227
Other 4,487 3,211 2,892
Total Noninterest Income 24,418 16,441 11,997
Noninterest Expense
Salaries and employee benefits 22,086 22,816 21,763
Occupancy, net 2,759 2,583 2,886
Furniture and equipment 2,688 3,170 2,447
Other taxes 1,456 1,320 1,201
Data processing 2,411 2,154 1,955
Amortization of intangibles 112 - 314
FDIC assessment 228 240 1,199
Other 10,248 10,915 10,633
Total Noninterest Expense 41,988 43,198 42,398
Income Before Income Taxes 54,162 47,060 38,277
Applicable Income Taxes 16,199 13,646 10,036
Net Income $ 37,963 $ 33,414 $ 28,241
Per Common Share:1
Net Income-Basic $ 1.37 $ 1.18 $ 1.00
Net Income-Diluted 1.35 1.17 1.00
Dividends Declared 0.66 0.56 0.47
</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 October 30, 1998.
See Notes to Consolidated Financial Statements.
PAGE 32
Consolidated Statements of Changes in Shareholders' Equity
S&T Bancorp, Inc. and Subsidiaries
<TABLE>
Accumulated
Other
Additional Compre-
Comprehensive Common Paid-In Retained nsive Treasury Deferred
Income Stock Capital Earnings Income Stock Compensation
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ - $37,142 $18,120 $141,576 $24,738 $(7,182) $(340)
Comprehensive Income:
Net income for 1996 28,241 28,241
Other comprehensive income,
net of tax Unrealized gains
on securities of $1,823 net
of reclassification adjustment
for gains included in net
income of $1,364 459 459
Cash dividends declared
($0.47 per share)1 (11,835)
Treasury stock acquired
(257,525 shares) (7,287)
Treasury stock sold
(89,614 shares) 924 1,452
Deferred ESOP benefits expense 110
Comprehensive Income 28,700
Balance at December 31, 1996 $37,142 $19,044 $157,982 $25,197 $(13,017)$(230)
Comprehensive Income:
Net income for 1997 33,414 33,414
Other comprehensive income,
net of tax Unrealized
gains on securities of
$23,712 net of reclassification
adjustment for gains included in
net income of $8,385 15,327 15,327
Cash dividends declared
($0.56 per share)1 (15,689)
Treasury stock acquired
(138 shares) (5)
Treasury stock sold
(30,277 shares) 325 528
Deferred ESOP benefits expense 100
Comprehensive Income 48,741
Balance at December 31, 1997 $37,142 $19,369 $175,707 $40,524 $(12,494)$(130)
Comprehensive Income:
Net income for 1998 37,963 37,963
Other comprehensive income,
net of tax Unrealized
gains on securities of
$6,718 net of reclassification
adjustment for gains included in
net income of $7,281 (563) (563)
Cash dividends declared
($0.66 per share)1 (18,253)
Treasury stock acquired
(1,117,036 shares) (27,975)
Treasury stock sold
(510,305 shares) (802) 6,352
Tax Deductibility/Options 2,667
Deferred ESOP benefits expense 130
Transfer to reflect two-for-one
stock split 37,143 (37,143)
Comprehensive Income $37,400
Balance at December 31, 1998 $74,285 $21,234 $158,274 $39,961 $(34,117) $ -
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 October 30, 1998.
See Notes to Consolidated Financial Statements.
</TABLE>
PAGE 33
Consolidated Statements of Cash Flows
S&T Bancorp, Inc. and Subsidiaries
[CAPTION]
<TABLE>
Year Ended December 31 1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Operating Activities
Net Income $37,963 $33,414 $28,241
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 10,550 5,000 5,175
Provision for depreciation and amortization 2,158 2,163 2,445
Net amortization of investment security premiums 609 675 543
Net accretion of loan and deposit discounts - - (343)
Deferred income taxes (821) (756) (613)
Securities gains, net (10,722) (5,446) (2,227)
Decrease (increase) in interest receivable 157 (1,601) 449
(Decrease) increase in interest payable (139) 395 (271)
Decrease (increase) in other assets 790 819 (458)
(Decrease) increase in other liabilities (2,214) 531 3,170
Net Cash Provided by Operating Activities 38,331 35,194 36,111
Investing Activities
Net decrease (increase) in interest-earning
deposits with banks 49 7 (58)
Net (increase) decrease in federal funds sold (19,300) 6,465 875
Proceeds from maturities of investment securities 20,772 3,146 11,361
Proceeds from maturities of securities available
for sale 192,105 127,344 90,214
Proceeds from sales of securities available for
sale 96,233 77,826 40,855
Purchases of investment securities - - (4,231)
Purchases of securities available for sale (323,130) (248,077) (148,259)
Net increase in loans (96,456) (76,919) (99,741)
Purchases of premises and equipment (1,933) (2,042) (3,020)
Other, net 215 (696) 303
Net cash acquired in branch acquisition 31,604 - -
Net Cash Used in Investing Activities (99,841) (112,946) (111,701)
Financing Activities
Net increase in demand, NOW and savings deposits 81,553 9,105 23,761
Net (decrease) increase in certificates of deposit (25,213) 5,186 30,060
Net (decrease) increase in federal funds purchased (9,325) 8,550 450
Net (decrease) increase in repurchase agreements (31,299) 55,919 (8,589)
Decrease in obligation under capital lease - - (294)
Proceeds from FHLB long-term borrowings 120,850 68,600 55,000
Repayments from FHLB long-term borrowings (25,000) (61,000) (14,987)
Acquisition of treasury stock (27,975) (5) (7,287)
Sale of treasury stock 8,219 853 2,376
Cash dividends paid to shareholders (17,515) (14,215) (10,667)
Net Cash Provided by Financing Activities 74,295 72,993 69,823
Increase (decrease) in Cash and Cash Equivalents 12,785 (4,759) (5,767)
Cash and Cash Equivalents at Beginning of Year 35,951 40,710 46,477
Cash and Cash Equivalents at End of Year $ 48,736 $ 35,951 $ 40,710
See Notes to Consolidated Financial Statements.
