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, 1999
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 07, 2000:
Common Stock, $2.50 par value - $493,358,520
The number of shares outstanding of the issuer's classes of common
stock as of February 07, 2000:
Common Stock, $2.50 par value - 27,000,042 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual shareholders report for the year ended December
31, 1999 are incorporated by reference into Part II. Portions of the
proxy statement for the annual shareholders meeting to be held April
17, 2000 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, 1999, S&T had $2.2 billion in total assets, $240
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 $645 million at December 31,
1999. 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, 1999, S&T Bank had a total of 662 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.
PAGE 2
Item 1. BUSINESS -- Continued
S&T
As a bank holding company, S&T is subject to regulation under the
Bank Holding Company Act of 1956 ("BHCA") and the examination
and reporting requirements of the Federal Reserve Board. Under the
BHCA a bank holding company may not directly or indirectly acquire
ownership or control of more than five percent of the voting shares or
substantially all of the assets of any additional bank, or merge or
consolidate with another bank holding company, without the prior
approval of the Federal Reserve Board.
The BHCA also generally limits the activities of a bank holding
company to that of banking, managing on controlling banks, or any
other activity which is determined to be so closely related to banking or
to managing or controlling banks as to be a proper incident thereto.
S&T is presently engaged in two nonbanking activities: S&T
Investment Company, Inc., which is an investment holding company,
and Commonwealth Trust Credit Life Insurance Company
("CTCLIC"). S&T Investment Company, Inc. was formed in June
1988 to hold and manage a group of investments previously owned by
S&T Bank and to give S&T additional latitude to purchase other
investments. CTCLIC, which is a joint venture with another financial
institution, acts as a reinsurer of credit life, accident and health
insurance policies sold by S&T Bank and the other institution.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by
federal law and regulatory policy that are designed to reduce potential
loss exposure to the depositors of such depository institutions and to
the FDIC insurance funds in the event the depository institution
becomes in danger of default or in default. For example, under a policy
of the Federal Reserve Board with respect 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.
PAGE 3
Item 1. BUSINESS -- Continued
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.
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, 1999, S&T's Tier 1
and Total capital ratios were 12.41 percent and 14.59 percent,
respectively, and the ratios of Tier 1 capital and Total capital to total
risk-adjusted assets for S&T Bank were 9.03 percent and 10.29 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, 1999 was 9.90
percent, and S&T Bank's leverage ratio was 7.08 percent.
PAGE 4
Item 1. BUSINESS -- Continued
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, 1999, S&T Bank
paid $20.1 million in cash dividends to S&T.
Other Safety and Soundness Regulations
The federal banking agencies possess broad powers under current
federal law to take prompt corrective action to resolve problems of
insured depository institutions. The extent of these powers depends
upon whether the institution in question is "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized," as defined by the
law. As of December 31, 1999, S&T Bank was classified as "well
capitalized." The classification of depository institutions is primarily
for the purpose of applying the federal banking agencies' prompt
corrective action provisions and is not intended to be, and should not be
interpreted as, a representation overall financial condition or prospects
of any financial institution.
PAGE 5
Item 1. BUSINESS -- Continued
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 representation 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 6
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 incme represents the difference between the interest and
fees earned on interest-earning assets and the interest paid on interest-
bearing liabilities. Net interest income is affected by changes in the
volume of interest-earning assets and interest-bearing liabilities and
changes in interest yields and rates. Interest on loans to and obligations
of state, municipalities and other public entities is not subject to federal
income tax. As such, the stated (pre-tax) yield on these assets is lower
than the yields on taxable assets of similar risk and maturity. In order
to make the pre-tax income and resultant yields comparable to taxable
loans and investments, a taxable equivalent adjustment was added to
interest income in the tables below. This adjustment has been
calculated using the U.S. federal statutory income tax rate of 35% for
1999, 1998 and 1997. The following table demonstrates the amount
that has been added to interest income per the summary of operations.
[CAPTION]
<TABLE>
Year Ended December 31
1999 1998 1997
(In thousands of dollars)
<S> <C> <C> <C>
Interest income per consolidated
statements of income $156,727 $151,438 $141,101
Adjustment to fully taxable
equivalent basis 3,098 3,048 3,335
Interest income adjusted to fully
taxable equivalent basis 159,825 154,486 144,436
Interest expense 69,942 69,156 62,284
Net interest income adjusted to
fully taxable equivalent basis $89,883 $85,330 $82,152
</TABLE>
PAGE 7
Item 1. BUSINESS -- Continued
Average Balance Sheet and Net Interest Income Analysis
[CAPTION]
<TABLE>
December 31
1999 1998 1997
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1)(2) $1,421,906 $121,424 8.54% $1,314,984 $115,993 8.82% $1,234,733 $109,781 8.89%
Taxable investment
securities 525,848 36,404 6.92% 502,889 35,784 7.12% 405,840 30,663 7.56%
Tax-exempt investment
securities (2) 17,045 1,449 8.50% 28,459 2,395 8.42% 41,850 3,461 8.27%
Interest-earning
deposits with banks 71 4 5.63% 83 6 7.23% 111 8 7.21%
Federal funds sold 10,880 544 5.00% 5,812 308 5.30% 9,528 523 5.49%
Total interest-earning
assets (3) 1,975,750 159,825 8.09% 1,852,227 154,486 8.34% 1,692,062 144,436 8.54%
Noninterest-earning assets:
Cash and due from banks 40,121 39,395 36,185
Premises and equipment, net 20,976 20,905 19,752
Market value appreciation
of securities available
for sale 45,573 60,811 46,626
Other assets 65,559 44,755 38,971
Less allowance for loan
losses (27,743) (23,562) (19,802)
$2,120,236 $1,994,531 $1,813,794
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
NOW/Money market accounts $393,929 $11,808 3.00% $327,851 $10,146 3.09% $294,356 $8,772 2.98%
Savings deposits 167,414 3,546 2.12% 172,525 3,914 2.27% 187,394 4,340 2.32%
Time deposits 626,166 31,924 5.10% 642,681 35,510 5.53% 626,192 34,854 5.57%
Federal funds purchased 4,465 229 5.13% 7,007 383 5.47% 8,369 472 5.64%
Securities sold under
agreements to repurchase 138,387 6,519 4.71% 170,961 8,968 5.25% 126,481 6,602 5.22%
Long-term borrowing 286,975 15,916 5.55% 185,959 10,226 5.50% 123,722 7,227 5.84%
Other borrowed funds - - - 130 9 6.92% 230 17 7.39%
Total interest-bearing
liabilities (3) 1,617,336 69,942 4.32% 1,507,114 69,156 4.59% 1,366,744 62,284 4.56%
Noninterest-bearing liabilities:
Demand deposits 210,095 183,435 161,339
Other 41,815 47,423 42,048
Shareholders' equity 250,990 256,559 243,663
$2,120,236 $1,994,531 $1,813,794
Net interest income $89,883 $85,330 $82,152
Net yield on interest-
earning assets 4.55% 4.61% 4.85%
</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 1999, 1998 and 1997.
(3) Yields are calculated using historical cost basis.
PAGE 8
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>
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
Volume Rate Net Volume Rate Net
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans (2) $9,431 ($4,000) $5,431 $7,135 ($923) $6,212
Taxable investment securities 1,634 (1,014) 620 7,332 (2,211) 5,121
Tax-exempt investment securities(2) (961) 15 (946) (1,107) 41 (1,066)
Interest-earning deposits (1) (1) (2) (2) 0 (2)
Federal funds sold 269 (33) 236 (204) (11) (215)
Total interest-earning assets $10,372 ($5,033) $5,339 $13,154 ($3,104) $10,050
Interest paid on:
NOW/Money market accounts $2,045 $(383) $1,662 $3,597 ($2,223) $1,374
Savings deposits (116) (252) (368) (344) (82) (426)
Time deposits (913) (2,673) (3,586) 918 (262) 656
Securities sold under agreements
to repurchase (1,709) (740) (2,449) 2,322 44 2,366
Federal funds purchased (139) (15) (154) (77) (12) (89)
Long-term borrowings 5,555 135 5,690 3,635 (636) 2,999
Other borrowed funds (9) 0 (9) (7) (1) (8)
Total interest-bearing liabilities $4,715 ($3,928) $786 $10,044 ($3,172) $6,872
Change in net interest income $4,553 $3,178
</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 1999, 1998 and 1997.
PAGE 9
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 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, 1999 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 guide-
lines 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 accept-
able 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 2.65
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 10
Item 1. BUSINESS -- Continued
[CAPTION]
<TABLE>
Interest Rate Sensitivity
December 31, 1999
(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 $38,717
Federal Funds 15,400 0 0 0
Securities 42,010 13,354 22,363 497,501
Net Loans 602,012 159,207 223,218 484,705
Other Assets 0 0 0 95,588
Total $659,422 $172,561 $245,581 $1,116,511
Repricing Liabilities:
Demand $0 $0 $0 $219,202
NOW 15,026 15,026 30,052 60,106
Money Market 295,258 0 0 0
Savings/Clubs 19,974 19,974 39,950 79,899
Certificates 200,282 130,166 122,193 187,954
Repos & Short-term Borrowings 106,009 0 0 0
Long-term Borrowings 69,600 30,000 73,844 190,618
Swaps 10,000 0 0 0
Other Liabilities/Equity 0 0 0 278,942
Total $716,149 $195,166 $266,039 $1,016,721
GAP ($56,727) ($22,605) ($20,458) $99,790
Cumulative GAP ($56,727) ($79,332) ($99,790) $0
</TABLE>
[CAPTION]
<TABLE>
Immediate
Current Policy Core Deposit
Rate Sensitive Assets/Rate Sensitive Liabilities Month Guideline Repricing
<S> <C> <C> <C>
Cumulative 6 months 0.92 .85-1.15 0.69
Cumulative 12 months 0.91 .85-1.15 0.74
</TABLE>
S&T's six month and one year gap position at December 31, 1999 is
liability sensitive. Liability sensitive means that more liabilities than
assets of S&T will reprice during the measured time frames. The
implications of liability sensitive position will differ depending upon
the current trend of market interest rates.
For example, a liability sensitive position in a declining interest rate
environment, the cost of S&T repricing liabilities can theoretically be
expected to decline more quickly than the yields on S&T repricing
assets. This situation would cause an increase to S&T's interest rate
spreads, net interest income and to operating income. Liquidity
impacts in this scenario, other than increased costs, would not be
material unless serious ongoing declines in operating results caused
depositors, lenders and investors to lose confidence.
