UNITED STATES

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 ~~September~~June 30, ~~2017~~2018



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

For the transition period from Toto

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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨
		Emerging growth company	¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 - ~~34,979,192~~35,008,546 shares as of ~~October~~July 31, ~~2017~~2018

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

INDEX

S&T BANCORP, INC. AND SUBSIDIARIES



		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets - ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	2

	Consolidated Statements of Comprehensive Income - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	3

	Consolidated Statements of Changes in Shareholders' Equity - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	4

	Consolidated Statements of Cash Flows - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures ~~about~~About Market Risk	56

Item 4.	Controls and Procedures	5857

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	59

Item 1A.	Risk Factors	59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	59

Item 4.	Mine Safety Disclosures	59

Item 5.	Other Information	59

Item 6.	Exhibits	59

	Signatures	60

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2017			December 31, 2016			June 30, 2018				December 31, 2017
(dollars in thousands, except per share data)	(Unaudited)			(Audited)			(Unaudited)				(Audited)
ASSETS
Cash and due from banks, including interest-bearing deposits of $59,725 and $87,201 at September 30, 2017 and December 31, 2016	$	114,440		$	139,486
Securities available-for-sale, at fair value	697,954			693,487
Cash and due from banks, including interest-bearing deposits of $81,210 and $61,965 at June 30, 2018 and December 31, 2017								$	137,933			$	117,152
Securities, at fair value								688,341				698,291
Loans held for sale	47,936			3,793				3,801				4,485
Portfolio loans, net of unearned income	5,820,758			5,611,419				5,786,118				5,761,449
Allowance for loan losses	(56,712		)	(52,775		)		(60,517		)		(56,390		)
Portfolio loans, net	5,764,046			5,558,644				5,725,601				5,705,059
Bank owned life insurance	71,639			72,081				73,122				72,150
Premises and equipment, net	42,888			44,999				40,889				42,702
Federal Home Loan Bank and other restricted stock, at cost	33,120			31,817				35,782				29,270
Goodwill	291,670			291,670				287,446				291,670
Other intangible assets, net	3,956			4,910				2,909				3,677
Other assets	102,530			102,166				101,522				95,799
Total Assets	$	7,170,179		$	6,943,053			$	7,097,346			$	7,060,255
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,348,939		$	1,263,833			$	1,410,211			$	1,387,712
Interest-bearing demand	646,195			638,300				553,729				603,141
Money market	1,036,726			936,461				1,267,623				1,146,156
Savings	940,989			1,050,131				845,526				893,119
Certificates of deposit	1,431,431			1,383,652				1,316,444				1,397,763
Deposits held for sale	38,960			—
Total Deposits	5,443,240			5,272,377				5,393,533				5,427,891
Securities sold under repurchase agreements	39,923			50,832				44,724				50,161
Short-term borrowings	685,000			660,000				600,000				540,000
Long-term borrowings	12,911			14,713				46,062				47,301
Junior subordinated debt securities	45,619			45,619				45,619				45,619
Other liabilities	55,910			57,556				60,275				65,252
Total Liabilities	6,282,603			6,101,097				6,190,213				6,176,224
SHAREHOLDERS’ EQUITY
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—36,130,480 shares at September 30, 2017 and December 31, 2016 Outstanding— 34,979,192 shares at September 30, 2017 and 34,913,023 shares at December 31, 2016	90,326			90,326
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—36,130,480 shares at June 30, 2018 and December 31, 2017 Outstanding— 35,009,945 shares at June 30, 2018 and 34,971,929 shares at December 31, 2017								90,326				90,326
Additional paid-in capital	215,451			213,098				216,885				216,106
Retained earnings	626,283			585,891				662,112				628,107
Accumulated other comprehensive (loss) income	(12,604		)	(13,784		)		(30,945		)		(18,427		)
Treasury stock (1,151,288 shares at September 30, 2017 and 1,217,457 shares at December 31, 2016, at cost)	(31,880		)	(33,575		)
Treasury stock (1,120,535 shares at June 30, 2018 and 1,158,551 shares at December 31, 2017, at cost)								(31,245		)		(32,081		)
Total Shareholders’ Equity	887,576			841,956				907,133				884,031
Total Liabilities and Shareholders’ Equity	$	7,170,179		$	6,943,053			$	7,097,346			$	7,060,255

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands, except per share data)	2017		2016		2017		2016		2018			2017			2018			2017
INTEREST INCOME
Loans, including fees	$	62,450	$	53,956	$	179,908	$	157,133		$	66,610		$	60,558		$	129,665		$	117,458
Investment Securities:
Taxable	2,988		2,570		8,783		7,704			3,519			2,947			6,948			5,796
Tax-exempt	896		907		2,744		2,764			872			928			1,746			1,848
Dividends	389		375		1,352		1,077			580			481			1,251			963
Total Interest Income	66,723		57,808		192,787		168,678			71,581			64,914			139,610			126,065
INTEREST EXPENSE
Deposits	6,748		5,119		18,103		14,403			9,166			5,976			17,012			11,355
Borrowings and junior subordinated debt securities	2,519		1,234		6,779		3,474			4,012			2,368			7,264			4,261
Total Interest Expense	9,267		6,353		24,882		17,877			13,178			8,344			24,276			15,616
NET INTEREST INCOME	57,456		51,455		167,905		150,801			58,403			56,570			115,334			110,449
Provision for loan losses	2,850		2,516		12,901		12,379			9,345			4,869			11,817			10,052
Net Interest Income After Provision for Loan Losses	54,606		48,939		155,004		138,422			49,058			51,701			103,517			100,397
NONINTEREST INCOME
Securities gains (losses), net	—		—		3,987		—
Net gain (loss) on sale of securities										—			3,617			—			3,987
Debit and credit card										3,309			3,042			6,347			5,885
Service charges on deposit accounts	3,207		3,208		9,218		9,272			3,227			2,997			6,468			6,012
Debit and credit card	3,067		3,163		8,952		8,818
Wealth management	2,406		2,565		7,237		7,947			2,616			2,428			5,298			4,831
Mortgage banking										831			675			1,432			1,408
Insurance	1,333		1,208		4,258		4,187			134			1,458			303			2,913
Bank owned life insurance	1,209		532		2,249		1,569
Mortgage banking	872		1,077		2,280		2,185
Gain on sale of credit card portfolio	—		—		—		2,066
Gain on sale of a majority interest of insurance business										—			—			1,873			—
Other	1,457		1,695		4,631		5,669			2,134			2,048			4,323			4,225
Total Noninterest Income	13,551		13,448		42,812		41,713			12,251			16,265			26,044			29,261
NONINTEREST EXPENSE
Salaries and employee benefits	20,325		19,011		60,770		57,539			18,611			19,903			37,426			40,444
Net occupancy	2,692		2,776		8,258		8,413			2,804			2,751			5,677			5,566
Data processing	2,284		2,128		6,670		6,758
Furniture and equipment	1,890		1,932		5,746		5,580
Data processing and information technology										2,379			2,163			4,704			4,386
Furniture, equipment and software										2,134			1,810			4,090			3,857
Other taxes	1,208		1,080		3,268		3,076			1,739			1,083			3,587			2,060
Marketing										1,190			948			1,892			1,702
Professional services and legal										888			931			1,939			1,999
FDIC insurance	1,152		1,005		3,461		2,938			739			1,185			1,847			2,308
Professional services and legal	870		817		2,871		2,545
Marketing	766		896		2,468		2,872
Other	5,366		4,794		16,448		17,886			5,379			5,823			10,783			11,084
Total Noninterest Expense	36,553		34,439		109,960		107,607			35,863			36,597			71,945			73,406
Income Before Taxes	31,604		27,948		87,856		72,528			25,446			31,369			57,616			56,252
Provision for income taxes	8,883		7,367		24,182		18,795			4,010			8,604			10,017			15,299
Net Income	$	22,721	$	20,581	$	63,674	$	53,733		$	21,436		$	22,765		$	47,599		$	40,953
Earnings per share—basic	$	0.65	$	0.59	$	1.83	$	1.55		$	0.62		$	0.66		$	1.37		$	1.18
Earnings per share—diluted	$	0.65	$	0.59	$	1.82	$	1.54		$	0.61		$	0.65		$	1.36		$	1.17
Dividends declared per share	$	0.20	$	0.19	$	0.60	$	0.57		$	0.25		$	0.20		$	0.47		$	0.40
Comprehensive Income	$	22,975	$	19,686	$	64,854	$	64,547		$	20,444		$	22,503		$	35,081		$	41,879

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

(dollars in thousands, except share and per share data)
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive (Loss)/Income

Treasury
Stock
Total
Balance at January 1, 2016 $ 90,326
$ 210,545
$ 544,228
$ (16,457 ) $ (36,405 ) $ 792,237
Net income for Nine months ended September 30, 2016 —
—
53,733
—
—
53,733
Other comprehensive income (loss), net of tax —
—
—
10,814
—
10,814
Cash dividends declared ($0.57 per share) —
—
(19,824 ) —
—
(19,824 )
Treasury stock issued for restricted awards (110,643 shares, net of 5,717 forfeitures) —
—
(2,945 ) —
2,830
(115 )
Recognition of restricted stock compensation expense —
1,862
—
—
—
1,862
Balance at September 30, 2016 $ 90,326
$ 212,407
$ 575,192
$ (5,643 ) $ (33,575 ) $ 838,707

Balance at January 1, 2017 $ 90,326
$ 213,098
$ 585,891
$ (13,784 ) $ (33,575 ) $ 841,956
Net income for Nine months ended September 30, 2017 —
—
63,674
—
—
63,674
Other comprehensive income (loss), net of tax —
—
—
1,180
—
1,180
Cash dividends declared ($0.60 per share) —
—
(20,899 ) —
—
(20,899 )
Treasury stock issued for restricted awards (90,115 shares, net of 23,946 forfeitures) —
—
(2,383 ) —
1,695
(688 )
Recognition of restricted stock compensation expense —
2,353
—
—
—
2,353
Balance at September 30, 2017 $ 90,326
$ 215,451
$ 626,283
$ (12,604 ) $ (31,880 ) $ 887,576



(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings				Accumulated Other Comprehensive (Loss)/Income				Treasury Stock				Total
Balance at January 1, 2017		$	90,326		$	213,098		$	585,891			$	(13,784	)		$	(33,575	)		$	841,956
Net income for six months ended June 30, 2017		—			—			40,953				—				—				40,953
Other comprehensive income (loss), net of tax		—			—			—				926				—				926
Cash dividends declared ($0.40 per share)		—			—			(13,927		)		—				—				(13,927		)
Treasury stock issued for restricted awards (89,351 shares, net of 22,094 forfeitures)		—			—			(2,413		)		—				1,724				(689		)
Recognition of restricted stock compensation expense		—			1,843			—				—				—				1,843
Balance at June 30, 2017		$	90,326		$	214,941		$	610,504			$	(12,858	)		$	(31,851	)		$	871,062

Balance at January 1, 2018		$	90,326		$	216,106		$	628,107			$	(18,427	)		$	(32,081	)		$	884,031
Net income for six months ended June 30, 2018		—			—			47,599				—				—				47,599
Other comprehensive income (loss), net of tax		—			—			—				(8,229		)		—				(8,229		)
Reclassification of tax effects from the Tax Act⁽¹⁾		—			—			3,427				(3,427		)		—				—
Reclassification of net unrealized gains on equity securities⁽²⁾		—			—			862				(862		)		—				—
Cash dividends declared ($0.47 per share)		—			—			(16,391		)		—				—				(16,391		)
Treasury stock issued for restricted awards (75,608 shares, net of 37,592 forfeitures)		—			—			(1,492		)		—				836				(656		)
Recognition of restricted stock compensation expense		—			779			—				—				—				779
Balance at June 30, 2018		$	90,326		$	216,885		$	662,112			$	(30,945	)		$	(31,245	)		$	907,133

See Notes to Consolidated Financial Statements

⁽¹⁾Reclassification due to the adoption of ASU No. 2018-02 - $(3,660) relates to funded status of pension and $233 relates to net unrealized gains on available-for-sale securities.

⁽²⁾Reclassification due to the adoption of ASU No. 2016-01.

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016				2018			2017
OPERATING ACTIVITIES
Net income	$	63,674		$	53,733			$	47,599		$	40,953
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	12,901			12,379				11,817			10,052
Net (decrease) increase in Provision for unfunded loan commitments	(546		)	90
Depreciation, amortization and accretion	1,597			2,858
Recovery for unfunded loan commitments								(114		)	(334		)
Net depreciation, amortization and accretion								2,174			850
Net amortization of discounts and premiums on securities	3,065			2,816				1,572			2,030
Stock-based compensation expense	2,353			1,862				779			1,843
Securities gains	(3,987		)	—
Net (gain) loss on sale of securities								—			(3,987		)
Mortgage loans originated for sale	(66,535		)	(75,505		)		(41,631		)	(38,899		)
Proceeds from the sale of mortgage loans	66,604			77,009				42,998			38,041
Gain on the sale of mortgage loans, net	(1,061		)	(1,154		)		(683		)	(719		)
Gain on the sale of credit card portfolio	—			(2,066		)
Pension plan curtailment gain	—			(1,017		)
Gain on the sale of majority interest of insurance business								(1,873		)	—
Net increase in interest receivable	(3,886		)	(4,019		)		(520		)	(666		)
Net increase in interest payable	448			1,117				699			246
Net decrease in other assets	8,735			702
Net increase in other liabilities	69			3,586
Net (increase) decrease in other assets								(853		)	4,484
Net increase (decrease) in other liabilities								2,529			(1,775		)
Net Cash Provided by Operating Activities	83,431			72,391				64,493			52,119
INVESTING ACTIVITIES
Purchases of securities available-for-sale	(69,699		)	(53,282		)
Proceeds from maturities, prepayments and calls of securities available-for-sale	58,601			52,049
Proceeds from sales of securities available-for-sale	7,751			—
Net proceeds from (purchases of) Federal Home Loan Bank stock	1,304			(5,298		)
Purchases of securities								(54,481		)	(36,604		)
Proceeds from maturities, prepayments and calls of securities								45,487			35,256
Proceeds from sales of securities								—			7,751
Net (purchases) sales of Federal Home Loan Bank stock								(6,512		)	1,600
Net increase in loans	(268,132		)	(406,370		)		(37,957		)	(176,768		)
Proceeds from sale of loans not originated for resale	3,581			8,433				3,922			3,581
Purchases of premises and equipment	(3,646		)	(2,744		)		(804		)	(3,018		)
Proceeds from the sale of premises and equipment	376			20				110			273
Proceeds from the sale of credit card portfolio	—			25,019
Proceeds from the sale of majority interest of insurance business								4,540			—
Net Cash Used in Investing Activities	(269,864		)	(382,173		)		(45,695		)	(167,929		)
FINANCING ACTIVITIES
Net increase in deposits	109,637			169,751
Net increase in certificates of deposit	61,048			99,612
Net increase in core deposits								46,962			44,914
Net (decrease) increase in certificates of deposit								(81,255		)	92,427
Net decrease in securities sold under repurchase agreements	(10,909		)	(21,138		)		(5,437		)	(4,343		)
Net increase in short-term borrowings	25,000			209,000
Net increase (decrease) in short-term borrowings								60,000			(15,000		)
Repayments of long-term borrowings	(1,802		)	(101,740		)		(1,239		)	(1,195		)
Treasury shares issued-net	(688		)	(115		)		(657		)	(689		)
Cash dividends paid to common shareholders	(20,899		)	(19,824		)		(16,391		)	(13,927		)
Net Cash Provided by Financing Activities	161,387			335,546				1,983			102,187
Net (decrease) increase in cash and cash equivalents	(25,046		)	25,764
Net increase (decrease) in cash and cash equivalents								20,781			(13,623		)
Cash and cash equivalents at beginning of period	139,486			99,399				117,152			139,486
Cash and Cash Equivalents at End of Period	$	114,440		$	125,163			$	137,933		$	125,863
Supplemental Disclosures
Loans transferred to held for sale, net	$	43,151		$	1,540
Deposits transferred to held for sale	$	38,960		$	—
Loans transferred to held for sale								$	3,922		$	17,750
Interest paid	$	24,682		$	16,761			$	23,576		$	15,369
Income taxes paid, net of refunds	$	21,096		$	17,974			$	11,103		$	13,399
Transfers of loans to other real estate owned	$	2,116		$	581
Transfer net assets to investment in insurance company partnership								$	1,917		$	—
Transfers to other real estate owned and other repossessed assets								$	2,841		$	1,407

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Principles 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 the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, ~~2016,~~2017, filed with the Securities and Exchange Commission, or SEC, on ~~February 24, 2017.~~March 1, 2018. In the opinion of management, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the 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.

~~We previously reported in our annual report on Form 10-K, three reportable operating segments: Community Banking, Insurance and Wealth Management. We have reevaluated our segment reporting as of~~On January 1, ~~2017 and have determined that~~2018, we sold a 70 percent majority interest in the assets of our wholly-owned subsidiary S&T Evergreen Insurance, ~~and Wealth Management activities are not material~~LLC. We transferred our remaining ownership interest in the net assets of S&T Evergreen Insurance, LLC for a 30 percent ownership interest in a new partnership entity (see Note 13: Sale of a Majority Interest of Insurance Business). We use the equity method of accounting to recognize our ~~consolidated financial results, therefore, we are no longer reporting segment information.~~partial ownership interest in the new entity.

Reclassification

Amounts in prior period financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no effect on our results of operations or financial condition.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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, or ASU or Update

~~Stock Compensation~~Income Statement - ~~Improvements to Employee Share-Based Payment Accounting~~Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

~~On March 31, 2016~~In February 2018, the ~~Financial Accounting Standards Board, or~~ FASB issued ASU No. ~~2016-09, Improvements~~2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update allow a reclassification from accumulated other comprehensive income, or AOCI, to ~~Employee Share-Based Payment Accounting, which is intended to~~retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, or Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the ~~accounting~~usefulness of information reported to financial statement users and will require certain disclosures about the stranded tax effects. This Update is effective for share-based payment transactions as part of the FASB's simplification initiative. The ASU changes seven aspects of the accounting for share-based payment award transactions, including: 1. accounting for income taxes; 2. classification of excess tax benefits on the statement of cash flows; 3. forfeitures; 4. minimum statutory tax withholding requirements; 5. classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes; 6. practical expedient - expected term (nonpublic only); and 7. intrinsic value (nonpublic only). This ASU is effectiveall entities for fiscal years beginning after December 15, ~~2016~~2018 and interim periods within those ~~years~~fiscal years. Early adoption is permitted, including adoption in any interim period, for public business ~~entities. The adoption~~entities for reporting periods for which financial statements have not been issued or made available for issuance. We have elected to reclassify all tax effects related to the Tax Act from AOCI to retained earnings as of January 1, 2018. As such, we have early adopted this ~~ASU had no material impact~~Update and reclassified $3.4 million for the release of stranded income tax effects relating to unrealized gains and losses on our ~~results~~securities portfolio and our pension plan from AOCI to retained earnings as of ~~operations or financial position.~~

~~Equity Method and Joint Ventures - Simplifying the Transition to the Equity Method of Accounting~~

In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2016. The amendments will be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method.31, 2018. The adoption of this ASU had no impact on our ~~results~~Consolidated Statements of ~~operations~~Comprehensive Income. Our policy for releasing income tax effects from AOCI is to release them as investments are sold or ~~financial position.~~mature and liabilities are extinguished.

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NOTE 1. BASIS OF PRESENTATION - continued

~~Receivables - Nonrefundable Fees and Other Costs - Premium Amortization on Purchased Callable Debt Securities~~

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which continues to be amortized to maturity. This Update is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. We have early adopted the provisions of this ASU and it had no impact on our results of operations or financial position.

~~Recently Issued Accounting Standards Updates not yet Adopted~~

Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension Costs and Net Periodic Post Retirement Benefit Costs

In March 2017, the FASB issued ASU No. 2017-07, Compensation Retirement Benefits - Improving the Presentation of Net Periodic Pension Costs and Net Periodic Post Retirement Benefit Costs (Topic 715). The main objective of this ASU is to provide financial statement users with clearer and disaggregated information related to the components of net periodic benefit cost and improve transparency of the presentation of net periodic benefit cost in the financial statements. This Update iswas effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption iswas permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. Effective March 31, 2016, our qualified and nonqualified defined benefit plans were amended to freeze benefit accruals for all persons entitled to benefits under the plan; as such, the ~~provisions~~adoption of this ASU ~~will have~~had no impact on our ~~results~~Consolidated Balance Sheets or Consolidated Statements of ~~operations and financial position.~~Comprehensive Income.

Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets - Clarifying the Scope of Assets Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

In February 2017, the FASB issued ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). The main objective inof this ASU is ~~intended~~ to provide greater detail on what types of transactions should be accounted for as partial sales of nonfinancial assets. ~~The scope of this~~This ASU, as originally issued in ASU No. 2014-09, ~~(described below),~~ is intended to reduce the complexity of current GAAP requirements by clarifying which accounting guidance applies to various types of contracts that transfer assets or ownership interest to another entity. This Update iswas effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017 and at the same time that ASU No. 2014-09 iswas effective. Early adoption iswas permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The ~~provisions~~adoption of this ASU ~~will not materially impact~~was applied to the partial sale of our ~~results of operations~~insurance subsidiary in January 2018. As such, the subsidiary is no longer included in our consolidated financial statements and ~~financial position.~~

~~Intangibles - Goodwill and Other - Simplifying~~we recognized a $1.9 million gain on the ~~Test for Goodwill Impairment~~

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment (Topic 350). The main objective in this ASU is intended to simplify the current requirements for testing goodwill for impairment by eliminating step two from the goodwill impairment test. The amendments are expected to reduce the complexity and costs associated with performing the goodwill impairment test, which could result in recording impairment charges sooner than under the current guidance. This Update is effective for any interim and annual impairment tests in reporting periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are evaluating the provisions of this ASU; however, we do not anticipate that this ASU will materially impact our results of operations and financial position.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 1. BASIS OF PRESENTATION - continued~~

transaction.

Business Combinations - Clarifying the Definition of a Business

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations - Clarifying the Definition of a Business (Topic 805). The main objective of this ASU is to help financial statement preparers evaluate whether a set of transferred assets and activities (either acquired or disposed of) is a business under Topic 805, Business Combinations by changing the definition of a business. The revised definition ~~will result~~results in fewer acquisitions being accounted for as business combinations than under ~~existing~~previous guidance. The definition of a business is significant because it affects the accounting for acquisitions, the identification of reporting units, consolidation evaluations and the accounting for dispositions. This Update iswas effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption iswas permitted for transactions not yet reflected in financial statements that have been issued or made available for issuance. The ~~provisions~~adoption of this ASU ~~will have~~had no impact on our ~~results~~Consolidated Balance Sheets or Consolidated Statements of ~~operations and financial position.~~Comprehensive Income.

Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. The main objective of this ASU is to require companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. This represents a change from ~~existing~~previous guidance, which ~~requires~~required companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. The new guidance ~~will require~~requires companies to defer the income tax effects only of intercompany transfers of inventory. This Update iswas effective for annual periods beginning after December 15, 2017. Early adoption iswas permitted as of the beginning of an annual period. If an entity ~~chooses~~chose to early adopt the amendments in the ASU, it ~~must~~had to do so in the first interim period of its annual financial statements. That is, an entity ~~cannot adopt~~could not have adopted the amendments in the ASU in a later interim period and apply them as if they were in effect as of the beginning of the year. The ~~provisions~~adoption of this ASU ~~will have~~had no impact on our ~~results~~Consolidated Balance Sheets or Consolidated Statements of ~~operations and financial position.~~Comprehensive Income.

Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The main objective of this ASU is to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this Update provide guidance on the following eight specific cash flow issues: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business

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NOTE 1. BASIS OF PRESENTATION - continued

combination, proceeds from the settlement of insurance claims, proceeds from the settlement of bank-owned life insurance (BOLI) policies, distributions received from equity method investments, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This Update iswas effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption iswas permitted, provided that all of the amendments are adopted in the same period. The ~~provisions~~adoption of this ASU ~~will not materially~~had no material impact ~~our results of operations and financial position.~~

~~Financial Instruments - Credit Losses~~

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments of this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL, or current expected credit loss, model. This Update is effective for interim and annual reporting periodspresentation of activities in ~~fiscal years beginning after December 15, 2019. Early adoption is permitted as~~our Consolidated Statements of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.Cash Flows.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). ~~The new~~This revenue pronouncement ~~creates~~established a single ~~source~~comprehensive model for entities to use in accounting for revenue arising from contracts with customers and superseded most previous revenue recognition guidance in GAAP. We adopted the new standard January 1, 2018. Our primary sources of revenue ~~guidance for all companies in all industries~~are derived from interest and ~~is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers~~

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~~NOTE 1. BASIS OF PRESENTATION - continued~~

~~control of goods or services to customers at an amount~~dividends earned on loans, investment securities and other financial instruments that reflects the consideration to which it expects to be entitled in exchange for those goods or services. The five steps are: 1. identify the contract with the customer; 2. identify the separate performance obligations in the contract; 3. determine the transaction price; 4. allocate the transaction price to the separate performance obligations; and 5. recognize revenue when each performance obligation is satisfied. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This ASU defers the effective date of ASU No. 2014-09 for all entities by one year.

