<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _)
[X] FILED BY THE REGISTRANT
[_] FILED BY A PARTY OTHER THAN THE REGISTRANT
CHECK THE APPROPRIATE BOX:
[_] PRELIMINARY PROXY STATEMENT
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-
6(E)(2))
[X] DEFINITIVE PROXY STATEMENT
[_] DEFINITIVE ADDITIONAL MATERIALS
[_] SOLICITING MATERIALS PURSUANT TO RULE 240.14A-11(C) OR RULE 240.14A-12
S&T BANCORP, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[_] $125 PER EXCHANGE ACT RULES 0-11(C)(1)(II), 14A-6(I)(1), 14A-6(I)(2) OR
ITEM 22(A)(2) OF SCHEDULE 14A.
[_] $500 PER EACH PARTY TO THE CONTROVERSY PURSUANT TO EXCHANGE ACT RULE
14A-6(I)(3).
[X] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14A-6(I)(4) AND
0-11.
(1) Title of each class of securities to which transactions applies:
Peoples Bank of Unity Common Stock, par value $10 per share
(2) Aggregate number of securities to which transactions applies:
115,660 shares of Peoples Bank of Unity Common Stock, par value
$10.00 per share
(3) Per unit price or other underlying value of transactions computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$432.92 per share of Peoples Bank of Unity Common Stock (based on
the book value per share Peoples Bank of Unity Common Stock on
September 30, 1996, in accordance with Exchange Act Rule
0-11(a)(4)).
(4) Proposed maximum aggregate value of transactions:
$49,030,588
(5) Total fee paid:
$14,858
[_] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS.
[X] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT
RULE 0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS
PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT
NUMBER, OR THE FORM OF SCHEDULE AND THE DATE OF ITS FILING.
(1) Amount Previously Paid: $14,858
(2) Form, Schedule or Registration Statement No.: Registration
Statement of Form S-4 (File No. 333-19575)
(3) Filing Party: S&T Bancorp, Inc.
(4) Date Filed: January 10, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[LETTERHEAD OF S&T BANCORP, INC.]
March 20, 1997
Dear Shareholder:
We are pleased to enclose your Notice of Annual Meeting and Proxy Statement
for the Annual Meeting of Shareholders of S&T Bancorp, Inc. ("S&T") to be held
on April 21, 1997, at 10:00 a.m., Eastern Standard Time, at the Fifth Street
Training Center, located at 355 North Fifth Street, Indiana, Pennsylvania.
At the Annual Meeting, you will be asked to elect four directors of S&T to
serve terms expiring in 2000, to approve the appointment of the independent
auditors of S&T and to approve an amendment to the Amended and Restated 1992
Incentive Stock Plan (the "Stock Plan") to increase the number of shares of
S&T common stock, par value $2.50 per share ("S&T Common Stock"), subject to
the Stock Plan from 600,000 shares to 1,600,000 shares.
You also will be asked to consider and vote on a proposed merger pursuant to
an Agreement and Plan of Reorganization and a related Agreement dated November
25, 1996 and Plan of Merger (the "Agreement") whereby Peoples Bank of Unity
("Peoples"), a Pennsylvania chartered bank, will be merged with and into S&T
Bank, a Pennsylvania chartered bank and wholly owned subsidiary of S&T (the
"Merger"). S&T will issue up to 3,036,075 shares of S&T Common Stock in
connection with the Merger. Each share of Peoples common stock, par value
$10.00 per share, outstanding immediately prior to the time of the Merger,
except as provided in the Agreement, will by virtue of the Merger be converted
into 26.25 shares of S&T Common Stock and cash in lieu of any fractional
share.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER AND THE
RELATED ISSUANCE OF SHARES OF S&T COMMON STOCK AND RECOMMENDS A VOTE "FOR" THE
MERGER. The Board reached this decision after careful consideration of a
number of factors. The enclosed Proxy Statement contains more detailed
information concerning the Board's decision and the proposed transaction. We
urge you to read the Proxy Statement and to consider this matter carefully.
In order to make sure that your vote is represented at the Annual Meeting,
indicate your vote on the enclosed proxy form, sign, date and return it in the
enclosed envelope. If you attend the Annual Meeting in person, you may revoke
your proxy at the Annual Meeting and vote in person.
Sincerely,
/s/ Robert D. Duggan
Robert D. Duggan
Chairman, President and
Chief Executive Officer
<PAGE>
S&T BANCORP, INC.
800 PHILADELPHIA STREET
INDIANA, PENNSYLVANIA 15701
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 1997
----------------
To the Shareholders of
S&T Bancorp, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of S&T
Bancorp, Inc. ("S&T") will be held at the Fifth Street Training Center,
located at 355 North Fifth Street, Indiana, Pennsylvania 15701, on April 21,
1997 at 10:00 a.m. Eastern Standard Time, for the following purposes:
1. To elect four directors of S&T for terms expiring in 2000;
2. To consider and vote upon the approval of an Agreement and Plan of
Reorganization dated November 25, 1996 and related Agreement and Plan of
Merger (collectively, the "Agreement") among Peoples Bank of Unity, a
Pennsylvania chartered bank ("Peoples"), S&T and S&T Bank, a copy of each of
which is included as Appendix A to the accompanying Proxy Statement and
incorporated by reference herein, pursuant to which: (i) Peoples will be
merged with and into S&T Bank (the "Merger"); (ii) each outstanding share of
common stock of Peoples, par value $10.00 per share, would be converted into a
26.25 shares of common stock of S&T, par value $2.50 per share ("S&T Common
Stock"), determined in accordance with the terms of the Agreement, and cash in
lieu of any fractional share; and (iii) S&T would issue up to 3,036,075 shares
of S&T Common Stock;
3. To consider the approval of an amendment to the Amended and Restated 1992
Incentive Stock Plan (the "Stock Plan") to increase the number of shares of
S&T Common Stock subject to the Stock Plan from 600,000 shares to 1,600,000
shares;
4. To ratify the appointment of Ernst & Young LLP as independent auditors of
S&T for calendar year 1997; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business on February 28, 1997
are entitled to notice of and to vote at such meeting or any adjournment
thereof.
By Order of the Board of Directors,
/s/ James G. Barone
James G. Barone
Secretary
Indiana, Pennsylvania
March 20, 1997
IMPORTANT
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE YOUR REPRESENTATION AT THE
ANNUAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS
SOON AS POSSIBLE IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR
MAILING IN THE UNITED STATES.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED HEREIN, TO APPROVE THE
AGREEMENT, TO APPROVE THE AMENDMENT TO THE STOCK PLAN, AND FOR THE
RATIFICATION OF THE APPOINTMENT OF S&T'S AUDITORS.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION............................................................. 1
MEETING INFORMATION...................................................... 2
Date, Place and Time................................................... 2
Record Date; Voting Rights............................................. 2
Voting and Revocation of Proxies....................................... 2
Solicitation of Proxies................................................ 3
PRINCIPAL BENEFICIAL OWNERS OF COMMON STOCK.............................. 3
BENEFICIAL OWNERSHIP OF S&T COMMON STOCK BY DIRECTORS AND OFFICERS....... 3
PROPOSAL I--ELECTION OF DIRECTORS........................................ 4
PROPOSAL II--PROPOSED MERGER............................................. 12
Background of and Reasons for the Merger; Recommendation of the S&T
Board................................................................. 12
Terms of the Merger.................................................... 14
Opinion of Financial Advisor........................................... 16
Representations and Warranties; Conditions to the Merger; Waiver....... 19
Regulatory Approvals................................................... 20
Business Pending the Merger............................................ 21
Effective Date of the Merger; Termination.............................. 21
Management and Operations After the Merger............................. 22
Certain Federal Income Tax Consequences................................ 22
Accounting Treatment................................................... 23
Markets and Market Prices.............................................. 24
Comparative Per Share Data............................................. 25
Selected Financial Data................................................ 26
Pro Forma Combined Financial Information............................... 30
Certain Information Regarding Peoples.................................. 34
PROPOSAL III--AMENDMENT TO THE AMENDED AND RESTATED 1992 INCENTIVE STOCK
PLAN.................................................................... 34
Description of the Stock Plan.......................................... 34
Certain Federal Income Tax Considerations.............................. 35
PROPOSAL IV--RATIFICATION OF INDEPENDENT AUDITORS........................ 36
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE............... 36
SHAREHOLDER PROPOSALS.................................................... 37
OTHER MATTERS............................................................ 37
INDEX TO FINANCIAL INFORMATION OF PEOPLES BANK OF UNITY.................. F-1
APPENDIX A--AGREEMENT AND PLAN OF REORGANIZATION AND RELATED AGREEMENT
AND PLAN OF MERGER
APPENDIX B--OPINION OF McDONALD & COMPANY SECURITIES, INC.
APPENDIX C--AMENDED AND RESTATED 1992 INCENTIVE STOCK PLAN
</TABLE>
i
<PAGE>
S&T BANCORP, INC.
PROXY STATEMENT
FOR
ANNUAL MEETINGS OF SHAREHOLDERS
TO BE HELD APRIL 21, 1997
----------------
INTRODUCTION
This Proxy Statement is being furnished to shareholders of S&T Bancorp, Inc.
("S&T") in connection with the solicitation of proxies by the Board of
Directors of S&T (the "S&T Board") for use at the Annual Meeting of
Shareholders, and any adjournments thereof, to be held at the time and place
set forth in the accompanying notice ("Annual Meeting"). It is anticipated
that the mailing of this Proxy Statement and the enclosed proxy card will
commence on or about March 20, 1997.
At the Annual Meeting, shareholders of S&T will be asked to elect four
directors of S&T for terms expiring in 2000, to approve an amendment to the
Amended and Restated 1992 Incentive Stock Plan (the "Stock Plan") to increase
the number of shares of S&T common stock, par value $2.50 per share ("S&T
Common Stock"), subject to the Stock Plan from 600,000 shares to 1,600,000
shares, and to ratify the appointment of S&T's auditors, Ernst & Young LLP,
for 1997.
At the Annual Meeting, shareholders of S&T also will be asked to approve an
Agreement and Plan of Reorganization dated November 25, 1996 and a related
Agreement and Plan of Merger (collectively, the "Agreement"), providing for
the merger (the "Merger") of Peoples with and into S&T Bank, a wholly owned
subsidiary of S&T, with S&T Bank as the surviving entity and, the issuance of
up to 3,036,075 shares of S&T Common Stock in connection with the Merger.
Peoples is a Pennsylvania chartered bank. The Agreement is attached to this
Proxy Statement as Appendix A. At the Effective Date (as defined below), each
share of common stock of Peoples, par value $10.00 per share ("Peoples Common
Stock"), issued and outstanding immediately prior to the Effective Date will
be converted into 26.25 shares of S&T Common Stock, and cash in lieu of any
fractional share ("Exchange Ratio"). Peoples may elect to terminate the
Agreement if the Average Closing Price (as defined herein) of S&T Common Stock
is below a certain level on the Determination Date (as defined herein). See
"PROPOSAL II--PROPOSED MERGER--Terms of the Merger."
As of December 31, 1996 there were 115,660 shares of Peoples Common Stock
outstanding. There is no established public trading market for Peoples Common
Stock, and Peoples is not subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The last
reported sale (other than intrafamily transfers involving directors) of
Peoples Common Stock of which Peoples is aware of the sale price occurred on
October 16, 1996 for $500 per share and involved 10 shares. The closing price
per share of S&T Common Stock on the Nasdaq National Market on March 17, 1997
was $33.75 (which would be equivalent to $885.94 for the 26.25 shares of S&T
Common Stock into which each share of Peoples Common Stock will be converted
in the Merger).
In the event that prior to the Effective Date the outstanding shares of S&T
Common Stock shall have been increased, decreased or changed into or exchanged
for a different number or kind of shares or securities by reorganization,
recapitalization, reclassification, stock dividend, stock split or other like
changes in S&T's capitalization, all without S&T receiving adequate
consideration therefor, then an appropriate and proportionate adjustment shall
be made in the number and kind of shares of S&T Common Stock to be thereafter
delivered pursuant to the Agreement. For a more complete description of the
Agreement and the terms of the Merger, see "PROPOSAL II--PROPOSED MERGER."
ALL SHAREHOLDERS ARE URGED TO READ THIS PROXY STATEMENT CAREFULLY AND IN ITS
ENTIRETY.
<PAGE>
MEETING INFORMATION
DATE, PLACE AND TIME
The Annual Meeting of Shareholders of S&T will be held on April 21, 1997 at
10:00 a.m., Eastern Standard Time, at the Fifth Street Training Center, located
at 355 North Fifth Street, Indiana, Pennsylvania.
RECORD DATE; VOTING RIGHTS
The securities which can be voted at the S&T Annual Meeting consist of shares
of S&T Common Stock, with each share entitling its owner to one vote on all
matters. Only holders of record of S&T Common Stock at the close of business on
February 28, 1997 (the "Record Date") will be entitled to notice of and to vote
at the Annual Meeting. There were 2,628 record holders of outstanding S&T
Common Stock and 11,092,850 shares of S&T Common Stock outstanding as of the
Record Date. The presence, in person or by proxy, of at least a majority of the
outstanding shares of S&T Common Stock entitled to vote is necessary to
constitute a quorum at the Annual Meeting. S&T intends to count the shares of
S&T Common Stock present in person at the Annual Meeting but not voting, and
shares of S&T Common Stock for which it has received proxies, but with respect
to which holders of shares have abstained on any matter, as present at the
Annual Meeting for purposes of determining the presence or absence of a quorum
for the transaction of business.
The issuance of the shares of S&T Common Stock in connection with the Merger
and the Agreement, election of directors and amendment to the Stock Plan must
be approved by the affirmative vote of the holders of a majority of the shares
of S&T Common Stock present at a meeting at which a quorum is present.
Abstentions, including broker non-votes, will not be counted as votes cast for
approval of the Agreement and related issuance of shares, the election of
directors or the amendment to the stock plan and will only have an effect on
the obtaining of a quorum. In addition, under the rules of the New York Stock
Exchange, (although shares of S&T Common Stock are not listed on such
Exchange), brokers who hold shares in street name for customers who are the
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers in favor of the approval of the Agreement, the
election of directors or the amendment to the stock plan without specific
instruction from such customers. Accordingly, the failure of such customers to
provide instructions with respect to their shares of S&T Common Stock to their
broker will have the effect of such shares not being voted.
VOTING AND REVOCATION OF PROXIES
If the appropriate enclosed form of proxy is properly executed and returned
to S&T in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed but unmarked proxies will be voted "FOR" the nominees proposed by the
S&T Board and "FOR" the proposals presented in the attached Notice of Annual
Meeting of Shareholders. Proxies marked "FOR" the Merger proposal and executed
but unmarked proxies will be voted in the discretion of the persons named in
the accompanying proxy as to any proposed adjournment of the Annual Meeting.
Proxies marked "AGAINST" the Merger proposal will not be voted by such named
persons as to any proposed adjournment of the Annual Meeting. Except for
procedural matters incident to the conduct of the Annual Meeting, S&T does not
know of any matters other than those described in the Notice of Annual Meeting
that are to come before the Annual Meeting. If any other matters are properly
brought before the Annual Meeting, the persons named in the accompanying proxy
will vote the shares represented by the proxies on such matters as determined
by a majority of the S&T Board.
The presence of a shareholder at the Annual Meeting will not automatically
revoke such shareholder's proxy. However, shareholders may revoke a proxy at
any time prior to its exercise by filing with the Secretary of S&T a written
notice of revocation, by delivering to S&T a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
2
<PAGE>
SOLICITATION OF PROXIES
In addition to solicitation by mail, proxies may be solicited personally, by
telephone or by further correspondence and directors, officers and employees of
S&T may solicit proxies from the shareholders of S&T. S&T has retained
Corporate Investors Communications, Inc. to assist in the solicitation of
proxies. S&T will pay a $3,500 fee for its services, plus reimbursement for its
out-of-pocket costs. Brokerage houses, nominees, fiduciaries and other
custodians have been requested to forward proxy materials to beneficial owners
of S&T Common Stock and, upon request, will be reimbursed by S&T for the
expenses incurred by them. S&T will bear the expenses incurred by it in
connection with the solicitation of proxies in the form enclosed herewith.
PRINCIPAL BENEFICIAL OWNERS OF S&T COMMON STOCK
As of December 31, 1996, the Trust Department of S&T Bank held, in various
fiduciary capacities, 1,471,597 shares of S&T Common Stock. These holdings
represent 13.3% of the total outstanding shares. The Trust Department has sole
voting power for 881,111 of these shares and no voting power for 590,486 of
these shares. It is the intention of management to vote the shares for which it
has sole voting power FOR the matters to be acted upon at the Annual Meeting.
S&T is not aware of any other person who beneficially owns more than five
percent of any class of securities of S&T.
BENEFICIAL OWNERSHIP OF S&T COMMON STOCK BY DIRECTORS AND OFFICERS
The following table sets forth, as of December 31, 1996, the amount and
percentage of S&T Common Stock beneficially owned by each director, each
nominee for director, named Executive Officers of S&T and directors and
Executive Officers of S&T as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
BENEFICIALLY OWNED (A)
------------------------------
PERCENTAGE OF
SHARES OF
COMMON STOCK
DIRECTORS, EXECUTIVE OFFICERS AND NOMINEES* DIRECT INDIRECT OWNED
- ------------------------------------------- ------- -------- -------------
<S> <C> <C> <C>
James G. Barone ................................ 30,871 .28
Thomas A. Brice ................................ 33,099 19,899 .48
Forrest L. Brubaker* ........................... 36,600 .33
James L. Carino ................................ 74,744 19,687 .85
John J. Delaney* ............................... 17,920 19,116 .33
Robert D. Duggan ............................... 92,603 4,817 .88
Thomas W. Garges, Jr. .......................... 6,447 .06
William J. Gatti ............................... 14,624 1,400 .14
Herbert L. Hanna ............................... 70,618 65,210 1.23
Paul B. Johnston ............................... 10,834 .10
Joseph A. Kirk ................................. 21,176 1,940 .21
David L. Krieger ............................... 33,089 .30
Samuel Levy .................................... 13,806 57,554 .64
James C. Miller ................................ 61,648 2,522 .58
W. Parker Ruddock* ............................. 29,280 .26
Bruce W. Salome ................................ 30,650 .28
Charles A. Spadafora ........................... 22,364 7,780 .27
Christine J. Toretti* .......................... 20,860 89,958 1.00
Harold W. Widdowson ............................ 9,817 .09
Directors and Executive Officers as a group .... 748,188 290,256 9.38
</TABLE>
- --------
(A) Beneficially owned shares include nonstatutory stock options vesting within
60 days of the date this Proxy Statement is mailed.
3
<PAGE>
PROPOSAL I--ELECTION OF DIRECTORS
GENERAL
The bylaws of S&T (the "S&T Bylaws") provide that the number of directors
constituting the S&T Board shall consist of not less than twelve nor more than
twenty-five. The Articles of Incorporation of S&T provide for the
classification of directors into three classes, as nearly equal in number as
possible, with approximately one third of the directors elected annually for
three year terms. Certain information about the Nominees (Class 1 Directors),
whose terms will expire in 1997, and who are presently members of the S&T Board
and the S&T Bank Board, is set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION DURING PAST 5 YEARS SINCE
---- --- ---------------------------------------------- --------
<S> <C> <C> <C>
Forrest L. Bruba- 69 Retired, Formerly Chairman of the S&T Board 1987
ker(1)(2).............. and S&T Bank Board
John J. Delaney......... 55 President, Delaney Chevrolet, Buick, Honda 1987
W. Parker 68 Judge of the Court of Common Pleas of Indiana 1977
Ruddock(1)(3).......... County, Pennsylvania
Christine J. 40 President, S.W. Jack Drilling Company and 1984
Toretti(1)(2)(3)....... Partner, C&N Company, Gas Drillers and
Producers
</TABLE>
Certain information about the directors whose terms continue (Class 2 and
Class 3 Directors), who are directors of S&T and S&T Bank, is set forth below:
CLASS 2 DIRECTORS WHOSE TERMS EXPIRE IN 1998:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION DURING PAST 5 YEARS SINCE
---- --- ---------------------------------------------- --------
<S> <C> <C> <C>
Thomas A. 56 General Manager, Douds, Inc. Retail Home 1980
Brice(1)(2)(3)......... Furnishings
James L. Carino(1)(2)... 64 President, J.L. Carino Nurseries, Inc. 1987
Thomas W. Garges, 57 President and Chief Executive Officer, 1990
Jr.(1)(2)(3)(4)........ Rochester & Pittsburgh Coal Company
Joseph A. Kirk.......... 57 President, Beaver Meadow Creamery, Inc. 1993
James C. Miller(1)...... 51 Executive Vice President of S&T, President and 1993
Chief Operating Officer of S&T Bank
Harold W. Widdowson(5).. 69 Retired, Formerly President and Treasurer, 1980
Widdowson's Jewelers, Inc.
</TABLE>
CLASS 3 DIRECTORS WHOSE TERMS EXPIRE IN 1999:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION DURING PAST 5 YEARS SINCE
---- --- ---------------------------------------------- --------
<S> <C> <C> <C>
Robert D. Duggan(1) .... 64 Chairman, President and Chief Executive 1981
Officer of S&T, Chairman and Chief Executive
Officer of S&T Bank
William J. Gatti........ 55 President and Chief Executive Officer of Gatti 1993
Services, Inc.
Herbert L. Hanna(1)(2).. 67 Physician 1986
Paul B. Johnston(5)..... 70 Doctor of Dental Surgery 1980
Samuel Levy(1)(3)....... 58 President, Jefferson Wholesale Grocery 1977
Charles A. Spadafora.... 55 President, Colonial Motor Mart 1987
</TABLE>
4
<PAGE>
NOTES TO LISTING OF DIRECTORS ON PAGE 4
(1) Members of the Executive Committee of S&T Bank and S&T. This committee,
which is appointed annually by the S&T Board, has authority to take action
between meetings of the S&T Board with respect to matters which a majority of
the committee considers necessary to be addressed prior to the next meeting of
the S&T Board. This committee had one meeting during 1996.
(2) Members of the Audit Committee of S&T Bank and S&T. The Audit Committee
had three meetings during 1996. The committee supervises the internal audit
activities of S&T Bank and also supervises and directs the activities of S&T's
independent auditors. Another function of the committee is to recommend the
services of a reputable certified public accounting firm to perform the annual
audit. The committee receives and reviews reports of auditors and examiners and
presents them to the S&T Board with comments and recommendations.
(3) Members of the Compensation and Benefits Committee of S&T Bank and S&T.
This committee's function is to recommend to the S&T Board action on
compensation and benefit changes brought to it by management. The committee
held two meetings during 1996.
(4) Mr. Garges is a director of a company that has a class of securities
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(5) The S&T Bylaws require mandatory director retirement at the Annual
Meeting following the 70th birthday of the director. As such, Directors
Johnston and Widdowson will retire from the S&T Board at the Annual Meeting.
The S&T Board currently anticipates that it will increase the size of the S&T
Board by one member at the Annual Meeting with the addition of 3 directors
pursuant to terms of the Agreement with Peoples.
The S&T Board does not have a nominating committee.
During 1996, the S&T Board held fifteen meetings. All directors, except
Director Brubaker, attended at least 75% of the meetings of the S&T Board and
committees.
S&T BOARD FEES
Non-employee members of the S&T Board are compensated at the rate of $3,000
per year plus $600 per meeting attended, effective January 1, 1997. Directors
are paid $150 to $200 for attendance at S&T Board committee meetings.
In December 1996, each member of the S&T Board who was not an employee of S&T
was granted an option to acquire up to 2,500 shares of S&T Common Stock at an
exercise price of $30.88 per share.
5
<PAGE>
RETIREMENT PLAN
The S&T Bank Retirement Plan ("Retirement Plan") covers all eligible
employees and provides a monthly retirement income for employees and their
spouses.
The following table shows the estimated annual benefit payable upon a normal
retirement date to persons in specified remuneration and years of service
classifications for the Retirement Plan. This benefit is payable in addition to
social security and is calculated based upon the participant's average annual
regular earnings for the highest five consecutive years in the last ten years
("Average Covered Compensation").
<TABLE>
<CAPTION>
ANNUAL BENEFIT UPON RETIREMENT WITH YEARS OF SERVICE INDICATED
AERAGE COVEREDV --------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
- --------------- ---------------------------------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000.......................... $ 6,035 $ 9,052 $ 12,070 $ 15,087 $ 18,104 $ 21,122
75,000.......................... 9,785 14,677 19,570 24,462 29,534 34,247
100,000.......................... 13,535 20,302 27,070 33,837 40,604 47,372
150,000.......................... 21,035 31,552 42,070 52,587 63,104 73,622
200,000.......................... 28,535 42,802 57,070 71,337 85,604 99,872
250,000.......................... 36,035 54,052 72,070 90,087 108,104 126,122
300,000.......................... 43,535 65,302 87,070 108,837 130,604 152,372
</TABLE>
As of December 31, 1996, completed years of credited service and Average
Covered Compensation for Executive Officers is as follows:
<TABLE>
<CAPTION>
YEARS OF AVERAGE
CREDITED COVERED
SERVICE COMPENSATION
-------- ------------
<S> <C> <C>
R.D. Duggan(1)............................................ 16 $309,411
J.C. Miller............................................... 25 197,046
D.L. Krieger.............................................. 12 139,454
J.G. Barone............................................... 4 124,721
B.W. Salome............................................... 5 128,220
</TABLE>
- --------
(1) See also "--Agreements with Executive Officers" for discussion of
additional retirement arrangements for Mr. Duggan.
S&T Bank also maintains a Profit Sharing/Employee Stock Ownership Plan
("ESOP") with 401(k) provisions in which all employees may participate with
elective salary deferrals. On December 30, 1988, the ESOP acquired 280,000
shares of S&T Common Stock which are being allocated to employee accounts over
a seven to ten year period. In 1996, S&T Bank made monthly matching
contributions equal to 50% of the employees' 401(k) contributions, up to 3% of
the eligible participants' compensation. In addition, a 6% year end
contribution was made by S&T Bank. Year end contributions are based on the
performance of S&T, indexed to earnings per share, and are expected to range
from 2% to 6%.
Effective January 1, 1994, federal tax laws lowered the amount of annual
compensation that may be considered in calculating benefits payable from
qualified retirement plans to $150,000 (subject to index adjustments in future
years). In addition, 401(k) contributions by employees are restricted by
"highly compensated employee" formulas. In order that S&T Bank officers not
lose benefits they would normally have been entitled to receive, non-qualified
plans were approved to accumulate the benefits which would have accrued in the
Retirement Plan and Profit Sharing/ESOP Plan were it not for the impact of the
eligible compensation restrictions.
Other benefits generally provided to all officers and full-time employees
include a medical reimbursement plan, a dental plan, a vision care plan, a
long-term disability income plan and life insurance. No outside director is
provided these benefits.
6
<PAGE>
REMUNERATION OF EXECUTIVE OFFICERS
The following table provides information concerning remuneration of the five
highest compensated Executive Officers during 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------- -----------------------
OTHER ANNUAL OPTIONS ALL OTHER
NAME YEAR SALARY BONUS COMPENSATION(A) SARS(B) COMPENSATION(C)
---- ---- -------- ------- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
R.D. Duggan............. 1996 $374,000 -- $16,540 21,000 $33,972
Chairman, President,
Chief 1995 340,000 -- 16,299 21,000 27,200
Executive Officer and
Director 1994 317,301 -- 15,688 18,000 25,384
J.C. Miller............. 1996 233,000 -- 10,905 15,000 21,165
Executive Vice President 1995 215,000 -- 9,491 15,000 17,200
and Director 1994 200,301 -- 8,879 12,000 16,024
D.L. Krieger............ 1996 145,000 $25,000 8,365 10,000 15,442
Vice President 1995 130,000 20,000 8,021 10,000 9,000
1994 118,865 20,000 7,337 6,000 8,320
J.G. Barone............. 1996 139,800 10,000 6,974 10,000 13,163
Secretary and Treasurer 1995 127,800 10,000 6,762 10,000 10,728
1994 112,500 10,000 6,126 6,000 9,800
B.W. Salome............. 1996 130,000 10,000 8,585 10,000 12,708
Vice President 1995 123,500 10,000 8,626 10,000 10,794
1994 116,500 10,000 7,708 6,000 10,120
</TABLE>
NOTES TO COMPENSATION TABLE
A. Other Annual Compensation includes expenses related to providing life,
disability and health insurance, any personal use of S&T cars and reimbursement
of any taxes incurred from relocation payments.
B. The Stock Plan that was approved by the S&T Board on December 21, 1992 and
approved by the shareholders on April 19, 1993 and an Amendment and Restatement
of the Stock Plan was approved by the S&T Board on October 17, 1994 and
approved by shareholders on April 17, 1995. Stock option grants were at
exercise prices of $19.00, $26.25 and $30.88 per share in 1994, 1995 and 1996,
respectively. Options granted to other Executive Officers as a group were
32,000 shares in 1994, 36,000 shares in 1995 and 38,000 shares in 1996.
C. Includes contributions by S&T Bank to the 401(k)/Thrift Plan and to non-
qualified benefit plans that were established in order that Executive Officers
not lose benefits which would normally have accrued in qualified plans prior to
the change in tax laws on January 1, 1994 that lowered the compensation
calculation base to $150,000 and added limitations related to highly
compensated employees.
AGREEMENTS WITH EXECUTIVE OFFICERS
In 1985, S&T entered into an employment agreement with its Chairman,
President and Chief Executive Officer, Robert D. Duggan, originally effective
until December 31, 1995 and since extended to be effective until December 31,
1997, in consideration of a base salary of not less than $150,000 per year. In
return, Mr. Duggan agreed that, for so long as he is receiving any payment
under this agreement, he will not engage in or have a financial interest in any
business competing with S&T. The employment agreement entered into by S&T and
Robert D. Duggan also provides that if Mr. Duggan's employment is terminated
due to disability or retirement, he or his spouse shall receive annually, for
ten years, a supplemental disability or supplemental retirement benefit
7
<PAGE>
in an amount sufficient to provide fifty percent (50%) of the average annual
base salary he received during the last three consecutive years of his active
employment with S&T. On October 17, 1994, the employment agreement was amended
and restated to extend the term until December 31, 1997 and extend the length
of the disability or supplemental retirement payout period from 10 years to the
actual number of whole years Mr. Duggan has been employed by S&T since December
15, 1980. The retirement arrangement of the employment agreement is unfunded.
In December, 1994, S&T entered into change in control agreements with the
five highest compensated Executive Officers of S&T: Mssrs. Duggan, Miller,
Salome, Barone and Krieger. Each agreement provides that if the executive is
terminated within one year following the occurrence of certain "changes in
control" of S&T or of S&T Bank (as defined in each agreement) that were not
preapproved by the S&T Board, or if the executive voluntarily terminates his
employment with S&T under certain specified circumstances following a change in
control, the Executive Officer will be entitled to receive a lump-sum cash
payment based on the executive's salary immediately preceding the change in
control and to receive certain continuing S&T employee benefits. In the case of
Messrs. Duggan or Miller, the lump sum cash payment would equal three times his
annual base salary immediately preceding the change in control; for each of the
other Executive Officers, the cash payment would equal his annual base salary
immediately preceding the change in control.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Executive compensation decisions are made by the five member Compensation and
Benefits Committee (the "Committee") of the S&T Board. Each member of the
Committee is a non-employee director. All decisions relating to the
compensation of Executive Officers are reviewed by the S&T Board, except for
decisions about awards under the Stock Plan, which must be made solely by the
Committee in order for the grants or awards under such plans to satisfy Rule
16b-3 under the Exchange Act. The report set forth below is submitted by
Directors Levy (Chairman), Brice, Garges, Ruddock and Toretti, in their
capacity as Committee members, addressing S&T's compensation policies for 1996
as they affected Mr. Duggan, Chairman, President and Chief Executive Officer,
and the four other highest compensated Executive Officers of S&T in 1996
(collectively "Senior Executives").
The Committee, in its executive compensation decisions, considered overall
corporate performance as well as individual initiative and achievements. The
policy of the Committee is to provide competitive levels of compensation that
integrate pay with S&T's performance goals, reward exceptional performance and
assist S&T in attracting and retaining qualified executives. Targeted levels of
compensation are set at levels that the Committee believes to be consistent
with others in the industry that have similar responsibilities, with the Senior
Executives' actual compensation packages increasingly being weighted toward
programs contingent upon S&T's level of long term (three years or greater)
performance. As a result, the Senior Executives' actual compensation levels in
any particular year may be above or below those of S&T's competitors, depending
on S&T's performance. The Committee typically examines salaries and performance
levels of a group of twelve to fifteen Pennsylvania peer banks as well as the
SNL Securities Bank Performance Report and the SNL Executive Compensation
Review for Commercial Banks.
The Committee continues to endorse the position that stock ownership by
management and stock-based performance compensation arrangements are beneficial
in aligning management's and shareholders' interests. The Stock Plan is
considered to be an important element in designing the compensation packages of
S&T's Senior Executives.
The Committee's general approach in setting the Chief Executive Officer's
annual compensation is to seek to be competitive with compensation paid to
other chief executive officers, with a similar scope of responsibilities, by
other companies in the industry based upon long term performance. The Committee
typically compares chief executive officer salary levels and performance
against the same twelve to fifteen Pennsylvania peer banks discussed above. The
Committee has also reviewed salary information compiled by both regional and
national benefits consultants for comparison purposes.
8
<PAGE>
Mr. Duggan's cash compensation for 1996 increased over the 1995 level by 10%.
In setting Mr. Duggan's compensation, the Committee considered S&T's current
year and long term performance against both local competition and a national
peer group of companies in the same business.
Particular emphasis was placed upon S&T's success in meeting its earnings per
share, return on equity and asset quality goals in 1996 as well as the
assessment of Mr. Duggan's individual performance. The Committee also
considered Mr. Duggan's leadership in promoting the long term strategic growth
of S&T.
In December 1996, the Committee granted Mr. Duggan nonstatutory stock options
for 21,000 shares of S&T Common Stock with an exercise price equal to the
market price on the date of the grant.
These options are exercisable after six months and within ten years of the
date of the grant. The Committee believes that this award together with last
year's award of 21,000 shares will encourage long term performance and promote
management retention. In addition to the options, Mr. Duggan currently owns
24,420 shares of S&T Common Stock. This significant interest in S&T's Common
Stock is considered to be beneficial to the common interests of shareholders
and management.
Submitted by the Compensation and Benefits Committee of the S&T Bancorp, Inc.
Board of Directors:
Samuel Levy (Chairman); Thomas Brice; Thomas Garges; Parker Ruddock;
Christine Toretti
9
<PAGE>
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG S&T BANCORP, INC.,
S&P 500 INDEX AND KBW 50 INDEX (A)
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
KBW
Measurement Period S&T S&P 50
(Fiscal Year Covered) BANCORP, INC. 500 INDEX INDEX (A)
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/1991 $100.00 $100.00 $100.00
FYE 12/31/1992 $166.00 $108.00 $127.00
FYE 12/31/1993 $220.00 $118.00 $135.00
FYE 12/31/1994 $258.00 $120.00 $128.00
FYE 12/31/1995 $396.00 $165.00 $204.00
FYE 12/31/1996 $411.00 $203.00 $289.00
</TABLE>
(A) The Keefe, Bruyette & Woods, Inc. (KBW) 50 is made up of fifty of the
nation's largest banking companies, including all money center and most
regional banks.
STOCK OPTION PLAN ANTICIPATED BENEFITS
The following table is presented to show proposed benefits to the Chief
Executive Officer and the four most highly compensated Executive Officers. The
potential realizable value is calculated assuming annual increases to the
total return (market value appreciation plus dividends) of S&T Common Stock of
5% and 10%.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTIONS % OF OPTION TERM
GRANTED TOTAL EXERCISE EXPIRATION ----------------------
1996 GRANTED PRICE DATE 5% 10%
------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
R.D. Duggan........ 21,000 13% $ 30.88 12/16/06 $ 407,763 1,033,588
J.C. Miller........ 15,000 9 30.88 12/16/06 291,259 738,277
D.L. Krieger....... 10,000 6 30.88 12/16/06 194,173 492,185
J.G. Barone........ 10,000 6 30.88 12/16/06 194,173 492,185
B.W. Salome........ 10,000 6 30.88 12/16/06 194,173 492,185
</TABLE>
10
<PAGE>
The table below shows information about option holdings for Executive
Officers at year end on an aggregate basis.
AGGREGATED OPTIONS/SAR EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTIONS/SAR VALUES(A)
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR-END(B) FISCAL YEAR-END(B)
------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(C)
----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
R.D. Duggan.............. 73,000 21,000 $822,920 --
J.C. Miller.............. 45,000 15,000 473,220 --
D.L. Krieger............. 26,000 10,000 264,980 --
J.G. Barone.............. 26,000 10,000 264,980 --
B.W. Salome.............. 26,000 10,000 264,980 --
</TABLE>
- --------
(A) No stock options were exercised in 1996.
