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See Notes to Condensed Consolidated Financial Statements

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See Notes to Condensed Consolidated Financial Statements

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The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles 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 United States generally accepted accounting principles for complete annual financial statements. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The condensed consolidated balance sheet as of December 31, 2004, has been extracted from the audited financial statements included in S&T's 2004 Annual Report to Shareholders. For further information, refer to the consolidated financial stat ements and footnotes thereto included in the annual report on Form 10-K for the year ended December 31, 2004.

Basic earnings per share is calculated by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Options, warrants and other potentially dilutive securities are excluded from the basic calculation, but are included in computing diluted earnings per share.

NOTE B - STOCK-BASED COMPENSATION

S&T accounts for stock options using the intrinsic value method. The following proforma information regarding net income and earnings per share assumes stock options had been accounted for under the fair value method and the estimated fair value of the options was amortized to expense over the vesting period. Compensation expense, net of related tax, of $437,000 and $247,000 for the three months ended March 31, 2005 and 2004, respectively, is included in the proforma net income as reported below.

The fair value was estimated at the grant dates using a Black-Scholes option pricing model with the following assumptions at March 31, 2005 and March 31, 2004, respectively: risk-free interest rates of 3.61% and 3.27%; a dividend yield of 2.90% and 3.30%; volatility of the expected market price of S&T's common stock of .257 and .266; and a weighted-average expected life of five years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. S&T's employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

Financial Accounting Standards Board ("FASB") Statement No. 123R, "Share Based Payment," require all companies to measure compensation costs for all share-based payments (including employee stock options) at fair value. The provisions of this statement have been delayed and will be effective January 1, 2006 for all equity awards granted after the effective date. Retroactive application of the requirements of Statement No. 123 (not Statement No. 123R) to the beginning of the fiscal year that includes the effective date would be permitted, but not required. Early adoption of Statement No. 123R is encouraged. S&T will apply Statement No. 123R beginning January 1, 2006 in its consolidated financial statements for the quarter ending March 31, 2006 using a modified version of prospective application. Statement No. 123R requires an entity to recognize expense ratably in the income statement based on the estimated fair value of all outstanding awards that are not fully vested based on an estimate of the number o f awards expected to actually vest, exclusive of awards expected to be forfeited. S&T recognizes forfeitures as they occur.

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NOTE D - GOODWILL AND OTHER INTANGIBLES

S&T's balance sheet includes both tangible assets (such as loans, buildings, and investments) and intangible assets (such as goodwill and core deposit intangibles). Goodwill is annually reviewed for impairment. Other intangibles are comprised of core deposit intangibles and other mortgage servicing assets, which are also reviewed for impairment on a periodic basis.

NOTE E - EMPLOYEE BENEFITS

The following table summarizes the components of net periodic pension expense for S&T's defined benefit plan:

S&T previously disclosed in its financial statements for the year ended December 31, 2004, that it expected to contribute $2.0 million to its pension plan in 2005. As of March 31, 2005, $2.0 million of contributions have been made. No further contributions are expected to be made during 2005.

The amortized cost and estimated fair value of securities are as follows:

S&T BANCORP INC. AND SUBSIDIARIES
NOTE F - SECURITIES - continued

The following table presents the age of gross unrealized losses and fair value by investment category:

S&T BANCORP INC. AND SUBSIDIARIES
NOTE F - SECURITIES - continued

The amortized cost and estimated fair value of debt securities at March 31, 2005, by expected maturity, are set forth below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based upon the current estimated prepayment rates. The mortgage-backed securities may mature earlier or later than their weighted-average estimated maturities because of principal prepayments.

At March 31, 2005 and December 31, 2004, investment securities with a principal amount of $270,582,000 and $294,745,000, respectively, were pledged to secure repurchase agreements, public funds and trust fund deposits.

The composition of the loan portfolio was as follows:

S&T BANCORP INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE G - LOANS AND ALLOWANCE FOR LOAN LOSSES - continued

Changes in the allowance for loan losses for the three months ended March 31, were as follows:

The following table represents S&T's investment in loans considered to be impaired and related information on those impaired loans as of March 31, 2005 and December 31, 2004.