In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), as an amendment to ASU No. 2014-09 to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1. The potential for diversity in practice arising from inconsistent application of the principal versus agent guidance, and 2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.

In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, as an amendment to ASU No. 2014-09 to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1. The potential for diversity in practice at initial application, and 2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.

~~In May 2016, the FASB issued ASU No. 2016-12, Narrow-scope Improvements and Practical Expedients. The amendments in this ASU do~~are not change the core principles of Topic 606, Revenue from Contracts with Customers. These amendments affect only the narrow aspects of Topic 606: 1. Collectibility Criterion, 2. Presentation of Sales Taxes and Other Similar Taxes Collected from Customers, 3. Noncash Consideration, 4. Contract Modifications at Transition, and 5. Completed Contracts at Transition.

ASU 2014-09, including transition requirements for all amendments, is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the original effective date for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Our revenue is comprised of net interest income, which is excluded fromwithin the scope of ASU ~~2014-09,~~No. 2014-09. We evaluated the nature of our contracts with customers and ~~noninterest income. We are substantially complete with our overall assessment of~~related revenue streams, including service charges on deposit accounts, debit and ~~reviewing of related contracts potentially affected by the ASU, including trust~~credit cards and ~~asset~~wealth management ~~fees, deposit related fees, interchange fees, merchant income~~ and ~~annuity and insurance commissions. Our assessment suggests~~determined that ~~adoption of this ASU should~~revenue recognition did not ~~materially~~ change ~~the method in which we currently recognize revenue for these revenue streams.~~significantly from current practice. We ~~are also substantially complete with our evaluation of~~evaluated certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue. In addition, we are evaluating the ASU’s expanded disclosure requirements. We plan to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be material.

~~Leases - Section A-Amendments to the FASB Accounting Standards Codification, Section B-Conforming Amendments Related to Leases and Section C-Background Information and Basis for Conclusions~~

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 1. BASIS OF PRESENTATION - continued~~

Comprehensive Income.

Accounting for Financial Instruments - Overall: Classification and Measurement

In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments - Overall: Classification and Measurement (Subtopic 825-10). The amendments in this ASU address the following: 1. require equity investments to be measured at fair value with changes in fair value recognized in net income; 2. simplify the impairment assessment of equity investments without readily-determinable fair values by requiring a qualitative assessment to identify impairment; 3. eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; 4. require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 5. require separate presentation in other comprehensive income for the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; 6. require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements; and 7. clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. This ASU was effective for annual and interim periods in fiscal years beginning after December 15, 2017. We adopted ASU No. 2016-01 as of January 1, 2018 and have concluded that the provisions of this ASU did not materially impact our Balance Sheets or Statements of Comprehensive Income. The new guidance resulted in a change in the fair value measurement of our loan portfolio as of March 31, 2018 using an exit price notion (see Note 3: Fair Value Measurements). The new guidance also resulted in a cumulative-effect adjustment of $0.9 million from AOCI to retained earnings at January 1, 2018 for net unrealized gains on our marketable equities portfolio. As a result of the new guidance, we recognized $0.3 million of net unrealized gains in our Consolidated Statements of Comprehensive Income during the six months ended June 30, 2018 on our marketable equity securities portfolio.

Accounting Standards Issued But Not Yet Adopted

Leases - Land Easement Practical Expedient for Transition to Topic 842

In January 2018, the FASB issued ASU No. 2018-01, Leases - Land Easement Practical Expedient for Transition to Topic 842. The amendments in this ASU permit an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements, that existed or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. We are evaluating the amendments in this ASU; however, we do not anticipate that these amendments will materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

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Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment (Topic 350). The main objective of this ASU is intended to simplify the current requirements for testing goodwill for impairment by eliminating step two from the goodwill impairment test. The amendments are expected to reduce the complexity and costs associated with performing the goodwill impairment test, which could result in recording impairment charges sooner than under the current guidance. This Update is effective for any interim and annual impairment tests in reporting periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are evaluating the provisions of this ASU; however, we do not anticipate that this ASU will materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments of this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as CECL, or current expected credit loss, model. This Update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have created a CECL Committee to govern the implementation of these amendments consisting of key stakeholders from Credit Administration, Finance, Risk Management and Internal Audit. We have engaged a third-party to assist us in developing our CECL methodology. We continue to evaluate the provisions of this ASU to determine the potential impact on our Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income.

Leases - Section A-Amendments to the FASB Accounting Standards Codification, Section B-Conforming Amendments Related to Leases and Section C-Background Information and Basis for Conclusions

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases on the balance sheet. Lessor accounting remains substantially similar to current GAAP. ASU No. 2016-02 supersedes Topic 840, Leases. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. ASU No. 2016-02 mandates a modified retrospective transition method for all entities. Early adoption of this ASU is permitted. We anticipate that this ASU will impact our financial statements as it relates to the recognition of right-to-use assets and lease obligations on our Consolidated Balance Sheets. We have approximately 50 lease agreements for our branch and loan production offices, which are currently accounted for as operating leases. We expect the new guidance will require these lease agreements to be included on our Consolidated Balance Sheets as right-to-use assets with a corresponding lease liability. We expect that these changes to our Consolidated Balance Sheets will impact our regulatory capital ratios. We have compiled a preliminary inventory of our leases and continue to evaluate the standard. We anticipate that this ASU will impact total assets and total liabilities presented on our Balance Sheets; however, we do not believe that it will materially impact our ~~results~~Consolidated Statements of ~~operations and financial position.~~Comprehensive Income.

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NOTE 2. EARNINGS PER SHARE

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


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except shares and per share data)	2017		2016		2017		2016
(in thousands, except share and per share data)									2018			2017			2018			2017
Numerator for Earnings per Share—Basic:
Net income	$	22,721	$	20,581	$	63,674	$	53,733		$	21,436		$	22,765		$	47,599		$	40,953
Less: Income allocated to participating shares	73		68		214		167			62			81			141			141
Net Income Allocated to Shareholders	$	22,648	$	20,513	$	63,460	$	53,566		$	21,374		$	22,684		$	47,458		$	40,812

Numerator for Earnings per Share—Diluted:
Net income	$	22,721	$	20,581	$	63,674	$	53,733		$	21,436		$	22,765		$	47,599		$	40,953
Net Income Available to Shareholders	$	22,721	$	20,581	$	63,674	$	53,733		$	21,436		$	22,765		$	47,599		$	40,953

Denominators for Earnings per Share:
Weighted Average Shares Outstanding—Basic	34,751,266		34,687,487		34,722,370		34,674,453			34,793,160			34,724,925			34,775,043			34,707,683
Add: Potentially dilutive shares	208,873		81,018		208,139		72,724			264,416			181,571			267,998			199,693
Denominator for Treasury Stock Method—Diluted	34,960,139		34,768,505		34,930,509		34,747,177			35,057,576			34,906,496			35,043,041			34,907,376

Weighted Average Shares Outstanding—Basic	34,751,266		34,687,487		34,722,370		34,674,453			34,793,160			34,724,925			34,775,043			34,707,683
Add: Average participating shares outstanding	111,821		114,746		116,969		108,414			100,212			123,729			103,449			119,585
Denominator for Two-Class Method—Diluted	34,863,087		34,802,233		34,839,339		34,782,867			34,893,372			34,848,654			34,878,492			34,827,268

Earnings per share—basic	$	0.65	$	0.59	$	1.83	$	1.55		$	0.62		$	0.66		$	1.37		$	1.18
Earnings per share—diluted	$	0.65	$	0.59	$	1.82	$	1.54		$	0.61		$	0.65		$	1.36		$	1.17
Warrants considered anti-dilutive excluded from potentially dilutive shares - exercise price $31.53 per share, expires January 2019	443,575		517,012		452,188		517,012			374,314			466,554			386,747			456,749
Restricted stock considered anti-dilutive excluded from potentially dilutive shares	92,577		146,695		95,707		134,983			89,974			126,332			76,325			105,187

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NOTE 3. FAIR VALUE ~~MEASUREMENT~~MEASUREMENTS

We use fair value measurements when recording and disclosing certain financial assets and liabilities. ~~Securities available-for-sale,~~Debt securities, equity securities, trading assets and derivative financial instruments 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, and other repossessed assets, 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 isare developed based on market data that we have obtained from independent sources. Unobservable inputs reflect our estimates 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.

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

Debt Securities Available-for-Sale

~~Securities available-for-sale include both debt and equity securities.~~ We obtain fair values for debt securities from a third-party pricing service which utilizes several sources for valuing fixed-income securities. We validate prices received from our pricing service through comparison to a secondary pricing service and broker quotes. We review the methodologies of the pricing service which ~~provides~~provide us with a sufficient understanding of the valuation models, assumptions, inputs and pricing to reasonably measure the fair value of our debt securities. The market ~~valuation~~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, ~~and~~ vast descriptive terms and conditions databases, ~~as well as~~and extensive quality control programs.

Equity Securities

Marketable equity securities that have an active, quotable market are classified as Level 1. Marketable equity securities that are quotable, but are thinly traded or inactive, are classified as Level 2. Marketable equity 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. Rabbi Trust assets are reported in other assets in the Consolidated Balance Sheets.

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NOTE 3. FAIR VALUE MEASUREMENTS – continued

Derivative Financial Instruments

We use derivative instruments, including interest rate swaps for commercial loans with our customers, interest rate lock commitments and the sale of mortgage loans in the secondary market. 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 our own nonperformance risk and the respective counterparties' 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 3.

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 specific reserves based on the following three impairment methods: 1.1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2.2) the loan’s observable market price; or 3.3) the fair value of the collateral less estimated selling costs when the loan is collateral dependent and we expect to liquidate the collateral. 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. Appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or our knowledge of the borrower and the borrower’s business. Impaired loans carried at fair value are classified as Level 3.

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 appraisal or other information available to us. OREO and other repossessed assets carried at fair value are classified as Level 3.

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. MSRs are considered impaired if the carrying value exceeds fair value. The valuation model includes significant unobservable inputs; therefore, MSRs are classified as Level 3. MSRs are reported in other assets in the Consolidated Balance Sheets and are amortized into noninterest income in the Consolidated Statements of Comprehensive Income.

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Other Assets

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. Many of these instruments lack an available trading market as characterized by a willing buyer and a 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 with respect to such financial instruments. For fair value disclosure purposes, we substantially utilize 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

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

Loans

With the adoption of ASU No. 2016-01, Accounting for Financial Instruments - Overall: Classification and Measurement, on January 1, 2018, we refined our methodology to estimate the fair value of our loan portfolio to use the exit price notion as required by the standard. The guidance was applied on a prospective basis resulting in prior-periods no longer being comparable.

The fair value of variable rate ~~performing~~ loans that may reprice frequently at short-term market rates is based on carrying values adjusted for liquidity and credit risk. The fair value of variable rate ~~performing~~ loans that reprice at intervals of one year or longer, such as adjustable rate mortgage products, is estimated using discounted cash flow analyses that utilize interest rates currently being offered for similar loans and adjusted for liquidity and credit risk. The fair value of fixed rate ~~performing~~ loans is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans ~~and~~ adjusted for liquidity and credit risk. ~~The fair value of nonperforming loans is the carrying value less any specific reserve on the loan if it is impaired. The carrying amount of accrued interest approximates fair value.~~

Bank Owned Life Insurance

Fair value approximates net cash surrender value of bank owned life ~~insurance.~~insurance, or BOLI.

Federal Home Loan Bank, or FHLB, and Other Restricted Stock

It is not practical to determine the fair value of our FHLB and other restricted stock due to the restrictions placed on the transferability of these stocks; ~~restricted stock~~it is presented at carrying 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, or REPOs, and other short-term borrowings approximate their fair values.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

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.

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~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 3. FAIR VALUE MEASUREMENTS – continued~~

Junior Subordinated Debt Securities

The interest rate on the variable rate junior subordinated debt securities is reset quarterly; therefore, the carrying values approximate their fair 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 operations.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. There were no transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.


	September 30, 2017								June 30, 2018
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS
Securities available-for-sale:
Debt securities available-for-sale:
U.S. Treasury securities	$	—	$	24,894	$	—	$	24,894	$	—	$	9,619	$	—	$	9,619
Obligations of U.S. government corporations and agencies	—		196,008		—		196,008		—		155,069		—		155,069
Collateralized mortgage obligations of U.S. government corporations and agencies	—		114,895		—		114,895		—		118,742		—		118,742
Residential mortgage-backed securities of U.S. government corporations and agencies	—		35,197		—		35,197		—		28,442		—		28,442
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		192,604		—		192,604		—		247,128		—		247,128
Obligations of states and political subdivisions	—		129,304		—		129,304		—		123,916		—		123,916
Marketable equity securities	—		5,052		—		5,052
Total securities available-for-sale	—		697,954		—		697,954
Total Debt Securities Available-for-Sale									—		682,916		—		682,916
Marketable equity securities⁽¹⁾									—		5,425		—		5,425
Total Securities									—		688,341		—		688,341
Trading securities held in a Rabbi Trust	5,039		—		—		5,039		4,988		—		—		4,988
Total securities	5,039		697,954		—		702,993
Derivative financial assets:
Interest rate swap contracts - commercial loans	—		4,814		—		4,814
Interest rate lock commitments - mortgage loans	—		452		—		452
Interest rate swaps									—		6,157		—		6,157
Interest rate lock commitments									—		398		—		398
Total Assets	$	5,039	$	703,220	$	—	$	708,259	$	4,988	$	694,896	$	—	$	699,884
LIABILITIES
Derivative financial liabilities:
Interest rate swap contracts - commercial loans	$	—	$	4,786	$	—	$	4,786
Forward sale contracts - mortgage loans	—		16		—		16
Interest rate swaps									$	—	$	6,223	$	—	$	6,223
Forward sale contracts									—		39		—		39
Total Liabilities	$	—	$	4,802	$	—	$	4,802	$	—	$	6,262	$	—	$	6,262

⁽¹⁾ASU No. 2016-01 was adopted January 1, 2018, resulting in separate classification of our marketable equity securities previously included in available-for-sale securities.

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NOTE 3. FAIR VALUE MEASUREMENTS – continued


	December 31, 2016								December 31, 2017
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS
Securities available-for-sale:
Debt securities available-for-sale:
U.S. Treasury securities	$	—	$	24,811	$	—	$	24,811	$	—	$	19,789	$	—	$	19,789
Obligations of U.S. government corporations and agencies	—		232,179		—		232,179		—		162,193		—		162,193
Collateralized mortgage obligations of U.S. government corporations and agencies	—		129,777		—		129,777		—		108,688		—		108,688
Residential mortgage-backed securities of U.S. government corporations and agencies	—		37,358		—		37,358		—		32,854		—		32,854
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		125,604		—		125,604		—		242,221		—		242,221
Obligations of states and political subdivisions	—		132,509		—		132,509		—		127,402		—		127,402
Total Debt Securities Available-for-Sale									—		693,147		—		693,147
Marketable equity securities	—		11,249		—		11,249		—		5,144		—		5,144
Total securities available-for-sale	—		693,487		—		693,487
Total Securities									—		698,291		—		698,291
Trading securities held in a Rabbi Trust	4,410		—		—		4,410		5,080		—		—		5,080
Total securities	4,410		693,487		—		697,897
Derivative financial assets:
Interest rate swap contracts - commercial loans	—		6,960		—		6,960
Interest rate lock commitments - mortgage loans	—		236		—		236
Interest rate swaps									—		3,074		—		3,074
Interest rate lock commitments									—		226		—		226
Total Assets	$	4,410	$	700,683	$	—	$	705,093	$	5,080	$	701,591	$	—	$	706,671
LIABILITIES
Derivative financial liabilities:
Interest rate swap contracts - commercial loans	$	—	$	6,958	$	—	$	6,958
Forward sale contracts - mortgage loans	—		27		—		27
Interest rate swaps									$	—	$	3,055	$	—	$	3,055
Forward sale contracts									—		5		—		5
Total Liabilities	$	—	$	6,985	$	—	$	6,985	$	—	$	3,060	$	—	$	3,060

⁽¹⁾ASU No. 2016-01 was adopted January 1, 2018, resulting in separate classification of our marketable equity securities previously included in available-for-sale securities.

We classify financial instruments as Level 3 when valuation models are used because significant inputs are not observable in the market.

We may be required to measure certain assets and liabilities at fair value on a nonrecurring basis. Nonrecurring assets are recorded at the lower of cost or fair value in our financial statements. There were no liabilities measured at fair value on a nonrecurring basis at either ~~September~~June 30, ~~2017~~2018 or December 31, ~~2016.~~ 2017.

The following table presents our assets that are measured at fair value on a nonrecurring basis by the fair value hierarchy level as of the dates presented:


	September 30, 2017								December 31, 2016									June 30, 2018								December 31, 2017
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS⁽¹⁾
Loans held for sale	$	—	$	—	$	—	$	—	$	—	$	—	$	1,802	$	1,802
Impaired loans	—		—		11,407		11,407		—		—		10,329		10,329			$	—	$	—	$	5,487	$	5,487	$	—	$	—	$	6,759	$	6,759
Other real estate owned	—		—		718		718		—		—		396		396			—		—		2,719		2,719		—		—		444		444
Mortgage servicing rights	—		—		481		481		—		—		538		538			—		—		89		89		—		—		178		178
Total Assets	$	—	$	—	$	12,606	$	12,606	$	—	$	—	$	13,065	$	13,065		$	—	$	—	$	8,295	$	8,295	$	—	$	—	$	7,381	$	7,381
⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.	⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.																⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

The carrying values and fair values of our financial instruments at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 are presented in the following tables:


	Carrying Value⁽¹⁾		Fair Value Measurements at September 30, 2017								Carrying Value⁽¹⁾		Fair Value Measurements at June 30, 2018
(dollars in thousands)			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	114,440	$	114,400	$	114,400	$	—	$	—	$	137,933	$	137,933	$	137,933	$	—	$	—
Securities available-for-sale	697,954		697,954		—		697,954		—
Securities											688,341		688,341		—		688,341		—
Loans held for sale	47,936		48,045		—		—		48,045		3,801		3,927		—		—		3,927
Portfolio loans, net of unearned income	5,820,758		5,758,326		—		—		5,758,326
Portfolio loans, net											5,725,601		5,558,333		—		—		5,558,333
Bank owned life insurance	71,639		71,639		—		71,639		—		73,122		73,122		—		73,122		—
FHLB and other restricted stock	33,120		33,120		—		—		33,120		35,782		35,782		—		—		35,782
Trading securities held in a Rabbi Trust	5,039		5,039		5,039		—		—		4,988		4,988		4,988		—		—
Mortgage servicing rights	3,992		4,286		—		—		4,286		4,296		5,198		—		—		5,198
Interest rate swap contracts - commercial loans	4,814		4,814		—		4,814		—
Interest rate lock commitments - mortgage loans	452		452		—		452		—
Interest rate swaps											6,157		6,157		—		6,157		—
Interest rate lock commitments											398		398		—		398		—
LIABILITIES
Deposits	$	5,443,240	$	5,448,025	$	—	$	—	$	5,448,025	$	5,393,533	$	5,378,467	$	—	$	—	$	5,378,467
Securities sold under repurchase agreements	39,923		39,923		—		—		39,923		44,724		44,724		—		—		44,724
Short-term borrowings	685,000		685,000		—		—		685,000		600,000		600,000		—		—		600,000
Long-term borrowings	12,911		13,318		—		—		13,318		46,062		46,226		—		—		46,226
Junior subordinated debt securities	45,619		45,619		—		—		45,619		45,619		45,619		—		—		45,619
Interest rate swap contracts - commercial loans	4,786		4,786		—		4,786		—
Forward sale contracts - mortgage loans	16		16		—		16		—
Interest rate swaps											6,223		6,223		—		6,223		—
Forward sales contracts											39		39		—		39		—
⁽¹⁾ As reported in the Consolidated Balance Sheets


	Carrying Value⁽¹⁾		Fair Value Measurements at December 31, 2016								Carrying Value⁽¹⁾		Fair Value Measurements at December 31, 2017
(dollars in thousands)			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	139,486	$	139,486	$	139,486	$	—	$	—	$	117,152	$	117,152	$	117,152	$	—	$	—
Securities available-for-sale	693,487		693,487		—		693,487		—
Securities											698,291		698,291		—		698,291		—
Loans held for sale	3,793		3,815		—		—		3,815		4,485		4,583		—		—		4,583
Portfolio loans, net of unearned income	5,611,419		5,551,266		—		—		5,551,266
Portfolio loans, net											5,705,059		5,690,292		—		—		5,690,292
Bank owned life insurance	72,081		72,081		—		72,081		—		72,150		72,150		—		72,150		—
FHLB and other restricted stock	31,817		31,817		—		—		31,817		29,270		29,270		—		—		29,270
Trading securities held in a Rabbi Trust	4,410		4,410		4,410		—		—		5,080		5,080		5,080		—		—
Mortgage servicing rights	3,744		4,098		—		—		4,098		4,133		4,571		—		—		4,571
Interest rate swap contracts - commercial loans	6,960		6,960		—		6,960		—
Interest rate lock commitments - mortgage loans	236		236		—		236		—
Interest rate swaps											3,074		3,074		—		3,074		—
Interest rate lock commitments											226		226		—		226		—
LIABILITIES
Deposits	$	5,272,377	$	5,276,499	$	—	$	—	$	5,276,499	$	5,427,891	$	5,426,928	$	—	$	—	$	5,426,928
Securities sold under repurchase agreements	50,832		50,832		—		—		50,832		50,161		50,161		—		—		50,161
Short-term borrowings	660,000		660,000		—		—		660,000		540,000		540,000		—		—		540,000
Long-term borrowings	14,713		15,267		—		—		15,267		47,301		47,618		—		—		47,618
Junior subordinated debt securities	45,619		45,619		—		—		45,619		45,619		45,619		—		—		45,619
Interest rate swap contracts - commercial loans	6,958		6,958		—		6,958		—
Forward sale contracts - mortgage loans	27		27		—		27		—
⁽¹⁾ As reported in the Consolidated Balance Sheets
Interest rate swaps											3,055		3,055		—		3,055		—
Forward sales contracts											5		5		—		5		—
⁽¹⁾ As reported in the Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES ~~AVAILABLE-FOR-SALE~~

The following table presents the fair values of our securities portfolio at the dates presented:



(dollars in thousands)	June 30, 2018			December 31, 2017
Debt securities available for sale		$	682,916		$	693,147
Marketable equity securities		5,425			5,144
Total Securities		$	688,341		$	698,291

Debt Securities Available for Sale

The following tables present the amortized cost and fair value of debt securities available for sale as of June 30, 2018 and debt and equity securities available for sale as of December 31, 2017:



	June 30, 2018													December 31, 2017
(dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
U.S. Treasury securities		$	9,953		$	—		$	(334	)		$	9,619		$	19,943		$	—		$	(154	)		$	19,789
Obligations of U.S. government corporations and agencies		156,812			16			(1,759		)		155,069			162,045			341			(193		)		162,193
Collateralized mortgage obligations of U.S. government corporations and agencies		121,631			61			(2,950		)		118,742			109,916			93			(1,321		)		108,688
Residential mortgage-backed securities of U.S. government corporations and agencies		28,662			309			(529		)		28,442			32,388			679			(213		)		32,854
Commercial mortgage-backed securities of U.S. government corporations and agencies ⁽¹⁾		254,458			—			(7,330		)		247,128			244,018			247			(2,044		)		242,221
Obligations of states and political subdivisions		121,492			2,472			(48		)		123,916			123,159			4,285			(42		)		127,402
Total Debt Securities Available-for-Sale		693,008			2,858			(12,950		)		682,916			691,469			5,645			(3,967		)		693,147
Total equity securities⁽²⁾		—			—			—				—			3,815			1,330			(1		)		5,144
Total Securities		$	693,008		$	2,858		$	(12,950	)		$	682,916		$	695,284		$	6,975		$	(3,968	)		$	698,291

⁽¹⁾ Includes a $5.9 million security purchase that was pending settlement as of December 31, 2017.