(B) The numbers set forth in these columns represent nonstatutory stock
options. There have been no SARs issued pursuant to the Stock Plan.
(C) No unexercisable options were in the money at fiscal year end 1996.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
S&T Bank has made and expects to make in the future, extensions of credit in
the ordinary course of business to certain directors and officers. These loans
are made on substantially the same terms, including interest rates, collateral
and repayment terms, as those prevailing at the same time for comparable
transactions with others. Such loans did not involve more than normal risk of
collectibility or present unfavorable features.
On October 1, 1986, S&T Bank entered into an agreement to lease, from
Director Toretti and her husband as trustees under an irrevocable trust, a
building and land which is used as S&T Bank's North Fourth Street branch and
operations center. The terms of the agreement provide for payment of $10,000
per month for the first five years and options to renew for four, five year
terms with rent for each option term to be the rent from the previous term,
plus five percent. On October 1, 1996, S&T Bank exercised its second option at
$11,025 per month.
On August 1, 1992, S&T Bank entered into an agreement to lease from S.W. Jack
Drilling Company, controlled by Director Toretti, a building used for the S&T
Bank Trust Department and other executive offices. The terms of the agreement
provide for monthly payments of $6,500 for three years and the option to lease
additional space on the second floor with additional successive terms of three
years each, with rent for each renewal option to be the rent from the previous
term plus five percent. On July 1, 1993, S&T Bank exercised the option for the
second floor space at the S.W. Jack Building. On August 1, 1995, S&T bank
exercised the first renewal option with a new, combined monthly rent of
$14,543.
On January 31, 1992, S&T Bank entered into a limited partnership arrangement
with RCL Partners, Inc. for the construction of thirty apartments in Indiana,
Pennsylvania targeted for senior citizens. Total investment by S&T Bank was
$1,761,766 and entitled S&T Bank to certain tax credits, tax depreciation
benefits and a share of cash flows under the Internal Revenue Service Section
42 program. Director Delaney (and affiliated parties) and Director Gatti (and
affiliated parties) each hold a one third interest in RCL Partners, Inc.
During 1996, S&T Bank made payments for purchase of goods and services from
companies owned or controlled by Director Delaney, Director Brice and Director
Spadafora for $105,681, $174,657 and $87,688, respectively.
CERTAIN BUSINESS RELATIONSHIPS
During 1996, S&T Bank acquired automobile loans on a third party basis from
companies owned by Director Delaney and from companies owned by Director
Spadafora. These loans were acquired on substantially the same terms as those
prevailing at the same time for comparable transactions with others.
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Regulations require the disclosure of any related party transactions with
members of the Compensation Committee. During 1996, S&T Bank made payments of
$174,657 to a company owned by Director Brice for the purchase of furniture and
other equipment, and payments of $329,935 to Director Torretti, and affiliates,
for the lease of operations, branch and administrative facilities. S&T Bank has
made and expects to make in the future, extensions of credit in the ordinary
course of business to members of the Compensation Committee. These loans are
made on substantially the same terms, including interest rates, collateral and
repayment terms, as those prevailing at the same time for comparable
transactions with others. Such loans did not involve more than normal risk of
collectibility or present unfavorable features.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires S&T's directors and Executive
Officers, and persons who own more than ten percent of S&T's stock, to report
to the Securities and Exchange Commission ("SEC") certain of their transactions
with respect to S&T's stock. The SEC reporting rules require that changes in
beneficial ownership generally be reported on Form 4 within ten days of the
month in which the change occurs, except certain types of changes may be
reported on a Form 5 within 45 days of the end of the year in which the change
occurs. During 1996, all directors and Executive Officers timely filed all
required reports of changes in beneficial ownership.
PROPOSAL II--PROPOSED MERGER
This section of the Proxy Statement describes material aspects of the Merger.
The following description does not purport to be complete and is qualified in
its entirety by reference to the Agreement and Plan of Reorganization and the
Agreement and Plan of Merger, which are attached as Appendix A to this Proxy
Statement and are incorporated herein by reference. All shareholders are urged
to read the Agreement carefully and in its entirety.
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATION OF THE S&T BOARD
S&T has a long and successful history of providing community banking services
in its core markets of Indiana, Jefferson and Clearfield Counties of
Pennsylvania. In 1991, S&T purchased Vanguard Savings Bank and four offices of
Atlantic Financial Federal from the Resolution Trust Corporation. The
acquisition of these offices provided S&T with a presence in three new counties
of Western Pennsylvania--Allegheny, Armstrong and Westmoreland. The acquisition
of these offices represented a strategic move for S&T that provided access to
new markets that possess greater population and are experiencing faster
economic growth than are S&T's historic core markets.
In connection with S&T's entry into the Allegheny, Armstrong and Westmoreland
County markets in 1991, S&T began emphasizing as a business expansion strategy
the development of commercial relationships in Westmoreland and Allegheny
Counties. Based on the success of these efforts, and the increasingly
competitive environment in which S&T operates, S&T's Board and management
concluded that further geographic expansion of the S&T franchise into these new
more heavily populated markets represented an important opportunity for
enhancing shareholder value. Consequently, at the direction of the S&T Board,
one major strategic goal which has been pursued by management of S&T has been
to identify and develop relationships with banks and thrifts in the Allegheny,
Armstrong and Westmoreland County markets that would be desirable merger
partners for S&T in the future. Independent community banks and thrifts have,
especially in suburban and urban markets, operated in an increasingly more
competitive environment in recent years. Like S&T, these small community
financial institutions face increasing competition from the metropolitan and
larger regional banks as well as from many non-banking organizations that are
seeking to capture the traditional customer base of community financial
institutions. Often, because of concerns about future management, financial and
technological resources to effectively compete in this increasingly challenging
environment, smaller community institutions will consider
12
<PAGE>
acquisition by, or merger with, a larger community bank such as S&T Bank, the
most effective means to maximize shareholder value and to continue to provide
quality community banking services in their communities.
The process of identifying potential merger candidates undertaken by S&T
management was focused on those institutions in Allegheny, Armstrong and
Westmoreland Counties that had a history of strong profitability and solid
asset quality, as well as office locations which would complement the existing
office locations of S&T Bank and expand its presence in these markets. S&T
management identified Peoples as a desirable merger partner because of its
excellent reputation within the Allegheny County market as well as its strong
financial performance over many years. At the June 1995 S&T Board meeting, the
Directors discussed Peoples and the reasons it would be a desirable merger
partner for S&T.
From June 1995 to June 1996, S&T management participated from time to time in
discussions with the directors and management of Peoples regarding the
possibility of a business combination transaction with Peoples. In June 1996,
Peoples advised S&T that it had retained Danielson Associates, Inc. to assist
it in evaluating its strategic options.
On July 8, 1996, the S&T Board held a special meeting to discuss Peoples and
to consider authorizing management to make a proposal to acquire Peoples. In
addition to the Directors and members of management, representatives from S&T's
financial advisor, McDonald & Company Securities, Inc. ("McDonald & Company"),
and S&T's independent auditors, Ernst & Young LLP, participated in the meeting.
The S&T Board considered the financial position and results of operations of
Peoples and the extent to which Peoples' office locations in the Allegheny
County market would represent a valuable expansion of S&T's existing franchise
in this market. McDonald & Company reviewed with the S&T Board several possible
proposals for the terms of an acquisition of Peoples as well as the potential
impact of each such proposal on earnings per share of S&T Common Stock. The S&T
Board concluded that the acquisition of Peoples would allow S&T to increase its
profitability, broaden its customer base and diversify its asset base. S&T
would be able to provide customers of Peoples with technology and services not
presently available to them. In addition, the S&T Board concluded that, if
agreement could be reached with Peoples consistent with the contemplated
economic terms, the consolidation with S&T would be expected to generate
sufficient economic synergies to offset any dilution within a reasonable
period. The S&T Board authorized S&T management to make a proposal to Peoples
for a merger between S&T and Peoples.
Thereafter, S&T management submitted an acquisition proposal to Peoples, and
representatives of Peoples and S&T participated in several negotiation sessions
regarding the terms of the proposed merger. At a meeting on August 19, 1996,
S&T's management updated the S&T Board on the progress of the negotiations with
Peoples and, on the basis of management's report, the S&T Board authorized
management to negotiate a definitive agreement with Peoples.
Thereafter, representatives of S&T and Peoples subsequently commenced
negotiations and due diligence. However, before these negotiations were
concluded, members of the Board of Directors of Peoples (the "Peoples Board")
informed S&T in mid-September 1996 that the Peoples Board had recently been
apprised of allegations that the then Chief Executive Officer had been involved
in initiating and concealing certain fraudulent loan transactions and the then
Chief Operating Officer had participated in concealing such fraudulent loan
transactions. S&T withdrew its proposed merger offer and the parties agreed
that negotiations regarding the proposed merger should be suspended pending the
completion of an investigation of these allegations, and quantification of any
financial exposure by Peoples' accounting and legal advisors. Subsequently, the
employment of Peoples' Chief Executive Officer and Peoples' Chief Operating
Officer was terminated. Peoples has recorded a pre-tax loss of $405,000 in its
financial statements due to the alleged fraudulent transactions.
The above-referenced investigation was completed in early November 1996, and
Peoples made a copy of the report related thereto available to S&T's management
and S&T's advisors. S&T and its advisors reviewed the report and discussed the
transactions addressed therein with Peoples and Peoples' advisors. After such
review and discussions, S&T concluded that negotiations regarding the merger
should be resumed, and such discussions were resumed in early November 1996,
culminating in the approval by the S&T Board and by the Peoples Board of the
Agreement that was announced on November 26, 1996.
13
<PAGE>
In reaching its decision to approve the Agreement, the S&T Board considered
that the Merger would enhance and increase the competitiveness of its community
banking franchise in Allegheny County and that S&T shareholders should realize
the benefits of such an acquisition.
In reaching its determination to approve the Merger, the S&T Board consulted
with S&T management, as well as its financial and legal advisors, and
considered the factors described above and the following additional factors,
which together constitute the material factors considered by the S&T Board in
approving the Agreement:
(i) S&T's business, operations, financial condition, earnings, and
acquisition strategy, including the desirability of achieving an expanded
market presence in Allegheny County in Western Pennsylvania;
(ii) the current and prospective economic, regulatory and competitive
climate facing community banking institutions, including without limitation
the consolidation currently underway in the banking industry and
competition from larger institutions and from nonbank providers of
financial services;
(iii) the presentations by S&T management and McDonald & Company as to
(a) the business, operations, asset quality, earnings and financial
condition of Peoples, and (b) the competitive position of Peoples;
(iv) the anticipated cost savings, revenue enhancements and other
economic synergies available to the combined institution;
(v) the common philosophies and cultures of S&T and Peoples, particularly
with respect to customer satisfaction, efficiency and credit quality;
(vi) the Exchange Ratio in the Merger from a number of valuation
perspectives, as presented by McDonald & Company and the November 25, 1996
opinion of McDonald & Company that, as of such date, the Exchange Ratio was
fair to S&T from a financial point of view (see "--Opinion of Financial
Advisor");
(vii) the terms of the Agreement, including the termination fee
provisions thereof; the regulatory and shareholder approval processes; the
treatment of the Merger as a pooling-of-interests for financial accounting
purposes; and the nature of the Merger as a tax-free reorganization for
federal income tax purposes (see "--Certain Federal Income Tax
Consequences" and "--Accounting Treatment"); and
(viii) the impact of certain restructuring charges on S&T's earnings, and
the fact that the transaction is expected to be accretive to S&T's earnings
within twelve months after its closing.
The foregoing discussion of the information and factors considered by the S&T
Board is not intended to be exhaustive but includes all material factors
considered by the S&T Board. The S&T Board considered a number of factors
which, taken in totality, led to the determination by the S&T Board that the
Merger is in the best interests of S&T and its shareholders, customers and
communities served. In reaching its determinations to approve and recommend the
Agreement, the S&T Board did not assign relative or specific weights to the
foregoing factors, and individual directors may have given differing weights to
different factors. After deliberating with respect to the Merger and the other
transactions contemplated by the Agreement, considering, among other things,
the matters discussed above and the opinion of McDonald & Company referred to
above, the S&T Board, by unanimous vote of all directors, approved the
Agreement as being in the best interests of S&T and its shareholders and
directed that the Agreement be submitted to a vote of the holders of S&T Common
Stock at the Annual Meeting.
ACCORDINGLY, THE S&T BOARD UNANIMOUSLY RECOMMENDS THAT PROPOSAL II, THE
AGREEMENT AND THE MERGER AND THE ISSUANCE OF SHARES IN CONNECTION THEREWITH, BE
ADOPTED AND APPROVED BY ALL SHAREHOLDERS OF S&T.
TERMS OF THE MERGER
In accordance with the terms of the Agreement, on the Effective Date, Peoples
shall be merged with and into S&T Bank pursuant to the provisions of, and with
the effect provided in, Sections 1601-1607 of the Pennsylvania Banking Code
with S&T Bank as the surviving entity. Also on the Effective Date, each share
of
14
<PAGE>
Peoples Common Stock outstanding immediately prior to the Effective Date
(except as provided in the Agreement) shall by virtue of the Merger be
converted into 26.25 shares of S&T Common Stock. A holder of Peoples Common
Stock who would otherwise be entitled to receive a fractional share of S&T
Common Stock by reason of the Merger, will receive cash in lieu thereof. Any
cash payment shall be in an amount equal to such fraction multiplied by the
reported last sale price of S&T Common Stock on the Nasdaq National Market
(as reported by The Wall Street Journal or other authoritative source) on the
last trading day preceding the Effective Date.
In the event that prior to the Effective Date the outstanding shares of S&T
Common Stock shall have been increased, decreased, or changed into or exchanged
for a different number or kind of shares or securities by reorganization,
recapitalization, reclassification, stock dividend, stock split, or other like
changes in S&T's capitalization, all without S&T receiving consideration
therefor, then an appropriate and proportionate adjustment shall be made in the
number and kind of shares of S&T Common Stock to be delivered to holders of
Peoples Common Stock.
The Agreement provides that Peoples may elect to terminate the Agreement, if
the Peoples Board so determines by a majority vote, at any time during the
three-day period commencing two days after the fifth trading day immediately
preceding the planned Effective Date (the "Determination Date"), if either:
(i) both of the following conditions are satisfied: (x) the average of
the daily last sale prices of S&T Common Stock as reported on the Nasdaq
National Market for the twenty consecutive full trading days on which
shares of S&T Common Stock are traded prior to and including the
Determination Date (the "Average Closing Price") shall be less than $24.88
and (y) the SNL All Bank Index (the "Index Value") on the Determination
Date shall be greater than 231.70 (i.e., 80% of the value of the Index
Value on November 25, 1996, the date the Agreement was executed); or
(ii) the Average Closing Price of shares of S&T Common Stock shall be
less than $23.325.
The following table illustrates Peoples' termination rights based on
variations in the Average Closing Price.
<TABLE>
<CAPTION>
AVERAGE CLOSING PRICE
OF S&T COMMON STOCK PEOPLES TERMINATION RIGHTS
--------------------- --------------------------
<S> <C>
Below $23.325 Peoples has absolute right to terminate
Agreement. (Index Value is irrelevant).
$23.325-$24.88 Peoples may terminate Agreement only if Index
Value is greater than 231.70
Above $24.88 Peoples may not terminate the Agreement.
(Index Value is irrelevant.)
</TABLE>
If Peoples elects to exercise its termination right pursuant to the
immediately preceding paragraphs, it shall give prompt written notice to S&T,
which notice shall specify which of clauses (i) or (ii) is applicable (or if
both are applicable, which clause is being invoked); provided that such notice
of election to terminate may be withdrawn at any time within the aforementioned
three-day period.
Assuming the planned Effective Date was March 24, the Determination Date
would have been March 17, 1997. Using this assumed Determination Date, the
Average Closing Price of shares of S&T Common Stock would have been $35.20 and
the Index Value was 315.124. Under such circumstances, Peoples would not have
had the right to terminate the Agreement, even though the Index Value was above
231.70, because the Average Closing Price would have been above $24.88.
15
<PAGE>
OPINION OF FINANCIAL ADVISOR
S&T has retained McDonald & Company as its financial advisor in connection
with the Merger and requested that McDonald & Company render its opinion with
respect to the fairness, from a financial point of view, of the Exchange Ratio
to the holders of S&T Common Stock. McDonald & Company rendered its oral
opinion to the S&T Board on November 25, 1996, which it subsequently confirmed
in writing, that as of the date of such opinion, the Exchange Ratio pursuant to
the Merger was fair, from a financial point of view, to the holders of S&T
Common Stock.
The full text of the opinion of McDonald & Company, updated as of the date of
this Proxy Statement, which sets forth certain assumptions made, matters
considered and limitations on the reviews undertaken, is attached as Appendix B
to this Proxy Statement, and should be read in its entirety. The summary of the
opinion of McDonald & Company set forth in this Proxy Statement is qualified in
its entirety by reference to the opinion. McDonald & Company's opinion should
not be construed by holders of S&T Common Stock as a recommendation as to how
such holders should vote at the Annual Meeting.
In arriving at its opinion, McDonald & Company reviewed, among other things,
the Agreement together with exhibits and schedules thereto, certain publicly
available information relating to the business, financial condition and
operations of S&T and Peoples as well as certain other non-public information,
primarily financial in nature, furnished to it by S&T and Peoples relating to
the respective businesses, earnings, assets, financial forecasts and prospects.
McDonald & Company also held discussions with members of senior management of
S&T and Peoples concerning their respective businesses, assets, financial
forecasts and prospects. McDonald & Company also reviewed certain publicly
available information concerning the trading of, and the trading market for,
S&T Common Stock and Peoples Common Stock and certain publicly available
information concerning comparable companies and transactions, all as more fully
set forth in McDonald & Company's opinion.
McDonald & Company was not engaged to and did not conduct a physical
inspection of any of the assets, properties or facilities of either S&T or
Peoples, and was not engaged to conduct and has not made, obtained or been
furnished with any independent evaluation or appraisal of any such assets,
properties or facilities or any of the liabilities of S&T or Peoples. McDonald
& Company has assumed and relied, without independent investigation, upon the
accuracy and completeness of the financial and other information provided to it
or publicly available, has relied upon the representations and warranties of
S&T and Peoples contained in the Agreement, and has not independently attempted
to verify any such information. McDonald & Company has also assumed that all of
the conditions to the Merger as set forth in the Agreement would be consummated
on a timely basis in the manner contemplated by the Agreement. No limitations
were imposed by S&T upon McDonald & Company with respect to the scope of its
investigation nor were any specific instructions given to McDonald & Company in
connection with its opinion.
In connection with rendering its opinion dated November 25, 1996, McDonald &
Company considered a variety of financial analyses, which are summarized below.
McDonald & Company believes that its analyses must be considered as a whole and
that selecting portions of such analyses and of the factors considered by
McDonald & Company without considering all such analyses and factors may create
an incomplete view of the analytical process underlying McDonald & Company's
opinion. In its analyses, McDonald & Company made numerous assumptions with
respect to industry performance, business and economic conditions, and other
matters. Any estimates contained in McDonald & Company's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates.
The following is a summary of selected analyses considered by McDonald &
Company in connection with McDonald & Company's opinion dated November 25,
1996:
Comparison with Selected Companies. McDonald & Company compared the financial
performance and stock market valuation of S&T with corresponding data for the
following selected companies: Arrow Financial Corporation, CBT Corporation,
Farmers Capital Bank Corp., Financial Trust Corp., First Financial Bancorp,
First
16
<PAGE>
Merchants Corp., Harleysville National Corp., Irwin Financial Corporation,
Keystone Heritage Group, Inc., National City Bancshares, Inc., Omega Financial
Corporation, Park National Corporation, Shoreline Financial Corp., Southwest
National Corporation, Tompkins County Trustco, Inc., United Bankshares, Inc.
and WesBanco, Inc. The companies listed above were selected based on the
following criteria: banks headquartered in Indiana, Kentucky, Michigan,
Maryland, New York, Ohio, Pennsylvania, or West Virginia; having total assets
of between $500 million and $2.5 billion; having an equity to assets ratio
greater than 9.00%; and having a return on average assets greater than 1.30%.
In addition, McDonald & Company compared such data of Peoples with
corresponding data for the following selected companies: Cardinal Bancorp,
Commercial National Financial Corp., First of Long Island Corp., First
Merchants Corp., Heritage Bancorp, Inc., Penn Woods Bancorp, Inc., Premier
Financial Bancorp, Inc., Royal Bancshares of PA Inc., Security Banc Corporation
and Shore Bancshares, Incorporated. The companies listed above were selected
based on the following criteria: banks headquartered in Indiana, Kentucky,
Michigan, Maryland, New York, Ohio, Pennsylvania, or West Virginia; having
total assets of between $100 million and $750 million; having an equity to
assets ratio greater than 11.50%; and having a return on average assets greater
than 1.40%. At the time, none of the companies listed above had announced a
merger transaction or disclosed a possible interest in pursing a possible
merger transaction which would have significantly affected its stock market
valuation.
Contribution Analysis. McDonald & Company analyzed the contribution of each
of Peoples and S&T to, among other things, the shareholders' equity and after-
tax net income of the pro forma combined company. This analysis showed that,
among other factors, Peoples would have contributed 16.5%, 22.5%, and 18.3% of
the assets, shareholders' equity, and net income of the pro forma combined
company as of and for the twelve months ended September 30, 1996, respectively.
This compared with a proposed ownership of 21.5% of the combined company to be
held by holders of Peoples Common Stock.
Pro Forma Merger Analyses. McDonald & Company analyzed the changes in per
share amount of earnings, book value and indicated dividend represented by one
share of S&T Common Stock after the Merger. The analysis was performed on the
basis of financial information for both companies as of and for the years ended
December 31, 1994 and December 31, 1995, and as of and for the twelve months
ended September 30, 1996. The analysis indicated, among other things, that
exchanging one share of Peoples Common Stock at the Exchange Ratio for shares
of S&T Common Stock on a pro forma basis would have resulted in a 3.4% decrease
in earnings per share for each share of S&T Common Stock for the twelve months
ended September 30, 1996 (assuming no cost savings relating to the Merger), a
1.2% increase in book value per share for each share of S&T Common Stock as of
September 30, 1996, and no change in dividends per share of S&T Common Stock
based on S&T's indicated annual dividend rate as of November 25, 1996.
Analysis of Selected Merger Transactions. McDonald & Company reviewed five
groups of selected pending and completed bank merger transactions involving (i)
selling banks headquartered in Pennsylvania, New York, Maryland, West Virginia,
Ohio, Indiana or Michigan; (ii) selling banks having total assets of between
$200 million and $400 million; (iii) selling banks having an equity to assets
ratio greater than 14%; (iv) selling banks having a return on average assets
ratio of between 1.50% and 2.50%; and (v) selling banks having nonperforming
assets as a percent of total assets of between 0.50% and 1.00%. McDonald &
Company reviewed the ratios of the offer value to stated book value and
tangible book value, the multiple of the last twelve months earnings of the
acquired company, and the ratio of the offer value to assets in each such
transaction and computed median ratios and multiples for each group. The
calculations yielded ranges of median ratios of price to stated book value of
168% to 206%. Median ratios of price to tangible book value ranged from 168% to
215%. Median multiples of earnings among the five groups ranged from 13.8x to
22.0x. Median ratios of offer value to assets ranged from 17.5% to 29.5%.
Applying the median of the medians for each of these four ratios to Peoples'
actual per share financial data as of September 30, 1996 showed an imputed
reference range of $675 to $825 per share of Peoples Common Stock. Accordingly,
the Exchange Ratio of 26.25 equated to a per share value within the range of
values implied in the above analysis.
NO COMPANY OR TRANSACTION USED IN THE ABOVE ANALYSES AS A COMPARISON IS
IDENTICAL TO S&T, PEOPLES OR THE MERGER. ACCORDINGLY, AN ANALYSIS OF THE
RESULTS OF THE FOREGOING NECESSARILY INVOLVES COMPLEX
17
<PAGE>
CONSIDERATIONS AND JUDGMENTS CONCERNING THE DIFFERENCES IN FINANCIAL AND
OPERATING CHARACTERISTICS OF THE COMPANIES AND OTHER FACTORS THAT COULD AFFECT
THE PUBLIC TRADING VALUES OR ACQUISITION VALUES OF THE COMPANIES TO WHICH THEY
ARE BEING COMPARED. MATHEMATICAL ANALYSIS (SUCH AS DETERMINING THE MEAN OR
MEDIAN) IS NOT, IN ITSELF, A MEANINGFUL METHOD OF USING COMPARABLE COMPANY OR
COMPARABLE TRANSACTION DATA.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
McDonald & Company estimated the present value of the future streams of after-
tax cash flows that Peoples could produce over a five year period from 1997
through 2001, under various assumptions, based upon S&T's and Peoples'
management forecasts. McDonald & Company then estimated the terminal value of
Peoples after the five year period by applying an estimated perpetual growth
rate of 5.0% to the terminal year's projected after-tax cash flow and then
applied to this multiples ranging from 11.5x to 13.5x. The five year cash flow
streams and terminal values were then discounted to present values using
different discount rates of between 12.0% and 14.0%, which were chosen to
reflect different assumptions regarding the required rates of return of
prospective buyers of Peoples. On the basis of such varying assumptions, this
discounted cash flow analysis indicated a reference range of $810 to $986 per
share of Peoples Common Stock. Accordingly, the Exchange Ratio of 26.25 equated
to a per share value within the range of values implied in the above analysis.
This analysis was based upon S&T's and Peoples' management forecasts including
variations and assumptions made by McDonald & Company which included
adjustments to reflect the anticipated effects of potential merger-related cost
savings estimated by S&T. S&T's and Peoples' management forecasts are based
upon many factors and assumptions, many of which are beyond the control of S&T
or Peoples.
Other Analysis. In addition to performing the analyses summarized above.
McDonald & Company also considered its analysis of the general market for bank
and thrift mergers, Peoples' relative share of the deposit market that it
serves and the general economic conditions and prospects of those markets.
In performing its analyses, McDonald & Company made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters. The analyses performed by McDonald & Company are not necessarily
indicative of actual values, which may be significantly more or less favorable
than the values suggested by such analyses. Such analyses were prepared solely
as part of McDonald & Company's opinion. The term "fair from a financial point
of view" is a standard phrase contained in investment banker fairness opinions
and refers to the fact that McDonald & Company's opinion as to the fairness of
the Exchange Ratio is addressed solely to the financial attributes of the
Exchange Ratio. The analyses do not purport to be appraisals or to reflect the
prices at which a company might actually be sold. In addition, as described
above, McDonald & Company's fairness opinion and presentation to the S&T Board
of Directors were one of many factors taken into consideration by the S&T Board
in making its determination to approve the Agreement. Consequently, the
McDonald & Company analyses described above should not be viewed as
determinative of the S&T Board's conclusions with respect to the value of
Peoples or of the decision of the S&T Board to agree to the Exchange Ratio.
McDonald & Company's opinion is based on economic and market conditions and
other circumstances existing on, and information made available as of, the date
of such opinion. In addition, the opinion does not address S&T's underlying
business decision to effect the Merger or any other terms of the Merger.
McDonald & Company is not rendering any opinion as to the value of S&T Common
Stock or Peoples Common Stock at the Effective Date.
In connection with its opinion dated as of the date of this Proxy Statement,
McDonald & Company performed procedures to update certain of its analyses and
reviewed the assumptions on which such analyses were based and the factors
considered therewith.
McDonald & Company, as part of its investment banking business, is
customarily engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. McDonald & Company has
extensive experience with the valuation of financial institutions.
18
<PAGE>
The S&T Board selected McDonald & Company as its financial advisor because of
McDonald & Company's industry expertise with respect to financial institutions
and because of McDonald & Company's industry experience in transactions similar
to the Merger. McDonald & Company is not affiliated with either S&T or Peoples.
In the ordinary course of business, McDonald & Company makes a market in S&T
Common Stock and may trade the securities of Peoples and S&T for its own
account and for the accounts of its customers. Accordingly, at any time
McDonald & Company may hold a long or short position in such securities. In
addition, McDonald & Company has provided investment banking services to S&T in
the past and may provide such services to S&T in the future.
For its services as financial advisor, S&T has paid McDonald & Company a
retainer of $25,000 and a fee of $40,000 upon the rendering of McDonald &
Company's November 25, 1996 fairness opinion. Additional fees equal to
approximately $135,000 will be payable to McDonald & Company upon consummation
of the Merger. S&T has also agreed to reimburse McDonald & Company for its
reasonable out-of-pocket expenses and to indemnify McDonald & Company against
certain liabilities, including certain liabilities under federal securities
laws.
REPRESENTATIONS AND WARRANTIES; CONDITIONS TO THE MERGER; WAIVER
The Agreement contains representations and warranties by Peoples and S&T
regarding various customary legal, regulatory, financial and business matters.
Except as otherwise provided in the Agreement, these representations and
warranties will not survive the Effective Date.
The obligations of S&T and Peoples to consummate the Merger are conditioned
upon, among other things: (i) the taking of all necessary corporate action with
respect to the Agreement and the Merger; (ii) the absence of orders prohibiting
the Merger; (iii) the receipt of all necessary regulatory approvals and the
expiration of all applicable waiting periods, without any condition or
requirement that causes either the S&T Board or the Peoples Board to abandon
the Merger; (iv) the effectiveness under the Securities Act of 1933, as amended
(the "Securities Act"), of a registration statement covering the issuance of
S&T Common Stock in connection with the Merger ("Registration Statement") and
the absence of any proceeding by the SEC to suspend such effectiveness; (v) the
approval for listing on the Nasdaq National Market, subject to official notice
of issuance, of the shares of S&T Common Stock to be issued in the Merger; (vi)
the receipt of the tax opinion described under "--Certain Federal Income Tax
Consequences;" (vii) the receipt of all necessary permits and authorizations;
(viii) the receipt by S&T of an opinion letter from Ernst & Young LLP to the
effect that the Merger will qualify for pooling-of-interests accounting
treatment under Accounting Principles Board Opinion No. 16 ("APB No. 16"); (ix)
the receipt by Peoples of an opinion of Danielson Associates Inc. dated as of
the date of the Proxy Statement/Prospectus delivered to shareholders of Peoples
in connection with the Merger, that the consideration to be received by
Peoples' shareholders is fair from a financial point of view; and (x) the
receipt of other customary closing documents.
All corporate actions required to be taken by S&T and Peoples, except the
approval by their respective shareholders, in connection with the Agreement and
the Merger have been taken. The Merger was approved by the Federal Deposit
Insurance Corporation (the "FDIC") and the Commonwealth of Pennsylvania
Department of Banking (the "PADB") on February 12, 1997, and S&T and Peoples
are aware of no other required regulatory approvals. The Registration Statement
was declared effective by the Commission on March 19, 1997. Peoples has
received an opinion from Danielson Associates dated the date of this Proxy
Statement/Prospectus that the consideration to be received by Peoples'
shareholders is fair from a financial point of view. Whether the other
conditions to closing will be satisfied or waived cannot be known with
certainty until the Effective Date.
Except with respect to any required shareholder or regulatory approval,
substantially all of the conditions to consummation of the Merger may be waived
at any time by the party for whose benefit they operate, in a writing signed by
both parties, and the Agreement may be amended or supplemented at any time by
written agreement
19
<PAGE>
of the parties, except that any such waiver or amendment executed after
approval of the Agreement by Peoples and S&T shareholders which modifies the
amount or form of consideration to be delivered to Peoples shareholders
pursuant to the Agreement requires the further approval of S&T shareholders in
the case of any increase in consideration or further approval of the Peoples
shareholders in the case of any decrease in consideration.
REGULATORY APPROVALS
The Merger is subject to certain regulatory approvals, as set forth below. To
the extent that the following information describes statutes and regulations,
it is qualified in its entirety by reference to those particular statutes and
regulations.
The Merger is subject to the approval of the PADB under Sections 1601-1607 of
the Pennsylvania Banking Code, which, among other things, authorizes the merger
of two Pennsylvania chartered banks, such as S&T Bank and Peoples, provided
that, among other things, the plan of merger adequately protects the interests
of the depositors, other creditors and shareholders, and the merger is
determined by the PADB to be consistent with adequate and sound banking
practices and in the public interest on the basis of the financial history and
condition of the parties, their future prospects, the character of the
resulting institution's management, the potential effect of the merger on
competition and the convenience and needs of the areas primarily to be served
by the resulting institution.
The Merger also is subject to approval of the FDIC under the Section 18(c) of
the Federal Deposit Insurance Act, as amended (the "Bank Merger Act"). In
considering an application under the Bank Merger Act, the FDIC must consider
the financial and managerial resources and future prospects of the existing and
proposed institution and the convenience and needs of the communities to be
served. Further, the FDIC may not approve the Merger if it would result in a
monopoly, if it would be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, if the effect of the Merger in any section of the country
may be substantially to lessen competition or to tend to create a monopoly, or
if it would be in any other manner in restraint of trade, unless the FDIC finds
that the anticompetitive effects of the Merger are clearly outweighed in the
public interest by the probable effect of such Merger in meeting the
convenience and needs of the communities to be served. In addition, the FDIC
must take into account the record of performance of the existing and proposed
institution under the Community Reinvestment Act in meeting the credit needs of
the entire community, including low- and moderate-income neighborhoods, served
by such institution. Applicable FDIC regulations and Pennsylvania law require
publication of notice of the application for approval of the Merger and an
opportunity for the public to comment on the application in writing and to
request a hearing.
The Bank Merger Act requires that any bank merger, including the Merger, may
not be consummated until the thirtieth day after approval by the FDIC, during
which time the U.S. Department of Justice ("DOJ") could challenge the Merger on
antitrust grounds; provided, however, that the FDIC may shorten the thirty day
waiting period to fifteen days in the event the FDIC has not received any
adverse comments from the DOJ concerning the competitive effects of the
proposed transaction.
The FDIC and PADB applications were approved on February 12, 1997. Such
approvals were not conditioned upon matters that would cause the S&T Board or
the Peoples Board to abandon the Merger. There can be no assurance that the DOJ
or the Pennsylvania Attorney General will not challenge the Merger or, if such
a challenge is made, as to the results thereof.
S&T and Peoples are not aware of any other governmental approvals or actions
that are required for consummation of the Merger, except as described above.
Should any other approval or action be required, it is contemplated presently
that such approval or action would be sought. There can be no assurance that
any such approval or action, if needed, could be obtained, would not delay
consummation of the Merger or would not be conditioned in a manner that would
cause S&T or Peoples to abandon the Merger.
20
<PAGE>
BUSINESS PENDING THE MERGER
Under the terms of the Agreement, the S&T Board and the Peoples Board are
required to submit and recommend the Agreement to their shareholders, subject
to its Board of Directors' fiduciary duties, to apply for all necessary
regulatory approvals and to use their best efforts, and cause their
subsidiaries to use their best efforts, to take or cause to be taken all action
necessary to permit consummation of the Merger at the earliest possible date,
including obtaining necessary consents and permits. Also under the Agreement,
the parties agree not to take, or not to fail to take, actions that would
substantially impair the prospects of completing the Merger or that would
adversely affect the qualification of the Merger for pooling-of-interests
accounting treatment or as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
Peoples is also required to use its best efforts to preserve intact its
properties, business and relationships with customers, employees and other
persons. In addition, without S&T's prior consent or as otherwise provided in
the Agreement, Peoples may not carry on its business other than in the usual,
regular and ordinary course, declare or pay any dividends or other
distributions on capital stock (except that prior to the Effective Date Peoples
may declare dividends in an amount equal to the per share dividend in respect
of S&T Common Stock declared by S&T multiplied by the Exchange Ratio in order
to conform to S&T's dividend policy), increase compensation or fringe benefits
of directors, officers or employees beyond customary limits, or take certain
other actions.
Peoples has also agreed in the Agreement, subject to certain exceptions, that
it will not authorize or permit any of its officers, directors or agents to
solicit, encourage or initiate inquiries or proposals relating to its
acquisition or purchase other than as contemplated in the Agreement, and that
S&T will be notified upon receipt by Peoples of such an inquiry or proposal.
EFFECTIVE DATE OF THE MERGER; TERMINATION
In the event that all conditions to the Merger have been satisfied or waived,
the Effective Date shall be at the time and on the date specified in the
certificate of merger pursuant to applicable provisions of Pennsylvania law,
subject to the rights of the parties to terminate the Agreement as set forth
herein. The transactions contemplated by this Proxy Statement shall be
consummated at a closing to be held at such location as the parties may agree,
on the first business day following satisfaction of the conditions to
consummation of the Merger set forth in Article 5 of the Agreement or such
later date within 30 days thereafter as reasonably may be specified by S&T (the
"Closing Date"), with the Merger to be consummated after such intermediate
steps as S&T reasonably may specify.