PAGE 34
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
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's equity in the underlying net
assets. The 1996 financial information has been restated to
reflect the merger of Peoples Bank of Unity on May 2, 1997.
Securities
Management determines the appropriate classification of
securities at the time of purchase. If management has the
positive 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 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, mortgage-backed securities,
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 or 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 homogeneous 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.
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 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.
PAGE 35
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 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.
Earnings Per Share
Financial Accounting Standards Board Statement No. 128, "Earnings
Per Share" (Statement No. 128), was effective in 1997 and
provides a simpler calculation called basic Earnings Per Share
(EPS) which replaces primary EPS under APB Opinion 15. Basic EPS
is calculated by dividing income available to common shareholders
by the weighted average number of common shares outstanding
during the period. Options, warrants and other potentially
dilutive securities are excluded from the basic calculation, but
are included in diluted EPS. All prior periods have been restated
and recorded in accordance with Statement No. 128.
Average shares outstanding for computing basic EPS were
27,762,801, 28,263,036 and 28,217,234 for 1998, 1997 and 1996,
respectively. Average shares outstanding for computing dilutive
EPS were 28,055,142, 28,618,364 and 28,440,844 for 1998, 1997 and
1996, respectively. In computing dilutive EPS, average shares
outstanding have been increased by the common stock equivalents
relating to S&T's available stock options.
Per Share Amounts
Prior years net income and dividends per share amounts have been
restated to reflect the two-for-one common stock split in the
form of a 100% stock dividend distributed on October 30, 1998.
Cash Flow Information
S&T considers cash and due from banks as cash and cash
equivalents. For the years ended December 31, 1998, 1997 and
1996, cash paid for interest was $69,295,000, $60,825,000 and
$58,860,000, respectively. Cash paid during 1998 for income taxes
was $15,567,000 compared to $14,190,000 for 1997 and $11,014,000
for 1996.
Comprehensive Income
Financial Accounting Standards Board Statement No. 130,
"Accounting for Comprehensive Income" (Statement No. 130), was
adopted by S&T in 1998. Statement No. 130 establishes new rules
for the reporting and display of comprehensive income and its
components. The adoption of this Statement had no impact on S&T's
net income or shareholders' equity. Statement No. 130 requires
unrealized gains or losses on S&T's available for sale
securities, which prior to adoption were reported separately in
shareholders' equity, to be included in comprehensive income.
Prior period financial statements have been reclassified to
conform to the requirements of Statement No. 130. During the
years ending December 31, 1998, 1997 and 1996, comprehensive
income amounted to $37,400,000, $48,741,000 and $28,700,000,
respectively.
Mortgage Loan Servicing
Mortgage servicing assets are recognized as separate assets when
servicing rights are acquired through purchase or loan
originations, when there is a definitive plan to sell the
underlying loan. Capitalized mortgage servicing rights are
reported in other assets and are amortized into noninterest
income in proportion to, and over the period of, the estimated
future net servicing income of the underlying mortgage loans.
Capitalized mortgage servicing rights are evaluated for
impairment based on the fair value of those rights. In 1998 and
1997, $10.9 million and $12.7 million, respectively, of 1-4
family mortgage loans were sold to the Federal National Mortgage
Association (FNMA), and $302,000 and $187,000, respectively, of
mortgage servicing rights were capitalized and recorded in other
assets.
PAGE 36
Reclassification
Amounts in prior years have been reclassed to conform to
presentation in 1998. The reclassification had no effect on S&T's
financial condition or results of operations.
New Accounting Pronouncements
Financial Accounting Standards Board Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" (Statement No. 131), is effective in 1998 and
requires public companies to disclose certain information about
reportable operating segments in complete sets of financial
statements of the enterprise. Statement No. 131 does not
materially affect S&T's financial position or results of
operations as S&T management views the bank as one segment of
business which is community banking.
Financial Accounting Standards Board Statement No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits" (Statement No. 132), is effective in 1998 and
standardizes the disclosure requirements for pensions and other
postretirement benefits. Statement No. 132 had no impact on S&T's
financial position or results of operations.
Financial Accounting Standards Board Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
(Statement No. 133), is effective in 1999 and requires measuring
and recording the change in fair value of hedging activities. S&T
is currently in the process of evaluating the impact of Statement
No. 133. Statement No. 133 is not expected to materially affect
S&T's financial position or results of operations.
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
deposit 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.
PAGE 37
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.