⁽²⁾ ASU No. 2016-01 was adopted January 1, 2018, resulting in separate classification of our marketable equity securities previously included in available-for-sale securities.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES – continued

The following tables present the fair value and the age of gross unrealized losses on debt securities available for sale by investment category as of the dates presented:


																			June 30, 2018
	September 30, 2017									December 31, 2016									Less Than 12 Months								12 Months or More								Total
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Number of Securities		Fair Value		Unrealized Losses				Number of Securities		Fair Value		Unrealized Losses				Number of Securities		Fair Value		Unrealized Losses
U.S. treasury securities	$	24,930	$	2	$	(38	)	$	24,894	$	24,891	$	47	$	(127	)	$	24,811
U.S. Treasury securities																				1	$	9,618		$	(334	)		—	$	—		$	—			1	$	9,618		$	(334	)
Obligations of U.S. government corporations and agencies	195,194		1,171		(357		)	196,008		230,989		1,573		(383		)	232,179			16	129,180			(1,728		)		2	10,993			(31		)		18	140,173			(1,759		)
Collateralized mortgage obligations of U.S. government corporations and agencies	115,027		476		(608		)	114,895		130,046		465		(734		)	129,777			10	66,019			(1,067		)		7	41,018			(1,883		)		17	107,037			(2,950		)
Residential mortgage-backed securities of U.S. government corporations and agencies	34,452		896		(151		)	35,197		36,606		984		(232		)	37,358			3	4,803			(131		)		2	7,721			(398		)		5	12,524			(529		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	193,382		511		(1,289		)	192,604		127,311		243		(1,950		)	125,604			22	199,634			(5,190		)		5	47,494			(2,140		)		27	247,128			(7,330		)
Obligations of states and political subdivisions	123,672		5,632		—			129,304		128,783		3,772		(46		)	132,509			5	23,109			(48		)		—	—			—				5	23,109			(48		)
Debt Securities	686,657		8,688		(2,443		)	692,902		678,626		7,084		(3,472		)	682,238
Marketable equity securities	3,815		1,237		—			5,052		7,579		3,670		—			11,249
Total	$	690,472	$	9,925	$	(2,443	)	$	697,954	$	686,205	$	10,754	$	(3,472	)	$	693,487
Total Temporarily Impaired Debt Securities																				57	$	432,363		$	(8,498	)		16	$	107,226		$	(4,452	)		73	$	539,589		$	(12,950	)



	December 31, 2017
	Less Than 12 Months						12 Months or More						Total
(dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
U.S. Treasury securities	3	$	19,789	$	(154	)	—	$	—	$	—		3	$	19,789	$	(154	)
Obligations of U.S. government corporations and agencies	9	63,635		(144		)	1	10,017		(49		)	10	73,652		(193		)
Collateralized mortgage obligations of U.S. government corporations and agencies	7	47,465		(248		)	7	45,809		(1,073		)	14	93,274		(1,321		)
Residential mortgage-backed securities of U.S. government corporations and agencies	1	2,333		(10		)	2	8,638		(203		)	3	10,971		(213		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	14	128,300		(775		)	5	48,746		(1,269		)	19	177,046		(2,044		)
Obligations of states and political subdivisions	2	10,330		(42		)	—	—		—			2	10,330		(42		)
Total Temporarily Impaired Debt Securities	36	$	271,852	$	(1,373	)	15	$	113,210	$	(2,594	)	51	$	385,062	$	(3,967	)

We do not believe any individual unrealized loss as of June 30, 2018 represents an other than temporary impairment, or OTTI. At June 30, 2018 there were 73 debt securities and at December 31, 2017 there were 51 debt securities in an unrealized loss position. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities were determined to be investment grade and paying principal and interest according to the contractual terms of the security. We do not intend to sell and it is more likely than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES ~~AVAILABLE-FOR-SALE~~ – continued

~~The following tables present the fair value and the age of gross unrealized losses by investment category as of the dates presented:~~

September 30, 2017
Less Than 12 Months 12 Months or More Total
(dollars in thousands) Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
U.S. Treasury securities 2 $ 14,903
$ (38 ) — $ —
$ —
2 $ 14,903
$ (38 )
Obligations of U.S. government corporations and agencies 8 72,102
(357 ) — —
—
8 72,102
(357 )
Collateralized mortgage obligations of U.S. government corporations and agencies 8 62,408
(608 ) — —
—
8 62,408
(608 )
Residential mortgage-backed securities of U.S. government corporations and agencies 2 9,071
(151 ) — —
—
2 9,071
(151 )
Commercial mortgage-backed securities of U.S. government corporations and agencies 10 100,322
(1,057 ) 1 7,586
(232 ) 11 107,908
(1,289 )
Obligations of states and political subdivisions — —
—
— —
—
— —
—
Debt Securities 30 258,806
(2,211 ) 1 7,586
(232 ) 31 266,392
(2,443 )
Marketable equity securities — —
—
— —
—
— —
—
Total Temporarily Impaired Securities 30 $ 258,806
$ (2,211 ) 1 $ 7,586
$ (232 ) 31 $ 266,392
$ (2,443 )

December 31, 2016
Less Than 12 Months 12 Months or More Total
(dollars in thousands) Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
U.S. Treasury securities 1 $ 9,811
$ (127 ) — $ —
$ —
1 $ 9,811
$ (127 )
Obligations of U.S. government corporations and agencies 7 62,483
(383 ) — —
—
7 62,483
(383 )
Collateralized mortgage obligations of U.S. government corporations and agencies 10 83,031
(734 ) — —
—
10 83,031
(734 )
Residential mortgage-backed securities of U.S. government corporations and agencies 2 10,022
(232 ) — —
—
2 10,022
(232 )
Commercial mortgage-backed securities of U.S. government corporations and agencies 10 96,576
(1,950 ) — —
—
10 96,576
(1,950 )
Obligations of states and political subdivisions 1 5,577
(46 ) — —
—
1 5,577
(46 )
Debt Securities 31 267,500
(3,472 ) — —
—
31 267,500
(3,472 )
Marketable equity securities — —
—
— —
—
— —
—
Total Temporarily Impaired Securities 31 $ 267,500
$ (3,472 ) — $ —
$ —
31 $ 267,500
$ (3,472 )

We do not believe any individual unrealized loss as of September 30, 2017 represents an other than temporary impairment, or OTTI. At September 30, 2017 and December 31, 2016 there were 31 debt securities in an unrealized loss position. There were no marketable equity securities at September 30, 2017 and December 31, 2016 with unrealized losses. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities are determined to be investment grade and are paying principal and interest according to the contractual terms of the security. We do not intend to sell and it is not more likely than not that we will be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.

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~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 4. SECURITIES AVAILABLE-FOR-SALE – continued~~

The following table ~~displays~~presents net unrealized gains and losses, net of tax, on debt securities ~~available for sale~~available-for-sale included in accumulated other comprehensive income/(loss)~~/income,~~, for the periods presented:

September 30, 2017 December 31, 2016
(dollars in thousands) Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gains/ (Losses)
Gross Unrealized Gains
Gross Unrealized Losses
Net Unrealized Gains/ (Losses)
Total unrealized gains/(losses) on securities available-for-sale $ 9,925
$ (2,443 ) $ 7,482
$ 10,754
$ (3,472 ) $ 7,282
Income tax expense/(benefit) (3,485 ) 858
(2,627 ) (3,776 ) 1,219
(2,557 )
Net unrealized gains/(losses), net of tax included in accumulated other comprehensive income/(loss) $ 6,440
$ (1,585 ) $ 4,855
$ 6,978
$ (2,253 ) $ 4,725



	June 30, 2018									December 31, 2017
(dollars in thousands)	Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/ (Losses)			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/ (Losses)
Total unrealized gains (losses) on debt securities available-for-sale	$	2,858		$	(12,950	)	$	(10,092	)	$	5,645		$	(3,967	)	$	1,678
Income tax (expense) benefit	(607		)	2,750			2,143			(1,982		)	1,393			(589		)
Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)	$	2,251		$	(10,200	)	$	(7,949	)	$	3,663		$	(2,574	)	$	1,089

The amortized cost and fair value of debt securities available-for-sale at ~~September~~June 30, ~~2017~~2018 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.


	September 30, 2017				June 30, 2018
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of the U.S. Treasury, U.S. government corporations and agencies, and obligations of states and political subdivisions
Due in one year or less	$	63,576	$	63,646	$	33,878	$	33,888
Due after one year through five years	177,864		180,087		152,588		152,374
Due after five years through ten years	56,875		58,890		73,099		72,961
Due after ten years	45,481		47,583		28,692		29,381
	343,796		350,206		288,257		288,604
Collateralized mortgage obligations of U.S. government corporations and agencies	115,027		114,895		121,631		118,742
Residential mortgage-backed securities of U.S. government corporations and agencies	34,452		35,197		28,662		28,442
Commercial mortgage-backed securities of U.S. government corporations and agencies	193,382		192,604		254,458		247,128
Debt Securities	686,657		692,902
Marketable equity securities	3,815		5,052
Total	$	690,472	$	697,954
Total Debt Securities Available-for-Sale					$	693,008	$	682,916

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, debt securities with carrying values of ~~$274~~$231 million and ~~$342~~$249 million were pledged for various regulatory and legal requirements.

Marketable Equity Securities

The following table presents realized and unrealized net gains and losses for our marketable equity securities for the periods presented:



	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2018		2017		2018		2017
Marketable Equity Securities
Net market gains/(losses) recognized	$	230	$	4,121	$	282	$	5,224
Less: Net gains/(losses) recognized for equity securities sold	—		3,617		—		3,987
Unrealized Gains/(Losses) on Equity Securities Still Held	$	230	$	504	$	282	$	1,237

Prior to January 1, 2018, net unrealized gains and losses, net of tax, on marketable equity securities were included in AOCI for the periods presented. Net unrealized gains and losses, net of tax on marketable equity securities of $0.9 million were reclassified from AOCI to retained earnings at January 1, 2018.

2019

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of ~~$3.6~~$5.4 million and $5.2 million at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016 and net of a discount related to purchase accounting fair value adjustments of $4.6 million and $7.1 million at September 30, 2017 and December 31, 2016.~~ 2017.

The following table indicates the composition of loans as of the dates presented:


(dollars in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Commercial
Commercial real estate	$	2,681,693	$	2,498,476	$	2,788,641	$	2,685,994
Commercial and industrial	1,446,811		1,401,035		1,455,578		1,433,266
Commercial construction	432,887		455,884		299,787		384,334
Total Commercial Loans	4,561,391		4,355,395		4,544,006		4,503,594
Consumer
Residential mortgage	697,367		701,982		698,440		698,774
Home equity	487,806		482,284		471,622		487,326
Installment and other consumer	69,644		65,852		66,638		67,204
Consumer construction	4,550		5,906		5,412		4,551
Total Consumer Loans	1,259,367		1,256,024		1,242,112		1,257,855
Total Portfolio Loans	5,820,758		5,611,419		5,786,118		5,761,449
Loans held for sale	47,936		3,793		3,801		4,485
Total Loans	$	5,868,694	$	5,615,212	$	5,789,919	$	5,765,934

As of September 30, 2017, our acquired loans from the 2015 Integrity Bancshares, Inc. merger, or the Merger, were $415 million which included $219 million of Commercial Real Estate, or CRE, $103 million of Commercial & Industrial, or C&I, $15 million of commercial construction, $60 million of residential mortgage and $18 million of home equity, installment and other consumer construction. As of December 31, 2016 acquired loans were $543 million which included $273 million of CRE, $141 million of C&I, $33.0 million of commercial construction, $74.0 million of residential mortgage and $22.0 million of home equity, installment and other consumer construction.

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we ~~monitor~~mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. Total commercial loans represented 7879 percent of total portfolio loans at ~~September~~June 30, ~~2017~~2018 and 78 percent at December 31, ~~2016.~~2017. Within our commercial portfolio, the Commercial Real Estate, or CRE, and ~~commercial construction~~Commercial Construction portfolios combined comprised $3.1 ~~billion~~ ~~or 68 percent of total commercial loans and 54 percent of total portfolio loans at September 30, 2017 and comprised of $3.0~~ billion or 68 percent of total commercial loans and 53 percent of total portfolio loans at both June 30, 2018 and at December 31, ~~2016.~~2017. Further segmentation of the CRE and Commercial Construction portfolios by collateral type reveals no concentration in excess of 1413 percent of both total CRE and Commercial Construction loans at ~~September~~June 30, ~~2017~~2018 and 14 percent at December 31, ~~2016.~~2017.

Our market area includes Pennsylvania and the contiguous states of Ohio, West Virginia, New York and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this market area, resulting in a ~~regional~~ geographic concentration. We believe our knowledge and familiarity with customers and conditions locally outweighs this geographic concentration risk. The conditions of the local and regional economies are monitored closely through publicly available data ~~as well as~~and information supplied by our customers. Our CRE and Commercial Construction portfolios have out-of-market exposure of ~~5.1~~5.3 percent of ~~the total CRE and Commercial Construction~~their combined portfolios and ~~2.7~~2.8 percent of total portfolio loans at ~~September~~June 30, ~~2017.~~2018. This compares to 5.2 percent of ~~the total CRE and Commercial Construction~~their combined portfolios and ~~2.7~~2.8 percent of total portfolio loans at December 31, ~~2016.~~

~~The increase in loans held for sale of $44.1 million related to $43.4 million of loans that were held for sale due to a branch sale that is expected to close in the fourth quarter of~~ 2017.

We individually evaluate all substandard commercial loans that have experienced a forbearance or change in terms agreement, ~~as well as~~and all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan, to determine if they should be designated as troubled debt restructurings, or TDRs.

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.

2120

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued

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.

The following table summarizes restructured loans as of the dates presented:


	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	2,618	$	1,083	$	3,701	$	2,994	$	646	$	3,640	$	2,136	$	925	$	3,061	$	2,579	$	967	$	3,546
Commercial and industrial	4,063		3,580		7,643		1,387		4,493		5,880		14,149		2,599		16,748		3,946		3,197		7,143
Commercial construction	2,914		421		3,335		2,966		430		3,396		2,400		410		2,810		2,420		2,413		4,833
Residential mortgage	2,096		4,095		6,191		2,375		5,068		7,443		2,157		1,924		4,081		2,039		3,585		5,624
Home equity	3,871		1,013		4,884		3,683		954		4,637		3,569		1,536		5,105		3,885		979		4,864
Installment and other consumer	43		11		54		18		7		25		43		1		44		32		9		41
Total	$	15,605	$	10,203	$	25,808	$	13,423	$	11,598	$	25,021	$	24,454	$	7,395	$	31,849	$	14,901	$	11,150	$	26,051

There were no TDRs that returned to accruing status during the three and six months ended ~~September~~June 30, ~~2017 and~~2018. There was one TDR ~~totaling $2.0 million,~~ that returned to accruing status ~~during the nine months ended September 30, 2017. There were no TDRs returned to accruing status~~totaling $2.0 million during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued

The following tables present ~~details related to~~the restructured loans ~~identified as TDRs during~~by loan segment and by type of concession for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended September 30, 2017								Three months ended September 30, 2016								Three Months Ended June 30, 2018								Three Months Ended June 30, 2017
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
Totals by Loan Segment
Commercial real estate
Interest rate reduction	—	—		—		—			1	248		250		2
Principal deferral																	—	$	—	$	—	$	—		1	$	100	$	100	$	—
Total Commercial Real Estate																	—	—		—		—			1	100		100		—
Commercial and industrial
Maturity date extension and interest rate reduction																	—	—		—		—			2	1,800		1,800		—
Principal deferral																	3	4,815		5,034		219			1	429		429		—
Total Commercial and Industrial																	3	4,815		5,034		219			3	2,229		2,229		—
Commercial Construction																		.
Total Commercial Construction																	—	—		—		—			—	—		—		—
Residential mortgage
Chapter 7 bankruptcy⁽²⁾																	1	41		41		—			1	33		33		—
Total Residential Mortgage																	1	41		41		—			1	33		33		—
Home equity
Chapter 7 bankruptcy⁽²⁾																	2	26		26		—			3	40		38		(2		)
Maturity date extension	1	400		400		—			—	—		—		—			—	—		—		—			1	231		231		—
Commercial and industrial
Maturity date extension	1	274		816		542			2	4,105		4,162		57
Residential mortgage
Chapter 7 bankruptcy(2)	1	148		—		(148		)	3	153		152		(1		)
Maturity date extension and interest rate reduction	—	—		—		—			1	280		280		—			2	47		47		—			—	—		—		—
Home equity
Chapter 7 bankruptcy(2)	4	72		70		(2		)	7	163		161		(2		)
Total Home Equity																	4	73		73		—			4	271		269		(2		)
Installment and other consumer
Chapter 7 bankruptcy(2)	8	200		185		(15		)	—	—		—		—
Total by Concession Type
Chapter 7 bankruptcy(2)	13	420		255		(165		)	10	316		313		(3		)
Interest rate reduction	—	—		—		—			1	248		250		2
Chapter 7 bankruptcy⁽²⁾																	2	8		7		(1		)	2	37		34		(3		)
Total Installment and Other Consumer																	2	8		7		(1		)	2	37		34		(3		)
Totals by Concession Type
Chapter 7 bankruptcy⁽²⁾																	5	75		74		(1		)	6	110		105		$	(5	)
Maturity date extension and interest rate reduction	—	—		—		—			1	280		280		—			2	47		47		—			2	1,800		1,800		—
Maturity date extension	2	674		1,216		542			2	4,105		4,162		57			—	—		—		—			1	231		231		—
Principal deferral																	3	4,815		5,034		219			2	529		529		—
Total	15	$	1,094	$	1,471	$	377		14	$	4,949	$	5,005	$	56		10	$	4,937	$	5,155	$	218		11	$	2,670	$	2,665	$	(5	)
(1) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. (2) Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.	(1) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. (2) Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.																⁽¹⁾ Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. ⁽²⁾ Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued


	Nine Months Ended September 30, 2017								Nine Months Ended September 30, 2016								Six Months Ended June 30, 2018								Six Months Ended June 30, 2017
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
Totals by Loan Segment
Commercial real estate
Principal deferral	1	$	100	$	100	$	—		1	$	4,721	$	2,270	$	(2,451	)	—	$	—	$	—	$	—		1	$	100	$	100	$	—
Total Commercial Real Estate																	—	—		—		—			1	100		100		—
Commercial and industrial
Maturity date extension																	2	768		582		(186		)	—	—		—		—
Maturity date extension and interest rate reduction																	—	—		—		—			2	1,800		1,800		—
Principal deferral																	3	4,815		5,034		219			1	429		429		—
Principal deferral and maturity date extension																	6	5,355		5,229		(126		)	—	—		—		—
Total Commercial and Industrial																	11	10,938		10,845		(93		)	3	2,229		2,229		—
Commercial Construction																		.
Total Commercial Construction																	—	—		—		—			—	—		—		—
Residential mortgage
Chapter 7 bankruptcy⁽²⁾	—	—		—		—			1	709		681		(28		)	3	199		196		(3		)	1	33		33		—
Interest rate reduction	—	—		—		—			1	250		248		(2		)
Maturity date extension	1	400		400		—			—	—		—		—
Commercial and industrial
Principal deferral	1	429		429		—			5	985		985		—
Maturity Date extension and interest rate reduction	2	1,799		1,799		—			—	—		—		—
Maturity date extension	1	274		816		542			5	4,860		4,891		31
Commercial Construction
Maturity date extension	—	—		—		—			5	1,357		1,302		(55		)
Residential mortgage
Principal deferral	—	—		—		—			1	3,273		3,273		—
Total Residential Mortgage																	3	199		196		(3		)	1	33		33		—
Home equity
Chapter 7 bankruptcy⁽²⁾	2	181		32		(149		)	7	439		433		(6		)	11	605		574		(31		)	9	309		304		(5		)
Maturity date extension	—	—		—		—			1	483		483		—			—	—		—		—			1	231		231		—
Maturity date extension and interest rate reduction	—	—		—		—			1	280		280		—			2	47		47		—			1	173		172		(1		)
Home equity
Principal deferral	—	—		—		—			1	47		46		(1		)
Chapter 7 bankruptcy⁽²⁾	13	380		375		(5		)	16	481		470		(11		)
Maturity date extension and interest rate reduction	1	173		120		(53		)	1	130		128		(2		)
Maturity date extension	1	231		231		—			4	274		272		(2		)
Total Home Equity																	13	652		621		(31		)	11	713		707		(6		)
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾	10	237		220		(17		)	2	16		13		(3		)	4	25		23		(2		)	2	37		34		(3		)
Total by Concession Type
Total Installment and Other Consumer																	4	25		23		(2		)	2	37		34		(3		)
Totals by Concession Type
Chapter 7 bankruptcy⁽²⁾																	18	829		793		(36		)	12	379		371		(8		)
Maturity date extension																	2	768		582		(186		)	1	231		231		—
Maturity date extension and interest rate reduction																	2	47		47		—			3	1,973		1,972		(1		)
Principal deferral	2	529		529		—			8	9,026		6,574		(2,452		)	3	4,815		5,034		219			2	529		529		—
Chapter 7 bankruptcy⁽²⁾	25	798		627		(171		)	26	1,645		1,597		(48		)
Interest rate reduction	—	—		—		—			1	250		248		(2		)
Maturity date extension and interest rate reduction	3	1,972		1,919		(53		)	2	410		408		(2		)
Maturity date extension	3	905		1,447		542			15	6,974		6,948		(26		)
Principal deferral and maturity date extension																	6	5,355		5,229		(126		)	—	—		—		—
Total	33	$	4,204	$	4,522	$	318		52	$	18,305	$	15,775	$	(2,530	)	31	$	11,814	$	11,685	$	(129	)	18	$	3,112	$	3,103	$	(9	)
⁽¹⁾ Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. ⁽²⁾ Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.	⁽¹⁾ Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. ⁽²⁾ Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.																⁽¹⁾ Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. ⁽²⁾ Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.

~~For~~As of June 30, 2018, we had seven commitments to lend an additional $5.6 million on TDRs. Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. There were no TDRs that defaulted during the three and six months ended ~~September~~June 30, 2017, we modified one CRE loan totaling $1.0 million that was not considered to be a TDR. For the nine months ended September 30, 2017, we modified 13 loans totaling $11.8 million of which nine were C&I loans totaling $10.3 million2018 and ~~four CRE loans totaling $1.5 million~~2017 that were ~~not considered~~restructured within the last 12 months prior to be TDRs. The 2017 modifications primarily represented insignificant delays in the timing of payments, concessions where we were adequately compensated through principal pay downs, fees or additional collateral or we concluded that no concession was granted. These modifications compare to 12 C&I loans totaling $16.9 million and one CRE loan totaling $1.9 million for the three months ended September 30, 2016 and 15 C&I loans totaling $25.6 million and two CRE loans totaling $2.5 million for the nine months ended September 30, 2016 that were not considered to be TDRs. The 2016 modifications were administrativedefaulting.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued

~~extensions of maturity dates that were determined not to be a concession. As of September 30, 2017, we had no commitments to lend additional funds on TDRs.~~

Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. There were no TDRs that defaulted during the three and nine months ended September 30, 2017 and September 30, 2016.

The following table is a summary of nonperforming assets as of the dates presented:


	Nonperforming Assets				Nonperforming Assets
(dollars in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Nonperforming Assets
Nonaccrual loans	$	19,290	$	31,037	$	13,977	$	12,788
Nonaccrual TDRs	10,203		11,598		7,395		11,150
Total nonaccrual loans	29,493		42,635
Total Nonaccrual Loans					21,372		23,938
OREO	1,033		679		2,999		469
Total Nonperforming Assets	$	30,526	$	43,314	$	24,371	$	24,407

~~Table of Contents~~Other real estate owned, or OREO increased $2.5 million since December 31, 2017. This increase is related to two land lots that are no longer intended to be future branch locations. These land lots were reclassified from other assets to OREO during the three months ended March 31, 2018.

~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

NOTE 6. ALLOWANCE FOR LOAN LOSSES

We maintain an allowance for loan losses, or ~~ALL,~~ALLL, at a level determined to be adequate to absorb estimated probable credit losses inherent inwithin the loan portfolio as of the balance sheet date. We develop and document a systematic ~~ALL~~ALLL methodology based on the following portfolio segments: 1.1) CRE, 2.2) Commercial and Industrial, or C&I, 3.3) Commercial Construction, 4.4) Consumer Real Estate and 5.5) Other Consumer.

The following are key risks within each portfolio segment:

CRE—Loans secured by commercial purpose real estate, including both ~~owner occupied~~owner-occupied properties and investment properties for various purposes such as hotels, strip malls and apartments. Operations of the individual projects ~~as well as~~and 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~~and the business prospects of the lessee, if the project is not ~~owner occupied.~~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 ~~does~~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 period, 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. 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 residential mortgages, 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 segment 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 loans and 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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

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, lien position and loan to value, or LTV, for Consumer Real Estate loans. Historical loss rates are applied to these loan pools to determine the reserve for loans collectively evaluated for impairment.

