ITEM 1. BUSINESS
General
The Dyco Oil and Gas Program 1986-X Limited Partnership (the "Program") is a Minnesota limited partnership engaged in the production of oil and gas. The Program commenced operations on Decem- ber 12, 1986 with the primary financial objective of investing its limited partners' subscriptions in the drilling of oil and gas prospects and then distributing to its limited partners all available cash flow from the Program's on-going production operations. Dyco Petroleum Corporation ("Dyco") serves as the General Partner of the Program. See "Item 2.

ITEM 2. PROPERTIES
Well Statistics
The following table sets forth the numbers of gross and net productive wells of the Program as of December 31, 1995.
Well Statistics(1)
As of December 31, 1995
Gross productive wells(2): Oil 1 Gas 10 -- Total 11
Net productive wells(3): Oil .24 Gas 1.51 ---- Total 1.75
- - ----------
(1) The designation of a well as an oil well or gas well is made by Dyco based on the relative amount of oil and gas reserves for the well. Regardless of a well's oil or gas designation, it may produce oil, gas, or both oil and gas. (2) As used throughout this Annual Report, "Gross Well" refers to a well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned. (3) As used throughout this Annual Report, "Net Well" refers to the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof. For example, a 15% leasehold interest in a well represents one Gross Well, but 0.15 Net Well.
Drilling Activities
The Program participated in no drilling activities for the year ended December 31, 1995.
Oil and Gas Production, Revenue, and Price History
The following table sets forth certain historical information concerning the oil (including condensates) and natural gas production, net of all royalties, overriding royalties, and other third party interests, of the Program, revenues attributable to such production, and certain price and cost information.
Net Production Data
Year Ended December 31, ---------------------------- 1995 1994 1993 -------- -------- --------
Production: Oil (Bbls)(1) 398 567 671 Gas (Mcf)(2) 94,215 107,064 116,203
Oil and gas sales: Oil $ 6,685 $ 8,909 $ 11,410 Gas 127,800 170,095 213,572 ------- ------- ------- Total $134,485 $179,004 $224,982 ======= ======= =======
Total direct operating expenses $ 67,844 $ 61,076 $ 63,352 ======= ======= =======
Direct operating expenses as a percentage of oil and gas sales 50.4% 34.1% 28.2%
Average sales price: Per barrel of oil $16.80 $15.71 $17.00 Per Mcf of gas 1.36 1.59 1.84
Direct operating expenses per equivalent Mcf of gas(3) $ .70 $ .55 $ .53
- - ----------
(1) As used throughout this Annual Report, "Bbls" refers to barrels of 42 U.S. gallons and represents the basic unit for measuring the production of crude oil and condensate oil. (2) As used throughout this Annual Report, "Mcf" refers to volume of 1,000 cubic feet under prescribed conditions of pressure and temperature and represents the basic unit for measuring the production of natural gas. (3) Oil production is converted to gas equivalents at the rate of six Mcf per barrel, representing the estimated relative energy content of gas and oil, which rate is not necessarily indicative of the relationship of oil and gas prices. The respective prices of oil and gas are affected by market and other factors in addition to relative energy content.
Proved Reserves and Net Present Value
The following table sets forth the Program's estimated proved oil and gas reserves and net present value therefrom as of December 31, 1995. The schedule of quantities of proved oil and gas reserves was prepared by Dyco in accordance with the rules prescribed by the Securities and Exchange Commission (the "SEC"). As used throughout this Annual Report, "proved reserves" refers to those estimated quantities of crude oil, natural gas, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions.
Net present value represents estimated future gross cash flow from the production and sale of proved reserves, net of estimated oil and gas production costs (including production taxes, ad valorem taxes, and operating expenses), and estimated future development costs discounted at 10% per annum. Net present value attributable to the Program's proved reserves was calculated on the basis of current costs and prices at December 31, 1995. Such prices were not escalated except in certain circumstances where escalations were fixed and readily determinable in accordance with applicable contract provisions. The prices used by Dyco in calculating the net present
value attributable to the Program's proved reserves do not necessarily reflect market prices for oil and gas production subsequent to December 31, 1995. Furthermore, gas prices at December 31, 1995 were higher than the price used for determining the Program's net present value of proved reserves for the year ended December 31, 1994. There can be no assurance that the prices used in calculating the net present value of the Program's proved reserves at December 31, 1995 will actually be realized for such production.
The process of estimating oil and gas reserves is complex, requiring significant subjective decisions in the evaluation of available geological, engineering, and economic data for each reservoir. The data for a given reservoir may change substantially over time as a result of, among other things, additional development activity, production history, and viability of production under varying economic conditions; consequently, it is reasonably possible that material revisions to existing reserve estimates may occur in the near future. Although every reasonable effort has been made to ensure that the reserve estimates reported herein represent the most accurate assessment possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.
Proved Reserves and Net Present Value From Proved Reserves
As of December 31, 1995
Estimated proved reserves: Natural gas (Mcf) 316,119 Oil and liquids (Bbls) 1,114
Net present value (discounted at 10% per annum) $271,571
No estimates of the proved reserves of the Program comparable to those included herein have been included in reports to any federal agency other than the SEC. Additional information relating to the Program's proved reserves is contained in Note 4 to the Program's financial statements, included in Item 8 of this Annual Report.
Significant Properties
As of December 31, 1995, the Program's properties consisted of 11 gross (1.75 net) productive wells in which the Program owned a working interest. The Program owned a non-working interest in one additional gross well. Affiliates of the Program operate 9 (75%) of its total wells. As of December 31, 1995, the Program's net interests in its properties resulted in estimated total proved reserves of 316,119 Mcf of natural gas and 1,114 barrels of oil, with a present value (discounted at 10% per annum) of estimated future net cash flow of $271,571. All of the Program's reserves are located in the Anadarko Basin of western Oklahoma and the Texas panhandle, which is an established oil and gas producing basin.
Title to Oil and Gas Properties
Management believes that the Program has satisfactory title to its oil and gas properties. Record title to substantially all of the Program's properties is held by Dyco as nominee.
Title to the Program's properties is subject to customary royalty, overriding royalty, carried, working, and other similar interests and contractual arrangements customary in the oil and gas industry, to liens for current taxes not yet due, and to other encumbrances. Management believes that such burdens do not materially detract from the value of such properties or from the Program's interest therein or materially interfere with their use in the operation of the Program's business.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the management of Dyco and the Program, neither Dyco, the Program, nor the Program's properties are subject to any litigation, the results of which would have a material effect on the Program's or Dyco's financial condition or operations.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
There were no matters submitted to a vote of the limited partners during 1995.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED LIMITED PARTNER MATTERS
The Program does not have an established trading market for its units of limited partnership interest ("Units"). Pursuant to the terms of the Program's limited partnership agreement, Dyco, as General Partner, is obligated to annually offer a repurchase offer which is based on the estimated future net revenues from the Program's reserves and is calculated pursuant to the terms of the limited partnership agreement. Such repurchase offer is recalculated monthly in order to reflect cash distributions made to the limited partners and other extraordinary events. The following table sets forth, for the periods indicated, Dyco's repurchase offer per Unit and the amount of the Program's cash distributions per Unit for the same period. For purposes of this Annual Report, a Unit represents an initial subscription of $5,000 to the Program.