S&T and Peoples each anticipates that the Merger will be consummated in the
first half of 1997. However, consummation could be delayed as a result of
delays in obtaining the necessary governmental and regulatory approvals or if
any other condition to consummation of the Merger is not satisfied. There can
be no assurances as to if or when such approvals will be obtained or that the
Merger will be consummated. See "--Regulatory Approvals."
The Agreement may be terminated, whether before or after approval of the
Merger by the shareholders of S&T and Peoples, as follows: (i) at any time on
or prior to the Effective Date, by the mutual consent in writing of the parties
thereto; (ii) at any time on or prior to the Closing Date, by S&T in writing,
if Peoples has, or by Peoples in writing, if S&T has, in any material respect,
breached (a) any covenant or agreement contained therein or (b) any
representation or warranty contained therein if the failure of any such
representation and warranty to be true and correct has, or is reasonably likely
to have, a material adverse effect upon S&T or Peoples, and in either case if
such breach has not been cured by the earlier of 30 days after the date on
which written notice of such breach is given to the party committing such
breach or the Closing Date; (iii) on the Closing Date, by either party in
writing, if any of the conditions precedent with respect to such party's
obligations have not been satisfied or fulfilled; (iv) at any time, by either
party in writing, if the applications for prior approval to the FDIC and the
PADB have been denied, and the time period for appeals and requests for
reconsideration has run; (v) at any
21
<PAGE>
time, by either party in writing, if the shareholders of S&T or Peoples do not
approve the transactions contemplated at the annual or special meetings duly
called for that purpose; (vi) at any time, by either party in writing, if such
party determines in good faith that any condition precedent to such party's
obligations to consummate the Merger is or would be impossible to satisfy,
provided that the terminating party has given the other party written notice
with respect thereto at least 10 days prior to such termination and has given
the other party a reasonable opportunity to discuss the matter with a view to
achieving a mutually acceptable resolution; or (vii) by either party in
writing, if the Closing Date has not occurred by the close of business on
September 30, 1997.
In addition, under certain circumstances Peoples may elect to terminate the
Agreement if the Average Closing Price of S&T Common Stock is below a certain
level on the Determination Date. See "--Terms of Merger."
The Agreement provides that Peoples is required to pay liquidated damages in
the amount of $1,600,000 (the "Fee") to S&T (1) if S&T terminates the Agreement
due to Peoples' knowing and intentional misrepresentation or knowing and
intentional breach of warranty or breach of any covenant or agreement, and
within nine months from the date of termination a Competing Transaction (as
defined below) is consummated or Peoples shall have entered into an agreement
or an agreement in principle which if consummated would constitute a Competing
Transaction or (2) if Peoples terminates the Agreement because the Merger is
not approved by the requisite vote of the Peoples shareholders and within nine
months from the date of termination (other than a termination by reason of the
Average Closing Price failing to exceed a certain level) a Competing
Transaction is consummated or Peoples shall have entered into an agreement
which if consummated would constitute a Competing Transaction. In the event
that S&T is entitled to the Fee, Peoples shall also pay S&T interest at the
rate of 6% per year on any amounts that are not paid when due, plus all costs
and expenses in connection with or arising out of the enforcement of the
obligation of Peoples to pay the Fee or such interest. A Competing Transaction
is defined in the Agreement as one of the following involving Peoples (other
than the transactions contemplated by the Agreement): (a) any merger,
consolidation, share exchange for a controlling interest, business combination
or other similar transaction; (b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 15% or more of the assets of Peoples in a
single transaction or series of transactions to the same person, entity or
group; or (c) any public announcement by Peoples of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
On the Effective Date, Peoples will be merged with and into S&T Bank with S&T
Bank as the surviving bank. On such Effective Date, the S&T Board (whose
members historically also serve on the Board of Directors of S&T Bank) shall
consist of those persons serving as Directors of S&T immediately prior to the
Effective Date together with three directors to be designated by Peoples. The
Peoples Board has selected Ruth M. Grant, Frank W. Jones, and Myles D. Sampson
to become directors of S&T in accordance with the Agreement. S&T has agreed to
take all necessary action immediately prior to the Effective Date to elect
those three persons selected by Peoples to serve as members of the S&T Board.
The management of S&T and S&T Bank will continue unaffected by the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Arnold & Porter, special counsel to S&T, has opined, based on facts,
representations, and assumptions provided to it by S&T and Peoples, which
information is consistent with the state of facts that S&T and Peoples believe
will be existing as of the Effective Date, that for federal income tax purposes
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Code. Moreover, the issuance of S&T Common Stock and cash in lieu
of fractional share interests as consideration in the Merger will not result in
recognition of gain or loss by S&T or S&T Bank for federal income tax purposes.
Arnold & Porter's opinion is based on laws, regulations, rulings and judicial
decisions as they exist as of the date of the opinion. These authorities are
all subject to change and such change may be made with retroactive
22
<PAGE>
effect. Arnold & Porter cannot give any assurance that, after any such change,
its opinion would not be different, and will not undertake any responsibility
to update or supplement its opinion.
ACCOUNTING TREATMENT
It is a condition precedent to the obligations of S&T and S&T Bank to
consummate the Merger that S&T shall have received an opinion letter, dated as
of the Effective Date, from Ernst & Young LLP to the effect that the Merger
will qualify for pooling-of-interests accounting treatment under APB No. 16;
except that such condition shall be deemed to have been waived by S&T to the
extent that it takes any action or causes any conditions to occur, without the
written consent of Peoples, which constitute the sole reason for Ernst & Young
LLP being unable to render such opinion. See "--Representations and Warranties;
Conditions to the Merger; Waiver." In order to account for a business
combination as a pooling-of-interests transaction, specific criteria must be
met. The criteria for use of the pooling-of-interests accounting method relate
to the attributes of the combining entities before the combination, the manner
of combining the enterprises and the absence of certain plans or transactions
following the combination. Under the pooling-of-interests method of accounting,
the historical basis of the assets, liabilities and shareholders' equity of S&T
and Peoples will be combined at the Effective Date and carried forward at their
previously recorded amounts and no goodwill will be created. Revenue and
expenses of S&T and Peoples will be combined at historically recorded amounts.
In order for the pooling method to apply, affiliates of S&T and Peoples
cannot reduce their holdings of S&T Common Stock or Peoples Common Stock (or
S&T Common Stock received in the Merger) for a period generally beginning 30
days prior to the Effective Date and ending upon the publication of at least 30
days of post-Merger combined operations of S&T and Peoples. The pooling-of-
interests method of accounting may not be used if more than 10% of the
outstanding shares of Peoples Common Stock exercise their dissenters' rights,
reduced by the amount of tainted shares as defined by APB No. 16. The current
number of S&T tainted shares is equal to approximately 6% of the number of
shares of S&T Common Stock to be issued in the Merger, so pooling-of-interests
accounting treatment may not be available for the Merger if the holders of as
few as 4% of the outstanding shares of Peoples Common Stock exercise
dissenters' rights with respect to the Merger. Peoples and S&T have agreed that
they will not take, or to the best of their respective abilities cause or
permit to be taken, any action that would adversely affect the qualification of
the Merger for pooling-of-interests accounting treatment. In the event either
S&T or Peoples has taken any action that would adversely affect such
qualification, each party will take such action as the other party may
reasonably request to cure such effect to the extent curable without a material
adverse effect on either of the parties. All unaudited pro forma financial
information contained in this Proxy Statement has been prepared using the
pooling-of-interests method to account for the Merger. See "--Pro Forma
Combined Financial Information."
23
<PAGE>
MARKETS AND MARKET PRICES
S&T Common Stock is listed and traded on the Nasdaq National Market under the
symbol "STBA." As of December 31, 1996, there were 2,606 holders of record of
S&T Common Stock, and 11,074,941 outstanding shares of S&T Common Stock.
Peoples Common Stock is neither traded nor listed on any national securities
exchange and there is no established public trading market for Peoples Common
Stock. The following table sets forth high and low sales prices for S&T Common
Stock as quoted on the Nasdaq National Market as adjusted for stock splits and
stock dividends. The table below also sets forth the cash dividends declared by
S&T for the periods indicated.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DIVIDENDS
- ------------- ------- ------- ---------
<S> <C> <C> <C>
March 31, 1997
(through March 17, 1997)............................. $36 3/4 $29 3/4 $.25
December 31, 1996..................................... 31 3/4 30 .25
September 30, 1996.................................... 31 3/4 29 5/8 .24
June 30, 1996......................................... 31 1/4 29 1/2 .24
March 31, 1996........................................ 30 3/4 28 .21
December 31, 1995..................................... 30 1/2 24 1/2 .21
September 30, 1995.................................... 25 1/4 23 .18
June 30, 1995......................................... 23 3/4 19 1/2 .18
March 31, 1995........................................ 20 1/4 19 1/2 .17
December 31, 1994..................................... 21 1/4 19 .17
September 30, 1994.................................... 21 1/4 18 5/8 .15
June 30, 1994......................................... 19 3/4 18 3/4 .15
March 31, 1994........................................ 19 5/8 17 3/8 .14
</TABLE>
There is no established public trading market for Peoples Common Stock.
Occasionally, individuals sell and buy shares of the Peoples Common Stock in
privately negotiated transactions. Peoples acts as its own transfer agent and
keeps its own stock transfer ledger. The lowest and highest prices per share
known by the management of Peoples since January 1, 1994 were $200 and $535 per
share (adjusted for a five for one stock split), respectively. The last known
trade prior to the public announcement of the Agreement on November 25, 1996,
as to which the management of Peoples is aware of the sales price, occurred on
October 16, 1996, for $500 per share and involved 10 shares.
Peoples has historically declared and paid cash dividends semi-annually. Cash
dividends of $7.70 and $7.00 per share were paid in 1995 and 1994,
respectively. A cash dividend of $6.00 per share was paid in 1996 prior to the
announcement of the Merger. The Agreement provides that Peoples may conform to
the S&T dividend policy subsequent to the execution of the Agreement. In
accordance with the Agreement, the Peoples Board declared in December 1996 a
dividend of $6.56 per share of Peoples Common Stock which was paid in January
1997.
The following table shows the closing sale price for S&T Common Stock on
November 22, 1996, the trading date immediately preceding the date on which the
Merger was announced, and on March 17, 1997, and the Peoples equivalent at such
dates.
Market value per common share:
<TABLE>
<CAPTION>
PEOPLES
S&T EQUIVALENT
DATE COMMON STOCK PER SHARE(1)
---- ------------ ------------
<S> <C> <C>
November 22, 1996..................................... $31.00 $813.75
March 17, 1997........................................ $33.75 $885.94
</TABLE>
- --------
(1) The equivalent market value per share of Peoples Common Stock represents
the closing price of S&T Common Stock on the dates reported multiplied by
an Exchange Ratio of 26.25. See "--Terms of the Merger."
24
<PAGE>
No assurance can be given as to what the market price of S&T Common Stock
will be if and when the Merger is consummated. Because the Exchange Ratio is
fixed and because the market price of S&T Common Stock is subject to
fluctuation, the value of the shares of S&T Common Stock that holders of
Peoples Common Stock will receive in the Merger may increase or decrease prior
to and following the Merger.
COMPARATIVE PER SHARE DATA
The following tables set forth at the dates and for the periods indicated (i)
historical per share data for S&T Common Stock and Peoples Common Stock, (ii)
pro forma combined per share data for S&T Common Stock with Peoples, and (iii)
equivalent per share data for Peoples Common Stock reflecting consummation of
the Merger. The S&T pro forma data with Peoples represents the effect of the
Merger on a share of S&T Common Stock. The Peoples equivalent pro forma data
represents the S&T pro forma data with Peoples multiplied by 26.25 and reflects
the effect of the Merger on a share of Peoples Common Stock.
The information is derived from the historical financial statements of S&T,
including the related notes thereto, incorporated by reference in this Proxy
Statement, and the historical financial statements of Peoples, including the
related notes thereto, appearing elsewhere herein, and the pro forma combined
financial information giving effect to the Merger, appearing elsewhere herein,
and should be read in conjunction with such information. The pro forma data is
presented for comparative purposes only and is not necessarily indicative of
the combined financial position or results of operations that would have been
realized had the Merger been consummated during the periods or as of the dates
for which the pro forma data is presented or which will be attained in the
future. The pro forma per share data gives effect to the Merger but does not
reflect anticipated expenses and nonrecurring charges which may result from the
Merger, nor does it reflect potential savings or revenue enhancements which may
result from the Merger. See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY
REFERENCE" and "--Pro Forma Combined Financial Information."
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------
HISTORICAL S&T
------------------ COMBINED PEOPLES
DATE S&T PEOPLES (1) WITH PEOPLES (2) EQUIVALENT (3)
- ---- ------ ----------- ---------------- --------------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE
Year Ended
December 31, 1996........ $ 2.10 $ 43.16 $ 2.00 $52.50
December 31, 1995........ 1.82 37.81 1.74 45.68
December 31, 1994........ 1.63 39.15 1.60 42.00
DIVIDENDS DECLARED PER
COMMON SHARE
Year Ended
December 31, 1996........ $ .94 $ 12.56 -- $24.68
December 31, 1995........ .74 7.70 -- 19.42
December 31, 1994........ .61 7.00 -- 16.01
BOOK VALUE PER COMMON SHARE
At December 31, 1996..... $15.92 $430.94 $16.02 $420.53
At December 31, 1995..... 14.85 407.29 14.99 393.49
</TABLE>
- --------
(1) Peoples' Historical Earnings Per Common Share and Dividends Declared Per
Common Share have been restated to reflect a five for one stock split
distributed on August 4, 1995.
(2) The pro forma per share data gives effect to the Merger but does not
reflect anticipated expenses and nonrecurring and restructuring charges
which may result from the Merger, nor does it reflect potential savings or
revenue enhancements which may result from the Merger.
(3) The equivalent pro forma per share data for Peoples represents the pro
forma data for S&T multiplied by an Exchange Ratio of 26.25, except that
the Peoples equivalent dividend data represent the S&T historical dividend
data multiplied by the Exchange Ratio of 26.25.
25
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain unaudited historical and selected pro
forma financial data ("selected financial data") for S&T and Peoples. Certain
of the historical selected financial data for the five years in the period
ended December 31, 1996 are derived from the audited financial statements of
S&T. Certain of the selected financial data for the four years in the period
ended December 31, 1996 are derived from the audited financial statements of
Peoples and certain of the selected financial data for the year ended December
31, 1992 are derived from unaudited financial statements of Peoples. This
summary should be read in connection with the financial statements included
elsewhere in this Proxy Statement and the financial statements and other
financial information included in documents incorporated herein by reference.
See "AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE" and "INDEX TO
FINANCIAL INFORMATION OF PEOPLES BANK OF UNITY."
The pro forma selected financial data were developed giving effect to the
Merger on a pooling-of-interests accounting basis. For a description of the
pooling-of-interests accounting basis with respect to the Merger and the
related effects on the historical financial statements of S&T and Peoples, see
"--Accounting Treatment." The pro forma combined financial information is
presented for informational purposes only and may not be indicative of the
combined financial position or results of operations that actually would have
occurred had the Merger been consummated during the periods or as of the dates
indicated, or which will be attained in the future. See "--Comparative Per
Share Data" and "--Pro Forma Combined Financial Information."
26
<PAGE>
S&T BANCORP, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Interest income......... $ 111,431 $107,017 $ 92,654 $ 86,923 $ 89,056
Interest expense........ 51,544 49,998 39,346 36,965 43,099
---------- ---------- ---------- ---------- ----------
Net interest income..... 59,887 57,019 53,308 49,958 45,957
Provision for loan loss-
es..................... 4,300 3,800 3,500 3,600 5,778
---------- ---------- ---------- ---------- ----------
Net interest income af-
ter provision for loan
losses................. 55,587 53,219 49,808 46,358 40,179
Noninterest income...... 11,194 8,309 6,914 6,571 6,362
Noninterest expense..... 35,511 33,523 31,595 30,768 27,374
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 31,270 28,005 25,127 22,161 19,167
Applicable income tax-
es..................... 8,021 7,536 6,683 5,818 4,886
---------- ---------- ---------- ---------- ----------
Net income.............. $ 23,249 $ 20,469 $ 18,444 $ 16,343 $ 14,281
========== ========== ========== ========== ==========
PER SHARE DATA:
Net income.............. $ 2.10 $ 1.82 $ 1.63 $ 1.45 $ 1.28
Dividends declared...... 0.94 0.74 0.61 0.50 0.40
Book value.............. 15.92 14.85 12.57 10.75 9.73
BALANCE SHEET TOTALS
(PERIOD END):
Total assets............ $1,495,945 $1,400,702 $1,293,737 $1,194,037 $1,106,755
Securities.............. 381,945 350,340 306,124 339,129 355,197
Net loans............... 1,029,085 960,881 910,077 783,229 679,960
Total deposits.......... 1,032,274 979,625 903,240 898,258 899,597
Securities sold under
repurchase agreements.. 114,205 122,794 169,871 127,731 85,013
Other liabilities....... 173,190 131,336 79,039 46,955 13,199
Total shareholders' eq-
uity................... 176,276 166,947 141,587 121,093 108,946
SELECTED RATIOS:
FINANCIAL PERFORMANCE
Return on average as-
sets................... 1.63% 1.54% 1.49% 1.43% 1.32%
Return on average equi-
ty..................... 13.75% 13.21% 13.03% 14.14% 13.77%
CAPITAL
Tier I risk based capi-
tal.................... 13.08% 13.73% 13.05% 14.08% 15.38%
Total risk based capi-
tal.................... 14.33% 14.98% 14.30% 15.33% 16.63%
Leverage................ 10.28% 10.38% 10.21% 9.95% 9.70%
Average equity to aver-
age assets............. 11.87% 11.54% 11.44% 10.14% 9.55%
Dividend payout ratio... 42.90% 38.43% 34.85% 32.28% 29.35%
LOAN QUALITY
Allowance as a percent
of loans............... 1.63% 1.63% 1.55% 1.69% 1.74%
Allowance as a percent
of nonperforming
loans.................. 206% 560% 746% 481% 335%
Nonperforming loans to
total loans............ 0.79% 0.29% 0.21% 0.35% 0.52%
</TABLE>
27
<PAGE>
PEOPLES BANK OF UNITY
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Interest income............. $ 21,011 $ 20,003 $ 19,905 $ 20,224 $ 18,533
Interest expense............ 7,045 7,679 7,297 7,479 7,843
-------- -------- -------- -------- --------
Net interest income......... 13,966 12,324 12,608 12,745 10,690
Provision for loan losses... 875 420 100 65 110
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses.. 13,091 11,904 12,508 12,680 10,580
Noninterest income.......... 803 838 697 565 550
Noninterest expense......... 6,887 6,753 7,084 6,361 5,520
-------- -------- -------- -------- --------
Income before income taxes.. 7,007 5,989 6,121 6,884 5,610
Applicable income taxes..... 2,015 1,616 1,593 1,813 1,375
-------- -------- -------- -------- --------
Net income.................. $ 4,992 $ 4,373 $ 4,528 $ 5,071 $ 4,235
======== ======== ======== ======== ========
PER SHARE DATA:
Net income.................. $ 43.16 $ 37.81 $ 39.15 $ 43.84 $ 36.62
Dividends declared.......... 12.56 7.70 7.00 5.80 5.60
Book value.................. 430.94 407.29 356.64 320.74 282.69
BALANCE SHEET TOTALS (PERIOD
END):
Total assets................ $291,100 $289,026 $286,515 $293,491 $259,919
Securities.................. 118,116 141,896 160,751 170,831 161,723
Net loans................... 152,322 125,436 101,088 93,732 80,275
Total deposits.............. 238,093 236,922 239,331 253,668 225,125
Other liabilities........... 3,165 4,997 5,935 2,726 2,098
Total shareholders' equity.. 49,842 47,107 41,249 37,097 32,696
SELECTED RATIOS:
FINANCIAL PERFORMANCE
Return on average assets.... 1.74% 1.54% 1.58% 1.83% 1.80%
Return on average equity.... 10.39% 10.04% 11.50% 14.60% 13.74%
CAPITAL
Tier I risk based capital... 30.90% 30.58% 32.41% 31.12% 31.48%
Total risk based capital.... 31.99% 31.36% 33.07% 31.76% 32.20%
Leverage.................... 16.65% 15.56% 14.20% 13.39% 13.91%
Average equity to average
assets..................... 16.72% 15.30% 13.70% 12.54% 13.12%
Dividend payout ratio....... 29.11% 20.38% 17.89% 13.23% 15.30%
LOAN QUALITY
Allowance as a percent of
loans...................... 1.09% 0.89% 0.82% 0.81% 0.93%
Allowance as a percent of
nonperforming loans........ 84.81% 59.19% 42.49% 74.20% 49.87%
Nonperforming loans to total
loans...................... 1.29% 1.50% 1.93% 1.09% 1.87%
</TABLE>
28
<PAGE>
S&T BANCORP, INC. SELECTED PRO FORMA COMBINED FINANCIAL DATA (IN THOUSANDS,
EXCEPT FOR PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Interest income......... $ 132,442 $ 127,020 $ 112,559 $ 107,147 $ 107,589
Interest expense........ 58,589 57,677 46,643 44,444 50,942
---------- ---------- ---------- ---------- ----------
Net interest income..... 73,853 69,343 65,916 62,703 56,647
Provision for loan loss-
es..................... 5,175 4,220 3,600 3,665 5,888
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses............ 68,678 65,123 62,316 59,038 50,759
Noninterest income...... 11,997 9,147 7,611 7,136 6,912
Noninterest expense.....
42,398 40,276 38,679 37,129 32,894
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 38,277 33,994 31,248 29,045 24,777
Applicable income
taxes..................
10,036 9,152 8,276 7,631 6,261
---------- ---------- ---------- ---------- ----------
Net income.............. $ 28,241 $ 24,842 $ 22,972 $ 21,414 $ 18,516
========== ========== ========== ========== ==========
PER SHARE DATA:
Net income.............. $ 2.00 $ 1.74 $ 1.60 $ 1.50 $ 1.30
Book value.............. 16.02 14.99 12.78 11.07 9.95
BALANCE SHEET TOTALS
(PERIOD END):
Total assets............ $1,787,045 $1,689,728 $1,580,252 $1,487,528 $1,366,674
Securities.............. 500,061 492,236 466,875 509,960 516,920
Net loans............... 1,181,407 1,086,317 1,011,165 876,961 760,235
Total deposits.......... 1,270,367 1,216,547 1,142,571 1,151,926 1,124,722
Securities sold under
repurchase agreements.. 114,205 122,794 169,871 127,731 85,013
Other liabilities....... 176,355 136,333 84,974 49,681 15,297
Total shareholders'
equity................. 226,118 214,054 182,836 158,190 141,642
SELECTED RATIOS:
FINANCIAL PERFORMANCE
Return on average
assets................. 1.65% 1.53% 1.51% 1.51% 1.40%
Return on average
equity................. 13.01% 12.51% 12.70% 14.25% 13.76%
CAPITAL
Tier I risk based
capital................ 15.16% 15.76% 15.20% 16.17% 17.46%
Total risk based
capital................ 16.39% 16.96% 16.38% 17.34% 18.64%
Leverage................ 11.31% 11.26% 10.94% 10.59% 10.36%
Average equity to
average assets......... 12.68% 12.20% 11.86% 10.61% 10.19%
Dividend payout ratio... 40.46% 35.25% 31.50% 27.77% 26.13%
LOAN QUALITY
Allowance as a percent
of loans............... 1.56% 1.55% 1.48% 1.60% 1.65%
Allowance as a percent
of nonperforming
loans.................. 182% 359% 390% 406% 284%
Nonperforming loans to
total loans............ 0.86% 0.43% 0.38% 0.39% 0.58%
</TABLE>
29
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth selected unaudited pro forma financial data
reflecting the Merger.
The pro forma information has been prepared assuming that People's
shareholders will receive in the Merger 3,036,075 shares of S&T Common Stock
for 115,660 shares of Peoples Common Stock outstanding, or an Exchange Ratio
of 26.25 shares of S&T Common Stock for each share of Peoples Common Stock.
The pro forma financial information included in this Proxy
Statement/Prospectus is presented for illustrative purposes only. Such pro
forma financial information does not necessarily reflect what the actual
results of S&T would be following completion of the Merger.
PRO FORMA COMBINED CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995.
The following unaudited pro forma combined condensed balance sheet
information reflects (i) the historical consolidated balance sheets of S&T and
Peoples as of December 31, 1996 and 1995 and (ii) the pro forma combined
condensed balance sheet of S&T as of such dates, after giving effect to the
Merger. The pro forma information has been prepared assuming that People's
shareholders will receive in the Merger 3,036,075 shares of S&T Common Stock
for 115,660 shares of Peoples Common Stock outstanding, or an Exchange Ratio
of 26.25 shares of S&T Common Stock for each share of Peoples Common Stock.
The Merger has been reflected as a pooling-of-interest effective as of
December 31, 1996 and 1995. See "--Accounting Treatment." The unaudited
information should be read in conjunction with the historical consolidated
financial statements of S&T and Peoples, including the notes thereto,
incorporated by reference or included in this Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE" and "INDEX TO
FINANCIAL INFORMATION OF PEOPLES BANK OF UNITY."
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER
31, 1996, 1995 AND 1994.
The following unaudited pro forma combined condensed statements of income
reflect the historical consolidated statements of income of S&T and Peoples,
as indicated below, for each period presented and the pro forma combined
condensed statements of income of S&T, after giving effect to the Merger. The
pro forma information has been prepared assuming that People's shareholders
will receive in the Merger 3,036,075 shares of S&T Common Stock for 115,660
shares of Peoples Common Stock outstanding, or an Exchange Ratio of 26.25
shares of S&T Common Stock for each share of Peoples Common Stock. The Merger
has been reflected as a pooling-of-interests. See "--Accounting Treatment."
The pro forma combined condensed statements of income for the years ended
December 31, 1996, 1995 and 1994 were prepared on the assumption that the
Merger had been effected as of January 1, 1996, 1995 and 1994, respectively.
The unaudited information should be read in conjunction with the historical
consolidated financial statements of S&T and Peoples, including the notes
thereto, incorporated by reference in this Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION; CERTAIN DOCUMENTS INCORPORATED BY REFERENCE" and
"INDEX TO FINANCIAL INFORMATION OF PEOPLES BANK OF UNITY."
30
<PAGE>
S&T BANCORP, INC.
PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------
PRO FORMA
S&T BANCORP PEOPLES COMBINED
ASSETS ----------- -------- ----------
<S> <C> <C> <C>
Securities...................................... $ 381,945 $118,116 $ 500,061
Net loans....................................... 1,029,085 152,322 1,181,407
Other assets.................................... 84,915 20,662 105,577
---------- -------- ----------
TOTAL ASSETS.................................. $1,495,945 $291,100 $1,787,045
========== ======== ==========
LIABILITIES
Total deposits.................................. $1,032,274 $238,093 $1,270,367
Securities sold under repurchase agreements..... 114,205 114,205
Other liabilities............................... 173,190 3,165 176,355
---------- -------- ----------
TOTAL LIABILITIES............................. 1,319,669 241,258 1,560,927
SHAREHOLDERS' EQUITY
Common stock and Additional paid-in-capital..... 41,485 14,701 56,186
Retained earnings............................... 124,847 33,135 157,982
Other equity.................................... 9,944 2,006 11,950
---------- -------- ----------
TOTAL SHAREHOLDERS' EQUITY.................... 176,276 49,842 226,118
---------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $1,495,945 $291,100 $1,787,045
========== ======== ==========
BOOK VALUE PER SHARE............................ $ 15.92 $ 430.94 $ 16.02
========== ======== ==========
SHARES OUTSTANDING.............................. 11,075 116 14,111
========== ======== ==========
</TABLE>
31
<PAGE>
S&T BANCORP, INC.
PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------
PRO FORMA
S&T BANCORP PEOPLES COMBINED
ASSETS ----------- -------- ----------
<S> <C> <C> <C>
Securities...................................... $ 350,340 $141,896 $ 492,236
Net loans....................................... 960,881 125,436 1,086,317
Other assets.................................... 89,481 21,694 111,175
---------- -------- ----------
TOTAL ASSETS.................................. $1,400,702 $289,026 $1,689,728
========== ======== ==========
LIABILITIES
Total deposits.................................. $ 979,625 $236,922 $1,216,547
Securities sold under repurchase agreements..... 122,794 122,794
Other liabilities............................... 131,336 4,997 136,333
---------- -------- ----------
TOTAL LIABILITIES............................. 1,233,755 241,919 1,475,674
SHAREHOLDERS' EQUITY
Common stock and Additional paid-in-capital..... 40,561 14,701 55,262
Retained earnings............................... 111,980 29,596 141,576
Other equity.................................... 14,406 2,810 17,216
---------- -------- ----------
TOTAL SHAREHOLDERS' EQUITY.................... 166,947 47,107 214,054
---------- -------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.... $1,400,702 $289,026 $1,689,728
========== ======== ==========
BOOK VALUE PER SHARE............................ $ 14.85 $ 407.29 $ 14.99
========== ======== ==========
SHARES OUTSTANDING.............................. 11,243 116 14,279
========== ======== ==========
</TABLE>
32
<PAGE>
S&T BANCORP, INC.
PRO FORMA COMBINED INCOME STATEMENT
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
PRO FORMA
S&T BANCORP PEOPLES COMBINED
----------- ------- ---------
<S> <C> <C> <C>
Interest income................................. $111,431 $21,011 $132,442
Interest expense................................ 51,544 7,045 58,589
-------- ------- --------
Net interest income............................. 59,887 13,966 73,853
Provision for loan losses....................... 4,300 875 5,175
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES......................................... 55,587 13,091 68,678
Noninterest income.............................. 11,194 803 11,997
Noninterest expense............................. 35,511 6,887 42,398
-------- ------- --------
INCOME BEFORE INCOME TAXES...................... 31,270 7,007 38,277
Applicable income taxes......................... 8,021 2,015 10,036
-------- ------- --------
NET INCOME...................................... $ 23,249 $ 4,992 $ 28,241
======== ======= ========
PER SHARE DATA:
Net Income...................................... $ 2.10 $ 43.16 $ 2.00
======== ======= ========
Shares Outstanding.............................. 11,073 116 14,111
======== ======= ========
<CAPTION>
DECEMBER 31, 1995
-----------------------------
PRO FORMA
S&T BANCORP PEOPLES COMBINED
----------- ------- ---------
<S> <C> <C> <C>
Interest income................................. $107,017 $20,003 $127,020
Interest expense................................ 49,998 7,679 57,677
-------- ------- --------
NET INTEREST INCOME............................. 57,019 12,324 69,343
Provision for loan losses....................... 3,800 420 4,220
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES......................................... 53,219 11,904 65,123
Noninterest income.............................. 8,309 838 9,147
Noninterest expense............................. 33,523 6,753 40,276
-------- ------- --------
INCOME BEFORE INCOME TAXES...................... 28,005 5,989 33,994
Applicable income taxes......................... 7,536 1,616 9,152
-------- ------- --------
NET INCOME...................................... $ 20,469 $ 4,373 $ 24,842
======== ======= ========
PER SHARE DATA:
Net Income...................................... $ 1.82 $ 37.81 $ 1.74
======== ======= ========
Shares Outstanding.............................. 11,243 116 14,280
======== ======= ========
<CAPTION>
DECEMBER 31, 1994
-----------------------------
PRO FORMA
S&T BANCORP PEOPLES COMBINED
----------- ------- ---------
<S> <C> <C> <C>
Interest income................................. $ 92,654 $19,905 $112,559
Interest expense................................ 39,346 7,297 46,643
-------- ------- --------
NET INTEREST INCOME............................. 53,308 12,608 65,916
Provision for loan losses....................... 3,500 100 3,600
-------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES......................................... 49,808 12,508 62,316
Noninterest income.............................. 6,914 697 7,611
Noninterest expense............................. 31,595 7,084 38,679
-------- ------- --------
INCOME BEFORE INCOME TAXES...................... 25,127 6,121 31,248
Applicable income taxes......................... 6,683 1,593 8,276
-------- ------- --------
NET INCOME...................................... $ 18,444 $ 4,528 $ 22,972
======== ======= ========
PER SHARE DATA:
Net Income...................................... $ 1.63 $ 39.15 $ 1.60
======== ======= ========
Shares Outstanding.............................. 11,284 116 14,320
======== ======= ========
</TABLE>
33
<PAGE>
CERTAIN INFORMATION REGARDING PEOPLES
Peoples was organized as a Pennsylvania-chartered bank in 1918. Peoples
deposits are insured by the FDIC under the Bank Insurance Fund. Peoples is not
a member of the Federal Reserve System. As of December 31, 1996, Peoples
reported assets of $291 million, deposit liabilities of $238 million and
shareholders' equity of $50 million.
Peoples is a commercial bank that provides loan and deposit services to
individuals and small to medium sized businesses located primarily in
Allegheny and Westmoreland Counties. Among its services, Peoples accepts time,
demand and savings deposits and makes secured and unsecured commercial, real
estate and consumer loans. Peoples business is not cyclical in nature and is
not dependent upon any single customer or small group of customers for
deposits or loans. Peoples competes with commercial banks, such as S&T Bank,
thrifts, local credit unions, and other financial institutions, as well as
with major regional banking and financial institutions. As of December 31,
1996, Peoples had 93 full-time employees and 21 part-time employees.
The principal executive offices of Peoples are located at 7660 Saltsburg
Road, Pittsburgh, Pennsylvania 15239-3700. Peoples' telephone number is (412)
795-3200. Peoples also has offices located in Unity, Penn Hills, East Oakmont,
Monroeville and Holiday Park, Pennsylvania. Peoples owns the land and
buildings at all these sites, except at the Holiday Park office.
PROPOSAL III--AMENDMENT TO THE AMENDED AND RESTATED 1992INCENTIVE STOCK PLAN
At the Annual Meeting, stockholders will consider an amendment to the Stock
Plan to increase the number of shares of S&T Common Stock issuable under the
Stock Plan from 600,000 shares to 1,600,000 shares. A copy of the Stock Plan
is attached to this Proxy Statement as Appendix C. Each stockholder is urged
to review the Stock Plan in its entirety. The following summary is a brief
description of the significant provisions of the Stock Plan and does not
purport to be a complete statement of the terms and conditions of the Stock
Plan.
The S&T Board believes that the ability to make grants under the Stock Plan
has enhanced S&T's ability to attract and retain qualified employees. Under
the Stock Plan, S&T may grant incentive stock options and nonstatutory stock
options. The Stock Plan is administered by a committee of the S&T Board (the
"Committee") meeting the standards of Rule 16b-3(c)(2)(i) under the Exchange
Act, or any similar successor rule, appointed by the Board of Directors to
administer the Stock Plan.
The Plan, as adopted on April 19, 1993, provided that up to 600,000 shares
of S&T Common Stock could be issued under the Stock Plan.
As of December 31, 1996, the Committee had awarded options to purchase
582,000 shares of S&T Common Stock issuable under the Stock Plan.
DESCRIPTION OF THE STOCK PLAN
The Stock Plan is administered by a Committee appointed by the S&T Board.
Unless otherwise determined by the Board, the Compensation Committee of the
Board shall comprise the Committee. The Committee determines, among other
things, which officers and key employees receive an option or options under
the Stock Plan, the type of option to be granted, the number of shares subject
to each option, the rate of option exercisability, and, subject to certain
other provisions to be discussed below, the option price and duration of the
option.
Options granted under the Stock Plan may be either "incentive stock options"
within the meaning of Section 422 of the Code, or nonstatutory stock options,
and entitle the optionee, upon exercise, to purchase shares of S&T Common
Stock from S&T at a specified exercise price per share. Options granted under
the Stock Plan must have a per share exercise price of no less than the fair
market value of a share of S&T Common Stock on the date of the grant. The fair
market value as of a particular date generally means the last reported price
of a share of S&T Common Stock on the Nasdaq National Market.
34
<PAGE>
The Committee is authorized to grant nonstatutory stock options and
incentive stock options to employees. Nonstatutory stock options also may be
granted to outside directors, but only in accordance with the provisions set
forth in the Stock Plan, attached hereto as Appendix C.
All agreements granting options to employees shall contain a statement that
the option is intended to be either (i) a nonstatutory stock option or (ii) an
incentive stock option.
The option period for options granted to employees shall be determined by
the Committee and specifically set forth in the Agreement, provided, however,
that an option shall not be exercisable before six months from the date of
grant (except that this limitation need not apply in the event of the death or
disability of the optionee within the six-month period) or after ten years
from the date of grant.
All incentive stock options granted under the Stock Plan shall comply with
the provisions of the Code governing incentive stock options and with all
other applicable rules and regulations.
