Edgar Filing: S&T BANCORP INC

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from To

Commission file number 0-12508

S&T BANCORP, INC.

(Exact name of registrant as specified in its charter)


Pennsylvania		25-1434426
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

800 Philadelphia Street, Indiana, PA		15701
(Address of principal executive offices)		(zip code)

800-325-2265

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $2.50 Par Value - 28,913,220 shares as of April 30, 2012

INDEX

S&T BANCORP, INC. AND SUBSIDIARIES


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets – March 31, 2012 and December 31, 2011		3

	Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2012 and 2011		4

	Consolidated Statements of Changes in Shareholders’ Equity – Three Months Ended March 31, 2012 and 2011		5

	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2012 and 2011		6

	Notes to Consolidated Financial Statements		7-32

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32-46

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		47

Item 4.	Controls and Procedures		48

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		49

Item 1A.	Risk Factors		49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49

Item 3.	Defaults Upon Senior Securities		49

Item 4.	Mine Safety Disclosures		49

Item 5.	Other Information		49

Item 6.	Exhibits		49

	Signatures		50

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	March 31, 2012			December 31, 2011
*(in thousands, except share and per share data)*	(Unaudited)			(Audited)

ASSETS
Cash and due from banks, including interest-bearing deposits of $332,852 and $208,854 at March 31, 2012 and December 31, 2011, respectively	$	386,640		$	270,526
Securities available-for-sale, at fair value		364,056			357,596
Loans held for sale		3,663			2,850
Portfolio loans, net of unearned income of $542 and $715 at March 31, 2012 and December 31, 2011, respectively		3,197,780			3,129,759
Allowance for loan losses		(47,827	)		(48,841	)


Portfolio loans, net		3,149,953			3,080,918


Bank owned life insurance		60,287			56,755
Premises and equipment, net		39,979			37,755
Federal Home Loan Bank stock, at cost		18,778			18,216
Goodwill		171,395			165,273
Other intangibles, net		6,202			5,728
Other assets		130,022			124,377


Total Assets	$	4,330,975		$	4,119,994


LIABILITIES
Deposits:
Noninterest-bearing demand	$	860,108		$	818,686
Interest-bearing demand		306,400			283,611
Money market		291,245			278,092
Savings		882,675			802,942
Certificates of deposit		1,181,927			1,152,528


Total Deposits		3,522,355			3,335,859


Securities sold under repurchase agreements		40,638			30,370
Short-term borrowings		75,000			75,000
Long-term borrowings		31,426			31,874
Junior subordinated debt securities		90,619			90,619
Other liabilities		66,519			65,746


Total Liabilities		3,826,557			3,629,468

SHAREHOLDERS’ EQUITY
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—30,387,313 shares at March 31, 2012 and 29,714,038 shares at December 31, 2011 Outstanding—28,873,043 shares at March 31, 2012 and 28,131,249 shares at December 31, 2011		75,968			74,285
Additional paid-in capital		65,116			52,637
Retained earnings		419,263			421,468
Accumulated other comprehensive loss		(14,086	)		(14,108	)
Treasury stock (1,514,270 shares and 1,582,789 shares at March 31, 2012 and December 31, 2011, respectively, at cost)		(41,843	)		(43,756	)


Total Shareholders’ Equity		504,418			490,526


Total Liabilities and Shareholders’ Equity	$	4,330,975		$	4,119,994

See Notes to Consolidated Financial Statements

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
*(in thousands, except per share data)*	2012		2011

INTEREST INCOME
Loans, including fees	$	36,337	$	39,649
Investment Securities:
Taxable		1,944		1,843
Tax-exempt		753		598
Dividends		106		102


Total Interest Income		39,140		42,192


INTEREST EXPENSE
Deposits		4,751		6,062
Borrowings and junior subordinated debt securities		1,068		1,258


Total Interest Expense		5,819		7,320


NET INTEREST INCOME		33,321		34,872
Provision for loan losses		9,272		10,640


Net Interest Income After Provision for Loan Losses		24,049		24,232


NONINTEREST INCOME
Securities gains, net		840		13
Debit and credit card fees		2,667		2,645
Wealth management fees		2,419		2,050
Service charges on deposit accounts		2,408		2,285
Insurance fees		2,212		2,132
Mortgage banking		671		625
Other		1,852		1,276


Total Noninterest Income		13,069		11,026


NONINTEREST EXPENSE
Salaries and employee benefits		16,472		13,320
Data processing		3,240		1,504
Professional services and legal		1,900		1,588
Net occupancy		1,784		1,857
Furniture and equipment		1,238		1,177
Joint venture amortization		894		740
Other taxes		774		902
Marketing		742		601
FDIC assessment		608		1,226
Other		5,131		4,534


Total Noninterest Expense		32,783		27,449


Income Before Taxes		4,335		7,809
Provision for income taxes		855		1,514


Net Income		3,480		6,295
Preferred stock dividends and discount amortization		—		1,555


Net Income Available to Common Shareholders	$	3,480	$	4,740

Earnings per common share—basic	$	0.12	$	0.17
Earnings per common share—diluted		0.12		0.17
Dividends declared per common share		0.15		0.15


Comprehensive Income	$	3,502	$	6,240

See Notes to Consolidated Financial Statements

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


*(in thousands, except share and per share data)*	Comprehensive Income			Preferred Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total

Balance at January 1, 2011				$	106,137	$	74,285	$	51,570		$	401,734		$	(6,334	)	$	(48,727	)	$	578,665
Net income for three months ended March 31, 2011	$	6,295										6,295									6,295

Other Comprehensive Income, Net of Tax
Change in unrealized gains on securities available for sale, net of tax of $98		(183	)												(183	)					(183	)
Reclassification adjustment for net gains/losses on securities available-for-sale included in net income, net of tax of $5		(8	)												(8	)					(8	)
Adjustment to funded status of employee benefit plans, net of tax of $73		136													136						136


Total Comprehensive Income	$	6,240

Preferred stock dividends and discount amortization					196							(1,555	)								(1,359	)
Cash dividends declared ($0.15 per share)												(4,193	)								(4,193	)
Treasury stock issued (83,605 shares)												(1,780	)					2,312			532
Recognition of restricted stock compensation expense									267												267
Forfeitures of restricted stock (1,537 shares)																		(37	)		(37	)


Balance at March 31, 2011				$	106,333	$	74,285	$	51,837		$	400,501		$	(6,389	)	$	(46,452	)	$	580,115




Balance at January 1, 2012				$	—	$	74,285	$	52,637		$	421,468		$	(14,108	)	$	(43,756	)	$	490,526
Net income for three months ended March 31, 2012	$	3,480										3,480									3,480

Other Comprehensive Income, Net of Tax
Change in unrealized gains on securities available-for-sale, net of tax of $120		223													223						223
Reclassification adjustment for net gains on securities available-for-sale included in net income, net of tax of $307		(570	)												(570	)					(570	)
Adjustment to funded status of employee benefit plans, net of tax of $199		369													369						369


Total Comprehensive Income	$	3,502

Cash dividends declared ($0.15 per share)												(4,220	)								(4,220	)
Common stock issued in acquisition (673,275 shares)							1,683		12,430												14,113
Treasury stock issued (70,999 shares)												(1,465	)					1,962			497
Recognition of restricted stock compensation expense									74												74
Tax expense from stock-based compensation									(25	)											(25	)
Forfeitures of restricted stock (2,480 shares)																		(49	)		(49	)


Balance at March 31, 2012				$	—	$	75,968	$	65,116		$	419,263		$	(14,086	)	$	(41,843	)	$	504,418

See Notes to Consolidated Financial Statements

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
*(in thousands)*	2012			2011

OPERATING ACTIVITIES
Net income	$	3,480		$	6,295
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		9,272			10,640
Provision for unfunded loan commitments		252			265
Depreciation and amortization		1,507			1,465
Net amortization of discounts and premiums		457			318
Stock-based compensation expense		108			181
Securities gains, net		(840	)		(13	)
Deferred income taxes		646			(2,042	)
Tax expense from stock-based compensation		25			—
Mortgage loans originated for sale		(19,019	)		(23,109	)
Proceeds from the sale of loans		18,468			29,510
Gain on the sale of loans, net		(263	)		(369	)
Net decrease (increase) in interest receivable		637			(54	)
Net (decrease) increase in interest payable		(65	)		160
Net decrease in other assets		2,408			753
Net decrease in other liabilities		(852	)		(11,442	)


Net Cash Provided by Operating Activities		16,221			12,558

INVESTING ACTIVITIES
Purchases of securities available-for-sale		(12,168	)		(56,127	)
Proceeds from maturities, prepayments and calls of securities available-for-sale		19,211			13,065
Proceeds from sales of securities available-for-sale		58,242			70
Proceeds from the redemption of Federal Home Loan Bank stock		911			—
Net decrease in loans		50,569			50,965
Purchases of premises and equipment		(919	)		(613	)
Proceeds from the sale of premises and equipment		7			253
Payment for purchase of Mainline, net of acquired cash		4,517			—


Net Cash Provided by Investing Activities		120,370			7,613

FINANCING ACTIVITIES
Net increase in core deposits		48,639			6,991
Net decrease in certificates of deposit		(68,141	)		(18,708	)
Net increase (decrease) in securities sold under repurchase agreements and federal funds purchased		10,268			(2,384	)
Repayments of long-term borrowings		(7,446	)		(391	)
Purchase of treasury shares		(49	)		—
Sale of treasury shares		497			532
Preferred stock dividends		—			(1,359	)
Cash dividends paid to common shareholders		(4,220	)		(4,193	)
Tax (expense) benefit from stock-based compensation		(25	)		—


Net Cash Used in Financing Activities		(20,477	)		(19,512	)

Net increase in cash and cash equivalents		116,114			659
Cash and cash equivalents at beginning of period		270,526			108,196


Cash and Cash Equivalents at End of Period	$	386,640		$	108,855


Supplemental Disclosures
Interest paid	$	5,885		$	7,159
Income taxes paid ⁽¹⁾		—			—
Net assets acquired from Mainline, excluding cash and cash equivalents		3,846			—
Transfers to other real estate owned and other repossessed assets	$	264		$	2,677

⁽¹⁾There were no taxes paid during either of the quarters presented above due to the carry forward of prior year overpayments.

See Notes to Consolidated Financial Statements

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Principals of Consolidation

The interim Consolidated Financial Statements include the accounts of S&T Bancorp, Inc., or S&T, and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Investments of 20 percent to 50 percent of the outstanding common stock of investees are accounted for using the equity method of accounting.

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements of S&T have been prepared in accordance with generally accepted accounting principles, or GAAP, in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2011, filed with the SEC on February 28, 2012. In the opinion of management, the accompanying interim financial information reflects all adjustments, including normal recurring adjustments, necessary to present fairly S&T’s financial position and results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

Reclassification

Certain amounts in the prior periods’ financial statements have been reclassified to conform to the current period’s presentation. The reclassifications had no significant effect on our results of operations or financial condition.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Recently Adopted Accounting Standards Updates

Presentation of Comprehensive Income

In December 2011, the FASB issued ASU No. 2011-12, which supersedes certain pending paragraphs in ASU No. 2011-05. It effectively defers changes that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The amendments will be temporary to allow the FASB time to redeliberate the presentation requirements for reclassifications out of accumulated other comprehensive income for annual and interim financial statements. This amendment is effective at the same time as the amendments in ASU No. 2011-05. It should be applied retrospectively and is effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU has only impacted our presentation of comprehensive income and has not had an impact on our results of operations or financial position.

Testing Goodwill for Impairment

In September 2011, the FASB issued ASU No. 2011-08, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that its fair value is less than its carrying amount, it need not perform the two-step impairment test. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The adoption of this ASU has not had a material impact on our results of operations or financial position.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION – continued

Presentation of Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, the provisions of which allow an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU 2011-05 does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 permits companies to present in the annual period the comprehensive income components in a single continuous statement or two consecutive statements and to present in the interim periods only the total for comprehensive income in a single continuous statement or two consecutive statements. We have elected this option in a single continuous statement format for interim periods. ASU 2011-05 should be applied retrospectively and is effective for public companies for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this ASU has only impacted our presentation of comprehensive income and has not had an impact on our results of operations or financial position.

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS

In May 2011, the FASB issued ASU No. 2011-04, which represents the convergence of the FASB’s and the IASB’s guidance on fair value measurement. ASU 2011-04 reflects the common requirements under U.S. GAAP and IFRS for measuring fair value and for disclosing information about fair value measurements, including a consistent meaning for the term “fair value.” The new guidance does not extend the use of fair value but, rather, provides guidance about how fair value should be applied where it is already required or permitted under U.S. GAAP or IFRS. For U.S. GAAP, most of the changes are clarifications of existing guidance or wording changes to align with IFRS 13 Fair Value Measurement. A public company is required to apply the ASU prospectively for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted for a public company. The adoption of this ASU has impacted only disclosure requirements and did not have a material impact on our results of operations or financial position.

Reconsideration of Effective Control for Repurchase Agreements

In April 2011, the FASB issued ASU No. 2011-03, which is intended to improve financial reporting of repurchase agreements, or repos, and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. When an entity enters into a typical repo arrangement, it transfers financial assets to a counterparty in exchange for cash with an agreement for the counterparty to return the same or equivalent financial assets for a fixed price in the future. Current guidance prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to a repo agreement. That determination is based, in part, on whether the entity has maintained effective control over the transferred financial assets. This ASU improves the accounting for these transactions by removing from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets and focuses the assessment on the transferor’s contractual rights. This guidance is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of this ASU had no impact on our results of operations or financial position.