PAGE 11
Item 1. BUSINESS -- Continued
Conversely, a liability sensitive gap position in a rising interest rate
scenario would theoretically have a negative impact to interest rate
spreads, net income and to operating income. Liquidity impacts 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
flucuations 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.
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, 1999, 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
1999 1998 1997
(In thousands of dollars)
<S> <C> <C> <C>
Available for Sale
Marketable equity securities $97,729 $115,532 $101,639
Obligations of U.S. government
corporations and agencies 335,941 357,417 341,288
Mortgage-backed securities 6,170 8,715 14,542
U.S. Treasury securities 14,126 27,952 39,473
Corporate securities 64,526 36,353 11,064
Other securities 39,502 22,509 20,719
TOTAL $557,994 $568,478 $528,725
Held to Maturity
Obligations of states and
political subdivisions $15,231 $21,009 $37,497
Corporate securities 1,999 1,999 1,998
TOTAL $17,230 $23,008 $39,495
</TABLE>
PAGE 12
Item 1. BUSINESS -- Continued
The following table sets forth the maturities of securities at
December 31, 1999, 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 1999 have been made in
calculating yields on obligations of state and political subdivisions.
[CAPTION]
<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 $97,729
Obligations of U.S. government
corporations and agencies $10,141 7.86% $176,683 6.25% $149,117 7.06%
Mortgage-backed securities 25 7.96% 199 7.35% 3,551 7.69% $2,395 7.47%
U.S. Treasury securities 3,059 7.18% 5,103 7.22% 5,964 7.81%
Corporate securities 1,102 7.06% 48,619 6.61% 14,805 6.64%
Other securities 39,502
TOTAL $14,327 $230,604 $173,437 $2,395 $137,231
Weighted Average Rate 7.65% 6.35% 7.06% 7.47%
Held to Maturity
Obligations of states and
political subdivisions $2,907 8.05% $10,847 8.70% $1,477 8.71%
Corporate securities 1,999 7.15%
TOTAL $2,907 $12,846 $1,477 $0 $0
Weighted Average Rate 8.05% 8.46% 8.71% 0.00%
</TABLE>
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
1999 1998 1997 1996 1995
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Domestic Loans:
Commercial, mortgage
and industrial $830,847 $672,742 $582,401 $496,863 $450,932
Real estate-construction 94,786 87,246 47,967 35,508 30,191
Real estate-mortgage 466,881 492,570 512,417 513,424 461,822
Installment 103,763 113,351 130,968 154,341 160,437
TOTAL LOANS $1,496,277 $1,365,909 $1,273,753 $1,200,136 $1,103,382
</TABLE>
PAGE 13
Item 1. BUSINESS -- Continued
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences and installment loans) outstanding
as of December 31, 1999. Also provided are the amounts due after one
year classified according to the sensitivity to changes in interest rates.
[CAPTION]
<TABLE>
Maturing
Within After One But After
One Year Within Five Years Five Years Total
(In thousands of dollars)
<S> <C> <C> <C> <C>
Commercial, mortgage
and industrial $282,436 $261,345 $287,066 $830,847
Real estate-construction 23,754 32,544 38,488 94,786
$306,190 $293,889 $325,554 $925,633
Fixed interest rates $92,706 $73,949
Variable interest rates 201,183 251,605
$293,889 $325,554
</TABLE>
Nonaccrual, Past Due and Restructured Loans
The following table summarizes S&T's nonaccrual, past due and
restructured loans:
[CAPTION]
<TABLE>
December 31
1999 1998 1997 1996 1995
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,987 $2,933 $3,602 $10,268 $4,748
Accruing loans past
due 90 days or more $0 $0 $0 $0 $0
</TABLE>
PAGE 14
Item 1. BUSINESS -- Continued
At December 31, 1999, $2,987,000 of nonaccrual loans were
secured. Interest income that would have been recorded under original
terms totaled $578,000. No interest income was recorded on these
loans. It is S&T's policy to place loans on non-accrual 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, 1999, 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
assessment 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 portfoio 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 commitment. Categories of smaller
individual loans are allocated based upon historical losses and current
delinquency levels.
PAGE 15
Item 1. BUSINESS -- Continued
The unallocated component is primarily subjective based upon
management's assessment of nonquantifiable factors that make
historical trend analyses difficult such as:
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.
The allowance for loan losses 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 below.
[CAPTION]
<TABLE>
Year Ended December 31
1999 1998 1997 1996 1995
<C> <C> <C> <C> <C>
1.81% 1.95% 1.60% 1.56% 1.55%
</TABLE>
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 $73,000 and $133,000 at December 31, 1999
and 1998, 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
1999 1998 1997 1996 1995
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at January 1: $26,677 $20,427 $18,729 $17,065 $15,169
Charge-offs:
Commercial, mortgage and
industrial 4,270 2,905 1,654 2,986 1,313
Real estate-mortgage 913 1,497 1,056 405 148
Installment 1,819 1,597 1,771 2,145 1,578
7,002 5,999 4,481 5,536 3,039
Recoveries:
Commercial, mortgage and
industrial 2,483 713 517 1,591 294
Real estate-mortgage 495 389 221 105 107
Installment 481 597 441 329 314
3,459 1,699 1,179 2,025 715
Net charge-offs 3,543 4,300 3,302 3,511 2,324
Provision for loan losses 4,000 10,550 5,000 5,175 4,220
Balance at December 31: $27,134 $26,677 $20,427 $18,729 $17,065
Ratio of net charge-offs
to average loans outstanding 0.25% 0.33% 0.27% 0.31% 0.22%
</TABLE>
PAGE 16
Item 1. BUSINESS -- Continued
This table shows allocation of the allowance for loan losses as of
the end of each of the last five years:
[CAPTION]
<TABLE>
December 31,1999 December 31,1998 December 31,1997 December 31,1996 December 31,1995
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, mortgage
and industrial $20,147 56% $16,850 49% $13,556 46% $9,605 41% $8,579 41%
Real estate-construction 0 6% 0 7% 0 4% 0 3% 0 3%
Real estate-mortgage 868 31% 1,096 36% 763 40% 1,680 43% 1,321 42%
Installment 2,541 7% 2,635 8% 1,865 10% 1,859 13% 1,803 14%
Unallocated 3,578 0% 6,096 0% 4,243 0% 5,585 0% 5,362 0%
TOTAL $27,134 100% $26,677 100% $20,427 100% $18,729 100% $17,065 100%
</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]
<TABLE>
Year Ended December 31
1999 1998 1997
Amount Rate Amount Rate Amount Rate
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $210,095 $183,435 $161,339
NOW/Money market account 393,929 3.00% 327,851 3.09% 294,356 2.98%
Savings deposits 167,414 2.12% 172,525 2.27% 187,394 2.32%
Time deposits 626,166 5.10% 642,681 5.53% 626,192 5.57%
TOTAL $1,397,604 $1,326,492 $1,269,281
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding
at December 31, 1999, are summarized as follows:
[CAPTION]
<TABLE>
(in thousands of dollars)
<S> <C>
3 Months or less $32,389
Over 3 through 6 months 8,655
Over 6 through 12 months 13,045
Over 12 months 31,560
TOTAL $85,649
</TABLE>
Return on Equity an Assets
[CAPTION]
<TABLE>
Year Ended December 31
1999 1998 1997
<S> <C> <C> <C>
Return on average assets 1.95% 1.90% 1.84%
Return on average equity 16.50% 14.80% 13.71%
Dividend payout ratio 48.65% 46.14% 42.54%
Equity to asset ratio 10.92% 12.55% 13.55%
</TABLE>
PAGE 17
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.
[CAPTION]
<TABLE>
Federal Funds
Purchased and
Securities
Sold under
Agreements
to Repurchase
(in thousand of dollars)
<S> <C>
Balance at December 31:
1999 $116,009
1998 138,825
1997 179,449
Weighted average interest rate at
year end:
1999 5.06%
1998 4.63%
1997 5.82%
Maximum amount outstanding at any
month's end:
1999 $212,361
1998 251,030
1997 195,024
Average amount outstanding during the year:
1999 $142,852
1998 177,968
1997 134,851
Weighted average interest rate during the year:
1999 4.72%
1998 5.29%
1997 5.31%
</TABLE>
S&T defines repurchase agreements with its retail customers as
retail REPOs; wholesale REPOs are those transacted with other banks
and brokerage firms with terms normally ranging from 1 to 14 days.
PAGE 18
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; 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, 1999, 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, 1999, incorporated herein by
reference.
PAGE 19
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 page 21 through 30 of the
Annual Report for the year ended December 31, 1999, incorporated
herein by reference.
Item 7(A).QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Quantitative and Qualitative Disclosures about Market Risk
on pages 28 and 29 of the Annual Report for the year ended December
31, 1999, 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, 1999, incorporated herein by reference.
Item 9. CHANGES AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
There have been no changes in accountants or disagreements
with accountants on accounting and financial disclosures.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
Election of Directors on pages 4 through 5 of the proxy
statement for the April 17, 2000, annual meeting of shareholders,
incorporated herein by reference.
[CAPTION]
<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 180,235 67
and Director
James C. Miller President, Chief 1983 172,763 54
Executive Officer and
Director
James G. Barone Executive Vice 1992 46,140 52
President, Secretary and
Treasurer
Robert E. Rout Executive Vice 1993 55,468 47
President and Chief
Financial Officer
PAGE 20
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
Executive Officers (continued)
Edward C. Hauck Executive Vice 1991 43,244 47
President
David L. Kreiger Executive Vice 1984 38,070 56
President
J. Jeffrey Smead Executive Vice 1992 72,199 48
President
William H. Klummp Senior Vice 1994 29,692 56
President
Edward A. Onderick Senior Vice 1989 67,466 55
President
David P. Rudduck Senior Vice 1998 17,882 38
President
Todd D. Brice Senior Vice 1999 62,531 38
President
Richard A. Fiscus Senior Vice 1999 24,149 44
President
</TABLE>
(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.
Item 11. EXECUTIVE COMPENSATION
Remuneration of Executive Officers on pages 7 and 8 of the
proxy statement for the April 17, 2000, 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 17, 2000, annual meeting of
shareholders, incorporated herein by reference.
PAGE 21
PART IV
PART IV
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Transactions with Management and Others on pages 10 and
11 of the proxy statement for April 17, 2000, annual meeting with
shareholders, incorporated herein by reference.