Repurchase Cash Price Distributions ---------- -------------
1994: First Quarter $106 $ - Second Quarter 88 30 Third Quarter 88 - Fourth Quarter 63 25
1995: First Quarter $ 63 $ - Second Quarter 108 - Third Quarter 88 20 Fourth Quarter 88 -
1996: First Quarter $ 88 (1)
- - ----------
(1) To be declared in March 1996.
The Program has 2,021 Units outstanding and approximately 678 limited partners of record.
ITEM 6.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations General -------
The following general discussion should be read in conjunction with the analysis of results of operations provided below. In management's view, it is not possible to predict accurately either the short-term or long-term prices for oil or gas. Specifically, due to the oversupply of natural gas in recent years, certain of the Program's gas producing properties have suffered, and continue to suffer during portions of the year, production curtailments and seasonal reductions in the prices paid by purchasers. Additional curtailments and seasonal or regional price reductions will adversely affect the operations and financial condition of the Program. Gas sales prices, which have generally declined significantly since the mid-1980s, increased during the fourth quarter of 1995. See "Item 1. Business - Competition and Marketing." Actual future prices received by the Program will likely be different from (and may be lower than) the prices in effect on December 31, 1995. In many past years, year- end prices have tended to be higher, and in some cases significantly higher, than the yearly average price actually received by the Program for at least the year following the year-end valuation date. Management is unable to predict whether future gas prices will (i) stabilize, (ii) increase, or (iii) decrease. The amount of the Program's cash flow, however, is dependent on such future gas prices.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 -------------------------------------
Total oil and gas sales decreased 24.9% for the year ended December 31, 1995 as compared to the year ended December 31, 1994. This decrease was primarily due to decreases in both the volumes of oil and natural gas sold and the average price of natural gas sold. Volumes of oil and natural gas sold decreased 169 barrels and 12,849 Mcf, respectively, for the year ended December 31, 1995 as compared to the year ended December 31, 1994. The decrease in the volumes of oil and natural gas sold was primarily due to a fluid loading problem on one well. Average oil prices increased to $16.80 per barrel for the year ended December 31, 1995 from $15.71 per barrel for the year ended December 31, 1994, while average natural gas prices decreased to $1.36 per Mcf for the year ended December 31, 1995 from $1.59 per Mcf for the year ended December 31, 1994.
Oil and gas production expenses (including lease operating expenses and production taxes) increased 11.1% for the year ended December 31, 1995 as compared to the year ended December 31, 1994. This increase was primarily due to surface and subsurface repair and maintenance expenses and compression expenses incurred on a few wells during 1995 in order to improve the recovery of reserves. As a percentage of oil and gas sales, these expenses increased to 50.4% for the year ended December 31, 1995 from 34.1% for the year ended December 31, 1994. This percentage increase was primarily due to (i) the decrease in oil and gas sales and (ii) the dollar increase in oil and gas production expenses discussed above.
Depreciation, depletion, and amortization of oil and gas properties decreased $15,060 for the year ended December 31, 1995 as compared to the year ended December 31, 1994. This decrease was primarily due to upward revisions of previous reserve estimates. As a percentage of oil and gas sales, this expense decreased to 12.9% for the year ended December 31, 1995 from 18.1% for the year ended December 31, 1994. This percentage decrease was primarily due to the dollar decrease in depreciation, depletion, and amortization of oil and gas properties, partially offset by the decrease in oil and gas sales.
General and administrative expenses increased $1,519 for the year ended December 31, 1995 as compared to the year ended December 31, 1994 primarily due to an increase in both professional fees and printing and postage expenses. As a percentage of oil and gas sales, these expenses increased to 16.1% for the year ended December 31, 1995 from 11.3% for the year ended December 31, 1994. This percentage increase was primarily due to the decrease in oil and gas sales.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 -------------------------------------
Total oil and gas sales decreased 20.4% for the year ended Decem- ber 31, 1994 as compared to the year ended December 31, 1993. This decrease was due to decreases in the volumes and average prices of oil and natural gas sold. Volumes of oil and natural gas sold decreased slightly by 104 barrels and 9,139 Mcf, respectively, for the year ended December 31, 1994 as compared to the similar period in 1993. Average oil and natural gas prices decreased to $15.71 per barrel and $1.59 per Mcf for the year ended December 31, 1994 from averages of $17.00 per barrel and $1.84 per Mcf for the year ended December 31, 1993.
Oil and gas production expenses (including lease operating expenses and production taxes) decreased slightly by 3.6% for the year ended December 31, 1994 as compared to the year ended December 31, 1993. As a percentage of oil and gas sales, these expenses increased to 34.1% for the year ended December 31, 1994 compared to 28.2% for the year ended December 31, 1993. This percentage increase was due primarily to the decreases in the average prices of oil and natural gas sold and the fixed nature of a portion of oil and gas production expenses.
Depreciation, depletion, and amortization of oil and gas properties decreased by $6,997 for the year ended December 31, 1994 as compared to the year ended December 31, 1993. This decrease was primarily due to the decreases in volumes of oil and natural gas sold. As a percentage of oil and gas sales, this expense remained relatively constant at 18.1% for the year ended December 31, 1994 compared to 17.5% for the year ended December 31, 1993.
General and administrative expenses decreased by $4,447 for the year ended December 31, 1994 as compared to the year ended December 31, 1993. This dollar decrease was primarily due to a decrease in professional fees during the year ended December 31, 1994 as compared to the similar period in 1993. As a percentage of oil and gas sales, these expenses remained relatively constant at 11.3% for the year ended December 31, 1994 compared to 11.0% for the year ended December 31, 1993.
Liquidity and Capital Resources
Net proceeds from operations less necessary operating capital are distributed to the limited partners on a quarterly basis. See "Item 5. Market for the Registrant's Limited Partnership Units and Related Limited Partner Matters." The net proceeds from production are not reinvested in productive assets, except to the extent that producing wells are improved, or where methods are employed to permit more efficient recovery of reserves, thereby resulting in a positive economic impact. Assuming production levels for the year ended December 31, 1995, the Program's proved reserve quantities at December 31, 1995 would have a life of approximately 3.4 years for gas reserves and 2.8 years for oil reserves.
The Program's available capital from the limited partners' subscriptions has been spent on oil and gas drilling activities and there should be no further material capital resource commitments in the future. The Program has no debt commitments. Cash for operational purposes will be provided by current oil and gas production.
There can be no assurance as to the amount of the Program's future cash distributions. The Program's ability to make cash distributions depends primarily upon the level of available cash flow generated by the Program's operating activities, which will be affected (either positively or negatively) by many factors beyond the control of the Program, including the price of and demand for oil and natural gas and other market and economic conditions. Even if prices and costs remain stable, the amount of cash available for distributions will decline over time (as the volume of production from producing properties declines) since the Program is not replacing production through acquisitions of producing properties and drilling.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors, including the extent of domestic and foreign production, foreign imports of oil, market demand, domestic and foreign economic conditions in general, and governmental regulations and tax laws. The general level of inflation in the economy did not have a material effect on the operations of the Program in 1995. Oil and natural gas prices have fluctuated during recent years and generally have not followed the same pattern as inflation. See "Item 2. Properties - Oil and Gas Production, Revenue, and Price History."