Recently Issued Accounting Standards Updates not yet Adopted

Disclosures About Offsetting Assets and Liabilities

In December 2011, the FASB issued ASU No. 2011-11, in conjunction with the IASB’s issuance of amendments to Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7). The disclosure requirements apply to recognized financial instruments and derivative instruments that are offset or subject to an enforceable master netting arrangement. An entity shall disclose information to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on its financial position, including the effect or potential effect of rights of setoff associated with recognized assets and recognized liabilities. While both the FASB and the IASB retained the existing offsetting models under U.S. GAAP and IFRS, the new standards require disclosures to allow investors to better compare financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The new standards are effective for annual periods beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required. The adoption of this ASU is not expected to have a material impact on our results of operations or financial position.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2. BUSINESS COMBINATION

On March 9, 2012, we completed the acquisition of 100 percent of the voting shares of Mainline Bancorp, Inc., or Mainline, located in Ebensburg, Pennsylvania, which was the sole shareholder of Mainline National Bank, in a nontaxable stock and cash transaction. The acquisition expanded our market share and footprint throughout Cambria and Blair Counties of Western Pennsylvania. Mainline shareholders were entitled to elect to receive for each share of Mainline common stock either $69.00 in cash or 3.6316 shares of S&T common stock. We paid $8.5 million in cash and issued 673,275 common shares at a fair value of $21.42 per share or $14.4 million to the former Mainline shareholders. The fair value of $21.42 per share of S&T common stock was based on the March 9, 2012 closing price. We also purchased Mainline’s preferred stock issued under the U.S. Treasury Capital Purchase Program, or CPP, for $4.7 million on March 9, 2012. The preferred stock was purchased and retired as part of the merger transaction.

The acquisition was accounted for under the acquisition method of accounting, and all transactions of Mainline since the acquisition date are included in our consolidated financial statements. The assets acquired and liabilities assumed were recorded at their respective fair values and represent management’s estimates based on available information.

Goodwill of $6.1 million was calculated as the excess of the consideration exchanged over the net identifiable assets acquired. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of S&T and Mainline. All of the goodwill was assigned to our Community Banking segment. The goodwill recognized will not be deductible for tax purposes.

The following table summarizes total consideration, assets acquired and liabilities assumed at March 9, 2012:


*(in thousands)*


Consideration Paid
Cash ^*	$	13,246
Common stock		14,422
Fair value of previously held equity interest in Mainline Bancorp, Inc.		74


Fair Value of Total Consideration	$	27,742

* Cash includes $4.7 million paid to U.S. Treasury to purchase Mainline’s preferred stock.

Fair Value of Assets Acquired
Cash and cash equivalents	$	17,763
Securities and other investments		73,443
Loans		129,260
Premises and other equipment		2,280
Core deposit intangible		900
Other assets		12,586


Total Assets Acquired	$	236,232
Fair Value of Liabilities Assumed
Deposits		205,989
Borrowings		6,997
Other liabilities		1,637


Total Liabilities Assumed	$	214,623


Total Fair Value of Identifiable Net Assets		21,609


Goodwill	$	6,133

Provisional amounts have been recorded for the fair values of loans, deposits and the core deposit intangible at March 31, 2012. Additional adjustments will be required to finalize the acquisition accounting for Mainline since only preliminary valuations were available at the time of this filing. The measurement period for the Mainline acquisition ends March 9, 2013.

Loans acquired in the Mainline acquisition were recorded at fair value with no carryover of the related allowance for loan losses. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Loans acquired with evidence of credit quality deterioration were not significant. We acquired $132.3 million of gross loans and recognized a net combined yield and credit mark of $3.0 million.

Direct costs related to the Mainline acquisition were expensed as incurred. During the first quarter 2012, we recognized $3.9 million of one-time merger related expenses, including $1.6 million in data processing contract termination and conversion costs, $1.7 million in change of control and severance payments and $0.4 million in legal and professional expenses.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. EARNINGS PER SHARE

The following table reconciles the numerators and denominators of basic earnings per share with that of diluted earnings per share for the periods presented:


	Three Months Ended March 31,
*(in thousands, except share and per share data)*	2012		2011


Numerator for Earnings per Common Share—Basic:
Net income	$	3,480	$	6,295
Less: Preferred stock dividends and discount amortization		—		1,555
Less: Income allocated to participating shares		7		5


Net Income Allocated to Common Shareholders	$	3,473	$	4,735


Numerator for Earnings per Common Share—Diluted:
Net income	$	3,480	$	6,295
Less: Preferred stock dividends and discount amortization		—		1,555


Net Income Available to Common Shareholders	$	3,480	$	4,740


Denominators:
Weighted Average Common Shares Outstanding—Basic		28,257,450		27,936,723
Add: Dilutive potential common shares		15,119		20,279


Denominator for Treasury Stock Method—Diluted		28,272,569		27,957,002

Weighted Average Common Shares Outstanding—Basic		28,257,450		27,936,723
Add: Average participating shares outstanding		58,855		32,233


Denominator for Two-Class Method—Diluted		28,316,305		27,968,956

Earnings per common share—basic	$	0.12	$	0.17
Earnings per common share—diluted	$	0.12	$	0.17
Warrants considered anti-dilutive excluded from dilutive potential common shares		517,012		517,012
Stock options considered anti-dilutive excluded from dilutive potential common shares		739,282		746,435
Restricted stock considered anti-dilutive excluded from dilutive potential common shares		30,783		11,954

NOTE 4. FAIR VALUE MEASUREMENTS

We use fair value measurements when recording and disclosing certain financial assets and liabilities. Securities available-for-sale, trading assets and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, impaired loans, other real estate owned, or OREO, mortgage servicing rights, or MSRs, and certain other assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed, based on market data we have obtained from independent sources. Unobservable inputs reflect our estimate of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.

Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

Level 3: valuation is derived from other valuation methodologies including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS – continued

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our policy is to recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.

The following are descriptions of the valuation methodologies that we use for financial instruments recorded at fair value on either a recurring or nonrecurring basis.

Recurring Basis

Securities Available-for-Sale

Securities available-for-sale include both debt and equity securities.

We obtain estimated fair values for debt securities from a third-party pricing service, which utilizes several sources for valuing fixed-income securities. The market evaluation sources for debt securities include observable inputs rather than significant unobservable inputs and are classified as Level 2. The service provider utilizes pricing models that vary by asset class and include available trade, bid and other market information. Generally, the methodologies include broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs.

Marketable equity securities that have an active, quotable market are classified in Level 1. Marketable equity securities that are quotable, but are thinly traded or inactive, are classified as Level 2 and securities that are not readily traded and do not have a quotable market are classified as Level 3.

Trading Assets

We use quoted market prices to determine the fair value of our trading assets. Our trading assets are held in a Rabbi Trust under a deferred compensation plan and are invested in readily quoted mutual funds. Accordingly, these assets are classified as Level 1. Trading assets are recorded in other assets in the Consolidated Balance Sheets.

Derivative Financial Instruments

We use derivative instruments including interest rate swaps for commercial loans with our customers, and we sell mortgage loans in the secondary market and enter into interest rate lock commitments. We calculate the fair value for derivatives using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. Each valuation considers the contractual terms of the derivative, including the period to maturity and uses observable market based inputs, such as interest rate curves and implied volatilities. Accordingly, derivatives are classified as Level 2.

We incorporate credit valuation adjustments into the valuation models to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in calculating fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements and collateral postings.

Nonrecurring Basis

Loans Held for Sale

Loans held for sale consist of 1-4 family residential loans originated for sale in the secondary market and from time to time, certain loans transferred from the loan portfolio to loans held for sale, all of which are carried at the lower of cost or fair value. The fair value of 1-4 family residential loans is based on the principal or most advantageous market currently offered for similar loans using observable market data. The fair value of the loans transferred from the loan portfolio is based on the amounts offered for these loans in currently pending sales transactions. Loans held for sale carried at fair value are classified as Level 2.

Impaired Loans

Impaired loans are carried at the lower of carrying value or fair value. Fair value is determined as the recorded investment balance less any specific reserve. We establish a specific reserve based on the following three impairment methods: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate, 2) the loan’s observable market price or 3) the fair value of the collateral less estimated selling costs when the loan is collateral dependent and we expect to liquidate. However, if repayment is expected to come from the operation of the collateral, rather than liquidation, then we do not consider estimated selling costs in determining the fair value of the collateral. Collateral values are generally based upon appraisals by approved, independent state certified appraisers.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS – continued

Appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of valuation or our knowledge of the borrower and the borrower’s business.

OREO and Other Repossessed Assets

OREO and other repossessed assets obtained in partial or total satisfaction of a loan are recorded at the lower of recorded investment in the loan or fair value less cost to sell. Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition date or fair value less cost to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Like impaired loans, appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of valuation or other information available to us.

Mortgage Servicing Rights

The fair value of MSRs is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. If the carrying value of MSRs exceeds fair value, they are considered impaired. As the valuation model includes significant unobservable inputs, MSRs are classified as Level 3 within the fair value hierarchy.

Other Assets

In accordance with GAAP, we measure certain other assets at fair value on a nonrecurring basis. Fair value is based on the application of lower of cost or fair value accounting, or write downs of individual assets. Valuation methodologies used to measure fair value are consistent with overall principles of fair value accounting and consistent with those described above.

Financial Instruments

In addition to financial instruments recorded at fair value in our financial statements, fair value accounting guidance requires disclosure of the fair value of all of an entity’s assets and liabilities that are considered financial instruments. The majority of our assets and liabilities are considered financial instruments as defined in the guidance. Many of these instruments lack an available trading market as characterized by a willing buyer and willing seller engaged in an exchange transaction. Also, it is our general practice and intent to hold our financial instruments to maturity and to not engage in trading or sales activities. For fair value disclosure purposes, we substantially utilized the fair value measurement criteria as required and explained above. In cases where quoted fair values are not available, we use present value methods to determine the fair value of our financial instruments.

Cash and Cash Equivalents and Other Short-Term Assets

The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks, including interest-bearing deposits approximate fair value.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS – continued

Loans

The fair value of variable rate performing loans is based on carrying values adjusted for credit risk. The fair value of fixed rate performing loans is estimated using discounted cash flow analyses, utilizing interest rates currently being offered for loans with similar terms, adjusted for credit risk. The fair value of nonperforming loans is based on their carrying values less any specific reserve. The carrying amount of accrued interest approximates fair value.

Bank Owned Life Insurance

Fair value approximates net cash surrender value.

Deposits

The fair values disclosed for deposits without defined maturities (e.g., noninterest and interest-bearing demand, money market and savings accounts) are by definition equal to the amounts payable on demand. The carrying amounts for variable rate, fixed-term time deposits approximate their fair values. Estimated fair values for fixed rate and other time deposits are based on discounted cash flow analysis, using interest rates currently offered for time deposits with similar terms. The carrying amount of accrued interest approximates fair value.

Short-Term Borrowings

The carrying amounts of securities sold under repurchase agreements, federal funds purchased and other short-term borrowings approximate their fair values.

Long-Term Borrowings

The fair values disclosed for fixed rate long-term borrowings are determined by discounting their contractual cash flows using current interest rates for long-term borrowings of similar remaining maturities. The carrying amounts of variable rate long-term borrowings approximate their fair values.

Junior Subordinated Debt Securities

The variable rate junior subordinated debt securities reprice quarterly and fair values are based on carrying values.

Loan Commitments and Standby Letters of Credit

Off-balance sheet financial instruments consist of commitments to extend credit and letters of credit. Except for interest rate lock commitments, estimates of the fair value of these off-balance sheet items are not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

Other

Estimates of fair value are not made for items that are not defined as financial instruments, including such items as our core deposit intangibles and the value of our trust operation.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS – continued

The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at March 31, 2012 and December 31, 2011. There were no transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.


	March 31, 2012
*(in thousands)*	Level 1		Level 2		Level 3		Total


ASSETS
Securities available-for-sale:
Obligations of U.S. government corporations and agencies	$	—	$	160,444	$	—	$	160,444
Collateralized mortgage obligations of U.S. government corporations and agencies		—		59,488		—		59,488
Mortgage-backed securities of U.S. government corporations and agencies		—		45,983		—		45,983
Obligations of states and political subdivisions		—		86,628		—		86,628
Marketable equity securities		1,717		7,931		1,865		11,513

Total securities available-for-sale		1,717		360,474		1,865		364,056
Trading securities held in a Rabbi Trust		2,633		—		—		2,633

Total securities		4,350		360,474		1,865		366,689
Derivative financial assets:
Interest rate swaps		—		22,532		—		22,532
Interest rate lock commitments		—		310		—		310


Total Assets	$	4,350	$	383,316	$	1,865	$	389,531


LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	22,267	$	—	$	22,267
Forward sale contracts		—		26		—		26


Total Liabilities	$	—	$	22,293	$	—	$	22,293


	December 31, 2011
*(in thousands)*	Level 1		Level 2		Level 3		Total


ASSETS
Securities available-for-sale:
Obligations of U.S. government corporations and agencies	$	—	$	142,786	$	—	$	142,786
Collateralized mortgage obligations of U.S. government corporations and agencies		—		65,395		—		65,395
Mortgage-backed securities of U.S. government corporations and agencies		—		48,752		—		48,752
Obligations of states and political subdivisions		—		88,805		—		88,805
Marketable equity securities		2,855		7,316		1,687		11,858

Total securities available-for-sale		2,855		353,054		1,687		357,596
Trading securities held in a Rabbi Trust		1,949		—		—		1,949

Total securities		4,804		353,054		1,687		359,545
Derivative financial assets:
Interest rate swaps		—		23,764		—		23,764
Interest rate lock commitments		—		244		—		244


Total Assets	$	4,804	$	377,062	$	1,687	$	383,553


LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	23,639	$	—	$	23,639
Forward sale contracts		—		95		—		95


Total Liabilities	$	—	$	23,734	$	—	$	23,734

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS – continued

We classify financial instruments in Level 3 when valuation models are used because significant inputs are not observable in the market. These valuation models are prepared by third-party pricing entities because these securities are not actively traded in the market. The following table presents the changes in assets measured at fair value on a recurring basis for which we have utilized Level 3 inputs to determine the fair value for the periods presented:


	Three Months Ended March 31,
*(in thousands)*	2012⁽¹⁾		2011⁽¹⁾


Marketable equity security balance at beginning of period	$	1,687	$	1,588
Total gains included in other comprehensive income		38		68
Purchases		140		—
Transfers into (out of) Level 3		—		—

Marketable Equity Security Balance at End of Period	$	1,865	$	1,656

⁽¹⁾ Changes in estimated fair value of available-for-sale investments are recorded in accumulated other comprehensive income/loss, while realized gains and losses from sales are recorded in security gains (losses), net in the Consolidated Statements of Income.