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, 1999, are
incorporated by reference in Part II, Item 8:
Page
Reference
Report of Ernst & Young LLP, Independent Auditors 53
Consolidated Balance Sheets
December 31, 1999 and 1998 31
Consolidated Statements of Income
Year ended December 31, 1999, 1998, and 1997 32
Consolidated Statements of Changes in Shareholders'
Equity Year ended December 31, 1999, 1998, and 1997 33
Consolidated Statements of Cash Flows
Year ended December 31, 1999, 1998, and 1997 34
Notes to Consolidated Financial Statements
December 31, 1999 35-52
Quarterly Selected Financial Data 55
(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) Listing of Exhibits - See Item 14 (c) below
(b) Reports on Form 8-K
None
PAGE 22
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K (Continued)
(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 - incorporated
herein by reference.
(3.4) Amendment to Articles of Incorporation of S&T
Bancorp, Inc. effective July 21, 1995 - incorporated
herein by reference.
(3.5) Amendment to Articles of Incorporation of S&T
Bancorp, Inc. effective June 18, 1998 -
incorporated herein by reference.
(3.6) By-Laws of S&T Bancorp, Inc., as amended,
December 20, 1999 - filed herewith.
(13) Annual Report for the year ended December 31, 1999, pages
21-55, - filed herewith.
(21) Subsidiaries of the Registrant - filed herewith.
(23.1) Consent of Ernst & Young LLP, Independent Auditors
filed herewith.
PAGE 23
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 3/20/00
James C. Miller, Date
President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Robert E. Rout 3/20/00
Robert E. Rout, Date
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
PAGE 24
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 3/20/00 /s/ Joeseph A Kirk 3/20/00
Thomas A. Brice, Director Date Joseph A. Kirk, Director Date
/s/ James L. Carino 3/20/00 /s/ Frank W. Jones 3/20/00
James L. Carino, Director Date Frank W. Jones, Director Date
/s/ John J. Delaney 3/20/00 /s/ James C. Miller 3/20/00
John J. Delaney, Director Date James C. Miller, President, Date
Chief Executive Officer
and Director
/s/ Robert D. Duggan 3/20/00 /s/ Alan Papernick 3/20/00
Robert D. Duggan, Chairman Date Alan Papernick, Director Date
/s/ William J. Gatti 3/20/00 /s/ Myles D. Sampson 3/20/00
William J. Gatti, Director Date Myles D. Sampson, Director Date
/s/ Ruth M. Grant 3/20/00
Ruth M. Grant, Director Date Charles A. Spadafora, Date
Director
/s/ Jeffrey D. Grube 3/20/00 /s/ Christine J. Toretti 3/20/00
Jeffrey D. Grube, Director Date Christine J. Toretti, Date
Director
/s/ Herbert L. Hanna 3/20/00
Herbert L. Hanna, Director Date Samuel Levy, Director Date
PAGE 25
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 fro
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 organize
under the laws of the Commonwealth of Pennsylvania, to its principle offic
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 n
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 2000, no person shall be eligible to
be newly elected or appointed as a Director after he/she shall have attained
the age of seventy-two years on or prior to the date of his/her election. Any
Director of this Corporation who attains the age of seventy-two 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 $123.5 million growth of average earning assets in 1999 was primarily the
result of an excellent lending year for S&T Bancorp, Inc. (S&T), combined
with increases in the investment portfolio. During 1999, average loan
balances increased by $106.9 million, and average securities and federal
funds increased $16.6 million. The funding for this loan and security growth
was provided by a $71.1 million increase in average deposits, a $65.8 million
increase in average borrowings offset by a decrease of $5.6 million in
average earnings retained.
[CAPTION]
<TABLE>
1999 1998
Average Loan Average Loan
Loan Balance Loan Balance
(in millions) Balance Percentage Balance Percentage
<S> <C> <C> <C> <C>
Commercial, mortgage and
industrial $ 841.6 59% $ 691.6 53%
Residential real estate
mortgage 472.9 33 502.1 38
Installment 107.4 8 121.3 9
Total Loans $1,421.9 100% $1,315.0 100%
</TABLE>
Lending Activity
Average loans at December 31, 1999 were $1.4 billion, a $106.9 million or
8.1% increase from December 31, 1998. The increases in average loans for 1998
were $80.3 million. Changes in the composition of the average loan portfolio
during 1999 included increases of $150.0 million of commercial loans and
$22.8 million of home equity loans, offset by decreases of $52.0 million of
residential mortgages and $13.9 million in installment loans. Composition
changes included decreases from the effects of $16.1 million of 1-4 family
mortgage loans and $4.5 million of commercial loans that were sold or
participated in 1999.
Average commercial, mortgage and industrial loans currently comprise 59% of
the loan portfolio. Although commercial loans can be an area of higher risk,
management believes these risks are mitigated by limiting the percentage
amount of portfolio composition, a rigorous underwriting review by loan
administration and the fact that many of the commercial real estate loans are
owner occupied.
Residential mortgage lending continued to be a strategic focus for 1999
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 real estate loan portfolio will be negligible 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, a maximum term
of 30 years for adjustable 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 19% of the residential
mortgage portfolio in 1999.
Much of the decline in average residential loans was due to more active
participation in the secondary mortgage markets. S&T periodically sells
longer-term, lower yielding 1-4 family mortgages to the Federal National
Mortgage Association (Fannie Mae). 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 1999, S&T sold $16.1
million of 1-4 family mortgages to Fannie Mae. Fees and gains from mortgage
servicing activities were $0.4 million in 1999. S&T will continue to sell
longer-term loans to Fannie Mae in the future on a selective basis,
especially during periods of lower interest rates.
Installment loan decreases were primarily associated with significantly lower
volumes in the indirect auto loan category and S&T's strategy to continue to
focus resources toward originations of direct installment loans and home
equity loans. Pricing pressures were unusually intense in the indirect market
during 1999 and 1998, and the decision was made to exit this line of business
and allow the portfolio to amortize through normal payments and payoffs.
Direct loans and home equity loans increased $29.2 million during 1999 as
compared to the 1998 full year average.
PAGE 21
Loan underwriting standards for S&T are established by a formal policy
administered by the S&T Bank Credit Administration Department, and are
subject to the periodic review and approval of the S&T Bank Board of
Directors.
Rates and terms for commercial real estate and equipment loans normally are
negotiated, subject to such variables as economic conditions, marketability
of collateral, credit history of the borrower and future cash flows. The loan
to value policy guideline for commercial real estate loans is generally 75%-
80%.
The residential, first lien, mortgage loan to value policy guideline is 80%.
Higher loan to value loans can be approved with the appropriate private
mortgage insurance coverage. Second lien positions are sometimes incurred
with home equity loans, but normally only to the extent that the combined
credit exposure for both first and second liens does not exceed 100% loan to
value.
A variety of unsecured and secured installment loan and credit card products
is offered by S&T. However, the majority 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 National Automobile Dealer
Association (NADA) value for used automobiles.
Management intends to continue to pursue quality loans in all lending
categories within our market area in order to honor our commitment to provide
comprehensive financial services 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 $11.5 million in 1999 and $83.8 million in 1998.
During 1999, S&T's bond portfolio was restructured with sales and maturities
of $238.7 million of U.S. government agency securities. The proceeds were
reinvested in order to extend potential call dates and to take advantage of
higher interest rates. 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 these
strategies is managed and monitored through S&T's Asset Liability Committee
(ALCO).
The largest components of the 1999 increase included $38.6 million in other
corporate securities, $12.2 million in corporate equities and $7.0 million in
Federal Home Loan Bank (FHLB) stock. The FHLB stock is a membership and
borrowing requirement. Offsetting these increases are decreases of $10.8
million in U.S. treasury securities, $20.0 million of U.S. government agency
securities, $4.1 million in mortgage-backed securities and $11.4 million in
tax-exempt state and municipal securities.
During 1999, S&T sold $13.8 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 mergers; 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 1999, the equity portfolio
yielded 9.3% on a fully taxable equivalent basis and had unrealized gains at
December 31, 1999, net of unrealized losses, of $36.1 million.
S&T's policy for security classification includes U.S. treasuries, U.S.
government agencies, mortgage-backed securities, corporate debt securities
and marketable equity securities as available for sale. Municipal securities
and one corporate debt security are classified as held to maturity. At
December 31, 1999, unrealized gains, net of unrealized losses, for securities
classified as available for sale were approximately $25.2 million.
PAGE 22
Nonearning Assets
Average noninterest earning assets increased $21.6 million in 1999 and $5.8
million in 1998. The 1999 increase can be primarily attributed to a $25.0
million bank-owned life insurance (BOLI) investment entered into during 1999,
which provides S&T with other income through increases in the cash surrender
value of the BOLI. The 1998 increase can be primarily attributed to an
increase in cash and due from banks and in accrued interest receivable on a
higher earning asset balance. Cash and due from banks growth is primarily
related to increased federal reserve requirements and check clearing balances
resulting from demand deposit growth and higher levels of cash management
activities for customers.
[CAPTION]
<TABLE>
1999 1998
Loan Loan
Allowance Balance Allowance Balance
Allowance for Loan Losses Balance Percentage Balance Percentage
(in millions)
<S> <C> <C> <C> <C>
Commercial, mortgage and
industrial $20.1 59% $16.9 53%
Residential real estate mortgage 0.9 33 1.1 38
Installment 2.5 8 2.6 9
Unallocated 3.6 - 6.1 -
Total $27.1 100% $26.7 100%
</TABLE>
Allowance for Loan Losses
The year-end balance in the allowance for loan losses increased to $27.1
million or 1.81% of total loans at December 31, 1999 as compared to $26.7
million or 1.95% of total loans at December 31, 1998.
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 occurred within the credit's
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. Management
relies on its risk rating process to monitor trends which may be occurring
relative to commercial loans to assess potential weaknesses within the
credit. Current economic factors and trends in risk ratings are considered in
the determination of the allowance for loan losses.
Net loan charge-offs totaled $3.5 million in 1999. The balance of
nonperforming loans, which includes nonaccrual loans past due 90 days or
more, at December 31, 1999, was $3.0 million or 0.20% of total loans. This
compares to nonperforming loans of $2.9 million or 0.21% of total loans at
December 31, 1998.
Asset quality is a major corporate objective at S&T, and management believes
the total allowance for loan losses is adequate to absorb probable loan
losses.
Deposits
Average total deposits increased by $71.1 million in 1999 and $57.2 million
in 1998. The mix of average deposits in 1999 changed with money market
accounts and interest-bearing demand deposits increasing $57.4 million and
$8.6 million, respectively, while time deposits and savings accounts
decreased $16.5 and $5.1 million, respectively. Noninterest-bearing deposits
increased by $26.7 million or 15% in 1999 and were approximately 15% and 14%
of total deposits during 1999 and 1998, 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.