The ~~ALL~~ALLL methodology for groups of loans collectively evaluated for impairment is comprised of both a quantitative and qualitative analysis. A key assumption in the quantitative component of the reserve is the loss emergence ~~period, or LEP.~~period. The LEP is an estimate of the average amount of time from the point at which a loss is incurred on a loan to the point at which the loss is confirmed. Another key assumption is the look-back period ~~or LBP,~~ which represents the historical data period utilized to calculate loss rates.

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.

~~Table of Contents~~

~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued~~

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

September 30, 2017
(dollars in thousands) Current
30-59 Days
Past Due

60-89 Days
Past Due
Nonaccrual
Total Past
Due
Total Loans
Commercial real estate $ 2,674,171
$ 530
$ 421
$ 6,571
$ 7,522
$ 2,681,693
Commercial and industrial 1,438,224
499
739
7,349
8,587
1,446,811
Commercial construction 428,744
75
—
4,068
4,143
432,887
Residential mortgage 684,848
3,872
865
7,782
12,519
697,367
Home equity 482,000
1,616
515
3,675
5,806
487,806
Installment and other consumer 69,316
228
52
48
328
69,644
Consumer construction 4,550
—
—
—
—
4,550
Loans held for sale 47,936
—
—
—
—
47,936
Total $ 5,829,789
$ 6,820
$ 2,592
$ 29,493
$ 38,905
$ 5,868,694


	December 31, 2016												June 30, 2018
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Nonaccrual		Total Past Due		Total Loans		Current		30-59 Days Past Due		60-89 Days Past Due		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	2,479,513	$	2,032	$	759	$	16,172	$	18,963	$	2,498,476	$	2,781,239	$	2,473	$	312	$	4,617	$	7,402	$	2,788,641
Commercial and industrial	1,391,475		1,061		428		8,071		9,560		1,401,035		1,450,174		432		119		4,853		5,404		1,455,578
Commercial construction	450,410		547		—		4,927		5,474		455,884		297,849		68		—		1,870		1,938		299,787
Residential mortgage	689,635		1,312		1,117		9,918		12,347		701,982		689,751		1,445		1,132		6,112		8,689		698,440
Home equity	476,866		1,470		509		3,439		5,418		482,284		465,261		1,906		584		3,871		6,361		471,622
Installment and other consumer	65,525		176		43		108		327		65,852		66,371		172		46		49		267		66,638
Consumer construction	5,906		—		—		—		—		5,906		5,412		—		—		—		—		5,412
Loans held for sale	3,793		—		—		—		—		3,793		3,801		—		—		—		—		3,801
Total	$	5,563,123	$	6,598	$	2,856	$	42,635	$	52,089	$	5,615,212	$	5,759,858	$	6,496	$	2,193	$	21,372	$	30,061	$	5,789,919



	December 31, 2017
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	2,681,395	$	997	$	134	$	3,468	$	4,599	$	2,685,994
Commercial and industrial	1,426,754		420		446		5,646		6,512		1,433,266
Commercial construction	377,968		2,473		20		3,873		6,366		384,334
Residential mortgage	687,195		2,975		1,439		7,165		11,579		698,774
Home equity	480,956		2,065		590		3,715		6,370		487,326
Installment and other consumer	66,770		193		170		71		434		67,204
Consumer construction	4,551		—		—		—		—		4,551
Loans held for sale	4,485		—		—		—		—		4,485
Total	$	5,730,074	$	9,123	$	2,799	$	23,938	$	35,860	$	5,765,934

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 or substandard.

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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

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.

~~Table of Contents~~

~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued~~

The following tables present the recorded investment in commercial loan classes by internally assigned risk ratings as of the dates presented:


	September 30, 2017																June 30, 2018
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total		Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	2,587,393	96.5	%	$	1,354,269	93.6	%	$	411,379	95.0	%	$	4,353,041	95.4	%	$	2,636,581	94.5	%	$	1,337,331	91.9	%	$	272,433	90.9	%	$	4,246,345	93.4	%
Special mention	55,218		2.1	%	53,853		3.7	%	11,503		2.7	%	120,574		2.6	%	74,169		2.7	%	50,142		3.4	%	8,566		2.8	%	132,877		3.0	%
Substandard	39,082		1.4	%	38,689		2.7	%	10,005		2.3	%	87,776		2.0	%	77,891		2.8	%	68,105		4.7	%	18,788		6.3	%	164,784		3.6	%
Total	$	2,681,693	100.0	%	$	1,446,811	100.0	%	$	432,887	100.0	%	$	4,561,391	100.0	%	$	2,788,641	100.0	%	$	1,455,578	100.0	%	$	299,787	100.0	%	$	4,544,006	100.0	%

	December 31, 2016																December 31, 2017
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total		Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	2,423,742	97.0	%	$	1,315,507	93.9	%	$	430,472	94.4	%	$	4,169,721	95.7	%	$	2,588,847	96.4	%	$	1,345,810	93.9	%	$	368,105	95.8	%	$	4,302,762	95.5	%
Special mention	33,098		1.3	%	40,409		2.9	%	14,691		3.2	%	88,198		2.0	%	66,436		2.5	%	54,320		3.8	%	9,345		2.4	%	130,101		2.9	%
Substandard	41,636		1.7	%	45,119		3.2	%	10,721		2.4	%	97,476		2.3	%	30,711		1.1	%	33,136		2.3	%	6,884		1.8	%	70,731		1.6	%
Total	$	2,498,476	100.0	%	$	1,401,035	100.0	%	$	455,884	100.0	%	$	4,355,395	100.0	%	$	2,685,994	100.0	%	$	1,433,266	100.0	%	$	384,334	100.0	%	$	4,503,594	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 present the recorded investment in consumer loan classes by performing and nonperforming status as of the dates presented:


	September 30, 2017																				June 30, 2018
(dollars in thousands)	Residential Mortgage		% of Total		Home Equity		% of Total		Installment and other consumer		% of Total		Consumer Construction		% of Total		Total		% of Total		Residential Mortgage		% of Total		Home Equity		% of Total		Installment and Other Consumer		% of Total		Consumer Construction		% of Total		Total		% of Total
Performing	$	689,585	98.9	%	$	484,131	99.2	%	$	69,596	99.9	%	$	4,550	100.0	%	$	1,247,862	99.1	%	$	692,328	99.1	%	$	467,751	99.2	%	$	66,589	99.9	%	$	5,412	100.0	%	$	1,232,080	99.2	%
Nonperforming	7,782		1.1	%	3,675		0.8	%	48		0.1	%	—		—	%	11,505		0.9	%	6,112		0.9	%	3,871		0.8	%	49		0.1	%	—		—	%	10,032		0.8	%
Total	$	697,367	100.0	%	$	487,806	100.0	%	$	69,644	100.0	%	$	4,550	100.0	%	$	1,259,367	100.0	%	$	698,440	100.0	%	$	471,622	100.0	%	$	66,638	100.0	%	$	5,412	100.0	%	$	1,242,112	100.0	%

	December 31, 2016																				December 31, 2017
(dollars in thousands)	Residential Mortgage		% of Total		Home Equity		% of Total		Installment and other consumer		% of Total		Consumer Construction		% of Total		Total		% of Total		Residential Mortgage		% of Total		Home Equity		% of Total		Installment and Other Consumer		% of Total		Consumer Construction		% of Total		Total		% of Total
Performing	$	692,064	98.6	%	$	478,845	99.3	%	$	65,744	99.8	%	$	5,906	100.0	%	$	1,242,559	98.9	%	$	691,609	99.0	%	$	483,611	99.2	%	$	67,133	99.9	%	$	4,551	100.0	%	$	1,246,904	99.1	%
Nonperforming	9,918		1.4	%	3,439		0.7	%	108		0.2	%	—		—	%	13,465		1.1	%	7,165		1.0	%	3,715		0.8	%	71		0.1	%	—		—	%	10,951		0.9	%
Total	$	701,982	100.0	%	$	482,284	100.0	%	$	65,852	100.0	%	$	5,906	100.0	%	$	1,256,024	100.0	%	$	698,774	100.0	%	$	487,326	100.0	%	$	67,204	100.0	%	$	4,551	100.0	%	$	1,257,855	100.0	%

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 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 expected that the remaining principal and interest will be fully collected according to the restructured agreement. For all TDRs ~~regardless of size, as well as~~and all other impaired loans, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The following ~~table summarizes~~tables summarize investments in loans considered to be impaired and related information on those impaired loans as of the dates presented:


	September 30, 2017						December 31, 2016						June 30, 2018						December 31, 2017
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With a related allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	2,468		2,501		260		964		2,433		771		—		—		—		1,735		1,787		29
Commercial construction	—		—		—		—		—		—		—		—		—		—		—		—
Consumer real estate	22		22		22		26		26		26		—		—		—		21		21		21
Other consumer	30		30		30		1		1		1		35		35		35		27		27		27
Total with a Related Allowance Recorded	2,520		2,553		312		991		2,460		798		35		35		35		1,783		1,835		77
Without a related allowance recorded:
Commercial real estate	6,341		6,985		—		16,352		17,654		—		3,555		3,828		—		3,546		3,811		—
Commercial and industrial	6,075		8,245		—		5,902		7,699		—		17,539		19,281		—		5,549		7,980		—
Commercial construction	5,974		8,629		—		6,613		10,306		—		3,441		4,950		—		5,464		8,132		—
Consumer real estate	11,054		11,979		—		12,053		12,849		—		9,186		10,132		—		10,467		11,357		—
Other consumer	24		30		—		24		31		—		9		13		—		14		22		—
Total without a Related Allowance Recorded	29,468		35,868		—		40,944		48,539		—		33,730		38,204		—		25,040		31,302		—
Total:
Commercial real estate	6,341		6,985		—		16,352		17,654		—		3,555		3,828		—		3,546		3,811		—
Commercial and industrial	8,543		10,746		260		6,866		10,132		771		17,539		19,281		—		7,284		9,767		29
Commercial construction	5,974		8,629		—		6,613		10,306		—		3,441		4,950		—		5,464		8,132		—
Consumer real estate	11,076		12,001		22		12,079		12,875		26		9,186		10,132		—		10,488		11,378		21
Other consumer	54		60		30		25		32		1		44		48		35		41		49		27
Total	$	31,988	$	38,421	$	312	$	41,935	$	50,999	$	798	$	33,765	$	38,239	$	35	$	26,823	$	33,137	$	77

As of September 30, 2017, we had $32.0 million of impaired loans, which included $6.5 million of acquired loans from the Merger that experienced credit deterioration since the acquisition date. This compares to $41.9 million of impaired loans at December 31, 2016, which included $18.4 million of acquired loans from the Merger.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The following table summarizes average recorded investment in and interest income recognized on loans considered to be impaired for the periods presented:


	For the Three Months Ended								Three Months Ended
	September 30, 2017				September 30, 2016				June 30, 2018				June 30, 2017
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	2,406		37		2,437		37		—		—		813		6
Commercial construction	—		—		—		—		—		—		—		—
Consumer real estate	23		1		28		—		—		—		24		1
Other consumer	32		2		2		—		38		1		26		—
Total with a Related Allowance Recorded	2,461		40		2,467		37		38		1		863		7
Without a related allowance recorded:
Commercial real estate	6,415		105		7,582		38		3,609		54		6,934		35
Commercial and industrial	9,074		130		7,326		52		8,060		210		17,625		95
Commercial construction	7,140		154		8,039		49		3,443		33		4,262		42
Consumer real estate	11,149		250		11,686		159		9,483		118		11,280		125
Other consumer	28		—		32		—		10		—		11		1
Total without a Related Allowance Recorded	33,806		639		34,665		298		24,605		415		40,112		298
Total:
Commercial real estate	6,415		105		7,582		38		3,609		54		6,934		35
Commercial and industrial	11,480		167		9,763		89		8,060		210		18,438		101
Commercial construction	7,140		154		8,039		49		3,443		33		4,262		42
Consumer real estate	11,172		251		11,714		159		9,483		118		11,304		126
Other consumer	60		2		34		—		48		1		37		1
Total	$	36,267	$	679	$	37,132	$	335	$	24,643	$	416	$	40,975	$	305

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued



	Nine Months Ended								Six Months Ended
	September 30, 2017				September 30, 2016				June 30, 2018				June 30, 2017
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	1,218		44		2,492		100		—		—		628		11
Commercial construction	—		—		—		—		—		—		—		—
Consumer real estate	24		1		29		2		—		—		25		1
Other consumer	35		1		2		—		40		2		27		1
Total with a Related Allowance Recorded	1,277		46		2,523		102		40		2		680		13
Without a related allowance recorded:
Commercial real estate	6,577		140		7,551		106		3,712		85		7,028		70
Commercial and industrial	11,001		164		7,447		156		7,796		218		16,382		124
Commercial construction	7,222		194		8,498		143		3,445		73		4,267		79
Consumer real estate	11,488		382		11,831		400		10,128		253		11,514		255
Other consumer	33		1		38		1		11		—		12		—
Total without a Related Allowance Recorded	36,321		881		35,365		806		25,092		629		39,203		528
Total:
Commercial real estate	6,577		140		7,551		106		3,712		85		7,028		70
Commercial and industrial	12,219		208		9,939		256		7,796		218		17,010		135
Commercial construction	7,222		194		8,498		143		3,445		73		4,267		79
Consumer real estate	11,512		383		11,860		402		10,128		253		11,539		256
Other consumer	68		2		40		1		51		2		39		1
Total	$	37,598	$	927	$	37,888	$	908	$	25,132	$	631	$	39,883	$	541

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

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


	Three Months Ended September 30, 2017																		Three Months Ended June 30, 2018
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans			Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	24,358		$	9,256		$	13,944		$	5,803		$	1,990		$	55,351		$	30,963		$	10,472		$	10,721		$	5,418		$	1,472		$	59,046
Charge-offs	(37		)	(644		)	(1,453		)	(101		)	(425		)	(2,660		)	(237		)	(7,392		)	(321		)	(268		)	(414		)	(8,632		)
Recoveries	182			243			473			91			182			1,171			185			362			1			85			125			758
Net (Charge-offs)/ Recoveries	145			(401		)	(980		)	(10		)	(243		)	(1,489		)	(52		)	(7,030		)	(320		)	(183		)	(289		)	(7,874		)
Provision for loan losses	472			859			1,951			(262		)	(170		)	2,850			321			7,432			1,275			6			311			9,345
Balance at End of Period	$	24,975		$	9,714		$	14,915		$	5,531		$	1,577		$	56,712		$	31,232		$	10,874		$	11,676		$	5,241		$	1,494		$	60,517


	Three Months Ended September 30, 2016																		Three Months Ended June 30, 2017
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans			Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	15,978		$	14,771		$	11,701		$	8,418		$	1,345		$	52,213		$	20,570		$	13,244		$	14,102		$	5,956		$	1,944		$	55,816
Charge-offs	(93		)	(414		)	(163		)	(369		)	(461		)	(1,500		)	(1,673		)	(2,682		)	—			(1,097		)	(370		)	(5,822		)
Recoveries	264			169			17			44			70			564			155			69			113			76			75			488
Net (Charge-offs)/ Recoveries	171			(245		)	(146		)	(325		)	(391		)	(936		)	(1,518		)	(2,613		)	113			(1,021		)	(295		)	(5,334		)
Provision for loan losses	4,244			(2,232		)	1,356			(1,760		)	908			2,516			5,306			(1,375		)	(271		)	868			341			4,869
Balance at End of Period	$	20,393		$	12,294		$	12,911		$	6,333		$	1,862		$	53,793		$	24,358		$	9,256		$	13,944		$	5,803		$	1,990		$	55,351


	Nine Months Ended September 30, 2017																		Six Months Ended June 30, 2018
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans			Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	19,976		$	10,810		$	13,999		$	6,095		$	1,895		$	52,775		$	27,235		$	8,966		$	13,167		$	5,479		$	1,543		$	56,390
Charge-offs	(2,100		)	(4,041		)	(2,097		)	(1,957		)	(1,228		)	(11,423		)	(232		)	(8,222		)	(321		)	(429		)	(872		)	(10,076		)
Recoveries	415			499			842			270			433			2,459			228			480			1,130			323			225			2,386
Net (Charge-offs)/Recoveries	(1,685		)	(3,542		)	(1,255		)	(1,687		)	(795		)	(8,964		)	(4		)	(7,742		)	809			(106		)	(647		)	(7,690		)
Provision for loan losses	6,684			2,446			2,171			1,123			477			12,901			4,001			9,650			(2,300		)	(132		)	598			11,817
Balance at End of Period	$	24,975		$	9,714		$	14,915		$	5,531		$	1,577		$	56,712		$	31,232		$	10,874		$	11,676		$	5,241		$	1,494		$	60,517


	Nine Months Ended September 30, 2016																		Six Months Ended June 30, 2017
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans			Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	15,043		$	10,853		$	12,625		$	8,400		$	1,226		$	48,147		$	19,976		$	10,810		$	13,999		$	6,095		$	1,895		$	52,775
Charge-offs	(1,808		)	(3,244		)	(1,108		)	(891		)	(1,572		)	(8,623		)	(2,063		)	(3,396		)	(644		)	(1,856		)	(804		)	(8,763		)
Recoveries	662			589			20			342			277			1,890			233			255			369			179			251			1,287
Net (Charge-offs)/Recoveries	(1,146		)	(2,655		)	(1,088		)	(549		)	(1,295		)	(6,733		)	(1,830		)	(3,141		)	(275		)	(1,677		)	(553		)	(7,476		)
Provision for loan losses	6,496			4,096			1,374			(1,518		)	1,931			12,379			6,212			1,587			220			1,385			648			10,052
Balance at End of Period	$	20,393		$	12,294		$	12,911		$	6,333		$	1,862		$	53,793		$	24,358		$	9,256		$	13,944		$	5,803		$	1,990		$	55,351

Net charge-offs and provision for loan losses for the three and six months ended June 30, 2018 were significantly impacted by a $5.2 million loan charge-off for a commercial customer arising from a participation loan agreement with a lead bank and other participating banks. The loss resulted from fraudulent activities believed to be perpetrated by one or more executives employed by the borrower and its related entities. S&T’s total exposure consisted of the participation loan of $4.9 million and a direct exposure of $950 thousand which is secured by vehicles and equipment liens.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The following tables present the ~~ALL~~ALLL and recorded investments in loans by category as of the periods presented:


	September 30, 2017												June 30, 2018
	Allowance for Loan Losses						Portfolio Loans						Allowance for Loan Losses						Portfolio Loans
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial real estate	$	—	$	24,975	$	24,975	$	6,341	$	2,675,352	$	2,681,693	$	—	$	31,232	$	31,232	$	3,555	$	2,785,086	$	2,788,641
Commercial and industrial	260		9,454		9,714		8,543		1,438,268		1,446,811		—		10,874		10,874		17,539		1,438,039		1,455,578
Commercial construction	—		14,915		14,915		5,974		426,913		432,887		—		11,676		11,676		3,441		296,346		299,787
Consumer real estate	22		5,509		5,531		11,076		1,178,647		1,189,723		—		5,241		5,241		9,186		1,166,288		1,175,474
Other consumer	30		1,547		1,577		54		69,590		69,644		35		1,459		1,494		44		66,594		66,638
Total	$	312	$	56,400	$	56,712	$	31,988	$	5,788,770	$	5,820,758	$	35	$	60,482	$	60,517	$	33,765	$	5,752,353	$	5,786,118

	December 31, 2016												December 31, 2017
	Allowance for Loan Losses						Portfolio Loans						Allowance for Loan Losses						Portfolio Loans
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial real estate	$	—	$	19,976	$	19,976	$	16,352	$	2,482,124	$	2,498,476	$	—	$	27,235	$	27,235	$	3,546	$	2,682,448	$	2,685,994
Commercial and industrial	771		10,039		10,810		6,866		1,394,169		1,401,035		29		8,937		8,966		7,284		1,425,982		1,433,266
Commercial construction	—		13,999		13,999		6,613		449,271		455,884		—		13,167		13,167		5,464		378,870		384,334
Consumer real estate	26		6,069		6,095		12,079		1,178,093		1,190,172		21		5,458		5,479		10,488		1,180,163		1,190,651
Other consumer	1		1,894		1,895		25		65,827		65,852		27		1,516		1,543		41		67,163		67,204
Total	$	798	$	51,977	$	52,775	$	41,935	$	5,569,484	$	5,611,419	$	77	$	56,313	$	56,390	$	26,823	$	5,734,626	$	5,761,449

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Swaps

In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the balance sheet at fair value. 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. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed rate. At the same time, we agree 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 our customer to effectively convert a variable rate loan to a fixed rate loan with us receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.

Pursuant to our agreements with various financial institutions, we 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 interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, the possibility that we 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 our Asset and Liability Committee, or ALCO, and derivatives with customers may only be executed with customers within credit exposure limits approved by our Senior Loan Committee. Interest rate swaps are considered derivatives, but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings and included in other noninterest income in the Consolidated Statements of Comprehensive Income.

Interest Rate Lock Commitments and Forward Sale Contracts

In the normal course of business, we sell originated mortgage loans into the secondary mortgage loan market. We also offer interest rate lock commitments to potential borrowers. The commitments are generally for a period of 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. Accordingly, some commitments expire prior to becoming loans. We may encounter pricing risks if interest rates increase significantly before the loan can be closed and sold. We may utilize forward sale contracts in order to mitigate this pricing risk. Whenever a customer desires these products, a mortgage originator quotes a secondary market rate guaranteed for that day by the investor. The rate lock is executed between the mortgagee and us and in turn a forward sale contract may be executed between us and the investor. Both the rate lock commitment and the corresponding forward sale contract for each customer are considered derivatives, but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives during the commitment period are recorded in current earnings and included in mortgage banking in the Consolidated Statements of Comprehensive Income.

The following ~~table indicates~~tables indicate the amounts representing the value of derivative assets and derivative liabilities as of the dates presented:


	Derivatives (included in Other Assets)				Derivatives (included in Other Liabilities)				Derivatives (included in Other Assets)				Derivatives (included in Other Liabilities)
(dollars in thousands)	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Derivatives not Designated as Hedging Instruments:
Interest Rate Swap Contracts- Commercial Loans
Interest Rate Swap Contracts - Commercial Loans
Fair value	$	4,814	$	6,960	$	4,786	$	6,958	$	6,157	$	3,074	$	6,223	$	3,055
Notional amount	209,572		232,396		209,572		232,396		246,494		263,841		246,494		263,841
Collateral posted	—		—		3,046		14,340
Interest Rate Lock Commitments- Mortgage Loans
Net collateral received/posted									2,560		—		—		1,448
Interest Rate Lock Commitments - Mortgage Loans
Fair value	452		236		—		—		398		226		—		—
Notional amount	13,939		8,490		—		—		12,711		6,860		—		—
Forward Sale Contracts- Mortgage Loans
Forward Sale Contracts - Mortgage Loans
Fair value	—		—		16		27		—		—		39		5
Notional amount	$	—	$	—	$	14,564	$	8,216	$	—	$	—	$	12,250	$	6,580

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset ~~as well as~~and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.

The following ~~table indicates~~tables indicate the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets as of the dates presented:


	Derivatives (included in Other Assets)						Derivatives (included in Other Liabilities)						Derivatives (included in Other Assets)						Derivatives (included in Other Liabilities)
(dollars in thousands)	September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017			June 30, 2018			December 31, 2017
Derivatives not Designated as Hedging Instruments:
Gross amounts recognized	$	6,124		$	8,590		$	6,096		$	8,588		$	7,258		$	4,974		$	7,324		$	4,955
Gross amounts offset	(1,310		)	(1,630		)	(1,310		)	(1,630		)	(1,101		)	(1,900		)	(1,101		)	(1,900		)
Net amounts presented in the Consolidated Balance Sheets	4,814			6,960			4,786			6,958
Net Amounts Presented in the Consolidated Balance Sheets													6,157			3,074			6,223			3,055
Gross amounts not offset⁽¹⁾	—			—			(3,505		)	(14,340		)	(2,560		)	—			—			(1,448		)
Net Amount	$	4,814		$	6,960		$	1,281		$	(7,382	)	$	3,597		$	3,074		$	6,223		$	1,607

⁽¹⁾ Amounts represent received/posted collateral.