The maximum number of shares of S&T Common Stock with respect to which
options may be granted to any employee under the Stock Plan during its term is
200,000 shares. In no event shall the option price of an option be less than
the fair market value of a share of S&T Common Stock on the date of grant.
All other terms of options granted under the Stock Plan shall be determined
by the Committee in its sole discretion.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In general, an optionee will not recognized income at the time of the grant
or exercise of an incentive stock option. However, the difference between the
exercise price and the fair market value of the S&T Common Stock on the date
of exercise is an adjustment item for purposes of the alternative minimum tax.
If an optionee does not exercise an incentive stock option within certain
specified periods after termination of employment, an incentive stock option
will be treated for tax purposes as a nonstatutory stock option, as described
below.
In general, an optionee will not recognize income at the time of grant of a
nonstatutory stock option. At the time of exercise of a nonstatutory stock
option an optionee will generally recognize income equal to the excess of the
fair market value of the shares of S&T Common Stock purchased over the
aggregate exercise price paid for the shares. S&T is entitled to a deduction
equal to the amount of ordinary income an optionee recognizes.
In general, gain or loss from the sale or exchange of shares acquired upon
exercise of an incentive stock option will be taxed as capital gain or loss.
However, if certain holding period requirements with respect to the shares
acquired upon exercise of an incentive stock option are not satisfied, an
optionee will be required to recognize ordinary income at the time of
disposition. Any gain recognized on disposition in excess of the ordinary
income resulting therefrom will be capital gain and any loss recognized will
be a capital loss.
If an optionee recognizes ordinary income upon exercise of an incentive
stock option or as a result of a disposition of shares prior to the expiration
of the applicable holding periods, S&T will be entitled to a deduction in the
same amount.
The rules governing the tax treatment of options and the receipt of shares
in connection with the exercise of such options are quite technical, so that
the above description of tax consequences is necessarily general in nature and
does not purport to be complete. Moreover, statutory provisions are subject to
change, as are their interpretations, and their application may vary in
individual circumstances. Finally, the tax consequences under applicable state
law may not be the same as under the federal income tax laws.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE AMENDMENT
TO THE STOCK PLAN.
35
<PAGE>
PROPOSAL IV -- RATIFICATION OF INDEPENDENT AUDITORS
The S&T Board has selected Ernst & Young LLP, independent public
accountants, as the auditors for S&T for the year ending December 31, 1997. At
the Annual Meeting, shareholders will vote upon a proposal to ratify the
selection of the firm as auditors.
The financial statements of S&T and its subsidiaries for the years ended
December 31, 1996, 1995, and 1994 were audited by Ernst & Young LLP. Other
services rendered during 1996 by Ernst & Young included tax preparation and
tax planning and consultations and services to S&T in connection with filings
with the SEC pursuant to Section 12 of the Exchange Act. It is expected that
representatives of Ernst & Young LLP will be present at the Annual Meeting and
that they will have an opportunity to make statements if they so desire and
will be available to respond to appropriate questions.
An affirmative vote of a majority of the shares of common stock of S&T
represented in person or by proxy at the Annual Meeting is necessary for
ratification of the appointment of Ernst & Young LLP as auditors. The S&T
Board recommends that you vote "FOR" ratifying the selection of Ernst & Young
LLP. No determination has been made as to what action the S&T Board would take
if the shareholders do not ratify the appointment.
THE S&T BOARD RECOMMENDS A VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ERNST
& YOUNG LLP AS AUDITORS.
AVAILABLE INFORMATION; DOCUMENTS INCORPORATED BY REFERENCE
S&T is subject to the informational requirements of the Exchange Act and, in
accordance therewith, S&T files reports and other information with the SEC.
Such reports, proxy statements and other information filed by S&T can be
inspected and copied at the SEC's public reference room located at 450 Fifth
Street, N.W., Washington, D.C. 20549, and the SEC's regional offices located
at: 7 World Trade Center (13th floor), New York, New York 10006 and Northwest
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates by writing to the
SEC, Public Reference Section, Washington, D.C. 20549. Copies of documents
filed by S&T with the SEC may also be accessed electronically by means of the
SEC's home page on the Internet at "http://www.sec.gov." Reports, proxy
statements and other information filed by S&T can also be inspected at the
offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006-1500, on which S&T Common Stock is traded.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO S&T (OTHER THAN
CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN
OR ORAL REQUEST TO ROBERT E. ROUT, CHIEF FINANCIAL OFFICER, S&T BANCORP, INC.,
800 PHILADELPHIA STREET, INDIANA, PENNSYLVANIA 15701. TELEPHONE REQUESTS MAY
BE DIRECTED TO (412) 349-2900. ANY REQUESTED DOCUMENT WILL BE SENT BY FIRST
CLASS MAIL OR OTHER EQUALLY PROMPT MEANS WITHIN ONE BUSINESS DAY AFTER RECEIPT
OF SUCH REQUEST. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY APRIL 14, 1997.
The following documents filed by S&T with the SEC are incorporated herein by
reference: (i) Annual Report on Form 10-K for the year ended December 31,
1996; and (ii) the description of S&T Common Stock contained in S&T's
registration statement pursuant to Section 12 of the Exchange Act, and any
amendment or report filed for the purpose of updating such description.
All documents filed by S&T pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act subsequent to the date hereof until the date of the Annual
Meeting shall be deemed to be incorporated herein by reference and to be a
part hereof from the date of such filing. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this
36
<PAGE>
Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
SHAREHOLDER PROPOSALS
Any proposal which a shareholder of S&T intends to present at the 1998
Annual Meeting of Shareholders of S&T must be received in writing by the
Secretary of S&T at S&T's main office, 800 Philadelphia Street, Indiana,
Pennsylvania, on or before November 19, 1997. If such proposal is in
compliance with all of the requirements of Rule 14a-8 under the Exchange Act
the proposal will be included in S&T's proxy statement and proxy form relating
to such meeting.
OTHER MATTERS
Management knows of no other matters to be brought before Annual Meeting.
However, should any other matter requiring a vote of the shareholders properly
come before the meeting, the persons named in the enclosed proxy will vote the
shares represented by the proxies on such matter as determined by a majority
of the S&T Board.
By Order of the Board of Directors,
/s/ James G. Barone
James G. Barone
Secretary
UPON WRITTEN REQUEST TO THE SECRETARY OF S&T, 800 PHILADELPHIA STREET,
INDIANA, PENNSYLVANIA 15701, BY ANY SHAREHOLDER WHOSE PROXY IS SOLICITED
HEREBY, S&T WILL FURNISH A COPY OF ITS 1996 ANNUAL REPORT ON FORM 10-K TO THE
SEC, TOGETHER WITH FINANCIAL STATEMENTS AND SCHEDULES THERETO, WITHOUT CHARGE
TO THE SHAREHOLDER REQUESTING SAME.
March 20, 1997
37
<PAGE>
INDEX TO FINANCIAL INFORMATION OF PEOPLES BANK OF UNITY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors........................................... F-2
Balance Sheet as of December 31, 1996 and 1995........................... F-3
Statement of Income for the years ended December 31, 1996, 1995 and
1994.................................................................... F-4
Statement of Changes in Stockholders' Equity for the years ended December
31, 1996, 1995 and 1994................................................. F-5
Statement of Cash Flows for the years ended December 31, 1996, 1995 and
1994.................................................................... F-6
Notes to Financial Statements as of and for the years ended December 31,
1996, 1995 and 1994..................................................... F-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... F-21
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Peoples Bank of Unity
We have audited the accompanying balance sheet of Peoples Bank of Unity as
of December 31, 1996 and 1995, and the related statements of income, changes
in stockholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as, evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Peoples Bank of Unity as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
As explained in the notes to the financial statements, effective January 1,
1995, the Bank changed its method of accounting for the impairment of loans
and related allowance for loan losses, and effective January 1, 1994, changed
its method of accounting for investment securities.
/s/ S. R. Snodgrass, A.C.
Wexford, PA
February 10, 1997
F-2
<PAGE>
PEOPLES BANK OF UNITY
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995
1996 (RESTATED)
----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks.............................. $ 7,391 $ 6,625
Federal funds sold................................... 6,465 7,340
Securities:
Available for sale.................................. 96,021 117,513
Held to maturity (approximate market value of
$22,400 and $24,878)............................... 22,095 24,383
----------- -----------
118,116 141,896
Loans (net of allowance for loan losses of $1,686 and
$1,127)............................................. 152,322 125,436
Premises and equipment............................... 4,112 4,481
Accrued interest receivable.......................... 2,158 2,764
Other assets......................................... 536 484
----------- -----------
TOTAL ASSETS....................................... $ 291,100 $ 289,026
=========== ===========
LIABILITIES
Deposits:
Noninterest-bearing................................. $ 43,502 $ 39,711
Interest-bearing.................................... 194,591 197,211
----------- -----------
Total deposits..................................... 238,093 236,922
Commitment to purchase investment securities......... -- 2,011
Obligation under capital lease....................... 225 520
Accrued interest payable............................. 1,064 1,083
Other liabilities.................................... 1,876 1,383
----------- -----------
TOTAL LIABILITIES.................................. 241,258 241,919
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, par value $10; 115,660 shares autho-
rized, issued and outstanding....................... 1,157 1,157
Additional paid in capital........................... 13,544 13,544
Retained earnings.................................... 33,135 29,596
Net unrealized gain on securities.................... 2,006 2,810
----------- -----------
TOTAL STOCKHOLDERS' EQUITY......................... 49,842 47,107
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 291,100 $ 289,026
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
PEOPLES BANK OF UNITY
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1994
1996 (RESTATED) (RESTATED)
--------------- -------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees...... $ 12,317 $ 10,073 $ 8,781
Federal funds sold......... 221 356 218
Investment securities:
Taxable................... 7,283 8,256 9,351
Tax exempt................ 1,190 1,318 1,555
--------------- --------------- --------------
Total interest income.... 21,011 20,003 19,905
--------------- --------------- --------------
INTEREST EXPENSE
Deposits................... 6,995 7,591 7,269
Obligation under capital
lease..................... 50 88 28
--------------- --------------- --------------
Total interest expense... 7,045 7,679 7,297
--------------- --------------- --------------
NET INTEREST INCOME......... 13,966 12,324 12,608
Provision for loan losses... 875 420 100
--------------- --------------- --------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES.. 13,091 11,904 12,508
--------------- --------------- --------------
NONINTEREST INCOME
Service charges on deposit
accounts.................. 426 397 377
Security gains (losses),
net....................... 55 121 (3)
Other...................... 322 320 323
--------------- --------------- --------------
Total noninterest in-
come.................... 803 838 697
--------------- --------------- --------------
NONINTEREST EXPENSE
Salaries and employee bene-
fits...................... 3,198 3,085 3,379
Occupancy, net............. 549 479 518
Furniture and equipment.... 669 663 513
Data processing............ 359 454 720
FDIC assessment............ 2 279 559
Professional fees.......... 531 66 52
Other taxes................ 285 253 238
Loss from fraudulent trans-
actions................... -- 405 --
Other...................... 1,294 1,069 1,105
--------------- --------------- --------------
Total noninterest ex-
pense................... 6,887 6,753 7,084
--------------- --------------- --------------
INCOME BEFORE INCOME TAXES.. 7,007 5,989 6,121
Income taxes................ 2,015 1,616 1,593
--------------- --------------- --------------
NET INCOME.................. $ 4,992 $ 4,373 $ 4,528
=============== =============== ==============
EARNINGS PER SHARE.......... $ 43.16 $ 37.81 $ 39.15
AVERAGE SHARES OUTSTANDING.. 115,660 115,660 115,660
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
PEOPLES BANK OF UNITY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
ADDITIONAL UNREALIZED TOTAL
COMMON PAID IN RETAINED GAIN ON STOCKHOLDERS'
STOCK CAPITAL EARNINGS SECURITIES EQUITY
------ ---------- -------- ---------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1993.................... $1,157 $13,544 $22,396 $ -- $37,097
Initial net unrealized
gain on securities...... 914 914
Net income, as restated.. 4,528 4,528
Dividends ($7.00 per
share).................. (810) (810)
Net unrealized loss on
securities.............. (480) (480)
------ ------- ------- ------ -------
Balance, December 31,
1994.................... 1,157 13,544 26,114 434 41,249
Net income, as restated.. 4,373 4,373
Dividends ($7.70 per
share).................. (891) (891)
Net unrealized gain on
securities.............. 2,376 2,376
------ ------- ------- ------ -------
Balance, December 31,
1995.................... 1,157 13,544 29,596 2,810 47,107
Net income............... 4,992 4,992
Dividends ($12.56 per
share).................. (1,453) (1,453)
Net unrealized loss on
securities.............. (804) (804)
------ ------- ------- ------ -------
Balance, December 31,
1996.................... $1,157 $13,544 $33,135 $2,006 $49,842
====== ======= ======= ====== =======
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
PEOPLES BANK OF UNITY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994
1996 (RESTATED) (RESTATED)
------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 4,992 $ 4,373 $ 4,528
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses.................... 875 420 100
Depreciation, amortization, and accretion,
net......................................... 499 691 261
Security (gains) losses, net................. (55) (121) 3
Loss from fraudulent transactions............ -- 405 --
Decrease in accrued interest receivable...... 600 471 295
Increase (decrease) in accrued interest pay-
able........................................ (19) 314 (399)
Other, net................................... (247) 62 (193)
------- ------- -------
Net cash provided by operating activities.. 6,645 6,615 4,595
------- ------- -------
INVESTING ACTIVITIES
Net decrease in federal funds sold............. 875 785 3,810
Securities available for sale:
Proceeds from the sale of securities......... 31,765 48,411 9,887
Proceeds from maturities and repayments of
securities.................................. 15,389 1,060 10,700
Purchases of securities...................... (28,842) (38,547) (8,529)
Investment securities:
Proceeds from maturities and repayments of
securities.................................. 3,744 10,530 10,545
Purchases of securities...................... (1,459) (995) (7,837)
Net increase in loans.......................... (27,580) (25,315) (7,587)
Purchases of premises and equipment............ (257) (127) (358)
Other, net..................................... 303 108 60
------- ------- -------
Net cash provided by (used for) investing
activities................................ (6,062) (4,090) 10,691
------- ------- -------
FINANCING ACTIVITIES
Net increase (decrease) in deposits............ 1,171 (2,409) (15,431)
Decrease in obligation under capital lease..... (294) (264) (71)
Cash dividends paid............................ (694) (891) (810)
------- ------- -------
Net cash provided by (used for ) financing
activities................................ 183 (3,564) (16,312)
------- ------- -------
Increase (decrease) in cash and cash equiv-
alents.................................... 766 (1,039) (1,026)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.. 6,625 7,664 8,690
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR........ $ 7,391 $ 6,625 $ 7,664
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Peoples Bank of Unity (the "Bank"),
conform with generally accepted accounting principles and with general
practice within the banking industry.
A summary of the significant accounting and reporting policies applied in
the presentation of the accompanying financial statements follows:
Nature of Operations and Basis of Presentation
Peoples Bank of Unity is a state chartered bank located in Pittsburgh,
Pennsylvania. The Bank's principal sources of revenue emanate from its
portfolio of residential real estate, commercial mortgage, commercial and
consumer loans, as well as, interest on investment securities and a variety of
deposit services provided to its customers through six locations. The Bank is
supervised by the Federal Deposit Insurance Corporation and the Pennsylvania
Department of Banking.
The financial statements have been prepared in conformity 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 balance sheet date and
revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Investment Securities
Effective January 1, 1994, the Bank adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." In adopting Statement 115, the Bank classified investment
securities into two categories: Held to Maturity and Available for Sale.
Debt securities acquired with the intent and ability to hold to maturity are
stated at cost adjusted for amortization of premium and accretion of discount
which are computed using a method which approximates the effective interest
method. Certain other debt and equity securities have been classified as
available for sale to serve principally as a source of liquidity. Unrealized
holding gains and losses for available for sale securities are reported as a
separate component of stockholders' equity, net of tax, until realized.
Realized securities gains and losses are computed using the specific
identification method. Interest and dividends on investment securities are
recognized as income when earned.
Loans
Interest income on all loans is recognized as income on the accrual method.
For commercial and real estate mortgage loans on which interest is 90 days
past due, accrual of income is generally discontinued, and any previously
accrued interest is reversed against current income. Payments received on
nonaccrual loans are applied to principal until full recovery of principal has
been recognized. Installment loans are generally charged off between 90 and
120 days past due or when deemed uncollectible in the opinion of management.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment to the
related loan's yield. These amounts are being amortized over the contractual
life of the related loans.
F-7
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Allowance for Loan Losses
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," as amended by Statement No. 118. Under this Standard, the Bank
estimates credit losses on impaired loans based on the present value of
expected cash flows or fair value of the underlying collateral if the loan
repayment is expected to come from the sale or operation of such collateral.
Prior to 1995, the credit losses related to these loans were estimated based
on undiscounted cash flows or the fair value of the underlying collateral.
Statement 118 amends Statement 114 to permit a creditor to use existing
methods for recognizing interest income on impaired loans eliminating the
income recognition provisions of Statement 114. The adoption of these
statements did not have a material effect on the Bank's financial position or
results of operations.
Impaired loans are commercial and commercial real estate loans for which it
is probable that the Bank will not be able to collect all amounts due
according to the contractual terms of the loan agreement. The Bank
individually evaluates such loans for impairment and does not aggregate loans
by major risk classifications. The definition of "impaired loans" is not the
same as the definition of "nonaccrual loans," although the two categories
overlap. The Bank may choose to place a loan on nonaccrual status due to
payment delinquency or uncertain collectibility, while not classifying the
loan as impaired if the loan is not a commercial or commercial real estate
loan. Factors considered by management in determining impairment include
payment status and collateral value. The amount of impairment for these types
of impaired loans is determined by the difference between the present value of
the expected cash flows related to the loan, using the original interest rate,
and its recorded value, or, as a practical expedient in the case of
collateralized loans, the difference between the fair value of the collateral
and the recorded amount of the loans. When foreclosure is probable, impairment
is measured based on the fair value of the collateral.
Mortgage loans on one-to-four family properties and all consumer loans are
large groups of smaller balance homogeneous loans and are measured for
impairment collectively. Loans that experience insignificant payment delays,
which is defined as 90 days or less, generally are not classified as impaired.
Management determines the significance of payment delays on a case-by-case
basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the borrower's prior
payment record, and the amount of shortfall in relation to the principal and
interest owed.
The allowance for loan losses represents the amount which management
estimates is adequate to provide for potential losses in its loan portfolio.
The allowance method is used in providing for loan losses. Accordingly, all
loan losses are charged to the allowance and all recoveries are credited to
it. The allowance for loan losses is established through a provision for loan
losses which is charged to operations. The provision is based upon
management's periodic evaluation of individual loans, the overall risk
characteristics of the various portfolio segments, past experience with
losses, the impact of economic conditions on borrowers, and other relevant
factors. The estimates used in determining the adequacy of the allowance for
loan losses are particularly susceptible to significant change in the near
term.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets. Expenditures for maintenance and repairs
are charged against income as incurred. Costs of major additions and
improvements are capitalized.
Real Estate Owned
Real estate owned, which is acquired in settlement of foreclosed loans, is
carried as a component of other assets at the lower of cost or fair value
minus estimated cost to sell. Direct costs incurred in the foreclosure
F-8
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
process and subsequent holding costs incurred on such properties are recorded
as expenses of current operations. Any subsequent write downs and gains or
losses on property dispositions are charged to other income and expense.
Retirement Plans
Pension expense for the Bank's defined benefit plan is actuarially
determined. 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.
Expense for the Bank's defined contribution plan is determined based on
matching of employee voluntary contributions.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes. Deferred income tax expenses or benefits are
based on the changes in the deferred tax asset or liability from period to
period.
Cash Flow Information
The Bank has defined cash and cash equivalents as those amounts included in
the balance sheet caption cash and due from banks. For the years ended
December 31, 1996, 1995, and 1994, cash paid for interest was $7,064, $7,365
and $7,696, respectively. Cash paid for income taxes was $2,494 in 1996,
$1,299 in 1995, and $1,851 in 1994.
Significant non-cash activity included commitments to purchase investment
securities of $2,011 at December 31, 1995 and $3,940 at December 31, 1994.
These commitments resulted from unsettled trades existing at each of the
respective balance sheet dates. Also, in 1994 the Bank recorded a capital
lease obligation of $855 for the purchase of a computer system.
Earnings Per Share
Earnings per share for the years ended December 31, 1996, 1995, and 1994
have been calculated based upon the weighted average number of issued and
outstanding common shares.
Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform to 1996 classifications. Such reclassifications had no
effect on net income.
2. RESTATEMENT
The accompanying financial statements for 1995 and 1994 have been restated
to reflect a change in the allowance for loan losses and related provision for
loan losses, as a result of management's re-evaluation of the methodology for
assessing its adequacy. The methodology utilized by management includes a
detailed review of all classified loans to determine if any specific reserve
allocations were required on an individual loan balance, as well as, applying
standard loss ratios to those loans not individually evaluated. Management
determined the
F-9
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
need to increase the standard loss ratios based upon the overall risk
characteristics of the various portfolio segments, the impact of economic
conditions on borrowers, and other relevant factors. Management also
determined it was appropriate to retroactively apply these factors based upon
the significant loan growth the Bank was experiencing. In addition, the
financial statements for 1995 have been restated for the discovery of certain
fraudulent loans as further discussed in Note 10.
The effect of the restatements were to increase (decrease) net income as
follows:
<TABLE>
<CAPTION>
1995 1994
------ -----
<S> <C> <C>
Provision for loan losses.................................... $ (270) $(100)
Loss from fraudulent transactions............................ (405) --
Income taxes................................................. 230 34
------ -----
Total...................................................... $ (445) $ (66)
====== =====
Earnings per share........................................... $(3.85) $(.57)
</TABLE>
3. COMMON STOCK SPLIT
On May 9, 1995, the shareholders approved a five for one stock split to
shareholders of record as of that same date, thereby increasing the number of
issued and outstanding shares to 115,660, and decreasing the par value of each
share to $10. All references to the number of common shares and per share
amounts for 1994 have been restated to reflect the stock split.
4. INVESTMENT SECURITIES
Upon the adoption of Statement 115, the Bank initially transferred from the
investment securities portfolio to the available for sale classification
investment securities with an amortized cost of $20,141 and an estimated
market value of $21,525. The net appreciation of these securities at adoption
was recorded, net of federal income taxes, to an unrealized securities gain
(loss) account which is a component of stockholders' equity.
During the first quarter of 1995, the Bank transferred its entire U. S.
Treasury securities portfolio from held to maturity to available for sale for
purposes of restructuring the mix of the portfolio. At the time of transfer
these securities had an amortized cost of $99,137 and an estimated market
value of $98,262. Also, in December of 1995, in accordance with the Financial
Accounting Standards Board Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities," the Bank reclassified all of its investment securities, except
for obligations of states and political subdivisions, from the held to
maturity classification to the available for sale classification with an
amortized cost of $15,964 and an estimated market value of $15,280.
F-10
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated market values of investment securities are
as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U. S. Treasury securities........... $27,145 $ 669 $ -- $27,814
U. S. Government agency securities.. 4,065 83 -- 4,148
Mortgage-backed securities.......... 47,327 401 (266) 47,462
Corporate securities................ 14,163 143 (56) 14,250
-------- ------- ------ --------
Total debt securities............. 92,700 1,296 (322) 93,674
Equity securities................... 282 2,065 -- 2,347
-------- ------- ------ --------
Total............................. $ 92,982 $ 3,361 $ (322) $ 96,021
======== ======= ====== ========
<CAPTION>
1996
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Obligations of states and political
subdivisions....................... $ 22,095 $ 350 $ (45) $ 22,400
======== ======= ====== ========
<CAPTION>
1995
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U. S. Treasury securities........... $ 52,301 $ 2,264 $ -- $ 54,565
U. S. Government agency securities.. 1,008 -- (11) 997
Mortgage-backed securities.......... 38,321 557 (35) 38,843
Corporate securities................ 21,324 306 (172) 21,458
-------- ------- ------ --------
Total debt securities............. 112,954 3,127 (218) 115,863
Equity securities................... 282 1,368 -- 1,650
-------- ------- ------ --------
Total........................... $113,236 $ 4,495 $ (218) $117,513
======== ======= ====== ========
<CAPTION>
1995
-----------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Obligations of states and political
subdivisions....................... $ 24,383 $ 551 $ (56) $ 24,878
======== ======= ====== ========
</TABLE>
F-11
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated market value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities of
mortgage-backed securities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------- -------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less............ $ 9,016 $ 9,051 $ 8,744 $ 8,793
Due after one year through five
years............................. 39,243 40,106 11,542 11,707
Due after five years through ten
years............................. 9,218 9,253 1,809 1,900
Due after ten years................ 35,223 35,264 -- --
------- ------- ------- -------
Total............................ $92,700 $93,674 $22,095 $22,400
======= ======= ======= =======
</TABLE>
Investment securities with a carrying value of $13,798 and $14,610 at
December 31, 1996 and 1995, respectively, were pledged to secure deposits and
other purposes as required by law.
Proceeds from the sale of investment securities available for sale were
$31,765, $48,411 and $9,887 in 1996, 1995, and 1994, respectively. Gross gains
resulting from these sales were $164, $320 and $8 in 1996, 1995, and 1994,
respectively. Gross losses were $113 in 1996, $207 in 1995 and $71 in 1994.
Proceeds from the exercising of call features of investment securities held
to maturity were $204, $2,554, and $2,160 in 1996, 1995, and 1994,
respectively. Gains resulting from these calls were $4, $8, and $60 in 1996,
1995, and 1994, respectively.
5. LOANS
Major classifications of loans are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Real estate--construction................................. $ 10,524 $ 6,479
Real estate--mortgages:
Residential............................................. 103,824 83,437
Commercial.............................................. 21,450 17,320
Commercial--industrial and agricultural................... 8,849 8,075
Consumer.................................................. 9,361 11,252
-------- --------
154,008 126,563
Less allowance for loan losses............................ 1,686 1,127
-------- --------
Net loans............................................. $152,322 $125,436
======== ========
</TABLE>
F-12
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Changes in the allowance for loan losses for the years ended December 31,
1996, 1995, and 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
<S> <C> <C> <C>
Balance, January 1..................................... $1,127 $ 838 $762
Loans charged off.................................... (348) (150) (60)
Recoveries........................................... 32 19 36
------ ------ ----
Net loans charged off................................ (316) (131) (24)
Provision for loan loss.............................. 875 420 100
------ ------ ----
Balance, December 31................................... $1,686 $1,127 $838
====== ====== ====
</TABLE>
At December 31, 1996 and 1995, loans that were considered to be impaired
totaled $487 and $184, respectively, after charge-offs of $58 in 1996. All
impaired loans are included in nonperforming loans. The related allowance for
loan losses allocated to impaired loans was $5 and $58 at December 31, 1996
and 1995, respectively. The average recorded investment in impaired loans
during 1996 and 1995 was $356 and $31, respectively. Interest recognized on
impaired loans was $3 for the year ended December 31, 1996. There was no
interest income recognized on impaired loans in 1995.
In the normal course of business, loans are extended to executive officers,
directors, and their associates. In management's opinion, all of these loans
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons. A summary of loan activity for those executive officers,
directors, and their associates with aggregate loan balances in excess of $60
for the year ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, AMOUNTS OTHER DECEMBER 31,
1995 ADDITIONS COLLECTED CHANGES 1996
------------ --------- --------- ------- ------------
<S> <C> <C> <C> <C>
$996 $3,107 $(1,768) $7,704 $10,039
</TABLE>
Other changes represent the effect of changes in the members of the Board of
Directors and executive officers during 1996.
The Bank's primary business activity is with customers located within its
local trade area. Commercial, residential, personal, and agricultural loans
are granted. The Bank also selectively funds residential loans originated
outside of its trade area provided such loans meet the Bank's credit policy
guidelines. Although the Bank has a diversified loan portfolio, at December
31, 1996 and 1995, loans outstanding to individuals and businesses are
dependent upon the local economic conditions in its immediate trade area.
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Land.......................................................... $ 377 $ 377
Buildings and leasehold improvements.......................... 4,033 3,909
Furniture, fixtures, and equipment............................ 4,657 4,542
------ ------
9,067 8,828
Less accumulated depreciation and amortization................ 4,955 4,347
------ ------
Total....................................................... $4,112 $4,481
====== ======
</TABLE>
Depreciation and amortization expense amounted to $625 in 1996, $604 in
1995, and $473 in 1994.
F-13
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. DEPOSITS
The following table indicates the composition of deposits at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Noninterest-bearing demand................................ $ 43,502 $ 39,711
Interest-bearing demand................................... 19,842 20,566
Money market.............................................. 15,341 14,315
Savings................................................... 79,505 85,672
Time deposits............................................. 79,903 76,658
-------- --------
Total................................................... $238,093 $236,922
======== ========
</TABLE>
Time deposits include certificates of deposit in denominations of $100 or
more. Such deposits aggregated $12,414 and $9,536 at December 31, 1996 and
1995, respectively.
Interest expense on certificates of deposit over $100 amounted to $419 in
1996, $389 in 1995, and $197 in 1994.
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1997............................................................. $45,111
1998............................................................. 15,893
1999............................................................. 3,771
2000............................................................. 4,706
2001 and thereafter.............................................. 10,422
-------
$79,903
=======
</TABLE>
8. INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Currently payable.................................. $2,098 $1,736 $1,564
Deferred........................................... (83) (120) 29
------- ------- -------
Total............................................ $ 2,015 $ 1,616 $ 1,593
======= ======= =======
</TABLE>
Income taxes (benefit) applicable to security gains (losses) were $19 in
1996, $41 in 1995 and $(1) in 1994.
F-14
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan losses............................... $ 451 $ 261
Deferred loan origination fees, net..................... 229 238
Accrued pension costs................................... -- 21
Loss on fraudulent transactions......................... 71 138
------- -------
Total deferred tax assets............................. 751 658
------- -------
Deferred Tax Liabilities:
Premises and equipment.................................. (180) (189)
Prepaid pension costs................................... (19) --
Net unrealized gain on securities....................... (1,033) (1,454)
------- -------
Total deferred tax liabilities........................ (1,232) (1,643)
------- -------
Net deferred tax liabilities.......................... $ (481) $ (985)
======= =======
</TABLE>
The reconciliation of the federal statutory rate and the Bank's effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------- -------------- ---------------
% OF % OF % OF
PRE- PRE- PRE-
TAX TAX TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Provision at statutory rate.. $ 2,382 34.0 % $2,036 34.0 % $ 2,081 34.0 %
Effect of tax free income.... (419) (6.0) (479) (8.0) (541) (8.8)
Non-deductible interest ex-
pense....................... 40 .6 50 .8 49 .8
Other, net................... 12 .2 9 .2 4 --
------- ----- ------ ----- ------- -----
Actual provision and effec-
tive rate................... $ 2,015 28.8 % $1,616 27.0 % $ 1,593 26.0 %
======= ===== ====== ===== ======= =====
</TABLE>
9. RETIREMENT PLANS
Defined Benefit Plan
The Bank sponsors a trusteed, non-contributory defined benefit pension plan
covering substantially all employees and officers of the Bank. The plan calls
for benefits to be paid to eligible employees at retirement based primarily on
years of service and compensation rates near retirement. Contributions are
intended to provide for benefits attributed to employee service to date and
for those benefits expected to be earned in the future.
The following presents the components of the net periodic pension cost:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service costs of the current period..................... $ 152 $ 140 $ 133
Interest cost on projected benefit obligation........... 148 132 116
Actual return on plan assets............................ (187) (360) 31
Net amortization and deferral........................... 22 251 (126)
----- ----- -----
Total................................................. $ 135 $ 163 $ 154
===== ===== =====
</TABLE>
F-15
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The actuarial present value of the accumulated benefit obligation at
December 31, 1996 and 1995 was $1,292 and $1,099 including vested benefit
obligations of $1,219 and $1,038, respectively. The following sets forth the
funded status of the plan and the amounts recognized in the accompanying
balance sheet:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Plan assets at fair value................................. $ 2,438 $ 2,028
Actuarial present value of projected benefit obligation... (2,069) (1,984)
------- -------
Funded status............................................. 369 44
Prior service costs....................................... 260 286
Unrecognized transition amount............................ (49) (58)
Unrecognized net gain from past experience different from
that assumed and effects from changes in assumptions..... (524) (336)
------- -------
Pension asset (liability)................................. $ 56 $ (64)
======= =======
</TABLE>
The plan assets are primarily invested in fixed income mutual funds.
Assumptions used in determining net periodic pension cost are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.50% 7.50% 7.50%
Expected long-term rate of return on assets................ 7.50 7.50 7.50
Rate of increase in compensation levels.................... 6.00 6.00 6.00
</TABLE>
Defined Contribution Plan
The Bank maintains a section 401(k) employee savings and investment plan
covering substantially all employees and officers of the Bank. The Bank's
contributions to the plan are based on 50% matching of voluntary contributions
of up to 4% of individual compensation. Additionally, the Bank may contribute
a discretionary amount each year. Employee contributions are vested at all
times and Bank contributions are fully vested after seven years. Bank
contributions to the plan were $86, $83 and $110 for the years ended 1996,
1995, and 1994, respectively.
10. LOSS FROM FRAUDULENT TRANSACTIONS
In September of 1996, it was discovered that a now former executive officer
of the Bank had executed a series of fraudulent transactions which resulted in
a loss of $405. These transactions consisted primarily of granting loans to
individuals where the proceeds were ultimately received by the executive
officer. These loans are reflected as a charge to operations in the 1995
statement of income. The Bank is actively pursuing recovery.
11. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments
In the normal course of business, there are various outstanding commitments
and certain contingent liabilities which are not reflected in the accompanying
financial statements. These commitments and contingent liabilities represent
financial instruments with off-balance-sheet risk. The contract or notional
amounts of those
F-16
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
instruments reflect the extent of involvement in particular types of financial
instruments which were comprised of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Commitments to extend credit:
Fixed rate................................................ $ 7,221 $ 4,368
Variable rate............................................. 15,142 10,027
Standby letters of credit................................... 3,380 3,717
------- -------
Total................................................... $25,743 $18,112
======= =======
</TABLE>
The range of interest rates on fixed rate commitments was 6.50% to 9.50% at
December 31, 1996.
The instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The same
credit policies are used in making commitments and conditional obligations as
for on-balance-sheet instruments. Generally, collateral is required to support
financial instruments with credit risk. The terms are typically for a one-year
period with an annual renewal option subject to prior approval by management.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement.
These commitments are comprised primarily of available commercial and personal
lines of credit. Standby letters of credit written are conditional commitments
issued to guarantee the performance of a customer to a third party.
The exposure to loss under these commitments is limited by subjecting them
to credit approval and monitoring procedures. Substantially all of the
commitments to extend credit are contingent upon customers maintaining
specific credit standards at the time of the loan funding. Management assesses
the credit risk associated with certain commitments to extend credit in
determining the level of the allowance for loan losses. Since many of the
commitments are expected to expire without being drawn upon, the contractual
amounts do not necessarily represent future funding requirements.
Minimum future lease payments under a capital lease as of December 31, 1996,
are as follows:
<TABLE>
<S> <C>
1997.............................................................. $237
Less amounts representing interest................................ (12)
----
Present value of minimum lease payments........................... $225
====
</TABLE>
Contingent Liabilities
The Bank is involved in various legal actions from normal business
activities. Management believes that the liabilities, if any, arising from
these proceedings will not have a material adverse effect on the Bank's
financial position, operating results, or liquidity.
12. REGULATORY MATTERS
The Pennsylvania Banking Code restricts the availability of additional paid
in capital for dividend purposes. At December 31, 1996, additional paid in
capital of $13,544 was not available for dividends.
F-17
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Included in cash and due from banks are required federal reserves of $1,782
and $1,524 at December 31, 1996 and 1995, respectively, for facilitating the
implementation of monetary policy by the Federal Reserve System. The required
reserves are computed by applying prescribed ratios to the classes of average
deposit balances. These are held in the form of cash on hand and/or balances
maintained directly with the Federal Reserve Bank.
13. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions
by the regulators that, if undertaken, could have a direct material effect on
the Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by the regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of Total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital to average assets (as defined). Management
believes, as of December 31, 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum Total risk-based, Tier 1
risk-based and Tier 1 leverage ratios at least 100 to 200 basis points above
those ratios set forth in the table below. There have been no conditions or
events since that notification that management believes have changed the
Bank's category.