PAGE 23
Management believes the S&T deposit base is stable and 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 6% and 7% of
total deposits during 1999 and 1998, 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, 1999,
there were $11.5 million of these brokered retail certificates of deposit
outstanding.
Borrowings
Average borrowings increased $65.8 million in 1999 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 decreased slightly by $0.1 million for
1999 and increased $9.1 million for 1998. 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.
Wholesale REPOS and federal funds purchased averaged $52.1 million in 1999, a
decrease of $35.0 million from the 1998 averages. The increase in core
deposits and the availability of reasonably priced long-term borrowings from
the FHLB decreased the usage of these types of fundings in 1999.
The interest rate risk of various funding strategies is managed through ALCO.
During 1999, ALCO authorized four additional long-term borrowings of $155.0
million at a fixed rate with the FHLB. At December 31, 1999, S&T had long-
term borrowings outstanding of $215.6 million at a fixed rate and $69.6
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 liability fundings, 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, 1999, 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, decreased 1% in
1999 and increased 12% in 1998. The 1999 decrease was a result of general
decreases in the debt and equity markets during the year.
Results of Operations
Year Ended December 31, 1999
Net Income
Net income was a record $41.4 million or $1.51 per diluted earnings per share
in 1999, representing a 12% increase from the $38.0 million or $1.35 per
diluted earnings per share in 1998. The return on average assets increased to
1.95% for 1999, as compared to 1.90% for 1998. The return on average equity
increased to 16.50% for 1999, compared to 14.80% for 1998. 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 $4.6
million or 5% for 1999 compared to 1998. The net yield on interest-earning
assets decreased slightly to 4.55% in 1999 as compared to 4.61% in 1998. The
decline in the net yield on interest-earning assets during 1999 was primarily
attributed to the implementation of a bank-owned life insurance program
(BOLI), as well as our continuing share repurchase program that repurchased
approximately 834,000 shares of S&T common stock. Net interest income was
positively affected by the $123.5 million or 7% increase in average earning
assets.
PAGE 24
In 1999, average loans increased $106.9 million and average securities
increased $11.5 million, comprising most of the earning asset growth. The
yields on average loans decreased by 28 basis points and the yields on
average securities decreased 12 basis points. Overall funding costs decreased
47 basis points.
Average interest-bearing deposits provided $71.1 million of the funds for the
growth in average earning assets, at a cost of 3.98% in 1999 as compared to
4.34% in 1998.
Average increases of $65.8 million in REPOS and other borrowed funds provided
additional funding. The cost of these funds decreased 11 basis points during
1999. During 1999, more longer-term borrowings were utilized in order to
mitigate interest rate risk.
Also positively affecting net interest income was a $13.3 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 84% of operating revenue. The level and mix of earning assets and
funds are 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 was 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 $4.0 million
for 1999 compared to $10.6 million in 1998. 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, as determined by the
model for the adequacy of the allowance for loan losses.
Credit quality statistics are an important factor in determining the amount
of provision expense. Net loan charge-offs totaled $3.5 million for 1999
compared to $4.3 million for 1998. 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 0.20% at December 31, 1999.
Also affecting the amount of provision expense is loan growth and portfolio
composition. Most of the loan growth in 1999 and 1998 is attributable to
larger-sized commercial loans.
Noninterest Income
Noninterest income, excluding net security gains, increased $3.2 million or
23% in 1999 compared to 1998. Increases included $0.3 million or 8% in trust
income, $0.7 million or 12% in service charges and fees and a $2.2 million or
49% increase in other income. Security gains decreased $7.5 million or 70%.
The increase in trust income was attributable to bankwide 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 continued effort to implement reasonable fees for services
performed and to manage closely the collection of these fees, as well as
expanding new cash management relationships.
The increase in other income was a result of increased performance for
brokerage and insurance commissions, letters of credit fees, covered calls,
credit and debit card commissions, mortgage servicing income, as well as BOLI
investment income. These areas were the focus of several 1999 strategic
initiatives and product enhancements implemented in order to expand this
source of revenue.
S&T recognized $5.7 million of gains on equity securities during 1999. $1.3
million was the result of Emerging Issues Task Force #91-5, Nonmonetary
Exchange of Cost-Method Investments (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 $0.7 million from the First Western Bancorp/Sky
Financial merger and $0.6 million from the BankBoston/Fleet Boston merger.
The remaining security gains were primarily attributable to the sales of
equity securities in order to maximize returns by taking advantage of market
opportunities when presented. Offsetting these gains were $2.5 million in
losses from the aforementioned restructuring of the available for sale bond
portfolio.
PAGE 25
Noninterest Expense
Noninterest expense increased $1.5 million or 4% in 1999 compared to 1998.
The increase is primarily attributable to increased employment and other
expenses. S&T's efficiency ratio, which measures noninterest expense as a
percent of recurring noninterest income plus net interest income on a fully
taxable equivalent basis, was 41% and 42% in 1999 and 1998, respectively.
Staff expense increased 3% or $0.6 million in 1999. The increase resulted
from normal merit increases and higher incentive payouts relative to
commercial loan activity and credit insurance sales. Average full-time
equivalent staff was 659 in 1999 and 1998.
Other expenses increased 10% or $1.2 million as compared to 1998. This
increase included $0.3 million of goodwill related to a branch purchase in
the third quarter of 1998, $0.3 million in telephone expense relating to the
implementation of a wide area computer communications network and a $0.3
million recovery of a previously charged-off fraud loss in 1998. Other
expense increases of $0.3 million were not significant and reflect normal
changes due to activity increases, organization expansion, consulting
engagements for our fee products and operations areas and fee increases from
vendors.
Federal Income Taxes
Federal income tax expense increased $1.8 million to $18.0 million in 1999 as
a result of higher pretax income in 1999. The 1999 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.
Results of Operations
Year Ended December 31, 1998
Net Income
Net income was $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 by 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 are 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 was successfully implemented, within
prescribed ALCO risk parameters, that enabled S&T to maintain a net interest
margin consistent with historical levels.
PAGE 26
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 bankwide 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 continued 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, 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 sales 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 Bank
of Unity 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 projected 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 LIHTC projects. S&T currently does not incur any alternative
minimum tax.
PAGE 27
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, 1999, the total of such assets was approximately
$646.9 million or 29% 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 6% of deposits at December 31,
1999 and were outstanding primarily to local customers. S&T's ability to
attract deposits and borrowed funds depends primarily on continued rate
competitiveness, profitability, capitalization and overall financial
condition.
Beyond the issue of having sufficient sources to fund unexpected credit
demands or deposit withdrawals, liquidity management also is an important
factor in monitoring and managing interest rate sensitivity issues through
ALCO. Through forecast and simulation models, ALCO is also able to project
future funding needs and develop strategies for acquiring funds at a
reasonable cost.
ALCO uses a variety of measurements to monitor the liquidity position of S&T.
These include liquidity gap, net alternative funding resources, net loans to
assets, net loans to deposits, volatile liabilities and liquidity ratio. As
of December 31, 1999, 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 CMOs, and classifying the
demand, savings and money market balances by degree of interest rate
sensitivity. Utilizing the above assumptions results in ratios of interest
rate sensitive assets to interest rate sensitive liabilities for the six-
month and 12-month intervals ended December 31, 1999 of 0.92% and 0.91%,
respectively. Assuming immediate repricings for interest-bearing demand,
savings and money market accounts, these ratios would be 0.69% and 0.74%,
respectively.
In addition to the gap analysis, S&T performs an earnings sensitivity
analysis to identify more dynamic interest rate risk exposures.
An earnings simulation model is used to estimate the effect that specific
interest rate changes would have on 12 months of pretax earnings. 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 pricing 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.
PAGE 28
S&T's policy objective is to limit the change in annual pretax earnings to
$2.7 million from an immediate and sustained parallel change in interest
rates of 200 basis points. As of December 31, 1999 and 1998, respectively,
S&T had the following estimated earnings sensitivity profile:
[CAPTION]
<TABLE>
Immediate
Change in Rates
(in millions) +200bp -200bp
<S> <C> <C>
1999 Pretax earnings change $(0.2) $(1.2)
1998 Pretax earnings change $(2.1) $ 0.2
</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, 1999 and 1998
are presented below.
[CAPTION]
<TABLE>
Gradual
Change in Rates
(in millions) +200bp -200bp
<S> <C> <C>
1999 Pretax earnings change $(0.1) $ 0.4
1998 Pretax earnings change $(1.3) $(0.9)
</TABLE>
Capital Resources
Shareholders' equity decreased $19.9 million at December 31, 1999 compared to
December 31, 1998. 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 $41.4 million and dividends declared to shareholders were
$20.6 million for 1999. S&T paid 49% of 1999 net income in dividends,
equating to an annual dividend rate of $0.76 per share. The decrease in
capital is attributable to the repurchase of approximately 834,000 shares of
its common stock during 1999. The repurchase of up to 1,000,000 shares in
1999 was authorized by the S&T Board of Directors. In December 1999, this
authorization was extended for 2000 for an additional repurchase of up to
1,000,000 shares. Also affecting capital was a decrease of $23.5 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 effected in the form of a 100% stock dividend.
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 decreased 5.4% from $9.38 at December
31, 1998 to $8.88 at December 31, 1999, primarily due to the decrease in
unrealized holding gains on securities available for sale and by the stock
buy-backs during 1999.
S&T continues to maintain a strong capital position with a leverage ratio of
9.9% as compared to the 1999 minimum regulatory guideline of 3%. S&T's risk-
based capital Tier 1 and Total ratios were 12.4% and 14.6%, respectively, at
December 31, 1999, 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.
In April 1993, shareholders approved the S&T Incentive Stock Plan (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, 1999, 2,187,422 nonstatutory stock options
had been granted to key employees and outside directors; 1,119,572 of these
options are currently exercisable.
Year 2000
During 1999, S&T completed the process of preparing for the Year 2000 date
change. This process involved identifying and remediating date recognition
problems in computer systems, software and other operating equipment, working
with third parties to address their Year 2000 issues, and developing
contingency plans to address potential risks in the event of Year 2000
failures. To date, S&T has successfully managed the transition.
Although considered unlikely, unanticipated problems in S&T's core business
processes, including problems associated with noncompliant third parties and
disruptions to the economy in general, could still occur despite efforts to
date to remediate affected systems and develop contingency plans. Management
will continue to monitor all business processes, including interaction with
S&T's business customers, vendors and other third parties, throughout 2000 to
address any issues and ensure all processes continue to function properly.
PAGE 29
Through 1999, the cost of the Year 2000 project totaled approximately $0.3
million. Purchased hardware and software was capitalized in accordance with
normal policy. Personnel and all other costs related to the project were
expensed as incurred.
