Greetings, and welcome to the S&T Bancorp Second Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Kochvar, Chief Financial Officer for S&T Bancorp. Thank you, sir. You may now begin.

Thank you. Good afternoon, and thank you for participating in today’s conference call. Before beginning the presentation, I want to take time to refer you to our statement about forward-looking statements and risk factors, which is on the screen in front of you. This statement provides the cautionary language required by the Securities and Exchange Commission for forward-looking statements that may be included in this presentation. A copy of the second quarter earnings release can be obtained by clicking on the press release link on your screen or by visiting our Investor Relations website at www.stbancorp.com. I would now like to introduce Todd Brice, S&T’s President and CEO, who will provide an overview of S&T’s results.

Well, thank you, Mark, and good afternoon, everyone. I’m pleased to report net income for the second quarter of $14.1 million, or $0.47 per share versus $12.3 million or $0.41 per share in the first quarter this year and $8.6 million or $0.30 per share in the second quarter of 2012. Let’s say all in all, we’re very pleased with our results this quarter as we continue to experience positive trends in loan growth, asset quality, net interest margin, fee revenues, expense controls, and also, we’re seeing some benefits from the synergies afforded to us by our two mergers last year. I think all of these areas have been a major focus for us over the past year, it is really nice to see our efforts impacting our business in a favorable manner. For the quarter, the loan portfolio increased $61.3 million over the prior quarter, which contributed to part of our $900,000 increase in net interest income. Our Chief Lending Officer, David Antolik is going to elaborate a bit more on loan growth in his comments. But it was really fairly evenly distributed between our CRE, C&I and mortgage lines of business. Also building our sales teams has been a focus over the past year and some of the folks that we brought on board are beginning to see their production ramp up and hit the balance sheet. And I’m also pleased to report that we recruited five new members to our commercial lending team since the last call, and we expect to see their production ramp up towards the end of this quarter once they get settled into their new roles. Another area we’re seeing, where we do expect to see some softening as there are mortgage banking division, which is beginning to see the effects of increasing…

Thanks, Todd, and good afternoon, everyone. As Todd highlighted the bank experienced solid loan growth in the second quarter as evidenced by a net increase of $61.3 million or 1.8% in total portfolio allowance. This growth was the direct result of our strategies to improve our sales efforts and to add highly qualified professionals for our sales team. For the quarter, commercial loans grew by $44.5 million or 1.8%, with an increase of $24 million in CRE and construction loans, and an increase of about $20.5 million in C&I loans. Additionally, residential mortgages continued their strong growth with balances increasing by $20.7 million or 4.7% for the quarter. I now like to provide an update to some of the strategic initiatives that I outlined during last quarter’s earnings call. First, we hired five commercial lenders since the last call. These folks are all seasoned banking professionals, three of these new hires are additions to our lending teams in our core markets of Western Pennsylvania, and few are additions to our Northeast Ohio staff. Now second, our business banking team, those lenders who handle aggregate commercial lending relationships under $1 million added strongest production quarter since its inception of nearly $20 million. Supporting this growth is a fully developed and implemented underwriting platform. This growth is a product of being fully staffed with business bankers who work closely with their partners on the retail side of the bank to identify new lending opportunities. Third, our Northeast Ohio region continues to grow. That team now has six members and commercial loan outstandings of approximately $50 million. Next, we continue to see growth in our dealer core plan business across all of our markets with increases and commitments of 5.6% from $123 million to $130 million, an increase in outstandings of 6.5% from $76 million to $81 million for the quarter. Additionally, the quarter saw growth in our commercial construction portfolio and that growth continues to help provide stability to our commercial real estate balances. Our total commercial construction commitments at June 30, were $320 million, which includes $167 million outstanding versus $297 million in total commitments and $165 million outstandings at March 31. We also saw our C&I revolving line of credit utilization rates increased from 42% to 45% quarter-over-quarter, that increased utilization helped to drive much of our C&I growth. Our commercial pipeline continues to be solid as a result of our additions to the commercial lending staff and particularly strong with regard to our small business lending area. We did have several large commercial loan payoffs that were anticipated for the second quarter that were delayed. We anticipate that these payoffs will occur in the third and fourth quarters, and we’ll provide an additional challenge to our loan growth pools. Mark will now provide you with some additional details on our financial results.