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
DYCO OIL AND GAS PROGRAM 1986-X LIMITED PARTNERSHIP
We have audited the financial statements of the Dyco Oil and Gas Program 1986-X Limited Partnership (a Minnesota limited partnership) as listed in Item 14(a) of this Form 10-K. These financial statements are the responsibility of the Program'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 dis- closures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Dyco Oil and Gas Program 1986-X Limited Partnership at December 31, 1995 and 1994, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma February 6, 1996
DYCO OIL AND GAS PROGRAM 1986-X LIMITED PARTNERSHIP Balance Sheets December 31, 1995 and 1994
ASSETS ------ 1995 1994 -------- --------
CURRENT ASSETS: Cash and cash equivalents $ 18,661 $ 10,512 Accrued oil and gas sales, including $23,100 and $27,140 due from related parties 25,685 27,521 ------- -------
Total current assets $ 44,346 $ 38,033
NET OIL AND GAS PROPERTIES, utilizing the full cost method 82,402 98,980
DEFERRED CHARGE 13,956 5,563 ------- -------
$140,704 $142,576 ======= =======
LIABILITIES AND PARTNERS' CAPITAL ---------------------------------
CURRENT LIABILITIES: Accounts payable $ 4,622 $ 4,007 ------- ------- Total current liabilities $ 4,622 $ 4,007
ACCRUED LIABILITY $ 9,719 $ -
PARTNERS' CAPITAL: General Partner, issued and outstanding, 21 Units $ 1,263 $ 1,385 Limited Partners, issued and outstanding, 2,000 Units 125,100 137,184 ------- ------- Total Partners' capital $126,363 $138,569 ------- -------
$140,704 $142,576 ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1986-X LIMITED PARTNERSHIP Statements of Operations For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993 -------- -------- --------
REVENUES: Oil and gas sales, including $125,252, $170,094, and $210,574 of sales to related parties $134,485 $179,004 $224,982 Interest 681 1,066 720 ------- ------- -------
$135,166 $180,070 $225,702
COSTS AND EXPENSES: Lease operating $ 58,323 $ 48,015 $ 47,258 Production taxes 9,521 13,061 16,094 Depreciation, depletion, and amortization of oil and gas properties 17,395 32,455 39,452 General and administrative 21,713 20,194 24,641 ------- ------- -------
$106,952 $113,725 $127,445 ------- ------- -------
NET INCOME $ 28,214 $ 66,345 $ 98,257 ======= ======= =======
GENERAL PARTNER (1%) - NET INCOME $ 282 $ 663 $ 983 ======= ======= =======
LIMITED PARTNERS (99%) - NET INCOME $ 27,932 $ 65,682 $ 97,274 ======= ======= =======
NET INCOME per Unit $ 14 $ 33 $ 49 ======= ======= =======
UNITS OUTSTANDING 2,021 2,021 2,021 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1986-X LIMITED PARTNERSHIP Statements of Partners' Capital For the Years Ended December 31, 1995, 1994, and 1993
General Limited Partner Partners Total -------- ---------- ----------
Balances at December 31, 1992 $2,266 $224,326 $226,592 Cash distributions ( 1,415) ( 140,055) ( 141,470) Net income 983 97,274 98,257 ----- ------- -------
Balances at December 31, 1993 $1,834 $181,545 $183,379 Cash distributions ( 1,112) ( 110,043) ( 111,155) Net income 663 65,682 66,345 ----- ------- -------
Balances at December 31, 1994 $1,385 $137,184 $138,569 Cash distributions ( 404) ( 40,016) ( 40,420) Net income 282 27,932 28,214 ----- ------- -------
Balances at December 31, 1995 $1,263 $125,100 $126,363 ===== ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1986-X LIMITED PARTNERSHIP Statements of Cash Flows For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993 ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 28,214 $ 66,345 $ 98,257 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization of oil and gas properties 17,395 32,455 39,452 Decrease in accrued oil and gas sales 1,836 7,193 3,047 Increase in deferred charge ( 8,393) ( 1,090) ( 4,473) Increase (decrease) in accounts payable 615 161 ( 61) Increase in accrued liability 9,719 - - ------- ------- ------- Net cash provided by operating activities $ 49,386 $105,064 $136,222 ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES: Additions to oil and gas properties ($ 817) $ - ($ 2,411) ------- ------- -------
Net cash used by investing activities ($ 817) $ - ($ 2,411) ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions ($ 40,420) ($111,155) ($141,470) ------- ------- -------
Net cash used by financing activities ($ 40,420) ($111,155) ($141,470) ------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 8,149 ($ 6,091) ($ 7,659)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,512 16,603 24,262 ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,661 $ 10,512 $ 16,603 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
DYCO OIL AND GAS PROGRAM 1986-X LIMITED PARTNERSHIP Notes to Financial Statements For the Years Ended December 31, 1995, 1994, and 1993
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Dyco Oil and Gas Program 1986-X Limited Partnership (the "Program"), a Minnesota limited partnership, commenced operations on December 12, 1986. Dyco Petroleum Corporation ("Dyco") is the General Partner of the Program. Affiliates of Dyco owned 501.15 (24.8%) of the Program's Units at December 31, 1995.
The Program's sole business is the development and production of oil and natural gas with a concentration on natural gas. Substantially all of the Program's natural gas reserves are being sold regionally in the "spot market." Due to the highly competitive nature of the spot market, prices on the spot market are subject to wide seasonal and regional pricing fluctuations. In addition, such spot market sales are generally short-term in nature and are dependent upon the obtaining of transportation services provided by pipelines.
Cash and Cash Equivalents
The Program considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are not insured, which cause the Program to be subject to risk.
Credit Risk
Accrued oil and gas sales which are due from a variety of oil and natural gas purchasers subject the Program to a concentration of credit risk. Some of these purchasers are discussed in Note 3 - Major Customers.
Oil and Gas Properties
Oil and gas operations are accounted for using the full cost method of accounting. All productive and non-productive costs associated with the acquisition, exploration, and development of oil and gas reserves are capitalized. Capitalized costs are depleted on the gross revenue method using estimates of proved reserves. The full cost amortization rates per equivalent Mcf of gas produced during the years ended December 31, 1995, 1994, and 1993 were $0.18, $0.29, and $0.33, respectively. In the event the unamortized cost of oil and gas properties being amortized exceeds the full cost ceiling (as defined by the Securities and Exchange Commission) the excess is charged to expense in the year during which such excess occurs. In addition, the Securities and Exchange Commission rules provide that if prices decline subsequent to year end, any excess that results from these declines may also be charged to expense during the current year. Sales and abandonments of properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved oil and gas reserves.
Deferred Charge
Deferred Charge represents costs deferred for lease operating expenses incurred in connection with the Program's underproduced gas imbalance position. At December 31, 1995, cumulative total gas sales volumes for underproduced wells were less than the Program's pro-rata share of total gas production from these wells by 24,432 Mcf, resulting in prepaid lease operating expenses of $13,956. At December 31, 1994, cumulative total gas sales volumes for underproduced wells were less than the Program's pro- rata share of total gas production from these wells by 12,191 Mcf, resulting in prepaid lease operating expenses of $5,563.
Accrued Liability
Accrued Liability represents charges accrued for lease operating expenses incurred in connection with the Program's overproduced gas imbalance position. At December 31, 1995, cumulative total gas sales volumes for overproduced wells exceeded the Program's pro-rata share of total gas production from these wells by 17,015 Mcf, resulting in accrued lease operating expenses of $9,719. There was no such amount recorded at December 31, 1994.