Regulatory Matters
S&T and S&T Bank are subject to periodic examinations by one or more of the
various regulatory agencies. During 1999, an examination was conducted by the
Federal Deposit Insurance Corporation (FDIC). 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 FDIC 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
[CAPTION]
<TABLE>
December 31 1999 1998
(dollars in thousands, except per share data)
<S> <C> <C>
Assets
Cash and due from banks $38,663 $48,736
Interest-earning deposits with banks 54 53
Federal funds sold 15,400 19,300
Securities:
Available for sale 557,994 568,478
Held to maturity (market value $17,527
in 1999 and $23,824 in 1998) 17,230 23,008
Total Securities 575,224 591,486
Loans, net of allowance for loan losses
of $27,134 in 1999 and $26,677 in 1998 1,469,143 1,339,232
Premises and equipment 20,678 20,932
Other assets 74,911 49,872
Total Assets $2,194,073 $2,069,611
Liabilities
Deposits:
Noninterest-bearing $ 219,202 $ 215,659
Interest-bearing 1,215,863 1,164,404
Total Deposits 1,435,065 1,380,063
Securities sold under repurchase agreements 116,009 138,825
Long-term borrowings 364,062 240,068
Other liabilities 39,237 51,018
Total Liabilities 1,954,373 1,809,974
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 1999
and 1998
Issued-29,714,038 shares in 1999
and 1998 74,285 74,285
Additional paid-in capital 21,070 21,234
Retained earnings 179,129 158,274
Accumulated other comprehensive income 16,410 39,961
Treasury stock (2,715,221 shares in 1999
and 2,038,459 shares in 1998, at cost) (51,194) (34,117)
Total Shareholders' Equity 239,700 259,637
Total Liabilities and Shareholders' Equity $2,194,073 $2,069,611
See Notes to Consolidated Financial Statements.
</TABLE>
PAGE 31
Consolidated Statements of Income
S&T Bancorp, Inc. and Subsidiaries
[CAPTION]
<TABLE>
Year Ended December 31 1999 1998 1997
(dollars in thousands, except
per share data)
<S> <C> <C> <C>
Interest Income
Loans, including fees $120,333 $115,081 $108,891
Deposits with banks 4 6 8
Federal funds sold 543 308 523
Investment securities:
Taxable 29,377 29,984 25,421
Tax-exempt 942 1,557 2,250
Dividends 5,528 4,502 4,008
Total Interest Income 156,727 151,438 141,101
Interest Expense
Deposits 47,278 49,570 47,966
Securities sold under
repurchase agreements 6,519 8,968 6,602
Federal funds purchased 229 383 472
Long-term borrowings 15,916 10,226 7,227
Other borrowed funds - 9 17
Total Interest Expense 69,942 69,156 62,284
Net Interest Income 86,785 82,282 78,817
Provision for Loan Losses 4,000 10,550 5,000
Net Interest Income After
Provision for Loan Losses 82,785 71,732 73,817
Noninterest Income
Security gains, net 3,240 10,722 5,446
Service charges on deposit accounts 6,234 5,548 4,603
Trust fees 3,936 3,661 3,181
Other 6,690 4,487 3,211
Total Noninterest Income 20,100 24,418 16,441
Noninterest Expense
Salaries and employee benefits 22,726 22,086 22,816
Occupancy, net 2,855 2,759 2,583
Furniture and equipment 2,445 2,688 3,170
Other taxes 1,540 1,456 1,320
Data processing 2,256 2,411 2,154
Amortization of intangibles 447 112 -
FDIC assessment 238 228 240
Other 10,983 10,248 10,915
Total Noninterest Expense 43,490 41,988 43,198
Income Before Income Taxes 59,395 54,162 47,060
Applicable Income Taxes 17,977 16,199 13,646
Net Income $ 41,418 $ 37,963 $ 33,414
Per Common Share:1
Net Income-Basic $ 1.52 $ 1.37 $ 1.18
Net Income-Diluted 1.51 1.35 1.17
Dividends Declared 0.76 0.66 0.56
</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
[CAPTION]
<TABLE>
Accumulated
Additional Other
Comprehensive Common Paid-In Retained Comprehensive 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, 1997 $ - $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 reclass-
ification 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 issued
(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 reclass-
ification adjustment
for gains included in
net income of $7,281 (563) (563)
Cash dividends declared
($0.66 per share) (18,253)
Treasury stock acquired
(1,117,036 shares) (27,975)
Treasury stock issued
(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) $ -
Comprehensive Income:
Net income for 1999 41,418 41,418
Other comprehensive income,
net of tax: Unrealized
losses on securities of
$20,510 net of reclassi-
fication adjustment for
gains included in
net income of $3,041 (23,551) (23,551)
Cash dividends declared
($0.76 per share) (20,563)
Treasury stock acquired
(834,207 shares) (20,007)
Treasury stock issued
(157,445 shares) (684) 2,930
Tax Deductibility/Options 520
Comprehensive Income $17,867
Balance at December 31, 1999 $74,285 $21,070 $179,129 $16,410 $(51,194) $ -
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.
</TABLE>
See Notes to Consolidated Financial Statements.
PAGE 33
Consolidated Statements of Cash Flows
S&T Bancorp, Inc. and Subsidiaries
[CAPTION]
<TABLE>
Year Ended December 31 1999 1998 1997
(dollars in thousands)
Operating Activities
<S> <C> <C> <C>
Net Income $ 41,418 $ 37,963 $ 33,414
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for loan losses 4,000 10,550 5,000
Provision for depreciation
and amortization 2,220 2,158 2,163
Net amortization of investment
security premiums 588 609 675
Deferred income taxes 1,228 (807) (756)
Securities gains, net (3,240) (10,722) (5,446)
Decrease (increase) in interest
receivable 451 157 (1,601)
Increase (decrease) in interest
payable 484 (139) 395
(Increase) decrease in other assets (25,338) 776 819
(Decrease) increase in other
liabilities (1,377) (2,214) 531
Net Cash Provided by Operating
Activities 20,434 38,331 35,194
Investing Activities
Net (increase) decrease in interest-
earning deposits with banks (1) 49 7
Net decrease (increase) in federal
funds sold 3,900 (19,300) 6,465
Proceeds from maturities of
investment securities 5,778 20,772 3,146
Proceeds from maturities of
securities available for sale 116,428 192,105 127,344
Proceeds from sales of securities
available for sale 268,230 96,233 77,826
Purchases of securities available
for sale (407,755) (323,130) (248,077)
Net increase in loans (133,911) (96,456) (76,919)
Purchases of premises and equipment (1,892) (1,933) (2,042)
Other, net (74) 215 (696)
Net cash acquired in branch acquisition - 31,604 -
Net Cash Used in Investing Activities (149,297) (99,841) (112,946)
Financing Activities
Net increase in demand, NOW and
savings deposits 47,589 81,553 9,105
Net increase (decrease) in
certificates of deposit 7,414 (25,213) 5,186
Net (decrease) increase in
federal funds purchased - (9,325) 8,550
Net (decrease) increase in
repurchase agreements (22,817) (31,299) 55,919
Proceeds from FHLB long-term
borrowings 203,844 120,850 68,600
Payments from FHLB long-term
Borrowings (79,850) (25,000) (61,000)
Acquisition of treasury stock (17,761) (27,975) (5)
Exercise of stock options and
related tax benefit 520 8,219 853
Cash dividends paid to shareholders (20,149) (17,515) (14,215)
Net Cash Provided by Financing
Activities 118,790 74,295 72,993
(Decrease) increase in Cash and
Cash Equivalents (10,073) 12,785 (4,759)
Cash and Cash Equivalents at
Beginning of Year 48,736 35,951 40,710
Cash and Cash Equivalents at
End of Year $ 38,663 $ 48,736 $ 35,951
See Notes to Consolidated Financial Statements.
<CAPTION>
</TABLE>
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 accounting principles generally accepted in
the United States. 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.
Securities
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and S&T has the ability at the
time of purchase to hold securities until maturity, they are classified as
held to maturity and are stated at cost adjusted for amortization of premiums
and accretion of discounts. All obligations of states and political
subdivisions and one corporate security are classified as held to maturity.
Securities to be held for indefinite periods of time are classified as
available for sale and are recorded at market value. All U.S. treasury
securities, U.S. government corporations and agencies, collateralized
mortgage obligations, all other corporate securities and marketable equity
securities are classified as available for sale. Gains or losses on the
disposition of securities are based on the specific identification method.
S&T does not engage in any securities trading activity.
Loans
Interest on loans is accrued and credited to operations based on the
principal amount outstanding. Accretion of discount on loans is included in
interest income. Loan origination fees and direct loan origination costs are
deferred and amortized as an adjustment of loan yield over the respective
lives of the loans. Loans are placed on nonaccrual and interest is
discontinued when collection of interest or principal is doubtful, or
generally when interest and principal are 90 days or more past due.
Impaired loans are defined by management as commercial and commercial real
estate loans for which it is probable that the Bank will not be able to
collect all amounts due according to the contractual terms of the loan
agreement. Residential real estate mortgages and consumer installment loans
are large groups of smaller balance homogenous loans and are separately
measured for impairment collectability. Factors considered by management in
determining impairment include payment status and underlying collateral
value. All impaired loans are classified as substandard for risk
classification purposes. Impaired loans are charged-off, to the estimated
value of collateral associated with the loan, when management believes
principal and interest are deemed uncollectible. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower
may be unable to meet the payments as they become due. When interest accrual
is discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent that cash payments are received.
The allowance for loan losses is established through provisions for loan
losses charged against income. Loans considered to be uncollectible are
charged against the allowance, and recoveries, if any, are credited to the
allowance. The allowance for loan losses is maintained at a level believed
adequate by management to absorb probable losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on
periodic evaluations of the loan portfolio, past loan loss experience,
current economic conditions, volume, growth and composition of the loan
portfolio and other relevant factors.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation. The
provision for depreciation is computed generally by the straight-line method
for financial reporting purposes and by accelerated methods for federal
income tax purposes.
Other Real Estate
Other real estate is included in other assets and is comprised of properties
acquired through foreclosure proceedings or acceptance of a deed in lieu of a
foreclosure and loans classified as in-substance foreclosure. These
properties are carried at the lower of cost or fair value less cost of
resale. Loan losses arising from the acquisition of such property are charged
against the allowance for loan losses. Gains or losses realized subsequent to
acquisition are recorded in the results of operations.
