FINANCIAL HIGHLIGHTS
S&T Bancorp, Inc and Subsidiaries
(in thousands, except per share data)
For The Year 1995 1994 Change
Net Interest Income $57,019 $53,308 $3,711 7%
Net Income 20,469 18,444 2,025 11
Return on Average Assets 1.54% 1.49% 0.05% 3
Return on Average Equity 13.21 13.03 0.18 1
Per Share
Net Income $1.82 $1.63 $0.19 12%
Dividends Declared 0.74 0.61 0.13 21
Book Value at December 31 14.85 12.57 2.28 18
Market Value at December 31 30.50 20.50 10.00 49
At Year End
Assets $1,400,702 1,304,803 95,899 7%
Net Loans 960,881 910,077 50,804 6
Deposits 979,625 903,240 76,385 8
Shareholders' Equity 166,947 141,587 25,360 18
Trust Assets (at market value) 416,281 346,949 69,332 20
Allowance for Loan Losses/
Total Loans 1.63% 1.55% 0.08% 5
Nonperforming Loans/Total Loans 0.29 0.21 0.08 38
-7-
CONSOLIDATED BALANCE SHEETS
S&T Bancorp, Inc and Subsidiaries
(in thousands)
December 31 1995 1994
Assets
Cash and due from banks $39,852 $38,791
Interest-earning deposits with banks 51 3,824
Securities available for sale
(carried at fair market value
in 1995 and 1994) 315,343 118,904
Investment securities (market value
$36,284 in 1995 and $182,655 in 1994) 34,997 187,220
Loans 976,819 924,408
Allowance for loan losses (15,938) (14,331)
Net Loans 960,881 910,077
Premises and equipment 14,795 14,690
Other assets 34,783 31,297
Total Assets $1,400,702 $1,304,803
Liabilities
Deposits
Noninterest-bearing 116,054 111,345
Interest-bearing 863,571 791,895
Total Deposits 979,625 903,240
Securities sold under repurchase agreements 122,794 169,871
Federal funds purchased 325 19,590
Long-term borrowing 96,618 43,418
Other borrowed funds 340 430
Other liabilities 34,053 26,667
Total Liabilities $1,233,755 $1,163,216
Shareholders' Equity
Common stock ($2.50 par value)
Authorized-25,000,000 shares in 1995
and 15,000,000 in 1994
Issued-11,820,944 shares in 1995
and 1994 29,552 29,552
Additional Paid-in Capital 11,009 10,217
Retained earnings 111,980 99,824
Net unrealized holding gain
on securities available for sale 21,928 8,406
Treasury stock (578,092 shares in 1995
and 555,223 shares in 1994, at cost) (7,182) (5,982)
Deferred compensation (340) (430)
Total Shareholders' Equity 166,947 141,587
Total Liabilities and Shareholders' Equity $1,400,702 $1,304,803
See Notes to Consolidated Financial Statements
-28-
CONSOLIDATED STATEMENTS OF INCOME
S&T Bancorp, Inc and Subsidiaries
(in thousands, except per share data)
Year Ended December 31 1995 1994 1993
Interest Income
Loans, including fees $85,497 $70,911 $61,771
Deposits with banks 143 281 298
Federal funds sold 50 13 31
Investment securities
Taxable 16,480 16,753 20,355
Tax-exempt 1,809 2,143 2,427
Dividends 3,038 2,553 2,041
Total Interest Income 107,017 92,654 86,923
Interest Expense
Deposits 36,686 31,241 32,703
Securities sold under repurchase agreements 8,482 6,542 3,278
Federal funds purchased 474 524 290
Long-term borrowing 4,326 990 629
Other borrowed funds 30 49 65
Total Interest Expense 49,998 39,346 36,965
Net Interest Income 57,019 53,308 49,958
Provision for Loan Losses 3,800 3,500 3,600
Net Interest Income After Provision
for Loan Losses 53,219 49,808 46,358
Noninterest Income
Service charges on deposit accounts 2,930 2,464 2,163
Trust fees 2,401 2,212 1,814
Security gains, net 729 421 1,016
Other 2,249 1,817 1,578
Total Noninterest Income 8,309 6,914 6,571
Noninterest Expense
Salaries and employee benefits 18,062 16,614 15,534
Occupancy, net 2,082 2,013 1,713
Furniture and equipment 1,918 1,912 1,689
Other taxes 868 815 799
Data processing 1,433 1,334 1,872
Amortization of intangibles 343 343 346
FDIC assessment 1,247 2,028 2,016
Other 7,570 6,536 6,799
Total Noninterest Expense 33,523 31,595 30,768
Income Before Income Taxes 28,005 25,127 22,161
Applicable Income Taxes 7,536 6,683 5,818
Net Income $20,469 $18,444 $16,343
Per Common Share (1)
Net Income 1.82 1.63 1.45
Dividends Declared 0.74 0.61 0.50
Average Common Shares Outstanding 11,243 11,284 11,235
(1) Per share amounts and average shares outstanding have been
restated to record the effect of a two-for-one common stock
split in the form of a 100% stock dividend distributed on
September 15, 1994. See Notes to Consolidated Financial
Statements.
-29-
Consolidated Statements of Changes in Shareholders' Equity
S&T Bancorp, Inc and Subsidiaries
(in thousands, except per share data)
Common Additional Retained Net Unrealized Treasury Deferred
Stock Paid-In Earnings Gain on Stock Compensation
Capital Securities
Available for Sale
Balance at January 1, 1993 14,776 23,788 77,423 (5,841) (1,200)
Net income for 1993 16,343
Cash dividends declared
($0.50 per share)(1) (5,563)
Treasury stock acquired
(6,705 shares) (208)
Treasury stock sold
(36,001 shares) 491 684
Deferred ESOP
benefits expense 400
Balance at December 31, 1993 14,776 24,279 88,203 (5,365) (800)
Net Income for 1994 18,444
Cash dividends declared
($0.61 per share) (6,823)
Treasury stock acquired
(70,300 shares) (1,361)
Treasury stock sold
(75,703 shares) 714 744
Deferred ESOP
benefits expense 370
Transfer to reflect a two-
for-one stock split 14,776 (14,776)
Adoption of FASB No. 115 $14,830
Net change in unrealized
holding losses on
securities available for
sale (6,424)
Balance at December 31, 1994 29,552 10,217 99,824 8,406 (5,982) (430)
Net income for 1995 20,469
Cash dividends declared
($0.74 per share) (8,313)
Treasury stock acquired
(97,689 shares) (2,076)
Treasury stock sold
(74,820 shares) 792 876
Deferred ESOP
benefits expense 90
Net change in unrealized
holding gains on securities
available for sale 13,522
Balance at December 31,1995 29,552 11,009 111,980 21,928 (7,182) (340)
(1) Per share amounts have been restated to record the effect
of a two-for-one common stock split in the form of a 100% stock
dividend distributed on September 15, 1994. See Notes to
Consolidated Financial Statements.