The following table reflects the Bank's capital ratios at December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
AMOUNT RATIO AMOUNT RATIO
------- ----- ------- -----
<S> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets)
Actual........................................ $49,522 31.99% $45,424 31.36%
For Capital Adequacy Purposes................. 12,384 8.00 11,589 8.00
To Be Well Capitalized........................ 15,480 10.00 14,486 10.00
Tier I Capital (to Risk Weighted Assets)
Actual........................................ $47,836 30.90% $44,297 30.58%
For Capital Adequacy Purposes................. 6,192 4.00 5,794 4.00
To Be Well Capitalized........................ 9,288 6.00 8,691 6.00
Tier I Capital (to Average Assets)
Actual........................................ $47,836 16.65% $44,297 15.56%
For Capital Adequacy Purposes................. 11,495 4.00 11,387 4.00
To Be Well Capitalized........................ 14,369 5.00 14,234 5.00
</TABLE>
F-18
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. FAIR VALUE DISCLOSURE
The estimated fair values of the Bank's financial instruments at December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks and federal funds
sold.................................... $ 13,856 $ 13,856 $ 13,965 $ 13,965
Securities available for sale............ 96,021 96,021 117,513 117,513
Investment securities.................... 22,095 22,400 24,383 24,878
Net loans................................ 152,322 148,720 125,436 124,941
Accrued interest receivable.............. 2,158 2,158 2,764 2,764
-------- -------- -------- --------
Total.................................. $286,452 $283,155 $284,061 $284,061
======== ======== ======== ========
Financial liabilities:
Deposits................................. $238,093 $237,946 $236,922 $235,579
Commitment to purchase investment securi-
ties.................................... -- -- 2,011 2,011
Obligation under capital lease........... 225 216 520 500
Accrued interest payable................. 1,064 1,064 1,083 1,083
-------- -------- -------- --------
Total.................................. $239,382 $239,226 $240,536 $239,173
======== ======== ======== ========
</TABLE>
Financial instruments are defined as cash, evidence of an ownership interest
in an entity, or a contract which creates an obligation or right to receive or
deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties other than in a
forced or liquidation sale. If a quoted market price is available for a
financial instrument, the estimated fair value would be calculated based upon
the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for
financial instruments should be based upon management's judgment regarding
current economic conditions, interest rate risk, expected cash flows, future
estimated losses and other factors as determined through various option
pricing formulas or simulation modeling. As many of these assumptions result
from judgments made by management based upon estimates which are inherently
uncertain, the resulting estimated fair values may not be indicative of the
amount realizable in the sale of a particular financial instrument. In
addition, changes in the assumptions on which the estimated fair values are
based may have a significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are
not considered financial instruments, the estimated fair value of financial
instruments would not represent the full value of the Bank.
The Bank employed simulation modeling in determining the estimated fair
value of financial instruments for which quoted market prices were not
available based upon the following assumptions:
F-19
<PAGE>
PEOPLES BANK OF UNITY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Cash and Due From Banks, Federal Funds Sold, Accrued Interest Receivable,
Commitment to Purchase Investment Securities, and Accrued Interest Payable
The fair value is equal to the current carrying value.
Investment Securities
The fair value of securities available for sale and held to maturity is equal
to the available quoted market price. If no quoted market price is available,
fair value is estimated using the quoted market price for similar securities.
Loans, Deposits, and Obligation Under Capital Lease
The fair value of loans is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows and constructs
discount rates that consider reinvestment opportunities, operating expenses,
non-interest income, credit quality, and prepayment risk. Demand, savings, and
money market deposit accounts are valued at the amount payable on demand as of
year end. Fair values for time deposits and the obligation under capital lease
are estimated using a discounted cash flow calculation that applies contractual
costs currently being offered in the existing portfolio to current market rates
being offered for deposits and borrowings of similar remaining maturities.
Commitments to Extend Credit and Standby Letters of Credit
These financial instruments are generally not subject to sale, and estimated
fair values are not readily available. The carrying value, represented by the
net deferred fee arising from the unrecognized commitment or letter of credit,
and the fair value, determined by discounting the remaining contractual fee
over the term of the commitment using fees currently charged to enter into
similar agreements with similar credit risk, are not considered material for
disclosure. The contractual amounts of unfunded commitments and letters of
credit are presented in Note 11.
15. AGREEMENT AND PLAN OF MERGER
On November 25, 1996, the Board of Directors entered into an Agreement and
Plan of Reorganization and a related Agreement and Plan of Merger ("Plan of
Merger"), whereby the Bank would be merged into S&T Bank, a Pennsylvania
banking institution headquartered in Indiana, Pennsylvania. Under the terms of
the Plan of Merger, each shareholder of the Bank will receive 26.25 shares of
S&T Bancorp, Inc. (the parent holding company of S&T Bank) stock in exchange
for each share of the Bank's stock, subject to the terms, conditions, and
limitations set forth in the Plan of Merger.
Completion of the merger is subject to approval by various regulatory
agencies and the stockholders of the Bank and S&T Bancorp, Inc.
F-20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
General Total assets increased $2.1 million or .7% from $289.0 million at
December 31, 1995 to $291.1 million at December 31, 1996. During this period
there were increases of $27.4 million in total loans and $766,000 in cash and
due from banks, which were funded by declines in investment securities of
$23.8 million and federal funds sold of $875,000 and increases in deposits of
$1.2 million.
Investment Portfolio Total investment securities declined during the year by
$23.8 million or 16.8% from $141.9 million at December 31, 1995 to $118.1
million at December 31, 1996. Management sold $31.8 million of available for
sale securities, primarily U. S. Treasury securities during the year. The
proceeds from the sale of these securities were reinvested primarily into loan
originations and mortgage-backed securities.
During 1995, management reclassified all of its investment securities,
except obligations of states and political subdivisions, from the held to
maturity classification to available for sale classification with an amortized
cost of $115.1 million and an estimated market value of $113.5 million. In
February 1995, management made the determination to reclassify all U. S.
Treasury securities to available for sale amounting to $99.1 million of
amortized cost and $98.3 million of estimated market value. In December 1995,
in accordance with the Financial Accounting Standards Board Special Report "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities", management reclassified all other investment
securities to available for sale, with the exception of obligations of states
and political subdivisions. Management has the ability and the intent to hold
these securities to maturity, as they are an integral component of Peoples
efforts to minimize its federal tax liability.
Historically, Peoples has been a conservative investor, investing primarily
in U. S. Treasury securities, and to a lesser extent local obligations of
states and political subdivisions and corporate obligations. During 1995 and
continuing through 1996, management increased its investment in mortgage-
backed securities. These mortgage-backed securities are all with agencies of
the U. S. Government and provide for monthly repayment of interest and
principal, thus providing for greater liquidity. Management determined that
with the current rate of loan growth, greater liquidity in the investment
portfolio was necessary.
F-21
<PAGE>
The following table sets forth the carrying amount of securities at the
dates indicated
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995 1994
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
AVAILABLE FOR SALE
U. S. Treasury securities............................ $27,814 $ 54,565 $ 2,209
U. S. Government agency securities................... 4,148 997
Mortgage-backed securities........................... 47,462 38,843
Corporate securities................................. 14,250 21,458 5,393
Equity securities.................................... 2,347 1,650 1,075
------- -------- --------
TOTAL............................................ $96,021 $117,513 $ 8,677
======= ======== ========
INVESTMENT SECURITIES
U. S. Treasury securities............................ $ 99,197
U. S. Government agency securities................... 1,010
Mortgage-backed securities........................... 3,932
Obligations of states and political subdivisions..... $22,095 $ 24,383 27,493
Corporate securities................................. 20,442
------- -------- --------
TOTAL............................................ $22,095 $ 24,383 $152,074
======= ======== ========
</TABLE>
At December 31, 1996, Peoples had no securities of any issuer for which the
carrying value of such securities exceeded 10% of shareholders' equity.
The following table sets forth the maturities of securities at December 31,
1996, 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 34% federal income tax
rate) have been made in calculating yields on obligations of states and
political subdivisions.
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER NO FIXED
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS MATURITY
------------ ------------------- ----------------- ------------- --------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ---------- -------- --------- ------- ------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
U. S. Treasury securi-
ties................... $4,012 6.94% $ 23,802 7.26%
U. S. Government agency
securities............. 4,148 7.56%
Mortgage-backed securi-
ties................... 1,412 7.73% 5,562 7.27% $ 5,224 7.05% $35,264 6.50%
Corporate securities.... 3,627 7.08% 6,594 6.82% 4,029 7.04%
Marketable equity secu-
rities................. $2,347
------ ---------- --------- ------- ------
$9,051 $ 40,106 $ 9,253 $35,264 $2,347
====== ========== ========= ======= ======
INVESTMENT SECURITIES
Obligations of states
and political subdivi-
sion................... $8,744 7.34% $ 11,542 7.75% $ 1,809 8.53% $ -- $ --
====== ========== ========= ======= ======
</TABLE>
Loans Total loans amounted to $154.0 million at December 31, 1996 compared
to $126.6 million at December 31, 1995, an increase of $27.4 million or 21.6%.
Total real estate loans amounted to $135.8 million or 88.2% of total loans at
December 31, 1996 comprised of: residential real estate loans of $103.8
million, commercial real estate of $21.5 million and real estate construction
of $10.5 million.
Peoples continues to focus its primary lending efforts in residential
mortgages. In recent years there has been a very strong loan demand in
residential real estate, as well as, somewhat less traditional commercial real
F-22
<PAGE>
estate and construction real estate loans. The loan growth has been spurred by
new housing developments in the local market combined with strong marketing
efforts of Peoples. Management believes that the conservative lending
practices employed by Peoples reduce, to an acceptable level, the impact of
declining values of real estate should a downturn in the local real estate
market occur.
Management intends to continue to market real estate lending in its local
market, as well as, other lending products to meet the needs of its customers.
Management desires to maintain a diversified loan portfolio in its local
market area to support the communities it serves. Peoples has no loan
concentrations to any industry or group nor does it intend to develop such
relationships.
The following table shows Peoples loan distribution at the end of each
reported period:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial, industrial and agricul-
tural............................. $ 8,849 $ 8,075 $ 8,834 $ 6,933 $ 6,105
Real estate--construction.......... 10,524 6,479 2,946 2,633 964
Real estate--mortgage.............. 125,274 100,757 79,813 71,769 60,637
Consumer........................... 9,361 11,252 10,333 13,159 13,326
-------- -------- -------- ------- -------
Total loans.................... $154,008 $126,563 $101,926 $94,494 $81,032
======== ======== ======== ======= =======
</TABLE>
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences and consumer loans) outstanding as of
December 31, 1996. Also provided are the amounts due after one year classified
according to the sensitivity to changes in interest rates.
<TABLE>
<CAPTION>
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, industrial and agricultur-
al.................................... $2,442 $ 5,033 $ 1,373 $ 8,848
Real estate--construction.............. 1,809 3,688 5,027 10,524
Real estate--mortgage.................. 6 2,304 19,140 21,450
------ ------- ------- -------
TOTAL.............................. $4,257 $11,025 $25,540 $40,822
====== ======= ======= =======
Fixed interest rates................... $ 3,092 $17,237
Variable interest rates................ 7,933 8,303
======= =======
TOTAL.............................. $11,025 $25,540
======= =======
</TABLE>
Nonperforming Loans Peoples nonperforming loans, which include nonaccrual
loans and accruing loans past due 90 days or more, have been maintained at
relatively low levels. Nonperforming loans, as a percentage of total loans,
have continually declined since December 31, 1994 from 1.93% of total loans to
1.50% of total loans at December 31, 1995 and again to 1.29% of total loans at
December 31, 1996.
During 1996, Peoples changed its policy of placing loans on a nonaccrual
status, resulting in an increase of $515,000 to $1,450,000 at December 31,
1996 compared to $935,000 at December 31, 1995. This increase was principally
attributable to small homogenous one-to-four family residential mortgage
loans. For commercial and real estate loans greater than 90 days past due,
accrual of income is generally discontinued, and any previously accrued
interest is reversed against current income. Consumer loans are generally
charged off between 90 and 120 days past due or when deemed uncollectible in
the opinion of management. Prior to 1996, management evaluated commercial and
real estate loans on an individual basis to determine if they should be placed
on
F-23
<PAGE>
nonaccrual status. The accrual of interest was discontinued, when in the
opinion of management, collection was doubtful.
The following table summarizes Peoples nonaccrual and past due loans.
Peoples has no restructured loans:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995 1994 1993 1992
------ ---- ------ ---- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans................................ $1,450 $935 $ 485 $96 $ 138
Accruing loans past due 90 days or more......... 538 969 1,487 931 1,380
</TABLE>
Interest income that would have been recorded on loans accounted for on a
non-accrual basis under the original terms of such loans was $179,000 for the
year ended December 31, 1996 and $74,000 was recorded as interest income from
non-accrual loans for the year ended December 31, 1996.
Impaired loans are included with non-accrual loans in the above table, and
amounted to $487,000 and $184,000 as of December 31, 1996 and 1995,
respectively. Impaired loans are commercial and commercial real estate loans
for which it is probable that Peoples will not be able to collect all amounts
due according to the contractual terms of the loan agreement. Peoples
individually evaluates such loans for impairment and does not aggregate loans
by major risk classifications.
Classified Assets Management regularly reviews the loan portfolio in order
to identify potential problem loans, and classifies any potential problem
loans as a special mention, substandard, doubtful, or loss asset. An asset is
considered substandard if it is inadequately protected by the current equity
and paying capacity of the borrower or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility
that the bank will sustain some loss if the deficiencies are not corrected.
Assets classified as doubtful have all the weaknesses of those classified as
substandard with the additional characteristic that the weaknesses make
collection or liquidation in full highly questionable and improbable. Assets
classified as loss are considered uncollectible and of such little value that
their continuance as assets without the establishment of a specific reserve is
not warranted. Assets that do not currently expose the bank to a sufficient
degree of risk to warrant classification but do possess credit deficiencies or
potential weaknesses deserving management's close attention are designated
special mention. Special mention assets have a potential weakness or pose an
unwarranted financial risk that, if not corrected, could weaken the asset and
increase risk in the future.
On the basis of management's review of its loan portfolio, at December 31,
1996, Peoples has classified $1.4 million as substandard and $5.0 million as
special mention. Peoples has no assets classified as doubtful or loss at
December 31, 1996.
At December 31, 1996, there were no loans which were not included as past
due, or nonaccrual, where known information about possible credit problems of
borrowers causes management to have serious doubts as to the ability of such
borrowers to comply with the present repayment terms.
Allowance for Loan Losses The allowance for loan losses increased to $1.7
million or 1.09% of total loans at December 31, 1996 from $1.1 million or .89%
of total loans at December 31, 1995 as compared to $838,000 or .82% at
December 31, 1994. The increase in the allowance for loan losses resulted
primarily from increases in the loan portfolio, coupled with the fact that a
significant portion of this growth was in commercial real estate loans. The
adequacy of the allowance for loan losses is determined by management's
periodic evaluation of individual loans, the overall risk characteristics of
the various portfolio segments, past experience with losses, the impact of
economic conditions on borrowers, and other relevant factors.
F-24
<PAGE>
This table summarizes Peoples loan loss experience for each of the periods
indicated:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance, beginning of period................ $1,127 $ 838 $762 $757 $756
Charge-offs:
Commercial, industrial and agricultural.. 92 3 1
Real estate-mortgage..................... 31 82 46 72
Consumer................................. 225 68 57 55 50
------ ------ ---- ---- ----
348 150 60 102 122
------ ------ ---- ---- ----
Recoveries:
Commercial, industrial and agricultural.. 4
Real estate-mortgage..................... 10 9 32 30 10
Consumer................................. 22 10 4 8 3
------ ------ ---- ---- ----
32 19 36 42 13
------ ------ ---- ---- ----
Net charge-offs........................... 316 131 24 60 109
Provision for loan losses................. 875 420 100 65 110
------ ------ ---- ---- ----
Balance, end of period...................... $1,686 $1,127 $838 $762 $757
====== ====== ==== ==== ====
Ratio of net charge-offs to average loans
outstanding................................ 0.23% 0.12% 0.02% 0.07% 0.13%
</TABLE>
Management uses 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
reserves at a level necessary to meet present and potential risk
characteristics of the loan portfolio. The increased levels of loans and
charge-offs has been a significant factor in determining the level of the
provision for loan losses.
Management also considers the causes of charge-offs to assist in the
evaluation of the adequacy of the allowance for loan losses. There has been a
marked increase in the levels of charge-offs in recent years relating to
residential real estate and consumer loans. The charge-offs relating to
residential real estate loans in 1995 were attributable to three properties
which were foreclosed on and written down to fair value prior to being
classified as other real estate owned. Historically, Peoples has had minimal
activity relating to other real estate which is attributable to its
conservative underwriting standards. Peoples has also noticed an increase in
the level of consumer loan charge-offs, particularly those which are
unsecured. The levels of personal bankruptcies in Peoples market area are at
an all time high which have significantly contributed to the levels of
consumer loan losses.
Peoples has allocated and unallocated components of its allowance for loan
losses. The allocated portion reflects expected losses based on specific
review of individual loans and applying standard loss ratios to those loans
not individually evaluated. The unallocated component is more subjective in
nature, based upon management's assessment of nonquantifiable factors such as:
dependency on local economic conditions, increased levels and types of
lending, increased levels of loan charge-offs, and trends and levels of
current nonperforming loans. Peoples has increased its unallocated component
of the allowance for loan losses as a result of the significant increases over
the past three years of total loans, increased volume of commercial real
estate lending, increased levels of charge-offs in the past two years, and the
levels of personal bankruptcies occurring in its market area.
Based on continual evaluation of the loan quality and assessment of the risk
characteristics, management believes the allowance for loan losses is adequate
to absorb probable loan losses.
F-25
<PAGE>
This table shows the allocation of the allowance for loan losses as of the
end of each reported period:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH EACH
CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO CATEGORY TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, industrial
and agricultural....... $ 222 5% $ 244 6% $202 9% $115 7% $ 59 8%
Real estate--construc-
tion................... 136 7% 81 5% 37 3% 20 3% 7 1%
Real estate--mortgage... 836 82% 539 80% 446 78% 389 76% 398 75%
Consumer................ 98 6% 176 9% 129 10% 98 14% 161 16%
Unallocated............. 394 0% 87 0% 24 0% 140 0% 132 0%
------ --- ------ --- ---- --- ---- --- ---- ---
$1,686 100% $1,127 100% $838 100% $762 100% $757 100%
====== === ====== === ==== === ==== === ==== ===
</TABLE>
Deposits Total average deposits decreased during the year by $1.7 million
from $238.4 million at December 31, 1995 to $236.7 million at December 31,
1996. Average noninterest-bearing deposits increased by $4.2 million while
average interest-bearing deposits decreased by $5.9 million. The modest
decrease in total average deposits is consistent with recent years' trends as
competition from other financial services industries continues to offer
customers an alternative investment instrument.
Since 1994, there has been a significant change in the composition of the
deposit portfolio. Average demand deposits, money market accounts and savings
accounts have declined from $20.6 million, $22.4 million and $119.8 million at
December 31, 1994 to $20.0 million, $14.9 million and $83.2 million at
December 31, 1996, respectively. During the same period, average time deposits
have increased from $47.7 million at December 31, 1994 to $77.7 million at
December 31, 1996. The fluctuation between savings and time deposits was
influenced by customer reaction to a strategic reduction in the rates paid on
savings accounts beginning in 1994. Historically, Peoples paid higher than
market rates on savings accounts. In an effort to lower Peoples interest rate
risk, management began to reduce interest rates on savings products in 1994 to
encourage depositors to move to time deposits.
The daily average amounts of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand depos-
its............................. $ 40,930 $ 36,757 $ 34,799
Interest-bearing demand depos-
its............................. 20,045 1.92% 19,845 2.00% 20,573 2.20%
Money market accounts............ 14,870 2.59% 16,431 2.50% 22,386 2.74%
Savings deposits................. 83,165 2.49% 94,656 3.03% 119,788 3.25%
Time deposits.................... 77,670 5.35% 70,721 5.54% 47,717 4.85%
-------- -------- --------
$236,680 $238,410 $245,263
======== ======== ========
</TABLE>
F-26
<PAGE>
Maturities of time certificates of deposit of $100,000 or more outstanding
at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
3 Months or less................................................. $ 1,396
Over 3 through 6 months.......................................... 688
Over 6 through 12 months......................................... 2,731
Over 12 months................................................... 7,599
-------
$12,414
=======
</TABLE>
Stockholder's Equity Stockholder's equity was $49.8 million at December 31,
1996, an increase of $2.7 million from $47.1 million at December 31, 1995. The
increase was comprised of net profits of $5.0 million offset by dividends paid
to stockholders of $1.5 million and decreased net unrealized gain on
securities of $804,000.
Peoples is subject to risk-based capital rules. These guidelines include a
common framework for defining elements of capital and a system for relating
capital to risk. The minimum risk-based capital requirement is 8%.
Additionally, the general regulatory guidelines establish a minimum ratio of
leverage capital to adjusted total assets of 3% for top rated financial
institutions, with less highly rated institutions or those with higher levels
of risk, required to maintain ratios of 100 to 200 basis points above the
minimum level.
The following table reflects Peoples capital ratios for the periods
presented:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
CAPITAL COMPONENTS
Tier I.................................................... $ 47,836 $ 44,297
Total risk-based.......................................... 49,522 45,424
ASSETS
Risk weighted assets...................................... $154,801 $144,858
Average tangible assets................................... 287,385 284,685
CAPITAL RATIOS
Tier I risk-based capital................................. 30.90% 30.58%
Total risk based capital.................................. 31.99% 31.36%
Leverage.................................................. 16.65% 15.56%
MINIMUM REGULATORY GUIDELINES
Tier I risk-based capital................................. 4.00% 4.00%
Total risk based capital.................................. 8.00% 8.00%
Leverage.................................................. 4.00% 4.00%
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The liquidity of a banking institution reflects its ability to provide funds
to meet loan requests, to accommodate possible outflows of deposits, and to
take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits. Peoples liquidity is thus normally considered in terms of the nature
and mix of the institution's sources and uses of funds.
Closely related to the concept of liquidity is the management of rate
sensitive assets and rate sensitive liabilities. Peoples manages its rate
sensitivity position to minimize fluctuation in the net interest margin and to
minimize the risk due to changes in interest rates, thereby attempting to
achieve consistent growth of net interest income.
F-27
<PAGE>
The table below reflects Peoples interest rate sensitivity position of
assets and liabilities based on their maturities or period of first repricing.
<TABLE>
<CAPTION>
RATE SENSITIVE
(IN THOUSANDS)
-----------------------------------------------------------
1 TO 90 91 TO 180 181 TO 365 1 TO 2 BEYOND
DAYS DAYS DAYS YEARS 2 YEARS TOTAL
-------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets
Loans................. $ 35,246 $ 9,661 $ 20,329 $ 24,843 $ 62,243 $152,322
Federal funds sold.... 6,465 6,465
Investment securi-
ties................. 3,371 5,629 8,795 17,554 82,767 118,116
-------- -------- -------- -------- -------- --------
Total Rate Sensitive
Assets............. $ 45,082 $ 15,290 $ 29,124 $ 42,397 $145,010 $276,903
-------- -------- -------- -------- -------- --------
Cumulative Rate
Sensitive Assets... $ 45,082 $ 60,372 $ 89,496 $131,893 $276,903
-------- -------- -------- -------- --------
Rate Sensitive Liabili-
ties
Interest-bearing de-
mand................. $ 19,842 $ 19,842
Money market.......... 15,341 15,341
Savings............... 79,505 79,505
Time deposits......... 16,146 $ 13,513 $ 15,452 $ 15,893 $ 18,899 79,903
-------- -------- -------- -------- -------- --------
Total Rate Sensitive
Liabilities........ $130,834 $ 13,513 $ 15,452 $ 15,893 $ 18,899 $194,591
-------- -------- -------- -------- -------- --------
Cumulative Rate
Sensitive
Liabilities........ $130,834 $144,347 $159,799 $175,692 $194,591
-------- -------- -------- -------- --------
Period Interest Rate
Sensitivity........ $(85,752) $ 1,777 $ 13,672 $ 26,504 $126,111 $ 82,312
======== ======== ======== ======== ======== ========
Cumulative Gap...... $(85,752) $(83,975) $(70,303) $(43,799) $ 82,312
======== ======== ======== ======== ========
Rate Sensitive
Assets/Rate Sensi-
tive Liabilities... 0.34 0.42 0.56 0.75 1.42
</TABLE>
In analyzing its gap position, although all time periods are considered,
Peoples emphasizes the next twelve month period. An institution is considered
to be liability sensitive, or as having a negative gap, when the amount of its
rate sensitive liabilities maturing or repricing with a given time period
exceeds the amount of its rate sensitive assets also repricing within that
same period. Conversely, an institution is considered to be asset sensitive,
or as having a positive gap, when the amount of its rate sensitive liabilities
maturing or repricing is less than the amount of its rate sensitive assets
also maturing or repricing during the same period. Generally, in a falling
interest rate environment, a negative gap should result in an increase in net
interest income, and in a rising interest rate environment this negative gap
should adversely affect net interest income. The converse would be true for a
positive gap. The table above reflects that at the one year time horizon,
Peoples is liability sensitive and should be adversely affected by a rising
interest rate environment.
However, shortcomings are inherent in a simplified gap analysis that may
result in changes in interest rates affecting net interest income more or less
than the gap analysis would indicate. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may
react in different degrees to changes in market interest rates. Also, Peoples
looks to its portfolio of investment securities available for sale as a
primary source of liquidity, providing the ability to reprice these rate
sensitive assets in periods of rising interest rates. Although Peoples does
not employ simulation modeling of its interest rate sensitivity position on a
routine basis, in management's opinion a rise in interest rates of 200 basis
points would not have a material impact on Peoples net interest income.
F-28
<PAGE>
RESULTS OF OPERATIONS
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 obligations of states and political
subdivisions is not subject to federal income tax. As such, the stated (pre-
tax) yield on these securities is lower than the yields on taxable securities
of similar risk and maturity. In order to make the pre-tax income and
resultant yields comparable to taxable investment securities, 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 34% for the years ended December 31, 1996, 1995, and 1994. The
following table demonstrates the amount that has been added to interest
income.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income per statements of income.............. $21,011 $20,003 $19,905
Adjustment to fully taxable equivalent basis.......... 613 679 801
------- ------- -------
Interest income adjusted to fully taxable equivalent
basis................................................ 21,624 20,682 20,706
Interest expense...................................... 7,045 7,679 7,297
------- ------- -------
Net interest income adjusted to fully taxable equiva-
lent basis........................................... $14,579 $13,003 $13,409
======= ======= =======
</TABLE>
F-29
<PAGE>
The average balance sheet and net interest income analysis for the years
ended December 31, 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1996 1995 1994
------------------------- ------------------------- -------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------ -------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1)............... $140,081 $12,317 8.79% $113,380 $10,073 8.88% $ 97,093 $ 8,781 9.04%
Taxable investment se-
curities.............. 107,336 7,283 6.79% 126,134 8,256 6.55% 141,609 9,351 6.60%
Tax-exempt investment
securities............ 23,578 1,803 7.65% 25,254 1,997 7.91% 28,182 2,356 8.36%
Federal funds sold..... 4,052 221 5.45% 6,129 356 5.81% 5,049 218 4.32%
-------- ------- -------- ------- -------- -------
Total interest-earning
assets................. 275,047 21,624 7.86% 270,897 20,682 7.63% 271,933 20,706 7.61%
Noninterest-earning as-
sets
Cash and due from
banks................. 6,711 6,933 8,625
Premises and equip-
ment.................. 4,367 4,725 4,166
Other assets........... 2,517 3,079 3,459
Less allowance for loan
losses................. (1,257) (949) (812)
-------- -------- --------
$287,385 $284,685 $287,371
======== ======== ========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Interest-bearing liabil-
ities:
Demand deposits........ $ 20,045 $ 385 1.92% $ 19,845 $ 396 2.00% $ 20,573 $ 453 2.20%
Money market accounts.. 14,870 385 2.59% 16,431 410 2.50% 22,386 613 2.74%
Savings deposits....... 83,165 2,072 2.49% 94,656 2,864 3.03% 119,788 3,888 3.25%
Time deposits.......... 77,670 4,153 5.35% 70,721 3,921 5.54 % 47,717 2,315 4.85%
Obligations under capi-
tal lease............. 377 50 13.26% 654 88 13.46% 222 28 12.67%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities............ 196,127 7,045 3.59% 202,307 7,679 3.80% 210,686 7,297 3.46%
Noninterest-bearing lia-
bilities:
Demand deposits........ 40,930 36,757 34,799
Other.................. 2,289 2,063 2,502
Shareholders' equity.... 48,039 43,558 39,384
-------- -------- --------
$287,385 $284,685 $287,371
======== ======== ========
------- ------- -------
Net interest income..... $14,579 $13,003 $13,409
======= ======= =======
Net yield on interest-
earning assets......... 5.30% 4.80% 4.93%
</TABLE>
- --------
(1) For the purpose of these computations, nonaccruing loans are included in
the daily average loan amounts outstanding.
F-30
<PAGE>
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 rate:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1996 VS 1995 1995 VS 1994
---------------------------------- ---------------------------------
INCREASE (DECREASE) DUE TO (1) INCREASE (DECREASE) DUE TO (1)
---------------------------------- ---------------------------------
VOLUME RATE NET VOLUME RATE NET
----------- --------- ---------- ----------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans................. $ 2,347 $ (103) $ 2,244 $ 1,453 $ (161) $ 1,292
Taxable investment se-
curities............. (1,267) 294 (973) (1,367) 272 (1,095)
Tax-exempt investment
securities........... (123) (71) (194) 211 (570) (359)
Federal funds sold.... (111) (24) (135) (11) 149 138
----------- --------- ---------- ---------- --------- ----------
$ 846 $ 96 $ 942 $ 286 $ (310) $ (24)
Interest paid on:
Demand deposits....... 4 (15) (11) (17) (40) (57)
Money market ac-
counts............... (40) 15 (25) (104) (99) (203)
Savings deposits...... (491) (301) (792) (413) (611) (1,024)
Time deposits......... 371 (139) 232 (190) 1,796 1,606
Other borrowed funds.. (37) (1) (38) 56 4 60
----------- --------- ---------- ---------- --------- ----------
$ (193) $ (441) $ (634) $ (668) $ 1,050 $ 382
---------- ----------
Change in net interest
income................. $ 1,576 $ (406)
========== ==========
</TABLE>
- --------
(1) The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
The table below shows operating and capital ratios of Peoples for the dates
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Return on average assets............................. 1.74% 1.54% 1.58%
Return on average equity............................. 10.39% 10.04% 11.50%
Dividend payout ratio................................ 29.11% 20.38% 17.89%
Equity to asset ratio................................ 17.12% 16.30% 14.40%
</TABLE>
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 AND 1995
Net Income Net income amounted to $5.0 million or $43.16 per share in 1996,
representing an increase of 14.2% from the $4.4 million or $37.81 per share in
1995. The return on average assets was 1.74% for 1996 and 1.54% for 1995. The
return on average equity was 10.39% in 1996 compared to 10.04% in 1995.
Net Interest Income On a fully taxable equivalent basis, net interest income
increased $1.6 million or 12.1% in 1996 as compared to 1995. The net yield on
interest-earning assets increased by 50 basis points (1% equals 100 basis
points) to 5.30%, while the average balance of interest-earning assets
increased by $4.2 million or 1.5%.
F-31
<PAGE>
Total interest income increased $962,000 which is the result of the shifting
of $20.5 million of the investment securities with a weighted average yield of
6.94% along with $2.1 million of federal funds sold yielding 5.45% to the loan
portfolio yielding 8.79%, plus the additional loan growth of $4.1 million.
Total interest expense declined by $634,000 primarily as a result of a 21
basis point decline in the total cost of funds from 3.80% in 1995 to 3.59% in
1996. This was also compounded by a decline in total average interest-bearing
liabilities of $6.2 million.
Provision for Loan Losses The provision for loan losses amounted to $875,000
for 1996 compared to $420,000 in 1995. The increase in the provision is the
result of significant increases in the loan portfolio and loan charge-offs
over the past two years. Also affecting the level of the provision for loan
losses is the fact that a significant portion of this loan growth is secured
by commercial real estate. Historically, Peoples has experienced minimal net
charge-offs relating to residential real estate loans, however management
recognizes that commercial real estate loans inherently possess a greater
degree of risk of loss. Net charge-offs totaled $316,000 in 1996 compared to
$131,000 in 1995. The increased levels of charge-offs have primarily been the
result of unsecured consumer loans, resulting from personal bankruptcies
reaching an all time high.
Noninterest Income Noninterest income decreased $35,000 or 4.2% in 1996
compared to 1995. The decrease was attributable to reduced levels of security
gains in 1996 and higher levels of service charges on deposit accounts. During
1996, Peoples recognized net security gains of $55,000 compared to net
security gains in 1995 of $121,000. The level of security gains in 1996 and
1995 were the result of the sale of U. S. Treasury securities during the
periods, as previously discussed. The increase in service charges on deposit
accounts relates to a greater volume on noninterest-bearing deposit accounts.
Noninterest Expense Noninterest expense increased by $134,000 in 1996
compared to 1995. The increase was primarily the result of increases in
salaries and employee benefits of $113,000, professional fees of $465,000 and
other expenses of $225,000, offset by declines in FDIC insurance premiums of
$277,000 and loss from fraudulent transactions of $405,000.
Salaries and employee benefits increased by $113,000 or 3.7% which reflects
normal salary increases during 1996.
Professional fees relating to accounting and legal services increased by
$465,000 during 1996, as a result, of two significant events. The first event
was the discovery and investigation of activities of a now former executive
officer of Peoples who had executed a series of fraudulent transactions. The
second event was the negotiation and performance of the Agreement and Plan of
Merger being entered into by Peoples and S&T Bank, in connection with which
Peoples was required to comply with the additional reporting requirements of
filings to be submitted to the Securities and Exchange Commission.
The most significant increases in other expenses related to costs of real
estate owned and costs associated with the loan growth in recent years.
Historically, Peoples has had very low volumes of real estate acquired in
settlement of loans. During 1996, Peoples incurred costs associated with the
foreclosure and disposal of real estate owned amounting to $52,000. Costs
associated with the credit analysis of existing loans, such as credit searches
and reappraisals to ensure the credit worthiness of the loan portfolio,
increased by approximately $50,000 during 1996.
As a result of the Bank Insurance Fund (the "BIF") reaching its required
level of capitalization, Peoples was only required to pay a $2,000 premium in
1996 compared to 4 basis points on all insurable deposits or $279,000 in 1995.
As discussed in the Notes to the Financial Statements, it was discovered
that a now former executive officer of Peoples had executed a series of
fraudulent transactions which resulted in a loss of $405,000. These
F-32
<PAGE>
transactions consisted primarily of granting loans to individuals where the
proceeds were ultimately received by the executive officer. Peoples is
actively pursuing recovery.
Federal Income Taxes Federal income tax expense increased $399,000 to
$2,015,000 in 1996, as a result of higher levels of pre-tax income. The 1996
effective tax rate of 28.8% was below the 34% statutory rate primarily as a
result of tax-exempt interest.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 AND 1994
Net Income Net income amounted to $4.4 million or $37.81 per share in 1995,
representing a decline of 3.4% from the $4.5 million or $39.15 per share in
1994. The return on average assets was 1.54% for 1995 and 1.58% for 1994. The
return on average equity was 10.04% in 1995 compared to 11.50% in 1994.
Net Interest Income On a fully taxable equivalent basis, net interest income
decreased $406,000 or 3.0% in 1995 as compared to 1994. The net yield on
interest-earning assets decreased slightly by 13 basis points to 4.80%, while
the average balance of interest-earning assets declined by $1.0 million or
.4%.
Although net interest income declined slightly, average loans increased by
$16.3 million while average investment securities declined by $18.4 million.
The yield on average loans during 1995 amounted to 8.88% compared to the
weighted yield on investment securities of 6.77%.
Net interest income was most significantly effected by the increase in costs
of funds relating to time deposits, increasing 69 basis points compounded by
the increase in average time deposits of $23.0 million. The increase in
average time deposits was offset by a decline in average savings accounts of
$25.1 million. As a result of the significant growth in loans during the year,
management attempted to shift its deposit mixture to improve its interest rate
risk position. The level and mix of funds is continually monitored by the
Asset/Liability Committee in order to mitigate the interest rate sensitivity
and liquidity risks of the balance sheet.
Provision for Loan Losses The provision for loan losses amounted to $420,000
for 1995 compared to $100,000 in 1994. As previously discussed in the
comparison of 1996 results of operations with 1995, the increase in the
provision is primarily the result of the continued loan growth in 1995 and the
risk associated with those loans. Net charge-offs totaled $131,000 in 1995 as
compared to $24,000 in 1994. The increase in charge-offs in 1995 related
primarily to write downs of $82,000 on three residential real estate
properties which were acquired in foreclosure and transferred to other real
estate owned.
Noninterest Income Noninterest income increased $141,000 or 20.2% in 1995
compared to 1994. The increase was attributable to increased levels of
security gains in 1995. During 1995 Peoples recognized net security gains of
$121,000 compared to net security losses in 1994 of $3,000. The level of
security gains in 1995 were the result of the sale of U. S. Treasury
securities for the purpose of reinvesting the proceeds in loan originations
and mortgage-backed securities.