S&T, in the normal course of business, commits to extend credit and issue standby letters of credit. The obligations are not recorded in S&T's financial statements. Loan commitments and standby letters of credit are subject to S&T's normal credit underwriting policies and procedures and generally require collateral based upon management's evaluation of each customer's financial condition and ability to satisfy completely the terms of the agreement. S&T's exposure to credit loss in the event the customer does not satisfy the terms of the agreement equals the notional amount of the obligation less the value of any collateral. Unfunded commercial loan commitments totaled $567,100,000, unfunded other loan commitments totaled $139,418,000 and obligations under standby letters of credit totaled $207,579,000 at March 31, 2005.

NOTE I - LITIGATION

S&T, in the normal course of business, is subject to various legal proceedings in which claims for monetary damages are asserted. Management does not believe that the outcome of any current proceedings will have a material adverse effect on the consolidated financial position of S&T.

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The following discussion and analysis is presented so that shareholders may review in further detail the financial condition and results of operations of S&T Bancorp, Inc. and subsidiaries ("S&T"). This discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the other financial data presented elsewhere in this report.

Business Summary

S&T is a financial holding company with its headquarters located in Indiana, Pennsylvania with assets of $3.0 billion at March 31, 2005. S&T provides a full range of financial services through a branch network of 51 offices located in Allegheny, Armstrong, Blair, Butler, Cambria, Clarion, Clearfield, Indiana, Jefferson and Westmoreland counties of Pennsylvania. S&T provides full service retail and commercial banking products as well as cash management services; insurance; estate planning and administration; employee benefit investment management and administration; corporate trust services and other fiduciary services.

Financial Condition

Total assets averaged $3.0 billion in the first three months of 2005. Average loans increased $69.4 million and average securities and federal funds sold decreased $48.8 million in the first three months of 2005 compared to the 2004 full year average. Average deposits increased $133.3 million and average borrowings decreased $124.0 million during the three months ended March 31, 2005 as compared to the 2004 full year average.

Lending Activity

Average loans increased $69.4 million to $2.3 billion during the quarter ended March 31, 2005 compared to the 2004 full year average. The increase is primarily attributable to $82.3 million of loan growth within the commercial loan category, offset by a $12.9 million decrease in consumer loan balances due to paydowns and sales into the secondary mortgage market. Changes in the composition of the average loan portfolio during the first three months of 2005 included increases of $25.1 million of commercial loans and $57.2 million of commercial real estate loans, offset by decreases of $10.3 million of residential mortgages and $2.6 million of installment loans.

Real estate construction and commercial loans, including mortgage and industrial, comprised 76 percent of the average loan portfolio for the three months ended March 31, 2005 compared to 75 percent at December 31, 2004. Although commercial loans can be an area of higher risk, management believes these risks are mitigated by limiting concentrations and a rigorous underwriting review by loan administration. Variable-rate commercial loans were 57 percent of the commercial loan portfolio at March 31, 2005 and December 31, 2004.

Residential mortgage loans comprised 21 percent of the average loan portfolio for the three months ended March 31, 2005 as compared to 22 percent for the 2004 full year average. Residential mortgage lending continued to be a strategic focus for the first quarter of 2005 through our centralized mortgage origination department, product redesign, secondary market activities and the utilization of commission compensated originators. Management believes that S&T is fairly well insulated from the impact of potential future declines in its local real estate market due to its conservative mortgage lending policies. These policies generally require, for portfolio loans, a maximum term of twenty years for fixed rate mortgages and private mortgage insurance for loans with less than a 20 percent down payment. At March 31, 2005, 14 percent of the residential mortgage portfolio consisted of adjustable rate mortgages with repricing terms of one, three and five years as compared to 15 percent at December 31, 2004.

S&T periodically sells longer-term, lower-yielding 1-4 family mortgages to Fannie Mae. The rationale for these sales is to mitigate interest rate risk associated with holding long-term residential mortgages in the loan portfolio, to generate fee revenue from servicing, and still maintain the primary customer relationship. During the first three months of 2005, S&T sold $9.8 million of 1-4 family mortgages to Fannie Mae compared to $8.7 million during the first three months of 2004. S&T will continue to sell longer-term loans to Fannie Mae in the future on a selective basis, especially during periods of lower interest rates.