-30-
Consolidated Statements of Cash Flows
S&T Bancorp, Inc. and Subsidiaries
(in thousands)
Year Ended December 31 1995 1994 1993
Operating Activities
Net Income 20,469 18,444 16,343
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 3,800 3,500 3,600
Provision for depreciation and amortization 1,337 1,980 1,773
Net amortization of investment security premiums 775 1,256 1,344
Net accretion of loan and deposit discounts (896) (1,037) (1,162)
Deferred income taxes (324) 375 (414)
Net gains on securities available for sale (729) (415) (547)
Net investment security gains (469)
(Increase) decrease in interest receivable (1,023) (1,661) 853
Increase (decrease) in interest payable 2,749 1,112 (1,232)
Increase in other assets (1,823) (2,741) (1,805)
(Decrease) increase in other liabilities (3,066) 5,151 (2,099)
Net Cash Provided by Operating Activities 21,269 25,964 16,185
Investing Activities
Net decrease (increase) in interest-earning
deposits with banks 3,773 (671) 999
Net decrease in federal funds sold 4,500
Proceeds from sales of investment securities 26,670
Proceeds from maturities of investment securities 18,244 42,947 79,724
Proceeds from maturities of securities available
for sale 19,204 26,000 35,446
Proceeds from sales of securities available for sale 19,532 34,350 1,353
Purchases of investment securities (25,260) (31,900) (89,886)
Purchases of securities available for sale (55,175) (26,302) (37,567)
Net increase in loans (53,708)(129,311)(105,707)
Purchases of premises and equipment (1,786) (1,809) (3,679)
Net Cash Used in Investing Activities (75,176) (86,696) (88,147)
Financing Activities
Net increase (decrease) in demand, NOW
and savings deposits 6,098 (537) 13,672
Net increase (decrease) in certificates of deposit 70,286 5,519 (15,012)
Net (decrease)increase in federal funds purchased (19,265) (2,610) 22,200
Net (decrease)increase in repurchase agreements (47,077) 42,140 42,718
Increase in long-term borrowing 53,200 28,405 15,000
(Acquisition) sale of treasury stock (407) 97 967
Cash dividends paid to shareholders (7,867) (6,427) (5,275)
Net Cash Provided by Financing Activities 54,968 66,587 74,270
Increase in Cash and Cash Equivalents 1,061 5,855 2,308
Cash and Cash Equivalents at Beginning of Year 38,791 32,936 30,628
Cash and Cash Equivalents at End of Year 39,852 38,791 32,936
See Notes to Consolidated Financial Statements
-31-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note A - Accounting Policies
The financial statements of S&T Bancorp, Inc. and subsidiaries
(S&T) have been prepared in accordance with generally accepted
accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for
the period. Actual results could differ from those
estimates. The more significant accounting policies are
described below.
Principles of Consolidation
The consolidated financial statements include the accounts
of S&T and its subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. The
investment in the subsidiaries is carried at S&T Bancorp,
Inc's equity in the underlying net assets.
Securities
S&T implemented Financial Accounting Standards Board Statement
No. 115, "Statement on Accounting for Certain Investments in
Debt and Equity Securities" (Statement No. 115) in 1994.
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
investment securities and are stated at cost adjusted for
amortization of premiums and accretion of discounts. All obligations
of states and political subdivisions and corporate securities are
classified in this category. Securities to be held for indefinite
periods of time are classified as available for sale and are recorded
at market value. All U.S. treasury securities, U.S. government
corporations and agencies, collateralized mortgage obligations and
equity securities are classified in this category. Gains or losses
on the disposition of securities are based on the specific
identification method. During the fourth quarter of 1995, management
reclassified the securities portfolio allowed by the "one time"
amnesty per Financial Accounting Standards Board Statement No. 115.
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 orgination costs are
deferred and amortized as an adjustment of loan yield over
the respective lives of the loans. The accrual of interest
on loans is discontinued when the collection of interest or
principal is doubtful, or generally when interest and
principal is 90 days or more past due.
Allowance for Loan Losses
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 condition, 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.
-32-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Other Real Estate
Other real estate is included in other assets and is
comprised of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of a foreclosure
and loans classified as in-substance foreclosure. These
properties are carried at the lower of cost or fair value.
Loan losses arising from the acquisition of such property
are charged against the allowance for loan losses. Gains or
losses realized subsequent to acquisition are recorded in
the results of operations.
Income Taxes
Deferred federal income taxes are provided based on
temporary differences between the carrying amounts of assets
and liabilities for financial reporting and federal income
tax purposes.
Trust Assets and Income
Assets held in a fiduciary capacity by the subsidiary bank, S&T Bank (Bank) are
not assets of the Bank and are therefore not included in the consolidated
financial statements. Trust fee income is reported on the accrual basis.
Pensions
Pension expense for the Bank's defined benefit pension plan
is actuarially determined using the projected unit credit
actuarial cost method. The funding policy for the plan is
to contribute amounts to the plan sufficient to meet the
minimum funding requirements of the Employee Retirement
Income Security Act of 1974, plus such additional amounts as
may be appropriate, subject to federal income tax
limitations.
Treasury Stock
The purchase of S&T common stock is recorded at cost. At
the time of reissue, the treasury stock account is reduced
using the average cost method.
Per Share Amounts
Net income per common share is based on the average number
of shares of common stock outstanding during the year.
Net income and dividends per share amounts for 1993 have
been restated to reflect the two-for-one stock split
effective September 15, 1994.
Cash Flow Information
S&T considers cash and due from banks as cash and cash
equivalents. For the years ended December 31, 1995, 1994,
and 1993, cash paid for interest was $38,915,000,
$38,234,000 and $38,197,000, respectively. Cash paid during
1995 for income taxes was $7,662,000 compared to $6,404,000
for 1994 and $5,711,000 for 1993.
Reclassification
Amounts in prior years have been reclassed to conform to
presentation in 1995. The reclassification had no effect
on financial condition or results of operations.
-33-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
New Accounting Pronouncements
Financial Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan" (Statement
No.114), as amended by Financial Accounting Standards Board
Statement No. 118, requires some loan impairments to be measured
using a present value of expected cash flows method. S&T implemented
Statements No. 114 and 118 in 1995. Statements No. 114 and No. 118 did not
have any material effects on S&T's financial position or results of operations.
Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets"
(Statement No. 121) requires long-lived assets and identifiable
intangibles that are used in operations be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets might not be recoverable.
S&T implemented Statement No. 121 in 1995. Statement No. 121 did
not have any material effects on S&T's financial position or
results of operations.
Financial Accounting Standards Board Statement No. 122,
"Accounting for Mortgage Servicing Rights" (Statement No. 122)
requires capitalization of servicing rights on loans originated
for sale and measurement of impairment of all capitalized mortgage
servicing rights based on their fair values. S&T implemented
Statement No. 122 in 1995. Statement No. 122 did not have any
impact on S&T's financial position or results of operations as
S&T did not sell mortgage loans and retain the servicing during 1995.
Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" (Statement No. 123)
is effective in 1996 and establishes a fair value based method
for measuring stock-based compensation plans. Statement No. 123 is
not expected to have any material effect on S&T's financial
position or results of operations.
Note B - Fair Values of Financial Instruments
S&T utilized quoted market values, where available, to
assign fair value to its financial instruments. In cases
where quoted market values were not available, S&T used
present value methods to estimate the fair value of its
financial instruments. These estimates of fair value are
significantly affected by the assumptions made and,
accordingly, do not necessarily indicate amounts which
could be realized in a current market exchange. It is
also S&T's general practice and intent to hold the majority
of its financial instruments until maturity and therefore,
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-blance sheet items were not
made because of the short-term of these arrangements
and the credit standing of the counterparties. Also,
unfunded loan commitments relate principally to variable
rate commercial loans, and fees are not normally assessed
on the balance of these unfunded commitments.
Estimates of fair value have not been made for items which
are not defined as financial instruments, including such
items as S&T's core deposit intangibles and the value of
its trust operation. S&T believes it is impracticable to
estimate a representational fair value for these types of
assets, which represent significant value to S&T.
-34-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
The following table indicates the estimated fair value of S&T's
financial instruments as of December 31:
1995 1994
Estimated Carrying Estimated Carrying
Fair Value Value Fair Value Value
Assets
Securities available for sale $315,343 $315,343 $118,904 $118,904
Investment securities 36,284 34,997 182,655 187,220
Loans 974,550 976,819 890,996 924,408
Liabilities
Deposits $986,043 $979,625 $894,331 $903,240
Long-term borrowing 97,146 96,618 42,384 43,418
Interest rate swaps 0 0 1,750 0
Note C - Derivative Financial Instruments
S&T has three types of derivatives: interest rate swaps,
structured notes and collateralized mortgage obligations (CMOs).
S&T has two interest rate swaps at notional values totaling
$23.0 million, paying a fixed rate and receiving a variable
rate. The purpose of these transactions is to provide
matched, fixed rate funding for newly originated loans, and
to mitigate the risk associated with volatile liability
funding. The effective rate of these combined swaps was
5.38% at December 31, 1995.
S&T's structured notes are comprised of $30 million of
Federal Home Loan Bank (FHLB) step-up notes at December 31, 1995.