Noninterest Expense Noninterest expense decreased by $331,000 in 1995
compared to 1994. The decline was primarily the result of declines in salaries
and employee benefits of $294,000, data processing costs of $266,000 and FDIC
insurance premiums of $280,000, offset by increases in furniture and equipment
of $150,000 and loss from fraudulent transactions of $405,000.
The decline in salary and employee benefits was the result of two
significant events. The first event was a change in the health coverage in
1995 from an indemnity plan to a point of service plan resulting in a savings
of $92,000. The second change resulted from a buyout of an employment contract
and related pension benefit in 1994 of a former executive officer of Peoples,
resulting in a charge to operations of $189,000.
Data processing expense declined and furniture and fixture expense increased
as a result of the new data processing system put in place during the fourth
quarter of 1994. The new computer equipment placed in service
F-33
<PAGE>
was accounted for as a capital lease. Prior to the fourth quarter of 1994
Peoples utilized a third party for data processing needs.
FDIC insurance premiums were reduced from 23 basis points to 4 basis points
resulting in a savings of $280,000 to Peoples. The FDIC insurance rate was
reduced as a result of the BIF reaching its required level of capitalization.
In September of 1996, it was discovered that a now former executive officer
of Peoples had executed a series of fraudulent transactions which resulted in
a loss of $405,000. These transactions consisted primarily of granting loans
to individuals where the proceeds were ultimately received by the executive
officer. Peoples is actively pursing recovery.
Federal Income Taxes Federal income tax expense increased $23,000 to
$1,616,000 in 1995, as a result of lower levels of tax-exempt income. The 1995
effective tax rate of 27.0% was below the 34% statutory rate primarily as a
result of tax-exempt interest.
F-34
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement") dated as
of November 25, 1996, by and among PEOPLES BANK OF UNITY ("Peoples"), a
Pennsylvania banking institution having its registered office at 7660
Saltsburg Road, Pittsburgh, Pennsylvania 15239-3700, S&T BANCORP, INC.
("S&T"), a Pennsylvania corporation having its principal executive office at
800 Philadelphia Street, Indiana, Pennsylvania 15701-3921 and S&T Bank, a
Pennsylvania banking institution having its registered office at 800
Philadelphia Street, Indiana, Pennsylvania 15701-3921, the stock of which is
wholly owned by S&T.
WITNESSETH
WHEREAS, the parties hereto desire that Peoples shall be merged with and
into S&T Bank ("Merger") pursuant to an Agreement and Plan of Merger
substantially in the form attached hereto as Annex A ("Plan of Merger")
pursuant to which the shareholders of Peoples will receive shares of common
stock of S&T in exchange for their shares of common stock of Peoples; and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE 1
Definitions
1.1. "Bank Holding Company Act" shall mean the Bank Holding Company Act of
1956, as amended.
1.2. "Closing Date" shall mean the date specified pursuant to Section 4.9
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.3. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.4. "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.5. "Competing Transaction" shall mean any of the following involving
Peoples (other than the transactions contemplated by this Reorganization
Agreement): (a) any merger, consolidation, share exchange for a controlling
interest, business combination or other similar transaction; (b) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 15% or
more of the assets of Peoples in a single transaction or series of
transactions to the same person, entity or group or (c) any public
announcement by Peoples of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
1.6. "Department of Banking" shall mean the Pennsylvania Department of
Banking.
1.7. "Effective Date" shall mean the date specified pursuant to Section 4.9
hereof as the effective date of the Merger.
1.8. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
1.9. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
A-1
<PAGE>
1.10. "FDIA" shall mean the Federal Deposit Insurance Act.
1.11. "FDIC" shall mean the Federal Deposit Insurance Corporation.
1.12. "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.13. "Investment Company Act" means the Investment Company Act of 1940, as
amended.
1.14. "Pennsylvania Banking Code" shall mean the Pennsylvania Banking Code
of 1965, as amended.
1.15. "Peoples Financial Statements" shall mean (i) the unaudited balance
sheet and income statement of Peoples as of September 30, 1996 and the audited
balance sheets as of December 31, 1995 and 1994 and the related statements of
cash flows and changes in shareholders' equity (including related notes, if
any) and the income statements for each of the three years ended December 31,
1995, 1994 and 1993 and (ii) the balance sheets of Peoples and related
statements of income (including statements of cash flows and changes in
shareholders' equity and related notes, if any) with respect to quarterly or
annual periods ended subsequent to September 30, 1996; except that financial
statements as of, or for the nine months ended, September 30, 1996 are
contained in a revised Call Report to be filed in November or December, 1996,
and have been prepared in accordance with generally accepted accounting
principles in all material respects, except that such financial statements do
not contain statements of cash flows or changes in shareholders' equity or
footnotes and are subject to normal year-end adjustments.
1.16. "Previously Disclosed" shall mean disclosed prior to the execution
hereof in a letter dated of even date herewith from Peoples and delivered to
S&T.
1.17. "Proxy Statement" shall mean the joint proxy statement/prospectus (or
similar documents) together with any supplements thereto sent to the
shareholders of S&T and Peoples to solicit their votes in connection with this
Reorganization Agreement and the Plan of Merger.
1.18. "Registration Statement" shall mean the registration statement with
respect to the S&T Common Stock to be issued in connection with the Merger as
declared effective by the Commission under the Securities Act.
1.19. "Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock, and stock appreciation rights,
performance units and other similar stock-based rights whether they obligate
the issuer thereof to issue stock or other securities or to pay cash.
1.20. "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
1.21. "Securities Act" shall mean the Securities Act of 1933, as amended.
1.22. "Securities Laws" shall mean: the Securities Act; the Exchange Act;
the Investment Company Act; the Investment Advisers Act of 1940, as amended;
the Trust Indenture Act of 1939, as amended; and the rules and regulations of
the Commission promulgated thereunder.
1.23. "S&T Financial Statements" shall mean (i) the consolidated balance
sheets of S&T as of September 30, 1996 and as of December 31, 1995 and 1994
and the related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the nine months
ended September 30, 1996 and each of the three years ended December 31, 1995,
1994 and 1993 as filed by S&T in SEC Documents and (ii) the consolidated
balance sheets of S&T and related consolidated statements of income, cash
flows and changes in shareholders' equity (including related notes, if any) as
filed by S&T in SEC Documents with respect to quarterly or annual periods
ended subsequent to September 30, 1996.
A-2
<PAGE>
1.24. "Tax" or "Taxes" shall mean all income, gross receipts, gains, sales,
use, employment, franchise, profits, excise, property, value added, commercial
rent or other taxes, fees, stamp taxes and duties, assessments or charges of
any kind whatsoever (whether payable directly or by withholding), together
with any interest and penalties, additions to tax or additional amounts with
respect thereto imposed by any taxing authority.
1.25. "Tax Returns" shall mean all federal, state, local and foreign tax
returns including, without limitation, estimated tax returns, returns required
under Sections 1441-1446 and 6031-6060 of the Code and any regulations
thereunder, and any comparable state and local laws and regulations,
withholding tax returns, FICA and FUTA returns and back-up withholding returns
required under Section 3406 of the Code and the regulations thereunder, and
any comparable state and local laws and regulations.
Other terms used herein are defined in the preamble and the recitals to this
Reorganization Agreement.
ARTICLE 2
Representations and Warranties of Peoples
Peoples hereby represents and warrants to S&T as follows:
2.1. CAPITAL STRUCTURE OF PEOPLES
The authorized capital stock of Peoples consists of 115,660 shares of common
stock, par value $10.00 per share ("Peoples Common Stock"), all of which
shares are issued and outstanding. All outstanding shares of Peoples capital
stock have been duly issued and are validly outstanding, fully paid and
nonassessable. There are no Rights authorized, issued or outstanding with
respect to the capital stock of Peoples. None of the shares of Peoples capital
stock has been issued in violation of the preemptive rights of any person.
2.2. NO SUBSIDIARIES
Peoples does not own, directly or indirectly, 5% or more of the outstanding
capital stock or other voting securities of any corporation, bank, savings
association or other organization.
2.3. ORGANIZATION, STANDING AND AUTHORITY OF PEOPLES
Peoples is a duly organized Pennsylvania banking institution, validly
existing and in good standing under applicable laws. Peoples has full power
and authority to carry on its business as now conducted. Peoples is not
required to be qualified to do business in any other State of the United
States or any foreign jurisdiction. Peoples has all material federal, state
and local governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now being
conducted.
2.4. AUTHORIZED AND EFFECTIVE REORGANIZATION AGREEMENT
(a) Peoples has all requisite corporate power and authority to enter into
and perform all of its obligations under this Reorganization Agreement. The
execution and delivery of this Reorganization Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized
by all necessary corporate action in respect thereof on the part of Peoples,
subject to approval thereof by the shareholders of Peoples to the extent
required by applicable law and the Articles of Incorporation and By-Laws of
Peoples.
(b) Upon the execution of the Plan of Merger and at all times thereafter
until the Closing Date, Peoples will have all requisite corporate power and
authority to enter into and perform all of its obligations under the Plan of
Merger, and the execution and delivery of the Plan of Merger and the
consummation of the transactions contemplated thereby (at the time of such
execution) will have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Peoples, except that the
affirmative vote of the holders of two-thirds of the outstanding shares of
Peoples Common Stock is required to approve the Plan of Merger pursuant to the
Pennsylvania Banking Code.
A-3
<PAGE>
(c) This Reorganization Agreement constitutes a legal, valid and binding
obligation of Peoples and the Plan of Merger, upon the authorization,
execution and delivery thereof by the parties thereto, will constitute a
legal, valid and binding obligation of Peoples, in each case enforceable
against it in accordance with their respective terms, subject to receipt of
shareholder approval and, as to enforceability, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(d) Except as Previously Disclosed, neither the execution and delivery of
this Reorganization Agreement or the Plan of Merger, nor consummation of the
transactions contemplated hereby or thereby, nor compliance by Peoples with
any of the provisions hereof or thereof shall (i) conflict with or result in a
breach of any provision of the articles of incorporation or by-laws of
Peoples, (ii) constitute or result in a breach of any material term, condition
or provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of
Peoples pursuant to, any material note, bond, mortgage, indenture, license,
agreement or other instrument or obligation, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Peoples.
2.5. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The Peoples Financial Statements fairly present the financial position of
Peoples as of the dates indicated and the results of operations (and changes
in shareholders' equity and cash flows for audited periods) of Peoples for the
periods then ended in conformity with generally accepted accounting principles
(in all material respects for unaudited periods) applied on a consistent basis
except as disclosed therein and except that the Peoples Financial Statements
as of, or for the nine months ended, September 30, 1996 (which were included
in a revised Call Report) and all other interim financial statements for
periods prior to September 30, 1996 were prepared in accordance with generally
accepted accounting principles in all material respects, except that such
financial statements do not contain statements of cash flows or changes in
shareholders' equity or footnotes and are subject to normal year-end
adjustments. Except as Previously Disclosed, the books and records of Peoples
fairly reflect in all material respects the transactions to which it is a
party or by which its properties are subject or bound. Except as Previously
Disclosed, such books and records have been properly kept and maintained and
are in compliance in all material respects with all applicable legal and
accounting requirements. Except as Previously Disclosed, the minute books of
Peoples contain accurate records of all corporate actions of its shareholders
and Board of Directors (including committees of its Board of Directors).
2.6. MATERIAL ADVERSE CHANGE
Except as Previously Disclosed, Peoples has not suffered any material
adverse change in its financial condition, results of operations or business
since December 31, 1995.
2.7. ABSENCE OF UNDISCLOSED LIABILITIES
Peoples has no liability (contingent or otherwise) that is material to
Peoples, or that, when combined with all similar liabilities, would be
material to Peoples, except as disclosed in the Peoples Financial Statements
as of the date of this Reorganization Agreement or as Previously Disclosed.
2.8. PROPERTIES
Peoples has good and marketable title free and clear of all liens,
encumbrances, charges, defaults or equitable interests to all of the
properties and assets, real and personal, reflected on the Peoples Financial
Statements as being owned by Peoples as of December 31, 1995 or acquired after
such date, except (i) liens for taxes not yet due and payable, (ii) pledges to
secure deposits and other liens incurred in the ordinary course of banking
business, (iii) such imperfections of title, easements and encumbrances, if
any, as are not material in character, amount or extent and (iv) dispositions
and encumbrances for reasonably adequate consideration in the ordinary course
of business. All leases pursuant to which Peoples, as lessee, leases real or
personal property are
A-4
<PAGE>
valid and subsisting in accordance with their respective terms. Peoples has
Previously Disclosed a true, complete and correct list of all personal
property owned by officers or directors of Peoples and located on the premises
of Peoples or used in Peoples' business.
2.9 LOANS
Each loan reflected as an asset in the Peoples Financial Statements as of
September 30, 1996, and each loan entered into subsequent thereto, (i) is
evidenced in all material respects by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected, and (iii) is the legal, valid and binding obligation of
the obligor named therein, enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. Except as Previously Disclosed, as of September 30, 1996, Peoples
is not a party to any loan, including any loan guaranty, with any director,
executive officer or 5% shareholder of Peoples or any person, corporation or
enterprise controlling, controlled by or under common control with any of the
foregoing.
2.10. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the Peoples Financial Statements,
as of their respective dates, is adequate in all material respects under the
requirements of generally accepted accounting principles to provide for
reasonably anticipated losses on outstanding loans.
2.11. TAX MATTERS
(a) Peoples has timely filed all federal income tax returns required to be
filed by it for each year through December 31, 1995 and has timely filed, or
caused to be filed, all other federal, state, local and foreign Tax Returns
required to be filed with respect to Peoples.
(b) All Taxes due in respect of any tax periods have been paid or adequate
reserves have been established for the payment of such Taxes and, as of the
Closing Date, all Taxes due or to become due in respect of any tax periods
ending on or prior to the Closing Date will have been paid or adequate
reserves or accruals will have been established for the payment thereof.
Peoples will not have any material liability for any Taxes in excess of the
amounts so paid or reserves or accruals so established. No audit examination
or deficiency or refund litigation is pending with respect to tax periods of
Peoples ending on or prior to the Closing Date.
(c) All federal, state and local (and, if applicable, foreign) Tax Returns
filed by Peoples are complete and accurate in all material respects. Peoples
is not delinquent in the payment of any Tax, assessment or governmental
charge, and Peoples has not requested any extension of time within which to
file any Tax Returns in respect of any taxable year or portion thereof which
have not since been filed. No deficiencies for any Tax, assessment or
governmental charge have been proposed, asserted or assessed (tentatively or
otherwise) against Peoples which have not been settled and paid. There are
currently no agreements in effect with respect to Peoples to extend the period
of limitations for the assessment or collection of any Tax.
(d) Termination of the employment of any employees of Peoples following
consummation of the transactions contemplated hereby will not cause Peoples to
make or to be required to make any "excess parachute payment" as that term is
defined in Section 280G of the Code.
2.12. EMPLOYEE BENEFIT PLANS
(a) Peoples has Previously Disclosed true and complete copies of all
qualified pension or profit-sharing plans, any deferred compensation,
consulting, bonus or group insurance contract or any other incentive, welfare
or employee benefit plan or agreement maintained for the benefit of employees
or former employees of Peoples, and will make available to S&T (i) the most
recent actuarial and financial reports prepared with respect to any
A-5
<PAGE>
plans qualified under Section 401(a) of the Code, (ii) the most recent annual
reports filed with any government agency and (iii) all rulings and
determination letters and any open requests for rulings or letters that
pertain to any plan qualified under Section 401(a) of the Code.
(b) Neither Peoples (nor any pension plan maintained by it) has incurred or
reasonably expects to incur any material liability to the Internal Revenue
Service with respect to any plan qualified under Section 401(a) of the Code.
Except as Previously Disclosed, Peoples has never sponsored, participated in
or maintained any defined benefit pension plan. Peoples has never participated
in a multiemployer plan as such term is defined in ERISA.
(c) A favorable determination letter has been issued by the Internal Revenue
Service with respect to each "employee pension plan" (as defined in Section
3(2) of ERISA) of Peoples which is intended to be a qualified plan to the
effect that such plan is qualified under Section 401 of the Code and tax
exempt under Section 501 of the Code. No such letter has been revoked or
threatened to be revoked and Peoples does not know of any ground on which such
revocation may be based. Such plans have been operated in all material
respects in accordance with their terms and applicable law.
(d) No prohibited transaction (which shall mean any transaction prohibited
by Section 406 of ERISA and not exempt under Section 408 of ERISA) has
occurred with respect to any "employee benefit plan" (as defined in Section
3(3) of ERISA) maintained by Peoples which would result in the imposition,
directly or indirectly, of an excise tax under Section 4975 of the Code or the
correction of which would have a material adverse effect on the financial
condition, results of operations or business of Peoples.
2.13. CERTAIN CONTRACTS
(a) Except as Previously Disclosed, Peoples is neither a party to, nor is it
bound by, (i) any material agreement, arrangement or commitment whether or not
made in the ordinary course of business (other than loans or loan commitments
made in the ordinary course of the banking business of Peoples), (ii) any
agreement, indenture or other instrument relating to the borrowing of money by
Peoples or the guarantee by Peoples of any such obligation, other than
instruments relating to transactions entered into in the customary course of
the banking business of Peoples and reflected in the Peoples Financial
Statements, (iii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election, retention in office or
severance of any present or former director or officer or (iv) any contract,
agreement or understanding with a labor union, in each case whether written or
oral.
(b) Peoples is not in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into
in the ordinary course of business or otherwise and whether written or oral,
and there has not occurred any event that, with the lapse of time or giving of
notice or both, would constitute such a default.
(c) Since December 31, 1995, Peoples has neither incurred nor paid any
obligation or liability that would be material to Peoples, except obligations
incurred or paid in connection with transactions in the ordinary course of
business of Peoples consistent with its past practices or except as Previously
Disclosed or reflected in the Peoples Financial Statements.
(d) Except as Previously Disclosed, Peoples is not a party to any
transaction (other than agreements Previously Disclosed in connection with
Section 2.13(a) hereof) with (i) any person who has been an executive officer
or a director of Peoples since January 1, 1993, (ii) any spouse of any such
officer or director, (iii) any parent, child, brother, sister, or other family
relation of any such officer or director who has the same home as such officer
or director, (iv) any corporation or other entity of which any such officer or
director or any such family relation is an officer, director, partner, or
greater than 5% shareholder (based on percentage ownership of voting stock) or
(v) any "affiliate" or "associate" of any such persons or entities (as such
terms are defined in the rules and regulations promulgated under the
Securities Act), including, without limitation, (x) any transaction involving
a contract, agreement, or other arrangement providing for the employment of,
furnishing of materials,
A-6
<PAGE>
products or services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity, and (y) loans
(including any loan guaranty) outstanding at the date hereof, but not (z)
deposit accounts maintained at Peoples in the ordinary course of its banking
business.
2.14. LEGAL PROCEEDINGS
Except as Previously Disclosed, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of Peoples, threatened against
Peoples or against any asset, interest or right of Peoples that would, if
determined adversely to Peoples, have a material adverse effect on Peoples. To
the knowledge of Peoples, there are no actual or threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or to impose upon S&T, Peoples or any of their respective
subsidiaries or affiliates any material cost or obligation in connection
therewith. Except as Previously Disclosed, there are no actions, suits or
proceedings instituted, pending or, to the knowledge of Peoples, threatened
against any present or former director or executive officer of Peoples that
might give rise to a claim for indemnification that would, if determined
adversely to Peoples, have a material adverse effect on Peoples, and, to the
knowledge of Peoples, there is no reasonable basis for any such action, suit
or proceeding.
2.15. COMPLIANCE WITH LAWS
Except as Previously Disclosed, Peoples is in compliance in all material
respects with all statutes and regulations applicable to the conduct of its
business, and neither Peoples nor, to the knowledge of Peoples, any director
or officer thereof has received notification from any agency or department of
federal, state or local government (i) asserting a material violation of any
such statute or regulation, (ii) threatening to revoke any license, franchise,
permit or government authorization or (iii) restricting or in any way limiting
its operations. Peoples is not subject to any regulatory or supervisory cease
and desist order, agreement, directive, memorandum of understanding or
commitment, and it has not received any communication requesting that it enter
into any of the foregoing. Without limiting the generality of the foregoing,
Peoples has timely filed all currency transaction reports required to be filed
and taken all other actions required under the Currency and Foreign
Transactions Reporting Act, codified at 31 U.S.C. (S) 5301 et seq., and its
implementing regulations.
2.16. BROKERS AND FINDERS
Neither Peoples nor any of its officers, directors or employees has employed
any broker, finder or financial advisor or incurred any liability for any fees
or commissions in connection with the transactions contemplated herein or the
Plan of Merger, except that Peoples has engaged and will pay a fee or
commission to Danielson Associates, Inc.
2.17. INSURANCE
Peoples has Previously Disclosed a complete and accurate summary of all
insurance policies and bonds maintained by Peoples. Except as Previously
Disclosed, Peoples has not received any notice of a premium increase or
cancellation with respect to any of its insurance policies or bonds and,
within the last three years, Peoples has not been refused any insurance
coverage sought or applied for, and Peoples has no reason to believe that
existing insurance coverage cannot be renewed as and when the same shall
expire, upon terms and conditions as favorable as those presently in effect,
other than possible increases in premiums or unavailability in coverage that
have not resulted from any extraordinary loss experience of Peoples.
2.18. DEPOSIT INSURANCE
Except as Previously Disclosed, Peoples is an insured bank as defined in the
FDIA, and Peoples has paid all assessments and filed all reports required by
the FDIA.
A-7
<PAGE>
2.19. ENVIRONMENTAL LIABILITY
There is no legal, administrative, arbitral or other proceeding, or, to the
knowledge of Peoples, claim, action, cause of action, or governmental
investigation of any nature seeking to impose, or that could result in the
imposition, on Peoples of any liability arising under any local, state or
federal environmental statute, regulation or ordinance including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, pending or, to the knowledge of Peoples,
threatened against Peoples, which liability might have a material adverse
effect on the financial condition, results of operations or business of
Peoples; except as Previously Disclosed, to the knowledge of Peoples, there is
no reasonable basis for any such proceeding, claim, action or governmental
investigation that would impose any such liability; and Peoples is not subject
to any agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
2.20. CERTAIN INFORMATION
The information contained in the Proxy Statement, other than information
subject to Section 3.9(a) hereof, at the time the Proxy Statement is mailed to
shareholders of Peoples up to and including the time of the Peoples
shareholders' meeting to vote upon the Merger, (i) shall comply in all
material respects with the applicable provisions of the regulations of the
Securities Laws and (ii) shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading.
2.21. POOLING OF INTERESTS
As of the date of this Reorganization Agreement, Peoples, after having
consulted with its independent auditors concerning the requirements of the
relevant accounting literature and SEC pronouncements and interpretations,
does not believe that it has taken any steps which would preclude S&T from
accounting for the Merger under the pooling of interests method and knows of
no reason relating to it which would reasonably cause it to believe that the
Merger will not qualify as a pooling of interests for financial accounting
purposes.
ARTICLE 3
Representations and Warranties of S&T
S&T hereby represents and warrants to Peoples as follows:
3.1. CAPITAL STRUCTURE OF S&T
The authorized capital stock of S&T consists at September 30, 1996 of (i)
10,000,000 shares of preferred stock, no par value, none of which has been
issued and (ii) 25,000,000 shares of common stock, par value $2.50 per share
("S&T Common Stock"), of which 11,046,355 shares were issued and outstanding
and 774,589 shares were held in treasury. All outstanding shares of S&T
capital stock have been duly issued and are validly outstanding, fully paid
and nonassessable. There are no Rights authorized, issued or outstanding with
respect to the capital stock of S&T. None of the shares of S&T's capital stock
has been issued in violation of the preemptive rights of any person. The
shares of S&T Common Stock to be issued in connection with the Merger have
been duly authorized and, when issued in accordance with the terms of this
Reorganization Agreement and the Plan of Merger, will be validly issued, fully
paid, nonassessable and free and clear of any preemptive rights. As of
September 30, 1996, no shares of S&T Common Stock were reserved for issuance.
3.2. ORGANIZATION, STANDING AND AUTHORITY OF S&T
Each of S&T and its wholly-owned banking subsidiary, S&T Bank, is a duly
organized corporation, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania, with full corporate power and authority to
carry on its business as now conducted. S&T's wholly-owned nonbanking
subsidiary, S&T
A-8
<PAGE>
Investment Company, Inc., is a duly organized corporation, validly existing
and in good standing under the laws of the State of Delaware, with full
corporate power and authority to carry on its business as now conducted. S&T
is registered as a bank holding company under the Bank Holding Company Act.
3.3. AUTHORIZED AND EFFECTIVE REORGANIZATION AGREEMENT
(a) Each of S&T and S&T Bank has all requisite corporate power and authority
to enter into and perform all of its obligations under this Reorganization
Agreement. The execution and delivery of this Reorganization Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action in respect
thereof on the part of S&T and S&T Bank.
(b) Upon the execution of the Plan of Merger and at all times thereafter
until the Closing Date, S&T and S&T Bank will have all requisite corporate
power and authority to enter into and perform all of its obligations under the
Plan of Merger, and the execution and delivery of the Plan of Merger and the
consummation of the transactions contemplated thereby (at the time of such
execution) will have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of S&T and S&T Bank, except
that the affirmative vote of the holders of two-thirds of the outstanding
shares of S&T Common Stock is required to authorize the issuance of S&T Common
Stock pursuant to this Reorganization Agreement and Plan of Merger in
accordance with Nasdaq requirements.
(c) The Board of Directors of S&T has directed that this Reorganization
Agreement and the Plan of Merger be submitted to S&T's stockholders for
approval at a special meeting to be held as soon as practicable.
(d) This Reorganization Agreement constitutes a legal, valid and binding
obligation of S&T and S&T Bank and the Plan of Merger, upon the authorization,
execution and delivery thereof by the parties thereto, will constitute a
legal, valid and binding obligation of S&T and S&T Bank, enforceable against
them in accordance with their respective terms, subject to receipt of
shareholder approval and, as to enforceability, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(e) Neither the execution and delivery of this Reorganization Agreement or
the Plan of Merger, nor consummation of the transactions contemplated hereby
or thereby, nor compliance by S&T or S&T Bank with any of the provisions
hereof or thereof shall (i) conflict with or result in a breach of any
provision of the articles of incorporation, charter or by-laws of S&T or S&T
Bank, (ii) constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of S&T
or S&T Bank pursuant to, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to S&T or S&T Bank,
except for such violations, rights, conflicts, breaches, creations or defaults
which, either individually or in the aggregate would not have a material
adverse effect on S&T.
3.4. SEC DOCUMENTS; REGULATORY FILINGS
S&T has filed all SEC Documents required by the Securities Laws and such SEC
Documents complied, as of their respective dates, in all material respects
with the Securities Laws. S&T and each S&T subsidiary has filed all reports
required by statute or regulation to be filed with any federal or state bank
regulatory agency and such reports were prepared, in all material respects, in
accordance with the applicable statutes, regulations and instructions in
existence as of the date of filing of such reports.
3.5. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The S&T Financial Statements fairly present the consolidated financial
position of S&T as of the dates indicated and the results of operations,
changes in shareholders' equity and cash flows of S&T for the periods
A-9
<PAGE>
then ended in conformity with generally accepted accounting principles applied
on a consistent basis except as disclosed therein. The books and records of
S&T fairly reflect in all material respects the transactions to which it is a
party or by which its properties are subject or bound. Such books and records
have been properly kept and maintained and are in compliance in all material
respects with all applicable legal and accounting requirements. The minute
books of S&T contain accurate records of all corporate actions of its
shareholders and Board of Directors (including committees of its Board of
Directors).
3.6. MATERIAL ADVERSE CHANGE
S&T has not suffered any material adverse change in its financial condition,
results of operations or business since December 31, 1995.
3.7. ABSENCE OF UNDISCLOSED LIABILITIES
S&T has no liability (contingent or otherwise) that is material to S&T, or
that, when combined with all similar liabilities, would be material to S&T,
except as disclosed in the S&T Financial Statements.
3.8. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the S&T Financial Statements, as
of their respective dates, is adequate in all material respects under the
requirements of generally accepted accounting principles to provide for
reasonably anticipated losses on outstanding loans.
3.9. CERTAIN INFORMATION
(a) The information provided by S&T to Peoples for use in the Proxy
Statement, at the time the Proxy Statement is mailed to shareholders of
Peoples and at all subsequent times up to and including the time of the
Peoples shareholders' meeting to vote upon the Merger, shall not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
(b) When the Registration Statement or any post-effective amendment thereto
shall become effective, and at all times subsequent to such effectiveness up
to and including the time of the S&T shareholders' meeting to vote upon the
Merger, such Registration Statement and all amendments or supplements thereto,
with respect to all information set forth therein furnished by S&T relating to
S&T, (i) shall comply in all material respects with the applicable provisions
of the Securities Laws, and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements contained therein not misleading.
3.10. BROKERS AND FINDERS
Neither S&T nor any of its officers, directors or employees, has employed
any broker, finder or financial advisor or incurred any liability for any fees
or commissions in connection with the transactions contemplated herein or the
Plan of Merger, except that S&T has engaged and will pay a fee or commission
to McDonald & Company Securities, Inc.
3.11. COMPLIANCE WITH LAWS
Each of S&T and its subsidiaries is in compliance in all material respects
with all statutes and regulations applicable to the conduct of its business,
and none of S&T, its subsidiaries or, to the knowledge of S&T, any director or
executive officer of S&T or any of its subsidiaries has received notification
from any agency or department of federal, state or local government (i)
asserting a material violation of any such statute or regulation, (ii)
threatening to revoke any license, franchise, permit or government
authorization or (iii) restricting or in any way limiting its operations. None
of S&T or any subsidiary of S&T is subject to any regulatory or
A-10
<PAGE>
supervisory cease and desist order, agreement, directive, memorandum of
understanding or commitment, and none of them has received any communication
requesting that they enter into any of the foregoing.
3.12. LEGAL PROCEEDINGS
To the knowledge of S&T, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of S&T, threatened against S&T or
against any asset, interest or right of S&T that would, if determined
adversely to S&T, have a material adverse effect on S&T. To the knowledge of
S&T, there are no actual or threatened actions, suits or proceedings which
present a claim to restrain or prohibit the transactions contemplated herein
or to impose upon S&T, Peoples or any of their respective subsidiaries or
affiliates any material cost or obligation in connection therewith. There are
no actions, suits or proceedings instituted, pending or, to the knowledge of
S&T, threatened against any present or former director or executive officer of
S&T that might give rise to a claim for indemnification that would, if
determined adversely to S&T, have a material adverse effect on S&T, and, to
the knowledge of S&T, there is no reasonable basis for any such action, suit
or proceeding.
3.13. POOLING OF INTERESTS
As of the date of this Reorganization Agreement, S&T, after having consulted
with its independent auditors concerning the requirements of the relevant
accounting literature and SEC pronouncements and interpretations, does not
believe that it has taken any steps which would preclude it from accounting
for the Merger under the pooling of interests method and knows of no reason
relating to it which would reasonably cause it to believe that the Merger will
not qualify as a pooling of interests for financial accounting purposes.
ARTICLE 4
Covenants
4.1. SHAREHOLDERS' MEETINGS
S&T and Peoples shall submit this Reorganization Agreement and the Plan of
Merger and, in the case of S&T, the issuance of S&T Common Stock thereunder,
to their respective shareholders for approval at special meetings to be held
as soon as practicable. Subject to the fiduciary duties of the respective
boards of directors of S&T and Peoples as determined by each after
consultation with such board's counsel, the boards of directors of S&T and
Peoples shall recommend at the respective shareholders' meetings that the
shareholders vote in favor of such approval.
4.2. PROXY STATEMENT; REGISTRATION STATEMENT
The Board of Directors of Peoples will direct that this Reorganization
Agreement and the Plan of Merger be submitted to Peoples' shareholders for
approval at a special meeting to be held as soon as practicable. As promptly
as practicable after the date hereof, S&T and Peoples shall cooperate in the
preparation of the Proxy Statement to be mailed to the shareholders of S&T and
Peoples in connection with the Merger and the transactions contemplated
thereby and to be filed by S&T as part of the Registration Statement. S&T will
advise Peoples, promptly after it receives notice thereof, of the time when
the Registration Statement or any post-effective amendment thereto has become
effective or any supplement or amendment has been filed, of the issuance of
any stop order, of the suspension of qualification of the S&T Common Stock
issuable in connection with the Merger for offering or sale in any
jurisdiction, or the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information. S&T shall take all
actions necessary to register or qualify the shares of S&T Common Stock to be
issued in the Merger pursuant to all applicable state "blue sky" or securities
laws and shall maintain such registrations or qualifications in effect for all
purposes hereof. S&T shall apply for approval to have the shares of S&T Common
Stock authorized for trading on the Nasdaq National Market System prior to the
Effective Date.
A-11
<PAGE>
4.3. PLAN OF MERGER
The terms of the Plan of Merger are incorporated herein by reference.
Peoples shall execute and deliver the Plan of Merger as soon as practicable
following S&T's request therefor.
4.4. APPLICATIONS
As promptly as practicable after the date hereof, S&T shall submit any
requisite applications for prior approval of the transactions contemplated
herein and in the Plan of Merger (i) to the FDIC pursuant to 12 U.S.C. (S)
1828(c)(2) and (ii) to the Department of Banking pursuant to Section 1603 of
the Pennsylvania Banking Code, and each of the parties hereto shall submit any
applications, notices or other filings to any other state or federal
government agency, department or body the approval of which is required for
consummation of the Merger. S&T and Peoples each represents and warrants to
the other that all information concerning it and its directors, officers and
shareholders included (or submitted for inclusion) in any such application and
furnished by it shall be true, correct and complete in all material respects.
4.5. BEST EFFORTS; CERTAIN NOTICES AND INFORMATION
(a) S&T and Peoples shall each use its best efforts in good faith to (i)
furnish such information as may be required in connection with the preparation
of the documents referred to in Sections 4.2 and 4.4 above and (ii) take or
cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (1) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that Peoples shall not agree to make any
payments or modifications to agreements in connection therewith without the
prior written consent of S&T, except where such payment or modification would
not have a material adverse effect on Peoples, and (2) requesting the delivery
of appropriate opinions, consents and letters from its counsel and independent
auditors. No party hereto shall take or fail to take, or to the best of its
ability permit to be taken or omitted to be taken by any third persons, any
action that would substantially impair the prospects of completing the Merger
pursuant to this Reorganization Agreement and the Plan of Merger, that would
materially delay such completion, or that would adversely affect the
qualification of the Merger for pooling of interests accounting treatment or
as a reorganization within the meaning of Section 368(a) of the Code.
(b) Peoples shall give prompt notice to S&T, and S&T shall give prompt
notice to Peoples, of (i) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty contained in this Reorganization Agreement to be untrue or inaccurate
in any material respect at any time from the date hereof to the Closing Date
and (ii) any material failure of S&T or Peoples, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder, and each party shall use all reasonable efforts to
remedy such failure.
(c) Each party shall provide and shall request its auditors to provide the
other party with such historical financial information regarding it (and
related audit reports and consents) as the other party may reasonably request
for securities disclosure purposes.
4.6. INVESTIGATION AND CONFIDENTIALITY
Peoples and S&T will each keep the other advised of all material
developments relevant to its business and to the consummation of the
transactions contemplated herein. Peoples and S&T may make or cause to be made
such investigation of the financial and legal condition of the other as such
party reasonably deems necessary or advisable in connection with the
transactions contemplated herein and in the Plan of Merger, provided, however,
that such investigation shall be reasonably related to such transactions and
shall not interfere unnecessarily with normal operations. Peoples and S&T
agree to furnish the other and the other's advisors with such financial data
and other information with respect to its business and properties as such
other party shall from time to time reasonably request. No investigation
pursuant to this Section 4.6 shall affect or be deemed to modify any
A-12
<PAGE>
representation or warranty made by, or the conditions to the obligations to
consummate the Merger of, any party hereto. Each party shall, and shall cause
its directors, officers, attorneys and advisors to, maintain the
confidentiality of all information obtained in such investigation which is not
otherwise publicly disclosed by the other party, said undertaking with respect
to confidentiality to survive any termination of this Agreement pursuant to
Section 6.1 hereof. In the event of termination of this Reorganization
Agreement, each party shall return to the furnishing party or destroy and
certify the destruction of all information previously furnished in connection
with the transactions contemplated by this Reorganization Agreement.
4.7. PRESS RELEASES
Peoples and S&T shall agree with each other as to the form and substance of
any press release related to this Reorganization Agreement and the Plan of
Merger or the transactions contemplated hereby or thereby, and shall consult
each other as to the form and substance of other public disclosures related
thereto, provided, however, that nothing contained herein shall prohibit
either party, following notification to the other party, from making any
disclosure which its counsel deems necessary.