Oil and Gas Sales
The Program's oil and condensate production is sold, title passed, and revenue recognized at or near the Program's wells under short-term purchase contracts at prevailing prices in accordance with arrangements which are customary in the oil industry. Sales of natural gas applicable to the Program's interest in producing oil and gas leases are recorded as income when the gas is metered and title transferred pursuant to the gas sales contracts covering the Program's interest in natural gas reserves. During such times as the Program's sales of gas exceed its pro rata ownership in a well, such sales are recorded as income unless total sales from the well have exceeded the Program's share of estimated total gas reserves underlying the property at which time such excess is recorded as a liability. At December 31, 1995 and 1994, no such liability was recorded.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Further, accrued oil and gas sales, the deferred charge, the gas imbalance payable, and the accrued liability all involve estimates which could materially differ from the actual amounts ultimately realized or incurred in the near term. Oil and gas reserves (see Note 4) also involve significant estimates which could materially differ from the actual amounts ultimately realized.
Income Taxes
Income or loss for income tax purposes is includable in the income tax returns of the partners. Accordingly, no recognition has been given to income taxes in the accompanying financial statements.
2. TRANSACTIONS WITH RELATED PARTIES
Under the terms of the Program's partnership agreement, Dyco is entitled to receive a reimbursement for all direct expenses and general and administrative, geological, and engineering expenses it incurs on behalf of the Program. During the years ended December 31, 1995, 1994, and 1993, such expenses totaled $21,713, $20,194, and $24,641, respectively, of which $16,080, $16,080, and $15,924, were paid to Dyco and its affiliates.
Affiliates of the Program operate certain of the Program's properties. Their policy is to bill the Program for all customary charges and cost reimbursements associated with these activities, together with any compressor rentals, consulting, or other services provided.
The Program sells gas at market prices to Premier Gas Company ("Premier") and other similar gas marketing firms. Such firms may then resell such gas to third parties at market prices. Premier was an affiliate of the Program until December 6, 1995. During 1995, 1994, and 1993, these sales totaled $125,252, $170,094, and $210,574, respectively. At December 31, 1995 and 1994 accrued oil and gas sales included $23,100 and $27,140, respectively, due from Premier.
3. MAJOR CUSTOMERS
The following purchaser individually accounted for more than 10% of the combined oil and gas revenues of the Program for the years ended December 31, 1995, 1994, and 1993:
Purchaser 1995 1994 1993 --------- ----- ----- -----
Premier 93.1% 95.0% 93.6%
In the event of interruption of purchases by this significant customer or the cessation or material change in availability of open-access transportation by the Program's pipeline transporters, the Program may encounter difficulty in marketing its gas and in maintaining historic sales levels. Alternative purchasers or transporters may not be readily available.
4. SUPPLEMENTAL OIL AND GAS INFORMATION
The following supplemental information regarding the oil and gas activities of the Program is presented pursuant to the disclosure requirements promulgated by the Securities and Exchange Commission.
Capitalized Costs
The Program's capitalized costs and accumulated depreciation, depletion, amortization, and valuation allowance were as follows:
December 31, -------------------------- 1995 1994 ------------ ------------
Proved properties $9,193,178 $9,192,361
Unproved properties, not subject to depreciation, depletion, and amortization - - --------- ---------
$9,193,178 $9,192,361
Less accumulated depreciation, depletion, amortization, and valuation allowance ( 9,110,776) ( 9,093,381) --------- ---------
Net oil and gas properties $ 82,402 $ 98,980 ========= =========
Costs Incurred
Costs incurred by the Program in connection with its oil and gas property acquisition, exploration, and development activities were as follows:
December 31, ---------------------- 1995 1994 1993 ------ ------ ------
Acquisition of properties $ - $ - $ - Exploration costs - - - Development costs 817 - 2,411 ----- ----- -----
Total costs incurred $ 817 $ - $2,411 ===== ===== =====
The process of estimating oil and gas reserves is complex, requiring significant subjective decisions in the evaluation of available geological, engineering, and economic data for each reservoir. The data for a given reservoir may change substantially over time as a result of, among other things, additional development activity, production history, and viability of production under varying economic conditions; con- sequently, it is reasonably possible that material revisions to existing reserve estimates may occur in the near future. Although every reasonable effort has been made to ensure that the reserve estimates reported herein represent the most accurate assessment possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Program is a limited partnership and has no directors or executive officers. The following individuals are directors and executive officers of Dyco, General Partner. The business address of such directors and executive officers is Two West Second Street, Tulsa, Oklahoma 74103.
NAME AGE POSITION WITH DYCO ---------------- --- -------------------------------- C. Philip Tholen 47 Chief Executive Officer, Presi- dent, and Chairman of the Board of Directors
Dennis R. Neill 43 Senior Vice President and Director
Jack A. Canon 46 Senior Vice President - General Counsel and Director
Patrick M. Hall 37 Senior Vice President - Controller
Annabel M. Jones 42 Secretary
Judy F. Hughes 49 Treasurer
The directors will hold office until the next annual meeting of shareholders of Dyco and until their successors have been duly elected and qualified. All executive officers serve at the discretion of the Board of Directors.
C. Philip Tholen joined the Samson Companies in 1977 and has served as President, Chief Executive Officer, and Director of Dyco since June 18, 1991. Prior to joining the Samson Companies, he was an audit manager for Arthur Andersen & Co. in Tulsa where he specialized in oil and natural gas industry audits and contract audits. He holds a Bachelor of Science degree in accounting from the University of Tulsa and is a Certified Public Accountant. Mr. Tholen is also Executive Vice President, Chief Financial Officer, Treasurer, and Director of Samson Investment Company; President and Chairman of the Board of Directors of Samson Natural Gas Company, Geodyne Resources, Inc. and its subsidiaries, and Samson Resources Company; President of two Divisions of Samson Natural Gas Company, Samson Exploration Company and Samson Production Services Company; Senior Vice President, Treasurer, and Director of Samson Properties Incorporated; and Director of Circle L Drilling Company and Samson Industrial Corporation.
Dennis R. Neill joined the Samson Companies in 1981 and was named Senior Vice President and Director of Dyco on June 18, 1991. Prior to joining the Samson Companies, he was associated with a Tulsa law firm, Conner and Winters, where his principal practice was in the securities area. He received a Bachelor of Arts degree in political science from Oklahoma State University and a Juris Doctorate degree from the University of Texas. Mr. Neill also serves as Senior Vice President, Chief Operating Officer, and Director of Samson Properties Incorporated; Senior Vice President of Samson Hydrocarbons Company; Senior Vice President and Director of Geodyne Resources, Inc. and its subsidiaries; and President and Chairman of the Board of Directors of Samson Securities Company.
Jack A. Canon joined the Samson Companies in 1983 and has served as a Vice President and Director of Dyco since June 18, 1991. Prior to joining the Samson Companies, he served as a staff attorney for Terra Resources, Inc. and was associated with the Tulsa law firm of Dyer, Powers, Marsh, Turner and Armstrong. He received a Bachelor of Science degree in accounting from Quincy College and a Juris Doctorate degree from the University of Tulsa. Mr. Canon also serves as Secretary of Samson Investment Company; Director of Samson Natural Gas Company, Samson Properties Incorporated, Circle L Drilling Company, and Samson Securities Company; Senior Vice President - General Counsel of Samson Production Services Company, a Division of Samson Natural Gas Company, and Geodyne Resources, Inc. and its subsidiaries; and Vice President - General Counsel of Samson Industrial Corporation.