Thanks, David. The improvement we experienced in core performance for the second quarter 2013 came from every significant line item; higher net interest income, higher recurring fees, lower expenses, and lower provision. The $900,000 increase in net interest income was held by a net $400,000 of unusual items. A large interest income recovery from a previously charge-off loan, which was partially offset by accelerated expenses related to the early redemption of $45 million of subordinated debt. The remaining increase in net interest income is due to loan growth, disciplined deposit pricing, and the redemption of the sub debt. The net of the unusual item equates to 4 basis points in the net interest margin rate. For the 2 basis point increase we saw this quarter otherwise would have been a decrease of 2 basis points. We anticipate that our net interest margin rates will decline further, but at a very slow pace. We also expect that despite challenges with the margin rate, net interest income will expand through loan growth and a better asset mix. Adjusting for the $3.1 million gain on the sale of our merchant card servicing business last quarter, fees are up almost $1.2 million this quarter. Of the nearly $700,000 improvement in debit and credit card fees, almost $500,000 is related to merchant fees. The timing of recognizing these fees during the year is different under the arrangement with our new partner. So we set full-year fees to be in line with last year at approximately $1.7 million. The improvement in mortgage banking is due to a $425,000 increase from the recapture of mortgage servicing rights and the change in the value of mortgage commitments. the fees we earned from actually selling mortgages in the second quarter were little changed from the first quarter. As Todd…

Thank you. (Operator Instructions) Our first question comes from the line of Collyn Gilbert with KBW. Please proceed with your question. Collyn B. Gilbert – Keefe, Bruyette & Woods, Inc.: Thanks, good afternoon, guys.

Hi, Collyn.

Hi. Collyn B. Gilbert – Keefe, Bruyette & Woods, Inc.: So that would be – you gave a lot of great details, just wanted to talk a little bit about kind of the loan growth and your outlook. Obviously, you are seeing some improvement and good momentum from some of the teams you’ve hired. Can you just sort of quantify where you think you can go with your loan portfolios, and what your plans are in terms of hiring of additional teams from here?

Sure. So I’ll take this first stab and then Dave, you can fill in too. But we’re happy with the growth that we’ve had for the first two quarters. Now, that the pipelines are still very strong and both on, the commercial side and really we are starting to see some traction we mentioned the b-to-b area, which is a small business. But that loan, that pipeline is really starting to see some nice lift in the activity over there. So we would expect to continue to build those out. As Dave mentioned in his comments on, there are some headwinds with some payoffs that we’re tracking. But the nice thing with that construction and bucket building up, that funds the tune of about $10 million plus a month, so that will help to offset some of the big, the construction pipe that we may feel over the next couple of quarters. But as far as growth at the end of the year, I would expect us to continue to be up maybe, I think this was a pretty successful quarter as far as hiring folks. Dave, go ahead.

Yeah, in terms of the payoffs, just to add a little color, some things that we were expecting to happen, payoffs that we are anticipating in the second quarter as we said were delayed. And these payoffs are really the result of some customers selling assets. In one case it’s a portfolio of properties that our customer is selling. So the good news is we are able to retain those relationships, we lose balances, but we’ll have other opportunities. The challenge for us is going to be to continue to grow our pipeline and create earning assets and those activities have been strong. As Todd mentioned, the pipeline continues to be solid. We are able to track talents, in order to grow assets, so asset-generating activities continue to be strong. Collyn B. Gilbert – Keefe, Bruyette & Woods, Inc.: Okay. Okay, that’s helpful. What about pricing? How are you guys seeing pricing? And loan yield is still coming on at lower rates than what’s rolling off, and have you been able to pass through any of the rate increase into some of your loan pricing buckets?

Yeah, we are seeing some increase in the five and 10-year bucket as our cost of funds increase, they are reflected in the pricing of the new loans coming on. The competition continues to be aggressive with regard to pricing. So we have seen some folks delay or hold on to rates that may have been committed to within the past month or two, but for the most part, our competition has adjusted the pricing like we have. Collyn B. Gilbert – Keefe, Bruyette & Woods, Inc.: Okay. And then just on the expense front, I know you guys ran through some of the initiatives that had caused expenses to fall into where they are today. But as you maybe continue to add lenders, or your asset generation starts to increase, do you think you can still hold that expense line steady or should we start to see that start to migrate higher?

I think over a longer period, certainly that will get higher, but as we think in the relatively shorter-term over the next several quarters, the initiatives that we have done over the last couple of quarters should offset any increases we are seeing on the production side. Collyn B. Gilbert – Keefe, Bruyette & Woods, Inc.: Okay. And…

Just in that regard is, a lot of the kind of what we call the investments that we’ve made over the last couple of years and I’ll call some of those the fixed costs, more of the back-room functions, those have been made. So, we anticipate being able to grow the balance sheet with minimal impact on some of the support areas Collyn B. Gilbert – Keefe, Bruyette & Woods, Inc.: Okay. Okay, that’s good. And then just one final question on the deposit side, your loan growth seems to be sort of outstripping deposit growth a little bit here. How are you thinking about excuse me your deposit strategy going forward? Is it intentionally – are you intentionally trying to put on CDs or just maybe if you could talk a little bit about that.