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 subsidiary bank, S&T Bank (Bank),
are not assets of the Bank and are therefore not included in the consolidated
financial statements. Trust fee income is reported on the accrual basis.
Pensions
Pension expense for the Bank's defined benefit pension plan is actuarially
determined using the projected unit credit actuarial cost method. The funding
policy for the plan is to contribute amounts to the plan sufficient to meet
the minimum funding requirements of the Employee Retirement Income Security
Act of 1974, plus such additional amounts as may be appropriate, subject to
federal income tax limitations.
Treasury Stock
The purchase of S&T common stock is recorded at cost. At the time of reissue,
the treasury stock account is reduced using the average cost method.
Earnings Per Share
Basic Earnings Per Share (EPS) is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Average shares outstanding for computing basic EPS were 27,168,529,
27,762,801, and 28,263,036 for 1999, 1998 and 1997, respectively. Options,
warrants and other potentially dilutive securities are excluded from the
basic calculation, but are included in diluted EPS. Average shares
outstanding for computing dilutive EPS were 27,366,986, 28,055,142 and
28,618,364 for 1999, 1998 and 1997, respectively. In computing dilutive EPS,
average shares outstanding have been increased by the common stock
equivalents relating to S&T's outstanding stock options.
Operating Segments
An operating segment is defined as a component of an enterprise that engages
in business activities that generate revenue and incur expense, and the
operating results of which are reviewed by the chief operating decision maker
in the determination of resource allocation and performance. S&T's business
activities are currently confined to one segment which is community banking.
Cash Flow Information
S&T considers cash and due from banks as cash and cash equivalents. For the
years ended December 31, 1999, 1998 and 1997, cash paid for interest was
$69,518,000, $69,295,000 and $60,825,000, respectively. Cash paid during 1999
for income taxes was $14,368,000 compared to $15,567,000 for 1998 and
$14,190,000 for 1997.
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 1999 and 1998, $16.1 million and $10.9 million, respectively, of 1-4
family mortgage loans were sold to the Federal National Mortgage Association
(Fannie Mae), and $463,000 and $302,000, respectively, of mortgage servicing
rights were capitalized and recorded in other assets.
Reclassification
Amounts in prior years have been reclassed to conform to presentation in
1999. The reclassification had no effect on financial condition or results of
operations.
New Accounting Pronouncements
Financial Accounting Standards Board Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (Statement No. 133), as
amended by Financial Accounting Standards Board Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of Statement No. 133" (Statement No. 137), is effective in
2001, and requires measuring and recording the change in fair value of
derivative instruments. 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.
PAGE 36
Note B
Fair Values of Financial Instruments
S&T utilized quoted market values, where available, to assign fair value to
its financial instruments. In cases where quoted market values were not
available, S&T used present value methods to estimate the fair value of its
financial instruments. These estimates of fair value are significantly
affected by the assumptions made and, accordingly, do not necessarily
indicate amounts which could be realized in a current market exchange. S&T
does not expect to realize the estimated amounts disclosed.
The following methods and assumptions were used by S&T in estimating its fair
value disclosures for financial instruments:
Cash and Cash Equivalents and Other Short-Term Assets
The carrying amounts reported in the consolidated balance sheet for cash and
due from banks, interest-earning deposits with banks and federal funds sold
approximate those assets' fair values.
Securities
Fair values for investment securities and securities available for sale are
based on quoted market prices.
Loans
For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for other loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers as measured by net credit losses and the loss of interest income
from nonaccrual loans. The carrying amount of accrued interest approximates
its fair value.
Deposits
The fair values disclosed for demand deposits (e.g., noninterest and
interest-bearing demand, money market and savings accounts) are, by
definition, equal to the amount payable on demand. The carrying amounts for
variable-rate, fixed-term certificates of deposits and other time deposits
approximate their fair value at year-end. Fair values for fixed-rate
certificates of deposit and other time deposits are based on the discounted
value of contractual cash flows, using interest rates currently being offered
for deposits of similar remaining maturities.
Short-Term Borrowings and Other Borrowed Funds
The carrying amounts of federal funds purchased, borrowings under repurchase
agreements and other borrowings approximate their fair values.
Long-Term Borrowings
The fair values disclosed for long-term borrowings are estimated using
current interest rates for long-term borrowings of similar remaining
maturities.
Loan Commitments and Standby Letters of Credit
Estimates of the fair value of these off-balance sheet items were not made
because of the short-term nature 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 impractical to
estimate a representational fair value for these types of assets, which
represent significant value to S&T.
The following table indicates the estimated fair value of S&T's financial
instruments as of December 31:
[CAPTION]
<TABLE>
1999 1998
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets
Cash $ 38,717 $ 38,717 $ 48,789 $ 48,789
Federal funds sold 15,400 15,400 19,300 19,300
Securities:
Available for sale 557,994 557,994 568,478 568,478
Held to maturity 17,527 17,230 23,824 23,008
Loans 1,487,385 1,496,277 1,382,029 1,365,909
Liabilities
Deposits $1,436,040 $1,435,065 $1,388,634 $1,380,063
Securities sold under
repurchase agreements 116,009 116,009 138,825 138,825
Long-term borrowings 356,009 364,062 246,397 240,068
Off-Balance Sheet
Interest rate swaps $ 22 $ - $ (33) $ -
</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 with 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.
At December 31, 1999, S&T was paying a fixed rate of 5.3% and receiving a
variable rate of 6.2% based upon the London Interbank Offer Rate. Interest
rate swaps are not reported in the consolidated balance sheets. Differences
between interest received and interest paid is reported as a component of
borrowing expense in the consolidated income statement.
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 $17,609,000 during 1999.
PAGE 38
Note E
Securities
The following table indicates the composition of the securities portfolio at
December 31:
[CAPTION]
<TABLE>
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Market
1999 Cost Gains Losses Value
(dollars in thousands)
<S> <C> <C> <C> <C>
Obligations of U.S. government
corporations and agencies $345,329 $ 86 $ (9,474) $335,941
Mortgage-backed securities 6,179 12 (21) 6,170
U.S. treasury securities 13,709 417 14,126
Corporate securities 66,395 11 (1,880) 64,526
Debt securities available
for sale 431,612 526 (11,375) 420,763
Marketable equity securities 61,635 42,073 (5,979) 97,729
Other securities 39,502 39,502
Total $532,749 $42,599 $(17,354) $557,994
Held to Maturity
Obligations of states and
political subdivisions $ 15,231 $ 235 $ (3) $ 15,463
Corporate securities 1,999 65 2,064
Total $ 17,230 $ 300 $ (3) $ 17,527
</TABLE>
<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 22,509 22,509
Total $506,999 $61,969 $ (490) $568,478
Held to Maturity
Obligations of states and
political subdivisions $ 21,009 $ 647 $ 21,656
Corporate securities 1,999 169 2,168
Total $ 23,008 $ 816 $ - $ 23,824
</TABLE>
PAGE 39
There were $5,833,000, $11,881,000 and $6,031,000 in gross realized gains and
$2,593,000, $1,159,000 and $585,000 in gross realized losses in 1999, 1998
and 1997, respectively, relative to securities available for sale.
The amortized cost and estimated market value of debt securities at December
31, 1999, 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.
[CAPTION]
<TABLE>
Amortized Market
Available for Sale Cost Value
(dollars in thousands)
<S> <C> <C>
Due in one year or less $ 14,211 $ 14,327
Due after one year through five years 237,060 230,604
Due after five years through 10 years 177,933 173,437
Due after 10 years 2,408 2,395
Total $ 431,612 $ 420,763
Amortized Market
Held to Maturity Cost Value
Due in one year or less $ 2,907 $ 2,928
Due after one year through five years 12,846 13,104
Due after five years through 10 years 1,477 1,495
Total $ 17,230 $ 17,527
</TABLE>
At December 31, 1999 and 1998, securities with principal amounts of
$317,979,000 and $295,286,000, 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>
1999 1998
(dollars in thousands)
<S> <C> <C>
Real estate-construction $ 94,786 $ 87,246
Real estate-mortgages:
Residential 466,881 492,570
Commercial 527,970 407,445
Commercial and industrial 302,877 265,297
Consumer installment 103,763 113,351
Gross Loans $1,496,277 $1,365,909
Allowance for loan losses (27,134) (26,677)
Net Loans $1,469,143 $1,339,232
</TABLE>
PAGE 40
The following table presents changes in the allowance for loan losses for the
year ended December 31:
[CAPTION]
<TABLE>
1999 1998 1997
(dollars in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 26,677 $ 20,427 $ 18,729
Charge-offs (7,002) (5,999) (4,481)
Recoveries 3,459 1,699 1,179
Net charge-offs (3,543) (4,300) (3,302)
Provision for loan losses 4,000 10,550 5,000
Balance at end of year $ 27,134 $ 26,677 $ 20,427
</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
$43,478,000 and $40,862,000 at December 31, 1999 and 1998, respectively.
During 1999, $50,543,000 of new loans were funded and repayments totaled
$47,927,000.
The principal balances of loans on nonaccrual were $2,987,000 and $2,933,000
at December 31, 1999, and 1998, respectively. At December 31, 1999, there
were no commitments to lend additional funds on nonaccrual loans. Other real
estate owned, which is included in other assets, was $291,000 at December 31,
1999 and $721,000 at December 31, 1998.
The following table represents S&T's investment in loans considered to be
impaired and related information on those impaired loans:
[CAPTION]
<TABLE>
1999 1998 1997
(dollars in thousands)
<S> <C> <C> <C>
Recorded investment in loans
considered to be impaired $11,602,000 $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 73,000 133,000 914,000
Average recorded investment in
impaired loans 5,948,000 2,927,000 6,329,000
Total interest income recognized
on impaired loans 1,271,000 674,000 656,000
Interest income on impaired loans
recognized on a cash basis 1,107,000 605,000 -
</TABLE>
PAGE 41
Note G
Premises and Equipment
The following table is a summary of the premises and equipment accounts at
December 31:
[CAPTION]
<TABLE>
1999 1998
(dollars in thousands)
<S> <C> <C>
Land $ 3,048 $ 3,026
Premises 18,705 18,619
Furniture and equipment 15,006 13,568
Leasehold improvements 3,015 2,973
39,774 38,186
Accumulated depreciation (19,096) (17,254)
Total $ 20,678 $ 20,932
</TABLE>
Certain banking facilities and equipment are leased under short-term lease
arrangements expiring at various dates to the year 2009. All such leases are
accounted for as operating leases. Rental expense for premises and equipment
amounted to $1,266,000, $1,497,000 and $1,215,000 in 1999, 1998 and 1997,
respectively. Minimum annual rentals for each of the years 2000-2004 are
approximately $578,000, $449,000, $227,000, $227,000, and $228,000,
respectively, and $633,000 for the years thereafter. Included in the above
are leases entered into with two directors of for which rental expense
totaled $397,751, $338,921 and $348,497 in 1999, 1998 and 1997, respectively.