There were no sales, issuances, or settlements of Level 3 financial instruments during the periods presented. Purchases of Level 3 financial instruments represent marketable equity securities acquired from our acquisition of Mainline. Additionally, there were no transfers of financial instruments into or out of Level 3 during the periods presented. Level 3 financial instruments measured on a recurring basis accounted for less than one percent of our assets measured at fair value on a recurring basis at both March 31, 2012 and December 31, 2011. There were no Level 3 liabilities measured at fair value on a recurring basis for either period.

We may be required to measure certain assets and liabilities on a nonrecurring basis. The following tables present our assets that are measured at estimated fair value on a nonrecurring basis by the fair value hierarchy level at March 31, 2012 and December 31, 2011. There were no liabilities measured at estimated fair value on a nonrecurring basis during these periods. At March 31, 2012 and December 31, 2011, we had no loans held for sale that were recorded at fair value.


	March 31, 2012
*(in thousands)*	Level 1		Level 2		Level 3		Total


ASSETS
Impaired loans	$	—	$	—	$	46,387	$	46,387
Other real estate owned		—		—		3,176		3,176
Mortgage servicing rights		—		—		2,201		2,201


Total Assets	$	—	$	—	$	51,764	$	51,764


	December 31, 2011
*(in thousands)*	Level 1		Level 2		Level 3		Total


ASSETS
Impaired loans	$	—	$	—	$	36,500	$	36,500
Other real estate owned		—		—		3,739		3,739
Mortgage servicing rights		—		—		2,153		2,153


Total Assets	$	—	$	—	$	42,392	$	42,392

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS – continued

The carrying values and fair values of our financial instruments at March 31, 2012 and December 31, 2011 are presented in the following tables:


			March 31, 2012
*(in thousands)*	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3


ASSETS
Cash and due from banks, including interest-bearing deposits	$	386,640	$	386,640	$	386,640	$	—	$	—
Securities available-for-sale		364,056		364,056		1,717		360,474		1,865
Loans held for sale		3,663		3,663		—		—		3,663
Portfolio loans		3,197,780		3,189,196		—		—		3,189,196
Federal Home Loan Bank stock, at cost		18,778		18,778		—		—		18,778
Bank owned life insurance		60,287		60,287		—		60,287		—
Trading securities held in a Rabbi Trust		2,633		2,633		2,633		—		—
Mortgage servicing rights		2,201		2,201		—		—		2,201
Interest rate swaps		22,532		22,532		—		22,532		—
Interest rate lock commitments		310		310		—		310		—

LIABILITIES
Deposits	$	3,522,355	$	3,531,696	$	—	$	—	$	3,531,696
Securities sold under repurchase agreements		40,638		40,638		—		—		40,638
Short-term borrowings		75,000		75,000		—		—		75,000
Long-term borrowings		31,426		33,509		—		—		33,509
Junior subordinated debt securities		90,619		90,619		—		—		90,619
Interest rate swaps		22,267		22,267		—		22,267		—
Forward sale contracts		26		26		—		26		—

⁽¹⁾ As reported in the Consolidated Balance Sheets

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS – continued


			Fair Value Measurements at December 31, 2011
*(in thousands)*	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3


ASSETS
Cash and due from banks, including interest-bearing deposits	$	270,526	$	270,526	$	270,526	$	—	$	—
Securities available-for-sale		357,596		357,596		2,855		353,054		1,687
Loans held for sale		2,850		2,850		—		—		2,850
Portfolio loans		3,129,759		3,120,352		—		—		3,120,352
Federal Home Loan Bank stock, at cost		18,216		18,216		—		—		18,216
Bank owned life insurance		56,755		56,755		—		56,755		—
Trading securities held in a Rabbi Trust		1,949		1,949		1,949		—		—
Mortgage servicing rights		2,153		2,153		—		—		2,153
Interest rate swaps		23,764		23,764		—		23,764		—
Interest rate lock commitments		244		244		—		244		—

LIABILITIES
Deposits	$	3,335,859	$	3,343,889	$	—	$	—	$	3,343,889
Securities sold under repurchase agreements		30,370		30,370		—		—		30,370
Short-term borrowings		75,000		75,000		—		—		75,000
Long-term borrowings		31,874		34,171		—		—		34,171
Junior subordinated debt securities		90,619		90,619		—		—		90,619
Interest rate swaps		23,639		23,639		—		23,639		—
Forward sale contracts		95		95		—		95		—

⁽¹⁾As reported in the Consolidated Balance Sheets

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. SECURITIES AVAILABLE-FOR-SALE

The following tables indicate the composition of the securities available-for-sale portfolio for the periods presented:


	March 31, 2012
*(in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


Obligations of U.S. government corporations and agencies		$156,392		$4,173		$(121	)		$160,444
Collateralized mortgage obligations of U.S. government corporations and agencies		57,454		2,034		—			59,488
Mortgage-backed securities of U.S. government corporations and agencies		42,578		3,405		—			45,983
Obligations of states and political subdivisions		83,535		3,102		(9	)		86,628


Debt Securities		339,959		12,714		(130	)		352,543
Marketable equity securities		9,752		1,773		(12	)		11,513


Total		$349,711		$14,487		$(142	)		$364,056


	December 31, 2011
*(in thousands)*	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value


Obligations of U.S. government corporations and agencies		$138,386		$4,400		$ —			$142,786
Collateralized mortgage obligations of U.S. government corporations and agencies		63,202		2,193		—			65,395
Mortgage-backed securities of U.S. government corporations and agencies		45,289		3,463		—			48,752
Obligations of states and political subdivisions		85,689		3,128		(12	)		88,805


Debt Securities		332,566		13,184		(12	)		345,738
Marketable equity securities		10,152		2,179		(473	)		11,858


Total		$342,718		$15,363		$(485	)		$357,596

There were $0.9 million in gross realized gains and immaterial gross realized losses for the three months ended March 31, 2012. There were no significant gross realized gains or losses for the three months ended March 31, 2011. Realized gains and losses on the sale of securities are determined using the specific-identification method.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. SECURITIES AVAILABLE-FOR-SALE – continued

The following tables present the fair value and the age of gross unrealized losses by investment category for the periods presented:


	March 31, 2012
	Less Than 12 Months					12 Months or More				Total
*(in thousands)*	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses


Obligations of U.S. government corporations and agencies	$	13,034	$	(121	)	$	—	$	—	$	13,034	$	(121	)
Collateralized mortgage obligations of U.S. government corporations and agencies		—		—			—		—		—		—
Mortgage-backed securities of U.S. government corporations and agencies		—		—			—		—		—		—
Obligations of states and political subdivisions		1,549		(9	)		—		—		1,549		(9	)


Debt Securities		14,583		(130	)		—		—		14,583		(130	)
Marketable equity securities		134		(12	)		—		—		134		(12	)


Total Temporarily Impaired Securities	$	14,717	$	(142	)	$	—	$	—	$	14,717	$	(142	)


	December 31, 2011
	Less Than 12 Months					12 Months or More					Total
*(in thousands)*	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses

Obligations of U.S. government corporations and agencies	$	—	$	—		$	—	$	—		$	—	$	—
Collateralized mortgage obligations of U.S. government corporations and agencies		—		—			—		—			—		—
Mortgage-backed securities of U.S. government corporations and agencies		—		—			—		—			—		—
Obligations of states and political subdivisions		502		(8	)		414		(4	)		916		(12	)


Debt Securities		502		(8	)		414		(4	)		916		(12	)
Marketable equity securities		5,143		(473	)		—		—			5,143		(473	)


Total Temporarily Impaired Securities	$	5,645	$	(481	)	$	414	$	(4	)	$	6,059	$	(485	)

We do not believe any individual unrealized loss as of March 31, 2012 represents an other than temporary impairment, or OTTI. We perform a review of our securities for OTTI on a quarterly basis to identify securities that may indicate an OTTI. Generally, we record an impairment charge when an equity security within the marketable equity securities portfolio has been in a loss position for 12 consecutive months, unless facts and circumstances suggest the need for an OTTI prior to that time. Our policy for recording an OTTI within the debt securities portfolio is based upon a number of factors, including but not limited to, the length of time and the extent to which fair value has been less than cost, the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations, the likelihood of a security recovering from any decline in fair value and whether management intends to sell the security or if it is more likely than not that management will be required to sell the security prior to it recovering.

As of March 31, 2012, the unrealized losses on eight debt securities were primarily attributable to changes in interest rates. The unrealized losses on one marketable equity security as of March 31, 2012 was attributable to temporary declines in the market value of this stock. We do not intend to sell and it is not likely that we will be required to sell any of the securities, referenced in the table above, in an unrealized loss position before recovery of their amortized cost.

Net unrealized gains of $9.3 million and $9.7 million were included in accumulated other comprehensive loss, net of tax, at March 31, 2012 and December 31, 2011, respectively. Gross unrealized gains, net of taxes, of $9.4 million and $10.0 million were netted against gross unrealized losses, net of taxes, of $0.1 million and $0.3 million, respectively, for these same periods.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. SECURITIES AVAILABLE-FOR-SALE – continued

During the quarters ended March 31, 2012 and March 31, 2011, minimal unrealized losses were reclassified into earnings to record OTTI.

The amortized cost and fair value of available-for-sale securities at March 31, 2012 by contractual maturity, are included in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	March 31, 2012
*(in thousands)*	Amortized Cost		Fair Value


Obligations of U.S. government corporations and agencies, and obligations of states and political subdivisions

Due in one year or less	$	5,947	$	6,028
Due after one year through five years		143,013		147,039
Due after five years through ten years		30,757		31,731
Due after ten years		60,210		62,274

		239,927		247,072
Collateralized mortgage obligations of U.S. government corporations and agencies		57,454		59,488
Mortgage-backed securities of U.S. government corporations and agencies		42,578		45,983

Debt Securities		339,959		352,543
Marketable equity securities		9,752		11,513

Total	$	349,711	$	364,056

At March 31, 2012 and December 31, 2011, securities with carrying values of $218.3 million and $233.9 million, respectively, were pledged to secure repurchase agreements, public funds, trust fund deposits and as collateral for our interest rate swaps.

NOTE 6. LOANS AND LOANS HELD FOR SALE

The following table indicates the composition of the loans for the periods presented:


*(in thousands)*	March 31, 2012			December 31, 2011


Consumer
Home equity	$	441,648		$	411,404
Residential mortgage		382,884			358,846
Installment and other consumer		82,223			67,131
Consumer construction		2,211			2,440

Total Consumer Loans		908,966			839,821

Commercial
Commercial real estate		1,416,663			1,415,333
Commercial and industrial		703,112			685,753
Commercial construction		169,039			188,852

Total Commercial Loans		2,288,814			2,289,938


Total Portfolio Loans		3,197,780			3,129,759
Allowance for loan losses		(47,827	)		(48,841	)


Total Portfolio Loans, net		3,149,953			3,080,918
Loans held for sale		3,663			2,850


Total Loans, Net	$	3,153,616		$	3,083,768

We attempt to limit our exposure to credit risk by diversifying our loan portfolio and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by monitoring the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these classes. Total commercial loans represent 72 percent and 73 percent of total portfolio loans at March 31, 2012 and December 31, 2011, respectively. Within the commercial portfolio, the commercial real estate, or CRE and commercial construction portfolios combined comprise 69 percent of total commercial loans and 50 percent of total portfolio loans at March 31, 2012 and 70 percent of total commercial loans and 51 percent of total portfolio loans at December 31, 2011. Further segmentation of the CRE and commercial construction portfolios by industry and collateral type reveal no concentration in excess of 10 percent of total loans.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. LOANS AND LOANS HELD FOR SALE – continued

The vast majority of both commercial and consumer loans are made to businesses and individuals in our Western Pennsylvania market, resulting in a geographic concentration. The conditions of the local and regional economies are monitored closely through publicly available data as well as information supplied by our customers. Only the CRE and commercial construction portfolios combined have any significant out-of-state exposure, with 18 percent of the combined portfolio and 9 percent of total loans being out-of-state loans at March 31, 2012 and 19 percent of the combined portfolio and 10 percent of total loans being out-of-state loans at December 31, 2011. Management believes underwriting guidelines and ongoing review by credit administration mitigates the concentration risk present in the loan portfolio.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, we may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a troubled debt restructuring, or TDR. We strive to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms generally include reductions in contractual interest rates, principal deferment and extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics. These modifications are generally for longer term periods that would not be considered insignificant. While unusual, there may be instances of loan principal forgiveness. We individually evaluate all substandard commercial loans that experienced a forbearance or change in terms agreement, as well as all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan.

All TDRs are considered to be impaired loans and will be reported as impaired loans for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status. TDRs can be returned to accruing status, if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring. We did not return any TDRs to accruing status during the quarter ended March 31, 2012.

The following table summarizes the restructured loans for the periods presented:


	March 31, 2012						December 31, 2011
*(in thousands)*	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs


Commercial real estate	$	21,018	$	11,333	$	32,351	$	22,284	$	10,871	$	33,155
Commercial and industrial		6,028		1,125		7,153		6,180		—		6,180
Commercial construction		12,822		5,126		17,948		19,682		2,943		22,625
Home equity		—		7		7		—		—		—
Residential mortgage		1,321		5,372		6,693		1,570		4,370		5,940


Total	$	41,189	$	22,963	$	64,152	$	49,716	$	18,184	$	67,900

There were no new TDRs in the quarter ended March 31, 2012; however, we acquired $1.7 million of TDRs from the acquisition of Mainline of which $1.5 million were nonperforming. We modified $4.9 million of commercial and industrial loans for financially troubled borrowers that were not considered to be TDRs. Modifications primarily represented insignificant delays in the timing of payments that were not considered to be concessions.

Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. During the quarter ended March 31, 2012 we had eight TDRs totaling $6.1 million default in addition to the two TDRs totaling $0.9 million that defaulted during 2011. No other TDRs that existed at March 31, 2012 have defaulted.

The following table is a summary of nonperforming assets for the periods presented:


*(in thousands)*	March 31, 2012		December 31, 2011


Nonperforming Assets
Nonaccrual loans	$	41,540	$	37,931
Nonaccrual TDRs		22,963		18,184

Total nonperforming loans		64,503		56,115
OREO		3,371		3,967

Total Nonperforming Assets	$	67,874	$	60,082

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. LOANS AND LOANS HELD FOR SALE – continued

Other real estate owned, or OREO which is included in other assets in the Consolidated Balance Sheets consists of 18 properties with 1 property comprising $1.5 million or 43 percent of the balance. It is our policy to obtain OREO appraisals on an annual basis.

NOTE 7. ALLOWANCE FOR LOAN LOSSES

We maintain an allowance for loan losses, or ALL at a level determined to be adequate to absorb estimated probable credit losses inherent in the loan portfolio as of the balance sheet date. We develop and document a systematic ALL methodology based the following portfolio segments: 1) CRE, 2) Commercial & Industrial, or C&I, 3) Commercial Construction, 4) Consumer Real Estate and 5) Other Consumer. The following are key risks within each portfolio segment:

CRE—Loans secured by commercial purpose real estate, including both owner occupied properties and investment properties for various purposes such as hotels, strip malls and apartments. Operation of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business prospects of the lessee, if the project is not owner occupied.

C&I—Loans made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the company is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the company. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

Commercial Construction—Loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction and absorption periods, if there are problems, the project may not be complete, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

Consumer Real Estate—Loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residences, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this portfolio because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

Other Consumer—Loans made to individuals that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans, unsecured lines and credit cards. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

We further assess risk within each portfolio segment by pooling loans with similar risk characteristics. For the commercial loan classes, the most important indicator of risk is the internally assigned risk rating, including pass, special mention and substandard. Consumer loans are pooled by type of collateral and first or second lien positions for consumer real estate loans. Historical loss rates are applied to these loan pools to determine the general reserve component of the ALL. Management monitors various credit quality indicators for both the commercial and consumer loan portfolios, including delinquency, nonperforming status and changes in risk ratings on a monthly basis.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR LOAN LOSSES – continued

The following tables present the age analysis of past due loans segregated by class of loans for the periods presented:


					March 31, 2012
*(in thousands)*	Current		30-59 Days Past Due		60-89 Days Past Due		Non- performing		Total Past Due		Total Loans


Commercial real estate	$	1,372,888	$	10,198		$ 761		$ 32,816	$	43,775	$	1,416,663
Commercial and industrial		688,135		6,234		474		8,269		14,977		703,112
Commercial construction		155,512		2,067		—		11,460		13,527		169,039
Home equity		436,800		1,110		248		3,490		4,848		441,648
Residential mortgage		372,770		1,753		101		8,260		10,114		382,884
Installment and other consumer		81,796		324		76		27		427		82,223
Consumer construction		1,812		218		—		181		399		2,211


Totals	$	3,109,713	$	21,904		$1,660		$64,503	$	88,067	$	3,197,780


					December 31, 2011
*(in thousands)*	Current		30-59 Days Past Due		60-89 Days Past Due		Non- performing		Total Past Due		Total Loans

Commercial real estate	$	1,374,580		$ 7,657		$ 1,448		$ 31,648	$	40,753	$	1,415,333
Commercial and industrial		672,899		3,583		1,701		7,570		12,854		685,753
Commercial construction		182,305		—		—		6,547		6,547		188,852
Home equity		405,578		2,199		691		2,936		5,826		411,404
Residential mortgage		349,214		1,240		1,163		7,229		9,632		358,846
Installment and other consumer		66,675		382		70		4		456		67,131
Consumer construction		2,259		—		—		181		181		2,440


Totals	$	3,053,510		$15,061		$5,073		$56,115	$	76,249	$	3,129,759

We continually monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans within the pass rating generally have a lower risk of loss than loans risk rated as special mention and substandard, which generally have an increasing risk of loss.

Our risk ratings are consistent with regulatory guidance and are as follows:

Pass —The loan is currently performing and is of high quality.

Special Mention—A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in the strength of our credit position at some future date. Economic and market conditions, beyond the borrower’s control, may in the future necessitate this classification.

Substandard—A substandard loan is not adequately protected by the net worth and/or paying capacity of the borrower or by the collateral pledged, if any. Substandard loans have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR LOAN LOSSES – continued

The following tables present the recorded investment in commercial loan classes by internally assigned risk ratings for the periods presented:


	March 31, 2012
*(in thousands)*	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total


Pass	$	1,244,497		87.9	$	613,393		87.2	$	122,277		72.3	$	1,980,167		86.5
Special mention		71,342		5.0		34,295		4.9		14,135		8.4		119,772		5.2
Substandard		100,824		7.1		55,424		7.9		32,627		19.3		188,875		8.3


Total	$	1,416,663		100.0	$	703,112		100.0	$	169,039		100.0	$	2,288,814		100.0


	December 31, 2011
*(in thousands)*	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total


Pass	$	1,229,005		86.8	$	600,895		87.6	$	136,270		72.1	$	1,966,170		85.9
Special mention		84,400		6.0		33,135		4.8		17,106		9.1		134,641		5.9
Substandard		101,928		7.2		51,723		7.6		35,476		18.8		189,127		8.2


Total	$	1,415,333		100.0	$	685,753		100.0	$	188,852		100.0	$	2,289,938		100.0

We monitor the delinquent status of the consumer portfolio on a monthly basis. Loans are considered nonperforming when interest and principal are 90 days or more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans.

The following tables indicate the recorded investment in consumer loan classes by performing and nonperforming status for the periods presented:


	March 31, 2012
*(in thousands)*	Home Equity		Residential Mortgage		Installment and other consumer		Consumer Construction		Total


Performing	$	438,158	$	374,624	$	82,196	$	2,030	$	897,008
Nonperforming		3,490		8,260		27		181		11,958


Total	$	441,648	$	382,884	$	82,223	$	2,211	$	908,966


	December 31, 2011
*(in thousands)*	Home Equity		Residential Mortgage		Installment and other consumer		Consumer Construction		Total


Performing	$	408,468	$	351,617	$	67,127	$	2,259	$	829,471
Nonperforming		2,936		7,229		4		181		10,350


Total	$	411,404	$	358,846	$	67,131	$	2,440	$	839,821

We individually evaluate all substandard and nonaccrual commercial loans greater than $0.5 million for impairment. Loans are considered to be impaired when based upon current information and events it is probable that we will be unable to collect all principal and interest payments due according to the original contractual terms of the loan agreement. All TDRs are considered to be impaired loans and will be reported as an impaired loan for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. For all TDRs, regardless of size, as well as all other impaired loans, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR LOAN LOSSES – continued

The following tables present investments in loans considered to be impaired and related information on those impaired loans for the periods presented:


	March 31, 2012						Three Months Ended March 31, 2012
*(in thousands)*	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized


With a related allowance recorded:
Commercial real estate	$	4,521	$	4,748	$	887	$	4,538	$	44
Commercial and industrial		3,736		3,736		1,085		3,746		5
Commercial construction		7,898		8,398		4,075		8,541		33
Consumer real estate		—		—		—		—		—


Total with a Related Allowance Recorded		16,155		16,882		6,047		16,825	$	82


Without a related allowance recorded:
Commercial real estate		44,964		54,067		—		47,340		310
Commercial and industrial		8,823		9,011		—		7,983		35
Commercial construction		16,385		21,511		—		21,114		148
Consumer real estate		6,700		7,310		—		6,650		21


Total without a Related Allowance Recorded		76,872		91,899		—		83,087		514


Total:
Commercial real estate		49,485		58,815		887		51,878		354
Commercial and industrial		12,559		12,747		1,085		11,729		40
Commercial construction		24,283		29,909		4,075		29,655		181
Consumer real estate		6,700		7,310		—		6,650		21


Total	$	93,027	$	108,781	$	6,047	$	99,912	$	596

As of March 31, 2012, commercial real estate loans of $49.5 million comprised 53 percent of the total impaired loans of $93.0 million. These impaired loans are collateralized primarily by commercial real estate properties such as retail or strip malls, office buildings, hotels and various other types of commercial purpose properties. These loans are generally considered collateral dependent and charge-offs are recorded when a confirmed loss exists. Approximately $11.9 million of charge-offs have been recorded relating to these commercial real estate loans over the life of these loans. It is our policy to order appraisals on an annual basis on impaired loans or sooner if facts and circumstances warrant otherwise. As of March 31, 2012, an estimated fair value less cost to sell of approximately $62.9 million existed for commercial real estate impaired loans. We have current appraisals on all but $3.6 million of the $49.5 million of impaired loans. The $3.6 million have appraisals that are currently on order.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR LOAN LOSSES – continued


	December 31, 2011						Year Ended December 31, 2011
*(in thousands)*	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized


With a related allowance recorded:
Commercial real estate	$	9,049	$	9,276	$	3,487	$	12,045	$	320
Commercial and industrial		4,207		4,207		1,116		3,497		77
Commercial construction		1,975		1,975		942		3,326		4
Consumer real estate		—		—		—		173		—

Total with a Related Allowance Recorded		15,231		15,458		5,545		19,041		401


Without a related allowance recorded:
Commercial real estate		41,058		47,874		—		34,965		1,415
Commercial and industrial		7,784		7,784		—		4,128		132
Commercial construction		24,024		24,375		—		8,856		496
Consumer real estate		5,939		6,545		—		2,617		195

Total without a Related Allowance Recorded		78,805		86,578		—		50,566		2,238


Total:
Commercial real estate		50,107		57,150		3,487		47,010		1,735
Commercial and industrial		11,991		11,991		1,116		7,625		209
Commercial construction		25,999		26,350		942		12,182		500
Consumer real estate		5,939		6,545		—		2,790		195

Total	$	94,036	$	102,036	$	5,545	$	69,607	$	2,639

The following tables detail activity in the ALL for the periods presented:


	Three Months Ended March 31, 2012
*(in thousands)*	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans


Balance at beginning of period	$	29,804		$	11,274		$	3,703		$	3,166		$	894		$	48,841
Charge-offs		(3,110	)		(1,497	)		(5,275	)		(513	)		(260	)		(10,655	)
Recoveries		36			104			99			49			81			369


Net (Charge-offs)/ Recoveries		(3,074	)		(1,393	)		(5,176	)		(464	)		(179	)		(10,286	)


Provision for loan losses		(2,433	)		1,983			9,157			460			105			9,272


Balance at End of Period	$	24,297		$	11,864		$	7,684		$	3,162		$	820		$	47,827


	Three Months Ended March 31, 2011
*(in thousands)*	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans


Balance at beginning of period	$	30,425		$	9,777		$	5,904		$	3,962		$	1,319		$	51,387
Charge-offs		(464	)		(272	)		(673	)		(924	)		(207	)		(2,540	)
Recoveries		524			95			711			746			100			2,176


Net (Charge-offs)/ Recoveries		60			(177	)		38			(178	)		(107	)		(364	)


Provision for loan losses		9,201			1,091			922			(558	)		(16	)		10,640


Balance at End of Period	$	39,686		$	10,691		$	6,864		$	3,226		$	1,196		$	61,663

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR LOAN LOSSES – continued

The following tables present the ALL and recorded investments in loans by category for the periods presented:


	March 31, 2012
	Allowance for Loan Losses						Portfolio Loans
*(in thousands)*	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total

Commercial real estate	$	887	$	23,410	$	24,297	$	49,485	$	1,367,178	$	1,416,663
Commercial and industrial		1,085		10,779		11,864		12,559		690,553		703,112
Commercial construction		4,075		3,609		7,684		24,283		144,756		169,039
Consumer real estate		—		3,162		3,162		6,700		820,043		826,743
Other consumer		—		820		820		—		82,223		82,223


Total	$	6,047	$	41,780	$	47,827	$	93,027	$	3,104,753	$	3,197,780


	December 31, 2011
	Allowance for Loan Losses						Portfolio Loans
*(in thousands)*	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total

Commercial real estate	$	3,487	$	26,317	$	29,804	$	50,107	$	1,365,226	$	1,415,333
Commercial and industrial		1,116		10,158		11,274		11,991		673,762		685,753
Commercial construction		942		2,761		3,703		25,999		162,853		188,852
Consumer real estate		—		3,166		3,166		5,939		766,751		772,690
Other consumer		—		894		894		—		67,131		67,131


Total	$	5,545	$	43,296	$	48,841	$	94,036	$	3,035,723	$	3,129,759

NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Swaps

Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. S&T utilizes interest rate swaps for commercial loans. These derivative positions relate to transactions in which S&T enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, S&T agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a same notional amount at a fixed rate. At the same time, S&T agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows S&T’s customer to effectively convert a variable rate loan to a fixed rate loan with S&T receiving a variable yield. These agreements could have floors or caps on the contracted interest rates.

Pursuant to S&T’s agreements with various financial institutions, S&T may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of swap transactions. Based upon S&T’s current positions and related future collateral requirements relating to them, S&T believes any affect on its cash flow or liquidity position to be immaterial. Derivatives contain an element of credit risk, the possibility that S&T will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by S&T’s Asset and Liability Committee (“ALCO”) and derivatives with customers may only be executed with customers within credit exposure limits. Interest rate swaps are considered derivatives, but are not accounted for using hedge accounting. As such, changes in the fair value of the derivatives are recorded in current earnings and included in other noninterest income in the Consolidated Statements of Income.