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


	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017		2016			2018			2017			2018			2017
Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans	$	9		$	(87	)	$	25	$	34		$	(201	)	$	(8	)	$	(85	)	$	16
Interest rate lock commitments—mortgage loans	(4		)	97			216		478			128			(13		)	172			220
Forward sale contracts—mortgage loans	(30		)	106			10		(93		)	(15		)	76			(33		)	40
Total Derivatives (Loss)/Gain	$	(25	)	$	116		$	251	$	419		$	(88	)	$	55		$	54		$	276

~~Table of Contents~~

~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

NOTE 8. BORROWINGS

Short-term borrowings are for terms under or equal to one year and are comprised of securities sold under repurchase agreements, or REPOs, and Federal Home Loan Bank, or FHLB, advances. All REPOs are overnight short-term investments and are not insured by the Federal Deposit Insurance Corporation. Securities pledged as collateral under these REPO financing arrangements cannot be sold or repledged by the secured party and therefore, the REPOs are accounted for as a secured borrowing. Mortgage-backed securities with ~~a total~~amortized cost of $51.4 million and carrying value of ~~$46.7~~$49.9 million at ~~September~~June 30, ~~2017~~2018 and ~~$53.2~~amortized cost of $57.5 million and carrying value of $56.8 million at December 31, ~~2016~~2017 were pledged as collateral for these secured transactions. The pledged securities are held in safekeeping at the Federal Reserve. Due to the overnight short-term nature of REPOs, potential risk due to a decline in the value of the pledged collateral is low. Collateral pledging requirements with REPOs are monitored daily. FHLB advances are for various terms and are secured by a blanket lien on residential mortgages and other real estate secured loans.

Long-term borrowings are for original terms greater than one year and are comprised of FHLB advances, a capital lease and junior subordinated debt securities. Long-term FHLB advances are secured by the same loans as short-term FHLB advances. We had total long-term borrowings outstanding of ~~$9.7~~$7.9 million at a fixed rate and ~~$3.1~~$38.1 million at a variable rate at ~~September~~June 30, ~~2017,~~2018, excluding our capital ~~lease~~lease.

Table of ~~$0.1 million.~~Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

Information pertaining to borrowings is summarized in the table below as of the dates presented:


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
(dollars in thousands)	Balance		Weighted Average Rate		Balance		Weighted Average Rate		Balance		Weighted Average Rate		Balance		Weighted Average Rate
Short-term borrowings
Short-term Borrowings
Securities sold under repurchase agreements	$	39,923	0.16	%	$	50,832	0.01	%	$	44,724	0.46	%	$	50,161	0.39	%
Short-term borrowings	685,000		1.31	%	660,000		0.76	%	600,000		2.16	%	540,000		1.47	%
Total short-term borrowings	724,923		1.25	%	710,832		0.70	%
Total Short-term Borrowings									644,724		2.04	%	590,161		1.38	%
Long-term Borrowings
Long-term borrowings									46,062		2.31	%	47,301		1.88	%
Other long-term borrowings	12,911		2.97	%	14,713		2.91	%
Junior subordinated debt securities	45,619		3.74	%	45,619		3.42	%	45,619		4.80	%	45,619		3.78	%
Total long-term borrowings	58,530		3.57	%	60,332		3.30	%
Total Long-term Borrowings									91,681		3.55	%	92,920		2.81	%
Total Borrowings	$	783,453	1.42	%	$	771,164	0.90	%	$	736,405	2.23	%	$	683,081	1.57	%

We had total borrowings at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 at the FHLB of Pittsburgh of ~~$698~~$646 million and ~~$675~~$587 million. The ~~$698~~$646 million at ~~September~~June 30, ~~2017~~2018 consisted of ~~$685~~$600 million in short-term borrowings and ~~$12.9~~$46.1 million in long-term borrowings. Our maximum borrowing capacity with the FHLB of Pittsburgh was $2.5 billion at ~~September~~June 30, ~~2017.~~2018. We utilized ~~$902~~$790 million of our borrowing capacity at ~~September~~June 30, ~~2017~~2018 consisting of ~~$698~~$646 million for borrowings and ~~$204~~$144 million for letters of credit to collateralize public funds. Our remaining borrowing availability at ~~September~~June 30, ~~2017~~2018 is ~~$1.6~~$1.7 billion.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 9. 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 the customer does not satisfy the terms of the 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. Because 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 $2.1 million at ~~September~~June 30, ~~2017~~2018 and ~~$2.6~~$2.2 million at December 31, ~~2016.~~2017. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The allowance for unfunded commitments is determined using a similar methodology as our ~~ALL~~ALLL methodology. The reserve is calculated by applying historical loss rates and qualitative adjustments to our unfunded commitments.

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 our commitments and letters of credit as of the dates presented:


(dollars in thousands)	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Commitments to extend credit	$	1,421,906	$	1,509,696	$	1,413,700	$	1,420,428
Standby letters of credit	85,389		84,534		80,709		80,918
Total	$	1,507,295	$	1,594,230	$	1,494,409	$	1,501,346

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 nothe outcome of ~~any~~ such proceedings or claims pending will not have a material adverse effect on our consolidated financial position or results of operations.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 10. OTHER COMPREHENSIVE INCOME

The following ~~table presents~~tables present the change in components of other comprehensive income (loss) for the periods presented, net of tax effects.

Three Months Ended September 30, 2017 Three months ended September 30, 2016
(dollars in thousands)
Pre-Tax
Amount

Tax
(Expense)
Benefit

Net of Tax
Amount

Pre-Tax
Amount

Tax
(Expense)
Benefit

Net of Tax
Amount

Change in net unrealized gains/(losses) on securities available-for-sale $ (148 ) $ 52
$ (96 ) $ (1,921 ) $ 672
$ (1,249 )
Reclassification adjustment for net (gains)/losses on securities available-for-sale included in net income ⁽¹⁾
—
—
—
—
—
—
Adjustment to funded status of employee benefit plans 539
(189 ) 350
544
(190 ) 354
Other Comprehensive Income/(Loss) $ 391
$ (137 ) $ 254
$ (1,377 ) $ 482
$ (895 )
⁽¹⁾Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the Consolidated Statements of Comprehensive Income as follows; the pre-tax amount is included in securities gains/losses-net, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income.

Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
(dollars in thousands)
Pre-Tax
Amount

Tax
(Expense)
Benefit

Net of Tax
Amount

Pre-Tax
Amount

Tax
(Expense)
Benefit

Net of Tax
Amount

Change in net unrealized gains/(losses) on securities available-for-sale $ 4,186
$ (1,470 ) $ 2,716
$ 11,748
$ (4,112 ) $ 7,636
Reclassification adjustment for net (gains)/losses on securities available-for-sale included in net income ⁽¹⁾
(3,987 ) 1,400
(2,587 ) —
—
—
Adjustment to funded status of employee benefit plans 1,617
(566 ) 1,051
4,889
(1,711 ) 3,178
Other Comprehensive Income $ 1,816
$ (636 ) $ 1,180
$ 16,637
$ (5,823 ) $ 10,814
⁽¹⁾ Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the Consolidated Statement of Comprehensive Income as follows; the pre-tax amount is included in securities gains/losses-net, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income.



	Three Months Ended June 30, 2018									Three Months Ended June 30, 2017
(dollars in thousands)	Pre-Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			Net of Tax Amount
Change in net unrealized gains/(losses) on debt securities available-for-sale ⁽¹⁾	$	(2,296	)	$	487		$	(1,809	)	$	2,672		$	(938	)	$	1,734
Reclassification adjustment for net (gains)/losses on debt securities available-for-sale included in net income ⁽²⁾	—			—			—			(3,617		)	1,270			(2,347		)
Adjustment to funded status of employee benefit plans	702			(149		)	553			539			(188		)	351
Other Comprehensive (Loss)/Income	$	(1,594	)	$	338		$	(1,256	)	$	(406	)	$	144		$	(262	)
⁽¹⁾ Due to the adoption of ASU No. 2016-01, net unrealized gains on marketable equity securities were reclassified from Accumulated Other Comprehensive Income to Retained Earnings during the three months ended March 31, 2018. The prior period data was not restated; as such, the change in unrealized gains on marketable securities is combined with the change in net unrealized gains on debit securities for the period ended June 30, 2017.
⁽²⁾ Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the Consolidated Statements of Comprehensive Income as follows; the pre-tax amount is included in securities gains/losses-net, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income.

	Six Months Ended June 30, 2018									Six Months Ended June 30, 2017
(dollars in thousands)	Pre-Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit			Net of Tax Amount
Change in net unrealized gains/(losses) on securities available-for-sale ⁽¹⁾	$	(11,770	)	$	2,499		$	(9,271	)	$	4,335		$	(1,523	)	$	2,812
Reclassification adjustment for net (gains)/losses on securities available-for-sale included in net income ⁽²⁾	—			—			—			(3,987		)	1,400			(2,587		)
Adjustment to funded status of employee benefit plans	1,323			(281		)	1,042			1,078			(377		)	701
Other Comprehensive (Loss)/Income	$	(10,447	)	$	2,218		$	(8,229	)	$	1,426		$	(500	)	$	926
⁽¹⁾ Due to the adoption of ASU No. 2016-01, net unrealized gains on marketable equity securities were reclassified from Accumulated Other Comprehensive Income to Retained Earnings during the three months ended March 31, 2018. The prior period data was not restated; as such, the change in unrealized gains on marketable securities is combined with the change in net unrealized gains on debit securities for the period ended June 30, 2017.
⁽²⁾ Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the Consolidated Statements of Comprehensive Income as follows; the pre-tax amount is included in securities gains/losses-net, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 11. EMPLOYEE BENEFITS

~~Effective March 31, 2016, our~~Our qualified and nonqualified defined benefit plans were amended to freeze benefit accruals for all persons entitled to benefits under the plan. We recorded a curtailment gain for the three months ended March 31, 2016 resulting from the amendment. The curtailment gain was $1.0 million and represented the unrecognized benefits associated with prior plan ~~amendments that would have been amortized into income over the next seven years. The qualified plan was previously closed to new participants effective December 31, 2007.~~in 2016. We will continue recording pension expense related to ~~this plan,~~these plans, primarily representing interest costs on the accumulated benefit obligation and amortization of actuarial losses accumulated in the plan, as well as income from expected investment returns on pension assets.

~~Prior to March 31, 2016,~~ Since the ~~accrued benefits were based on years of~~plans have been frozen, no service ~~and the employee’s compensation for the highest five consecutive years~~costs are included in ~~the last ten years. Contributions were intended to provide for benefits attributed to employee service to date and for those benefits expected to be earned in the future.~~net periodic pension expense. The expected long-term rate of return on plan assets is 7.50 percent.

The following table summarizes the components of net periodic pension cost for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Components of Net Periodic Pension Cost
Service cost—benefits earned during the period	$	—		$	(6	)	$	—		$	469
Interest cost on projected benefit obligation	1,025			1,099			3,075			3,200			$	967		$	1,025		$	1,934		$	2,050
Expected return on plan assets	(1,582		)	(1,444		)	(4,746		)	(4,337		)	(1,567		)	(1,582		)	(3,134		)	(3,164		)
Amortization of prior service credit	475			29			1,424			(41		)	545			475			1,089			949
Recognized net actuarial loss	—			638			—			1,708
Net Periodic Pension Expense	$	(82	)	$	316		$	(247	)	$	999		$	(55	)	$	(82	)	$	(111	)	$	(165	)

NOTE 12. QUALIFIED AFFORDABLE HOUSING PROJECTS

We invest in affordable housing projects primarily to ~~help~~ satisfy our Community Reinvestment Act requirements. As a limited partner in these operating partnerships, we receive tax credits and tax deductions for losses incurred by the underlying properties. We use the cost method to account for these partnerships. Our total investment in qualified affordable housing projects was ~~$10.0~~$7.3 million at ~~September~~June 30, ~~2017~~2018 and ~~$11.7~~$8.7 million at December 31, ~~2016. We had no open commitments to fund current or future investments in qualified affordable housing projects at September 30, 2017 or December 31, 2016.~~2017. Amortization expense, included in other noninterest expense in the Consolidated Statements of Comprehensive Income was ~~$0.8~~$0.7 million and $1.4 million for the three and six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016 and $2.3~~$0.8 million and ~~$2.5~~$1.6 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016.~~2017. The amortization expense was offset by tax credits of ~~$0.9~~$0.8 million and ~~$2.6~~$1.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and $0.9 million and ~~$2.7~~$1.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 as a reduction to our federal tax provision.

NOTE 13. SALE OF ~~RETAIL BRANCH OFFICE~~A MAJORITY INTEREST OF INSURANCE BUSINESS

On ~~July 27,~~November 9, 2017, we entered into ~~a definitive~~an asset purchase agreement to sell ~~our State College retail branch office to First Citizens Community Bank,~~ a wholly owned subsidiary of Citizens Financial Services, Inc. The retail branch office will remain open for business throughout the transition and will continue to offer all products and services to customers. The all-cash transaction is expected to close70 percent ownership interest in the ~~fourth quarter~~assets of ~~2017, subject~~our subsidiary, S&T Evergreen Insurance, LLC. The partial sale was accounted for as the sale of a business. At the date of the sale, January 1, 2018, we ceased to ~~regulatory approvals~~have a controlling financial interest, deconsolidated the subsidiary and ~~other customary closing conditions. At September~~recognized a gain of $1.9 million. We transferred our remaining 30 ~~2017, $43.4 million~~percent share of ~~loans~~net assets from S&T Evergreen Insurance, LLC to a new entity for a 30 percent partnership interest in a new insurance entity. We use the equity method of accounting to recognize changes in the value of our investment in the new insurance entity for our proportional share of income and ~~$39.0 million~~losses of ~~deposits were held for sale related to this transaction.~~

the new insurance entity.

NOTE 14. SHARE REPURCHASE PLAN

On March 19, 2018, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which is effective through August 31, 2019, permits us to repurchase from time to time up to $50 million in aggregate value of shares of our common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at our discretion and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and our financial performance. The repurchase plan does not obligate us to repurchase any particular number of shares. We expect to fund any repurchases from cash on hand and internally generated funds. There were no open market repurchases under the plan during the three or six months ended June 30, 2018.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, 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 and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017. Our MD&A should be read in conjunction with our Consolidated Financial Statements and ~~notes thereto.~~Notes. 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. Forward-looking statements generally relate to our financial condition, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting S&T and its future business and operations. Forward looking statements are typically identified by words or phrases such as “will likely result”, “expect”, “anticipate”, “estimate”, “forecast”, “project”, “intend”, “ believe”, “assume”, “strategy”, “trend”, “plan”, “outlook”, “outcome”, “continue”, “remain”, “potential”, “opportunity”, “believe”, “comfortable”, “current”, “position”, “maintain”, “sustain”, “seek”, “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses; cyber-security concerns; rapid technological developments and changes; sensitivity to the interest rate environment including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; regulatory supervision and oversight; legislation affecting the financial services industry as a whole, and S&T, in particular; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on significant customer relationships; general economic or business conditions; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the state of the banking industry that 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; re-emergence of turbulence in significant portions of the global financial and real estate markets that 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 and access to capital in the amounts, at the times and on the terms required to support our future businesses. Many of these factors, as well as other factors, are described in our Annual Report on Form 10-K for the year ended December 31, 2017, including Part I, Item 1A, Risk Factors and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Critical Accounting Policies and Estimates

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of June 30, 2018 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2017 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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S&T BANCORP, INC. AND SUBSIDIARIES

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

~~reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.~~

We previously reported in our annual report on Form 10-K, three reportable operating segments: Community Banking, Insurance and Wealth Management. We reevaluated our segment reporting as of January 1, 2017 and determined that Insurance and Wealth Management activities are not material to our consolidated financial results, therefore, we are no longer reporting segment information.

~~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. Forward-looking statements generally relate to our financial condition, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting S&T and its future business and operations. Forward looking statements are typically identified by words or phrases such as “will likely result,” “expect,” “anticipate,” “estimate,” “forecast,” “project,” “intend,” “ believe,” “assume,” “strategy,” “trend,” “plan,” “outlook,” “outcome,” “continue,” “remain,” “potential,” “opportunity,” “believe,” “comfortable,” “current,” “position,” “maintain,” “sustain,” “seek,” “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses; cyber-security concerns; rapid technological developments and changes; sensitivity to the interest rate environment including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; regulatory supervision and oversight; legislation affecting the financial services industry as a whole, and S&T, in particular; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on significant customer relationships; general economic or business conditions; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the state of the banking industry that 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; re-emergence of turbulence in significant portions of the global financial and real estate markets that 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 and access to capital in the amounts, at the times and on the terms required to support our future businesses. Many of these factors, as well as other factors, are described in our Annual Report on Form 10-K for the year ended December 31, 2016, including Part I, Item 1A, Risk Factors and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

~~Critical Accounting Policies and Estimates~~

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of September 30, 2017 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2016 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 ~~$7.2~~$7.1 billion at ~~September~~June 30, ~~2017.~~2018. We operate bank branches in Pennsylvania and Ohio and loan production offices in Pennsylvania, Ohio and New York. We provide a full range of financial services with retail and commercial banking products, cash management services ~~insurance~~ and trust and brokerage services. Our common stock trades on the NASDAQ Global Select Market under the symbol “STBA.”

~~Table of Contents~~

~~S&T BANCORP, INC. AND SUBSIDIARIES~~

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

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

Our mission is to become the financial services provider of choice within the markets that we serve. We strive to do this by delivering exceptional service and value, one customer at a time. Our strategic plan focuses on organic growth, which includes both growth within our current footprint and growth through market expansion. We also actively evaluate acquisition opportunities as another source of growth. Our strategic plan includes a collaborative model that combines expertise from all areas of our business and focuses on satisfying each customer’s individual financial objectives.

Our focus continues to be on organic loan and deposit growth and implementing opportunities to increase fee income while closely ~~monitoring~~managing our operating expenses and asset quality. We are focused on executing our strategy to successfully build our brand and grow our business in all of our markets. ~~While we~~We have benefited from recent increases in ~~short term~~short-term interest rates ~~the low interest rate environment still remains a challenge for our net interest income. We have been able to mitigate the impact of lower rates through organic loan growth~~ and expect to benefit from any future ~~increases~~increases. Our performance has also benefited from the Tax Cuts and Jobs Act (Tax Act) which lowered the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.

On November 9, 2017, we entered into an asset purchase agreement to sell a 70 percent ownership interest in the assets of our subsidiary, S&T Evergreen Insurance, LLC. At the date of the sale, January 1, 2018, we ceased to have a controlling financial interest, ~~rates.~~deconsolidated the subsidiary and recognized a gain of $1.9 million. We transferred our remaining 30 percent share of net assets from S&T Evergreen Insurance, LLC to a new entity for a 30 percent partnership interest in a new insurance entity.

Earnings Summary

Net income ~~increased $2.1~~decreased $1.4 million, or ~~10.4~~5.8 percent, for the three months ended ~~September~~June 30, ~~2017~~2018 and increased ~~$9.9~~$6.6 million, or ~~18.5~~16.2 percent, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016.~~2017. Net income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~$22.7~~$21.4 million and ~~$63.7~~$47.6 million, or ~~$0.65~~$0.61 and ~~$1.82~~$1.36 diluted earnings per share, as compared to ~~net income of $20.6~~$22.8 million and ~~$53.7~~$41.0 million, or ~~$0.59~~$0.65 and ~~$1.54~~$1.17 diluted earnings per share for the same periods in ~~2016.~~ 2017.

The ~~increases~~decrease in net income for the three month period ended June 30, 2018 of $1.4 million was primarily due to an increase in the provision for loan losses of $4.4 million and ~~nine months~~a decrease in noninterest income of $4.0 million offset by an increase of $1.8 million in net interest income and decreases of $4.6 million in the provision for income taxes and $0.7 million in noninterest expense. The increase to net income for the six month period ended ~~September~~June 30, ~~2017 were~~2018 of $6.6 million was primarily ~~driven by increases~~due to an increase in net interest income of ~~$6.0~~$4.9 million and ~~$17.1 million. The increases~~decreases in the provision for ~~the three and nine month periods were partially offset by increases~~income taxes of ~~$2.1~~$5.3 million and ~~$2.4 million of~~ noninterest ~~expenses and increases~~expense of $1.5 million ~~and $5.4~~offset by decreases of $3.3 million in noninterest income ~~taxes.~~and an increase to the provision for loan losses of $1.7 million.

Net interest income increased ~~$6.0~~$1.8 million and ~~$17.1~~$4.9 million ~~or 11.7 percent~~to $58.4 million and ~~11.3 percent,~~$115.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to $56.6 million and $110.4 million for the same periods in 2016. The increases were primarily due to average interest-earning asset increases of $438 million and $524 million, or 7.2 percent and 8.7 percent, for the three and nine month periods ended September 30, 2017 compared to the same periods in 2016. The increases in average interest-earning assets were due to our successful efforts in growing our loan portfolio.2017. The increases in short-term interest rates over the past year positively impacted both net interest income and net interest margin. ~~The increase in net interest income was partially offset by increases in average interest-bearing liabilities of $297~~Average interest-earning assets decreased $24.2 million ~~and $409 million, or 6.6 percent and 9.3 percent,~~ for the three month period and ~~nine months~~increased $24.6 million for the six month period ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016. The increases in average~~2017. Average interest-bearing liabilities ~~were mainly due~~decreased $126.7 million and $94.3 million for the three and six months ended June 30, 2018 compared to ~~deposit growth~~the same periods in 2017. Net interest margin, on a fully taxable-equivalent, or FTE, basis (non-GAAP), increased seven and ~~an increase~~eight basis points to 3.64 and 3.61 percent in ~~short-term borrowings.~~the three and six months ended June 30, 2018 compared to 3.57 and 3.53 percent for the same periods in 2017.

The provision for loan losses ~~was $2.9~~increased $4.4 million and ~~$12.9~~$1.7 million to $9.3 and $11.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$2.5 million~~$4.9 and ~~$12.4~~$10.1 million for the same periods in ~~2016. Net~~2017. The increases in the provision for loan losses were mainly due to higher net charge-offs ~~were $1.5 million and $9.0 million for~~in both periods. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, we had net charges-offs of $7.9 million and $7.7 million compared to ~~$0.9~~net charges-offs of $5.3 million and ~~$6.7~~$7.5 million infor the same periods in 2017. Net charge-offs for both periods were significantly impacted by a $5.2 million loan charge-off for a commercial customer arising from a participation loan agreement with a lead bank and other participating banks. The loss resulted from fraudulent activities believed to be perpetrated by one or more executives employed by the ~~prior year.~~borrower and its related entities. Annualized net loan charge-offs to average loans were ~~0.10 percent~~0.55 and ~~0.21~~0.27 percent for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~0.07 percent~~0.37 and ~~0.17~~0.26 percent for the same periods in ~~2016. Specific reserves on impaired~~2017. Impaired loans decreased ~~$1.9~~$6.7 million to ~~$0.3~~$33.8 million at ~~September 30, 2017 compared to $2.2 million at September 30, 2016.~~

Noninterest income increased $0.1 million to $13.6 million for the three months ended September 30, 2017 and increased $1.1 million to $42.8 million for the nine months ended September 30, 2017 compared to $13.4 million and $41.7 million for the same periods in 2016. The increase of $0.1 million in noninterest income for the three months ended September 30, 2017 compared to the same period in 2016 primarily related to a bank owned life insurance, or BOLI, claim, partially offset by lower interest rate swap fees from our commercial customers included in other income and lower mortgage banking income. The increase in noninterest income for the nine month period was primarily due to security gains of $4.0 million and a $0.7 million BOLI claim noted above, partially offset by a decrease due to a $2.1 million gain on the sale of our credit card portfolio recognized in 2016 and a $1.0 million decrease of other noninterest income. The decrease in other noninterest income primarily related to a curtailment gain of $1.0 million resulting from the amendment to freeze benefit accruals for all participants in our defined benefit plans effective March 31, 2016.June

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~~Noninterest expense increased $2.1~~30, 2018 compared to $40.5 million at June 30, 2017. Nonperforming loans decreased $15.3 million to ~~$36.6~~$21.4 million at June 30, 2018 compared to $36.7 million at June 30, 2017.

Noninterest income decreased $4.0 million and ~~$2.4~~$3.3 million to ~~$110~~$12.3 million and $26.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$34.5~~$16.3 million and ~~$108~~$29.3 million for the same periods in ~~2016.~~2017. The ~~increases~~decrease of $4.0 million and $3.3 million for the three and six month periods primarily related to gains on sales of securities of $3.6 million and $4.0 million for the three and six month periods in 2017. Insurance income decreased $1.3 million and $2.6 million for the three and six month periods compared to the same periods in 2017 due to the sale of a majority interest in our insurance business in the first quarter of 2018. The decrease of $2.6 million for the six month period ended June 30, 2018 compared to the same period in 2017 was offset by the $1.9 million gain on the sale of our insurance business recognized in the first quarter of 2018.

