Decisions on Bank Applications
S&T Bank
FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: S&T Bank Indiana, Pennsylvania
Application for Consent to Engage as Principal Through a Wholly-Owned Subsidiary In Equity Investment Activities that May Not be Permissible for a Subsidiary of a National Bank
ORDER
The Federal Deposit Insurance Corporation (FDIC) has fully considered all available facts and information relevant to the application by S&T Bank, Indiana, Pennsylvania (S&T or the Bank), pursuant to Section 24 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831a, and Part 362 of the FDIC’s Rules and Regulations, for consent to invest, through a wholly-owned subsidiary, in equity securities that have been approved as permissible investments by the State of Pennsylvania and which do not fall within the grandfather exception established by section 362.3(a)(2)(iii) or any other exception provided by Part 362. Specifically, permission is being requested to invest, through the wholly-owned subsidiary, in stock (not including those listed stocks that would fall within the grandfather exception) of the following types of Pennsylvania- based institutions: trust companies; bank holding companies; federal and state savings associations; and savings and loan holding companies. Additionally, permission is being requested to have the subsidiary retain stock of out-of-state bank holding companies (not including those listed stocks that would fall within the grandfather exception) which stock represents an investment originally made in a Pennsylvania institution but which, through merger, is now an investment in an institution based outside of Pennsylvania. The equity investment activities proposed by S&T may not be permissible for a subsidiary of a national bank.
In conjunction with the application described above, S&T filed a Notice of its intention to exercise its grandfathered equity investment authority pursuant to section 362.3(a)(2)(iii). The equity investments for which the Notice was filed were, at the time of the filing, held by an affiliate of S&T; they had originally been held by the Bank but were transferred to the affiliate in 1992. Those equity investments held by the affiliate that fell under the grandfather rights established by section 24(f) of the Federal Deposit Insurance Act were to be transferred to a subsidiary of S&T. The FDIC’s New York Regional Office issued a non-objection to the Notice on July 30, 2002.
S&T’s parent, S&T Bancorp, Inc., consummated a merger with Peoples Financial Corp., Inc., Ford City, Pennsylvania (Peoples), on September 7, 2002, and merged People’s bank subsidiary, PFC Bank, into S&T on the same day. PFC Bank had an existing subsidiary engaged in equity investment activities for which the FDIC Board in 1996 had granted approval. Upon consummation of the merger, the investment subsidiary of PFC Bank became a subsidiary of S&T and was renamed S&T Bancholdings, Inc. The grandfathered securities for which the previously mentioned Notice was filed have been transferred to this subsidiary. The subsidiary currently holds the grandfathered securities that it held when it was a subsidiary of PFC Bank plus the grandfathered securities that have been transferred from the affiliate of S&T, as well as securities that are permissible investments for national banks.
S&T intends to establish a separate subsidiary (the Subsidiary) to hold the equity securities for which consent to acquire is hereby being requested. S&T’s aggregate investment in both investment subsidiaries will not exceed 100 percent of the Bank’s Tier 1 capital. Furthermore, it is S&T’s intention to limit investment by the Subsidiary in any one issuer to not more than 2.5 percent of the Bank’s Tier 1 capital. Management is aware of, and will comply with, the limitations on equity investments by banks as established by the Pennsylvania Banking Code of 1965.
Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted by S&T for consent to invest, through a wholly-owned subsidiary, in the equity securities described in the first paragraph of this Order be, and hereby is, approved, subject to the following conditions:
1. That the Bank’s investment in the equity securities for which consent to acquire is being requested be held indirectly through a wholly-owned subsidiary of the Bank organized for the purpose of holding such investments (the Subsidiary);
2. That the Subsidiary shall be established as an entity separate from the Bank’s subsidiary that holds equity securities that are permissible investments for a national bank or are investments made under the grandfather rights established by section 24(f) of the Federal Deposit Insurance Act (the Grandfather Subsidiary);
3. That the Bank shall limit its aggregate investment in the Subsidiary and the Grandfather Subsidiary (collectively, the Subsidiaries) to not more than 100 percent of the Bank’s Tier 1 capital and neither the Bank nor any of its other subsidiaries shall make any additional investment (including equity, debt, or extensions of credit) in the Subsidiaries or originate any other transaction that is used to benefit the Subsidiaries without the prior approval of the Regional Director of the New York Regional Office;
4. That neither the Bank nor the Subsidiaries may enter into any transaction with the Bank’s executive officers, directors, principal shareholders, or related interests of such persons which relate to the Subsidiaries’ activities unless the transactions are on terms and conditions that are substantially the same as those prevailing at the time for comparable transactions with persons not affiliated with the Bank;
5. That the Bank maintains a “well capitalized” status pursuant to Part 325 of the FDIC’s Rules and Regulations after deducting from its Tier 1 capital the appropriate capital charge for equity investments in nonfinancial companies, as reflected in the table shown in Section II.B. of Appendix A to Part 325, for its investment in the Subsidiary. No capital deduction will be required for the Bank’s investment in the Grandfather Subsidiary since Section II.B.(6)(ii) of Appendix A to Part 325 excludes the investments held in the Grandfather Subsidiary from the scope of nonfinancial equity investments. The required capital deduction shall be reflected on the appropriate schedule of the Bank's quarterly consolidated report of condition and income. The amount of capital as so determined will be used for the purposes of determining the Bank’s assessment risk classification under 12 CFR Part 327 of the FDIC’s Rules and Regulations, and its capital category as defined in Part 325, provided that the capital deduction shall not be used for the purposes of determining whether the Bank is “critically undercapitalized;” and
6. That, in the event the facts and circumstances presented or otherwise known to the FDIC in connection with this request change significantly, the FDIC shall have the right to alter, suspend, or withdraw its approval.