<CAPTION>
</TABLE>
<TABLE>
The following table indicates the estimated fair value of S&T's
financial instruments as of December 31:
1998 1997
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Cash $ 48,789 $ 48,789 $ 36,053 $ 36,053
Federal funds sold 19,300 19,300 - -
Securities:
Available for sale 565,141 565,141 521,117 521,117
Held to maturity 27,161 26,345 48,101 47,103
Loans 1,382,029 1,365,909 1,279,802 1,273,753
Liabilities
Deposits $1,388,634 $1,380,063 $1,287,497 $1,284,658
Securities sold under
repurchase agreements 138,825 138,825 170,126 170,124
Federal funds purchased - - 9,325 9,325
Long-term borrowings 246,397 240,068 145,049 144,218
Other borrowed funds - - 130 130
Off-Balance Sheet
Interest rate swaps $ (33) $ - $ 192 $ -
</TABLE>
Note C
Derivative Financial Instruments
S&T does not extensively use derivative financial instruments.
The only type of instrument that S&T utilizes is interest rate
swaps.
S&T has one interest rate swap at a notional value totaling
$10.0 million, paying a fixed-rate and receiving a variable-rate.
The purpose of this transaction was to provide matched, fixed-rate
funding for newly originated loans, and to mitigate the risk
associated with volatile liability funding. The effective rate of
the swap was 5.37% at December 31, 1998. Interest rate swaps are
not reported in the consolidated balance sheets. Differences
between interest received and interest paid are reported as a
component of borrowing expense in the consolidated income
statement.
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 $16,988,000 during 1998.
PAGE 38
Note E
Securities
The following table indicates the composition of the securities
portfolio at December 31:
<TABLE>
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Market
1998 Cost Gains Losses Value
(dollars in thousands)
<S> <C> <C> <C> <C>
Obligations of U.S. government
corporations and agencies $353,393 $ 4,035 $ (11) $357,417
Mortgage-backed securities 8,410 305 8,715
U.S. treasury securities 26,374 1,578 27,952
Corporate securities 35,902 454 (3) 36,353
Debt securities available for sale 424,079 6,372 (14) 430,437
Marketable equity securities 60,411 55,597 (476) 115,532
Other securities 19,172 19,172
Total $503,662 $61,969 $(490) $565,141
Held to Maturity
Obligations of states and political
subdivisions $ 21,009 $ 647 $ 21,656
Corporate securities 1,999 169 2,168
Debt securities held to maturity 23,008 816 23,824
Other securities 3,337 3,337
Total $ 26,345 $ 816 $ - $ 27,161
</TABLE>
<TABLE>
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Market
1997 Cost Gains Losses Value
(dollars in thousands)
<S> <C> <C> <C> <C>
Obligations of U.S. government
corporations and agencies $338,855 $ 2,616 $(183) $ 341,288
Mortgage-backed securities 14,169 373 14,542
U.S. treasury securities 38,044 1,429 39,473
Corporate securities 10,848 228 (12) 11,064
Debt securities available for sale 401,916 4,646 (195) 406,367
Marketable equity securities 43,745 58,060 (166) 101,639
Other securities 13,111 13,111
Total $458,772 $62,706 $(361) $521,117
Held to Maturity
Obligations of states and political
subdivisions $ 37,497 $ 794 $ (5) $ 38,286
Corporate securities 1,998 209 2,207
Debt securities held to maturity 39,495 1,003 (5) 40,493
Other securities 7,608 7,608
Total $ 47,103 $ 1,003 $ (5) $ 48,101
</TABLE>
PAGE 39
There were $11,881,000, $6,031,000 and $2,528,000 in gross
realized gains and $1,159,000, $585,000 and $305,000 in gross
realized losses in 1998, 1997 and 1996, respectively, relative
to securities available for sale.
The amortized cost and estimated market value of debt
securities at December 31, 1998, 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.
For purposes of the maturity table, mortgage-backed securities,
which are not due at a single maturity date, have been allocated
over maturity groupings based on the weighted-average contractual
maturities of the underlying collateral. The mortgage-backed
securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
<TABLE>
Amortized Market
Available for Sale Cost Value
(dollars in thousands)
<S> <C> <C>
Due in one year or less $ 23,367 $ 23,691
Due after one year through five years 274,025 277,451
Due after five years through 10 years 122,907 125,406
Due after 10 years 3,780 3,889
Total $ 424,079 $ 430,437
Amortized Market
Held to Maturity Cost Value
Due in one year or less $ 4,934 $ 4,961
Due after one year through five years 14,435 15,066
Due after five years through 10 years 3,639 3,797
Due after 10 years - -
Total $ 23,008 $ 23,824
</TABLE>
At December 31, 1998 and 1997, securities with principal
amounts of $295,286,000 and $274,350,000, respectively, were
pledged to secure repurchase agreements and public and trust
fund deposits.
Note F
Loans
The following table indicates the composition of the loan
portfolio at December 31:
[CAPTION]
<TABLE>
1998 1997
(dollars in thousands)
<S> <C> <C>
Real estate-construction $ 87,246 $ 47,967
Real estate-mortgages:
Residential 492,570 512,417
Commercial 407,445 327,384
Commercial-industrial and agricultural 265,297 255,017
Consumer installment 113,351 130,968
Gross Loans $1,365,909 $1,273,753
Allowance for loan losses (26,677) (20,427)
Net Loans $1,339,232 $1,253,326
</TABLE>
PAGE 40
[CAPTION]
<TABLE>
The following table presents changes in the allowance
for loan losses for the year ended December 31:
1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 20,427 $ 18,729 $ 17,065
Charge-offs (5,999) (4,481) (5,536)
Recoveries 1,699 1,179 2,025
Net charge-offs (4,300) (3,302) (3,511)
Provision for loan losses 10,550 5,000 5,175
Balance at end of year $ 26,677 $ 20,427 $ 18,729
</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 persons and did not involve more than
normal risk of collectibility. The aggregate dollar amounts of
these loans were $40,862,000 and $41,130,000 at December 31, 1998
and 1997, respectively. During 1998, $56,514,000 of new loans
were funded and repayments totaled $56,782,000.