Noninterest expense decreased $0.7 million and $1.5 million to $35.9 million and $71.9 million for the three and six months ended June 30, 2018 compared to $36.6 million and $73.4 million for the same periods in 2017. The decreases in noninterest expense were primarily due to ~~increases of~~ $1.3 million and ~~$3.2~~$3.0 million decreases in salaries and employee benefits ~~expense~~expenses offset by $0.7 million and $1.5 million increases in other taxes compared to the same periods in 2017. The decreases in salaries and employee benefits were due to ~~annual merit increases, higher~~lower restricted stock, incentive and commission costs and ~~medical claims in 2017, offset by lower pension expense. Other noninterest expense increased $0.6 million for the three months ended September 30, 2017~~fewer employees due to ~~higher loan~~the sale of our insurance business in the first quarter of 2018. The increases in other taxes were primarily related ~~expenses in 2017. Other noninterest expense decreased $1.4 million for the nine months ended September 30, 2017 due~~ to ~~various lower operating expenses. FDIC insurance expense increased in both the three and nine months ended September 30, 2017 due to growth.~~a state sales tax assessment.

The provision for income taxes ~~increased $1.5 million~~decreased $4.6 and ~~$5.4~~$5.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016,~~2017. The decreases were primarily due to ~~$3.7 million and $15.3 million increases in pretax income. The~~the Tax Act which lowered the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. As a result, our effective tax rate declined to 15.8 percent for the three months and ~~nine~~17.4 percent for the six months ended ~~September~~June 30, ~~2017 was 28.1~~2018 compared to 27.4 percent and ~~27.5 percent compared to 26.4 percent and 25.9~~27.2 percent for the same periods in ~~2016.~~the prior year. Included in the effective tax rate for the six months ended 2018 were non-recurring discrete tax expense items of $0.7 million, primarily related to the sale of a majority interest of our insurance business.

Explanation of Use of Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with generally accepted accounting principles, or GAAP, in the United States, management uses, and this quarterly report references, net interest income on a fully taxable equivalent, or FTE, basis, which is a non-GAAP financial measure. Management believes this measure provides information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies.

We believe the presentation of net interest income on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income per the Consolidated Statements of Comprehensive Income is reconciled to net interest income adjusted to an FTE basis in the Net Interest Income section of the "Results of Operations - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared to Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016.~~2017."

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~~S&T BANCORP, INC. AND SUBSIDIARIES~~

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

RESULTS OF OPERATIONS

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 Compared to

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2017

Net Interest Income

Our principal source of revenue is 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. The level and mix of interest-earning assets and interest-bearing liabilities is managed 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 implemented, within prescribed ALCO risk parameters, to produce what we believe is an acceptable level of net interest income.

The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory tax rate of 21 percent

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

for the three and six months ended June 30, 2018 and the federal statutory tax rate of 35 percent for ~~each period~~the three and six months ended June 30, 2017 and the dividend-received deduction for equity securities. We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.

The following table reconciles interest income per the Consolidated Statements of Comprehensive Income to net interest income and rates on an FTE basis for the periods presented:


	Three months ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2017			2016			2017			2016			2018			2017			2018			2017
Total interest income	$	66,723		$	57,808		$	192,787		$	168,678		$	71,581		$	64,914		$	139,610		$	126,065
Total interest expense	9,267			6,353			24,882			17,877			13,178			8,344			24,276			15,616
Net interest income per consolidated statements of comprehensive income	57,456			51,455			167,905			150,801
Net Interest Income per Consolidated Statements of Comprehensive Income													58,403			56,570			115,334			110,449
Adjustment to FTE basis	1,867			1,771			5,614			5,254			936			1,877			1,878			3,747
Net Interest Income on an FTE basis (non-GAAP)	$	59,323		$	53,226		$	173,519		$	156,055
Net Interest Income on an FTE Basis (Non-GAAP)													$	59,339		$	58,447		$	117,212		$	114,196
Net interest margin	3.48		%	3.34		%	3.44		%	3.36		%	3.58		%	3.45		%	3.56		%	3.42		%
Adjustment to FTE basis	0.11		%	0.12		%	0.11		%	0.11		%	0.06		%	0.12		%	0.05		%	0.11		%
Net Interest Margin on an FTE basis (non-GAAP)	3.59		%	3.46		%	3.55		%	3.47		%
Net Interest Margin on an FTE Basis (Non-GAAP)													3.64		%	3.57		%	3.61		%	3.53		%

Income amounts are annualized for rate calculations.

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Average Balance Sheet and Net Interest Income Analysis (FTE)

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


	Three months ended September 30, 2017						Three months ended September 30, 2016						Three Months Ended June 30, 2018						Three Months Ended June 30, 2017
(dollars in thousands)	Average Balance		Interest		Rate		Average Balance		Interest		Rate		Average Balance		Interest		Rate		Average Balance		Interest		Rate
ASSETS
Interest-bearing deposits with banks	$	53,794	$	168	1.25	%	$	37,852	$	49	0.52	%	$	55,015	$	221	1.60	%	$	48,547	$	110	0.91	%
Securities available-for-sale, at fair value⁽²⁾⁽³⁾	690,986		4,255		2.46	%	678,910		4,052		2.39	%
Securities, at fair value⁽²⁾													685,132		4,450		2.60	%	709,208		4,403		2.48	%
Loans held for sale	15,789		152		3.88	%	9,443		100		4.20	%	1,528		28		7.43	%	5,053		33		2.61	%
Commercial real estate	2,678,835		29,554		4.38	%	2,411,533		24,982		4.12	%	2,774,882		32,617		4.71	%	2,664,696		28,544		4.30	%
Commercial and industrial	1,404,047		15,750		4.45	%	1,344,071		13,655		4.04	%	1,431,861		16,627		4.66	%	1,430,080		15,347		4.30	%
Commercial construction	425,228		4,574		4.27	%	389,019		3,556		3.64	%	324,934		3,857		4.76	%	421,456		4,300		4.09	%
Total commercial loans	4,508,110		49,878		4.39	%	4,144,623		42,193		4.05	%
Total Commercial Loans													4,531,677		53,101		4.70	%	4,516,232		48,191		4.28	%
Residential mortgage	702,702		7,223		4.10	%	681,925		7,101		4.14	%	691,634		7,314		4.23	%	700,406		7,237		4.14	%
Home equity	485,501		5,354		4.37	%	480,527		4,764		3.94	%	472,927		5,676		4.81	%	481,039		5,255		4.38	%
Installment and other consumer	70,118		1,161		6.57	%	60,052		985		6.52	%	67,186		1,138		6.79	%	69,899		1,125		6.46	%
Consumer construction	4,486		51		4.49	%	5,946		58		3.86	%	4,570		54		4.76	%	4,572		56		4.93	%
Total consumer loans	1,262,807		13,789		4.34	%	1,228,450		12,908		4.18	%
Total portfolio loans	5,770,917		63,667		4.38	%	5,373,073		55,101		4.08	%
Total loans⁽¹⁾⁽²⁾	5,786,706		63,819		4.38	%	5,382,516		55,201		4.08	%
Total Consumer Loans													1,236,317		14,182		4.60	%	1,255,916		13,673		4.36	%
Total Portfolio Loans													5,767,994		67,283		4.68	%	5,772,148		61,864		4.30	%
Total Loans⁽¹⁾⁽²⁾													5,769,522		67,311		4.68	%	5,777,201		61,897		4.30	%
Federal Home Loan Bank and other restricted stock	30,184		348		4.61	%	24,454		277		4.52	%	34,130		537		6.30	%	33,082		381		4.60	%
Total Interest-earning Assets	6,561,670		68,590		4.15	%	6,123,732		59,579		3.87	%	6,543,799		72,519		4.44	%	6,568,038		66,791		4.08	%
Noninterest-earning assets	510,681						519,011						491,246						507,425
Total Assets	$	7,072,351					$	6,642,743					$	7,035,045					$	7,075,463
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	647,442	$	406	0.25	%	$	670,807	$	295	0.17	%	$	571,260	$	438	0.31	%	$	649,440	$	352	0.22	%
Money market	999,892		2,200		0.87	%	732,820		854		0.46	%	1,251,171		4,027		1.29	%	937,272		1,690		0.72	%
Savings	979,767		525		0.21	%	1,034,018		507		0.20	%	851,702		429		0.20	%	1,019,220		539		0.21	%
Certificates of deposit	1,457,649		3,617		0.98	%	1,490,106		3,463		0.92	%	1,295,473		4,273		1.32	%	1,457,107		3,395		0.93	%
Total Interest-bearing Deposits	4,084,750		6,748		0.66	%	3,927,751		5,119		0.52	%	3,969,606		9,167		0.93	%	4,063,039		5,976		0.59	%
Securities sold under repurchase agreements	45,158		18		0.16	%	44,927		1		0.01	%	48,980		50		0.41	%	50,082		7		0.06	%
Short-term borrowings	600,893		1,975		1.30	%	459,043		761		0.66	%	617,891		3,179		2.06	%	682,584		1,849		1.09	%
Long-term borrowings	13,162		99		3.01	%	15,545		111		2.85	%	46,317		259		2.24	%	13,765		102		2.96	%
Junior subordinated debt securities	45,619		427		3.71	%	45,619		361		3.15	%	45,619		525		4.61	%	45,619		410		3.60	%
Total borrowings	704,832		2,519		1.42	%	565,134		1,234		0.87	%
Total Borrowings													758,807		4,013		2.12	%	792,050		2,368		1.20	%
Total Interest-bearing Liabilities	4,789,582		9,267		0.77	%	4,492,885		6,353		0.56	%	4,728,413		13,180		1.12	%	4,855,089		8,344		0.69	%
Noninterest-bearing liabilities:
Noninterest-bearing liabilities	1,401,755						1,318,683						1,403,771						1,354,711
Shareholders’ equity	881,014						831,175						902,861						865,663
Total Liabilities and Shareholders’ Equity	$	7,072,351					$	6,642,743					$	7,035,045					$	7,075,463
Net Interest Income ⁽²⁾⁽³⁾			$	59,323					$	53,226					$	59,339					$	58,447
Net Interest Margin ^{(2) (3)}					3.59	%					3.46	%					3.64	%					3.57	%

⁽¹⁾ Nonaccruing loans are included in the daily average loan amounts outstanding.

⁽²⁾ Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent for 2018 and 35 percent for ~~2017 and 2016.~~2017.

⁽³⁾Taxable investment income is adjusted for the dividend-received deduction for equity securities.

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	Nine months ended September 30, 2017						Nine months ended September 30, 2016						Six Months Ended June 30, 2018						Six Months Ended June 30, 2017
(dollars in thousands)	Average Balance		Interest		Rate		Average Balance		Interest		Rate		Average Balance		Interest		Rate		Average Balance		Interest		Rate
ASSETS
Interest-bearing deposits with banks	$	56,126	$	418	0.99	%	$	41,402	$	159	0.51	%	$	55,509	$	451	1.63	%	$	57,311	$	251	0.87	%
Securities available-for-sale, at fair value⁽²⁾⁽³⁾	699,150		12,918		2.46	%	675,690		12,205		2.41	%
Securities, at fair value⁽²⁾													686,017		8,803		2.57	%	703,300		8,664		2.46	%
Loans held for sale	7,734		210		3.63	%	16,033		716		5.97	%	1,737		56		6.44	%	3,639		57		3.16	%
Commercial real estate	2,623,360		84,559		4.31	%	2,305,795		71,329		4.13	%	2,733,168		62,924		4.64	%	2,595,163		55,005		4.27	%
Commercial and industrial	1,415,941		45,588		4.30	%	1,340,629		39,656		3.95	%	1,431,725		32,187		4.53	%	1,421,986		29,838		4.23	%
Commercial construction	433,748		13,030		4.02	%	392,520		10,864		3.70	%	349,893		8,032		4.63	%	438,079		8,456		3.89	%
Total commercial loans	4,473,049		143,177		4.28	%	4,038,944		121,849		4.03	%
Total Commercial Loans													4,514,786		103,143		4.61	%	4,455,228		93,299		4.22	%
Residential mortgage	700,996		21,520		4.10	%	659,942		20,466		4.14	%	692,961		14,554		4.21	%	700,129		14,297		4.10	%
Home equity	482,336		15,514		4.30	%	474,293		14,445		4.07	%	476,967		10,975		4.64	%	480,727		10,160		4.26	%
Installment and other consumer	69,401		3,377		6.51	%	65,217		3,091		6.33	%	67,025		2,241		6.74	%	69,036		2,216		6.47	%
Consumer construction	4,807		156		4.33	%	7,200		220		4.09	%	4,192		98		4.73	%	4,971		105		4.25	%
Total consumer loans	1,257,540		40,567		4.31	%	1,206,652		38,222		4.23	%
Total portfolio loans	5,730,589		183,744		4.29	%	5,245,596		160,071		4.08	%
Total loans⁽¹⁾⁽²⁾	5,738,323		183,954		4.29	%	5,261,629		160,787		4.08	%
Total Consumer Loans													1,241,145		27,868		4.52	%	1,254,863		26,778		4.29	%
Total Portfolio Loans													5,755,931		131,011		4.59	%	5,710,091		120,077		4.24	%
Total Loans⁽¹⁾⁽²⁾													5,757,668		131,067		4.59	%	5,713,730		120,134		4.24	%
Federal Home Loan Bank and other restricted stock	31,977		1,111		4.63	%	23,027		781		4.52	%	32,681		1,166		7.13	%	32,888		763		4.64	%
Total Interest-earning Assets	6,525,576		198,401		4.06	%	6,001,748		173,932		3.87	%	6,531,875		141,487		4.36	%	6,507,229		129,812		4.02	%
Noninterest-earning assets	509,750						519,913						490,476						509,265
Total Assets	$	7,035,326					$	6,521,661					$	7,022,351					$	7,016,494
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	643,423	$	1,034	0.21	%	$	649,515	$	798	0.16	%	$	573,307	$	806	0.28	%	$	641,381	$	628	0.20	%
Money market	958,619		5,295		0.74	%	677,891		2,051		0.40	%	1,222,770		7,259		1.20	%	937,641		3,096		0.67	%
Savings	1,013,318		1,599		0.21	%	1,041,802		1,474		0.19	%	862,947		866		0.20	%	1,030,371		1,075		0.21	%
Certificates of deposit	1,439,715		10,175		0.94	%	1,488,732		10,080		0.90	%	1,325,379		8,081		1.23	%	1,430,599		6,556		0.92	%
Total Interest-bearing Deposits	4,055,075		18,103		0.60	%	3,857,940		14,403		0.50	%	3,984,403		17,012		0.86	%	4,039,992		11,355		0.57	%
Securities sold under repurchase agreements	48,031		26		0.07	%	53,858		4		0.01	%	48,380		96		0.40	%	49,492		8		0.03	%
Short-term borrowings	651,494		5,224		1.07	%	385,394		1,855		0.64	%	607,013		5,687		1.89	%	677,214		3,249		0.97	%
Long-term borrowings	13,759		305		2.96	%	62,109		563		1.21	%	46,626		490		2.12	%	14,062		206		2.94	%
Junior subordinated debt securities	45,619		1,224		3.59	%	45,619		1,052		3.08	%	45,619		990		4.38	%	45,619		798		3.53	%
Total borrowings	758,903		6,779		1.19	%	546,980		3,474		0.85	%
Total Borrowings													747,638		7,263		1.96	%	786,387		4,261		1.09	%
Total Interest-bearing Liabilities	4,813,978		24,882		0.69	%	4,404,920		17,877		0.54	%	4,732,041		24,275		1.03	%	4,826,379		15,616		0.65	%
Noninterest-bearing liabilities:
Noninterest-bearing liabilities	1,355,636						1,298,847						1,393,939						1,332,181
Shareholders’ equity	865,712						817,894						896,371						857,934
Total Liabilities and Shareholders’ Equity	$	7,035,326					$	6,521,661					$	7,022,351					$	7,016,494
Net Interest Income ⁽²⁾⁽³⁾			$	173,519					$	156,055					$	117,212					$	114,196
Net Interest Margin ^{(2) (3)}					3.55	%					3.47	%
Net Interest Margin⁽²⁾⁽³⁾																	3.61	%					3.53	%

⁽¹⁾ Nonaccruing loans are included in the daily average loan amounts outstanding.

⁽²⁾ Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent for 2018 and 35 percent for ~~2017 and 2016.~~2017.

⁽³⁾Taxable investment income is adjusted for the dividend-received deduction for equity securities.

Net interest income on an FTE basis increased ~~$6.1~~$0.9 million, or ~~11.5~~1.5 percent, for the three months and increased ~~$17.5~~$3.0 million, or ~~11.2~~2.6 percent, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016.The increases were primarily due to organic loan growth and higher short-term interest rates.~~2017. The net interest margin on an FTE basis increased 13seven and eight basis points for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016.~~2017. The increases were primarily due to higher short-term rates, offset by the impact of the statutory federal corporate income tax rate decrease, which negatively impacts the June 30, 2018 net interest margin on an FTE basis by five and six basis points for the three and six months ended June 30, 2018 compared to the same periods in 2017.

Interest income on an FTE basis increased $5.7 million, or 8.6 percent, for the three months and $11.7 million, or 9.0 percent, for the six months ended June 30, 2018 compared to the same periods in 2017. The increases were due to higher short-

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

term interest rates. Average loan balances decreased $7.7 million for the three months and increased $44 million for the six months ended June 30, 2018 compared to the same periods in 2017. The average rate earned on loans increased 38 basis points for the three months and 35 basis points for the six months ended June 30, 2018 compared to the same periods in 2017 due to higher short-term interest rates. Average interest-bearing deposits with banks, which is primarily cash at the Federal Reserve, remained relatively flat and the average rates earned increased 69 and 76 basis points due to higher short-term interest rates for the three and six months ended June 30, 2018 compared to the same periods in 2017.Average investment securities decreased $24.1 million and $17.3 million with no significant changes to the rates. The decreases in average investment securities were due to declines in the market value of our bond portfolio. The average rates earned on the Federal Home Loan Bank (FHLB) and other restricted stock improved due to an increase in the FHLB’s quarterly dividend rate in 2018. Overall, the FTE rates on interest-earning assets increased 36 and 34 basis points for the three and six months ended June 30, 2018 compared to the same periods in 2017.

Interest expense increased $4.8 million and $8.7 million for the three and six months ended June 30, 2018 compared to the same periods in 2017. The increases were due to higher short-term interest rates.Average interest-bearing deposits decreased $93.4 million and $55.6 million for the three and six months ended June 30, 2018 compared to the same periods in 2017. Average money market balances increased $314 million and the average rate paid increased 57 basis points for the three months and increased $285 million and 53 basis points for the six months ended June 30, 2018 compared to the same periods in 2017 due to higher short-term interest rates. The money market balance increases are partially attributable to a shift in deposit mix, as average interest-bearing demand, savings, and certificates of deposit balances declined. The overall decline in average interest bearing deposits is favorably offset by increased average noninterest-bearing demand deposit balances of $44.1 million and $58.9 million.Average total borrowings decreased $33.2 million and $38.7 million for the three and six months ended June 30, 2018 compared to the same periods in 2017. Over the same periods, short-term borrowings decreased $64.7 million and $70.2 million and the average rate paid increased 97 and 92 basis points due to higher short-term interest rates. Long-term borrowings increased $32.6 million for both periods and the average rate paid decreased 72 and 82 basis points due to the addition of a long-term variable rate borrowing. Overall, the cost of interest-bearing liabilities increased 43 and 38 basis points for the three and six months ended June 30, 2018 compared to same periods in 2017.

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

Interest income on an FTE basis increased $9.0 million, or 28 percent, for the three months and increased $24.5 million, or 19 percent, for the nine months ended September 30, 2017 compared to the same periods in 2016. The increases were primarily due to increases in average interest-earning assets of $438 million and $524 million and higher short-term rates. Average loan balances increased $404 million and $477 million due to organic loan growth, primarily in the commercial loan portfolio. The rates earned on loans increased 30 and 21 basis points primarily due to the three Federal Funds rate increases that occurred between December 2016 and June 2017. Average interest-bearing deposits with banks, which is primarily cash at the Federal Reserve, increased $15.9 million and $14.7 million and the rates increased 73 and 48 basis points due to the previously mentioned Federal Funds rate increases. Average securities increased $12.1 million and $23.5 million with no significant changes to the rates.~~Overall, the FTE rate on interest-earning assets increased 28 and 19 basis points for the three and nine months ended September 30, 2017 compared to the same periods in 2016.~~

Interest expense increased $2.9 million for the three months and increased $7.0 million for the nine months ended September 30, 2017 compared to the same periods in 2016. The increases were primarily due to increases in average interest-bearing liabilities of $297 million and $409 million and higher short-term rates. Average interest-bearing deposits increased $157 million and $197 million due to sales efforts and rate promotions. Average money market account balances increased $267 million and $281 million and the average rates paid increased 41 and 34 basis points. Average total borrowings increased $140 million and $212 million to provide funding for loan growth. Short-term borrowings increased $142 million and $266 million and the average rates paid increased 64 and 43 basis points due to the previously mentioned Federal Funds rate increases. Overall, the cost of interest-bearing liabilities increased 21 and 15 basis points for the three and nine months ended September 30, 2017 compared to the same periods in 2016.

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~~S&T BANCORP, INC. AND SUBSIDIARIES~~

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

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


	Three Months Ended September 30, 2017 compared to September 30, 2016									Nine Months Ended September 30, 2017 compared to September 30, 2016									Three Months Ended June 30, 2018 compared to June 30, 2017									Six Months Ended June 30, 2018 compared to June 30, 2017
(dollars in thousands)	Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total			Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total			Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total			Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total
Interest earned on:
Interest-bearing deposits with banks	$	21		$	98		$	119		$	57		$	202		$	259		$	15		$	96		$	111		$	(8	)	$	208		$	200
Securities available-for-sale, at fair value⁽²⁾⁽³⁾	72			131			203			424			289			713
Securities, at fair value⁽²⁾⁽³⁾																			(149		)	196			47			(213		)	352			139
Loans held for sale	67			(15		)	52			(371		)	(135		)	(506		)	(23		)	18			(5		)	(30		)	29			(1		)
Commercial real estate	2,769			1,803			4,572			9,824			3,406			13,230			1,180			2,893			4,073			2,925			4,994			7,919
Commercial and industrial	609			1,486			2,095			2,228			3,704			5,932			19			1,261			1,280			204			2,145			2,349
Commercial construction	331			687			1,018			1,141			1,025			2,166			(985		)	542			(443		)	(1,702		)	1,278			(424		)
Total commercial loans	3,709			3,976			7,685			13,193			8,135			21,328
Total Commercial Loans																			215			4,695			4,910			1,427			8,417			9,844
Residential mortgage	216			(94		)	122			1,273			(219		)	1,054			(91		)	168			77			(146		)	403			257
Home equity	49			541			590			245			824			1,069			(89		)	510			421			(79		)	894			815
Installment and other consumer	165			11			176			198			88			286			(44		)	57			13			(65		)	90			25
Consumer construction	(14		)	7			(7		)	(73		)	9			(64		)	—			(2		)	(2		)	(16		)	9			(7		)
Total consumer loans	416			465			881			1,643			702			2,345
Total portfolio loans	4,125			4,441			8,566			14,836			8,837			23,673
Total loans⁽¹⁾⁽²⁾	4,192			4,426			8,618			14,465			8,702			23,167
Total Consumer Loans																			(223		)	732			509			(306		)	1,396			1,090
Total Portfolio Loans																			(8		)	5,427			5,419			1,121			9,813			10,934
Total Loans⁽¹⁾⁽²⁾																			(31		)	5,445			5,414			1,091			9,842			10,933
Federal Home Loan Bank and other restricted stock	65			6			71			304			26			330			12			144			156			(5		)	408			403
Change in Interest Earned on Interest-earning Assets	$	4,350		$	4,661		$	9,011		$	15,250		$	9,219		$	24,469		$	(154	)	$	5,882		$	5,728		$	865		$	10,810		$	11,675
Interest paid on:
Interest-bearing demand	$	(10	)	$	121		$	111			($7	)		$243			$236		$	(42	)	$	128		$	86			($67	)		$245			$178
Money market	311			1,035			1,346			849			2,395			3,244			566			1,771			2,337			941			3,222			4,163
Savings	(27		)	45			18			(40		)	165			125			(89		)	(21		)	(110		)	(175		)	(34		)	(209		)
Certificates of deposit	(75		)	229			154			(332		)	427			95			(377		)	1,255			878			(482		)	2,007			1,525
Total interest-bearing deposits	199			1,430			1,629			470			3,230			3,700
Total Interest-bearing Deposits																			58			3,133			3,191			217			5,440			5,657
Securities sold under repurchase agreements	—			17			17			—			22			22			—			43			43			—			88			88
Short-term borrowings	235			979			1,214			1,281			2,088			3,369			(175		)	1,505			1,330			(337		)	2,775			2,438
Long-term borrowings	(17		)	5			(12		)	(438		)	180			(258		)	241			(84		)	157			477			(193		)	284
Junior subordinated debt securities	—			66			66			—			172			172			—			115			115			—			192			192
Total borrowings	218			1,067			1,285			843			2,462			3,305
Total Borrowings																			66			1,579			1,645			140			2,862			3,002
Change in Interest Paid on Interest-bearing Liabilities	417			2,497			2,914			1,313			4,902			6,215			124			4,712			4,836			357			8,302			8,659
Change in Net Interest Income	$	3,933		$	2,164		$	6,097		$	13,937		$	7,716		$	18,254		$	(278	)	$	1,170		$	892		$	508		$	2,508		$	3,016

⁽¹⁾ Nonaccruing loans are included in the daily average loan amounts outstanding.