Interest Rate Lock Commitments and Forward Sale Contracts

In the normal course of business, S&T sells originated mortgage loans into the secondary mortgage loan market. S&T offers interest rate lock commitments to potential borrowers. Whenever a customer desires these products, a mortgage originator quotes a secondary market rate guaranteed for that day by the investor. The commitments are generally for 60 days and guarantee a specified interest rate for a loan if underwriting standards are met, but the commitment does not obligate the potential borrower to close on the loan.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued

Accordingly, some commitments expire prior to becoming loans. However, if the borrower accepts the guaranteed rate, S&T can encounter pricing risk if interest rates increase significantly before the loan can be closed and sold. S&T may utilize forward sale contracts in order to mitigate this pricing risk. The rate lock is executed between the mortgagee and S&T, and generally these rate locks are bundled. A forward sale contract is then executed between S&T and the investor. Both the interest rate lock commitment bundle and the corresponding forward sale contract are considered derivatives, but are not accounted for using hedge accounting. As such, changes in the fair value of the derivatives during the commitment period are recorded in current earnings and included in mortgage banking in the Consolidated Statements of Income.

The following table indicates the amounts representing the value of derivative assets and derivative liabilities for the periods presented:


	Derivatives (included in Other Assets)				Derivatives (included in Other Liabilities)
*(in thousands)*	March 31, 2012		December 31, 2011		March 31, 2012		December 31, 2011


Derivatives not Designated as Hedging Instruments
Interest Rate Swaps-Commercial Loans
Fair value	$	22,532	$	23,764	$	22,267	$	23,639
Notional amount		192,154		189,868		192,154		189,868
Collateral posted		—		—		17,981		20,273
Interest Rate Lock Commitments-Mortgage Loans
Fair value		310		244		—		—
Notional amount		10,550		7,093		—		—
Forward Sale Contracts-Mortgage Loans
Fair value		—		—		26		95
Notional amount		—		—		12,275		7,729

The following table indicates the gain or loss recognized in income on derivatives for the periods presented:


	Three Months Ended
*(in thousands)*	March 31, 2012		March 31, 2011


Derivatives not Designated as Hedging Instruments
Interest rate swap contracts - commercial loans	$	140	$	(100	)
Interest rate lock commitments - mortgage loans		66		27
Forward sale contracts - mortgage loans		69		(460	)


Total Derivative Gain (Loss)	$	275	$	(533	)

NOTE 9. BORROWINGS

Short-term borrowings are for terms under one year and are comprised of retail repurchase agreements, or REPOs, federal funds purchased and Federal Home Loan Bank, or FHLB advances. We define repurchase agreements with our local retail customers as retail REPOs. Securities pledged as collateral under these REPO financing arrangements cannot be sold or repledged by the secured party and are therefore accounted for as a secured borrowing. Federal funds purchased are unsecured overnight borrowings with other financial institutions. FHLB advances are for various terms secured by a blanket lien on residential mortgages and other real estate secured loans.

The following is a summary of short-term debt for the periods presented:


*(in thousands)*	March 31, 2012		December 31, 2011


Securities sold under repurchase agreements, retail	$	40,638	$	30,370
Federal Home Loan Bank advances		75,000		75,000


Total	$	115,638	$	105,370

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 9. BORROWINGS – continued

In addition, we currently have a $5.0 million line of credit with S&T Bank secured by investments of another subsidiary of S&T. The line of credit has a variable rate based upon prime and is payable on demand. There were no funds drawn from this line of credit as of March 31, 2012 and December 31, 2011.

Long-term debt instruments are for original terms greater than one year and may be comprised of wholesale REPOs, FHLB advances and junior subordinated debt securities. Long-term REPOs and FHLB advances have the same collateral requirements as their short-term equivalents.

The following is a summary of long-term debt for the periods presented:


*(in thousands)*	March 31, 2012		December 31, 2011


Long-term borrowings	$	31,426	$	31,874
Junior subordinated debt securities		90,619		90,619


Total	$	122,045	$	122,493

We had total long-term debt outstanding of $28.1 million at a fixed rate and $93.7 million at a variable rate at March 31, 2012, excluding a capital lease of $0.2 million that is included in long-term borrowings.

We had total borrowings at March 31, 2012 and December 31, 2011 at the FHLB of Pittsburgh of $106.2 million and $106.6 million, respectively. This consisted of $31.2 million in long term borrowings and $75.0 million in short-term borrowings at the end of the current period. At March 31, 2012, we had a maximum borrowing capacity of $1.2 billion with the FHLB of Pittsburgh.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event a customer does not satisfy the terms of their agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Our allowance for unfunded commitments totaled $1.4 million at March 31, 2012 and $1.2 million at December 31, 2011. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

The following table sets forth the commitments and letters of credit for the periods presented:


*(in thousands)*	March 31, 2012		December 31, 2011

Commitments to extend credit	$	869,942	$	816,160
Standby letters of credit		111,067		119,576


Total	$	981,009	$	935,736

Litigation

In the normal course of business, we are subject to various legal and administrative proceedings and claims. While any type of litigation contains a level of uncertainty, we believe that the outcome of such proceedings or claims will not have a material adverse effect on our consolidated financial position.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 11. EMPLOYEE BENEFITS

We maintain a defined benefit pension plan, or Plan, covering substantially all employees hired prior to January 1, 2008. The benefits are based on years of service and the employee’s compensation for the highest five consecutive years in the last ten years. Contributions are intended to provide for benefits attributed to employee service to date and for those benefits expected to be earned in the future. At this time, the Bank is not required to make a cash contribution to the Plan in 2012; however, the Bank contributed $5.0 million to the Plan in December 2011. The expected long-term rate of return on plan assets is 8.00 percent. Changes to the Plan have been approved and were implemented January 1, 2012. These changes include a lump sum distribution option for active participants and the eventual elimination of the Pension Purchase Option.

The following table summarizes the components of net periodic pension cost and other changes in plan assets and benefit obligation recognized in other comprehensive gain/loss for the periods presented:


	Three Months Ended March 31,
*(in thousands)*	2012			2011


Components of Net Periodic Pension Cost
Service cost—benefits earned during the period	$	727		$	654
Interest cost on projected benefit obligation		1,076			1,043
Expected return on plan assets		(1,404	)		(1,344	)
Amortization of prior service cost (credit)		(32	)		(2	)
Recognized net actuarial loss		570			187


Net Periodic Pension Expense	$	937		$	538

NOTE 12. CAPITAL PURCHASE PROGRAM

On December 7, 2011 we redeemed all of the $108.7 million, or 108,676 shares, of Series A Preferred Stock issued on January 16, 2009 in conjunction with our participation in the Capital Purchase Program, or CPP. Upon redemption, a one-time non-cash reduction to net income available to common shareholders of $1.8 million, or $0.06 per common share, was recorded for the remaining unamortized discount of the preferred stock.

As part of its original purchase of the Series A Preferred Stock, the U.S. Treasury received a warrant to purchase 517,012 shares of our common stock at an initial per share exercise price of $31.53. The warrant provides for the adjustment of the exercise price and the number of shares of our common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon splits or distributions of securities or other assets to holders of our common stock and upon certain issuances of our common stock at or below a specified price relative to the initial exercise price.

The U.S. Treasury has agreed not to exercise voting power with respect to any shares of common stock issued upon exercise of the warrant. We did not repurchase the warrant at the time of the Series A Preferred Stock redemption and it will remain outstanding until January 2019 or until we repurchase it from the U.S. Treasury.

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 13. SEGMENTS

We operate three reportable operating segments including Community Banking, Insurance and Wealth Management.

•

Our Community Banking segment offers services which include accepting time and demand accounts, originating commercial and consumer loans and providing letters of credit and credit card services.

•

Our Insurance segment includes a full-service insurance agency offering commercial property and casualty insurance, group life and health coverage, employee benefit solutions and personal insurance lines.

•

Our Wealth Management segment offers discount brokerage services, services as executor and trustee under wills and deeds, guardian and custodian of employee benefits and other trust and brokerage services, as well as a registered investment advisor that manages private investment accounts for individuals and institutions.

The following represents total assets by reportable operating segment for the periods presented:


*(in thousands)*	March 31, 2012		December 31, 2011

Community Banking	$	4,320,705	$	4,110,462
Insurance		9,038		8,192
Wealth Management		1,232		1,340


Total Assets	$	4,330,975	$	4,119,994

The following tables provide financial information for our three segments for the three months ended March 31, 2012 and 2011. The financial results of the business segments include allocations for shared services based on an internal analysis that supports line of business and branch performance measurement. Shared services include expenses such as employee benefits, occupancy expense, computer support and other corporate overhead. Even with these allocations, the financial results are not necessarily indicative of the business segments’ financial condition and results of operations as if they existed as independent entities. The information provided under the caption “Eliminations” represents operations not considered to be reportable segments and/or general operating expenses and eliminations and adjustments, which are necessary for purposes of reconciling to the Consolidated Financial Statements.


	Three Months Ended March 31, 2012
*(in thousands)*	Community Banking		Insurance			Wealth Management		Eliminations			Consolidated


Interest income	$	39,101	$	—		$	102	$	(63	)	$	39,140
Interest expense		5,895		—			—		(76	)		5,819

Net interest income (expense)		33,206		—			102		13			33,321
Provision for loan losses		9,272		—			—		—			9,272
Noninterest income		8,828		1,421			2,412		408			13,069
Noninterest expense		26,278		1,453			2,362		1,296			31,389
Depreciation expense		948		13			7		—			968
Amortization of intangible assets		397		13			16		—			426
Provision (benefit) for income taxes		1,681		(21	)		70		(875	)		855


Net Income (Loss)	$	3,458	$	(37	)	$	59	$	—		$	3,480

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 13. SEGMENTS – continued


	Three Months Ended March 31, 2011
*(in thousands)*	Community Banking		Insurance			Wealth Management		Eliminations			Consolidated

Interest income	$	42,141	$	—		$	92	$	(41	)	$	42,192
Interest expense		7,325		73			—		(78	)		7,320

Net interest income (expense)		34,816		(73	)		92		37			34,872
Provision for loan losses		10,640		—			—		—			10,640
Noninterest income		7,382		1,333			2,086		225			11,026
Noninterest expense		21,516		1,263			1,726		1,384			25,889
Depreciation expense		1,074		14			9		—			1,097
Amortization of intangible assets		431		14			18		—			463
Provision (benefit) for income taxes		2,480		(11	)		167		(1,122	)		1,514


Net Income (Loss)	$	6,057	$	(20	)	$	258	$	—		$	6,295

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis, or MD&A represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations at and for the three months ended March 31, 2012 and 2011. Our MD&A should be read in conjunction with our consolidated financial statements and notes thereto. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.

Important Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains or incorporates statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements generally relate to our financial condition, results of operations, plans, objectives, future performance or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “estimate,” “forecast,” “projected,” “intends to” or other similar words. You should not place undue reliance on these statements, as they are subject to risks and uncertainties, including but not limited to, those described in this Form 10-Q or the documents incorporated by reference. When considering these forward-looking statements, you should keep in mind these risks and uncertainties, as well as any cautionary statements we may make. Moreover, you should treat these statements as speaking only as of the date they are made and based only on information actually known to us at that time. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

These forward-looking statements are based on current expectations, estimates and projections about our business, management’s beliefs and assumptions made by management. These Future Factors, are not guarantees of our future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements.

Future Factors include:

•

changes in interest rates, spreads on interest-earning assets and interest-bearing liabilities, the shape of the yield curve and interest rate sensitivity;

•

a prolonged period of low interest rates;

•

credit losses;

•

access to capital in the amounts, at the times and on the terms required to support our future businesses;

•

legislation affecting the financial services industry as a whole, and/or S&T Bancorp, Inc., or S&T, in particular, including the effects of the Dodd-Frank Act;

•

regulatory supervision and oversight, including required capital levels, and public policy changes, including environmental regulations;

•

increasing price and product/service competition, including new entrants;

•

rapid technological developments and changes;

•

the ability to continue to introduce competitive new products and services on a timely, cost-effective basis;

•

continued deterioration of the housing market and reduced demand for mortgages;

•

containing costs and expenses;

•

reliance on large customers;

•

the outcome of pending and future litigation and governmental proceedings;

•

managing our internal growth and acquisitions;

•

the possibility that the anticipated benefits from our recently completed acquisition of Mainline Bancorp, or Mainline, and pending acquisition of Gateway Bank of Pennsylvania, or Gateway, cannot be fully realized in a timely manner or at all, or that integrating future acquired operations will be more difficult, disruptive or costly than anticipated;

•

general economic or business conditions, either nationally or regionally in western Pennsylvania, may be less favorable than expected, resulting in among other things, a reduced demand for credit and other services;

•

a decline in market capitalization to common book value, which could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge to net income; and

•

a continuation of recent turbulence in significant portions of the global financial and real estate markets could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities and indirectly, by affecting the economy generally.

These are representative of the Future Factors that could affect the outcome of the forward-looking statements. In addition, such statements could be affected by general industry and market conditions and growth rates, general economic conditions, including interest rate and currency exchange rate fluctuations and other Future Factors.

Critical Accounting Policies and Estimates

Our critical accounting policies involving the significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2012 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2011 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

We are a bank holding company headquartered in Indiana, Pennsylvania with assets of approximately $4.3 billion at March 31, 2012. We provide a full range of financial services through offices located in Allegheny, Armstrong, Blair, Butler, Cambria, Clarion, Clearfield, Indiana, Jefferson and Westmoreland counties of Western Pennsylvania. We provide full service retail and commercial banking products as well as cash management services, insurance, estate planning and administration, employee benefit plan investment management and administration, corporate and other fiduciary services. Our common stock trades on the Nasdaq Global Select Market under the symbol “STBA.”