These notes provide a higher interest rate, but are subject to call
after the first step-up period. Lower market interest
rates at the step-up period could cause the structured notes
to be redeemed earlier than stated maturities. Ranges of
expected maturities and interest rates for structured notes
are 3 years to 8 years and 4.5% to 8.0%, respectively.
Fair values for structured notes were $29.0 million and
$37.3 million for 1995 and 1994, respectively.
The CMOs are principally Planned Amortization Class (PAC)
tranches of U.S. government agencies and were purchased
during 1992 as alternatives to loans in a period of
declining interest rates. At December 31, 1995, $11
million are remaining with expected maturity ranges of 1.1
years to 1.6 years and yields of 7.0% to 9.0%.
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
$14,647,000 during 1995.
-35-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note E - Securities
1995
Available for Sale
Gross Gross
Amortized Unrealized Unrealize Market
Cost Gains Losses Value
Marketable equity securities $37,573 $26,926 $(276) $64,223
Obligations of U.S. government
corporations and agencies 172,612 5,113 (143) 177,582
Collateralized mortgage obligations of U.S.
government corporations and agencies 10,911 124 11,035
U.S. treasury securities 51,205 1,993 53,198
Corporate securities 190 190
272,491 34,156 (419) 306,228
Other Securities 9,115 9,115
Total $281,606 $34,156 $(419)$315,343
Investment Securities
Obligations of states and
political subdivisions $31,412 $949 $(12) $32,349
Corporate securities 2,493 350 2,843
33,905 1,299 (12) 35,192
Other securities 1,092 1,092
Total $34,997 $1,299 $(12) $36,284
1994 Available for Sale
Gross Gross
Amortized Unrealized Unrealize Market
Cost Gains Losses Value
Marketable equity securities $32,122 $15,864 $(1,568) $46,418
Collateralized mortgage obligations of U.S.
government corporations and agencies 5,147 (597) 4,550
U.S. treasury securities 68,704 67 (835) 67,936
Total $105,973 $15,931 $(3,000)$118,904
Investment Securities
U.S. treasury bonds and obligations of U.S.
government corporations and agencies $130,456 $99 $(4,508)$126,047
Collateralized mortgage obligations of U.S.
government corporations and agencies 14,451 30 (68) 14,413
Obligations of states and
political subdivisions 32,816 295 (542) 32,569
Corporate securities 4,038 129 4,167
181,761 553 (5,118) 177,196
Other securities 5,459 5,459
Total $187,220 $553 $(5,118)$182,655
-36-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
During the fourth quarter of 1995, management reclassified the
securities portfolio allowed by the "one time" amnesty per
Financial Accounting Standards Board Statement No. 115. The
reclassified securities were from the held to maturity category
to the available for sale category. The transferred securities
had an amortized cost of $154.2 million and a market value of
$159.5 million. The resulting net of tax effect of the
reclassification to S&T's equity was $3.4 million.
There were $1,636,000, $1,136,000 and $550,000 in gross realized
gains and $907,000, $721,000 and $3,000 in gross realized losses
in 1995, 1994 and 1993, respectively, relative to securities
available for sale.
The amortized cost and estimated market value of
securities at December 31, 1995, by contractual maturity,
are shown below. Collateralized mortgage obligations are
included based upon their expected maturity which ranges
from 1.1 years to 1.6 years. The weighted average maturity
of all collateralized mortgage obligations held was 1.4
years. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
Amortized Estimated Market
Available for Sale Cost Value
Due in one year or less $ 36,122 $ 36,472
Due after one year through five years 120,120 123,756
Due after five years through ten years 78,676 81,777
Total $234,918 $242,005
Amortized Estimated Market
Investment Securities Cost Value
Due in one year or less $ 1,426 $ 1,449
Due after one year through five years 8,256 8,485
Due after five years through ten years 18,912 19,845
Due after ten years 5,311 5,413
Total $33,905 $35,192
At December 31, 1995 and 1994 securities with principal amounts of
$203,063,000 and $230,171,000 respectively, were pledged to
secure repurchase agreements and public and trust fund deposits.
-37-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note F - Loans
The following table indicates the composition of the loan
portfolio at December 31:
1995 1994
Real estate-construction $23,712 $32,714
Real estate-mortgages:
Residential 377,258 343,935
Commercial 191,885 199,959
Commercial-industrial and agricultural 234,779 197,028
Consumer installment 149,185 150,772
Total $976,819 $924,408
S&T maintains a Flexline of credit for 10% of total assets
with the Federal Home Loan Bank (FHLB) which expires
December 31, 1996, S&T pledged all mortgage-backed
securities, 1-4 family and multi-family mortgage loans as
collateral for any current or future FHLB advances. The
total carrying amount of these loans was $363,569,000 at
December 31, 1995.
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 $27,580,000 and $25,010,000 at December 31, 1995 and
1994, respectively. During 1995, $22,051,000 of new loans
were funded and repayments totaled $19,481,000.
The principal balances of loans on nonaccrual were $2,844,000
and $1,922,000 at December 31, 1995 and 1994, respectively.
At December 31, 1995 there were no commitments to lend
additional funds on nonaccrual loans. Other real estate
owned, which is included in other assets, was $542,000 at
December 31, 1995 and $366,000 at December 31, 1994.
At December 31, 1995, the recorded investment in loans that are
considered to be impaired under Statement No. 114 was $3,420,000
of which $2,300,000 were on a nonaccrual basis. The allowance
for loan losses related to these impaired investments was $1,812,000.
Note G - Allowance for Loan Losses
The following presents changes in the allowance for loan losses for
the years ended December 31:
1995 1994 1993
Balance at beginning of year $14,331 $13,480 $12,029
Charge-offs (2,889) (3,727) (2,664)
Recoveries 696 1,078 515
Net charge-offs (2,193) (2,649) (2,149)
Provision for loan losses 3,800 3,500 3,600
Balance at end of year $15,938 $14,331 $13,480
-38-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note H - Premises and Equipment
The following is a summary of the premises and equipment accounts
at December 31:
1995 1994
Land $ 1,987 $ 1,987
Premises 13,140 12,520
Furniture and equipment 9,804 11,087
Leasehold improvements 2,391 2,003
$27,322 $27,597
Accumulated depreciation (12,527) (12,907)
Total 14,795 14,690
Certain banking facilities and equipment are leased under
short-term lease arrangements expiring at various dates to
the year 2005. All such leases are accounted for as operating
leases. Rental expense for premises and equipment amounted
to $1,104,000, $1,009,000 and $913,000 in 1995, 1994 and 1993,
respectively. Minimum annual rentals for each of the years
1996-2000 are approximately $467,000,$352,000,$261,000,
$156,000 and $134,000 respectively, and $509,000 for the years
thereafter. Included in the above are leases entered into
with a director of S&T for which rental expense totaled
$296,400 in 1995 and $292,200 in 1994.
Note I - Deposits
The following table indicates the composition of deposits at December 31:
1995 1994
Noninterest-bearing demand $116,054 $111,345
Interest-bearing demand 96,577 97,970
Money market 123,121 104,296
Savings 123,605 139,648
Time deposits 520,268 449,981
Total $979,625 $903,240
The aggregate of all time deposits over $100,000 amounted to
$72,021,000 and $50,016,000 for December 31, 1995 and 1994,
respectively.
Note J - Long-Term Debt
The following table is a summary of long-term debt with
the Federal Home Loan Bank:
1995 1994
Average Average
Balance Rate Balance Rate
Due within one year $15,000 4.82% $15,000 4.82%
Due within one to five years 73,500 5.89 25,000 6.12
Due within five to twenty years 8,118 6.63 3,418 6.42
Total $96,618 5.78% $43,418 5.69%
The purpose of these borrowings were to match-fund selected new loan
originations, to mitigate interest rate sensitivity risks and take advantage of
discounted borrowing rates through the Federal Home Loan Bank for community
investment projects. The borrowings are collateralized by 1-4 family
mortgage loans.
-39-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note K - Dividend and Loan Restrictions
Certain restrictions exist regarding the ability of the
subsidiaries to transfer funds to S&T in the form of
dividends and loans. Dividends that may be paid by the
subsidiaries to S&T are limited to the retained earnings of
the subsidiaries which amounted to $115,300,891 at December
31, 1995. The amount of dividends that may be paid to S&T is
further restricted by regulatory guidelines concerning minimum
capital requirements.