Consumer installment loans comprised 3 percent of the average loan portfolio for the three months ended March 31, 2005 and for the 2004 full year average. Installment loan decreases were primarily the result of significantly lower origination volumes. The average balance of consumer installment loans for the three months ended March 31, 2005 was $69.3 million compared to $71.9 million for the 2004 full year average.

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Loan underwriting standards for S&T are established by a formal policy administered by the S&T Bank Credit Administration Department and are subject to the periodic review and approval of the S&T Bank Board of Directors. Rates and terms for commercial real estate and equipment loans normally are negotiated, subject to such variables as economic conditions, marketability of collateral, credit history of the borrower and future cash flows. The loan to value policy guideline for commercial real estate loans is generally 75-80 percent.

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 sometimes secured 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 loan to value. S&T offers a variety of unsecured and secured installment loan and credit card products. However, the majority of the consumer loan portfolio is automobile loans. Loan to value guidelines for direct loans are 90 -100 percent of invoice for new automobiles and 80-90 percent of National Automobile Dealer Association (NADA) value for used automobiles.

Management intends to continue to pursue quality loans in a variety of lending categories within our market area in order to enhance shareholder value. S&T's loan portfolio primarily represents loans to businesses and consumers in our market area of western Pennsylvania rather than to borrowers in other areas of the country. S&T has not concentrated its lending activities in any industry or group of industries. During the past several years, management has concentrated on building an effective credit and loan administration staff, which assists management in evaluating loans before they are made and in identifying problem loans early.

Securities Activity

Average securities and federal funds sold decreased by $48.8 million in the first three months of 2005 compared to the 2004 full year average. The decrease in securities is partially attributable to an S&T Asset Liability Committee ("ALCO") strategy to reduce balances in both securities and borrowings to mitigate the interest rate risk of a flattening yield curve. The average decrease was comprised of $59.5 million in U.S. government agency securities, $2.5 million of states and political subdivisions, $2.7 million of Federal Home Loan Bank ("FHLB") stock, $0.1 million of U.S. treasury securities and $1.0 million of federal funds sold. Offsetting these decreases were average increases of $8.8 million of mortgage-backed securities, $4.6 million of other securities and $3.6 million of corporate stocks. At March 31, 2005, the equity securities portfolio had net unrealized gains of $23.6 million. The equity securities portfolio consists of securities traded on the various stock markets and are subject to cha nges in market value. Other securities are comprised primarily of FHLB capital stock is a membership and borrowing requirement and is acquired and sold at stated value.

S&T's policy for security classification includes U.S. treasuries, U.S. government agencies, mortgage-backed securities, collateralized mortgage obligations, municipal securities, corporate securities and marketable equity securities as available for sale. One municipal security is classified as held to maturity. On a quarterly basis, management evaluates the security portfolios for other than temporary declines in fair value. At March 31, 2005 unrealized gains, net of unrealized losses, for securities classified as available for sale were $21.1 million. Unrealized losses primarily related to S&T's debt securities portfolio and totaled $4.3 million at March 31, 2005. S&T has the intent and ability to hold these debt securities until maturity or until fair value recovers above cost.

The balance in the allowance for loan losses was $34.3 million or 1.48 percent of total loans at March 31, 2005 as compared to $34.3 million or 1.50 percent of total loans at December 31, 2004.

Management evaluates the degree of loss exposure for loans on a continuous basis through a formal allowance for loan loss policy as administered by the Loan Administration Department of S&T Bank and various management and director committees. Problem loans are identified and continually monitored through detailed reviews of specific commercial loans, and the analysis of delinquency and charge-off levels of consumer loan portfolios. Charged-off and recovered loan amounts are applied to the allowance for loan losses. Monthly updates are presented to the S&T Board of Directors as to the status of loan quality.