Patrick M. Hall joined the Samson Companies in 1983 and was named a Vice President of Dyco on June 18, 1991. Prior to joining the Samson Companies he was a senior accountant with Peat Marwick Main & Co. in Tulsa. He holds a Bachelor of Science degree in accounting from Oklahoma State University and is a Certified Public Accountant. Mr. Hall is also a Director of Samson Natural Gas Company and Geodyne Resources, Inc. and its subsidiaries; Senior Vice President - Controller and Director of Samson Properties Incorporated; and Senior Vice President - Controller of Samson Production Services Company, a Division of Samson Natural Gas Company.
Annabel M. Jones joined the Samson Companies in 1982 and was named Secretary of Dyco on June 18, 1991. Prior to joining the Samson Companies she served as associate general counsel of the Oklahoma Securities Commission. She holds Bachelor of Arts in political science and Juris Doctorate degrees from the University of Oklahoma. Ms. Jones serves as Assistant General Counsel - Corporate Affairs for Samson Production Services Company, a Division of Samson Natural Gas Company, and is also Secretary of Samson Properties Incorporated, Samson Natural Gas Company, Geodyne Resources, Inc. and its subsidiaries, and Samson Industrial Corporation; Vice-President, Secretary, and Director of Samson Securities Company; and Assistant Secretary of Samson Investment Company.
Judy F. Hughes joined the Samson Companies in 1978 and was named Treasurer of Dyco on June 18, 1991. Prior to joining the Samson Companies, she performed treasury functions with Reading & Bates Corporation. She attended the University of Tulsa and also serves as Treasurer of Samson Natural Gas Company, Geodyne Resources, Inc. and its subsidiaries, and Samson Securities Company and Assistant Treasurer of Samson Investment Company and Samson Industrial Corporation.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The Program is a limited partnership and, therefore, has no officers or directors. The following table summarizes the amounts paid by the Program as compensation and reimbursements to Dyco and its affiliates for the three years ended December 31, 1995:
Compensation/Reimbursement to Dyco and its affiliates Three Years Ended December 31, 1995
Type of Compensation/Reimbursement (1) Expense - - -------------------------------------- ------------------------- 1995 1994 1993 ------- ------- ------- Compensation: Operations $ (2) $ (2) $ (2) Gas Marketing $ (3) $ (3) $ (3)
Reimbursements: General and Administrative, Geological, and Engineering Expenses and Direct Expenses(4) $16,080 $16,080 $15,924
- - ---------- (1) The authority for all of such compensation and reimbursement is the limited partnership agreement of the Program. With respect to the Operations activities noted in the table, management believes that such compensation is equal to or less than that charged by unaffiliated persons in the same geographic areas and under the same conditions. (2) Affiliates of the Program serve as operator of a substantial majority of the Program's wells. Dyco, as General Partner, contracts with such affiliates for services as operator of the wells. As operator, such affiliates are compensated at rates provided in the operating agreements in effect and charged to all parties to such agreement. The dollar amount of such compen- sation paid by the Program to such affiliates is impossible to quantify as of the date of this Annual Report. (3) Premier, an affiliate of the Program until December 6, 1995, purchased a portion of the Program's gas at market prices and resold such gas at market prices directly to end-users and local distribution companies. For the years ended December 31, 1995, 1994, and 1993 the Program sold $125,252, $170,094, and $210,574, respectively, of gas to Premier. (4) The Program reimburses Dyco and its affiliates for reasonable and necessary general and administrative, geological, and engineering expenses and direct expenses incurred in connection with their management and operation of the Program. The directors, officers, and employees of Dyco and its affiliates receive no direct remuneration from the Program for their services to the Program. See "Salary Reimbursement Table" below. The allocable general and administrative, geological, and engineering expenses are apportioned on a reasonable basis between the Program's business and all other oil and natural gas activities of Dyco and its affiliates, including Dyco's management and operation of affiliated oil and gas limited partnerships. The allocation to the Program of these costs is made by Dyco as General Partner.
As noted in the Compensation/Reimbursement Table above, the directors, officers, and employees of Dyco and their affiliates receive no direct remuneration from the Program for their services. However, to the extent such services represent direct involvement with the Program, as opposed to general corporate functions, such persons' salaries are allocated to and reimbursed by the Program. Such allocation to the Program's general and administrative, geological, and engineering expenses of the salaries of directors, officers, and employees of Dyco and its affiliates is based on internal records maintained by Dyco and its affiliates, and represents investor relations, legal, accounting, data processing, management, and other functions directly attributable to the Program's operations. The following table indicates the approximate amount of general and administrative expense reimbursement attributable to the salaries of the directors, officers, and employees of Dyco and its affiliates for the three years ended December 31, 1995:
In addition to the compensation/reimbursements noted above, during the three years ended December 31, 1995, the Samson Companies were in the business of supplying field and drilling equipment and services to affiliated and unaffiliated parties in the industry. Such companies may have provided equipment and services for wells in which the Program has an interest. These equipment and services were provided at prices or rates equal to or less than those normally charged in the same or comparable geographic area by unaffiliated persons or companies dealing at arm's length. The operators of these wells bill the Program for a portion of such costs based upon the Program's interest in the well.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of the Program's Units as of December 31, 1995 by each beneficial owner of more than 5% of the issued and outstanding Units and by the directors, officers, and affiliates of Dyco. The address of each of such persons is Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103.
Number of Units Beneficially Owned (Percent Beneficial Owner of Outstanding) ------------------------------- ---------------
Samson Properties Incorporated 501.15 (24.8%)
All directors, officers, and affiliates of Dyco as a group and Dyco (8 persons) 501.15 (24.8%)
To the best knowledge of the Program and Dyco, there were no officers, directors, or 5% owners who were delinquent filers of reports required under section 16 of the Securities Exchange Act of 1934.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Dyco and certain of its affiliates engage in oil and gas activities independently of the Program which result in conflicts of interest that cannot be totally eliminated. The allocation of acquisition and drilling opportunities and the nature of the compensation arrangements between the Program and Dyco also create potential conflicts of interest. Dyco and its affiliates own a significant amount of the Program's Units and therefore have an identity of interest with other limited partners with respect to the operations of the Program.
In order to attempt to assure limited liability for limited partners as well as an orderly conduct of business, management of the Program is exercised solely by Dyco. The partnership agreement of the Program grants Dyco broad discretionary authority with respect to the Program's participation in drilling prospects and expenditure and control of funds, including borrowings. These provisions are similar to those contained in prospectuses and partnership agreements for other public oil and gas partnerships. Broad discretion as to general management of the Program involves circumstances where Dyco has conflicts of interest and where it must allocate costs and expenses, or opportunities, among the Program and other competing interests.
Dyco does not devote all of its time, efforts, and personnel exclusively to the Program. Furthermore, the Program does not have any employees, but instead relies on the personnel of the Samson Companies. The Program thus competes with the Samson Companies (including other currently sponsored oil and gas programs) for the time and resources of such personnel. The Samson Companies devote such time and personnel to the management of the Program as are indicated by the circumstances and as are consistent with Dyco's fiduciary duties.