Federal law prohibits S&T from borrowing from the subsidiaries
unless such loans are collateralized by specific obligations.
Further, such loans are limited to 10% of the subsidiaries'
capital and additional paid-in capital, as defined. At
December 31, 1995, the maximum amount available for transfer
from the subsidiaries to S&T in the form of loans and
dividends approximated 72% of consolidated net assets.
Note L - Litigation
S&T, in the normal course of business, is subject to various
legal proceedings in which claims for monetary damages are
asserted. No material losses are anticipated by management as
a result of these legal proceedings.
Note M - Financial Instruments and Credit Risk
S&T, in the normal course of business, commits to extend
credit and issue standby letters of credit. The obligations
are not recorded in S&T's financial statements. Loan
commitments and standby letters of credit are subject to
S&T's normal credit underwriting policies and procedures and
generally require collateral based upon management's
evaluation of each customer's financial condition and ability
to satisfy completely the terms of the agreement. S&T's
exposure to credit loss in the event the customer does not
satisfy the terms of the agreement equals the notional amount
of the obligation less the value of any collateral. Unfunded
loan commitments totaled $176,919,000 and obligations under
standby letters of credit totaled $67,359,000 at December 31,
1995.
S&T attempts to limit its exposure to concentrations of credit
risk by diversifying its loan portfolio. S&T defines
concentrations of credit risk as loans to a specific industry
or group in excess of 10% of total loans. S&T has no
concentration of credit risk by industry or group. However,
geographic concentrations exist because S&T provides a full
range of banking services including commercial, consumer and
mortgage loans to individuals and corporate customers in its
six-county market area in western Pennsylvania.
-40-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note N - Income Taxes
Income tax expense (credits) for the years ended December 31 are
comprised of:
1995 1994 1993
Current $7,951 $6,308 $6,232
Deferred (415) 375 (414)
Total 7,536 6,683 5,818
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:
1995 1994 1993
Statutory tax rate 35% 35% 35%
Tax-exempt interest income
and dividend exclusion (7) (7) (9)
All other, net (1) (1)
Effective tax rate 27% 27% 26%
Income taxes applicable to security gains were $255,000 in
1995, $147,000 in 1994 and $356,000 in 1993.
Significant components of S&T's temporary differences were as
follows at December 31:
1995 1994
Deferred tax liabilities:
Net unrealized holding gains
on securities available for sale $(11,808) $(4,526)
Fixed assets (501) (435)
Accretion on acquired loans (464) (593)
Prepaid pension (359) (269)
Prepaid hospitalization (102) (102)
Point recognition (631) (431)
Total deferred tax liabilities (13,865) (6,356)
Deferred tax assets:
Allowance on loan losses 5,368 4,806
Loan fees 131 276
Interest expense on increasing rate CDs 161 98
Deferred compensation 353 294
Goodwill 321 241
Other 68 45
Total deferred tax assets 6,402 5,760
Net deferred tax liability $(7,463) $(596)
-41-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note O - Employee Benefits
The Bank maintains a defined benefit pension plan covering
substantially all employees. The benefits are based on years
of service and the employee's compensation during the last ten
years of employment. Contributions are intended to provide
for benefits attributed to employee service to date and for
those benefits expected to be earned in the future. Trusteed
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:
1995 1994 1993
Service cost-benefits earned
during the period $671 $687 $652
Interest cost on projected
benefit obligation 1,048 917 863
Actual return on plan assets (3,350) 259 (1,352)
Net amortization and deferral (14) (14) (13)
Difference between expected and
actual return on assets 2,242 (1,391) 349
Net periodic pension expense $597 $458 $499
The following table sets forth the plan's funded status at December 31:
1995 1994
Actuarial present value of the accumulated
benefit obligation, including vested benefits
of $12,149 in 1995 and $9,174 in 1994. $(13,225) $(9,915)
Actuarial present value of projected
benefit obligation (17,140) (13,318)
Plan assets at fair value 17,273 13,917
Plan assets in excess of projected
benefit obligation 133 599
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions 322 295
Unamortized prior service cost (36) (39)
Balance of initial unrecognized net liability (57) (68)
Prepaid pension cost included in other assets $362 $787
Below are actuarial assumptions used in accounting for the plans:
1995 1994 1993
Weighted-average discount rate 6.5% 8.0% 6.8%
Rate of increase in future
compensation levels 6.0% 5.0% 5.0%
Expected long-term rate of
return on plan assets 8.0% 8.0 8.0%
- 42-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
S&T also has a supplemental retirement plan (SERP) for certain
key employees. The SERP is unfunded. The balance of actuarial
present value of projected benefit obligations related to the
SERP was $1,289,000 and $724,000 at December 31, 1995 and 1994,
respectively. Accrued pension cost related to the SERP was
$1,009,000 and $796,000 at December 31, 1995 and 1994. Net
periodic pension cost related to the SERP was $201,000, $117,000
and $117,000 at December 31, 1995, 1994 and 1993, respectively.
The actuarial assumptions are the same as those used in the
previous table.
The Bank maintains a Thrift Plan (Plan) in which substantially
all employees are eligible to participate. The Bank makes
regular contributions to the Plan equal to 2% of participants'
eligible compensation and may make additional contributions
as limited by the Plan. Bank contributions to the Plan
amounted to $856,000, $537,000 and $455,000 in 1995, 1994 and
1993, respectively.
On December 30, 1988, S&T sold 280,000 shares of common stock,
which were held in treasury, to its newly created Employee
Stock Ownership Plan (ESOP) for $2,800,000. The funds were
obtained by the ESOP through a loan from a bank. S&T has
guaranteed the loan which has a maximum term of 10 years and
bears interest at 80% of the lender's prime rate. The loan
terms require quarterly interest and annual principal
payments. The balance of this loan was $340,000 and $430,000
on December 31, 1995 and 1994, respectively, and was included
in other borrowed funds with an offsetting reduction in
shareholders' equity shown as deferred compensation in the
accompanying consolidated balance sheets.
The ESOP covers substantially all regular full-time employees.
S&T is obligated to make annual contributions sufficient to
enable the ESOP to repay the loan, including interest.
Interest expense totaled $30,000 in 1995, $49,000 in 1994 and
$65,000 in 1993. Dividends received by the ESOP from S&T
amounted to $33,000 in 1995, $48,000 in 1994 and $58,000 in
1993, which were used for debt service. Deferred compensation
arising from the guarantee of the ESOP borrowing will be
charged to operations as contributions are made to the ESOP.
Note P - Incentive Stock Plan and Dividend Reinvestment Plan
S&T adopted an Incentive Stock Plan in 1992 (Stock Plan) that
provides for granting incentive stock options, nonstatutory
stock options, and stock appreciation rights (SARs). On
October 17, 1994, the Stock Plan was amended to include
outside directors. The Stock Plan covers a maximum of 600,000
shares of S&T common stock and expires ten years from the date of
board approval.
Options under the Stock Plan are granted at exercise prices
not less than the greater of the fair market value of S&T
common stock on the date of grant or the par value of a share
of S&T common stock. SARs may be granted concurrently with
the grant of options (Related SARs) or independently. SARs
entitle the holder to receive either cash or that number of
shares of S&T common stock having a fair market value equal to
the excess of the fair market value of the shares subject to
the option over either the fair market value of a share of
common stock on the grant date, if it is not a Related SAR, or
the option price if it is a Related SAR. Options and SARs
granted under the Stock Plan are not exercisable before six
months from the date of grant. The following table summarizes
the changes in stock options outstanding (all nonstatutory
options) during 1995, 1994, 1993 and 1992:
December 31, 1995
Nonstatutory
Stock Options Exercise
Date Issued Excercised Outstanding Price/Share
1992 58,000 4,000 54,000 $13.62
1993 70,000 70,000 17.25
1994 122,500 122,500 19.00
1995 165,000 165,000 26.25
Total 415,500 4,000 411,500
As of December 31, 1995, 165,000 nonstatutory stock options are
not exercisable.