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Amounts are added to the allowance for loan losses through a charge to current earnings through the provision for loan losses, based upon management's assessment of the adequacy of the allowance for loan losses for probable loan losses. A quantitative analysis is utilized to support the adequacy of the allowance for loan losses. This analysis includes review of the historical charge-off rates for all loan categories, fluctuations and trends in various risk factors. Factors to consider are the level of S&T's historical charge-offs that have occurred within the credits economic life cycle. Management also assesses qualitative factors such as portfolio credit trends, unemployment trends, vacancy trends, peer loss trends, loan growth and variable interest rate factors.

Significant to this analysis and assessment is the shift in loan portfolio composition to an increased mix of commercial loans. These loans are generally larger in size and, due to our continuing growth, many are not well seasoned and could be more vulnerable to an economic slowdown. Management relies on its risk rating process to monitor trends, which may be occurring relative to commercial loans to assess potential weaknesses within specific credits. Current risk factors, trends in risk ratings and historical charge-off experiences are considered in the determination of the allowance for loan losses. During the first three months of 2005, the risk rating profile of the portfolio remained relatively stable. Management believes its quantitative and qualitative analysis and risk-rating process is sufficient and enables it to conclude that the total allowance for loan losses is adequate to absorb probable loan losses.

Net loan charge-offs totaled $0.7 million in the first three months of 2005 compared to $0.3 million in the first three months of 2004. The balance of nonperforming loans, which included nonaccrual loans past due 90 days or more, at March 31, 2005 was $7.3 million or 0.32 percent of total loans. This compares to nonperforming loans of $6.3 million or 0.28 percent of total loans at December 31, 2004. Included in this quarter's net charge-off activity is a $0.6 million recovery for proceeds received from a United States Department of Agriculture guarantee during the quarter on a previously charged-off hotel loan. No additional exposure remains for this credit. The most significant charge-off for the quarter was $1.1 million for a manufacturing company that entered into bankruptcy protection and was previously considered in the analysis for adequacy of the allowance for loan losses. $1.1 million of credit exposure remains for this relationship, but management believes the future cash flows and collateral values will be sufficient to recover this credit exposure. The provision for loan losses was $0.8 million for the first quarter of 2005, as compared to $1.5 million for the same period last year.

Deposits

Average total deposits increased by $133.3 million, or 7 percent, during the three months ended March 31, 2005 as compared to the 2004 full year average. Changes in the average deposit mix include increases of $180.6 million in savings accounts, $11.7 million in demand deposits, $1.3 million in NOW accounts and $1.8 million in certificate of deposits. Offsetting these increases is a decrease of $62.1 million in money market accounts. The increase in savings accounts is primarily attributable to the success of the Green Plan savings account, which has grown to $240.9 million since its introduction in August 2004. The Green Plan account is indexed to the Federal Reserve fed funds rate and compliments S&T's asset sensitive balance sheet and growing portfolio of variable rate loans very well from an asset/liability management perspective. Deposit growth has been an important strategic initiative for S&T, through the expansion of retail facilities, promotions and new products. Other important strategies i nclude providing cash management services to commercial customers to increase transaction related deposits, and delivery services such as electronic banking.

Management believes that the S&T deposit base is stable and that S&T has the ability to attract new deposits, mitigating a funding dependency on other more volatile sources. Time deposits of $100,000 and over were 9 percent of total deposits at March 31, 2005 and December 31, 2004, respectively, and primarily represent deposit relationships with local customers in our market area. In addition, S&T believes it has the ability to access both public and private capital markets to raise long-term funding if necessary. Periodically, S&T enters into brokered certificates of deposits with outside brokerage firms.

Borrowings

Average borrowings decreased $124.0 million for the first three months ended March 31, 2005 compared to the 2004 full year average as a result of increased deposit growth and lower levels of investment securities. Borrowings were comprised of retail repurchase agreements ("REPOs"), wholesale REPOs, federal funds purchased, FHLB advances and long-term borrowings. S&T defines repurchase agreements with its local retail customers as retail REPOs; wholesale REPOs are those transacted with other banks and brokerage firms with terms normally ranging from one to 365 days.