During 1998, S&T Bank acquired automobile loans and leases on a
third-party basis from companies owned by two directors of S&T
totaling $1,982,000. 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 $2,933,000
and $3,602,000 at December 31, 1998 and December 31, 1997,
respectively. At December 31, 1998, there were no commitments to
lend additional funds on nonaccrual loans. Other real estate
owned, which is included in other assets, was $721,000 at
December 31, 1998 and $647,000 at December 31, 1997.
The following table represents S&T's investment in loans
considered to be impaired and related information on those
impaired loans at December 31:
[CAPTION]
<TABLE>
1998 1997
(dollars in thousands)
<S> <C> <C>
Recorded investment in loans considered to be impaired $3,391,000 $1,869,000
Loans considered to be impaired that were on a
nonaccrual basis - -
Allowance for loan losses related to loans considered
to be impaired 133,000 914,000
Average recorded investment in impaired loans 2,927,000 6,329,000
Total interest income recognized on impaired loans 674,000 656,000
Interest income on impaired loans recognized on a
cash basis 605,000 -
</TABLE>
PAGE 41
Note G
Premises and Equipment
[CAPTION]
<TABLE>
The following table is a summary of the premises and
equipment accounts at December 31:
1998 1997
(dollars in thousands)
<S> <C> <C>
Land $ 3,026 $ 3,037
Premises 18,619 18,498
Furniture and equipment 13,568 12,152
Leasehold improvements 2,973 2,483
38,186 36,170
Accumulated depreciation (17,254) (15,557)
Total $ 20,932 $ 20,613
</TABLE>
Certain banking facilities and equipment are leased under
short-term lease arrangements expiring at various dates to the
year 2008. All such leases are accounted for as operating leases.
Rental expense for premises and equipment amounted to $1,497,000,
$1,215,000 and $1,136,000 in 1998, 1997 and 1996, respectively.
Minimum annual rentals for each of the years 1999-2003 are
approximately $532,000, $519,000, $389,000, $168,000 and
$169,000, respectively, and $620,000 for the years thereafter.
Included in the above are leases entered into with two directors
of S&T for which rental expense totaled $338,921, $348,497 and
$325,709 in 1998, 1997 and 1996, respectively.
Note H
Deposits
[CAPTION]
<TABLE>
The following table indicates the composition of deposits
at December 31:
1998 1997
(dollars in thousands)
<S> <C> <C>
Noninterest-bearing demand $ 215,659 $ 165,727
Interest-bearing demand 37,540 33,582
Money market 325,196 274,874
Savings 168,485 175,187
Time deposits 633,183 635,288
Total $1,380,063 $1,284,658
</TABLE>
The aggregate of all time deposits over $100,000 amounted to
$91,173,000 and $95,678,000 for December 31, 1998 and 1997,
respectively.
PAGE 42
The following table indicates the scheduled maturities
of time deposits at December 31:
[CAPTION]
<TABLE>
1998 1997
(dollars in thousands)
<S> <C> <C>
Due in one year $386,960 $306,278
Due in one to two years 143,355 187,257
Due in two to three years 34,499 83,395
Due in three to four years 26,005 16,434
Due in four to five years 26,430 26,751
Due after five years 15,934 15,173
Total $633,183 $635,288
</TABLE>
Note I
Long-Term Borrowings
[CAPTION]
<TABLE>
The following table is a summary of long-term borrowings with the
Federal Home Loan Bank (FHLB):
1998 1997
Balance Average Balance Average
Rate Rate
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year $ - -% $ 25,000 5.97%
Due in one to two years 12,500 5.07 - -
Due in two to three years 30,000 6.02 12,500 5.70
Due in three to four years 68,100 5.18 30,000 6.02
Due in four to five years 25,000 5.18 57,100 5.25
Due after five years 44,618 5.61 19,618 6.48
Total $180,218 5.42% $144,218 5.74%
</TABLE>
The purpose of these borrowings was to match fund selected
new loan originations, to mitigate interest rate sensitivity
risks and to 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, 1999. S&T pledged all
1-4 family and multi-family mortgage loans as collateral for any
current or future FHLB advances. The total carrying amount of
these pledged loans was $423,761,000 at December 31, 1998, which
is the maximum amount to be borrowed under the Flexline. There
were no Flexline borrowings outstanding at December 31, 1998 and
1997, respectively.
During 1998, S&T acquired two repurchase agreement long-term
borrowings totaling $59,850,000 at a weighted average fixed rate
of 6.20% which matures in five years. The purpose of this
borrowing was to lock in fixed rate fundings to mitigate interest
rate risk.
Note J
Short-Term Debt
Federal funds purchased and securities sold under repurchase
agreements (REPOS) generally mature within one to 14 days from
the transaction date. S&T defines REPOS with its retail customers
as retail REPOS, and wholesale REPOS are those transacted with
other financial institutions and brokerage firms.
PAGE 43
[CAPTION]
<TABLE>
Information concerning federal funds purchased and
REPOS is summarized as follows:
1998 1997
(dollars in thousands)
<S> <C> <C>
Average balance during the year $177,968 $134,851
Average interest rate during the year 5.29% 5.31%
Maximum month-end balance during the year $251,030 $195,024
Average interest rate at year-end 4.63% 5.82%
</TABLE>
Note K
Dividend and Loan Restrictions
Certain restrictions exist regarding the ability of S&T Bank to
transfer funds to S&T in the form of dividends and loans.