We earn revenue primarily from interest on loans, securities investments and fees charged for financial services provided to our customers. Offsetting these revenues are the cost of deposits and other funding sources, provision for loan losses and other operating costs such as: salaries and employee benefits, occupancy, data processing expenses and tax expense.

Our mission is to become the financial services provider of choice in Western Pennsylvania by delivering exceptional service and value, one customer at a time. Our strategic plan is market based and focuses on satisfying our customers’ transaction, credit, investment and insurance needs through each of our delivery channels. Transaction needs include the traditional deposit banking products for both

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

individuals and businesses. Credit needs are solutions for customers with the need to borrow for personal assets, business growth and expansion, or capital leverage. Investment needs are a customer’s needs as they relate to deriving growth and return, the focus of our investment services, both S&T Wealth Management Services and Stewart Capital Advisors. Insurance needs include those of both individuals and businesses, and can be met through S&T–Evergreen Insurance LLC and S&T Insurance Group, LLC, which provide a host of insurance products and services.

During the first quarter of 2012, we executed on our strategy to expand our business through completion of one acquisition and entering into definitive agreement with respect to a second acquisition as described below:

Mainline Bancorp, Inc.

On March 9, 2012, we completed our purchase of Mainline and the operations conversion of the bank holding company and its bank subsidiary, which was headquartered in Ebensburg, Pennsylvania. The Mainline acquisition, with the addition of eight branches, expands our market share and footprint throughout Cambria and Blair Counties of Western Pennsylvania. The transaction valued at $27.7 million, added total assets of $236.2 million, including $129.3 million in loans and $206.0 million in deposits. Our earnings for the first quarter were impacted by one-time merger related expenses of $3.9 million or $0.11 per share.

Gateway Bank of Pennsylvania

On March 29, 2012, we entered into a definitive agreement to acquire Gateway Bank of Pennsylvania, or Gateway, based in McMurray, Pennsylvania. Gateway has approximately $120 million in assets and maintains two offices in Washington and Butler counties of Western Pennsylvania. The transaction is expected to add approximately $99.3 million in loans and deposits to S&T’s Consolidated Balance Sheet. The transaction, valued at approximately $22 million, is expected to close in the third quarter of 2012, after satisfaction of customary closing conditions, including regulatory approvals and the approval of the shareholders of Gateway. The acquisition is expected to expand our existing footprint in the northern and southern suburbs of Pittsburgh.

Earnings Summary

Net income available to common shareholders for the first quarter of 2012 was $3.5 million resulting in diluted earnings per common share of $0.12 compared to net income of $4.7 million and $0.17 diluted earnings per share in the first quarter of 2011. Our performance was significantly impacted by an elevated provision for loan losses during the first quarter and one-time merger related expenses of $3.9 million. While slightly below the provision for loan losses in the first quarter of 2011, it was a setback from the marked improvement we experienced around asset quality during the second half of 2011. Our net interest income declined $1.6 million from the first quarter of 2011, as we continue to experience challenges in growing our loan portfolio coupled with the current low interest rate environment. Noninterest income increased $2.0 million compared to the first quarter of 2011, primarily due to an $0.8 million gain on an equity position sold and increased wealth management fee income. Noninterest expense increased $5.3 million primarily related to $3.9 million in one-time merger related expenses incurred with the acquisition of Mainline.

We will continue to focus on monitoring our asset quality as it continues to be the primary driver of our earnings. We remain diligent and focused on monitoring our nonperforming assets. We continually strive to be well positioned for changes in both the economy and interest rates, regardless of the timing or direction of these changes. Management regularly assesses our balance sheet, capital, liquidity and operation infrastructures in order to be positioned to take advantage of internal or acquisition growth.

Explanation of Use of Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with GAAP, management uses, and this quarterly report contains or references, certain non-GAAP financial measures, such as net interest income on a fully taxable equivalent basis and operating revenue. Management believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance and its business and performance trends as they facilitate comparisons with the performance of others in the financial services industry. Although management believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

We believe the presentation of net interest income on a fully taxable equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income per Consolidated Statements of Income is reconciled to net interest income adjusted to a fully taxable equivalent basis in the table below for the three months ended March 31, 2012 and 2011.

Operating revenue is the sum of net interest income and noninterest income less securities gains. In order to understand the significance of net interest income to our business and operating results, we believe it is appropriate to evaluate the significance of net interest income as a component of operating revenue.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

RESULTS OF OPERATIONS

Three Months Ended March 31, 2012 Compared to

Three Months Ended March 31, 2011

Net Interest Income

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 average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. Maintaining consistent spreads between interest-earning assets and interest-bearing liabilities is significant to our financial performance because net interest income comprised 73 percent and 76 percent of operating revenue (net interest income plus noninterest income, excluding securities gains) in the first quarter of 2012 and the first quarter of 2011, respectively. The level and mix of interest-earning assets and interest-bearing liabilities are continually monitored by our Asset and Liability Committee, or ALCO, in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were successfully implemented, within prescribed ALCO risk parameters, to maintain an acceptable net yield on interest-earning assets (net interest margin) given the challenges of the current interest rate environment.

The following table reconciles interest income per the Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis:


	Three Months Ended March 31,
*(in thousands)*	2012		2011

Interest income per Consolidated Statements of Income	$	39,140	$	42,192
Adjustment to fully taxable-equivalent basis		1,129		1,038


Interest Income adjusted to Fully Taxable Equivalent Basis		40,269		43,230
Interest expense per Consolidated Statements of Income		5,819		7,320


Net Interest Income Adjusted to Fully Taxable Equivalent Basis (non-GAAP)	$	34,450	$	35,910

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Average Balance Sheet and Net Interest Income Analysis

The following table provides information regarding the average balances, interest and yields earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities:


	Three Months Ended March 31, 2012							Three Months Ended March 31, 2011
*(in thousands)*	Balance		Income		Rate			Balance		Income		Rate


ASSETS
Loans ⁽¹⁾	$	3,135,517	$	37,021		4.74	%	$	3,324,606	$	40,327		4.92	%
Securities/other ⁽¹⁾		612,791		3,248		2.12	%		384,796		2,903		3.02	%


Total Interest-earning Assets		3,748,308		40,269		4.31	%		3,709,402		43,230		4.72	%
Noninterest-earning assets		395,577							378,012


Total Assets	$	4,143,885						$	4,087,414


LIABILITIES AND SHAREHOLDERS’ EQUITY
NOW/money market/savings	$	1,401,848	$	615		0.18	%	$	1,295,224	$	570		0.18	%
Certificates of deposit		1,132,687		4,136		1.46	%		1,231,162		5,492		1.81	%
Borrowed funds < 1 year		112,944		57		0.20	%		42,582		16		0.14	%
Borrowed funds > 1 year		122,214		1,011		3.32	%		119,736		1,242		4.21	%


Total Interest-bearing Liabilities		2,769,693		5,819		0.84	%		2,688,704		7,320		1.10	%
Noninterest-bearing liabilities:
Demand deposits		809,464							767,581
Shareholders’ equity/other		564,728							631,129


Total Liabilities and Shareholders’ Equity	$	4,143,885						$	4,087,414


Net Interest Income⁽¹⁾			$	34,450						$	35,910

Net Yield on Interest-earning Assets⁽¹⁾						3.69	%						3.92	%

(1) The yield on interest-earning assets and the net interest margin are presented on a fully taxable equivalent, or FTE and annualized basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and investments using the federal statutory tax rate of 35 percent for each period presented. We believe this measure to be the preferred industry measurement of net interest income and that it provides a relevant comparison between taxable and non-taxable amounts.

When comparing the first quarter of 2012 to the first quarter of 2011 on a fully taxable-equivalent basis, net interest income and net interest margin decreased by $1.5 million and 23 basis points, respectively. The decline in the net interest margin is a result of loan replacement volume at lower rates and an unfavorable shift in asset mix offset in part by a better funding mix within interest bearing deposits. The acquisition of Mainline had minimal impact on net interest income and margin during the first quarter since the acquisition occurred late in the quarter.

Average loans decreased by $189.1 million and the fully taxable-equivalent yield decreased by 18 basis points due to loan paydowns. The proceeds from loan paydowns were reinvested resulting in the increase of $228.0 million of securities/other. Included in securities/other is cash held at the Federal Reserve, which has increased significantly over the past year causing the declining yield. Overall, the fully taxable-equivalent yield on interest-earning assets decreased 41 basis points to 4.31 percent.

Average interest-bearing deposits increased by $8.1 million due to an increase of $106.6 million in other interest bearing deposits, offset by a decrease of $98.5 million in certificates of deposit. The cost of deposits was 0.75 percent, a decrease of 21 basis points due to lower rates paid on certificates of deposit. Average borrowings increased by $72.8 million however, the yield decreased by 128 basis points primarily due to the repricing of $25.0 million of subordinated debt in September of 2011. Overall, the yield on interest-bearing liabilities decreased 26 basis points to 0.84 percent.

Net interest income was negatively impacted by a $42.1 million decrease in average net free funds. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest driver of the decrease in net free funds was in shareholders’ equity, due to our redemption of $108.7 million in preferred stock from the Capital Purchase Program, or CPP in the fourth quarter of 2011. Noninterest-bearing demand deposits increased as a result of the low interest rate environment, marketing efforts for new demand accounts, corporate cash management services and the unlimited FDIC deposit insurance protection provided by the Dodd-Frank Act.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The following table sets forth for the periods indicated a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:


	Three Months Ended March 31, 2012 Compared to March 31, 2011⁽²⁾
*(in thousands)*	Volume			Rate			Net


Interest earned on:
Loans ⁽¹⁾	$	(2,295	)	$	(1,011	)	$	(3,306	)
Securities/other ⁽¹⁾		1,720			(1,375	)		345


Total Interest-earning Assets		(575	)		(2,386	)		(2,961	)


LIABILITIES AND SHAREHOLDERS’ EQUITY
NOW/money market/savings		47			(2	)		45
Certificates of deposit		(439	)		(917	)		(1,356	)
Borrowed funds < 1 year		25			16			41
Borrowed funds > 1 year		25			(256	)		(231	)

Total Interest-bearing Liabilities		(342	)		(1,159	)		(1,501	)

Net Interest Income ⁽¹⁾	$	(233	)	$	(1,227	)	$	(1,460	)

(1) Tax-exempt income is on a fully taxable equivalent basis using the statutory federal corporate income tax rate of 35 percent for 2012 and 2011.

(2) 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.

Provision for Loan Losses

The provision for loan losses is the amount to be added to the allowance for loan losses, or ALL, after adjusting for charge-offs and recoveries to bring the ALL to a level considered appropriate to absorb probable losses inherent in the loan portfolio at March 31, 2012. The provision for loan losses decreased $1.3 million to $9.3 million at the end of the first quarter of 2012 compared to $10.6 million at the end of the first quarter of 2011. While the provision declined from the same period last year, it was elevated this quarter, primarily due to an increase in loan charge-offs. The $10.6 million provision in the first quarter of 2011 was due to an increase in the general reserve resulting from the downgrade of several loans, all of which were downgraded in response to an updated evaluation of each credit based on the receipt of financial information.

Net charge-offs increased $9.9 million to $10.3 million compared to $0.4 million in the first quarter of 2011. Approximately $5.3 million of the loan charge-offs related to our construction portfolio as a result of the receipt of updated appraisals. The specific reserves for impaired loans decreased by $2.6 million to $6.0 million at March 31, 2012 compared to $8.6 million at March 31, 2011. The allowance for loans losses was 1.49 percent of total loans at March 31, 2012 compared to 1.87 percent at March 31, 2011. Refer to “Allowance for Loan Losses” later in this MD&A for additional discussion.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Noninterest Income


	Three Months Ended March 31
*(in thousands)*	2012		2011		$ Change


Securities gains, net	$	840	$	13	$	827
Debit and credit card fees		2,667		2,645		22
Wealth management fees		2,419		2,050		369
Service charges on deposit accounts		2,408		2,285		123
Insurance fees		2,212		2,132		80
Mortgage banking		671		625		46
Other		1,852		1,276		576


Total Noninterest Income	$	13,069	$	11,026	$	2,043

Noninterest income increased $2.0 million to $13.1 million in the first quarter of 2012 compared to the first quarter of 2011. The primary driver was an increase of $0.8 million in net securities gains, with additional increases of $0.4 million in wealth management fees and a $0.6 million increase in other noninterest income. The $0.8 million in securities gains relates to the sale of one equity position during the quarter as a result of a recent merger. Wealth management fees were strong for the first quarter of 2012, with higher discount brokerage fees of $0.3 million. Further improving this line of our business is additional sales staff that have been added to focus on growing the business. The largest increase in service charges on deposit accounts is a result of $0.2 million of new paper statement fees that were introduced in August, 2011. The $0.6 million increase in other noninterest income includes an increase in commercial loan swap activity of $0.4 million. Mortgage banking volume has declined over the past year; however, this area of our business continues to remain strong.