S&T also sponsors a dividend reinvestment plan (Dividend Plan)
whereby shareholders may purchase shares of S&T common stock
at market value with reinvested dividends and voluntary cash
contribution. The Dividend Plan covers a maximum of 400,000
shares of S&T common stock. At December 31, 1995, 97,218
shares were available for purchase under the Dividend Plan.
-43-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Note Q - S&T Bancorp, Inc. (parent company only)
Condensed Financial Information
Balance Sheets at December 31:
1995 1994
Assets
Cash $273 $93
Investments in
Bank subsidiary 108,184 93,489
Nonbank subsidiaries 61,198 50,357
Other assets
Total Assets $169,655 $143,939
Liabilities
Dividends payable $2,361 $1,915
Other borrowed funds 340 430
Other liabilities 7 7
Total Liabilities 2,708 2,352
Shareholders' equity
Capital stock 29,552 29,552
Additional paid-in capital 11,009 10,217
Retained earnings 111,980 99,824
Net unrealized holding gains on
securities available for sale 21,928 8,406
Treasury stock (7,182) (5,982)
Deferred compensation (340) (430)
Total Shareholders' Equity 166,947 141,587
Total Liabilities and
Shareholders' Equity $169,655 $143,939
Statements of Income for the years ended December 31:
1995 1994 1993
Dividends from bank subsidiary $8,313 $6,823 $5,563
Investment income 38 38 8
Income before equity
in undistributed net income
of subsidiaries 8,351 6,861 5,571
Equity in undistributed net income of:
Bank subsidiary 8,757 8,480 8,771
Nonbank subsidiaries 3,361 3,103 2,001
Net Income $20,469 $18,444 $16,343
- 44-
Notes to Consolidated Financial Statements
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Statements of Cash Flows for the years ended December 31:
1995 1994 1993
Operating Activities
Net Income $20,469 $18,444 $16,343
Equity in undistributed
net income of subsidiaries (12,120) (11,583) (10,772)
Change in other assets/liabilities (445) (396) (280)
Total Provided by Operating Activities 7,904 6,465 5,291
Investing Activities
Distributions from (to) subsidiaries 550 (1,000) 375
Capital contributions to nonbank subsidiaries (500)
Total Used in Investing Activities 550 (1,000) (125)
Financing Activities
Dividends (7,867) (6,427) (5,275)
(Acquisition) sale of treasury stock (407) 97 967
Total Used in Financing Activities (8,274) (6,330) (4,308)
Increase (decrease) in Cash 180 (865) 858
Cash at Beginning of Year 93 958 100
Cash at End of Year $273 $93 $958
-45-
Report of Ernst & Young LLP, Independent Auditors
Shareholders and Board of Directors
S&T Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of S&T Bancorp,Inc.
and subsidiaries (S&T) as of December 31, 1995 and 1994, 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, 1995.
These financial statements are the responsibility of S&T's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable 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 aspects, the consolidated financial position of S&T Bancorp,
Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in comformity with generally accepted
accounting principles.
Pittsburgh, Pennsylvania
January 12, 1996
-46-
Stock Prices and Dividend Information
Selected Financial Data
S&T Bancorp, Inc. and Subsidiaries
(all dollar amounts in tables are in thousands)
Stock Prices and Dividend Information
S&T Bancorp, Inc.'s common stock is listed on the NASDAQ
National Market System. The range of sales prices for the
years 1995 and 1994 are as follows and are based upon
information obtained from NASDAQ. As of the close of
business January 18, 1996, there were 2,507 shareholders of
record of S&T Bancorp, Inc. Dividends paid by S&T are
provided form 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. All of the following information has been
restated to record the effect of a two-for-one common stock
split in the form of a 100% stock dividend distributed on
September 15, 1994.
Price Range of Common Stock Cash Dividends Declared
1995 Low High
C>
First Quarter $19.50 $20.25 $.17
Second Quarter 20.00 23.75 .18
Third Quarter 23.88 25.00 .18
Fourth Quarter 24.63 30.50 .21
1994
First Quarter $17.38 $19.50 $.14
Second Quarter 18.75 19.75 .15
Third Quarter 18.88 21.25 .15
Fourth Quarter 19.00 20.75 .17
Selected Financial Data
Years Ended December 31:
1995 1994 1993 1992 1991
Net interest income $57,019 $53,308 $49,958 $45,957 $37,653
Provision for loan losses 3,800 3,500 3,600 5,778 4,333
Net income 20,469 18,444 16,343 14,281 11,213
Per share data: (1)
Net income $1.82 $1.63 $1.45 $1.28 $1.00
Dividends declared 0.74 0.61 0.50 0.40 0.35
Balance sheet totals:
Average assets $1,330,959 $1,237,465 $1,139,501 $1,085,640 $898,276
Average long-term borrowings 73,154 19,254 13,068
Average other borrowed funds 388 753 910 1,433 2,167
Average equity 154,956 141,507 115,550 103,730 94,290
(1) Per share amounts have been restated to record the
effect of a two-for-one common stack split in the form
of a 100% stock dividend distributed on September 15,
1994.
-47-
Quarterly Selected Financial Data
1995 1994
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Summary of Operations:
Interest income 27,473 27,177 26,779 25,588 24,542 23,568 22,695 21,849
Interest expense 12,911 12,823 12,576 11,688 10,705 9,942 9,536 9,163
Net interest income 14,562 14,354 14,203 13,900 13,838 13,626 13,158 12,686
Provision for loan losses 1,200 1,100 750 750 1,400 800 700 600
Net investment security gains 293 317 167 (37) (26) (17) 255 209
Net income 5,263 5,207 5,078 4,921 4,621 4,731 4,625 4,467
Per Share Data: (1)
Net income $0.47 $0.46 $0.45 $0.44 $0.41 $0.42 $0.41 $0.39
Book Value 14.85 14.08 13.57 13.09 12.57 12.55 12.32 12.12
Average Balance Sheet
Highlights:
Total assets $1,374 $1,342 $1,319 $1,288 $1,265 $1,244 $1,232 $1,208
Earning assets 1,313 1,292 1,270 1,237 1,212 1,192 1,180 1,160
Investment securities 341 334 321 306 317 336 346 357
Loans, net 955 941 930 913 876 839 816 789
Deposits 959 939 915 902 908 912 907 891
Shareholders' equity 163 158 152 147 143 143 140 139
(1) Per share amounts have been restated to record the effect
of a two-for-one common stock split in the form of a 100% stock
dividend distributed on September 15, 1994.
- 48-
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
The $89.0 million growth of average earning assets in
1995 was primarily the result of an excellent lending
year for S&T Bancorp, Inc. (S&T). Average loan
balances increased by 12.5% or $105.7 million during
1995. The bulk of funding for this loan growth was
provided by a $51.1 million increase in borrowings,
$24.7 million increase in deposits, $15.7 million from
the maturities and sales of securities and a $13.4
million increase to average earnings retained.
Lending Activity
Increases in average loans for 1995 and 1994 were
$105.7 million and $112.0 million, respectively. The
1995 increase was primarily from new loan originations
and particularly good success in penetrating new
markets in Allegheny and Westmoreland counties.
Changes in the average composition of the loan
portfolio during 1995 included increases of $65.7
million of commercial loans, $33.5 million of
residential mortgages and $6.5 million in installment
loans. Composition changes include decreases from the
effects of $32.3 million of commercial loans and $12.4
million of student loans that were sold or
participated in 1995.
Increases in the commercial loan category include
$42.8 million of commercial and industrial loans and
$22.9 million of commercial real estate loans. S&T
began to expand the participation of select commercial
loans in 1995 and has developed a network of banks
seeking to participate in larger commercial loans.
Total commercial loan participations sold in 1995 were
$32.3 million. The rationale for these participations
included credit risk diversification, servicing income
generation and the development of alternative funding
sources.
Commercial real estate loans currently comprise 19.6%
of the loan portfolio. Although commercial real estate
loans can be an area of higher risk, management
believes these risks are mitigated by limiting the
percentage amount of portfolio composition, a rigorous
underwriting review by loan administration and the
fact that many of the commercial real estate loans are
owner occupied and/or seasoned properties being
refinanced from other banks.