Affiliates of the Program are solely responsible for the negotia- tion, administration, and enforcement of oil and gas sales agreements covering the Program's leasehold interests. Until December 6, 1995, Dyco had delegated the negotiation, administration, and enforcement of its oil and gas sales agreements to Premier. In addition to providing such administrative services, Premier purchased and resold gas directly to end-users and local distribution companies. Because affiliates of the Program who provide services to the Program have fiduciary or other duties to other members of the Samson Companies, contract amendments and negotiating positions taken by them in their effort to enforce contracts with purchasers may not necessarily repre- sent the positions that the Program would take if it were to administer its own contracts without involvement with other members of the Samson Companies. On the other hand, management believes that the Program's negotiating strength and contractual positions have been enhanced by virtue of its affiliation with the Samson Companies.
For a description of certain other relationships and related transactions see "Item 11. Executive Compensation."
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules. The following financial statements and schedules for the Program as of December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994, and 1993 are filed as part of this report.
(1) Financial Statements: Report of Independent Accountants Balance Sheets Statements of Operations Statements of Partners' Capital Statements of Cash Flows Notes to Financial Statements
(2) Financial Statement Schedules:
None
All other schedules have been omitted since the required information is presented in the Financial Statements or is not applicable.
(b) Reports on Form 8-K for the fourth quarter of 1995:
None.
(c) Exhibits:
4.1 Drilling Agreement dated November 25, 1986 for Dyco Drilling Program 1986-X, a Limited Part- nership, by and between Dyco Oil and Gas Program 1986-X and Dyco Petroleum Corporation filed as Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
4.2 Program Agreement dated November 25, 1986 for Dyco Oil and Gas Program 1986-X by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1986-X dated December 31, 1989 filed as Exhibit 4.3 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
4.4 Certificate of Limited Partnership, as amended, for Dyco Oil and Gas Program 1986-X Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1986-X Limited Partnership's financial statements as of December 31, 1995 and for the year ended December 31, 1995.
All other Exhibits are omitted as inapplicable.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly organized. DYCO OIL AND GAS PROGRAM 1986-X LIMITED PARTNERSHIP
By: DYCO PETROLEUM CORPORATION General Partner February 20, 1996
By: /s/C. Philip Tholen ------------------------------ C. Philip Tholen Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
By: /s/C. Philip Tholen Chief Executive Feb. 20, 1996 ------------------- Officer, President, C. Philip Tholen and Chairman of the Board (Principal Executive Officer)
/s/Dennis R. Neill Senior Vice Feb. 20, 1996 ------------------- President and Dennis R. Neill Director
/s/Jack A. Canon Senior Vice Feb. 20, 1996 ------------------- President - Jack A. Canon General Counsel and Director
/s/Patrick M. Hall Senior Vice Feb. 20, 1996 ------------------- President - Patrick M. Hall Controller (Principal Accounting Officer)
/s/Annabel M. Jones Secretary Feb. 20, 1996 ------------------- Annabel M. Jones
/s/Judy F. Hughes Treasurer Feb. 20, 1996 ------------------- Judy F. Hughes
INDEX TO EXHIBITS
Exhibit Number Description - - ------- -----------
4.1 Drilling Agreement dated November 25, 1986 for Dyco Drilling Program 1986-X, a Limited Partnership, by and between Dyco Oil and Gas Program 1986-X and Dyco Petroleum Corporation filed as Exhibit 4.1 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
4.2 Program Agreement dated November 25, 1986 for Dyco Oil and Gas Program 1986-X by and between Dyco Petroleum Corporation and the Participants filed as Exhibit 4.2 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
4.3 Amendment to Program Agreement for Dyco Oil and Gas Program 1986-X dated December 31, 1989 filed as Exhibit 4.3 to Annual Report on Form 10-K for the year ended December 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
4.4 Certificate of Limited Partnership, as amended, for Dyco Oil and Gas Program 1986-X Limited Partnership filed as Exhibit 4.4 to Annual Report on Form 10-K for the year ended Decem- ber 31, 1991 on April 1, 1992 and is hereby incorporated by reference.
27.1 Financial Data Schedule containing summary financial information extracted from the Dyco Oil and Gas Program 1986-X Limited Partnership's financial statements as of December 31,1995 and for the year ended December 31, 1995.


ITEM 1. BUSINESS
General
S&T Bancorp, Inc. (Company) was incorporated on March 17, 1983 under the laws of the Commonwealth of Pennsylvania as a bank holding company and has two wholly owned subsidiaries, S&T Bank and S&T Investment Company, Inc. The Company is registered as a bank holding company with the Board of Governors of the Federal Reserve System under the Bank Holding Company Act, as amended.
As of December 31, 1995, the Company had $1.4 billion in total assets, $167 million in total shareholders' equity and $980 million in total deposits. Deposits are insured by the Federal Deposit Insurance Corporation to the full extent provided by law.
Total trust assets were approximately $416 million at December 31, 1995. Trust services include services as executor and trustee under wills and deeds, and as guardian and custodian of employee benefit trusts.
S&T Bank is a full service bank with its main office at 800 Philadelphia Street, Indiana, Pennsylvania, providing service to its customers through a branch network of thirty-four offices located in Armstrong, Allegheny, Indiana, Jefferson, Clearfield and Westmoreland counties.
S&T Bank's services include accepting time and demand deposit accounts, making secured and unsecured commercial and consumer loans, providing letters of credit, and offering discount brokerage services, personal financial planning and credit card services. S&T Bank has a relatively stable deposit base and no material amount of deposits is obtained from a single depositor or group of depositors (including federal, state and local governments). S&T Bank does not experience significant fluctuations in deposits.
Employees
As of December 31, 1995, S&T Bank had a total of 572 full-time equivalent employees. S&T provides a variety of employment benefits and considers its relationship with its employees to be good.
Supervision and Regulation
The Company is under the jurisdiction of the Securities and Exchange Commission and of state securities commissions for matters relating to the offering and sale of its securities. The Company is subject to the Securities and Exchange Commission's rules and regulations relating to periodic reporting to its shareholders, insider trading and proxy solicitation.
The Company is also subject to the provisions of the Bank Holding Company Act of 1956 (the Act), as amended and to supervision by the Federal Reserve Board. The Act requires the company to secure the prior approval of the Federal Reserve Board before it can acquire more than 5% of the voting shares of any bank other than its existing subsidiary. The Act also prohibits acquisition by the Company of more than 5% of the voting shares of, or interest in, or all or substantially all of the assets of any bank located outside Pennsylvania unless such an acquisition is specifically authorized by the laws of the state in which such bank is located.
BUSINESS --Continued
A bank holding company is prohibited under the Act from engaging in, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in nonbanking activities unless the Federal Reserve Board, by order or regulation, has found such activities to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making determinations, the Federal Reserve Board considers whether the performance of these activities by a bank holding company would offer benefits to the public which outweigh possible adverse effects. See Permitted NonBanking Activities.
As a bank holding company, the Company is required to file with the Federal Reserve Board annual reports or any additional information as the Federal Reserve Board may require pursuant to the Act. The Federal Reserve Board also makes regular examinations of the Company and its subsidiaries.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Act on any extension of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities of the bank holding company or its subsidiaries, and on the taking of such stock or securities as collateral for loans to any borrower.