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The average balance in retail REPOs decreased approximately $6.1 million for the first three months of 2005 compared to the 2004 full year average. S&T views retail REPOs as a relatively stable source of funds because most of these accounts are with local long-term customers. Average federal funds purchased increased by $0.8 million and average wholesale REPOs and FHLB advances decreased by $93.7 million for the first three months of 2005 compared to the full year 2004 average.

Average long-term borrowings have decreased by $24.7 million in the first three months of 2005 as compared to the full year 2004 average. S&T had average long-term borrowings outstanding of $79.2 million during the three months ended March 31, 2005. The purpose of these borrowings was to provide matched, fixed rate fundings for newly originated loans, to mitigate the risk associated with volatile liability fundings, and to take advantage of lower cost funds through the FHLB's Community Investment Program.

Shareholders' equity decreased $1.9 million at March 31, 2005, compared to December 31, 2004. Net income was $13.8 million and dividends paid to shareholders were $7.2 million for the three months ended March 31, 2005. Also affecting capital is a decrease of $6.9 million in unrealized gains on securities available for sale, stock buybacks of 115,000 shares during the first three months of 2005 at an average cost of $36.21 per share and the issuance of 98,634 shares through the exercise of employee and director stock options.

S&T paid 52 percent of net income in dividends, equating to a projected annual dividend yield of approximately 3 percent utilizing the March 31, 2005 closing market price of $35.40. The book value of S&T's common stock decreased from $13.12 at December 31, 2004 to $13.06 at March 31, 2005. The market price of S&T's common stock was $35.40 per share at March 31, 2005, compared to $37.69 per share at December 31, 2004.

S&T continues to maintain a strong capital position with a leverage ratio of 9.7 percent as compared to the minimum regulatory guideline of 3.0 percent. S&T's risk-based capital Tier I and Total ratios were 10.9 percent and 12.5 percent, respectively, at March 31, 2005. These ratios place S&T above the Federal Reserve Board's risk-based capital guidelines of 4.0 percent and 8.0 percent for Tier I and Total, respectively.

In addition to the results of operations presented in accordance with generally accepted accounting principles ("GAAP"), S&T management uses, and this quarterly report contains or references, certain non-GAAP financial measures, such as net interest income on a fully tax-equivalent basis and operating revenue. S&T believes these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance and our business and performance that these non-GAAP financial measures enhance investors' understanding of S&T's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

Operating revenue is the sum of net interest income and noninterest income less security gains. In order to understand the significance of net interest income to S&T business and operating results, S&T management believes it is appropriate to evaluate the significance of net interest income as a component of operating revenue.

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RESULTS OF OPERATIONS

Net income was $13.8 million or $0.51 diluted earnings per share for the first three months of 2005 as compared to $13.0 million or $0.48 diluted earnings per share for the same period of 2004. The increase during the first three months of 2005 was primarily the result of increases in net interest income, higher security gains and lower loan loss provision, offset by an increase in noninterest expense.

Net Interest Income

Net interest income on a fully taxable equivalent basis increased $1.3 million or 5 percent for the first three months of 2005 as compared to the same period of 2004. The net interest margin on a fully taxable equivalent basis was 4.08 percent in the first three months of 2005 as compared to the 3.98 percent in the same period of 2004. The increase in net interest margin is primarily attributable to the effect of higher short-term interest rates on an asset sensitive balance sheet, growth in core deposits and reduced balance sheet leveraging activities using borrowed funds to purchase investment securities. Tax-exempt income on a fully-taxable equivalent basis using the statutory corporate income tax rate of 35 percent was $1.0 million for the three months ended March 31, 2005 and $0.9 million for the same period of 2004.

For the first three months of 2005 average loans increased $160.2 million, and average securities and federal funds sold decreased $78.7 million as compared to the same period of 2004. The yields on average securities increased by 27 basis points from the comparable period in 2004 and the yield on average loans increased by 43 basis points.

For the first three months of 2005 balances of average interest-bearing deposits increased by $168.3 million as compared to the same period of 2004. The cost of deposits totaled 2.09 percent, an increase of 24 basis points from the comparable period in 2004 due to increased rates paid on both core and time deposits. The cost of REPOs and other borrowed funds increased 129 basis points to 2.89 percent.