Dividends that may be paid by S&T Bank to S&T are limited to the
retained earnings of S&T Bank which amounted to $100,142,000 at
December 31, 1998. 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 S&T Bank unless
such loans are collateralized by specific obligations. Further,
such loans are limited to 10% of S&T Bank's capital and
additional paid-in capital, as defined. At December 31, 1998, the
maximum amount available for transfer from S&T Bank to S&T in the
form of loans and dividends approximated 40% 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 $372,450,000 and
$294,144,000 at December 31, 1998 and 1997, respectively; and
obligations under standby letters of credit totaled $78,490,000
and $54,439,000 at December 31, 1998 and 1997, respectively.
PAGE 44
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 seven-county market
area in western Pennsylvania.
Note N
Income Taxes
[CAPTION]
<TABLE>
Income tax expense (credits) for the year ended December 31 are
comprised of:
1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Current $18,831 $14,402 $10,649
Deferred (2,632) (756) (613)
Total $16,199 $13,646 $10,036
</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 year ended December 31 is as follows:
[CAPTION]
<TABLE>
1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Statutory tax rate 35% 35% 35%
Tax-exempt interest income
and dividend exclusion (3) (4) (6)
Low income housing tax credits (2) (2) (3)
Effective tax rate 30% 29% 26%
</TABLE>
Income taxes applicable to security gains were $3,753,000
in 1998, $1,906,000 in 1997 and $779,000 in 1996.
PAGE 45
Significant components of S&T's temporary
differences were as follows at December 31:
[CAPTION]
<TABLE>
1998 1997
(dollars in thousands)
<S> <C> <C>
Deferred tax liabilities:
Net unrealized holding gains
on securities available for sale $(21,518) $(21,821)
Fixed assets (644) (683)
Accretion on acquired loans (559) (326)
Prepaid pension (166) (514)
Prepaid hospitalization (102) (102)
Point recognition (830) (933)
Total deferred tax liabilities (23,819) (24,379)
Deferred tax assets:
Allowance on loan losses 9,127 6,939
Loan fees 558 377
Interest expense on increasing rate CDs 114 128
Deferred compensation 799 771
Goodwill 312 352
Other 206 174
Total deferred tax assets 11,116 8,741
Net deferred tax liability $(12,703) $(15,638)
</TABLE>
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.
The following table summarizes the components of net periodic
pension expense for the Bank's defined benefit plan:
[CAPTION]
<TABLE>
1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 1,068 $ 1,103 $ 1,032
Interest cost on projected benefit obligation 1,489 1,378 1,274
Expected return on plan assets (2,070) (1,774) (1,546)
Net amortization and deferral (14) (16) (8)
Net periodic pension expense $ 473 $ 691 $ 752
</TABLE>
PAGE 46
The following tables summarize the activitiy in the benefit
obligation and plan assets.
[CAPTION]
<TABLE>
1998 1997
(dollars in thousands)
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $ 23,385 $ 19,593
Service cost 1,068 1,103
Interest cost 1,489 1,378
Plan participants' contributions 166 220
Special termination benefits - 463
Actuarial (gain)/loss 101 1,464
Benefits paid (1,038) (836)
Benefit obligation at end of year $ 25,171 $ 23,385
Change in Plan Assets
Fair value of plan assets at beginning of year $ 26,043 $ 22,189
Actual return on plan assets 2,992 3,767
Employer contributions 734 703
Plan participants' contributions 166 220
Benefits paid (1,038) (836)
Fair value of plan assets at end of year $ 28,897 $ 26,043
</TABLE>
The following table sets forth the plan's funded status and the
accrued pension cost in the consolidated balance sheet at
December 31:
[CAPTION]
<TABLE>
1998 1997
(dollars in thousands)
<S> <C> <C>
Benefit obligation at beginning of year $(25,171) $(23,385)
Fair value of plan assets at end of year 28,897 26,043
Funded status 3,726 2,658
Unrecognized net gain (3,216) (2,475)
Unamortized prior service cost 77 104
Balance of initial unrecognized net asset (51) (72)
Accrued pension cost included in other liabilities $ 536 $ 215
</TABLE>
[CAPTION]
<TABLE>
Below are actuarial assumptions used in accounting
for the plan:
1998 1997 1996
<S> <C> <C> <C>
Weighted-average discount rate 6.5% 6.5% 7.0%
Rate of increase in future compensation levels 5.0 5.0 5.0
Expected long-term rate of return on plan assets 8.0 8.0 8.0
</TABLE>
PAGE 47
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 $2,249,000 and $2,110,000 at December 31, 1998 and 1997,
respectively. Accrued pension cost related to the SERP was
$1,971,000 and $1,779,000 at December 31, 1998 and 1997,
respectively. Net periodic pension cost related to the SERP was
$244,000, $499,000 and $238,000 at December 31, 1998, 1997 and
1996, respectively. The actuarial assumptions are the same as
those used in the previous tables.
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 $813,000, $990,000 and
$950,000 in 1998, 1997 and 1996, respectively.
On December 30, 1988, S&T sold 560,000 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 had a maximum
term of 10 years and bears interest at 80% of the lender's prime
rate. The loan terms required quarterly interest and annual
principal payments. The balance of this loan was zero and
$130,000 on December 31, 1998 and 1997, 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, 1998,
the ESOP had no unallocated shares remaining.