On the CD side, the growth in there is really participations that we’ve done in the CEDAR program with the one-way buys. So we’ve actually had a decline in customer CDs. We’ve not been aggressive on the pricing side as of yet. We think we still have some room on the increment due to funding from a wholesale side, which we think at this point is still incrementally cheaper with the level of loan growth that we’ve had so far. But that’s something we are constantly taking a look at. Collyn B. Gilbert – Keefe, Bruyette & Woods, Inc.: Okay. Okay, that’s helpful. I’ll hop off. Thanks.

Thanks, Collyn.

Thanks, Collyn.

Thank you. Our next question comes from the line of Matthew Breese with Sterne, Agee. Please proceed with your question. Matthew Breese – Sterne, Agee & Leach, Inc.: Good afternoon, guys.

Hi, Matt.

Hello. Matthew Breese – Sterne, Agee & Leach, Inc.: Just to be clear on the new loan yields, so the 5-year treasury is up, anywhere from 55 to 65 basis points from year end. New loan yields based off of, either the FHLB advances or the 5-year treasury. How much of that increase has been passed on to new loans?

Well, as in terms of the customer facing, it has all been passed on. So our spreads are – we maintain our spreads, but that cost hasn’t had through the customer. Matthew Breese – Sterne, Agee & Leach, Inc.: You guys are seeing in new loans the full 65 basis points?

Right

Yeah.

Yes. Matthew Breese – Sterne, Agee & Leach, Inc.: Okay.

And as loans reprice, that’s reflected in the repricing as well. Matthew Breese – Sterne, Agee & Leach, Inc.: And how much of your commercial loan portfolio is priced off of either the 5-year treasury or FHLD advances?

It’s probably about a quarter. As we can have close to – a very large percentage, maybe about a $1.1 billion to $1.2 billion of the commercial book is of prime or LIBOR to the majority of that book close. Matthew Breese – Sterne, Agee & Leach, Inc.: How big were percentages LIBOR upfront, I’m sorry?

About $1.2 billion of the total loan portfolio. Matthew Breese – Sterne, Agee & Leach, Inc.: Okay. And then going back to the deposit cost strategy, you guys had mentioned – it sounded like you were going to ratchet down some of the costs there?

We continue to look and we did make some adjustments to savings rate this quarter. It is getting as we said it every item, it’s getting more and more difficult to continue to do that. We are – we do have some higher priced CDs from about three year ago that are coming off in the third quarter that will help the funding and then we’ll get the full benefit of the subordinated debt redemption going forward in the third and fourth quarter. Right now you wouldn’t say, since most pricing for our bank deposit has been on the short end of the curve and we really haven’t seen a lot of rate movement inside of two and three years, and competitively nobody has really made any substantial move. So we’re biting our time for now and seeing how pricing develop. Matthew Breese – Sterne, Agee & Leach, Inc.: Okay. And with all that being said, better spreads and lower funding costs and you guys say that line that you expect to see some margin compression in the quarter, it sounds like we have to be pretty close to the inflection point. Where do you foresee the bottom and how soon are we getting there?

Are you talking about the bottom of the margin rate? Matthew Breese – Sterne, Agee & Leach, Inc.: Yeah.

I’m hoping we are getting toward the bottom. But again, we are, in terms of pricing, we are probably a little more sensitive to the very, very front end of the curve. So as long as the Fed stays camped where they are, we’re still going to feel that pressure. So I mean, I don’t know how many exactly how many basis points we have, it is a function of how long we stay at this level. But we are still seeing loans coming off at higher rates than what the new rate is going back on. So we are still seeing the asset yield pressure. Matthew Breese – Sterne, Agee & Leach, Inc.: Got it. Okay, thank you, guys.

Thank you. Our next question comes from the line of Jake Civiello with RBC Capital Markets. Please proceed with your question. Jake Civiello – RBC Capital Markets LLC: Hey guys, good afternoon.

Hi, Jake.

Hi. Jake Civiello – RBC Capital Markets LLC: Are there any one-time expenses coming in the third quarter associated with the planned branch closings?

Yeah, I think that will be minimal if they are Jake. So I mean, there the one branch is really small branch that we own it and the carrying costs are pretty low on that. So I don’t think they would have any significant impact on that – material impact to the numbers. Jake Civiello – RBC Capital Markets LLC: Okay. Is there anything else unusual that we could see coming in the second half of the year?

Nothing we are aware of. Jake Civiello – RBC Capital Markets LLC: Okay. All right, thanks. That’s really all I had.

Okay.

Thank you. Our next question comes from the line of David Darst with Guggenheim Securities. Please proceed with your question. David W. Darst – Guggenheim Securities LLC: Hey, good afternoon.

Hey, Dave.