Residential mortgage lending continued to be a
strategic focus for 1995 through the establishment of
a centralized mortgage origination department, product
redesign and the utilization of commission compensated
originators. Management believes that if a downturn in
the local residential real estate market occurs, the
impact of declining values on the real estate loan
portfolio will be negligible because of S&T's
conservative mortgage lending policies which generally
require a maximum term of twenty years for fixed rate
mortgages, and private mortgage insurance for loans
with less than a 20% down payment. Adjustable rate
mortgages with repricing terms of one, three and five
years comprised 35% of the residential mortgage
portfolio in 1995.
Installment loans continue to benefit from the
restructuring and refocus of the indirect lending
function as part of a 1994 strategic initiative.
Direct installment loan activity increased only
slightly in the first nine months of 1995 since
consumers continued to favor home equity and mortgage
refinancing because of the tax deductibility of
interest on these products. The bulk of the student
loan portfolio was sold in 1995 because newly issued
government regulations and restrictions significantly
reduced much of the profit potential associated with
the product.
Management intends to continue to pursue quality loans
in all lending categories within our market area in
order to honor our commitment to provide the best
service possible to our customers. S&T's loan
portfolio primarily represents loans to businesses and
consumers in our market area of Western Pennsylvania
rather than to borrowers in other areas of the country
or to borrowers in other nations. S&T has not
concentrated its lending activities in any industry or
group. During the past several years, management has
concentrated on building an effective credit and loan
administration staff which assists management in
evaluating loans before they are made and identifies
problem loans early.
- 49-
Security Activity
Average securities decreased $15.7 million in 1995 and
$33.8 million in 1994. The decreases were the result
of utilizing funds from the maturities and sales of
securities to fund loan growth. Loans typically
provide higher yields and have the potential of
developing other banking relationships. The largest
components of the 1995 decrease included $14.1 million
of U.S. treasury and agency securities, $2.7 million
of collateralized mortgage obligations (CMOs), $4.6
million in tax-exempt state and municipal securities,
and $0.3 million in corporate debt securities, offset
by increases of $2.3 million in corporate equities and
$3.7 million in Federal Home Loan Bank (FHLB) capital
stock.
The CMOs are principally Planned Amortization Class
(PAC) tranches of U.S. government agencies and were
purchased during 1992 as alternatives to loans in a
period of declining loan demand, and due to their
attractive rates and reasonable risk factors.
Declining interest rates have caused an acceleration
of principal prepayments for these securities and
$10.9 million are remaining at December 31, 1995. The
equity securities portfolio is primarily comprised of
Pennsylvania bank holding companies, as well as
preferred and utility stocks, to take advantage of the
dividends received deduction for corporations. During
1995, the equity portfolio yielded 10.6% on a fully
taxable equivalent basis and had unrealized gains, net
of nominal unrealized losses, of $26.7 million. The
FHLB capital stock is a membership and borrowing
requirement.
During the fourth quarter of 1995, management
reclassified the securities portfolio allowed by the
"one time" amnesty per Financial Accounting Standards
Board Statement No. 115, "Statement on Accounting for
Certain Investments in Debt and Equity Securities."
S&T's new policy for security classification includes
U.S. treasuries, U.S. government agencies,
mortgage-backed securities, CMOs and corporate
equities as available for sale. Municipal securities
and other debt securities are classified as held to
maturity. At December 31, 1995, unrealized gains, net
of nominal unrealized losses, for securities
classified as available for sale were approximately
$33.7 million.
Nonearning Assets
Average nonearning assets increased $2.6 million in
1995 and $3.1 million in 1994. The 1995 increase can
be primarily attributed to low income housing tax
credit (LIHTC) limited partnerships entered into
during 1995, as well as an increase in accrued
interest receivable on a higher earning asset balance.
The 1994 increase can be attributed to the higher
float and Federal Reserve requirements resulting from
an increase in average transaction account balances
and expanding cash management services such as
lockbox and sweep arrangements.
Allowance for Loan Losses
The year-end balance in the allowance for loan losses
increased to $15.9 million or 1.63% of total loans at
December 31, 1995 as compared to $14.3 million or
1.55% of total loans at December 31, 1994. The
adequacy of the allowance for loan losses is
determined by management through evaluation of the
loss potential on individual nonperforming, delinquent
and high-dollar loans, review of economic conditions
and business trends, historical loss experience,
growth and composition of the loan portfolio as well
as other relevant factors. The balance of
nonperforming loans, which includes nonaccrual loans
past due 90 days or more, at December 31, 1995 was
$2.8 million or 0.29% of total loans. This compares to
nonperforming loans of $1.9 million or 0.21% of total
loans at December 31, 1994. Asset quality is the major
corporate objective at S&T and management believes
that the total allowance for loan losses is adequate
to absorb probable loan losses.
-50-
Deposits
Average total deposits increased by $24.7 million in
1995 and $8.6 million in 1994. The mix of average
deposits in 1995 changed with time deposits increasing
$39.8 million, while interest-bearing demand, savings
and money market accounts decreased $17.5 million.
Noninterest-bearing deposits increased by $2.4 million
or 2.4% in 1995 and were approximately 12% of total
deposits during 1995 and 1994. These changes can be
partially explained by customers shifting funds to
higher-yielding, longer-term certificates of deposits
as interest rates peak, and the withdrawal of some
temporary corporate funds deposited in December 1994.
Special rate deposits of $100,000 and over were 7% and
6% of total deposits during 1995 and 1994,
respectively, and primarily represent deposit
relationships with local customers in our market area.
Management believes that the S&T deposit base is
stable and that S&T has the ability to attract new
deposits, mitigating a funding dependency on volatile
liabilities. In addition, S&T has the ability to
access both public and private markets to raise
long-term funding if necessary. During 1995, S&T
issued $25 million of retail certificates of deposits
through two brokerage firms, further broadening the
availability of reasonably priced funding sources.
Borrowings
Average borrowings increased $51.1 million in 1995 and
were comprised of retail repurchase agreements
(REPOS), wholesale REPOS, federal funds purchased and
long-term borrowings. S&T defines repurchase
agreements with its retail customers as retail REPOS;
wholesale REPOS are those transacted with other banks,
and brokerage firms with terms normally ranging from 1
to 14 days.
The average balance in retail REPOS increased
approximately $19.3 million for 1995 and $27.7 million
for 1994. S&T views retail REPOS as a relatively
stable source of funds since most of these accounts
are with local, long-term customers. The customer
preference for this type of account is due to the
slightly higher rates that the Bank could make
available because Federal Deposit Insurance
Corporation (FDIC) insurance premiums are not
assessed. In the last quarter of 1995, there was an
increase of funds migration from retail REPOS to
special rate deposits. The recent reduction in FDIC
insurance premiums have allowed these two products to
become more comparable in price.
Wholesale REPOS and federal funds purchased averaged
$69.6 million in 1995, a decrease of $21.8 million
from the 1994 averages. The availability and more
favorable pricings of other funding sources has
allowed S&T to meet the funding demands of its recent
loan growth without depending upon large amounts of
wholesale REPOS.
The interest rate risk of various funding strategies
is managed through S&T's Asset Liability Committee
(ALCO). During 1995, ALCO authorized two additional
long-term borrowings of $4.7 million at a fixed rate
and $48.5 million at an adjustable rate with the FHLB.
At December 31, 1995, S&T had two long-term borrowings
outstanding of $23.1 million at a fixed rate and $73.5
million at an adjustable rate with the FHLB. The
purpose of these borrowings was to provide matched,
fixed rate fundings for newly originated loans, and to
mitigate the risk associated with volatile liability fundings.
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All other long-term borrowings are related to the
funding of the S&T Employee Stock Ownership Plan
(ESOP) loan. The loan was used by the ESOP to acquire
treasury stock from S&T. This loan is recorded in the
financial statements as other borrowed funds, offset
by a reduction in shareholders' equity to reflect
S&T's guarantee of the ESOP borrowing. The balance of
the ESOP loan at December 31, 1995 and 1994 was $0.3
million and $0.4 million, respectively. The terms of
this loan require annual principal payments and
quarterly interest payments at a rate equal to 80% of
the lender's prime rate.