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 $10,000 in 1998, $17,000 in 1997 and $19,000 in
1996. Dividends received by the ESOP from S&T for unallocated
shares amounted to $18,000 in 1998, $24,000 in 1997 and $24,000
in 1996, 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 was charged to operations as contributions were 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 1998, 1997 and 1996
was $130,000, $100,000 and $110,000, 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 3,200,000 shares of S&T common
stock and expires 10 years from the date of board approval.
S&T grants stock options equal to the fair market value of S&T
common stock on the grant date. 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 S&T common stock on the grant date.
Stock options and SARs granted under the Stock Plan are not
exercisable before the six-month vesting period from the grant
date. There were no SARs or Related SARs issued or outstanding at
December 31, 1998 and 1997.
PAGE 48
The following table summarizes the changes in the incentive stock
options outstanding during 1998, 1997 and 1996:
[CAPTION]
<TABLE>
1998 1997 1996
Weighted Weighted Weighted
Number Average Number Average Number Average
of Option of Option of Option
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 1,457,822 $14.21 1,112,000 $12.06 823,000 $10.45
Granted 334,800 27.75 372,822 20.38 333,000 15.44
Exercised (512,050) 10.90 (27,000) 10.66 (44,000) 7.55
Outstanding at end of year 1,280,572 $19.08 1,457,822 $14.21 1,112,000 $12.06
Exercisable at end of year 945,772 $16.01 1,085,000 $12.10 779,000 $10.62
</TABLE>
The following table summarizes the range of exercise prices at
December 31:
[CAPTION]
<TABLE>
1998 1997 1996
Contractual Contractual Contractual
Shares Exercise Remaining Shares Exercise Remaining Shares Exercise Remaining
Outstanding Price Life(Yrs) Outstanding Price Life(Yrs) Outstanding Price Life(Yrs)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 - - - 80,000 $ 6.82 5 80,000 $ 6.82 6
1993 - - - 124,000 8.63 6 128,000 8.63 7
1994 121,650 $ 9.50 6 227,000 9.50 7 241,000 9.50 8
1995 214,200 13.13 7 324,000 13.13 8 330,000 13.13 9
1996 254,500 15.44 8 330,000 15.44 9 333,000 15.44 10
1997 355,422 20.38 9 372,822 20.38 10 - - -
1998 334,800 27.75 10 - - - - - -
Total 1,280,572 $19.08 8.4 1,457,822 $14.21 8.2 1,112,000 $12.06 8.6
</TABLE>
Options are granted in December and have a six-month vesting
period and a 10-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 grant
date using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1998, 1997 and 1996
respectively: risk-free interest rates of 4.45%, 5.77% and 6.12%;
a dividend yield of 2.7%, 3% and 3%; volatility factors of the
expected market price of S&T's common stock of 0.226, 0.182 and
0.161; and a weighted-average expected life of five years.
[CAPTION]
<TABLE>
1998 1997 1996
(dollars in thousands except per share data)
<S> <C> <C> <C>
Proforma net income $37,030 $32,845 $27,741
Proforma earnings per share-Basic 1.33 1.16 0.99
Proforma earnings per share-Diluted 1.32 1.15 0.98
</TABLE>
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.
PAGE 49
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
contributions. American Stock Transfer and Trust Company, the
plan administrator and transfer agent, purchases the shares on
the open market to fulfill the Plan's needs.
Note Q
S&T Bancorp, Inc. (parent company only)
Condensed Financial Information
Balance Sheets at December 31:
[CAPTION]
<TABLE>
1998 1997
(dollars in thousands)
<S> <C> <C>
Assets
Cash $ 409 $ 19
Investments in:
Bank subsidiary 159,245 169,281
Nonbank subsidiaries 102,301 95,198
Total Assets $261,955 $264,498
Liabilities
Dividends payable $ 4,980 $ 4,243
Other borrowed funds - 130
Other liabilities (2,662) 7
Total Liabilities 2,318 4,380
Total Shareholders' Equity 259,637 260,118
Total Liabilities and Shareholders' Equity $ 261,955 $ 264,498
</TABLE>
Statements of Income for the year ended December 31:
[CAPTION]
<TABLE>
1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Dividends from bank subsidiary $ 18,253 $ 15,689 $ 11,835
Investment income 84 60 64
Income before equity in undistributed
net income of subsidiaries 18,337 15,749 11,899
Equity in undistributed net income of:
Bank subsidiary 9,919 13,316 11,949
Nonbank subsidiaries 9,707 4,349 4,393
Net Income $ 37,963 $ 33,414 $ 28,241
</TABLE>
PAGE 50
[CAPTION]
<TABLE>
Statements of Cash Flows for
the year ended December 31:
1998 1997 1996
(dollars in thousands)
<S> <C> <C> <C>
Operating Activities
Net Income $ 37,963 $33,414 $28,241
Equity in undistributed net income
of subsidiaries (20,499) (19,640) (17,102)
Change in other assets/liabilities (3,232) (408)
Total Provided by Operating Activities 14,232 13,774 10,731
Investing Activities
Distributions from (to) bank
subsidiaries 23,431 (2,914) 7,100
Total Used in Investing Activities 23,431 (2,914) 7,100
Financing Activities
Dividends (17,515) (14,215) (10,667)
(Acquisition) sale of treasury stock (19,758) 848 (4,911)
Total Used in Financing Activities (37,273) (13,367) (15,578)
Increase (decrease) in Cash 390 (2,507) 2,253
Cash at Beginning of Year 19 2,526 273
Cash at End of Year $ 409 $ 19 $ 2,526
</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 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
judgements by the regulators about components, risk weightings
and other factors.