Hi, David. David W. Darst – Guggenheim Securities LLC: On the credit costs and your level of NPLs, and the improvement in the substandard and watchlists, are you at a point where – I guess you are just going to go through a longer trough, or your credit costs maybe go back to some historically low levels or is there still visibility where you know, you’ve had some lumpiness that needs to be cleaned up and charged off?

I mean you always are at risk if something big pops in there to some lumpiness David. But I think if you look at the trends, if you look at the – it starts with delinquency and we are at 1.4% from a delinquency ratio. And then if you look at your criticized and classified loans, so those are down another $20 million to $260 million. Then you take a look at your MDA ratio levels, and those are down at $38 million. So, I think if you look at the last couple of quarters, the March that we’ve had on the loans have been pretty conservative. So we’ve been able to reduce nonperformance without taking corresponding charges. In fact, this quarter we had about $2 million in recoveries from three or four larger ones that impacted charge-off number. So I’m not going to say that we are going to have $2 million of recoveries every quarter, but I still think there is room to move down some of those levels and do it without incurring a lot of charges over and above what we’ve already recognized on those accounts. David W. Darst – Guggenheim Securities LLC: Is something – I’m sorrry…

Go ahead. David W. Darst – Guggenheim Securities LLC: I would say, it’s something around $2 million to $2.5 million a good run rate for a couple of quarters on provisioning and charge-offs?

It’s probably, I mean if you just do the math, if we took a $1.1 million this quarter or so and if you add the $2 million back, that gets you in that $2.5 million to $3 million range, probably somewhere in there. David W. Darst – Guggenheim Securities LLC: Okay. And then would you be willing to further build the securities portfolio from this level?

We still have a fairly high level of interest-bearing balances at the Fed. So over time, we anticipate shifting that from cash into securities. David W. Darst – Guggenheim Securities LLC: Okay. And, Mark, I know in your filings you have the ALCO model for a parallel shift. Do you think you are inherently better positioned for the steeper curve, or do you think the parallel shift is the best environment for you, with the short rates coming up?

On the parallel it’s a bit better. But we do have, we do see some benefit when we run simulations for a steepener because of the better pricing for those three and five years, as well as the three and five-year reset, that could depend somewhat on how that impacts the funding size to the extent, it gets competitive longer out and people begin to shift out of core into CDs that could dampen that somewhat. but we still see a favorable benefit in net interest income and margin from a steepener. David W. Darst – Guggenheim Securities LLC: But not as much as you do when you run your model for a parallel shift?

That’s correct. David W. Darst – Guggenheim Securities LLC: Okay, got it. Okay, thank you.

Thank you. (Operator Instructions) Gentlemen, it appears there are no further questions at this time. do you have any closing comments?

I’d just like to make one other point of clarification regarding Jake’s question on some of the one-time charges. I think maybe, what he was trying to get at. If you looked at it in the first quarter, we had some one-time charges associated with some branch closures, and the real estate that we had the branches on was newer. So the carrying charge was a little bit higher and accordingly and we got it sold rather quickly. So thought it was prudent to maybe to just take a little bit less of a price just to move it, so we didn’t have to carry it. And but like I said, with – these other branches are, we had on for many, many years and the carrying values are fairly low. So we shouldn’t expect to see any major impact from some of the one-time charges like we did in the first quarter or so.

Okay, operator, we also have a – we have a couple of questions that came in through e-mail. The first of those is why hasn’t S&T increased the dividend since earnings have increased significantly and the bank has greatly improved asset quality? The dividend is something that the Board of Directors take a look at. Every quarter, there is a lot of factors that go into that, including our earnings and our outlook for earnings, the capital requirements of the regulatory agencies, the payout ratios, the dividend yield, a lot of different factors. This past quarter, we did do some capital changes with the payout of the subordinated debt, and we got our payout ratio, given the first couple of earnings quarters this year with improved earnings in a range that we’re a little bit more comfortable within the 30% or 40%. So while it’s something that we do look at every quarter, it’s not something that the Board felt was appropriate at this time, but they will continue to look at it on an ongoing basis every quarter as we move forward. And the second question that we got and I’ll paraphrase a little bit had to do with how we can or how someone can try to predict what the quarterly loan loss provision for S&T is. That’s something that presents a challenge for us as well. We have historically had some volatility in our charge-offs and therefore also our provision levels. There is a lot of factors behind that, including the some of the size of some of our credits tend to be larger and we also are fairly aggressive when there is a problem to take charges that we feel are appropriate, which tend to be larger when we do take them. We try to take them all at once, so that leads to some additional volatility in the credit. So I mean, it’s a challenge for us to predict what credit losses are going to be over the next several quarters, so it’s hard for me to provide any further insight into that. Okay, thanks operator.

I think with that we’ll adjourn for the day and we appreciate the opportunity to address some of your concerns, and we’ll look forward to talking to you the next quarters call.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.