Permitted NonBanking Activities
The Federal Reserve Board permits bank holding companies to engage in nonbanking activities so closely related to banking or managing or controlling banks so as to be a proper incident thereto. The types of permissible activities are subject to change by the Federal Reserve Board.
The Company is presently engaged in two nonbanking activities. The first one is S&T Investment Company, Inc., which is an investment holding company incorporated in the state of Delaware. S&T Investment Company, Inc. was formed in June 1988 for the purpose of holding and managing a group of investments which were previously owned by S&T and to give the Company additional latitude to purchase other investments, such as corporate preferred stocks. The second is Commonwealth Trust Credit Life Insurance Company which is located in Phoenix, Arizona. The company, which is a joint venture with a local financial institution, acts as a reinsurer for credit life, accident and health insurance policies sold by the respective banks. At December 31, 1995, S&T's share of the company's total assets and net income for the year was $2,346,223 and $346,532, respectively.
Federal Reserve Board approval is required before the Company or a nonbank subsidiary of the Company may begin to engage in any of the above activities and before any such business may be acquired. The Federal Reserve Board is empowered to differentiate between activities which are initiated by a bank holding company or a subsidiary and activities commenced by acquisition of a going concern.
Legislation
As a state chartered bank, S&T is subject to regulations of the Federal Deposit Insurance Corporation (FDIC) and the Pennsylvania Department of Banking (PADB). As an insured bank under the Federal Deposit Insurance Act, S&T is also regulated by the FDIC. Some of the aspects of the lending and deposit business of S&T which are regulated include personal lending, mortgage lending, and interest rates, both as they relate to lending and interest paid on deposits and reserve requirements. Representatives of the FDIC and PADB regularly conduct examinations of S&T's affairs and records, and S&T must furnish quarterly reports to the FDIC and the PADB.
BUSINESS--Continued
Competition
All phases of S&T Bank's business are highly competitive. S&T Bank's market area is western Pennsylvania, with a representation in Indiana, Armstrong, Allegheny, Jefferson, Clearfield and Westmoreland counties. S&T Bank competes with those local commercial banks which have branches and customer calling programs in its market area. S&T Bank considers its major competitors to be National Bank of the Commonwealth, headquartered in Indiana, Pennsylvania; PNC Bank, N.A. headquartered in Pittsburgh, Pennsylvania; Laurel Bank, headquartered in Johnstown, Pennsylvania; People's Bank, headquartered in Ford City, Pennsylvania; Indiana First Savings Bank headquartered in Indiana, Pennsylvania; Deposit Bank, headquartered in DuBois, Pennsylvania; Clearfield Bank and Trust Company, headquartered in Clearfield, Pennsylvania and Marion Center National Bank, headquartered in Marion Center, Pennsylvania. The proximity of Indiana to metropolitan Pittsburgh results in a significant impact on the S&T market because of media influence and penetration by larger financial institutions.
Under the Community Reinvestment Act of 1977, the FDIC is required to assess the records of all financial institutions regulated by it to determine if these institutions meet the credit needs of the community (including low and moderate income neighborhoods) served by them and to take this record into account in its evaluation of any application made by any such institution for, among other things, approval of a branch or other deposit facility, office relocation, or the merger with or acquisition of assets of another bank.
As a consequence of the extensive regulation of commercial banking activities in the United States, S&T's business is particularly susceptible to being affected by federal and state legislation and regulations which may have the effect of increasing the costs of doing business.
A subsidiary bank of a bank holding company, such as S&T, is subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or any of its subsidiaries, on investment in the stock or other securities of the bank holding company or its subsidiaries, and on the taking of such stock or securities as collateral for loans to any borrower. Federal Reserve Board regulations also place certain limitations and reporting requirements on extensions of credit by a bank to principal shareholders of its parent holding company, among others, and to related interests of such principal shareholders. In addition, such legislation and regulations may affect the terms upon which any person becoming a principal shareholder of a bank holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship. Furthermore, federal legislation prohibits acquisition of control of a bank holding company without prior notice to the Federal Reserve Board.
Monetary Policy
The earnings of S&T are affected by the policies of regulatory authorities including the Board of Governors of the Federal Reserve System, the FDIC and PADB. An important function of the Federal Reserve System is to provide an environment that is conducive to stable economic growth. Among the instruments used to implement these objectives are open market operations in U.S. Government securities, changes in reserve requirements against bank deposits and limitations on interest rates that banks may pay on time and savings deposits. These instruments are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid deposits.
The policies and regulations of the Federal Reserve Board have had and will probably continue to have a significant effect on S&T's deposits, loans and investment growth, as well as the rate of interest earned and paid, and are expected to affect S&T's operations in the future. The effect of such policies and regulations upon the future business and earnings of S&T cannot accurately be predicted.
BUSINESS--Continued
Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential.
The following discussion and analysis is presented so that shareholders may review in further detail the financial condition and results of operations of S&T Bancorp, Inc. and subsidiaries (S&T). This discussion and analysis should be read in conjunction with the consolidated financial statements, selected financial data and management's discussion and analysis incorporated by reference. References to assets and liabilities and changes thereto represent daily average balances for the periods discussed, unless otherwise noted.
Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the volume of interest-earning assets and interest-bearing liabilities and changes in interest yields and rates. Interest on loans to and obligations of state, municipalities and other public entities is not subject to federal income tax. As such, the stated (pre-tax) yield on these assets is lower than the yields on taxable assets of similar risk and maturity. In order to make the pre-tax income and resultant yields comparable to taxable loans and investments, a taxable equivalent adjustment was added to interest income in the tables below. This adjustment has been calculated using the U.S. federal statutory income tax rate of 35% for 1995, 1994 and 1993. The following table demonstrates the amount that has been added to interest income per the summary of operations.
BUSINESS - Continued
Average Balance Sheet and Net Interest Income Analysis
(1) For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding. Loan fees are included in the interest amounts and are not material.
Item 1. BUSINESS--Continued
The following tables set forth for the periods indicated a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
(1) The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Item 1. BUSINESS--Continued
INFLATION AND CHANGING INTEREST RATES
The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventory. Fluctuations in interest rates and the efforts of the Federal Reserve Board to regulate money and credit conditions have a greater effect on a financial institution's profitability than do the effects of higher costs for goods and services. Through its asset/liability management function, S&T is positioned to cope with changing interest rates and inflationary trends.
Interest rate risk at a given point in time is portrayed by the interest rate sensitivity position ("gap"). The cumulative gap represents the net position of assets and liabiities subject to repricing in specified time periods. The gap presented at any point in time is one measure of the risk inherent in the existing balance sheet structure as it relates to potential changes in net interest income. Gap alone does not accurately measure the magnitude of changes in net interest income since changes in interest rates do not affect all categories of assets and liabilities equally or simultaneously. The following table shows the Company's gap position at December 31, 1995.
Interest Rate Sensitivity
Item 1. BUSINESS-- Continued
During the fourth quarter of 1995, management reclassified the securities portfolio allowed by the "one time" amnesty per Financial Accounting Standards Board Statement No. 115. The reclassified securities were from the held to maturity category to the available for sale category. The transfered securities had an amortized cost of $154.2 million and a market value of $159.5 million. The resulting net of tax effect of the reclassification to S&T's equity was $3.4 million.