⁽²⁾ Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent for 2018 and 35 percent for ~~2017 and 2016.~~2017.

⁽³⁾ Taxable investment income is adjusted for the dividend-received deduction for equity securities.

⁽⁴⁾ Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.

Provision for Loan Losses

The provision for loan losses is the amount to be added to the allowance for loan losses, or ~~ALL,~~ALLL, after considering loan charge-offs and recoveries to bring the ~~ALL~~ALLL to a level determined to be appropriate in management's judgment to absorb probable losses inherent in the loan portfolio. The provision for loan losses ~~remained relatively consistent at $2.9~~increased $4.4 million and ~~$12.9~~$1.7 million to $9.3 million and $11.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~$2.5~~$4.9 million and ~~$12.4~~$10.1 million for the same periods in ~~2016. Higher~~2017.

The increases in the provision for loan losses were mainly due to higher net charge-offs in ~~2017 were offset by lower specific reserves on impaired loans compared to 2016. Net charge-offs increased $0.6 million and $2.2 million to $1.5 million and $9.0 million for~~both periods. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, we had net charges-offs of $7.9 million and $7.7 million compared to ~~$0.9~~net charges-offs of $5.3 million and ~~$6.8~~$7.5 million for the same periods in ~~2016.~~2017. Net charge-offs for both periods in 2018 were significantly impacted by a $5.2 million loan charge-off for a commercial customer arising from a participation loan agreement with a lead bank and

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

other participating banks. The loss resulted from fraudulent activities believed to be perpetrated by one or more executives employed by the borrower and its related entities. Annualized net loan charge-offs to average loans were ~~0.10 percent~~0.55 and ~~0.21~~0.27 percent for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to ~~0.07 percent~~0.37 and ~~0.17~~0.26 percent for the same periods in ~~2016. Specific reserves~~2017. The higher provision for loan losses was also due to an increase in substandard commercial loans. Substandard commercial loans increased $75.0 million from $89.7 million at June 30, 2017 to $165 million at June 30, 2018.

Impaired loans decreased ~~$1.9~~$6.7 million to $33.8 million at June 30, 2018 compared to $40.5 million at June 30, 2017 and specific reserves on impaired loans decreased $0.4 million compared to the same period in the prior year. Nonperforming loans decreased $15.3 million to $21.4 million at June 30, 2018 compared to $36.7 million at June 30, 2017. These decreases primarily related to larger than normal payoffs during the first three months of 2018.

The ALLL at June 30, 2018 was $60.5 million compared to $55.4 million at June 30, 2017. The ALLL as a percent of total portfolio loans was 1.05 percent at June 30, 2018 and 0.96 percent at June 30, 2017. The increase in the ALLL as a percent of total loans is attributed to the increase in substandard commercial loans noted above. Refer to “Financial Condition - Allowance for Loan Losses” in this MD&A for additional information.

Noninterest Income



	Three Months Ended June 30,									Six Months Ended June 30,
(dollars in thousands)	2018		2017		$ Change			% Change		2018		2017		$ Change			% Change
Net gain (loss) on sale of securities	$	—	$	3,617	$	(3,617	)	—	%	$	—	$	3,987	$	(3,987	)	—	%
Debit and credit card	3,309		3,042		267			8.8		6,347		5,885		462			7.9
Service charges on deposit accounts	3,227		2,997		230			7.7		6,468		6,012		456			7.6
Wealth management	2,616		2,428		188			7.7		5,298		4,831		467			9.7
Mortgage banking	831		675		156			23.1		1,432		1,408		24			1.7
Insurance	134		1,458		(1,327		)	(90.8	)	303		2,913		(2,610		)	(89.6	)
Gain on sale of a majority interest of insurance business	—		—		—			—		1,873		—		1,873			—
Other	2,134		2,048		86			4.2		4,323		4,225		98			2.3
Total Noninterest Income	$	12,251	$	16,265	$	(4,017	)	(24.7	)%	$	26,044	$	29,261	$	(3,217	)	(11.0	)%

Noninterest income decreased $4.0 million to $12.3 million for the three months ended June 30, 2018 and decreased $3.2 million to $26.0 million for the six months ended June 30, 2018 compared to the same periods in 2017. The decrease was primarily related to gains on the sales of securities in 2017 and the sale of a majority interest in S&T Evergreen Insurance, LLC in the first quarter of 2018. As a result of this sale, insurance income decreased $1.3 million for the three months ended and $2.6 million for the six months ended June 30, 2018. Debit and credit card increased $0.3 million ~~at September~~for the three months ended and $0.5 million for the six months ended June 30, 2018 related to increased debit card usage and an increase in merchant revenue. Service charges on deposit accounts increased $0.2 million for the three months ended and $0.5 million for the six months ended June 30, 2018 due to program changes. Wealth management fees increased $0.2 million for the three months ended and $0.5 million for the six months ended June 30, 2018 due to improvement in market conditions.

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

~~2017 compared to $2.2 million at September 30, 2016. Nonperforming loans decreased at September 30, 2017 by $11.0 million, or 27.2 percent, compared to September 30, 2016.~~

The ALL at September 30, 2017 was $56.7 million compared to $53.8 million at September 30, 2016. The ALL as a percent of total portfolio loans was 0.97 percent at September 30, 2017 and 0.99 percent at September 30, 2016. Refer to “Financial Condition - Allowance for Loan Losses” in this MD&A for additional information.

Noninterest ~~Income~~Expense

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2017
2016
$ Change
% Change
2017 2016 $ Change % Change
Securities gains (losses), net $ —
$ —
$ —
— % $ 3,987
$ —
$ 3,987
NM
Service charges on deposit accounts 3,207
3,208
(1 ) —
9,218
9,272
(54 ) (0.6 )
Debit and credit card 3,067
3,163
(96 ) (3.0 )% 8,952
8,818
134
1.5 %
Wealth management 2,406
2,565
(159 ) (6.2 ) 7,237
7,947
(710 ) (8.9 )
Insurance 1,333
1,208
125
10.3
4,258
4,187
71
1.7
Bank owned life insurance 1,209
532
677
127.3
2,249
1,569
680
43.3
Mortgage banking 872
1,077
(205 ) (19.0 ) 2,280
2,185
95
4.3
Gain on sale of credit card portfolio —
—
—
—
—
2,066
(2,066 ) NM
Other 1,457
1,695
(238 ) (14.0 ) 4,631
5,669
(1,038 ) (18.3 )
Total Noninterest Income $ 13,551
$ 13,448
$ 103
0.8 % $ 42,812
$ 41,713
$ 1,099
2.6 %
NM- Not meaningful



	Three Months Ended June 30,									Six Months Ended June 30,
(dollars in thousands)	2018		2017		$ Change			% Change		2018		2017		$ Change			% Change
Salaries and employee benefits	$	18,611	$	19,903	$	(1,292	)	(6.5	)%	$	37,426	$	40,444	$	(3,018	)	(7.5	)%
Net occupancy	2,804		2,751		53			1.9		5,677		5,566		111			2.0
Data processing and information technology	2,379		2,163		216			10.0		4,704		4,386		318			7.3
Furniture, equipment and software	2,134		1,810		324			17.9		4,090		3,857		233			6.0
Other taxes	1,739		1,083		656			60.6		3,587		2,060		1,527			74.1
Marketing	1,190		948		242			25.5		1,892		1,702		190			11.2
Professional services and legal	888		931		(43		)	(4.6	)	1,939		1,999		(60		)	(3.0	)
FDIC insurance	739		1,185		(446		)	(37.6	)	1,847		2,308		(461		)	(20.0	)
Other	5,379		5,823		(444		)	(7.6	)	10,783		11,084		(301		)	(2.7	)
Total Noninterest Expense	$	35,863	$	36,597	$	(734	)	(2.0	)%	$	71,945	$	73,406	$	(1,461	)	(2.0	)%

Noninterest ~~income was relatively unchanged~~expense decreased $0.7 million to $35.9 million for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~increased $1.1~~decreased $1.5 million ~~or 2.6 percent,~~ to ~~$42.8~~$71.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016. The increase of $1.1~~2017. Salaries and employee benefits expense decreased $1.3 million for the ~~nine~~three months ended ~~September 30, 2017 compared to the same period in 2016 primarily related to $4.0 million of securities gains~~ and a $0.7 million increase in BOLI income. The increase in BOLI income related to a $0.7 million claim during the third quarter of 2017. These increases were offset in part by decreases due to a $2.1 gain on the sale of our credit card portfolio and a $1.0 million curtailment gain resulting from the amendment to freeze benefit accruals for all participants in our defined benefit plans, both of which occurred in 2016. The decrease in wealth management fees of $0.7$3.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016 was primarily~~2017 due to lower restricted stock, incentive and commission costs and fewer employees mainly due to the sale of a ~~decline~~majority of our insurance business in ~~brokerage service revenue and advisory fees.~~

~~The increase of $0.1~~the first quarter 2018. FDIC insurance decreased $0.4 million ~~in noninterest income~~ for the three months ended September 30, 2017 compared to the same period in 2016 primarily related to the previously mentioned BOLI claim partially offset by lower interest rate swap fees from our commercial customers included within other income and ~~lower mortgage banking income.~~

~~Noninterest Expense~~

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2017 2016 $ Change % Change 2017 2016 $ Change % Change
Salaries and employee benefits $ 20,325
$ 19,011
$ 1,314
6.9 % $ 60,770
$ 57,539
$ 3,231
5.6 %
Net occupancy 2,692
2,776
(84 ) (3.0 ) 8,258
8,413
(155 ) (1.8 )
Data processing 2,284
2,128
156
7.3
6,670
6,758
(88 ) (1.3 )
Furniture and equipment 1,890
1,932
(42 ) (2.2 ) 5,746
5,580
166
3.0
Other taxes 1,208
1,080
128
11.9
3,268
3,076
192
6.2
FDIC insurance 1,152
1,005
147
14.6
3,461
2,938
523
17.8
Professional services and legal 870
817
53
6.5
2,871
2,545
326
12.8
Marketing 766
896
(130 ) (14.5 ) 2,468
2,872
(404 ) (14.1 )
Other 5,366
4,794
572
11.9
16,448
17,886
(1,438 ) (8.0 )
Total Noninterest Expense $ 36,553
$ 34,439
$ 2,114
6.1 % $ 109,960
$ 107,607
$ 2,353
2.2 %

~~NM - not meaningful~~

~~Noninterest expense increased $2.1 million, or 6.1 percent, to $36.6~~$0.5 million for the ~~three months and increased $2.4 million, or 2.2 percent, to $110 million for the nine~~six months ended ~~September~~June 30, ~~2017~~2018 compared to the same periods in ~~2016.~~2017 due to improvements in the financial ratios used to determine the assessment. Other noninterest expense decreased $0.4 million for the three months ended and $0.3 million for the six months ended June 30, 2018 compared to the same periods in 2017 primarily due to a decrease of $0.5 million in the reserve for unfunded loan commitments and decreases in amortization of both our core deposit intangible asset and qualified affordable housing projects. These decreases were offset by an increase in other taxes of $0.7 million for the three months ended and $1.5 million for the six months ended June 30, 2018 due to a state sales tax assessment. Furniture and equipment expense increased $0.3 million for the three months ended and $0.2 million for the six months ended June 30, 2018 compared to the same periods in 2017 due to technology upgrades. Data processing increased $0.2 million for the three months ended and $0.3 million for the six months ended June 30, 2018 compared to the same periods in 2017 due to the annual increase with our third-party data processor.

Provision for Income Taxes

The provision for income taxes decreased $4.6 million and $5.3 million for the three and six months ended June 30, 2018 compared to the same periods in 2017. The decrease was primarily due to the Tax Act which lowered the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. As a result, our effective tax rate declined to 15.8 percent for the three months ended and 17.4 percent for the six months ended June 30, 2018 compared to 27.4 percent and 27.2 percent for the same periods in the prior year. Included in the effective tax rate for the six months ended June 30, 2018 were non-recurring discrete tax expense items of $0.7 million primarily related to the sale of a majority interest of our insurance business.

Financial Condition

June 30, 2018

Total assets were relatively unchanged at $7.1 billion at June 30, 2018 compared to December 31, 2017. Total portfolio loans increased slightly to $5.8 billion with increases in Commercial Real Estate, or CRE, Commercial and Industrial, or C&I and the Consumer Construction portfolio. Higher than usual payoffs in commercial loans combined with lower seasonal demand resulted in a modest increase of $24.7 million. Securities decreased $10.0 million to $688 million from $698 million at December 31, 2017 primarily due to normal investing activity.

Our deposits decreased slightly but remained at $5.4 billion at both June 30, 2018 and December 31, 2017. The decrease of $34.4 million is primarily due to the competition for customer funds which resulted in declines in all categories except money market and noninterest-bearing demand accounts compared to December 31, 2017.

Total borrowings increased $53.3 million from December 31, 2017 to June 30, 2018 due to increased funding needs.

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

Salaries and employee benefits expense increased $1.3 million and $3.2 primarily due to annual merit increases, higher incentive costs and higher medical claims in 2017. These increases were offset by decreases in pension expense of $0.5 million for the three months ended September 30, 2017 and $1.4 million for the nine months ended September 30, 2017 due to the amendment to freeze benefit accruals for all participants in our defined benefit plans that occurred during three months ended March 31, 2016. Other noninterest expense increased $0.6 million and decreased $1.4 million for the three and nine months ended September 30, 2017 compared to the same periods of 2016. The increase for the three month period related to higher loan related expenses due to expense recoveries on impaired loans that paid off in third quarter of 2016. The decrease of $1.4 million for the nine months ended September 30, 2017 primarily related to lower processing charges for credit cards due to the sale of the credit card portfolio in 2016, lower loan related expenses and decreases in amortization of both our core deposit intangible asset and qualified affordable housing projects. FDIC insurance expense increased $0.1 million and $0.5 million due to growth. The decrease of $0.1 million and $0.4 million in marketing expense related to the timing of various promotions. Professional services and legal expense increased $0.1 million during the three months ended and $0.4 million during the nine months ended September 30, 2017 due to higher consulting expenses.

~~Provision for Income Taxes~~

The provision for income taxes increased $1.5 million and $5.4 million for the three and nine months ended September 30, 2017 compared to the same periods in 2016 primarily due to increases of $3.7 million and $15.3 million in pre-tax income for the three and nine months ended September 30, 2017. The effective tax rate for the three and nine months ended September 30, 2017 was 28.1 percent and 27.5 percent compared to 26.4 percent and 25.9 percent for the same periods in 2016.

~~Financial Condition~~

~~September 30, 2017~~

Total assets increased $227 million, or 3.3 percent, to $7.2 billion at September 30, 2017 compared to $6.9 billion at December 31, 2016. Total portfolio loans increased $209 million, or 3.7 percent primarily due to a $183 million increase in the Commercial Real Estate, or CRE, portfolio and a $45.8 million increase in the commercial and industrial, or C&I, portfolio. Loans held for sale increased $44.1 million to $47.9 million compared to $3.8 million at December 31, 2016 due to a branch sale that is expected to close in the fourth quarter of 2017. Securities increased $4.5 million to $698 million from $693 million at December 31, 2016 primarily due to normal purchases offset by sales of investments in our equity portfolio.

Our deposits increased $171 million, or 3.2 percent, to $5.4 billion at September 30, 2017 compared to $5.3 billion at December 31, 2016. The increase in deposits was primarily due to increases in money market accounts of $100 million, noninterest-bearing demand accounts of $85.1 million, certificates of deposit of $47.8 million and interest-bearing demand of $7.9 million, offset by a decrease of $109 million in savings accounts. The increase in certificates of deposits, or CDs, was mainly due to a $56.3 million increase in brokered CDs primarily for funding needs to support our asset growth. The increases in both noninterest-bearing demand accounts and money market accounts are due to sales efforts to support our strategic goal to grow our customer deposits. The decrease in savings accounts is a result of repositioning by our customers. At September 30, 2017, $39.0 million of deposits were held for sale due to a branch sale that is expected to close in the fourth quarter of 2017.

~~Total borrowings increased $12.3 million from December 31, 2016 to support asset growth.~~

Total shareholders’ equity increased by ~~$45.6~~$23.1 million ~~or 5.4 percent,~~ at ~~September~~June 30, ~~2017~~2018 compared to December 31, ~~2016.~~2017. The increase was primarily due to net income of ~~$63.7~~$47.6 million offset partially by dividends of ~~$20.9~~$16.4 million. The $8.2 million decrease in other comprehensive income compared to December 31, 2017 was due to a $9.3 million decrease in unrealized losses on our available-for-sale investment securities and a $1.1 million change in the funded status of our employee benefit plans.

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~~S&T BANCORP, INC. AND SUBSIDIARIES~~

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

Securities Activity


(dollars in thousands)	September 30, 2017		December 31, 2016		$ Change			June 30, 2018		December 31, 2017		$ Change
U.S. treasury securities	$	24,894	$	24,811	$	83		$	9,619	$	19,789	$	(10,170	)
Obligations of U.S. government corporations and agencies	196,008		232,179		(36,171		)	155,069		162,193		(7,124		)
Collateralized mortgage obligations of U.S. government corporations and agencies	114,895		129,777		(14,882		)	118,742		108,688		10,054
Residential mortgage-backed securities of U.S. government corporations and agencies	35,197		37,358		(2,161		)	28,442		32,854		(4,412		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	192,604		125,604		67,000			247,128		242,221		4,907
Obligations of states and political subdivisions	129,304		132,509		(3,205		)	123,916		127,402		(3,486		)
Debt Securities Available-for-Sale	692,902		682,238		10,664			682,916		693,147		(10,231		)
Marketable equity securities	5,052		11,249		(6,197		)	5,425		5,144		281
Total Securities Available-for-Sale	$	697,954	$	693,487	$	4,467
Total Securities								$	688,341	$	698,291	$	(9,950	)

We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to 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. Security purchases are subject to an investment policy approved annually by our Board of Directors and administered through ALCO and our treasury function. Securities ~~increased $4.5~~decreased $10.0 million to ~~$698~~$688 million at June 30, 2018 from ~~$693~~$698 million at December 31, ~~2016~~2017 primarily due to normal ~~purchases offset by sales of investments in our equity portfolio.~~investing activity.

At ~~September~~June 30, ~~2017~~2018 our bond portfolio was in a net unrealized ~~gain~~loss position of ~~$6.3~~$10.1 million compared to a net unrealized gain position of ~~$3.6~~$1.7 million at December 31, ~~2016.~~2017. At ~~September~~June 30, ~~2017,~~2018 total gross unrealized ~~gains~~losses in the bond portfolio were ~~$8.7~~$13.0 million offset by ~~$2.4~~$2.9 million of gross unrealized ~~losses,~~gains, compared to December 31, ~~2016,~~2017, when total gross unrealized gains were ~~$7.1~~$5.6 million offset by gross unrealized losses of ~~$3.5~~$3.9 million. Total unrealized gains on marketable equity securities at September 30, 2017 were $1.2 million compared to $3.7 million at December 31, 2016. The decrease in unrealized gains on marketable equity securities was primarily due to recognized gains of $4.0 million on marketable equity securities sold during nine months ended September 30, 2017. Management evaluates the securities portfolio for other than temporary impairment, or OTTI, on a quarterly basis. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we did not record any OTTI. The performance of the debt ~~and equity~~ securities ~~markets~~market could generate impairments in future periods requiring realized losses to be reported.

Loan Composition


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans
Commercial
Commercial real estate	$	2,681,693	46.1	%	$	2,498,476	44.5	%	$	2,788,641	48.20	%	$	2,685,994	46.62	%
Commercial and industrial	1,446,811		24.9		1,401,035		25.0		1,455,578		25.16		1,433,266		24.88
Construction	432,887		7.4		455,884		8.1		299,787		5.18		384,334		6.67
Total Commercial Loans	4,561,391		78.4	%	4,355,395		77.6	%	4,544,006		78.54	%	4,503,594		78.17	%
Consumer
Residential mortgage	697,367		11.9	%	701,982		12.5	%	698,440		12.07	%	698,774		12.13	%
Home equity	487,806		8.4		482,284		8.6		471,622		8.15		487,326		8.46
Installment and other consumer	69,644		1.2		65,852		1.2		66,638		1.15		67,204		1.16
Construction	4,550		0.1		5,906		0.1		5,412		0.09		4,551		0.08
Total Consumer Loans	1,259,367		21.6	%	1,256,024		22.4	%	1,242,112		21.46	%	1,257,855		21.83	%
Total Portfolio Loans	5,820,758		100.0	%	5,611,419		100.0	%	5,786,118		100.00	%	5,761,449		100.00	%
Loans Held for Sale	47,936				3,793				3,801				4,485
Total Loans	$	5,868,694			$	5,615,212			$	5,789,919			$	5,765,934

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Our loan portfolio represents our most significant source of interest income. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay.

Total portfolio loans increased ~~$209~~$24.7 million ~~or 3.7 percent, to~~and remain at $5.8 billion at ~~September~~both June 30, ~~2017 compared to $5.6 billion at~~2018 and December 31, ~~2016. Loan growth~~2017. The increase was primarily due to growth in our commercial loan ~~portfolio and mainly in our newer markets of New York, Ohio and central Pennsylvania. The increase in commercial~~portfolio. CRE loans ~~primarily related to growth in CRE of $183~~increased $103 million, or ~~7.3~~3.8 percent, and C&I ~~of $45.8~~loans increased $22.3 million, or ~~3.3 percent. Loans held for sale increased $44.1 million to $47.9 million compared to $3.8 million at December 31, 2016 due to~~1.6 percent, over the six-month period offset by a ~~branch sale that is expected to close~~decrease in the ~~fourth quarter~~commercial construction portfolio of ~~2017.~~$84.6 million. Loan growth has been impacted by higher than usual loan payoffs. Consumer loans decreased $15.7 million over the six-month period with the decrease mainly in the home equity portfolio.

Allowance for Loan Losses

We maintain an ~~ALL~~ALLL at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date, and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ~~ALL~~ALLL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ~~ALL~~ALLL has two main components: evaluation and impairment tests of individual loans and evaluation and impairment tests 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 economy in our markets. In addition, each loan segment carries with it risks specific to the segment. We develop and document a systematic ~~ALL~~ALLL methodology based on the following portfolio segments: 1. CRE, 2. C&I, 3. Commercial Construction, 4. Consumer Real Estate and 5. Other Consumer. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ~~ALL.~~ALLL.

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. Operations 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 are 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 does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.

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 of these loans is generally confined to the construction period, 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. 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 are secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, 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 markets can also have a significant impact on this segment 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 are made to individuals and may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines. 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.