4.8. COVENANTS OF PEOPLES
(a) Prior to the Closing Date, and except as otherwise provided for by this
Reorganization Agreement, the Plan of Merger or consented to or approved by
S&T, Peoples shall use its reasonable efforts to preserve its properties,
business and relationships with customers, employees and other persons.
(b) Except with the prior written consent of S&T, between the date hereof
and the Effective Date, Peoples shall not:
(1) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted;
(2) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock, except that Peoples may, in order to conform
to the S&T dividend policy subsequent to the execution of this
Reorganization Agreement, (i) declare a dividend in December 1996 with a
record date of January 2, 1997 and payable in January 1997 in an amount
equal to the dollar amount of the per share dividend in respect of the
fourth quarter of 1996 that S&T declares in December 1996, payable to S&T
shareholders in January 1997, multiplied by the number of the shares of S&T
Common Stock to be received by shareholders of Peoples pursuant to the
Merger ("Exchange Ratio"); (ii) if the Effective Date shall not have
occurred prior to April 1, 1997, declare a dividend on or after April 1,
1997, payable in April 1997 in an amount equal to the dollar amount of the
per share dividend in respect of the first quarter of 1997 that S&T
declares in March 1997, payable to S&T shareholders in April 1997,
multiplied by the Exchange Ratio; and (iii) if the Effective Date shall not
have occurred prior to July 1, 1997, declare a dividend on or after July 1,
1997, payable in July 1997 in an amount equal to the dollar amount of the
per share dividend in respect of the second quarter of 1997 that S&T
declares in June 1997, payable to S&T shareholders in July 1997, multiplied
by the Exchange Ratio;
(3) issue any shares of its capital stock or permit any treasury shares
to become outstanding, incur any additional debt obligation or other
obligation for borrowed money, other than in the ordinary course of
business of Peoples consistent with past practice;
(4) issue, grant or authorize any Rights or effect any recapitalization,
reclassification, stock dividend, stock split or like change in
capitalization;
(5) amend its charter or by-laws;
(6) merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge into it
or consolidate with any other corporation, savings association or bank;
acquire control over any other firm, bank, corporation, savings association
or organization; or create any subsidiary;
A-13
<PAGE>
(7) fail to comply in any material respect with any material laws,
regulations, ordinances or governmental actions applicable to it and to the
conduct of its business; enter into any material swap, hedge or other
similar off-balance sheet transaction; waive or release any material right
or cancel or compromise any material debt or claim; restructure, extend or
modify any loan Previously Disclosed pursuant to the second sentence of
Section 2.9 hereof or that would have been required to have been so
disclosed if it had been outstanding at September 30, 1996, waive or
release any right or cancel or compromise any debt or claim in connection
with any such loan, or make any new loan that would have been required to
have been so disclosed if it had been outstanding at September 30, 1996;
(8) liquidate or sell or dispose of any material assets or acquire any
material assets; make any capital expenditures in excess of $25,000 in the
aggregate; or establish new branches or other similar facilities; or enter
into or modify any leases or other contracts that involve annual payments
by Peoples that exceed $10,000 in any instance or $25,000 in the aggregate;
(9) increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees except in accordance with Peoples'
standard compensation and benefits practices; enter into, modify or extend
any employment or severance contracts with any of its present or former
directors, officers or employees; or enter into or substantially modify
(except as may be required by applicable law) any pension, retirement,
stock option, stock purchase, stock appreciation right, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or other
employee benefit, incentive or welfare contract, plan or arrangement, or
any trust agreement related thereto, in respect of any of its directors,
officers or other employees;
(10) change its lending, investment, asset/liability management or other
material banking policies in any material respect except as may be required
by changes in applicable law, regulation or regulatory directives;
(11) change its methods of accounting in effect at December 31, 1995,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants (including but
not limited to the adoption of Statement of Financial Accounting Standard
107), or change any of its methods of reporting income and deductions for
federal income tax purposes from those employed in the preparation of its
federal income tax returns for the year ended December 31, 1995, except as
required by changes in law or applicable regulations;
(12) solicit, encourage or initiate inquiries or proposals with respect
to any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, Peoples or any business
combination with Peoples, or, subject to the fiduciary duties of its
directors as advised by counsel, furnish any information relating to or in
connection with any such inquiries or proposals, other than as contemplated
by this Reorganization Agreement; or authorize or permit any officer,
director, agent or affiliate of it to do any of the above; or fail to
notify S&T immediately if any such inquiries or proposals are received by,
any such information is required from, or any such negotiations or
discussions are sought to be initiated with Peoples; or
(13) agree to do any of the foregoing.
(c) As soon as practicable, Peoples shall cause (i) financial statements to
be prepared in conformity with generally accepted accounting principles for
whatever full fiscal year periods are necessary to comply with the
requirements of Form S-4 under the Securities Act, with respect to this
transaction, and with the other requirements of the rules and regulations
under the Securities Act and the Exchange Act as may be applicable to S&T,
(ii) its independent public accountants to perform an audit of such financial
statements in conformity with generally accepted auditing standards, and (iii)
its independent public accountants to consent to the use of their opinion with
respect to such financial statement in registration statements filed by S&T
under the Securities Act.
4.9. CLOSING; ARTICLES OF MERGER
The transactions contemplated by this Reorganization Agreement and the Plan
of Merger shall be consummated at a closing to be held at such location as the
parties may agree, on the first business day following
A-14
<PAGE>
satisfaction of the conditions to consummation of the Merger set forth in
Article 5 hereof or such later date within 30 days thereafter as reasonably
may be specified by S&T, with the Merger to be consummated after such
intermediate steps as S&T reasonably may specify. The Merger shall be
effective at the time and date specified in the Articles of Merger.
4.10. PEOPLES EMPLOYEES; BOARD OF DIRECTORS; INDEMNIFICATION
(a) All employees of Peoples as of the Effective Date shall become employees
of S&T or a subsidiary of S&T. Nothing in this Reorganization Agreement shall
give any employee of Peoples a right to continuing employment with S&T after
the Effective Date. As soon as practicable after the Effective Date, S&T shall
provide or cause to be provided to all employees of Peoples who remain
employed by S&T benefits which in the aggregate are no less favorable than
those generally afforded to other S&T employees holding similar positions,
provided that for purposes of determining eligibility for and vesting of such
employee benefits, service with Peoples prior to the Effective Date shall be
treated as service to the same extent as if such persons had been employees of
S&T or affiliates of S&T, and provided further that this Section 4.10(a) shall
not be construed (i) to limit the ability of S&T and its affiliates to
terminate the employment of any employee or to review employee benefits
programs from time to time and to make such changes as they deem appropriate
or (ii) to require S&T or its affiliates to provide employees or former
employees with post-retirement medical benefits.
(b) S&T shall take all requisite action immediately prior to the Effective
Date to elect as members of its board of directors three persons selected by
Peoples to serve as directors of S&T.
(c) From and after the Effective Date for a period of three years, S&T shall
indemnify persons who serve as directors and officers of Peoples as of the
date of this Reorganization Agreement for claims arising prior to the
Effective Date as provided under S&T's By-Laws as delivered to Peoples prior
to the execution of this Reorganization Agreement, as if such persons had been
entitled to indemnification under such S&T By-Laws prior to the Effective
Date.
4.11. AFFILIATES
(a) S&T and Peoples shall cooperate and use their best efforts to identify
those persons who may be deemed to be "affiliates" of Peoples and S&T within
the meaning of Rule 145 promulgated by the Commission under the Securities Act
and for purposes of qualifying the "Merger" for "pooling interests" accounting
treatment. Peoples shall use its best efforts to cause each Peoples affiliate
so identified to deliver to S&T no later than 30 days prior to the Effective
Date, a written agreement providing that such person will not dispose of S&T
Common Stock received in the Merger except in compliance with the Securities
Act, the rules and regulations promulgated thereunder and the Commission's
rules relating to the pooling of interests accounting treatment.
(b) S&T shall use its best efforts to publish no later than 90 days after
the end of the first month after the Effective Date in which there are at
least 30 days of post-Merger combined operations (which month may be the month
in which the Effective Date occurs), combined sales and net income figures as
contemplated by and in accordance with the terms of SEC Accounting Series
Release No. 135.
4.12. NASDAQ APPLICATION
S&T shall apply to have the shares of S&T Common Stock that may be issued in
the Merger authorized for trading on the Nasdaq National Market System.
A-15
<PAGE>
ARTICLE 5
Conditions Precedent
5.1. CONDITIONS PRECEDENT--S&T AND PEOPLES
The respective obligations of Peoples, S&T, or S&T Bank to effect the
Merger, shall be subject to satisfaction or waiver of the following conditions
at or prior to the Closing Date:
(a) All corporate action necessary to authorize the execution, delivery and
performance of this Reorganization Agreement and the Plan of Merger and
consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken, including without limitation the approvals of the
shareholders of Peoples and S&T in accordance with applicable law;
(b) The parties hereto shall have received all regulatory approvals required
or deemed necessary in connection with the transactions contemplated by this
Reorganization Agreement and the Plan of Merger, all notice periods and
waiting periods required after the granting of any such approvals shall have
passed and all conditions contained in any such approval required to have been
satisfied prior to consummation of such transactions shall have been
satisfied, provided, however, that no such approval shall have imposed any
condition or requirement which, in the reasonable opinion of the Board of
Directors of S&T materially and adversely affects the anticipated economic and
business benefits to S&T of the transactions contemplated by this
Reorganization Agreement taken as a whole;
(c) The Registration Statement (including any post-effective amendment
thereto) shall be effective under the Securities Act, and no proceeding shall
be pending or to the knowledge of S&T threatened by the Commission to suspend
the effectiveness of such Registration Statement, and S&T shall have received
all state securities or "blue sky" permits or other authorizations, or
confirmations as to the availability of an exemption from registration
requirements as may be necessary;
(d) None of the parties hereto or to the Plan of Merger shall be subject to
any order, decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the transactions contemplated
by this Reorganization Agreement and the Plan of Merger;
(e) The shares of S&T Common Stock that may be issued in the Merger shall
have been authorized for trading on the Nasdaq National Market System; and
(f) S&T and Peoples shall have received an opinion of Arnold & Porter
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion, (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and (ii) no
gain or loss will be recognized by a shareholder of Peoples who exchanges all
of the shareholder's Peoples Common Stock solely for S&T Common Stock in the
Merger (except with respect to cash received in lieu of a fractional share
interest in S&T Common Stock).
5.2. CONDITIONS PRECEDENT--PEOPLES
The obligations of Peoples to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by Peoples pursuant to Section 6.4 hereof:
(a) The representations and warranties of S&T set forth in Article 3 hereof
shall be true and correct in all material respects as of the date of this
Reorganization Agreement and as of the Closing Date as though made on and as
of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except (i) as otherwise contemplated by this Reorganization Agreement or
consented to in writing by Peoples and (ii) insofar as the failure of any
representation and warranty to be true and correct does not have, and is not
reasonably likely to have, a material adverse effect on S&T;
A-16
<PAGE>
(b) S&T and S&T Bank shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger;
(c) S&T and S&T Bank each shall have delivered to Peoples a certificate,
dated the Closing Date and signed by its Chairman and Chief Executive Officer
or Executive Vice President to the effect that the conditions set forth in
paragraphs (a) and (b) of this section have been satisfied;
(d) The shares of S&T Common Stock to be received by the shareholders of
Peoples pursuant to the Merger shall be freely tradeable by the recipients
thereof, subject to restrictions upon resale imposed by virtue of Rule 145
under the Securities Act and the Commission's rules relating to the pooling of
interests accounting treatment, as agreed to in the written agreements
provided pursuant to Section 4.11(a) hereof;
(e) Peoples shall have received an opinion of Arnold & Porter, counsel to
S&T, dated the Closing Date, as to such matters as Peoples may reasonably
request with respect to the transactions contemplated hereby and by the Plan
of Merger; and
(f) Peoples shall have received an opinion from Danielson Associates Inc.
dated the date of the Proxy Statement that the consideration to be received by
the shareholders of Peoples pursuant to this Reorganization Agreement is fair
from a financial point of view to the shareholders of Peoples.
5.3. CONDITIONS PRECEDENT--S&T
The obligations of S&T and S&T Bank to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by S&T pursuant to Section 6.4 hereof:
(a) The representations and warranties of Peoples set forth in Article 2
hereof shall be true and correct in all material respects as of the date of
this Reorganization Agreement and as of the Closing Date as though made on and
as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except (i) as otherwise contemplated by this Reorganization Agreement or
consented to in writing by S&T and (ii) insofar as the failure of any
representation and warranty to be true and correct does not have, and is not
reasonably likely to have, a material adverse effect on Peoples.
(b) Peoples shall have in all material respects performed all obligations
and complied with all covenants required by this Reorganization Agreement and
the Plan of Merger;
(c) Peoples shall have delivered to S&T a certificate, dated the Closing
Date and signed by its Chairman or its Acting Chief Executive Officer or other
appropriate officer to the effect that the conditions set forth in paragraphs
(a) and (b) of this section have been satisfied;
(d) S&T shall have received an opinion or opinions of Kirkpatrick & Lockhart
LLP, counsel to Peoples, dated the Closing Date, as to such matters as S&T may
reasonably request with respect to the transactions contemplated hereby and by
the Plan of Merger;
(e) S&T shall have received an opinion letter, dated as of the Closing Date,
from Ernst & Young LLP, its independent public accountants, to the effect that
the Merger will qualify for pooling of interests accounting treatment under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Reorganization Agreement; except that this condition
shall be deemed to have been waived by S&T to the extent that it takes any
action or causes any conditions to occur, without the written consent of
Peoples, which constitute the sole reason for Ernst & Young LLP being unable
to render such opinion; and
(f) S&T shall have received a "comfort" letter from S.R. Snodgrass, A.C.
dated not more than five days prior to (i) the effective date of the
Registration Statement and (ii) the Closing Date, with respect to certain
financial information regarding Peoples, in form and in substance which is
customary in transactions of the nature contemplated by this Reorganization
Agreement.
A-17
<PAGE>
ARTICLE 6
Termination, Waiver and Amendment
6.1. TERMINATION
This Reorganization Agreement and the Plan of Merger may be terminated,
either before or after approval by the shareholders of Peoples:
(a) At any time on or prior to the Effective Date, by the mutual consent in
writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by S&T in writing, if
Peoples has, or by Peoples in writing, if S&T has, in any material respect,
breached (i) any covenant or agreement contained herein or in the Plan of
Merger or (ii) any representation or warranty contained herein if the failure
of any such representation and warranty to be true and correct has, or is
reasonably likely to have, a material adverse effect upon S&T or Peoples, and
in either case if such breach has not been cured by the earlier of 30 days
after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date;
(c) On the Closing Date, by either party hereto in writing, if any of the
conditions precedent set forth in Article 5 hereof with respect to such party
have not been satisfied or fulfilled;
(d) At any time, by either party hereto in writing, if the applications for
prior approval referred to in Section 4.4 hereof have been denied, and the
time period for appeals and requests for reconsideration has run;
(e) At any time, by either party hereto in writing, if the shareholders of
S&T or Peoples do not approve the transactions contemplated herein at the
annual or special meetings duly called for that purpose;
(f) At any time, by either party in writing, if such party determines in
good faith that any condition precedent to such party's obligations to
consummate the Merger is or would be impossible to satisfy, provided that the
terminating party has given the other party written notice with respect
thereto at least 10 days prior to such termination and has given the other
party a reasonable opportunity to discuss the matter with a view to achieving
a mutually acceptable resolution; or
(g) By either party hereto in writing, if the Closing Date has not occurred
by the close of business on September 30, 1997.
6.2. EFFECT OF TERMINATION
In the event this Reorganization Agreement or the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Reorganization Agreement and
the Plan of Merger shall become void and have no effect, except that (i) the
provisions relating to confidentiality and expenses set forth in Sections 4.6
and 7.1 hereof, respectively, shall survive any such termination and (ii) a
termination pursuant to Section 6.1(b)(i) shall not relieve the breaching
party from liability for an uncured willful breach of a covenant or agreement
giving rise to such termination.
6.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant
hereto or thereto shall expire on, and be terminated and extinguished at, the
Effective Date other than covenants that by their terms are to survive or be
performed after the Effective Date, provided that no such representations,
warranties or covenants shall be deemed to be terminated or extinguished so as
to deprive S&T or Peoples (or any director, officer or controlling person
thereof) of any defense in law or equity which otherwise would be available
against the claims of any person, including, without limitation, any
shareholder or former shareholder of either S&T or Peoples, the aforesaid
representations, warranties and covenants being material inducements to the
consummation by S&T, S&T Bank and Peoples of the transactions contemplated
herein.
A-18
<PAGE>
6.4. WAIVER
Except with respect to any required shareholder or regulatory approval, S&T
and Peoples, respectively, by written instrument signed by an executive
officer of such party, may at any time (whether before or after approval of
this Reorganization Agreement and the Plan of Merger by the shareholders of
S&T and Peoples) extend the time for the performance of any of the obligations
or other acts of Peoples, on the one hand, or S&T or S&T Bank, on the other
hand, and may waive (i) any inaccuracies of such parties in the
representations or warranties contained in this Reorganization Agreement, the
Plan of Merger or any document delivered pursuant hereto or thereto, (ii)
compliance with any of the covenants, undertakings or agreements of such
parties, or satisfaction of any of the conditions precedent to its
obligations, contained herein or in the Plan of Merger or (iii) the
performance by such parties of any of its obligations set out herein or
therein; provided, however, that no such waiver executed after approval of
this Reorganization Agreement and the Plan of Merger by the shareholders of
S&T or Peoples shall change the number of shares of S&T Common Stock into
which each share of Peoples Common Stock shall be converted pursuant to the
Merger.
6.5. AMENDMENT OR SUPPLEMENT
This Reorganization Agreement and the Plan of Merger may be amended or
supplemented at any time by mutual agreement of the parties hereto, in the
case of this Reorganization Agreement, or thereto, in the case of the Plan of
Merger. Any such amendment or supplement must be in writing and approved by
their respective boards of directors and/or officers authorized thereby and
shall be subject to the proviso in Section 6.4 hereof.
ARTICLE 7
Miscellaneous
7.1. EXPENSES
(a) Each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel, except that S&T shall bear and pay all costs and
expenses incurred in connection with printing the Registration Statement and
joint Proxy Statement and prospectus of S&T and Peoples.
(b) Peoples and S&T each acknowledge that the other has spent, and will be
required to spend, substantial time and effort in examining the business,
properties, affairs, financial condition and prospects of the other, has
incurred, and will continue to incur, substantial fees and expenses in
connection with such examination, the preparation of this Reorganization
Agreement and the accomplishment of the transactions contemplated hereby, and
will be unable to evaluate and, possibly, make investments in or acquire other
entities due to the limited number of personnel available for such purpose and
the constraints of time. Therefore, to induce S&T to enter into this
Reorganization Agreement, (i) if S&T terminates this Reorganization Agreement
pursuant to Section 6.1(b) or (c) by reason of Peoples' failure to meet any
condition contained in Section 5.3(a) or (b) due to Peoples' knowing and
intentional misrepresentation or knowing and intentional breach of warranty or
breach of any covenant or agreement, and within 9 months from the date of
termination a Competing Transaction is consummated or Peoples shall have
entered into an agreement or an agreement in principle which if consummated
would constitute a Competing Transaction or (ii) if Peoples terminates this
Reorganization Agreement pursuant to Section 6.1(b) or (c) because this
Reorganization Agreement did not receive the requisite vote of Peoples
stockholders and within 9 months from the date of termination (other than a
termination pursuant to Article IX of the Plan of Merger) a Competing
Transaction is consummated or Peoples shall have entered into an agreement
which if consummated would constitute a Competing Transaction, then Peoples
shall pay to S&T a fee in the amount of $1,600,000, not as a penalty but as
full and complete liquidated damages. Upon payment of such fee, Peoples shall
have no further liability to S&T at law or equity. The fee shall be payable to
S&T notwithstanding that any action taken by the Board of Directors of Peoples
which may give rise to the obligation
A-19
<PAGE>
to pay the fee may have been taken in accordance with the fiduciary duties of
the Board of Directors. Any payment required pursuant to this Section 7.1(b)
shall be made as promptly as practicable, but in no event later than two
business days after the date it becomes payable hereunder and shall be made by
wire transfer of immediately available funds to an account designated by S&T.
In the event that S&T is entitled to the fee, Peoples shall also pay S&T
interest at the rate of 6% per year on any amounts that are not paid when due,
plus all costs and expenses in connection with or arising out of the
enforcement of the obligation of Peoples to pay the fee or such interest.
7.2. ENTIRE AGREEMENT
This Reorganization Agreement and the Plan of Merger contain the entire
agreement between the parties with respect to the transactions contemplated
hereunder and thereunder and supersede all prior arrangements or
understandings with respect thereto, written or oral, other than documents
referred to herein or therein. The terms and conditions of this Reorganization
Agreement and the Plan of Merger shall inure to the benefit of and be binding
upon the parties hereto and thereto and their respective successors. Nothing
in this Reorganization Agreement or the Plan of Merger, expressed or implied,
is intended to confer upon any party, other than the parties hereto and
thereto, and their respective successors, any rights, remedies, obligations or
liabilities.
7.3. NO ASSIGNMENT
No party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other person.
7.4. NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent
by facsimile transmission or overnight express or by registered or certified
mail, postage prepaid, addressed as follows:
If to Peoples:
Peoples Bank of Unity
7660 Saltsburg Road
Pittsburgh, Pennsylvania 15239-3700
Attention: Russell P. Miller
Facsimile No.: (412) 795-0635
With a required copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222-2312
Attention: J. Robert Van Kirk
Facsimile No.: (412) 355-6501
If to S&T or S&T Bank:
S&T Bancorp, Inc.
800 Philadelphia Street
Indiana, Pennsylvania 15701-3921
Attention: Robert D. Duggan
Facsimile No.: (412) 465-1488
A-20
<PAGE>
With a required copy to:
Arnold & Porter
555 12th Street, N.W.
Washington, D.C. 20004-1202
Attention: Catherine C. McCoy
Facsimile No.: (202) 942-5999
7.5. CAPTIONS
The captions contained in this Reorganization Agreement are for reference
purposes only and are not part of this Reorganization Agreement.
7.6. COUNTERPARTS
This Reorganization Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
7.7. GOVERNING LAW
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
agreements made and entirely to be performed within such jurisdiction, except
to the extent federal law may be applicable.
A-21
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed in
counterparts by their duly authorized officers and their corporate seal to be
hereunto affixed and attested by their officers thereunto duly authorized, all
as of the day and year first above written.
Attest S&T Bancorp, Inc.
/s/ James C. Miller /s/ Robert D. Duggan
_____________________________________ By __________________________________
James C. Miller Robert D. Duggan
Name: _______________________________ Name: _______________________________
E.V.P Chairman & CEO
Title: ______________________________ Title: ______________________________
(SEAL)
Attest Peoples Bank of Unity
/s/ Ernest J. Draganza /s/ Russell P. Miller
_____________________________________ By __________________________________
Ernest J. Draganza Russell P. Miller
Name: _______________________________ Name: _______________________________
SVP & CFO, Acting CEO President
Title: ______________________________ Title: ______________________________
(SEAL)
Attest S&T Bank
/s/ Robert D. Duggan /s/ James C. Miller
_____________________________________ By __________________________________
Robert D. Duggan James C. Miller
Name: _______________________________ Name: _______________________________
Chairman & CEO President & C.O.O.
Title: ______________________________ Title: ______________________________
(SEAL)
A-22
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER OF
PEOPLES BANK OF UNITY
WITH AND INTO
S&T BANK
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of , 1997,
adopted and made by and between PEOPLES BANK OF UNITY ("Peoples"), a
Pennsylvania banking institution having its registered office at 7660
Saltsburg Road, Pittsburgh, Pennsylvania 15239-3700 and S&T BANK, a
Pennsylvania banking institution having its registered office at 800
Philadelphia Street, Indiana, Pennsylvania 15701-3921, each acting pursuant to
resolutions adopted by the vote of a majority of its board of directors in
accordance with Section 1603 of the Pennsylvania Banking Code, and joined in
by S&T BANCORP, INC. ("S&T"), a Pennsylvania corporation having its principal
executive office at 800 Philadelphia Street, Indiana, Pennsylvania 15701-3921.
WITNESSETH
WHEREAS, Peoples is a Pennsylvania banking institution organized and
existing under the laws of the Commonwealth of Pennsylvania, the authorized
capital stock of which consists of 115,660 shares of common stock, par value
$10.00 per share ("Peoples Common Stock"), all of which shares are issued and
outstanding on the date hereof;
WHEREAS, S&T Bank is a Pennsylvania banking institution organized and
existing under the laws of the Commonwealth of Pennsylvania, the authorized
capital stock of which consists of 605,300 shares of common stock, par value
$2.50 per share, all of which shares are issued and outstanding on the date
hereof;
WHEREAS, S&T is a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania that is registered as a bank holding company
pursuant to the Bank Holding Company Act of 1956, as amended, the authorized
capital stock of which consists at September 30, 1996 of (i) 10,000,000 shares
of preferred stock, no par value, none of which has been issued and (ii)
25,000,000 shares of common stock, par value $2.50 per share ("S&T Common
Stock"), of which 11,046,355 shares were issued and outstanding and 774,589
shares were held in treasury; and
WHEREAS, S&T and Peoples have entered into an Agreement and Plan of
Reorganization ("Reorganization Agreement") that contemplates the merger of
Peoples with and into S&T Bank;
WHEREAS, the respective Boards of Directors of S&T, S&T Bank and Peoples
deem the merger of Peoples with and into S&T Bank, under and pursuant to the
terms and conditions herein set forth or referred to, desirable and in the
best interests of the respective institutions and their respective
shareholders, and the respective Boards of Directors of S&T, S&T Bank and
Peoples have adopted resolutions approving this Plan of Merger and each of the
Boards of Directors of S&T, S&T Bank and Peoples has directed that this Plan
of Merger be submitted to their respective shareholders for approval; and
WHEREAS, approval of this Plan of Merger requires the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Peoples Common
Stock and the holders of at least two-thirds of the outstanding shares of the
common stock of S&T Bank.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained and intending to be legally bound hereby, the
parties hereto do hereby agree as follows:
A-23
<PAGE>
ARTICLE I
The Merger
Subject to the terms and conditions of this Plan of Merger, on the Effective
Date (as hereinafter defined), Peoples shall be merged with and into S&T Bank
pursuant to the provisions of, and with the effect provided in, Sections 1601-
1607 of the Pennsylvania Banking Code (said transaction being hereinafter
referred to as the "Merger"). On the Effective Date, the separate existence of
Peoples shall cease and S&T Bank shall continue its existence as the surviving
entity unaffected and unimpaired by the Merger, and shall be liable for all of
the liabilities of Peoples existing at the Effective Date (S&T Bank as
existing on and after the Effective Date being hereinafter sometimes referred
to as the "Surviving Bank").
ARTICLE II
Articles of Incorporation and By-laws
The Articles of Incorporation and the By-Laws of the Surviving Bank in
effect immediately prior to the Effective Date shall be the Articles of
Incorporation and the By-Laws of the Surviving Bank, in each case until
amended in accordance with applicable law.
ARTICLE III
Board of Directors
On the Effective Date, the Board of Directors of the Surviving Bank shall
consist of those persons serving as directors of the Surviving Bank
immediately prior to the Effective Date together with three directors to be
designated by Peoples.
ARTICLE IV
Capital
Each share of capital stock of S&T Bank issued and outstanding immediately
prior to the Effective Date shall, on the Effective Date, continue to be
issued and outstanding.
ARTICLE V
Conversion and Exchange of Peoples Shares
1. On the Effective Date, each share of Peoples Common Stock outstanding
immediately prior to the Effective Date (except as provided in Paragraphs 2, 5
and 7 of this Article) shall by virtue of the Merger be converted into 26.25
shares of S&T Common Stock.
2. On the Effective Date, all shares of Peoples Common Stock held in the
treasury of Peoples or owned beneficially by Peoples other than in a fiduciary
capacity or in connection with a debt previously contracted and all shares of
Peoples Common Stock owned by S&T or owned beneficially by any subsidiary or
affiliate of S&T other than in a fiduciary capacity or in connection with a
debt previously contracted shall be cancelled and no cash, stock or other
property shall be delivered in exchange therefor.
3. On and after the Effective Date, each holder of a certificate or
certificates theretofore representing outstanding shares of Peoples Common
Stock (any such certificate being hereinafter referred to as a "Certificate")
may surrender the same to S&T or its agent for cancellation and each such
holder shall be entitled upon such surrender to receive in exchange therefor
certificate(s) representing the number of shares of S&T Common Stock to which
such holder is entitled as provided herein and a check in an amount equal to
the amount
A-24
<PAGE>
of cash, without interest, to be paid pursuant to Paragraph 7 of this Article
V to which such holder is entitled. Until surrendered, each Certificate shall
be deemed for all purposes to evidence ownership of the number of shares of
S&T Common Stock into which the shares represented by such Certificates have
been changed or converted as aforesaid. No dividends or other distributions
declared after the Effective Date with respect to S&T Common Stock shall be
paid to the holder of any unsurrendered Certificate until the holder thereof
shall surrender such Certificate in accordance with this Article V. After the
surrender of a Certificate in accordance with this Article V, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of S&T Common Stock represented by such
Certificate. Certificates surrendered for exchange by any person who is an
"affiliate" of Peoples for purposes of Rule 145(c) under the Securities Act of
1933, as amended, shall not be exchanged for certificates representing shares
of S&T Common Stock until S&T has received the written agreement of such
person contemplated by Section 4.11(a) of the Reorganization Agreement. If any
certificate for shares of Peoples Common Stock is to be issued in a name other
than that in which a certificate surrendered for exchange is issued, the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and the person requesting such exchange shall affix any
requisite stock transfer tax stamps to the certificate surrendered or provide
funds for their purchase or establish to the reasonable satisfaction of S&T or
its agent that such taxes are not payable.
4. Upon the Effective Date, the stock transfer books of Peoples shall be
closed and no transfer of Peoples Common Stock shall thereafter be made or
recognized. Any other provision of this Plan of Merger notwithstanding,
neither S&T or its agent nor any party to the Merger shall be liable to a
holder of Peoples Common Stock for any amount paid or property delivered in
good faith to a public official pursuant to any applicable abandoned property,
escheat or similar law.
5. No conversion under Paragraph 1 of this Article V shall be made in
respect of any share of Peoples Common Stock as to which a Peoples shareholder
has elected to exercise dissenters' rights pursuant to Section 1222 of the
Pennsylvania Banking Code, if any, until such time as such shareholder shall
have effectively lost dissenters' rights.
6. In the event that prior to the Effective Date the outstanding shares of
S&T Common Stock shall have been increased, decreased, or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock
split, or other like changes in S&T's capitalization, all without S&T
receiving consideration therefor, then an appropriate and proportionate
adjustment shall be made in the number and kind of shares of S&T Common Stock
to be thereafter delivered pursuant to this Plan of Merger.
7. Notwithstanding any other provision of this Article V, each holder of
shares of Peoples Common Stock who would otherwise have been entitled to
receive a fraction of a share of S&T Common Stock (after taking into account
all Certificates delivered by such holder) shall receive, in lieu thereof,
cash in an amount equal to such fractional part of a share of S&T Common Stock
multiplied by the market value of such Common Stock. The market value of one
share of S&T Common Stock on the Effective Date shall be the last sale price
of such Common Stock as quoted in the NASDAQ National Market System (as
reported by The Wall Street Journal or other authoritative source) on the last
business day preceding such date. No such holder shall be entitled to
dividends, voting rights or any other shareholder right in respect of any
fractional share.
ARTICLE VI
Effective Date of the Merger
The Merger shall be effective at the time and on the date specified in the
certificate of merger (such date and time being herein referred to as the
"Effective Date").
A-25
<PAGE>
ARTICLE VII
Further Assurances
If at any time the Surviving Bank shall consider or be advised that any
further assignments, conveyances or assurances are necessary or desirable to
vest, perfect or confirm in the Surviving Bank title to any property or rights
of Peoples, or otherwise carry out the provisions hereof, the proper officers
and directors of Peoples, as of the Effective Date, and thereafter the
officers of the Surviving Bank acting on behalf of Peoples, shall execute and
deliver any and all proper assignments, conveyances and assurances, and do all
things necessary or desirable to vest, perfect or confirm title to such
property or rights in the Surviving Bank and otherwise carry out the
provisions hereof.
ARTICLE VIII
Conditions Precedent
The obligations of S&T, S&T Bank and Peoples to effect the Merger as herein
provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Reorganization Agreement.
ARTICLE IX
Termination
Anything contained in this Plan of Merger to the contrary notwithstanding,
and notwithstanding adoption hereof by the shareholders of S&T, S&T Bank and
Peoples, this Plan of Merger may be terminated and the Merger abandoned as
provided in the Reorganization Agreement; provided however, that the Plan of
Merger may also be terminated, and the Merger may be abandoned by Peoples, if
its Board of Directors so determines by a vote of a majority of the members of
its entire Board of Directors, at any time during the three-day period
commencing two days after the Determination Date, if either:
(x) both of the following conditions are satisfied: (1) the Average
Closing Price on the Determination Date of shares of S&T Common Stock shall
be less than 80% of the Starting Price; and (2) the Index Price on the
Determination Date shall be greater than the product of 0.80 and the Index
Price on the Starting Date; or
(y) the Average Closing Price on the Determination Date of shares of S&T
Common Stock shall be less than 75% of the Starting Price.
If Peoples elects to exercise its termination right pursuant to the
immediately preceding sentence, it shall give prompt written notice to S&T
which notice shall specify which of clauses (x) or (y) is applicable (or if
both are applicable, which clause is being invoked); provided that such notice
of election to terminate may be withdrawn at any time within the
aforementioned three-day period.
For Purposes of this Article IX, the following terms shall have the meanings
indicated:
"Average Closing Price" shall mean the average of the daily last sale prices
of S&T Common Stock as reported on the Nasdaq National Market System (as
reported by The Wall Street Journal or, if not reported therein, as reported
in a mutually agreed upon authoritative source) for the twenty consecutive
full trading days in which such shares are traded on the Nasdaq National
Market System ending at the close of trading on the Determination Date.
"Determination Date" shall mean the date the fifth trading day immediately
preceding the planned Effective Date.
"Index Group" shall mean the group of bank holding companies listed in the
SNL All Bank Index, the common stock of all of which shall be publicly traded
since the Starting Date, as presently used by S&T for proxy statement
purposes.
A-26
<PAGE>
"Index Price" on a given date shall mean the market-capitalization-weighted
average (weighted pursuant to the SNL All Bank Index) of the closing prices of
the companies composing the Index Group.
"Starting Date" shall mean November 25, 1996.
"Starting Price" shall mean the average of the daily last sale prices of S&T
Common Stock as reported on the Nasdaq National Market System (as reported by
The Wall Street Journal or, if not reported therein, as reported in a mutually
agreed upon authoritative source) for the five consecutive full trading days
in which such shares are traded on the Nasdaq National Market System ending on
November 25, 1996.
If any company belonging to the Index Group or S&T declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between the Starting Date and the
Determination Date, the prices for the common stock of such company or S&T
shall be appropriately adjusted for the purposes of applying this Article IX.
In the event the Reorganization Agreement is terminated pursuant to the
terms thereof, this Plan of Merger shall become void and have no effect.
ARTICLE X
Miscellaneous
1. This Plan of Merger may be amended or supplemented at any time by mutual
agreement of S&T, S&T Bank and Peoples. Any such amendment or supplement must
be in writing and approved by their respective Boards of Directors.
2. The headings of the several Articles herein are inserted for convenience
of reference only and are not intended to be a part of or to affect the
meaning or interpretation of this Plan of Merger.
3. This Plan of Merger may be executed in several counterparts, each of
which shall be deemed the original, but all of which together shall constitute
one and the same instrument.
4. This Plan of Merger shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania applicable to agreements made and
entirely to be performed within such jurisdiction, except to the extent that
federal law may be applicable.
A-27
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Plan of Merger to be executed in counterparts by
their duly authorized officers and their corporate seals to be hereunto
affixed and attested by their officers thereunto duly authorized, all as of
the day and year first above written.
Attest S&T Bancorp, Inc.
_____________________________________ By___________________________________
(SEAL)
Attest Peoples Bank of Unity
_____________________________________ By___________________________________
(SEAL)
Attest S&T Bank
_____________________________________ By___________________________________
(SEAL)
A-28
<PAGE>
APPENDIX B
OPINION OF MCDONALD & COMPANY SECURITIES, INC.
March 20, 1997
Board of Directors
S&T Bancorp, Inc.