Trust Assets
The year-end carrying value balance of the S&T Bank
trust department assets, which are not accounted for
as part of the assets of S&T, increased 7.2% in 1995
and 10.0% in 1994. These increases were a result of
management's effort to expand the marketing of trust
products and services during the periods.
RESULTS OF OPERATIONS
Year Ended December 31, 1995
Net Income
Net income was a record $20.5 million or $1.82 per
share in 1995, representing an 11% increase from the
$18.4 million or $1.63 per share in 1994. The return
on average assets increased to 1.54% for 1995 as
compared to 1.49% for 1994. The return on average
equity increased to 13.21% for 1995 compared to 13.03%
for 1994. Improved net interest margin contributed
significantly to this enhanced earnings performance.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $3.8 million or 7% for 1995 compared
to 1994. The net yield on interest-earning assets
decreased slightly by 2 basis points to 4.77%, but net
interest income was positively affected by the $89.0
million or 8% increase in average earning assets.
Maintaining consistent spreads between earning assets
and costing liabilities is very significant to S&T's
financial performance since net interest income
comprises 89% of operating revenue. A variety of
asset/liability management strategies were
successfully implemented, within prescribed ALCO risk
parameters, that enabled S&T to maintain a net
interest margin consistent with historical levels.
During this same period, earning assets increased
primarily through new loan originations. The bulk of
funding for this loan growth was provided by deposits,
maturing securities and retained earnings. The level
and mix of funds is continually monitored by ALCO in
order to mitigate the interest rate sensitivity and
liquidity risks of the balance sheet.
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Provision for Loan Losses
The provision for loan losses is an amount added to
the allowance against which loan losses are charged.
The provision for loan losses was $3.8 million for
1995 compared to $3.5 million in 1994. Provision
expense is the result of management's assessment of
economic conditions, credit quality statistics, loan
administration effectiveness and other factors that
would have an impact on probable losses in the loan
portfolio. Net loan charge-offs totaled $2.2 million
for 1995 compared to $2.6 million for 1994. S&T's
allowance for loan losses at December 31, 1995 was
$15.9 million, or 1.63% of total loans compared to
$14.3 million, or 1.55% of total loans at December 31,
1994. Nonperforming loans to total loans increased 8
basis points or 38% since December 31, 1994 to 0.29%
at December 31, 1995.
Noninterest Income
Noninterest income increased $1.4 million or 20% in
1995 compared to 1994. Increases included $0.2 million
or 9% in trust income, $0.5 million or 19% in service
charges and fees, a $0.2 million or 11% increase in
other income, and a $0.5 million or 128% increase in
nonrecurring gains.
The increase in trust income was attributable to
bankwide incentive programs and expanded marketing
efforts designed to develop new trust business. The
increase in service charges on deposit accounts was
primarily the result of management's continual effort
to implement reasonable fees for services performed
and to manage closely the collection of these fees.
The increase in other income was a result of increased
performance for brokerage activities, debit/credit cards
and credit insurance. These areas were the focus
of several 1995 strategic initiatives and product
enhancements implemented in order to expand this
source of revenue.
Nonrecurring gains were primarily attributable to the
sales of equity securities and a $0.2 million gain
from the aforementioned student loan sale.
Noninterest Expense
Noninterest expense increased $1.9 million or 6% in
1995 compared to 1994. The increase is primarily
attributable to increased employment and other
expenses, offset by a decrease in Federal Deposit
Insurance Corporation (FDIC) premiums. S&T's
efficiency ratio, which measures noninterest expense
as a percent of recurring noninterest income plus net
interest income on a fully taxable equivalent basis,
was 50.15% and 50.52% in 1995 and 1994, respectively.
Staff expense increased 9% or $1.4 million in 1995.
The increase resulted from normal merit increases,
higher incentive payments relative to commercial loan
activity, several new hires relating to strategic
initiatives in the lending, trust and cash management
functions and changes in the thrift plan
contributions. Offsetting these increases is a higher
deferral of loan origination costs resulting from
commercial loan activity. Average full-time equivalent
staff increased from 552 to 567 in 1995.
S&T maintains a defined benefit retirement plan for
employees. Accounting guidelines of the Financial
Accounting Standards Board require certain assumptions
to be made about long-term interest rates in order to
apply present value calculations. S&T utilized a
discount rate that approximated the present value
yield on long-term treasury bonds of 6.5% in 1995 and
8.0% in 1994.
Other expenses increased 14% or $1.1 million in 1995
as compared to 1994. The increase is primarily
attributable to a $0.3 million funding of S&T's
Charitable Foundation, $0.3 million increase in
marketing and customer relations, and a $0.2 million
increase of partnership losses from LIHTC investments.
The funding of the Charitable Foundation will allow
S&T to fund community contributions well into the
future from the Foundation and help control future
costs. The LIHTC partnership losses aare offset by tax
credits.
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During 1995, FDIC premiums were reduced from 23 basis
points to 4 basis points resulting in expense savings
of $0.8 million for the year. Currently, S&T has $183
million of Oakar deposits subject to the Savings
Association Insurance Fund (SAIF) rate of 23 basis
points, and a possible surcharge of 80 basis points,
or $1.5 million in 1996 if legislation is passed for
recapitalization of the SAIF fund.
Federal Income Taxes
Federal income tax expense increased $0.9 million to
$7.5 million in 1995 as a result of higher pretax
income in 1995. The 1995 effective tax rate of 27% was
below the 35% statutory tax rate due to the tax
benefits resulting from tax-exempt interest,
excludable dividend income and the tax benefits
associated from LIHTC projects. S&T currently does not
incur any alternative minimum tax.
RESULTS OF OPERATIONS
Year Ended December 31, 1994
Net Income
Net income was a $18.4 million or $1.63 per share in
1994, representing a 13% increase from the $16.3
million or $1.45 per share in 1993. The return on
average assets increased to 1.49% for 1994 as compared
to 1.43% for 1993. The return on average equity
decreased to 13.03% for 1994 compared to 14.14% for
1993. The decrease in return on average equity is
attributable to the implementation of FAS #115 in 1994
which increased shareholders' equity. Improved net
interest margin and asset quality contributed
significantly to this enhanced earnings performance.
Net Interest Income
On a fully taxable equivalent basis, net interest
income increased $3.3 million or 6% for 1994 compared
to 1993; the net yield on interest-earning assets
decreased slightly by 5 basis points to 4.79%, but net
interest income was positively affected by a $77.3
million or 7% increase in average earning assets.
Maintaining consistent spreads between earning assets
and costing liabilities is very significant to S&T's
financial performance since net interest income
comprises 89% of revenue. A variety of asset liability
management strategies were successfully implemented,
within prescribed ALCO risk parameters, that enabled
S&T to maintain a net interest margin consistent with
historical levels during an unprecedented increase in
short-term market rates in 1994.
During this same period, earning assets increased
primarily through new loan originations. The bulk of
funding for this loan growth was provided by maturing
securities and short and long-term borrowings. The
level and mix of borrowings is continually monitored
by ALCO in order to mitigate the interest rate
sensitivity risks of this balance sheet leveraging
strategy.
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Provision for Loan Losses
The provision for loan losses is an amount added to
the allowance against which loan losses are charged.
The provision for loan losses was $3.5 million for
1994 compared to $3.6 million in 1993. 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. Net loan charge-offs totaled $2.6 million
for 1994 compared to $2.1 million for 1993. S&T's
allowance for loan losses at December 31, 1994 was
$14.3 million, or 1.55% of total loans compared to
$13.5 million, or 1.69% of total loans at December 31,
1993. Nonperforming loans to total loans decreased 14
basis points or 40% since December 31, 1993 to 0.21%
at December 31, 1994.
Noninterest Income
Noninterest income increased $0.3 million or 5% in
1994 compared to 1993. Increases included $0.4 million
or 22% in trust income, $0.3 million or 14% in service
charges and fees, a $0.2 million or 16% increase in
other income, offset by a $0.6 million or 59% decrease
in securities gains.