The following table sets forth the maturities of securities at December 31, 1995, and the weighted average yields of such securities (calculated on the basis of the cost and effective yields weighted for the scheduled maturity of each security). Tax-equivalent adjustments (using a 35% federal income tax rate) for 1995 have been made in calculating yields on obligations of state and political subdivisions.
Item 1. BUSINESS-- Continued
Loan Portfolio
The following table shows the Company's loan distribution at the end of each of the last five years:
The following table shows the maturity of loans (excluding residential mortgages of 1-4 family residences and installment loans) outstanding as of December 31, 1995. Also provided are the amounts due after one year classified according to the sensitivity to changes in interest rates.
Item 1. Business - Continued
The following table summarizes the Company's nonaccrual, past due and restructured loans:
December 31 1995 1994 1993 1992 1991 (In thousands of dollars)
Nonaccrual loans $2,844 $1,922 $2,481 $2,983 $3,915
Accruing loans past due 90 days or more $0 $0 $323 $605 $1,178
At December 31, 1995, $2,844,000 of nonaccrual loans were secured. Interest income that would have been recorded under original terms totaled $242,000. No interest income was recorded on these loans. It is the Company's policy to place loans on nonaccrual status when the interest and principal is 90 days or more past due. There are no foreign loan amounts required to be included in this table. There were no restructured loans in the periods presented.
Potential Problem Loans
At December 31, 1995, the Company had no known mataerial loans where payments were presently current or less than 90 days past due, yet the borrowers were experiencing severe financial difficulties. Management continues to review and evaluate all loans with Senior Loan Committee on an ongoing basis so that potential problems can be addressed immediately.
BUSINESS--Continued Summary of Loan Loss Experience
This table summarizes the Company's loan loss experience for each of the five years ended December 31:
Management evaluates the degree of loss exposure based on continuous detailed reviews of commercial and real estate loans. Problem loans which are identified are monitored very closely by S&T management. Installment and mortgage loans are monitored using delinquency levels, nonaccrual loan balances and current charge-offs. These analyses and continuous monitoring of other risk elements such as nonaccrual and past due loans are factors considered in determining the amount of the allowance for loan losses.
Management completes the aforementioned review and analysis to determine the adequacy of the allowance for loan losses on a quarterly basis. The provision for loan losses represents an amount that is sufficient to maintain the reserve at a level necessary to meet present and potential risk characteristics of the loan portfolio. Based on continual evaluation of loan quality and assessment of risk characteristics, management believes that the allowance for loan losses is adequate to absorb probable loan losses.
Item 1. BUSINESS--Continued
This table shows allocation of the allowance for loan losses as of the end of each of the last five years:
Deposits
The daily average amount of deposits and rates paid on such deposits is summarized for the periods indicated in the following table:
Maturities of time certificates of deposit of $100,000 or more outstanding at December 31, 1995, are summarized as follows:(In thousands of dollars)
Item 1. BUSINESS--Continued
Return on Equity and Assets
The table below shows consolidated operating and capital ratios of the Company for each of the last three years:
Short-Term Borrowings
The following table shows the distribution of the Company's short-term borrowings and the weighted average interest rates thereon at the end of each of the last three years. Also provided are the maximum amount of borrowings and the average amounts of borrowings as well as weighted average interest rates for the last three years.
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.
Item 1. BUSINESS-Continued
CAPITAL
The leverage ratio of total equity to total assets and allowance for loan losses, one measure of capital adequacy, was 10.4% in 1995 and 10.2% in 1994. The 1995 regulatory minimum guideline leverage ratio is 3.0%. S&T's risk based capital Tier I and Tier II 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 I and Tier II, 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 contribution to its employee thrift and profit sharing plans. At December 31, 1995, 34,000 unallocated shares were held by the ESOP. 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.
S&T adopted an Incentive Stock Plan in 1992 (Stock Plan) that provides for 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 stock and expires ten years from the date of board approval. The following table summarizes the changes in nonstatutory stock options outstanding during 1995, 1994, 1993 and 1992:
As of December 31, 1995, 165,000 nonstatutory stock options are not excercisable.
Risk-Based Capital and Leverage Ratios (as defined by federal regulators) (In thousands of dollars) December 31:
Item 2.

Item 2. PROPERTIES
The Company operates thirty-four banking offices in Indiana, Armstrong, Allegheny, Jefferson, Clearfield, Westmoreland and surrounding counties in Pennsylvania. The Company owns land and banking offices at the following locations: 800 Philadelphia Street, 645 Philadelphia Street and 2175 Route 286, South in Indiana; Route 119 South & Lucerne Road and 34 North Main Street in Homer City; 539 West Mahoning Street, 100 West Mahoning Street and 232 North Hampton Avenue in Punxsutawney; 133 Philadelphia Street in Armagh; Route 119 South in Black Lick; 256 Main Street and Route 36 & I-80 in Brookville; 456 Main Street in Brookway; Route 28 & Carrier Street in Summerville; 602 Salt Street in Saltsburg; 12-14 West Long Avenue, 35 West Scribner Avenue, Treasure Lake and 614 Liberty Boulevard in DuBois; 418 Main Street in Reynoldsville; 205 East Market Street in Blairsville; 85 Greensburg Street in Delmont; 100 Chestnut Street in Derry; Second Avenue and Hicks Street in Leechburg; 109 Grant Avenue in Vandergrift and 100 South Fourth Street in Youngwood. Land is leased where the Company owns the banking office at 1107 Wayne Avenue and remote ATM building at 435 South Seventh Street and 1176 Grant Street, all in Indiana. In addition, the Company leases land and banking offices at the following locations: Chestnut Ridge Plaza in Blairsville; 324 North Fourth Street and 2850 Route 286 South in Indiana; the Mall Office in DuBois, 229 Westmoreland Mall; 2320 Route 286 in Holiday Park; Route 268 Hilltop Plaza in Kittanning and a remote ATM location at the Main Street Mall in DuBois.
Item 3.

Item 3. LEGAL PROCEEDINGS
The nature of the Company's business generates a certain amount of litigation involving matters arising in the ordinary course of business. However, in the opinion of management, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if detemined adverse, would be material in relation to its shareholders' equity or financial condition. In addition,no material proceedings are pending nor are known to be threatened or contemplated against the Company by governmental authorities or other parties.
Item 4.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters during the fourth quarter of the fiscal year covered by this report that were submitted to a vote of the security holders through solicitation of proxies of otherwise.
PART II Item 5.

Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Stock Prices and Dividend Information on page 47 and Dividend and Loan Restrictions on page 40 of the Annual Report for the year ended December 31, 1995, are incorporated herein by reference.
Item 6.

Item 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 47 of the Annual Report for the year ended December 31, 1995, is incorporated herein by reference.
Item 7.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 49 through 58 of the Annual Report for the year ended December 31, 1995, is incorporated herein by reference.
Item 8.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, Report of Independent Auditors and Quarterly Selected Financial Data on pages 28 through 46 and 48 of the Annual Report for the year ended December 31, 1995, are incorporated herein by reference.
Item 9.

Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
There have been no changes in accountants or disagreements with accountants on accounting and financial disclosures.
PART III
Item 10.

Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Election of Directors on pages 12 through 13 of the proxy statement for the April 15, 1996 annual meeting of shareholders are incorporated herein by reference.