800 Philadelphia Street
Box 190
Indiana, PA 15701
Gentlemen and Madam:
You have requested our opinion with respect to the fairness, from a
financial point of view, as of the date hereof, to the holders of common
stock, par value $2.50 per share ("S&T Common"), of S&T Bancorp, Inc. ("S&T")
of the exchange ratio as set forth in Article V, Section 1 of the Agreement
and Plan of Merger (the "Plan of Merger") which is Annex A to the Agreement
and Plan of Reorganization, dated November 25, 1996 (the "Agreement"), by and
among S&T, S&T Bank and Peoples Bank of Unity ("Peoples").
The Plan of Merger provides for the merger (the "Merger") of Peoples with
and into S&T Bank, pursuant to which, among other things, at the Effective
Date (as defined in the Plan of Merger), outstanding shares of Peoples common
stock, par value $10.00 per share ("Peoples Common"), will be exchanged for
26.25 shares of S&T Common as set forth in Article V, Section 1 of the Plan of
Merger (the "Exchange Ratio"). The terms and conditions of the Merger are more
fully set forth in the Agreement and the Plan of Merger.
McDonald & Company Securities, Inc., as part of its investment banking
business, is customarily engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
We have acted as S&T's financial advisor in connection with, and have
participated in certain negotiations leading to, the execution of the
Agreement. In connection with rendering our opinion set forth herein, we have
among other things:
(i) Reviewed S&T's Annual Reports to Shareholders and Annual Reports on
Form 10-K for each of the years ended December 31, 1996, December 31, 1995
and December 31, 1994, including the audited financial statements contained
therein;
(ii) Reviewed Peoples' audited financial statements for each of the
fiscal years ended December 31, 1996, December 31, 1995 and December 31,
1994;
(iii) Reviewed certain other public and non-public information, primarily
financial in nature, relating to the respective businesses, earnings,
assets and prospects of S&T and Peoples provided to us or publicly
available;
(iv) Participated in meetings and telephone conferences with members of
senior management of S&T and Peoples concerning the financial condition,
business, assets, financial forecasts and prospects of the respective
companies, as well as other matters we believed relevant to our inquiry;
(v) Reviewed certain stock market information for S&T Common and Peoples
Common and compared it with similar information for certain companies, the
securities of which are publicly traded;
(vi) Compared the results of operations and financial condition of S&T
and Peoples with that of certain companies which we deemed to be relevant
for purposes of this opinion;
(vii) Reviewed the financial terms, to the extent publicly available, of
certain acquisition transactions which we deemed to be relevant for
purposes of this opinion;
B-1
<PAGE>
(viii) Reviewed the Plan of Merger and the Agreement and schedules and
exhibits and certain related documents; and
(ix) Performed such other reviews and analyses as we have deemed
appropriate.
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have relied upon the accuracy and
completeness of the representations, warranties and covenants of S&T and
Peoples contained in the Agreement and the Plan of Merger. We have not been
engaged to undertake, and have not assumed any responsibility for, nor have we
conducted, an independent investigation or verification of such matters. We
have not been engaged to and we did not conduct a physical inspection of any
of the assets, properties or facilities of either S&T or Peoples, nor have we
made or obtained or been furnished with any independent evaluation or
appraisal of any of such assets, properties or facilities or any of the
liabilities of either S&T or Peoples. With respect to financial forecasts used
in our analysis, we have assumed that such forecasts have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of S&T and Peoples as to the future performance of
S&T and Peoples, as the case may be. We express no view as to such financial
forecasts or the assumptions on which they are based. We have also assumed
that all of the conditions to the consummation of the Merger, as set forth in
the Agreement and the Plan of Merger, would be satisfied and that the Merger
would be consummated on a timely basis in the manner contemplated by the
Agreement and the Plan of Merger.
We will receive a fee for our services as financial advisor to S&T, a
portion of which is contingent upon closing of the Merger.
In the ordinary course of business, we may trade securities of S&T and
Peoples for our own account and for the accounts of customers and,
accordingly, we may at any time hold a long or short position in such
securities.
This opinion is based on economic and market conditions and other
circumstances existing on, and information made available as of, the date
hereof. In addition, our opinion is, in any event, limited to the fairness to
S&T's stockholders, as of the date hereof, from a financial point of view, of
the Exchange Ratio, and does not address S&T's underlying business decision to
effect the Merger or any other terms of the Merger and does not constitute a
recommendation to any S&T shareholder as to how such shareholder should vote
with respect to the Merger. This opinion does not represent our opinion as to
what the value of S&T Common or Peoples Common may be at the effective date of
the Merger or as to the prospects of S&T's and Peoples' business.
This opinion is directed to and has been prepared for the confidential use
of the Board of Directors of S&T. This opinion shall not be reproduced,
summarized, described or referred to or given to any other person without our
prior written consent. Notwithstanding the foregoing, this opinion may be
included in a proxy statement to be mailed to the holders of S&T Common, and a
proxy statement/prospectus to be mailed to holders of Peoples Common, in
connection with the Merger, provided that this opinion will be reproduced in
such documents in full, and any description of or reference to us or our
actions, or any summary of the opinion in such documents will be in a form
acceptable to us and our counsel.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to the holders of S&T Common from a
financial point of view.
Very truly yours,
/s/ McDonald & Company Securities,
Inc.
McDonald & Company Securities, Inc.
B-2
<PAGE>
APPENDIX C
S&T BANCORP, INC.
AMENDED AND RESTATED 1992 INCENTIVE STOCK PLAN
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1. "Agreement" means a written agreement implementing a grant of an Option
or Right or an award of Restricted Stock or Incentive Shares.
1.2. "Board" means the Board of Directors of the Corporation, but does not
include members emeritus of the Board of Directors.
1.3. "Code" means the Internal Revenue Code of 1986, as amended.
1.4. "Committee" means the committee of the Board meeting the standards of
Rule 16b-3(c)(2)(i) under the Exchange Act, or any similar successor rule,
appointed by the Board to administer the Plan. Unless otherwise determined by
the Board, the Compensation Committee of the Board shall be the Committee.
1.5. "Common Stock" means the common stock, par value $2.50 per share, of
the Corporation.
1.6. "Corporation" means S&T Bancorp, Inc.
1.7. "Date of Exercise" means the date on which the Corporation receives
notice of the exercise of an Option or Right in accordance with the terms of
Article 9.
1.8. "Date of Grant" means the date on which an Option or Right is granted
or Restricted Stock or Incentive Shares are awarded by the Committee.
1.9. "Director" means a member of the Board of the Corporation.
1.10. "Employee" means any person determined by the Committee to be an
employee of the Corporation or a Subsidiary, including an Employee Director.
1.11. "Employee Director" means a Director who is an Employee of the
Corporation.
1.12. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
1.13. "Fair Market Value" of a share of Common Stock means the amount equal
to the fair market value of a share of Common Stock determined pursuant to a
reasonable method adopted by the Committee in good faith for such purpose.
Unless and until the Committee has adopted another method, the fair market
value of a share of Common Stock shall equal the average of the high and low
sales prices on the date such fair market value is to be determined, as
reported by the National Association of Securities Dealers Automated Quotation
System's National Market System ("NASDAQ"), or if there are no sales of Common
Stock reportedly thereby on such date, the average of the high and low sales
prices for shares of Common Stock reported by NASDAQ on the nearest trading
date preceding such date.
1.14. "Grantee" means an Employee to whom Restricted Stock has been awarded
pursuant to Article 11 or Incentive Shares have been awarded pursuant to
Article 12.
1.15. "Incentive Shares" means Shares awarded pursuant to the provisions of
Article 12.
C-1
<PAGE>
1.16. "Incentive Stock Option" means an Option granted under the Plan that
qualifies as an incentive stock option under Section 422 of the Code and that
the Corporation designates as such in the Agreement granting the Option.
1.17. "Nonstatutory Stock Option" means an Option granted under the Plan
that is not an Incentive Stock Option.
1.18. "Option" means an option to purchase Shares granted under the Plan in
accordance with the terms of Article 6 or Article 7.
1.19. "Option Period" means the period during which an Option may be
exercised.
1.20. "Option Price" means the price per Share at which an Option may be
exercised. The Option Price shall be determined by the Committee, but in no
event shall the Option Price of an Incentive Stock Option be less than the
greater of the Fair Market Value per Share determined as of the Date of Grant
or the par value of a Share.
1.21. "Optionee" means an Employee or Director to whom an Option or Right
has been granted.
1.22. "Outside Director" means a Director who is not an Employee Director.
1.23. "Outside Director Program" means that portion of the Plan under which
grants are made to Directors, other than Employee Directors.
1.24. "Performance Goals" means performance goals established by the
Committee which may be based on earnings or earnings growth, sales, return on
assets, equity or investment, regulatory compliance, satisfactory internal or
external audits, improvement of financial ratings, achievement of balance
sheet or income statement objectives, or any other objective goals established
by the Committee, and may be absolute in their terms or measured against or in
relationship to other companies comparably, similarly or otherwise situated.
Such performance standards may be particular to an employee or the department,
branch, Subsidiary or other division in which he or she works, or may be based
on the performance of the Corporation generally, and may cover such period as
may be specified by the Committee.
1.25. "Plan" means the Amended and Restated S&T Bancorp, Inc. 1992 Incentive
Stock Plan.
1.26. "Related Option" means the Option in connection with which, or by
amendment to which, a specified Right is granted.
1.27. "Related Right" means the Right granted in connection with, or by
amendment to, a specified Option.
1.28. "Restricted Stock" means Shares awarded pursuant to the provisions of
Article 11.
1.29. "Right" means a stock appreciation right granted under the Plan in
accordance with the terms of Article 8.
1.30. "Right Period" means the period during which a Right may be exercised.
1.31. "Share" means a share of authorized but unissued Common Stock or a
reacquired share of Common Stock.
1.32. "Subsidiary" means a corporation at least 50% of the total combined
voting power of all classes of stock of which is owned by the Corporation,
either directly or through one or more other Subsidiaries.
C-2
<PAGE>
2. PURPOSE
The Plan is intended to assist in attracting and retaining Employees and
Directors of outstanding ability and to promote the identification of their
interests with those of the shareholders of the Corporation.
3. ADMINISTRATION
The Plan shall be administered by the Committee. In addition to any other
powers granted to the Committee, it shall have the following powers, subject
to the express provisions of the Plan:
3.1. To determine in its discretion the Employees to whom Options or Rights
shall be granted and to whom Restricted Stock or Incentive Shares shall be
awarded, the number of Shares to be subject to each Option, Right, Restricted
Stock or Incentive Share award, and the terms upon which Options or Rights
granted to Employees may be acquired and exercised and the terms and
conditions of Restricted Stock and Incentive Share awards;
3.2. To determine all other terms and provisions of each Agreement with an
Employee, which need not be identical;
3.3. Without limiting the generality of the foregoing, to provide in its
discretion in an Agreement with an Employee:
(i) For an agreement by the Optionee or Grantee to render services to the
Corporation or a Subsidiary upon such terms and conditions as may be
specified in the Agreement, provided that the Committee shall not have the
power to commit the Corporation or any Subsidiary to employ or otherwise
retain any Optionee or Grantee;
(ii) For restrictions on the transfer, sale or other disposition of
Shares issued to the Optionee upon the exercise of an Option or Right, for
other restrictions permitted by Article 11 with respect to Restricted Stock
or for conditions with respect to the issuance of Incentive Shares.
(iii) For an agreement by the Optionee or Grantee to resell to the
Corporation, under specified conditions, Shares issued upon the exercise of
an Option or Right or awarded as Restricted Stock or Incentive Shares; and
(iv) For the payment of the Option Price upon the exercise of an Option
otherwise than in cash, including without limitation by delivery of shares
of Common Stock (other than Restricted Stock) valued at Fair Market Value
on the Date of Exercise of the Option, or a combination of cash and shares
of Common Stock, or for the payment in part of the Option Price with a
promissory note in accordance with the terms of Section 9.2; and
(v) For the right of the Optionee to surrender his or her Option (or a
portion thereof and to receive upon such surrender that number of shares
having an aggregate Fair Market Value as of the date of surrender equal to
the product of (i) the excess of the Fair Market Value of one share of
Common Stock as of such surrender date over the Option Price with respect
to such surrendered Option (or portion thereof, multiplied by (ii) the
number of shares covered by the Option or portion thereof surrendered. No
fractional shares shall be issued upon such surrender. Cash shall be paid
in lieu of any such fractional share in an amount equal to the product of
such fraction multiplied by the Fair Market Value of one share of Common
Stock on the date of surrender. Any such surrender shall be treated as an
exercise of such Option or portion thereof for purposes of this Plan. No
such surrender may be made before the Option is exercisable.
3.4. To construe and interpret the Agreements and the Plan;
3.5. To require, whether or not provided for in the pertinent Agreement, of
any person exercising an Option or Right or acquiring Restricted Stock or
Incentive Shares, at the time of such exercise or acquisition, the making of
any representations or agreements which the Committee may deem necessary or
advisable in order to comply with the securities laws of the United States or
of any state;
C-3
<PAGE>
3.6. To provide for satisfaction of an Optionee's or Grantee's tax
liabilities arising in connection with the Plan through, without limitation,
retention by the Corporation of shares of Common Stock otherwise issuable on
the exercise of a Nonstatutory Stock Option or Right or pursuant to an award
of Incentive Shares or through delivery of Common Stock to the Corporation by
the Optionee or Grantee under such terms and conditions as the Committee deems
appropriate; and
3.7. To make all other determinations and take all other actions necessary
or advisable for the administration of the Plan.
Any determinations or actions made or taken by the Committee pursuant to this
Article shall be binding and final.
4. ELIGIBILITY
Options, Rights, Restricted Stock and Incentive Shares may be granted or
awarded only to Employees, provided, however, that Outside Directors may
receive Nonstatutory Stock Options in accordance with the provisions of
Article 7 and provided further, that the members of the Committee are not
eligible to receive Options (except for Nonstatutory Stock Options in
accordance with the provisions of Article 7), Rights, Restricted Stock or
Incentive Shares.
5. STOCK SUBJECT TO THE PLAN
5.1. The maximum number of Shares that may be issued under the Plan is
600,000 shares.
5.2. If an Option or Right expires or terminates for any reason (other than
termination by virtue of the exercise of a Related Option or Related Right, as
the case may be) without having been fully exercised, if Shares of Restricted
Stock are forfeited or if Incentive Shares are not issued or are forfeited,
the unissued or forfeited Shares which had been subject to the Agreement
relating thereto shall become available for the grant of other Options and
Rights or for the award of additional Restricted Stock or Incentive Shares.
5.3. The Shares issued upon the exercise of a Right (or, if cash is payable
in connection with such exercise, that number of Shares having a Fair Market
Value equal to the cash payable upon such exercise), shall be charged against
the number of Shares issuable under the Plan and shall not become available
for the grant of other Options and Rights for the award of Restricted Stock or
Incentive Shares. If the Right referred to in the preceding sentence is a
Related Right, the Shares subject to the Related Option, to the extent not
charged against the number of Shares subject to the Plan in accordance with
this Section 5.3, shall become available for the grant of other Options or
Rights or for the award of additional Restricted Stock or Incentive Shares.
6. OPTIONS
6.1. The Committee is hereby authorized to grant Nonstatutory Stock Options
and Incentive Stock Options to Employees. Nonstatutory Stock Options also may
be granted to Outside Directors, pursuant to Article 7.
6.2. All agreements granting Options to Employees shall contain a statement
that the Option is intended to be either (i) a Nonstatutory Stock Option or
(ii) an Incentive Stock Option.
6.3. The Option Period for Options granted to Employees shall be determined
by the Committee and specifically set forth in the Agreement, provided,
however, that an Option shall not be exercisable before six months from the
Date of Grant (except that this limitation need not apply in the event of the
death or disability of the Optionee within the six-month period) or after ten
years from the Date of Grant.
6.4. All Incentive Stock Options granted under the Plan shall comply with
the provisions of the Code governing incentive stock options and with all
other applicable rules and regulations.
C-4
<PAGE>
6.5. The maximum number of Shares of Common Stock with respect to which
Options may be granted to any Employee under this Plan during its term is
200,000 Shares. In no event shall the Option Price of an Option be less than
the Fair Market Value of a Share of Common Stock on the Date of Grant.
6.6. All other terms of Options granted under the Plan shall be determined
by the Committee in its sole discretion.
7. OUTSIDE DIRECTOR PROGRAM
7.1. The Outside Director Program shall be a formula plan under which
Outside Directors shall be granted Nonstatutory Stock Options, but only in
accordance with the provisions set forth in this Article 7.
7.2. Nonstatutory Stock Options shall be granted to Outside Directors as
follows:
(i) Commencing on December 19, 1994, and on the third Monday in December
of each succeeding year (or the next business day if such date is a non-
business day) (the "Automatic Grant Date"), each Outside Director shall be
granted a Nonstatutory Stock Option to purchase 2,500 Shares at an Option
Price equal to the Fair Market Value of the Shares on such date, which date
shall be the Date of Grant; provided that the exercisability of such
Nonstatutory Stock Options shall be conditioned upon approval of this Plan
by the shareholders of the Corporation; and provided further, that if any
such Outside Director has not served as a Director of the Corporation
continuously since the last Automatic Grant Date, the Nonstatutory Stock
Option granted pursuant to this Section 7.2(i) shall be for a number of
Shares (rounded to the nearest whole Share) equal to 2,500 multiplied by a
fraction, the numerator of which shall be the number of days since the last
Automatic Grant Date that such person has served as a Director of the
Corporation, and the denominator of which shall be 365; and
(ii) Nonstatutory Stock Options granted under this Article 7 shall vest
six months from the Date of Grant and may be exercised by the Optionee at
any time after vesting and prior to the termination of the Nonstatutory
Stock Option; provided, however, that any Nonstatutory Stock Option granted
prior to the approval of this Plan by the shareholders of the Corporation
shall vest six months from the date of such shareholder approval.
Nonstatutory Stock Options granted pursuant to this Article 7 shall
terminate upon the earlier to occur of (A) 10 years from the date of Grant
or (B) one year from the date on which such Optionee ceases to be a member
of the Board or, if such Optionee ceases to be a member of the Board by
reason of retirement, disability, death or removal from such position
without cause, five years from the date on which such Optionee ceases to be
a member of the Board. Nonstatutory Stock Options are not transferable
except to the extent provided in Article 10 hereof. Exercise of
Nonstatutory Stock Options may be made only in writing delivered to the
Corporation accompanied by payment of the Option Price.
7.3. In the event of any change in the capitalization of the Corporation by
reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, exchanges of shares or the like, the Nonstatutory Stock Options
granted pursuant to Section 7.2 above shall be for such number of Shares and
at an Option Price as shall be adjusted in accordance with Article 13 hereof.
7.4. If on any Date of Grant of Nonstatutory Stock Options to Outside
Directors there is an insufficient number of Shares available for such grants
to Outside Directors, the number of Shares subject to each grant shall be
reduced to the greatest whole number of Shares arrived at by dividing the
remaining Shares available for such grants by the number of Outside Directors
eligible for such grants.
8. RIGHTS
8.1. The Committee is hereby authorized to grant Rights to Employees.
8.2. A Right may be granted under the Plan:
(i) In connection with, and at the same time as, the grant of an Option
under the Plan;
(ii) By amendment of an outstanding Nonstatutory Stock Option granted
under the Plan; or
(iii) Independently of any Option granted under the Plan.
C-5
<PAGE>
A Right granted under clause (i) or (ii) of the preceding sentence is a
Related Right. A Related Right may, in the Committee's discretion, apply to
all or a portion of the Shares subject to the Related Option.
8.3. A Right may be exercised in whole or in part as provided in the
Agreement, and, subject to the provisions of the Agreement, entitles its
Optionee to receive, without any payment to the Corporation (other than
required income tax withholding amounts), either cash or that number of Shares
(equal to the highest whole number of Shares), or a combination thereof, in an
amount or having a Fair Market Value determined as of the Date of Exercise not
to exceed the number of Shares subject to the portion of the Right exercised
multiplied by an amount equal to the excess of (i) the Fair Market Value of a
share of Common Stock on the Date of Exercise of the Right over (ii) either
(A) the Fair Market Value of a share of Common Stock on the Date of Grant of
the Right if it is not a Related Right, or (B) the Option Price as provided in
the Related Option if the Right is a Related Right.
8.4. The Right Period shall be determined by the Committee and specifically
set forth in the Agreement, provided, however:
(i) A Right may not be exercised until the expiration of six months from
the Date of Grant (except that this limitation need not apply in the event
of the death or disability of the Optionee within the six-month period);
(ii) A Right will expire no later than the earlier of (A) ten years from
the Date of Grant, or (B) in the case of a Related Right, the expiration of
the Related Option;
(iii) A Right may be exercised only when the Fair Market Value of a share
of Common Stock exceeds either (A) the Fair Market Value of a share of
Common Stock on the Date of Grant of the Right if it is not a Related
Right, or (B) the Option Price as provided in the Related Option if the
Right is a Related Right; and
(iv) A Right that is a Related Right to an Incentive Stock Option may be
exercised only when and to the extent the Related Option is exercisable.
8.5. The exercise, in whole or in part, of a Related Right shall cause a
reduction in the number of Shares subject to the Related Option equal to the
number of Shares with respect to which the Related Right is exercised.
Similarly, the exercise, in whole or in part, of a Related Option shall cause
a reduction in the number of Shares subject to the Related Right equal to the
number of Shares with respect to which the Related Opinion is exercised.
8.6. Rights granted under the Plan (other than cash-only Rights) shall
comply with the requirements of Rule 16b-3(e) under the Exchange Act during
the term of this Plan. Should any provision of this Article 8 necessary for
that purpose at the date of adoption of this Plan by the Board no longer be
necessary to comply with the requirements of Rule 16b-3(e) or should any
additional provisions be necessary for this Article 8 to comply with the
requirements of Rule 16b-3(e), the Board or the Committee may amend this Plan
to delete, add to or modify the provisions of the Plan accordingly. The
Corporation intends to comply, if and to the extent applicable, with the
public information and reporting requirements of Rule 16b-3(e)(1); however,
the Corporation's failure for any reason whatsoever to comply with such
requirements or with any other requirements of Rule 16b-3, and any resultant
unavailability of Rule 16b-3(e) to Optionees shall not impose any liability on
the Corporation to any Optionee or any other party.
8.7. To the extent required by Rule 16b-3(e) under the Exchange Act or
otherwise provided in the Agreement, the Committee shall have sole discretion
to consent to or disapprove the election of any Optionee to receive cash in
full or partial settlement of a Right. In cases where an election of
settlement in cash must be consented to by the Committee, the Committee may
consent to, or disapprove, such election at any time after such election, or
within such period for taking action as is specified in the election, and
failure to give consent shall be disapproval. Consent may be given in whole or
as to a portion of the Right surrendered by the Optionee.
C-6
<PAGE>
If the election to receive cash is disapproved in whole or in part, the Right
shall be deemed to have been exercised for Shares, or, if so specified in the
notice of exercise and election, not to have been exercised to the extent the
election to receive cash is disapproved.
8.8. The maximum number of Shares of Common Stock with respect to which
Rights may be granted to any Employee under this Plan during its term is
200,000 Shares.
9. EXERCISE
9.1. An Option or Right may, subject to the provisions of the Agreement
under which it was granted, be exercised in whole or in part by the delivery
to the Corporation of written notice of the exercise, in such form as the
Committee may prescribe, accompanied, in the case of an Option, by full
payment for the Shares with respect to which the Option is exercised, unless
and to the extent that the Committee agreed in the Agreement in which an
Option was granted to accept a promissory note as provided in Section 9.2
hereof.
9.2. To the extent permitted by applicable law, the Committee may agree in
the Agreement in which an Option is granted to an Employee to accept as
partial payment for the Shares a promissory note of the Optionee evidencing
his or her obligation to make future cash payment thereof; provided, however,
that in no event may the Committee accept a promissory note for an amount in
excess of the difference between the aggregate Option Price and the par value
of the Shares. Promissory notes made pursuant to this Section 9.2 shall be
payable as determined by the Committee, shall be secured by a pledge of the
Shares and shall bear interest at a rate fixed by the Committee.
10. NONTRANSFERABILITY
Options, Rights, Incentive Shares granted or awarded under the Plan shall
not be transferable otherwise than (A) by will or the laws of descent and
distribution, or (B) pursuant to a qualified domestic relations order as
defined in section 414(p) of the Code, and an Option or Right may be exercised
during his or her lifetime only by the Optionee or, in the event of his or her
legal disability, by his or her legal representative. A Related Right is
transferable only when the Related Option is transferable and only with the
Related Option and under the same conditions.
11. RESTRICTED STOCK AWARDS
11.1. The Committee is hereby authorized to award Shares of Restricted Stock
to Employees.
11.2. Restricted Stock awards under the Plan shall consist of Shares that
are restricted against transfer, subject to forfeiture, and subject to such
other terms and conditions intended to further the purposes of the Plan as may
be determined by the Committee. Such terms and conditions may provide, in the
discretion of the Committee, for the vesting of such awards to be contingent
upon the achievement of one or more specified Performance Goals.
11.3. Restricted Stock awards shall be evidenced by Agreements containing
provisions setting forth the terms and conditions governing such awards. Each
such Agreement shall contain the following:
(i) Prohibitions against the sale, assignment, transfer, exchange,
pledge, hypothecation, or other encumbrance of (A) the Shares awarded as
Restricted Stock under the Plan, (B) the right to vote the Shares, or (C)
the right to receive dividends thereon in each case during the restriction
period applicable to the Shares; provided, however, that the Grantee shall
have all the other rights of a shareholder including, but not limited to,
the right to receive dividends and the right to vote the Shares;
(ii) At least one term, condition or restriction constituting a
"substantial risk of forfeiture" as defined in section 83(c) of the Code:
C-7
<PAGE>
(iii) Such other terms, conditions and restrictions as the Committee in
its discretion may specify (including, without limitation, provisions
creating additional substantial risks of forfeiture);
(iv) A requirement that each certificate representing Shares of
Restricted Stock shall be deposited with the Corporation, or it designee,
and shall bear the following legend:
"This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including the risks of
forfeiture and restrictions against transfer) contained in the
Amended and Restated S&T Bancorp, Inc. 1992 Incentive Stock Plan,
and an Agreement entered into between the registered owner and S&T
Bancorp, Inc. Release from such terms and conditions shall be made
only in accordance with the provisions of the Plan and the
Agreement, a copy of each of which is on file in the office of the
Secretary of S&T Bancorp, Inc."
(v) The applicable period or periods of any terms, conditions or
restrictions applicable to the Restricted Stock, provided, however, that
the Committee in its discretion may accelerate the expiration of the
applicable restriction period with respect to any part or all of the Shares
awarded to a Grantee; and
(vi) The terms and conditions upon which any restrictions upon Shares of
Restricted Stock awarded under the Plan shall lapse and new certificates
free of the foregoing legend shall be issued to the Grantee or his or her
legal representative.
11.4. The Committee may include in an Agreement a requirement that in the
event of a Grantee's termination of employment for any reason prior to the
lapse of restrictions, all Shares of Restricted Stock shall be forfeited by
the Grantee to the Corporation without payment of any consideration by the
Corporation, and neither the Grantee nor any successors, heirs, assigns or
personal representatives of the Grantee shall thereafter have any further
rights or interest in the Shares or certificates.
11.5. The maximum number of Shares of Restricted Stock that may be awarded
to any Employee under this Plan during its term is 200,000 Shares.
12. INCENTIVE SHARE AWARDS
12.1. The Committee is hereby authorized to award Incentive Shares to
Employees.
12.2. Incentive Shares shall be Shares that shall be issued at such times,
subject to achievement of such Performance Goals or other goals and on such
other terms and conditions as the Committee shall deem appropriate and specify
in the Agreement relating thereto.
12.3. The maximum number of Incentive Shares that may be awarded to any
Employee under this Plan during its term is 200,000 Shares.
13. CAPITAL ADJUSTMENTS
The number and class of Shares subject to each outstanding Option or Right
or Restricted Stock or Incentive Share award, the Option Price and the
aggregate number and class of Shares for which grants or awards thereafter may
be made shall be subject to reflect such events as stock dividends, stock
splits, adoption of stock rights plans, recapitalizations, mergers,
consolidations or reorganizations of or by the Corporation. The adjustments
made with respect to Nonstatutory Stock Options granted pursuant to Article 7
hereof shall be equivalent to the treatment accorded to holders of Common
Stock.
14. TERMINATION OR AMENDMENT
The Board shall give the power to terminate the Plan and to amend it in any
respect, provided that, after the Plan has been approved by the shareholders
of the Corporation, the Board may not, without the approval of the
shareholders of the Corporation if such approval is then required by
applicable law or in order for the Plan to
C-8
<PAGE>
continue to satisfy the requirements of Rule 16b-3 under the Exchange Act,
amend the Plan so as to increase the number of Shares that may be issued under
the Plan (except as provided in Article 13), to modify materially the
requirements as to eligibility for participation in the Plan, to change the
class of persons eligible to receive Incentive Stock Options, or to increase
materially the benefits accruing to participants under the Plan. No amendment
to the Outside Director Program shall be made more frequently than once every
six months, other than to comport with changes in the Code or the rules
thereunder. No termination or amendment of the Plan shall, without his or her
consent, adversely affect the rights or obligations of any Optionee or
Grantee.
15. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS, RIGHTS, RESTRICTED STOCK
AND INCENTIVE SHARES
Subject to the terms and conditions and within the limitations of the Plan,
the Committee may modify, extend or renew outstanding Options and Rights, or
accept the surrender of outstanding options, rights and performance units (to
the extent not theretofore exercised) granted under the Plan or under any
other plan of the Corporation, a Subsidiary or a company or similar entity
acquired by the Corporation or a Subsidiary, and authorize the granting of new
Options and Rights pursuant to the Plan in substitution therefore (to the
extent not theretofore exercised), and the substituted Options or Rights may
specify a lower exercise price than the surrendered options, rights and
performance units, a longer term than the surrendered options, rights and
performance units or have any other provisions that are authorized by the
Plan. Subject to the terms and conditions and within the limitations of the
Plan, the Committee may modify the terms of any outstanding Agreement
providing for awards of Restricted Stock or Incentive Shares. Notwithstanding
the foregoing, however, no modification of an Option or Right granted under
the Plan, or an award of Restricted Stock or Incentive Shares, shall, without
the consent of the Optionee, or Grantee, alter or impair any of the Optionee's
or Grantee's rights or obligations.
16. EFFECTIVENESS OF THE PLAN
The Plan and any amendments requiring shareholder approval pursuant to
Article 14 are subject to approval by vote of the shareholders of the
Corporation within 12 months after their adoption by the Board. Subject to
that approval, the Plan and any amendments are effective on the date on which
they are adopted by the Board. Options, Rights, Restricted Stock and Incentive
Shares may be granted or awarded prior to shareholder approval of the Plan or
amendments, but each such Option, Right, Restricted Stock or Incentive Share
grant or award shall be subject to the approval of the Plan or amendments by
the shareholders. Except to the extent required to satisfy the requirements of
Rule 16b-3 under the Exchange Act, the date on which any Option, Right,
Restricted Stock or Incentive Shares granted or awarded prior to shareholder
approval of the Plan or amendment is granted or awarded shall be the Date of
Grant for all purposes as if the Option, Right, Restricted Stock or Incentive
Shares had not been subject to approval. No Option or Right may be exercised
prior to such shareholder approval, and any Restricted Stock or Incentive
Shares awarded shall be forfeited if such shareholder approval is not
obtained.
17. TERM OF THE PLAN
Unless sooner terminated by the Board pursuant to Article 14, the Plan shall
terminate on the date ten years after its adoption by the Board, and no
Options or Rights, Restricted Stock or Incentive Shares may be granted or
awarded after termination. The termination shall not affect the validity of
any Option, Right, Restricted Stock or Incentive Shares outstanding on the
date of termination.
18. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and reasonably incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any Option,
Right, Restricted
C-9
<PAGE>
Stock or Incentive Shares granted or awarded hereunder, and against all
amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in, and
not opposed to, the best interests of the Corporation.
19. GENERAL PROVISIONS
19.1. The establishment of the Plan shall not confer upon any Employee or
Director any legal or equitable right against the Corporation, any Subsidiary
or the Committee, except as expressly provided in the Plan.
19.2 The Plan does not constitute inducement or consideration for the
employment of any Employee or the service of any Director, nor is it a
contract between the Corporation or any Subsidiary and any Employee or
Director. Participation in the Plan shall not give an Employee or Director any
right to be retained in the service of the Corporation or any Subsidiary.
19.3. The Corporation and its Subsidiaries may assume options, warrants, or
rights to purchase stock issued or granted by other corporations whose stock
or assets shall be acquired by the Corporation or its Subsidiaries, or which
shall be merged into or consolidated with the Corporation. Neither the
adoption of this Plan, nor its submission to the shareholders, shall be taken
to impose any limitations on the powers of the Corporation or its affiliates
to issue, grant, or assume options, warrants, rights, or restricted stock,
otherwise than under this Plan, or to adopt other stock option or restricted
stock plans or to impose any requirement of shareholder approval upon the
same.
19.4. The interests of any Employee or Director under the Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in Article 11.
19.5. The Plan shall be governed, construed and administered in accordance
with the laws of Pennsylvania and the intention of the Corporation that
Incentive Stock Options granted under the Plan qualify as such under section
422 of the Code.
C-10
<PAGE>
REVOCABLE PROXY
S&T BANCORP, INC.
ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 1997
The undersigned hereby appoints Ruth B. Wells, James B. George and Delbert
M. Baker or any successors, with full powers of substitution, to act as
attorneys and proxies for the undersigned to vote all shares of the common
stock of S&T, par value $2.50 per share ("S&T Common Stock"), which the
undersigned is entitled to vote at the Annual Meeting of Shareholders (the
"Meeting"), to be held at the Fifth Street Training Center, located at 355
North Fifth Street, Indiana, Pennsylvania, on April 21, 1997, at 10:00 a.m.
Eastern Standard Time and at any and all adjournments thereof, as follows:
1. Election of Directors for three year terms.
FOR all nominees listed below (except as marked
to the contrary) [_]
WITHHOLD AUTHORITY to vote for all nominees
listed [_]
The nominees for the Board of Directors are: Forrest L. Brubaker, John J.
Delaney, W. Parker Ruddock, and Christine J. Toretti. (Authority to vote for
any nominee may be withheld by striking a line through the nominee's name
above.)
2. To consider and vote upon the approval of the Agreement and Plan of
Reorganization dated November 25, 1996 and related Agreement and Plan of
Merger (collectively the "Agreement") among Peoples Bank of Unity ("Peoples"),
a Pennsylvania chartered bank, S&T Bancorp, Inc. ("S&T") and S&T Bank, which
provides: (i) for the merger of Peoples with and into S&T Bank (the "Merger");
(ii) that, on the effective date of the Merger, each share of Peoples Common
Stock, par value $10.00 per share, will be converted and exchanged for 26.25
shares of S&T Common Stock and cash in lieu of any fractional share,
determined in accordance with the terms of the Agreement; and (iii) for the
issuance of up to 3,036,075 shares of S&T Common Stock.
FOR [_] AGAINST [_] ABSTAIN [_]
3. To consider the approval of an amendment to the Amended and Restated 1992
Incentive Stock Plan (the "Stock Plan") to increase the number of shares of
S&T Common Stock subject to the Stock Plan from 600,000 shares to 1,600,000
shares;
FOR [_] AGAINST [_] ABSTAIN [_]
4. To ratify the appointment of Ernst & Young LLP as auditors for 1997.
FOR [_] AGAINST [_] ABSTAIN [_]
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
FOR [_] AGAINST [_] ABSTAIN [_]
Only shareholders of record as of the close of business on February 28, 1997
are entitled to notice of and to vote at such meeting or any adjournment
thereof.
<PAGE>
- -------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1, AND FOR
PROPOSALS 2, 3, AND 4. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING,
INCLUDING MATTERS RELATING TO THE CONDUCT OF THE MEETING, THIS PROXY WILL BE
VOTED BY THOSE NAMED IN THIS PROXY IN ACCORDANCE WITH THE DETERMINATION OF A
MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at any
adjournment thereof and after notification to the Secretary of S&T at the
Meeting of the shareholder's decision to terminate this proxy, then the power
of said attorneys and proxies shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt from S&T prior to the execution of this
proxy of the Notice of Meeting and the Proxy Statement. The undersigned hereby
revokes any and all proxies heretofor given, with respect to the undersigned's
shares of S&T Common Stock.
Dated: , 1997
-------------------------------
PRINT NAME OF SHAREHOLDER
-------------------------------
SIGNATURE OF SHAREHOLDER
Please sign exactly as your name
appears on this card. When signing
as attorney, executor,
administrator, trustee or guardian,
please give your full title. If
shares are held jointly, each holder
should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