Note H
Deposits
The following table indicates the composition of deposits at December 31:
[CAPTION]
<TABLE>
1999 1998
(dollars in thousands)
<S> <C> <C>
Noninterest-bearing demand $ 219,202 $ 215,659
Interest-bearing demand 120,211 123,387
Money market 295,258 239,349
Savings 159,797 168,485
Time deposits 640,597 633,183
Total $1,435,065 $1,380,063
</TABLE>
The aggregate of all time deposits over $100,000 amounted to $85,649,000 and
$91,173,000 for December 31, 1999 and 1998, respectively.
PAGE 42
The following table indicates the scheduled maturities of time deposits at
December 31:
[CAPTION]
<TABLE>
1999 1998
(dollars in thousands)
<S> <C> <C>
Due in one year $329,870 $386,960
Due in one to two years 122,773 143,355
Due in two to three years 123,762 34,499
Due in three to four years 34,099 26,005
Due in four to five years 19,230 26,430
Due after five years 10,863 15,934
Total $640,597 $633,183
</TABLE>
Note I
Long-Term Borrowings
The following table is a summary of long-term borrowings with the Federal
Home Loan Bank (FHLB):
[CAPTION]
<TABLE>
1999 1998
Average Average
Balance Rate Balance Rate
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year $ 19,600 5.93% $ - -%
Due in one to two years 55,000 5.90 19,600 5.08
Due in two to three years 40,000 6.27 30,000 6.02
Due in three to four years 86,000 5.75 61,000 5.19
Due in four to five years 51,500 6.18 25,000 5.18
Due after five years 33,118 5.35 44,618 5.61
Total $285,218 5.89% $180,218 5.42%
</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 pledged all 1-4 family and multi-family mortgage loans as collateral for
any current or future FHLB borrowings. The total carrying amount of these
pledged loans was $396,639,000 at December 31, 1999.
At December 31, 1999 and 1998, S&T had long-term repurchase agreement
borrowings totaling $78,844,000 and $59,850,000, respectively, at a weighted
average fixed rate of 5.58% and 6.20%, respectively, which mature in five
years. The purpose of these borrowings 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.
PAGE 43
Information concerning federal funds purchased and REPOS is summarized as
follows:
[CAPTION]
<TABLE>
1999 1998
(dollars in thousands)
<S> <C> <C>
Average balance during the year $142,852 $177,968
Average interest rate during the year 4.72% 5.29%
Maximum month-end balance during the year $212,361 $251,030
Average interest rate at year-end 5.06% 4.63%
</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 $103,557,000 at December 31, 1999. 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, 1999, the maximum amount available for transfer from S&T Bank to
S&T in the form of loans and dividends approximated 45% 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 issues
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 $440,400,000 and $372,450,000 at December 31, 1999 and 1998,
respectively; and obligations under standby letters of credit totaled
$140,642,000 and $78,490,000 at December 31, 1999 and 1998, 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
Income tax expense (credits) for the year ended December 31 are comprised of:
[CAPTION]
<TABLE>
1999 1998 1997
(dollars in thousands)
<S> <C> <C> <C>
Current $16,749 $17,006 $14,402
Deferred 1,228 (807) (756)
Total $17,977 $16,199 $13,646
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes. The
statutory to effective tax rate reconciliation for the years ended December
31 is as follows:
[CAPTION]
<TABLE>
1999 1998 1997
(dollars in thousands)
<S> <C> <C> <C>
Statutory tax rate 35% 35% 35%
Tax-exempt interest income
and dividend exclusion (3) (3) (4)
Low income housing tax credits (2) (2) (2)
Effective tax rate 30% 30% 29%
</TABLE>
Income taxes applicable to security gains were $1,134,000 in 1999, $3,753,000
in 1998 and $1,906,000 in 1997.
PAGE 45
Significant components of S&T's temporary differences were as follows at
December 31:
[CAPTION]
<TABLE>
1999 1998
(dollars in thousands)
<S> <C> <C>
Deferred tax liabilities:
Net unrealized holding gains
on securities available for sale $ (8,836) $(21,518)
Fixed assets (621) (644)
Accretion on acquired loans (326) (559)
Prepaid pension (119) (166)
Prepaid hospitalization (102) (102)
Market-to-market adjustments (2,307) (1,825)
Point recognition (1,872) (830)
Total deferred tax liabilities (14,183) (25,644)
Deferred tax assets:
Allowance on loan losses 9,287 9,127
Loan fees 627 558
Interest expense on increasing rate CDs 17 114
Deferred compensation 850 799
Goodwill 273 312
Other 55 206
Total deferred tax assets 11,109 11,116
Net deferred tax liability $ (3,074) $(14,528)
</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>
1999 1998 1997
(dollars in thousands)
<S> <C> <C> <C>
Service cost-benefits earned
during the period $ 1,121 $ 1,068 $ 1,103
Interest cost on projected
benefit obligation 1,604 1,489 1,378
Expected return on plan assets (2,556) (2,070) (1,774)
Net amortization and deferral (35) (14) (16)
Net periodic pension expense $ 134 $ 473 $ 691
</TABLE>
PAGE 46
The following tables summarize the activity in the benefit obligation and
plan assets:
[CAPTION]
<TABLE>
1999 1998
(dollars in thousands)
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year $ 25,171 $ 23,385
Service cost 1,121 1,068
Interest cost 1,604 1,489
Plan participants' contributions 43 166
Actuarial (gain)/loss (1,884) 101
Benefits paid (1,055) (1,038)
Benefit obligation at end of year $ 25,000 $ 25,171
Change in Plan Assets
Fair value of plan assets at
beginning of year $ 28,897 $ 26,043
Actual return on plan assets 3,158 2,992
Employer contributions - 734
Plan participants' contributions 43 166
Benefits paid (1,055) (1,038)
Fair value of plan assets at end of year $ 31,043 $ 28,897
</TABLE>
The following table sets forth the plan's funded status and the accrued
pension cost in the consolidated balance sheets at December 31:
[CAPTION]
<TABLE>
1999 1998
(dollars in thousands)
<S> <C> <C>
Benefit obligation at beginning of year $(25,000) $(25,171)
Fair value of plan assets at end of year 31,043 28,897
Funded status 6,043 3,726
Unrecognized net gain (5,683) (3,216)
Unamortized prior service cost 70 77
Balance of initial unrecognized net asset (29) (51)
Prepaid pension cost included in other
assets $ 401 $ 536
</TABLE>
Below are actuarial assumptions used in accounting for the plan:
[CAPTION]
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Weighted-average discount rate 7.0% 6.5% 6.5%
Rate of increase in future compensation levels 5.0 5.0 5.0
Expected long-term rate of return on plan assets 9.0 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 balances of the actuarial present values of
projected benefit obligations related to the SERP are $2,136,000 and
$2,249,000 at December 31, 1999 and 1998, respectively. Accrued pension costs
related to the SERP were $2,114,000 and $1,971,000 at December 31, 1999 and
1998. Net periodic pension cost related to the SERP was $224,000, $244,000
and $499,000 at December 31, 1999, 1998 and 1997, 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
profit-sharing contributions as limited by the Plan. Contributions to the
Plan have been cash or unallocated Employee Stock Option Plan (ESOP) shares.
Expense related to these contributions amounted to $1,328,000, $813,000 and
$990,000 in 1999, 1998 and 1997, respectively.
On December 30, 1988, S&T had sold 560,000 shares of treasury stock to the
recently concluded ESOP for $2,800,000. The ESOP covered substantially all
regular full-time employees. At December 31, 1999 and 1998, the ESOP had no
unallocated shares remaining.
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 ten years from the date of board
approval. At December 31, 1999, 2,187,422 nonstatutory stock options had been
granted under the stock plan.
Each year S&T has granted nonstatutory stock options at exercise prices equal
to the fair market value of S&T common stock on the grant date.
Stock options granted under the Stock Plan are not exercisable before a six-
month vesting period or after ten years from the date of grant. There were no
SARs issued or outstanding at December 31, 1999 and 1998. The following table
summarizes the changes in the nonstatutory stock options outstanding during
1999, 1998 and 1997:
[CAPTION]
<TABLE>
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Number Option Number Option Number Option
of Shares Price of Shares Price of Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 1,280,572 $19.08 1,457,822 $14.21 1,112,000 $12.06
Granted 315,800 22.88 334,800 27.75 372,822 20.38
Exercised (157,400) 14.64 (510,250) 10.90 (27,000) 10.66
Forfeited (3,600) 27.75 (1,800) 20.38 - -
Outstanding at end of year 1,435,372 $20.41 1,280,572 $19.08 1,457,822 $14.21
Exercisable at end of year 1,119,572 $19.72 945,772 $16.01 1,085,000 $12.10
</TABLE>
PAGE 48
The following table summarizes the range of exercise prices at December 31:
[CAPTION]
<TABLE>
1999 1998 1997
Contractual Contractual Contractual
Shares Exercise Remaining Shares Exercise Remaining Shares Exercise Remaining
Outstanding Price Life (Years) Outstanding Price Life (Years) Outstanding Price Life (Years)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1992 - - - - - - 80,000 $ 6.82 5
1993 - - - - - - 124,000 8.63 6
1994 84,400 $ 9.50 5 121,650 $ 9.50 6 227,000 9.50 7
1995 180,650 13.13 6 214,200 13.13 7 324,000 13.13 8
1996 192,500 15.44 7 254,500 15.44 8 330,000 15.44 9
1997 331,422 20.38 8 355,422 20.38 9 372,822 20.38 10
1998 330,600 27.75 9 334,800 27.75 10 - - -
1999 315,800 22.88 10 - - - - - -
Total 1,435,372 $20.41 8.1 1,280,572 $19.08 8.4 1,457,822 $14.21 8.2
</TABLE>
Options are granted in December and have a six-month vesting period and a
ten-year contractual life.
S&T accounts for stock options in accordance with APB 25. The following
proforma information regarding net income and earnings per share assumes the
adoption of Statement No. 123 for stock options granted subsequent to
December 31, 1994. (Disclosure is not required for options granted prior to
1995). The estimated fair value of the options is amortized to expense over
the option and vesting period. The fair value was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions for 1999, 1998 and 1997, respectively: risk-free interest
rates of 6.19%, 4.45% and 5.77%; a dividend yield of 3.5%, 2.7% and 3%;
volatility factors of the expected market price of S&T's common stock of
.270, .226 and .182; and a weighted-average expected life of five years.