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, 1998
and 1997, S&T meets all capital adequacy requirements to which
it is subject.
PAGE 51
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:
[CAPTION]
<TABLE>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital $231,159 15.98% $120,163 8.00% $150,204 10.00%
(to Risk Weighted Assets)
Tier I Capital 212,975 14.73 60,081 4.00 90,122 6.00
(to Risk Weighted Assets)
Tier I Capital 212,975 10.68 79,781 4.00 99,727 5.00
(to Average Assets)
As of December 31, 1997:
Total Capital $235,825 18.22% $103,538 8.00% $129,422 10.00%
(to Risk Weighted Assets)
Tier I Capital 219,594 16.97 51,769 4.00 77,653 6.00
(to Risk Weighted Assets)
Tier I Capital 219,594 11.70 75,094 4.00 93,867 5.00
(to Average Assets)
</TABLE>
The most recent notification from the Federal
Deposit Insurance Corporation categorized S&T Bank
as well capitalized under the regulatory framework for
corrective action. At December 31, 1998, S&T Bank's
Tier I and Total capital ratios were 10.42% and 11.68%,
respectively, and Tier I capital to average assets was
7.48%. At December 31, 1997, S&T Bank's Tier I and Total
capital ratios were 13.12% and 14.37%, respectively, and
Tier I capital to average assets was 9.24%.
PAGE 52
Report of Ernst & Young LLP, Independent Auditors
S&T Bancorp, Inc. and Subsidiaries
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, 1998
and 1997, 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, 1998. 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 did not audit the 1996
financial statements of Peoples Bank of Unity which statements
reflect net interest income constituting 18.4% of the related
consolidated totals. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our
opinion, insofar as it relates to data included for Peoples Bank
of Unity, is based solely on the report of other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance 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, based on our audits and, for 1996, the report
of other auditors, 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, 1998 and 1997 and the consolidated results of their
operations and their cash flows for each of three years in the
period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Pittsburgh, PA
January 15, 1999
PAGE 53
Stock Prices and Dividend Information
Selected Financial Information
S&T Bancorp, Inc. and Subsidiaries
Stock Prices and Dividend Information
S&T Bancorp, Inc.'s common stock is listed on the Nasdaq National
Market System (Nasdaq). The range of sales prices for the years
1998 and 1997 are as follows and are based upon information
obtained from Nasdaq. As of the close of business January 28,
1999, there were 3,181 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.'s common stock, restated to record the effect of a
two-for-one common stock split in the form of a 100% stock
dividend distributed on October 30, 1998.
[CAPTION]
<TABLE>
Price Range of Common Stock
1998 Low High Cash Dividends Declared
<S> <C> <C> <C>
Fourth Quarter $24.00 $29.50 $0.18
Third Quarter 23.38 28.75 0.17
Second Quarter 25.38 28.38 0.17
First Quarter 20.88 28.88 0.15
1997
Fourth Quarter $19.25 $22.25 $0.15
Third Quarter 16.63 19.38 0.14
Second Quarter 14.75 18.44 0.14
First Quarter 14.88 18.38 0.13
</TABLE>
Selected Financial Data
[CAPTION]
<TABLE>
Year Ended December 31: 1998 1997 1996 1995 1994
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement
Interest income $151,438 $141,101 $132,442 $127,020 $112,559
Interest expense 69,156 62,284 58,589 57,677 46,643
Provisions for loan losses 10,550 5,000 5,175 4,220 3,600
Net interest income after
provision for loan losses 71,732 73,817 68,678 65,123 62,316
Noninterest income 24,418 16,441 11,997 9,147 7,611
Noninterest expense 41,988 43,198 42,398 40,276 38,679
Income before income taxes 54,162 47,060 38,277 33,994 31,248
Applicable income taxes 16,199 13,646 10,036 9,152 8,276
Net income $37,963 $ 33,414 $ 28,241 $ 24,842 $ 22,972
Per Share Data1
Net income-Basic $ 1.37 $ 1.18 $ 1.00 $ 0.87 $ 0.80
Net income-Diluted 1.35 1.17 1.00 0.87 0.80
Dividends declared 0.66 0.56 0.47 0.37 0.31
Book value 9.38 9.20 8.01 7.50 6.39
</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 October 30, 1998.