Noninterest Expense


	Three Months Ended March 31
*(in thousands)*	2012		2011		$ Change


Salaries and employee benefits	$	16,472	$	13,320	$	3,152
Data processing		3,240		1,504		1,736
Professional services and legal		1,900		1,588		312
Net occupancy		1,784		1,857		(73	)
Furniture and equipment		1,238		1,177		61
Joint venture amortization		894		740		154
Other taxes		774		902		(128	)
Marketing		742		601		141
FDIC assessment		608		1,226		(618	)
Other noninterest expense		5,131		4,534		597

Total Noninterest Expense	$	32,783	$	27,449	$	5,334

Noninterest expense increased $5.3 million in the first quarter of 2012 compared to the first quarter of 2011. The increase was primarily driven by $3.9 million in one-time merger related expenses. The increase in salary and employee benefits included $1.7 million in one-time merger related expenses, including change in control and severance payments. Further increasing salaries and employee benefits was $0.4 million related to annual merit increases effective January 1 and an increase in pension expense of $0.4 million. Our pension expense has increased due to an increase in our pension liability as a result of a significant decrease of 100 basis points in our discount rate from the prior year. Data processing increased $1.7 million primarily related to $1.4 million in a data processing termination fee and other data conversion expenses related to the merger. The increase in professional services and legal expense is attributable to expenditures of $0.4 million related to the merger, including $0.1 million in legal and $0.3 million in professional services. The increase of $0.6 million in other noninterest expense primarily relates to two contributions totaling $0.4 million to Neighborhood Assistance Projects which qualify us for both a Pennsylvania tax credit and a federal charitable tax deduction. We continue to see the benefit of a lower FDIC assessment as a result of change in methodology by the FDIC that went into effect April 1, 2011.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Provision for Income Taxes

The provision for income taxes decreased $0.6 million to $0.9 million for the first quarter of 2012 compared to $1.5 million for the same period in the prior year, primarily due to a decrease of $3.5 million in pre-tax income. The year-to-date 2012 effective tax rate decreased to 19.7 percent as compared to 22.6 percent in 2011. The annual effective tax rate decreased because tax exempt income and tax credits remained relatively constant on a declining pretax income.

Financial Condition

March 31, 2012

Our total assets increased by $211.0 million in first quarter of 2012 compared to December 31, 2011. This increase was a result of the acquisition of Mainline, which added total assets of $236.2 million. Loan growth continues to be a challenge as borrowers remain cautious and uncertain about the current economy. Total gross loans increased $68.8 million as a result of $129.3 million of acquired loans through the Mainline acquisition. Our commercial loan portfolio continues to experience decreases primarily due to soft demand, loan pay downs and planned run-off of certain loans to reduce our risk. Our deposits remain strong increasing $186.5 million from December 31, 2011, primarily due to the acquisition of Mainline, which added $206.0 million to our deposit base.

Securities Activity


*(in thousands)*	March 31, 2012		December 31, 2011		$ Change

Obligations of U.S. government corporations and agencies	$	160,444	$	142,786	$	17,658
Collateralized mortgage obligations of U.S. government corporations and agencies		59,488		65,395		(5,907	)
Mortgage-backed securities of U.S. government corporations and agencies		45,983		48,752		(2,769	)
Obligations of states and political subdivisions		86,628		88,805		(2,177	)


Debt Securities Available-for-Sale		352,543		345,738		6,805
Marketable equity securities		11,513		11,858		(345	)


Total Securities Available-for-Sale	$	364,056	$	357,596	$	6,460

We invest in various securities in order to provide a source of liquidity, to satisfy various pledging requirements, increase net interest income and as a tool of the ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Risks associated with various securities portfolios are managed and monitored by investment policies approved annually by our Board of Directors and administered through ALCO and our treasury function. The securities portfolio was relatively unchanged from December 31, 2011 despite the addition of the former Mainline securities portfolio of $73.4 million, as most of the acquired securities were sold immediately following the acquisition.

On a quarterly basis, management evaluates the securities portfolios for other than temporary impairment, or OTTI in accordance with the applicable accounting guidance for investments reported at fair value. There were no significant impairment charges in the first quarter of 2012.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Loan Composition


	March 31, 2012						December 31, 2011
*(in thousands)*	Amount			% of Loans			Amount			% of Loans
Consumer
Home equity	$	441,648			13.8	%	$	411,404			13.1	%
Residential mortgage		382,884			12.0	%		358,846			11.5	%
Installment and other consumer		82,223			2.5	%		67,131			2.1	%
Construction		2,211			0.1	%		2,440			0.1	%


Total Consumer Loans		908,966			28.4	%		839,821			26.8	%

Commercial
Commercial real estate		1,416,663			44.3	%		1,415,333			45.2	%
Commercial and industrial		703,112			22.0	%		685,753			21.9	%
Construction		169,039			5.3	%		188,852			6.1	%


Total Commercial Loans		2,288,814			71.6	%		2,289,938			73.2	%


Total Portfolio Loan		3,197,780			100.0	%		3,129,759			100.0	%

Allowance for loan losses		(47,827	)					(48,841	)

Total Portfolio Loans, net		3,149,953						3,080,918
Loans Held for Sale		3,663						2,850


Total Loans	$	3,153,616					$	3,083,768

The loan portfolio represents the most significant source of interest income for us. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as the overall economic climate can significantly impact a borrower’s ability to pay. In order to mitigate such risk, our loan underwriting standards are established by a formal policy and are subject to periodic review and approval by our Board of Directors.

Loans increased by $69.8 million between December 31, 2011 and March 31, 2012, primarily due to the addition of $129.3 million in loans from the Mainline acquisition, offset by loan pay downs. We experienced loan pay downs in both the consumer and commercial loan portfolios this quarter, including several large payoffs in commercial and industrial, or C&I, as well as in commercial real estate, or CRE portfolios. Given the current economic environment, loan growth is expected to remain a challenge throughout the remainder of 2012; however, we saw improvement in the loan pipeline in late 2011 and during the first quarter of 2012.

Although commercial loans, including CRE, C&I and construction, can have a relatively higher risk profile, management believes these risks are mitigated through active portfolio management, underwriting and continuous review. The loan-to-value policy guidelines for real estate secured commercial loans are generally 65-85 percent.

Residential mortgage lending continues to be a strategic focus through a centralized mortgage origination department, ongoing product redesign, secondary market activities and the utilization of commission compensated originators. The loan-to-value policy guideline is 80 percent for residential first lien mortgages. Higher loan-to-value loans may be approved with the appropriate private mortgage insurance coverage. Second lien positions are assumed with home equity loans, but normally only to the extent that the combined credit exposure for both the first and second liens does not exceed 100 percent of the estimated fair value of the property.

Management believes the downturn we experienced in the local residential real estate market and the impact of declining values on the real estate loan portfolio will be mitigated because of our conservative mortgage lending policies for portfolio loans, which require a maximum term of 20 years for fixed rate mortgages. Balloon mortgages are also offered in the portfolio. The maximum balloon term is 15 years with a maximum amortization term of 30 years. Balloon mortgages with terms of 10 years or less may have a maximum amortization term for up to 40 years. Combo mortgage loans consist of a residential first mortgage and a home equity second mortgage are also available to creditworthy borrowers.

We designate specific loan originations, generally longer-term, lower-yielding 1-4 family mortgages, as held for sale and sell them to Federal National Mortgage Association, or FNMA. The rationale for these sales is to mitigate interest-rate risk associated with holding lower rate, long-term residential mortgages in the loan portfolio, generate fee revenue from sales and servicing and maintain the primary customer relationship. During the second quarter of 2011, we began to retain within the loan portfolio 10 and 15 year mortgages that had been priced and underwritten for sale in the secondary market. During the three months ended March 31, 2012 and 2011, we sold $18.0 million and $26.4 million, respectively, of 1-4 family mortgages and currently service $329.5 million of secondary market mortgage loans to FNMA at March 31, 2012. We intend to continue to sell longer-term loans to FNMA in the future, especially during periods of lower interest rates.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Allowance for Loan Losses

We maintain an ALL at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date. Determination of an adequate ALL is subjective, as it requires estimations of the occurrence of future events, as well as the timing of such events, and it may be subject to significant changes from period to period. The methodology for determining the ALL has two main components: evaluation and impairment tests of individual loans and evaluation of certain groups of homogeneous loans with similar risk characteristics.

An inherent risk to the loan portfolio as a whole is the condition of the local economy. In addition, each loan segment carries with it risks specific to the segment. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ALL.

CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties for various purposes such as hotels, strip malls and apartments. Individual project cash flows, as well as global cash flows, are generally the sources of repayment for these loans. Besides cash flow risks, CRE loans have collateral risk and risks based upon the business prospects of the lessee, if the project is not owner occupied.

C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. Cash flow from the operations of the company is the primary source of repayment for these loans and the cash flow depends not only on the economy as a whole, but also on the health of the company’s industry.

Commercial construction loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk is generally confined to the construction and absorption periods, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. There are also various risks depending on the type of project and the experience and resources of the developer.

Consumer real estate loans are secured by 1-4 family residences, including purchase money mortgages, first and second lien home equity loans and home equity lines of credit. The primary source of repayment for these loans is the income and assets of the borrower. The unemployment rate, as well as the state of the local housing market, have a significant impact on the risk determination, since low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

Other consumer loans are made to individuals and may be secured by assets other than 1-4 family residences, or may be unsecured. This class of loans includes auto loans, unsecured lines and credit cards. The primary source of repayment for these loans is the income and assets of the borrower so the local unemployment rate is an important indicator of risk. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

Significant to our ALL is a higher mix of commercial loans. At March 31, 2012, approximately 92 percent of the ALL related to the commercial loan portfolio, while commercial loans comprise 72 percent of our loan portfolio. Commercial loans have been more impacted by the economic slowdown in our markets. The ability of customers to repay commercial loans is more dependent upon the success of their business, continuing income and general economic conditions. Accordingly, the risk of loss is higher on such loans compared to consumer loans, which have incurred lower losses in our market.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The following tables summarize the ALL and recorded investments in loans by category as of the dates presented:


	March 31, 2012
	Allowance for Loan Losses						Portfolio Loans
*(in thousands)*	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total

Commercial real estate	$	887	$	23,410	$	24,297	$	49,485	$	1,367,178	$	1,416,663
Commercial and industrial		1,085		10,779		11,864		12,559		690,553		703,112
Commercial construction		4,075		3,609		7,684		24,283		144,756		169,039
Consumer real estate		—		3,162		3,162		6,700		820,043		826,743
Other consumer		—		820		820		—		82,223		82,223

Total	$	6,047	$	41,780	$	47,827	$	93,027	$	3,104,753	$	3,197,780


	December 31, 2011
	Allowance for Loan Losses						Portfolio Loans
*(in thousands)*	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total

Commercial real estate	$	3,487	$	26,317	$	29,804	$	50,107	$	1,365,226	$	1,415,333
Commercial and industrial		1,116		10,158		11,274		11,991		673,762		685,753
Commercial construction		942		2,761		3,703		25,999		162,853		188,852
Consumer real estate		—		3,166		3,166		5,939		766,751		772,690
Other consumer		—		894		894		—		67,131		67,131

Total	$	5,545	$	43,296	$	48,841	$	94,036	$	3,035,723	$	3,129,759

The balance in the ALL decreased to $47.8 million or 1.49 percent of total loans at March 31, 2012 as compared to $48.8 million or 1.56 percent of total loans at December 31, 2011. The provision for loan losses was $9.3 million and we had net loan charge-offs of $10.3 million for the first quarter of 2012. During the first quarter, we experienced stress in our commercial construction loan portfolio with net loan charge-offs of $5.2 million. Updated appraisals on these projects resulted in significant reductions in the value of the properties and the subsequent charge-offs. The inherent risk in the commercial construction portfolio increased in the first quarter, resulting in a higher level of reserves. Also in the first quarter, the inherent risk in the commercial real estate portfolio decreased as loans evaluated individually were charged-off and there was a reduction in the special mention risk category.

We determine loans to be impaired when based upon current information and events it is probable that we will be unable to collect all principal and interest payments due according to the original contractual terms of the loan agreement.

Troubled debt restructurings, or TDRs, whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. Modifications to loans classified as TDRs generally include reductions in contractual interest rates, principal deferment and extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics. Generally these concessions are for a period of at least six months. While unusual, there may be instances of loan principal forgiveness.

TDRs can be returned to accruing status if the following criteria are met: 1) the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and 2) there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring. All TDRs are considered to be impaired loans and will be reported as impaired loans for their remaining lives, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and we fully expected that the remaining principal and interest will be collected according to the restructured agreement. All impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements noted above to be returned to accruing status.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

As an example, consider a substandard commercial real estate loan that is currently 30 days past due. The loan is restructured to reduce the interest rate of the loan, but all other terms remain in place according to the original loan agreement. The interest rate reduction results in a below market interest rate. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted. At the time of the modification, the loan will be placed on nonaccrual status and reported as an impaired loan and a TDR. In addition, the loan will be charged down to the fair value of the collateral if the loan is collateral dependent. If the loan subsequently performs, by means of making on-time principal and interest payments according to the newly restructured terms for a period of six months, and it is expected that all remaining principal and interest will be collected according to the terms of the restructured agreement, the loan will be returned to accrual status and reported as an accruing TDR. The loan will remain an impaired loan for the remaining life of the loan since the interest rate was reduced to a below market rate.

As of March 31, 2012, we had $64.2 million in TDRs of which $41.2 million were accruing and $23.0 were in nonaccrual status. During the first quarter of 2012 we acquired $1.7 million in TDRs from the acquisition of Mainline of which $1.5 million were nonperforming. There were no other additions to TDRs in the first quarter of 2012. Further, during the first quarter of 2012, no TDRs met the above requirements for being placed back into accrual status.

Consumer unsecured loans and secured loans that are not real estate secured are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell. Consumer loans secured by real estate are evaluated for charge-off after the loan balance becomes 90 days past due and are charged down to the estimated fair value of the collateral less cost to sell.

The charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off in the month the loss becomes probable, regardless of the delinquency status of the loan. We may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to:

•

The status of a bankruptcy proceeding

•

The value of collateral and probability of successful liquidation

•

The status of adverse proceedings or litigation that may result in collection


	March 31, 2012			December 31, 2011


Ratio of net charge-offs to average loans outstanding (annualized)		1.32	%		0.56	%
Allowance for loan losses to total loans		1.49	%		1.56	%
Allowance for loan losses to nonperforming loans		74	%		87	%

Our allowance for lending-related commitments is computed using a methodology similar to that used to determine the ALL. Amounts are added to the allowance for lending-related commitments by a charge to current earnings through noninterest expense. The balance in the allowance for lending-related commitments decreased to $1.4 million at March 31, 2012 as compared to $2.9 million at March 31, 2011 due to a decrease in the volume of commitments. The decrease relates to a reduction in commitments due to maturities and higher utilization of commitments. The allowance for lending-related commitments is included in other liabilities in the Consolidated Balance Sheets.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

Nonperforming assets consist of nonaccrual loans, nonaccrual TDRs and OREO. The following table represents nonperforming assets for the periods presented:


*(in thousands)*	March 31, 2012			December 31, 2011			$ Change

Nonaccrual Loans
Commercial real estate	$	21,483		$	20,777		$	706
Commercial and industrial		7,144			7,570			(426	)
Commercial construction		6,334			3,604			2,730
Home equity		3,483			2,936			547
Residential mortgage		2,888			2,859			29
Installment and other consumer		27			4			23
Consumer construction		181			181			—


Total Nonaccrual Loans		41,540			37,931			3,609


Nonaccrual Troubled Debt Restructurings
Commercial real estate		11,333			10,871			462
Commercial and industrial		1,125			—			1,125
Commercial construction		5,126			2,943			2,183
Home equity		7			—			7
Residential mortgage		5,372			4,370			1,002


Total Nonaccrual Troubled Debt Restructurings		22,963			18,184			4,779


Total Nonperforming Loans		64,503			56,115			8,388

OREO		3,371			3,967			(596	)


Total Nonperforming Assets	$	67,874		$	60,082		$	7,792


Asset Quality Ratios:

Nonperforming loans as a percent of total loans		2.01	%		1.79	%
Nonperforming assets as a percent of total loans plus OREO		2.12	%		1.92	%

Our policy is to place loans in all categories on nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due. There were no loans 90 days or more past due and still accruing at March 31, 2012 or December 31, 2011.

Deposits


*(in thousands)*	March 31, 2012		December 31, 2011		$ Change


Noninterest-bearing demand	$	860,108	$	818,686	$	41,422
Interest-bearing demand		306,400		283,611		22,789
Money market		291,245		278,092		13,153
Savings		882,675		802,942		79,733
Certificates of deposit		1,181,927		1,152,528		29,399


Total Deposits	$	3,522,355	$	3,335,859	$	186,496

Deposits are a primary source of funds for us. We believe that our deposit base is stable and that we have the ability to attract new deposits, mitigating a funding dependency on other more volatile sources. Total deposits at the end of the first quarter of 2012 were up $186.5 million, due primarily to the addition of Mainline’s $35.5 million in non-interest bearing deposits and $170.5 million in interest-bearing deposits. During 2011, noninterest-bearing demand deposit accounts increased $52.9 million primarily related to the low interest rate environment, our marketing efforts for new demand accounts and corporate cash management services. The low interest rate environment had an impact on our overall deposit mix as customer certificate of deposit maturities shifted to savings and money market products, and this trend continues into 2012. Certificates of deposit of $100,000 and over were 11 percent of total deposits at both March 31, 2012 and at December 31, 2011, and primarily represent deposit relationships with local customers in our market area.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

We participate in the Certificate of Deposit Account Registry Services, or CDARS reciprocal and One-Way Buy programs. The reciprocal program allows our customers to receive expanded Federal Deposit Insurance Corporation, or FDIC, coverage by placing multiple certificates of deposit at other CDARS member banks. We maintain deposits by accepting certificates of deposits from customers of CDARS member banks in the exact amount as our customers placed. Reciprocal deposits provide a stable and cost-effective source of funds with rates generally lower than traditional brokered deposits. Although reciprocal deposits are considered “brokered” under existing law, they tend to act more like core deposits, since we retain valuable customer relationships. We had $13.9 million and $15.0 million in CDARS reciprocal deposits at March 31, 2012 and December 31, 2011, respectively. We can also access the CDARS network to accept brokered certificates of deposit that are a part of the One-Way Buy program, which allows us to obtain large blocks of wholesale funding, while maintaining control over pricing. Through the One-Way Buy program, funding is effectively purchased from insured depository institutions that are members of the CDARS deposit placement service. As of March 31, 2012 and December 31, 2011, we had $21.1 million and $55.8 million respectively in the CDARS One-Way Buy program.

The issuance of brokered retail certificates of deposit and participation in the CDARS program is an ALCO strategy to increase and diversify funding sources.

Borrowings


*(in thousands)*	March 31, 2012		December 31, 2011		$ Change


Securities sold under repurchase agreements, retail	$	40,638	$	30,370	$	10,268
Short-term borrowings		75,000		75,000		—
Long-term borrowings		31,426		31,874		(448	)
Junior subordinated debt securities		90,619		90,619		—


Total Borrowings	$	237,683	$	227,863	$	9,820

Borrowings are an additional source of funding for S&T. Following redemption on December 7, 2011 of our preferred stock issued in connection with our participation in the CPP, we increased borrowings as part of our funding strategy. Borrowings remain relatively unchanged from December 31, 2011.

Liquidity and Capital Resources

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or of borrowers needing to access funds to meet their credit needs. Liquidity risk management involves monitoring and maintaining sufficient levels of a diverse set of funding sources that are available for normal operations and for unanticipated stress events. In order to manage liquidity risk our Board of Directors has delegated authority to the ALCO for formulation, implementation and oversight of liquidity risk management. ALCO’s goal is to maintain adequate levels of liquidity to meet our funding needs in both a normal operating environment and for potential liquidity stress events.

Our primary funding and liquidity source is a stable deposit base. We believe that the bank has the ability to retain existing and attract new deposits, mitigating a funding dependency on other more volatile sources. Although deposits are the primary source of funds, we have identified various funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. These funding sources include a cushion of highly liquid assets, borrowing availability at the FHLB, Federal Funds lines with other financial institutions and access to the brokered certificates of deposit market including CDARs.

Since the beginning of the financial industry crisis in 2008, monitoring and maintaining appropriate liquidity levels has become a focus of regulators, bankers and investors. ALCO has enhanced the measurement, monitoring and reporting systems for liquidity risk management for potential liquidity stress events. Specific focus has been on maintaining an adequate level of asset liquidity, performing short-term and long-term stress tests and developing a more detailed contingency funding plan. We also work to ensure access to various wholesale funding sources is available, even in a stress event.

ALCO uses a variety of ratios and reports to monitor our liquidity position. ALCO monitors an asset liquidity ratio, which is defined as the sum of interest-bearing deposits with banks, unpledged securities and loans held for sale to total assets. In addition to the asset liquidity ratio, ALCO reviews cash flow projections, a liquidity coverage ratio and various balance sheet liquidity ratios. ALCO policy guidelines are in place for each ratio that defines graduated risk tolerance levels. If a ratio moves to high risk, specific actions are defined, such as increased monitoring or the development of an action plan to reduce the risk position.

S&T BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS – continued

The following summarizes risk-based capital amounts and ratios for S&T Bancorp, Inc. and S&T Bank:


*(in thousands)*	Adequately Capitalized⁽¹⁾		Well- Capitalized⁽²⁾		March 31, 2012				December 31, 2011
*(in thousands)*	Adequately Capitalized⁽¹⁾		Well- Capitalized⁽²⁾		Amount		Ratio		Amount		Ratio


S&T Bancorp, Inc.
Tier 1 leverage		4.00%		5.00%	$	363,883		9.20%	$	356,484		9.17%
Tier 1 capital to risk-weighted assets		4.00%		6.00%		363,883		11.62%		356,484		11.63%
Total capital to risk-weighted assets		8.00%		10.00%		473,937		15.14%		465,702		15.20%

S&T Bank
Tier 1 leverage		4.00%		5.00%	$	332,454		8.45%	$	321,352		8.30%
Tier 1 capital to risk-weighted assets		4.00%		6.00%		332,454		10.68%		321,352		10.55%
Total capital to risk-weighted assets		8.00%		10.00%		441,589		14.19%		429,837		14.11%

⁽¹⁾For an institution to qualify as “adequately capitalized” under regulatory guidelines, total risk-based capital, Tier I risk-based capital and Tier I capital to average asset ratios must be at least 8 percent, 4 percent and 4 percent respectively. At March 31, 2012, S&T exceeded those requirements.

⁽²⁾For an institution to qualify as “well capitalized” under regulatory guidelines, total risk-based capital, Tier I risk-based capital and Tier I capital to average asset ratios must be at least 10 percent, 6 percent and 5 percent respectively. At March 31, 2012, S&T exceeded those requirements.

In August 2009, we filed a shelf registration statement on Form S-3 under the Securities Act of 1933 as amended, with the SEC for the issuance of up to $300 million of a variety of securities including, debt and capital securities, preferred and common stock and warrants. We may use the proceeds from the sale of its securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to, its subsidiaries, possible acquisitions and stock repurchases. As of March 31, 2012, we had not issued any securities pursuant to the shelf registration statement.

S&T BANCORP, INC. AND SUBSIDIARIES

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices or equity prices can adversely affect a financial institution's earnings or capital. For most financial institutions, including S&T, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes affect capital by changing the net present value of a bank's future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and shareholder value. However, excessive interest rate risk can threaten banks' earnings, capital, liquidity, and solvency. Our sensitivity to changes in interest rate movements are continually monitored by our Asset and Liability Committee, or ALCO. ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, and simulations in order to avoid unacceptable earnings and market value fluctuations due to changes in interest rates.

Rate shock analyses are performed on a static balance sheet to estimate the effect that specific interest rate changes would have on 12 months of pretax net interest income. Rate shock analyses assume an immediate parallel shift in market interest rates. Assumptions are modified in the decreasing rate shock analyses due to the very low level of interest rates. Rate shock analyses also incorporate management assumptions regarding the level of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of fixed rate loans and securities with optionality. Our policy guidelines limit the change in pretax net interest income over a 12 month horizon using rate shocks up to +/- 300 basis points. Policy guidelines define the percent change in pretax net interest income by graduated risk tolerance levels of minimal, moderate, and high. The table below reflects the rate shock results, which are in the minimal risk tolerance level.

In order to monitor interest rate risk beyond the 12 month time horizon of rate shocks, we also perform EVE analysis. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. As with rate shock analysis, EVE incorporates management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and core deposit behavior and value. Our policy guidelines limit the change in EVE given changes in rates of up to +/- 300 basis points. Policy guidelines define the percent change in EVE by graduated risk tolerance levels of minimal, moderate, and high.

The table below also reflects the EVE results, which are in the minimal risk tolerance level.


	March 31, 2012						December 31, 2011
Change in Interest Rates (in basis points)	% Change in Pretax Net Interest Income			% Change in Economic Value of Equity			% Change in Pretax Net Interest Income			% Change in Economic Value of Equity

+300		13.7			24.6			11.3			20.9
+200		9.8			18.3			7.3			15.9
+100		5.6			10.1			3.5			9.1
- 100		(2.6	)		(12.5	)		(3.9	)		(12.9	)
- 200		(5.9	)		(16.2	)		(6.9	)		(15.2	)
- 300		(8.3	)		(16.2	)		(8.9	)		(15.1	)

In addition to rate shocks and EVE, simulations are performed periodically to assess the sensitivity of scenario assumptions on pretax net interest income. Simulation analyses most often test for sensitivity to yield curve shape and slope changes, severe rate shocks, changes in prepayment assumptions and significant balance mix changes.

The results from the analyses performed on pretax net interest income, EVE and sensitivity analysis were consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means more assets than liabilities will reprice during the measured time frames. The implications of an asset sensitive position will differ depending upon the change in market interest rates. For example, with an asset sensitive position in a declining interest rate environment, more assets than liabilities will decrease in rate. This situation could result in a decrease in net interest income and operating income. Conversely, with an asset sensitive position in a rising interest rate environment, more assets than liabilities will increase in rate. This situation could result in an increase in net interest income and operating income.

S&T BANCORP, INC. AND SUBSIDIARIES

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of S&T’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, (its principal executive officer and principal financial officer, respectively) management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of March 31, 2012. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to the Company’s management, including our CEO and CFO as appropriate, to allow timely decisions regarding required disclosure.

Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective in all material respects, as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2012, there were no changes made to S&T’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, S&T’s internal control over financial reporting.

S&T BANCORP, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable

Item 1A. Risk Factors

There have been no material changes to the risk factors that we have previously disclosed in Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on February 28, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

Not Applicable

Item 6. Exhibits


2.1		Amendment No. 1, dated as of January 27, 2012, to the Agreement and Plan of Merger, dated September 14, 2011, by and between S&T Bancorp, Inc. and Mainline Bancorp, Inc. (incorporated by reference to Annex A of the Registration Statement on Form S-4/A, filed on January 30, 2012)

2.2		Amendment No. 2, dated as of March 8, 2012, to the Agreement and Plan of Merger by and between S&T Bancorp, Inc. and Mainline Bancorp, Inc., dated as of September 14, 2011

2.3		Agreement and Plan of Merger, dated as of March 29, 2012, by and between S&T Bancorp, Inc. and Gateway Bank of Pennsylvania (incorporated by reference to the Current Report on Form 8-K filed on April 3, 2012)

31.1		Rule 13a-14(a) Certification of the Chief Executive Officer.

31.2		Rule 13a-14(a) Certification of the Chief Financial Officer.

32		Rule 13a-14(b) Certification of the Chief Executive Officer and Chief Financial Officer.

101		The following financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 is formatted in eXtensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, (ii) Unaudited Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2012 and 2011, (iii) Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three Months ended March 31, 2012 and 2011 and (iv) Unaudited Consolidated Statements of Cash Flows for the Three Months ended March 31, 2012 and 2011 and (iv) Notes to Unaudited Consolidated Financial Statements (tagged as blocks of text).*

This exhibit is furnished and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		S&T Bancorp, Inc. (Registrant)

Date: May 10, 2012		/s/Mark Kochvar
		Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)