The increase in trust income was attributable to a
bankwide incentive program and expanded marketing
efforts designed to develop new trust business. The
increase in service charges on deposit accounts was
primarily the result of management's continual effort
to implement reasonable fees for services performed
and to manage closely the collection of these fees.
The increase in other income was a result of higher
letter of credit issuance as well as increased
performance for the relatively new fee-based
businesses of mutual funds and annuities sales,
discount brokerage activities, security lending, call
options, cash management and credit insurance. These
areas were the focus of several 1994 strategic
initiatives and product enhancements implemented in
order to expand this source of revenue.
Security gains were primarily attributable to the sale
of equity securities.
Noninterest Expense
Noninterest expense increased $0.8 million or 3% in
1994 compared to 1993. The increase is primarily
attributable to increased employment, occupancy
expense and furniture and equipment expenses, offset
by a decrease in data processing expense and other
expenses.
Staff expense increased 7% or $1.1 million in 1994.
The increase resulted from normal merit increases,
higher overtime and part-time salary costs related to
the data processing conversion during the first half
of 1994, several new hires as a result of strategic
initiatives in the lending, trust and cash management
functions, offset by higher deferral of loan
origination costs resulting from commercial loan
activity. Average full-time equivalent staff increased
from 520 to 552 in 1994.
S&T maintains a defined benefit retirement plan for
employees that is accounted for under the guidelines
of Financial Accounting Standards Board Statement No.
87, "Employers' Accounting for Pensions" (FAS #87).
Implementation of FAS #87 requires certain assumptions
to be made about long-term interest rates in order to
apply present value calculations. S&T utilized a
discount rate that approximates the present value
yield on long-term treasury bonds of 8% in 1994 and
6.8% in 1993.
Occupancy, furniture and equipment expenses increased
15% or $0.5 million in 1994 compared to 1993.
The increase resulted from renovations, higher utility
expenses and the addition of three new operational and
administrative facilities, including the opening of
the new DuBois regional center during the second
quarter of 1994.
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Data processing decreased 29% or $0.5 million in 1994
compared to 1993. The decrease is attributable to
costs associated with the data processing system
conversion being expensed in the second quarter of
1993.
Other expenses decreased 4% or $0.3 million in 1994
compared to 1993. The decrease is primarily
attributable to a nonrecurring charge of $0.6 million
to charitable expense from the establishment of an S&T
Charitable Foundation in the third quarter of 1993.
Offsetting this decrease are increases attributable to
higher cost for supplies and postage expenses due to
the data processing conversion in the first quarter of
1994, as well as increased expenses related to higher
loan volumes.
Federal Income Taxes
Federal income tax expense increased $0.9 million to
$6.7 million in 1994 as a result of higher pretax
income in 1994. The 1994 effective tax rate of 27% was
below the 35% statutory tax rate due to the tax
benefits resulting from tax-exempt interest,
excludable dividend income and the tax benefits
associated from LIHTC taken during 1994. S&T currently
does not incur any alternative minimum tax.
Liquidity and Interest Rate Sensitivity
Liquidity refers to the ability to satisfy the
financial needs of depositors who want to withdraw
funds or borrowers needing access to funds to meet
their credit needs. Interest rate sensitivity
management seeks to avoid fluctuating net interest
margins and to enhance net interest income through
periods of changing interest rates. ALCO is
responsible for establishing and monitoring the
liquidity and interest rate sensitivity guidelines,
procedures and policies.
The principal sources of asset liquidity are cash and
due from banks, interest-earning deposits with banks,
federal funds, and investment securities that mature
in one year or less and the market value of securities
available for sale. At December 31, 1995, the total of
such assets was approximately $428.5 million or 31% of
consolidated assets. However, liability liquidity is
much more difficult to quantify, but is further
enhanced by a stable core deposit base, access to
credit lines at other financial institutions and S&T's
ability to renew maturing deposits. Certificates of
deposit in denominations of $100,000 or more
represented 7% of deposits at December 31, 1995 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.
ALCO monitors and manages interest rate sensitivity
through gap, simulation and duration analyses in order
to avoid unacceptable earnings fluctuations due to
interest rate changes. S&T's gap model includes
certain management assumptions based upon past
experience and the expected behavior of customers
during various interest rate scenarios. The
assumptions include principal prepayments for
mortgages, installment loans and CMOs and classifying
the demand, savings and money market balances by
degree of interest rate sensitivity. Utilizing the
above assumptions results in ratios of interest rate
sensitive assets to interest sensitive liabilities for
the six-month and twelve-month intervals ended
December 31, 1995 of .96% and 1.02%, respectively.
Assuming immediate repricings for interest-bearing
demand, savings and money market accounts, these
ratios would be .69% and .80%, respectively.
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Capital Resources
The primary source of equity growth for S&T is
earnings retention. Hence, capital growth is a
function of net income less dividends paid to
shareholders. Shareholders' equity increased $25.4
million at December 31, 1995 compared to December 31,
1994. The $25.4 million includes $13.5 million related
to the change in unrealized holding gains on
securities available for sale. Net income was $20.5
million and dividends paid to shareholders were $7.9
million for 1995. S&T paid 38% of 1995 net income in
dividends, equating to an annual dividend rate of
$0.74 per share.
The book values of S&T's common stock increased 18.0%
from $12.57 at December 31, 1994 to $14.85 at December
31, 1995 primarily due to the increase in
shareholders' equity from retained earnings and the
increase in unrealized holding gains on securities
available for sale. The market price of S&T's common
stock has increased 49% to $30.50 per share at
December 31, 1995 from $20.50 per share at December
31, 1994.
S&T continues to maintain a strong capital position
with a leverage ratio of 10.4% as compared to the 1995
minimum regulatory guideline of 3.0%. S&T's risk-based
capital Tier 1 and Total ratios were 13.7% and 15.0%,
respectively, at December 31, 1995, which places S&T
well above the Federal Reserve Board's risk-based
capital guidelines of 4.0% and 8.0% for Tier 1 and
Total, respectively. In addition, management believes
that S&T has the ability to raise additional capital
if necessary. S&T sponsors an Employee Stock Ownership
Plan (ESOP). The ESOP shares are allocated to
employees as part of S&T's contributions to its
employee thrift and profit sharing plans. At December
31, 1995, 34,000 unallocated shares were held by the
ESOP for future allocation to employees.
During the fourth quarter of 1994, S&T announced a
program to annually acquire up to 3% of its common
stock as treasury shares. In 1995, S&T acquired 97,689
treasury shares on the open market, and used 74,820
treasury shares to fund the employee stock option
plan, its dividend reinvestment plan for shareholders
and other general corporate purposes. The stock
repurchase program was also reaffirmed in the fourth
quarter of 1995 for 1996.
In April 1993, shareholders approved the S&T Incentive
Stock Plan authorizing the issuance of a maximum of
600,000 shares of S&T's common stock in order to
assist in attracting and retaining employees of
outstanding ability and to promote the identification
of their interests with those of the shareholders of
S&T. On December 19, 1994, the Stock Plan was amended
to include outside directors. As of December 31, 1995,
415,500 nonstatutory stock options had been granted
to key employees and outside directors; 246,500 of
these options are currently exercisable.
On September 27, 1995, S&T entered into an agreement
to construct a new branch office located in
Greensburg, Pennsylvania. Estimated cost is $1.5 million
and the completion date is scheduled for the
third quarter of 1996.
Regulatory Matters
S&T and S&T Bank are subject to periodic examinations
by one or more of the various regulatory agencies.
During 1995, an examination was conducted by the 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 allows it to pay the lowest
possible rate for FDIC deposit insurance.
Inflation
Management is aware of the significant effect
inflation has on interest rates and can have on
financial performance. S&T's ability to cope with this
is best determined by analyzing its capability to
respond to changing interest rates and its ability to
manage noninterest income and expense. S&T monitors
its mix of interest rate sensitive assets and
liabilities through ALCO in order to reduce the impact
of inflation on net interest income. Management also
controls the effects of inflation by reviewing the
prices of its products and services, by introducing
new products and services and by controlling overhead
expenses.
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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.
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