PAGE 54
Selected Financial Data
Quarterly Selected Financial Data
S&T Bancorp, Inc. and Subsidiaries
Selected Financial Data
Balance Sheet Totals (period end):
<CAPITAL>
<TABLE>
Year Ended December 31: 1998 1997 1996 1995 1994
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $2,069,611 $1,920,291 $1,787,045 $1,689,728 $1,580,252
Securities 591,486 568,220 500,061 492,236 466,875
Net loans 1,339,232 1,253,326 1,181,407 1,086,317 1,011,165
Total deposits 1,380,063 1,284,658 1,270,367 1,216,547 1,142,571
Securities sold under
repurchase agreements 138,825 170,124 114,205 122,794 169,871
Other liabilities 291,086 205,391 176,355 136,333 84,974
Total shareholders' equity 259,637 260,118 226,118 214,054 182,836
</TABLE>
[CAPTION]
<TABLE>
Quarterly Selected Financial Data
1998 1997
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(dollars in thousands, except per share data)
Summary of Operations
Income Statement:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 38,373 $ 38,345 $ 37,548 $ 37,172 $ 36,412 $ 35,488 $ 34,808 $ 34,391
Interest expense 17,500 17,577 17,247 16,832 16,465 15,748 15,034 15,037
Provision for loan
losses 2,500 2,000 4,000 2,050 1,900 750 800 1,550
Net interest income
after provision
for loan losses 18,373 18,768 16,301 18,290 18,047 18,990 18,974 17,804
Noninterest income 6,318 4,328 8,326 5,446 4,725 3,224 4,473 4,020
Noninterest expense 10,730 9,623 11,049 10,586 10,605 9,991 11,655 10,946
Income before income
taxes 13,961 13,473 13,578 13,150 12,167 12,223 11,792 10,878
Applicable income
taxes 4,188 3,971 4,131 3,909 3,456 3,575 3,478 3,137
Net income $ 9,773 $ 9,502 $ 9,447 $ 9,241 $ 8,711 $ 8,648 $ 8,314 $ 7,741
Per Share Data1
Net income-Basic $ 0.35 $ 0.35 $ 0.34 $ 0.33 $ 0.31 $ 0.31 $ 0.30 $ 0.28
Net income-Diluted 0.35 0.34 0.34 0.33 0.31 0.30 0.29 0.27
Dividends declared 0.18 0.17 0.17 0.15 0.15 0.14 0.14 0.13
Book value 9.38 9.11 9.03 9.06 9.20 8.85 8.45 8.10
Average Balance Sheet Totals
Total assets $2,048,886 $2,003,268 $1,980,861 $1,946,261 $1,877,348 $1,815,999 $1,774,740 $1,784,502
Securities 540,872 539,118 528,492 516,558 484,187 436,882 419,737 449,542
Net loans 1,327,705 1,297,881 1,278,235 1,261,066 1,241,063 1,227,670 1,200,365 1,192,592
Total deposits 1,368,104 1,330,045 1,316,782 1,292,547 1,286,784 1,291,130 1,254,535 1,244,384
Securities sold
under repurchase
agreements 141,065 162,655 209,176 171,371 136,540 114,583 127,487 127,346
Other liabilities 280,921 258,007 199,712 222,603 196,308 162,738 155,884 179,736
Total shareholders'
equity 258,796 252,561 255,191 259,740 257,715 247,548 236,834 232,245
</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 October 30, 1998.
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.
Commonwealth Trust Credit Life Insurance Company, a joint
venture, incorporated under the laws of Arizona.
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 Option Plan and the Dividend
Reinvestment Plan of S&T Bancorp, Inc. and subsidiaries, respect-
ively, of our report dated January 15, 1999, with respect to the
consolidated financial statments of S&T Bancorp, Inc. and subsidiaries
incorporated by reference in the Annual Report (Form 10-K) for the
year ended December 31, 1998.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 22, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in the Annual Report on Form 10-K
under the Securities Exchange Act of 1934 of S&T Bancorp,
Inc. for the year ended December 31, 1998, of our report
dated February 10, 1997 insofar as such report relates to
the financial statements of Peoples Bank of Unity for the
year ended December 31, 1996.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
March 22, 1999
REPORT OF INDEPENDENT AUDITORS
Board of Director and Stockholders
Peoples Bank of Unity
We have audited the accompanying balance sheet of Peoples Bank
of Unity as of December 31, 1996 and 1995, and the related statments
of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Bank'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 assurance 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 financial position of Peoples Bank of Unity
as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
As explained in the notes to the financial statments, effective January
1, 1995, the Bank changed its method of accounting for the impairment
of loans and related allowance for loan losses, and effective January
1, 1994, changed its method of accounting for investment securities.
/s/ S.R. Snodgrass, A.C.
Wexford, Pennsylvania
February 10, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
"This schedule contains summary financial information extracted from SEC Form
10-K and qualified to its entirety by reference to such financial statements."
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 48,736
<INT-BEARING-DEPOSITS> 53
<FED-FUNDS-SOLD> 19,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 565,141
<INVESTMENTS-CARRYING> 26,345
<INVESTMENTS-MARKET> 27,161
<LOANS> 1,339,232
<ALLOWANCE> 26,677
<TOTAL-ASSETS> 2,069,611
<DEPOSITS> 1,380,063
<SHORT-TERM> 138,825
<LIABILITIES-OTHER> 51,018
<LONG-TERM> 240,068
0
0
<COMMON> 74,285
<OTHER-SE> 185,352
<TOTAL-LIABILITIES-AND-EQUITY> 2,069,611
<INTEREST-LOAN> 115,081
<INTEREST-INVEST> 36,043
<INTEREST-OTHER> 314
<INTEREST-TOTAL> 151,438
<INTEREST-DEPOSIT> 49,570
<INTEREST-EXPENSE> 19,586
<INTEREST-INCOME-NET> 82,282
<LOAN-LOSSES> 10,550
<SECURITIES-GAINS> 10,722
<EXPENSE-OTHER> 41,988
<INCOME-PRETAX> 54,162
<INCOME-PRE-EXTRAORDINARY> 54,162
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,963
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 4.61
<LOANS-NON> 2,933
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,427
<CHARGE-OFFS> 5,999
<RECOVERIES> 1,699
<ALLOWANCE-CLOSE> 26,677
<ALLOWANCE-DOMESTIC> 26,677
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,096
</TABLE>