Dated at Washington, D.C., this 30th day of September 2002.
FEDERAL DEPOSIT INSURANCE CORPORATION
Michael J. Zamorski, Director
Division of Supervision and Consumer Protection
FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: S&T Bank Indiana, Pennsylvania
Application for Consent to Engage as Principal Through a Wholly-Owned Subsidiary In Equity Investment Activities that May Not be Permissible for a Subsidiary of a National Bank
STATEMENT
The Federal Deposit Insurance Corporation (FDIC) has fully considered all available facts and information relevant to the application by S&T Bank, Indiana, Pennsylvania (S&T or the Bank), pursuant to Section 24 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831a, and Part 362 of the FDIC’s Rules and Regulations, for consent to invest, through a wholly-owned subsidiary, in equity securities that have been approved as permissible investments by the State of Pennsylvania and which do not fall within the grandfather exception established by section 362.3(a)(2)(iii) or any other exception provided by Part 362.
The Order that accompanies this Statement provides information regarding the specific investment authority being requested by S&T, the Bank’s Notice to exercise grandfathered equity investment authority, and the Bank’s existing subsidiary that currently holds grandfathered securities and securities that are permissible investments for national banks.
Initially, S&T proposed that the subsidiary acquired through the merger with PFC Bank would hold not only the grandfathered investments and investments permissible for national banks, but also the securities for which consent to invest in is hereby being requested. The interagency merchant banking capital rule, which became effective in April 2002, excludes investments held under the grandfather rights established by section 24(f) of the Act from the scope of nonfinancial companies. Thus, the Bank’s proposal prompted the question of whether, in the case of a subsidiary that holds both grandfathered and nongrandfathered equity securities, the capital charge required by the merchant banking capital rule for a bank’s investment in nonfinancial companies would be based on the bank’s aggregate investment in the subsidiary or just on that portion of the bank’s investment that relates to the nongrandfathered securities. With respect to that question, the FDIC has taken the position that the merchant banking capital rule should be applied to a bank’s aggregate investment in a “mixed investment” subsidiary — that is, a subsidiary investing in both grandfathered and nongrandfathered securities. Therefore, if S&T were to have one subsidiary that held both grandfathered and nongrandfathered investments, the capital charge required by the merchant banking capital rule would be based on the Bank’s aggregate investment in the subsidiary without adjustment for the grandfathered investments held.
As a result of this determination, S&T now proposes to establish a separate subsidiary (the Subsidiary) to hold the securities for which consent to invest is hereby being requested. S&T will limit its aggregate investment in both investment subsidiaries to not more than 100 percent of the Bank’s Tier 1 capital. Furthermore, it is S&T’s intention to limit investment by the Subsidiary in any one issuer to not more than 2.5 percent of the Bank’s Tier 1 capital. Management will also comply with the limitations on equity investments by banks as established by the Pennsylvania Banking Code of 1965.
Investing in the securities for which S&T is requesting the FDIC’s approval may not be a permissible activity for a national bank or a subsidiary of a national bank. Neither insured state banks nor their subsidiaries may engage as principal in an activity prohibited for national banks unless consent has been obtained from the FDIC. Consent may not be granted unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the deposit insurance funds.
As of June 30, 2002, S&T had total assets of $2.3 billion and it was “well capitalized” per Part 325 of the FDIC Rules and Regulations. S&T pledged to maintain the Bank’s “well capitalized” status at, and immediately after, its merger with PFC Bank. The Bank will also be required to maintain a “well capitalized” status after deducting from its Tier 1 capital the appropriate capital charge for equity investments in nonfinancial companies.
S&T has been well-managed and its financial condition is sound. The team that will be managing the operations of the investment subsidiaries is experienced in such activities.
The level and extent of investment in equity securities proposed by S&T is considered within reason, given the Bank’s financial strength and management’s demonstrated ability. The Bank’s proposal does not appear to pose any significant risk to the deposit insurance funds.
It is not anticipated that there will be involvement by insiders or their related interests in the activities of the Bank’s investment subsidiaries. Nor is there expected to be investment in the investment subsidiaries beyond the established limit or other transactions used to benefit the investment subsidiaries. Nonetheless, should insider involvement or additional investment be considered in the future, conditions addressing these situations are being imposed in the Order.
Based on a careful review of all available facts and information, the FDIC has concluded that the investment authority being requested by S&T does not pose a significant risk to the Bank Insurance Fund and, therefore, approval of the application, subject to the conditions in the Order, is warranted.
DIRECTOR
DIVISION OF SUPERVISION AND CONSUMER PROTECTION
FEDERAL DEPOSIT INSURANCE CORPORATION