[CAPTION]
<TABLE>
1999 1998 1997
(dollars in thousands except per share data)
<S> <C> <C> <C>
Proforma net income $40,182 $37,030 $32,845
Proforma earnings per share-Basic 1.48 1.33 1.16
Proforma earnings per share-Diluted 1.47 1.32 1.15
</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 Dividend Plan's needs.
Note Q
S&T Bancorp, Inc. (parent company only)
Condensed Financial Information
[CAPTION]
<TABLE>
Balance Sheets at December 31: 1999 1998
(dollars in thousands)
<S> <C> <C>
Assets
Cash $ 23 $ 409
Investments in:
Bank subsidiary 146,496 159,245
Nonbank subsidiaries 95,389 102,301
Total Assets $241,908 $261,955
Liabilities
Dividends payable $ 5,396 $ 4,980
Other liabilities (3,188) (2,662)
Total Liabilities 2,208 2,318
Total Shareholders' Equity 239,700 259,637
Total Liabilities and Shareholders' Equity $241,908 $261,955
</TABLE>
[CAPTION]
<TABLE>
Statements of Income for the
year ended December 31: 1999 1998 1997
(dollars in thousands)
<S> <C> <C> <C>
Dividends from bank subsidiary $ 20,565 $ 18,253 $ 15,689
Investment income 60 84 60
Income before equity in
undistributed net income
of subsidiaries 20,625 18,337 15,749
Equity in undistributed net income of:
Bank subsidiary 13,517 9,919 13,316
Nonbank subsidiaries 7,276 9,707 4,349
Net Income $ 41,418 $ 37,963 $ 33,414
</TABLE>
PAGE 50
Statements of Cash Flows for the year ended December 31:
[CAPTION]
<TABLE>
1999 1998 1997
(dollars in thousands)
<S> <C> <C> <C>
Operating Activities
Net Income $ 41,418 $ 37,963 $33,414
Equity in undistributed net
income of subsidiaries (22,208) (21,069) (19,640)
Change in other assets/liabilities (526) (2,662) -
Total Provided by Operating Activities 18,684 14,232 13,774
Investing Activities
Distributions from (to) bank
Subsidiaries 18,320 23,431 (2,914)
Total Provided (Used) in Investing
Activities 18,320 23,431 (2,914)
Financing Activities
Dividends (20,149) (17,515) (14,215)
(Acquisition) sale of treasury stock (17,241) (19,758) 848
Total Used in Financing Activities (37,390) (37,273) (13,367)
(Decrease) increase in Cash (386) 390 (2,507)
Cash at Beginning of Year 409 19 2,526
Cash at End of Year $ 23 $ 409 $ 19
</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, 1999 and 1998, 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, 1999:
Total Capital $255,385 14.59% $140,057 8.00% $175,071 10.00%
(to Risk Weighted Assets)
Tier I Capital 217,194 12.41 70,028 4.00 105,043 6.00
(to Risk Weighted Assets)
Tier I Capital 217,194 9.90 87,785 4.00 109,731 5.00
(to Average Assets)
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)
</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, 1999, S&T Bank's Tier I and Total capital
ratios were 9.03% and 10.29%, respectively, and Tier I capital to average
assets was 7.08%. 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%.
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, 1999 and 1998, 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, 1999.
These financial statements are the responsibility of S&T's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of S&T Bancorp,
Inc. and subsidiaries at December 31, 1999 and 1998 and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
January 14, 2000
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 1999 and 1998 are as
follows and are based upon information obtained from Nasdaq. As of the close
of business January 26, 2000, there were 3,218 shareholders of record of S&T
Bancorp, Inc. Dividends paid by S&T are provided from the Bank's dividends to
S&T. In addition, the payment of dividends by the Bank to S&T is subject to
the restrictions described in Note K to the Consolidated Financial
Statements. The cash dividends declared shown below represent the historical
per share amounts for S&T Bancorp, Inc. common stock.
[CAPTION]
<TABLE>
Price Range of Common Stock
1999 Low High Cash Dividends Declared
<S> <C> <C> <C>
Fourth Quarter $ 21.63 $ 24.63 $ 0.20
Third Quarter 21.94 26.00 0.19
Second Quarter 20.88 26.88 0.19
First Quarter 19.00 29.00 0.18
1998
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
</TABLE>
Selected Financial Information
[CAPTION]
<TABLE>
Year Ended December 31: 1999 1998 1997 1996 1995
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statements
Interest income $156,727 $151,438 $141,101 $132,442 $127,020
Interest expense 69,942 69,156 62,284 58,589 57,677
Provision for loan losses 4,000 10,550 5,000 5,175 4,220
Net interest income after
provision for loan losses 82,785 71,732 73,817 68,678 65,123
Noninterest income 20,100 24,418 16,441 11,997 9,147
Noninterest expense 43,490 41,988 43,198 42,398 40,276
Income before income taxes 59,395 54,162 47,060 38,277 33,994
Applicable income taxes 17,977 16,199 13,646 10,036 9,152
Net income $ 41,418 $ 37,963 $ 33,414 $ 28,241 $ 24,842
Per Share Data1
Net income-Basic $ 1.52 $ 1.37 $ 1.18 $ 1.00 $ 0.87
Net income-Diluted 1.51 1.35 1.17 1.00 0.87
Dividends declared 0.76 0.66 0.56 0.47 0.37
Book value 8.88 9.38 9.20 8.01 7.50
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.
</TABLE>
PAGE 54
Selected Financial Data
Quarterly Selected Financial Data
S&T Bancorp, Inc. and Subsidiaries
Selected Financial Data
Balance Sheet Totals (period end):
[CAPTION]
<TABLE>
Year Ended December 31: 1999 1998 1997 1996 1995
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total assets $2,194,073 $2,069,611 $1,920,291 $1,787,045 $1,689,728
Securities 575,224 591,486 568,220 500,061 492,236
Net loans 1,469,143 1,339,232 1,253,326 1,181,407 1,086,317
Total deposits 1,435,065 1,380,063 1,284,658 1,270,367 1,216,547
Securities sold under
repurchase agreements 116,009 138,825 170,124 114,205 122,794
Other liabilities 403,299 291,086 205,391 176,355 136,333
Total shareholders' equity 239,700 259,637 260,118 226,118 214,054
</TABLE>
Quarterly Selected Financial Data
[CAPTION]
<TABLE>
1999 1998
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statements:
Interest income $ 41,318 $ 39,829 $ 38,239 $ 37,341 $ 38,373 $ 38,345 $ 37,548 $ 37,172
Interest expense 19,119 17,926 16,636 16,261 17,500 17,577 17,247 16,832
Provision for loan losses 1,000 1,000 1,000 1,000 2,500 2,000 4,000 2,050
Net interest income after
provision for loan losses 21,199 20,903 20,603 20,080 18,373 18,768 16,301 18,290
Noninterest income 4,937 5,407 4,481 5,275 6,318 4,328 8,326 5,446
Noninterest expense 10,927 11,234 10,513 10,816 10,730 9,623 11,049 10,586
Income before income taxes 15,209 15,076 14,571 14,539 13,961 13,473 13,578 13,150
Applicable income taxes 4,559 4,592 4,422 4,404 4,188 3,971 4,131 3,909
Net income $ 10,650 $ 10,484 $ 10,149 $ 10,135 $ 9,773 $ 9,502 $ 9,447 $ 9,241
Per Share Data1
Net income-Diluted $ 0.39 $ 0.38 $ 0.37 $ 0.37 $ 0.35 $ 0.34 $ 0.34 $ 0.33
Dividends declared 0.20 0.19 0.19 0.18 0.18 0.17 0.17 0.15
Book value 8.88 8.96 9.13 9.02 9.38 9.11 9.03 9.06
Average Balance Sheet Totals
Total assets $2,194,619 $2,148,108 $2,093,615 $2,042,623 $2,048,886 $2,003,268 $1,980,861 $1,946,261
Securities 594,391 602,717 583,256 573,108 540,872 539,118 528,492 516,558
Net loans 1,448,496 1,404,516 1,379,703 1,342,657 1,327,705 1,297,881 1,278,235 1,261,066
Total deposits 1,425,049 1,407,878 1,390,027 1,366,708 1,368,104 1,330,045 1,316,782 1,292,547
Securities sold under
repurchase agreements 112,403 147,688 164,525 129,010 141,065 162,655 209,176 171,371
Other liabilities 409,087 344,542 288,651 289,297 280,921 258,007 199,712 222,603
Total shareholders' equity 248,080 248,000 250,412 257,608 258,796 252,561 255,191 259,740
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.
</TABLE>
PAGE 55
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, respectively, of our report dated January
14, 2000, with respect to the consolidated financial statements of S&T
Bancorp, Inc. and subsidiaries incorporated by reference in the Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Ernst & Young, LLP
Pittsburgh, Pennsylvania
March 20, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
"This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial
statements."
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 38,663
<INT-BEARING-DEPOSITS> 54
<FED-FUNDS-SOLD> 15,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 557,994
<INVESTMENTS-CARRYING> 17,230
<INVESTMENTS-MARKET> 17,527
<LOANS> 1,496,277
<ALLOWANCE> 27,134
<TOTAL-ASSETS> 2,194,073
<DEPOSITS> 1,435,065
<SHORT-TERM> 116,009
<LIABILITIES-OTHER> 39,237
<LONG-TERM> 364,062
0
0
<COMMON> 74,285
<OTHER-SE> 165,415
<TOTAL-LIABILITIES-AND-EQUITY> 2,194,073
<INTEREST-LOAN> 120,333
<INTEREST-INVEST> 35,847
<INTEREST-OTHER> 547
<INTEREST-TOTAL> 156,727
<INTEREST-DEPOSIT> 47,278
<INTEREST-EXPENSE> 22,664
<INTEREST-INCOME-NET> 86,785
<LOAN-LOSSES> 4,000
<SECURITIES-GAINS> 3,240
<EXPENSE-OTHER> 43,490
<INCOME-PRETAX> 59,395
<INCOME-PRE-EXTRAORDINARY> 59,395
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,418
<EPS-BASIC> 1.52
<EPS-DILUTED> 1.51
<YIELD-ACTUAL> 4.55
<LOANS-NON> 2,987
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 26,677
<CHARGE-OFFS> 7,002
<RECOVERIES> 3,459
<ALLOWANCE-CLOSE> 27,134
<ALLOWANCE-DOMESTIC> 27,134
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,578
</TABLE>