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

The following tables summarize the ~~ALL~~ALLL and recorded investments in loans by category for the dates presented:


	September 30, 2017												June 30, 2018
	Allowance for Loan Losses						Portfolio Loans						Allowance for Loan Losses						Portfolio Loans
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial real estate	$	—	$	24,975	$	24,975	$	6,341	$	2,675,352	$	2,681,693	$	—	$	31,232	$	31,232	$	3,555	$	2,785,086	$	2,788,641
Commercial and industrial	260		9,454		9,714		8,543		1,438,268		1,446,811		—		10,874		10,874		17,539		1,438,039		1,455,578
Commercial construction	—		14,915		14,915		5,974		426,913		432,887		—		11,676		11,676		3,441		296,346		299,787
Consumer real estate	22		5,509		5,531		11,076		1,178,647		1,189,723		—		5,241		5,241		9,186		1,166,288		1,175,474
Other consumer	30		1,547		1,577		54		69,590		69,644		35		1,459		1,494		44		66,594		66,638
Total	$	312	$	56,400	$	56,712	$	31,988	$	5,788,770	$	5,820,758	$	35	$	60,482	$	60,517	$	33,765	$	5,752,353	$	5,786,118


	December 31, 2016												December 31, 2017
	Allowance for Loan Losses						Portfolio Loans						Allowance for Loan Losses						Portfolio Loans
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial real estate	$	—	$	19,976	$	19,976	$	16,352	$	2,482,124	$	2,498,476	$	—	$	27,235	$	27,235	$	3,546	$	2,682,448	$	2,685,994
Commercial and industrial	771		10,039		10,810		6,866		1,394,169		1,401,035		29		8,937		8,966		7,284		1,425,982		1,433,266
Commercial construction	—		13,999		13,999		6,613		449,271		455,884		—		13,167		13,167		5,464		378,870		384,334
Consumer real estate	26		6,069		6,095		12,079		1,178,093		1,190,172		21		5,458		5,479		10,488		1,180,163		1,190,651
Other consumer	1		1,894		1,895		25		65,827		65,852		27		1,516		1,543		41		67,163		67,204
Total	$	798	$	51,977	$	52,775	$	41,935	$	5,569,484	$	5,611,419	$	77	$	56,313	$	56,390	$	26,823	$	5,734,626	$	5,761,449


	September 30, 2017			December 31, 2016		June 30, 2018			December 31, 2017
Ratio of net charge-offs to average loans outstanding	0.21	%	*	0.25	%	0.27	%	*	0.18	%
Allowance for loan losses as a percentage of total loans	0.97	%		0.94	%	1.05	%		0.98	%
Allowance for loan losses to nonperforming loans	192	%		124	%	283	%		236	%

^* Annualized

The ~~ALL~~ALLL was ~~$56.7~~$60.5 million, or ~~0.97~~1.05 percent of total portfolio loans, at ~~September~~June 30, ~~2017~~2018 compared to ~~$52.8~~$56.4 million, or ~~0.94~~0.98 percent of total portfolio loans at December 31, ~~2016.~~2017. The increase in the ~~ALL~~ALLL of ~~$3.9~~$4.1 million and the seven basis point increase to the ALLL as a percent of total portfolio loans was primarily due to a ~~$4.4~~$4.2 million increase in the reserve for loans collectively evaluated for impairment ~~at September 30, 2017~~ compared to December 31, 2016. This increase was primarily due to loan growth and an increase in loss rates in our CRE portfolio, which was partially offset by a decrease of $0.5 million in specific reserves for loans individually evaluated for impairment. Impaired loans decreased $9.9 million, or 23.7 percent, from December 31, 2016 to $32.0 million at September 30, 2017. The decrease was primarily due to $16.2 million in loan pay downs and charge-offs primarily related to our acquired loan portfolio, which were offset by newly identified impaired loans of $6.3 million.

Net loan charge-offs were $9.0 million for the nine months ended September 30, 2017 comprised primarily of $7.6 million in charge-offs of acquired loans and $2.4 million in charge-offs related to two originated C&I relationships which were partially offset by $2.2 million in loan recoveries. Commercial special mention, substandard and doubtful loans ~~at September 30, 2017~~ increased ~~by $22.7~~$96.8 million to ~~$208~~$298 million compared to ~~$186~~$201 million at December 31, ~~2016,~~2017, with an increase of ~~$32.4~~$2.8 million in special mention and ~~a decrease~~an increase of ~~$9.7~~$94.1 million in substandard. Impaired loans increased $6.9 million to $33.8 million at June 30, 2018 with no significant specific reserves.

During the three and six months ended June 30, 2018 there were net loan charge-offs of $7.9 million and $7.7 million compared to net charge-offs of $5.3 million and $7.5 million for the same periods in 2017. Net charge-offs for both periods were significantly impacted by a $5.2 million loan charge-off for a commercial customer arising from a participation loan agreement with a lead bank and other participating banks. The ~~increase~~loss resulted from fraudulent activities believed to be perpetrated by one or more executives employed by the borrower and its related entities. The provision for loan loss was $9.3 million and $11.8 million for the three and six months ended June 30, 2018 compared to $4.9 million and $10.1 million for the same periods in ~~special mention loans of $32.4 million primarily related to a $19.8 million CRE relationship.~~2017.

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We individually evaluate all substandard and nonaccrual commercial loans greater than $0.5 million for impairment. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Our methodology for evaluating whether a loan is impaired includes risk-rating credits on an individual basis and consideration of the borrower’s overall financial condition, payment history and available cash resources. In measuring impairment, we primarily utilize fair market value of the collateral; however, we also use discounted cash flow when warranted.

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 grant. We strive to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant. Additionally, we classify loans where the debt obligation has been discharged through a Chapter 7 ~~Bankruptcy~~bankruptcy and not reaffirmed by the borrower as TDRs.

An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before the modification. 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 expect 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. 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.

As an example, consider a substandard commercial construction loan that is currently 90 days past due where the loan is restructured to extend the maturity date for a period longer than would be considered an insignificant period of time. The post-modification interest rate given to the borrower is considered to be lower than the current market rate for new debt with similar risk and all other terms remain the same according to the original loan agreement. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted due to the long extension, resulting in payment delay as well as the rate being lower than current market rate for new debt with similar risk. The loan will be reported as a nonaccrual TDR and an impaired loan. In addition, the loan could be charged down to the fair value of the collateral if a confirmed loss exists. 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 because the interest rate was not adjusted to be equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk.

TDRs increased ~~$0.8~~$5.7 million to ~~$25.8~~$31.8 million at ~~September~~June 30, ~~2017~~2018 compared to ~~$25.0~~$26.1 million at December 31, ~~2016.~~2017. The increase is primarily due to new TDRs totaling ~~$4.5~~$11.7 million, which were offset by principal reductions and charge-offs. Total TDRs of ~~$25.8~~$31.8 million at ~~September~~June 30, ~~2017~~2018 included ~~$15.6~~$24.4 million, or ~~60.5~~76.8 percent, that were accruing and ~~$10.2~~$7.4 million, or ~~39.5~~23.2 percent, that were nonaccrual.

Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when 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~~proceeding;

•The value of collateral and probability of successful liquidation; and/or

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

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

Consumer unsecured loans and secured loans 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.

Our allowance for lending-related commitments is determined using a methodology similar to that used for the ALL. Amounts are added to the allowance for lending-related commitments by a charge to current earnings through noninterest expense. The reserve is calculated by applying historical loss rates to unfunded commitments and considering qualitative factors. The allowance for unfunded loan commitments was little changed at $2.1 million at ~~September~~June 30, ~~2017~~2018 compared to ~~$2.6~~$2.2 million at December 31, ~~2016. The decrease primarily related to a decline in the historic loss rate for C&I commitments and a decrease in the balance of total unfunded commitments.~~2017. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

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


(dollars in thousands)	September 30, 2017			December 31, 2016			$ Change			June 30, 2018			December 31, 2017			$ Change
Nonaccrual Loans
Nonperforming Loans
Commercial real estate	$	5,488		$	15,526		$	(10,038	)	$	3,692		$	2,501		$	1,191
Commercial and industrial	3,769			3,578			191			2,254			2,449			(195		)
Commercial construction	3,647			4,497			(850		)	1,460			1,460			—
Residential mortgage	3,687			4,850			(1,163		)	4,188			3,580			608
Home equity	2,662			2,485			177			2,335			2,736			(401		)
Installment and other consumer	37			101			(64		)	48			62			(14		)
Consumer construction	—			—			—			—			—			—
Total Nonaccrual Loans	19,290			31,037			(11,747		)
Nonaccrual Troubled Debt Restructurings
Total Nonperforming Loans										13,977			12,788			1,189
Nonperforming Troubled Debt Restructurings
Commercial real estate	1,083			646			437			925			967			(42		)
Commercial and industrial	3,580			4,493			(913		)	2,599			3,197			(598		)
Commercial construction	421			430			(9		)	410			2,413			(2,003		)
Residential mortgage	4,095			5,068			(973		)	1,924			3,585			(1,661		)
Home equity	1,013			954			59			1,536			979			557
Installment and other consumer	11			7			4			1			9			(8		)
Total Nonaccrual Troubled Debt Restructurings	10,203			11,598			(1,395		)
Total Nonaccrual Loans	29,493			42,635			(13,142		)
Total Nonperforming Troubled Debt Restructurings										7,395			11,150			(3,755		)
Total Nonperforming Loans										21,372			23,938			(2,566		)
OREO	1,033			679			354			2,999			469			2,530
Total Nonperforming Assets	$	30,526		$	43,314		$	(12,788	)	$	24,371		$	24,407		$	(36	)

Asset Quality Ratios:
Nonperforming loans as a percent of total loans	0.50		%	0.76		%				0.37		%	0.42		%
Nonperforming assets as a percent of total loans plus OREO	0.52		%	0.77		%				0.42		%	0.42		%

Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.

Nonperforming ~~assets, or NPAs,~~loans decreased ~~$12.8~~$2.5 million to ~~$30.5~~$21.4 million at ~~September~~June 30, ~~2017~~2018 compared to ~~$43.3~~$23.9 million at December 31, ~~2016.~~2017. The $2.5 million decrease in nonperforming loans was due to the payoff of a ~~$13.1~~commercial construction loan for $2.0 million ~~decline~~during the first quarter of 2018. The increase in ~~nonperforming loans which primarily~~OREO of $2.5 million related to $25.1 million of principal reductions and loan charge-offs offset by new nonperforming loans of $12.0 million. Included in the decline was $13.4 million in loan charge-offs and payoffs from our acquired loan portfolio. Total nonperforming loans included $8.5 million of acquired loans at September 30, 2017, all of which became 90 days past due subsequenttwo land lots that are no longer intended to ~~the Merger date.~~be future branch locations.

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

Deposits


(dollars in thousands)	September 30, 2017		December 31, 2016		$ Change			June 30, 2018		December 31, 2017		$ Change
Customer deposits
Customer Deposits
Noninterest-bearing demand	$	1,348,939	$	1,263,833	$	85,106		$	1,410,211	$	1,387,712	$	22,499
Interest-bearing demand	641,970		633,293		8,677			548,572		599,986		(51,414		)
Money market	760,410		617,961		142,449			1,036,749		880,330		156,419
Savings	940,989		1,050,131		(109,142		)	845,526		893,119		(47,593		)
Certificates of deposit	1,303,830		1,355,303		(51,473		)	1,165,962		1,286,988		(121,026		)
Total customer deposits	4,996,138		4,920,521		75,617
Brokered deposits
Total Customer Deposits								5,007,020		5,048,135		(41,115		)
Brokered Deposits
Interest-bearing demand	4,225		5,007		(782		)	5,157		3,155		2,002
Money market	276,316		318,500		(42,184		)	230,874		265,826		(34,952		)
Certificates of deposit	127,601		28,349		99,252			150,482		110,775		39,707
Total brokered deposits	408,142		351,856		56,286
Deposits held for sale	$	38,960	$	—	$	38,960
Total Brokered Deposits								386,513		379,756		6,757
Total Deposits	$	5,443,240	$	5,272,377	$	170,863		$	5,393,533	$	5,427,891	$	(34,358	)

Deposits are our primary source of funds. We believe that our deposit base is stable and that we have the ability to attract new deposits. Total deposits at ~~September~~June 30, ~~2017 increased $171 million, or 3.2 percent,from December 31, 2016. Total customer deposits increased $75.6~~2018 decreased $34.4 million from December 31, ~~2016.~~2017. Total customer deposits decreased $41.1 million from December 31, 2017. Noninterest-bearing demand deposits increased ~~$85.1~~$22.5 million and money ~~markets~~market increased ~~$142~~$156 million. The increase in money market deposits is related to a competitively-priced, indexed product. These increases were offset by declines in interest-bearing demand deposits of $51.4 million, ~~due to sales efforts. Savings decreased $109~~savings deposits of $47.6 million and certificates of deposits ~~decreased $51.5 million as~~of $121 million. These decreases were a mainly a result of migration into the indexed money market product and outflows due to normal repositioning by our ~~customers.~~customers combined with some seasonality in a number of sectors, including public funds. Total brokered deposits increased ~~$56.3~~$6.8 million from December 31, ~~2016 with an increase of $99.3 million in certificates of deposits offset by money market decrease of $42.2 million.~~2017. Brokered deposits are an additional source of funds utilized by ~~the~~ ALCO as a way to diversify funding sources, as well as manage our funding costs and structure. The increase in brokered deposits was primarily due to funding needs to support our asset growth. The $39.0 million of deposits held for sale relates to the retail branch sale that is expected to occur in the fourth quarter of 2017.

Borrowings


(dollars in thousands)	September 30, 2017		December 31, 2016		$ Change			June 30, 2018		December 31, 2017		$ Change
Securities sold under repurchase agreements	$	39,923	$	50,832	$	(10,909	)	$	44,724	$	50,161	$	(5,437	)
Short-term borrowings	685,000		660,000		25,000			600,000		540,000		60,000
Long-term borrowings	12,911		14,713		(1,802		)	46,062		47,301		(1,239		)
Junior subordinated debt securities	45,619		45,619		—			45,619		45,619		—
Total Borrowings	$	783,453	$	771,164	$	12,289		$	736,405	$	683,081	$	53,324

Borrowings are an additional source of funding for us. Total borrowings increased ~~$12.3~~$53.3 million from December 31, ~~2016~~2017 due to ~~support our asset growth.~~increased funding needs.

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

Information pertaining to short-term borrowings is summarized in the tables below ~~at and~~ for the ~~nine~~six and twelve ~~month periods~~months period ended ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


	Securities Sold Under Repurchase Agreements						Securities Sold Under Repurchase Agreements
(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Balance at the period end	$	39,923		$	50,832		$	44,724		$	50,161
Average balance during the period	48,031			51,021			48,980			46,662
Average interest rate during the period	0.07		%	0.01		%	0.41		%	0.12		%
Maximum month-end balance during the period	$	53,609		$	68,216		$	54,579		$	53,609
Average interest rate at the period end	0.16		%	0.01		%	0.46		%	0.39		%

	Short-Term Borrowings						Short-Term Borrowings
(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Balance at the period end	$	685,000		$	660,000		$	600,000		$	540,000
Average balance during the period	651,494			414,426			617,891			644,864
Average interest rate during the period	1.07		%	0.65		%	2.06		%	1.15		%
Maximum month-end balance during the period	$	734,600		$	660,000		$	690,000		$	734,600
Average interest rate at the period end	1.31		%	0.76		%	2.16		%	1.47		%

Information pertaining to long-term borrowings is summarized in the tables below ~~at and~~ for ~~the nine~~six and twelve month periods ended ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017.


	Long-Term Borrowings						Long-Term Borrowings
(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Balance at the period end	$	12,911		$	14,713		$	46,062		$	47,301
Average balance during the period	13,759			50,256			46,317			18,057
Average interest rate during the period	2.96		%	1.33		%	2.24		%	2.57		%
Maximum month-end balance during the period	$	14,515		$	116,852		$	47,096		$	47,505
Average interest rate at the period end	2.97		%	2.91		%	2.31		%	1.88		%

	Junior Subordinated Debt Securities						Junior Subordinated Debt Securities
(dollars in thousands)	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Balance at the period end	$	45,619		$	45,619		$	45,619		$	45,619
Average balance during the period	45,619			45,619			45,619			45,619
Average interest rate during the period	3.59		%	3.14		%	4.61		%	3.65		%
Maximum month-end balance during the period	$	45,619		$	45,619		$	45,619		$	45,619
Average interest rate at the period end	3.74		%	3.42		%	4.80		%	3.78		%

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S&T BANCORP, INC. AND SUBSIDIARIES

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

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. 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 for S&T. ~~The~~ ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. ~~The~~ ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests, and by having a detailed contingency funding plan. ~~The~~ ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Refer to the Financial Condition - Deposits ~~Section~~section of this MD&A, for additional discussion on deposits. Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to S&T include borrowing availability at

~~Table of Contents~~

~~S&T BANCORP, INC. AND SUBSIDIARIES~~

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

the FHLB of Pittsburgh, Federal Funds lines with other financial institutions, the brokered deposit market, and borrowing availability through the Federal Reserve Borrower-In-Custody program.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate, and high.At ~~September~~June 30, ~~2017,~~2018, we had ~~$510~~$534 million in highly liquid assets, which consisted of ~~$53.4~~$79.1 million in interest-bearing deposits with banks, ~~$409~~$451 million in unpledged securities and ~~$47.9~~$3.8 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of ~~7.1~~7.6 percent at ~~September~~June 30, ~~2017.~~ 2018.Also, at ~~September~~June 30, ~~2017,~~2018, we had a remaining borrowing availability of ~~$1.6~~$1.7 billion with the FHLB of Pittsburgh. Refer to Note 8 Borrowings in the Notes to Consolidated Financial Statements and the Financial Condition - Borrowings section of this MD&A for more details.

The following table summarizes capital amounts and ratios for S&T and S&T Bank for the dates presented:


(dollars in thousands)	Adequately Capitalized		Well- Capitalized		September 30, 2017				December 31, 2016				Adequately Capitalized		Well- Capitalized		June 30, 2018				December 31, 2017
(dollars in thousands)	Adequately Capitalized		Well- Capitalized		Amount		Ratio		Amount		Ratio		Adequately Capitalized		Well- Capitalized		Amount		Ratio		Amount		Ratio
S&T Bancorp, Inc.
Tier 1 leverage	4.00	%	5.00	%	$	626,452	9.25	%	$	582,155	8.98	%	4.00	%	5.00	%	$	668,793	9.87	%	$	628,876	9.17	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	606,452		10.70	%	562,155		10.04	%	4.50	%	6.50	%	648,793		11.18	%	608,876		10.71	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	626,452		11.05	%	582,155		10.39	%	6.00	%	8.00	%	668,793		11.53	%	628,876		11.06	%
Total capital to risk-weighted assets	8.00	%	10.00	%	710,777		12.54	%	664,184		11.86	%	8.00	%	10.00	%	756,388		13.04	%	713,056		12.55	%
S&T Bank
Tier 1 leverage	4.00	%	5.00	%	$	580,404	8.60	%	$	542,048	8.39	%	4.00	%	5.00	%	$	621,589	9.19	%	$	582,929	8.52	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	580,404		10.26	%	542,048		9.71	%	4.50	%	6.50	%	621,589		10.75	%	582,929		10.29	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	580,404		10.26	%	542,048		9.71	%	6.00	%	8.00	%	621,589		10.75	%	582,929		10.29	%
Total capital to risk-weighted assets	8.00	%	10.00	%	664,230		11.75	%	622,469		11.15	%	8.00	%	10.00	%	709,185		12.26	%	666,560		11.76	%

In October 2015, we filed a new shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, with the SEC, to replace the prior shelf registration statement we had filed in October 2012. We have filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, with the SEC, which allows for the issuance 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 securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of ~~September~~June 30, ~~2017,~~2018, we had not issued any securities pursuant to this shelf registration statement.

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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 also 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 enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by ~~the~~ ALCO. ~~The~~ ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, analyses and by performing stress tests and simulations in order to mitigate earnings and market value fluctuations due to changes in interest rates.

~~Table of Contents~~

~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - continued~~

Rate shock ~~analyses’~~analyses results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact 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 loans and securities with optionality. S&T policy guidelines limit the change in pretax net interest income over a 12 and 24 month ~~horizon~~horizons using rate shocks in increments of +/- 100 ~~200 and 300~~ basis points. Policy guidelines define the percentage change in pretax net interest income by graduated risk tolerance levels of minimal, moderate and high. We have temporarily suspended the ~~-200 and -300~~analyses on downward rate shocks of 200 basis ~~point rate shock analyses.~~points or more. Due to the low interest rate environment, we believe the impact to net interest income when evaluating ~~the -200 and -300~~these basis point rate shock scenarios does not provide meaningful insight into our interest rate risk position.

In order to monitor interest rate risk beyond the 1224 month time horizon of rate shocks on pretax net interest income, we also perform EVE analyses. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. EVE ~~rate~~ change results are compared to a base case to determine the impact that market rate changes may have on our EVE. As with rate shock ~~analysis,~~analyses on pretax net interest income, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and the behavior and value of non-maturity deposit products. S&T policy guidelines limit the change in EVE ~~given changes~~using rate shocks in ~~rates~~increments of +/- 100 ~~200 and 300~~ basis points. Policy guidelines define the percentage change in EVE by graduated risk tolerance levels of minimal, moderate and high. We have also temporarily suspended the ~~EVE -200 and -300~~downward rate shocks of 200 basis ~~point scenarios~~points or more for EVE due to the low interest rate environment.

The table below reflects the rate shock analyses results for the 1 - 12 and ~~EVE analysis results. Both~~13 - 24 month periods of pretax net interest income and EVE. All results are in the minimal risk tolerance level.

September 30, 2017 December 31, 2016
Change in Interest Rate (basis points)
% Change in Pretax
Net Interest Income

% Change in
EVE

% Change in Pretax
Net Interest Income

% Change in
EVE

+300 4.7
(6.8 ) 3.4
(12.3 )
+200 2.8
(2.4 ) 1.8
(6.5 )
+100 1.4
0.2
0.7
(2.3 )
-100 (4.1 ) (6.2 ) (4.4 ) (7.3 )



	June 30, 2018						December 31, 2017
	1 - 12 Months		13 - 24 Months		% Change in EVE		1 - 12 Months		13 - 24 Months		% Change in EVE
Change in Interest Rate (basis points)	% Change in Pretax Net Interest Income		% Change in Pretax Net Interest Income		% Change in EVE		% Change in Pretax Net Interest Income		% Change in Pretax Net Interest Income		% Change in EVE
400	6.4	%	10.4	%	(13.0	)%	5.5	%	12.4	%	(9.2	)%
300	4.8		7.7		(7.0	)	4.2		9.3		(3.6	)
200	2.9		4.9		(2.4	)	2.4		5.9		0.3
100	1.5		2.6		0.4		1.3		3.2		1.9
(100)	(3.6	)	(5.3	)	(7.0	)	(3.6	)	(6.5	)	(8.0	)

The results from the rate shock analyses on net interest income are 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 balance sheet will differ depending upon the change in market interest rates. For example, with an asset sensitive balance sheet 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 balance sheet 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.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our rate shock analyses show an improvement in the percentage change in pretax net interest income in ~~all~~the rates up scenarios in months 1 - 12 and no change in the rates down when comparing ~~September~~June 30, ~~2017~~2018 to December 31, ~~2016.~~2017. The improvement is mainly a result of ~~an increase~~less rate sensitivity in ~~variable~~our wholesale funding portfolio. In months 13 - 24, the percentage change in pretax net interest income improved in the rates down scenario and declined in the rates up scenarios when comparing June 30, 2018 and December 31, 2017. These changes are mostly due to model enhancements. All rate ~~loans.~~shock analyses for both the 1 - 12 and 13 - 24 month periods continue to remain within minimal risk tolerance levels.

Our EVE analyses show ~~an improvement~~a decline in the percentage change in EVE in ~~all~~the rates up scenarios and an improvement in the rates down scenario when comparing ~~September~~June 30, ~~2017~~2018 to December 31, ~~2016.~~2017. The ~~increase is~~changes are mainly a result of ~~a change in our loan prepayment assumptions following a prepayment analysis performed in the quarter ended September 30, 2017~~deposit valuation enhancements and the change in value of our core ~~deposits due to changes in interest rates.~~deposits.

In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations. Sensitivity analyses are performed to help us identify which model assumptions cause the greatest impact on pretax net interest income. Sensitivity analyses may include changing prepayment behavior of loans and securities with optionality and the impact of interest rate changes on non-maturity deposit products. Simulation analyses may include the potential impact of rate ~~shocks~~changes other than the policy guidelines, ~~of +/- 100, 200 and 300 basis points,~~ yield curve shape changes, significant balance mix changes and various growth scenarios. ~~Simulations~~For example, simulations indicate that an increase in rates, particularly if the yield curve steepens, will most likely result in an improvement in pretax net interest income. We realize that some of the benefit reflected in our scenarios may be offset by a change in the competitive environment and a change in product preference by our customers.

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~~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 ~~September~~June 30, ~~2017.~~2018. 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, or the Exchange Act, 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 S&T’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 not effective ~~in all material respects,~~ as of ~~the end of the period covered by this report.~~

~~Changes~~June 30, 2018 due to a material weakness in ~~Internal Control over Financial Reporting~~

~~During the quarter ended September 30, 2017, there were no changes made to~~ S&T’s internal control over financial reporting ~~(as defined~~as previously described in ~~Rule 13a-15(f) under~~our Annual Report on Form 10-K for the ~~Exchange Act)~~period ended December 31, 2017.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness is due to a control deficiency that exists related to the inconsistent assessment of internally assigned risk ratings, which is one of several factors used to estimate the allowance for loan losses. In some instances where performing borrowers had experienced a deteriorating financial position or cash flows, our internal Loan Review Department relied upon credit risk mitigants, including guarantor support and/or more recent borrower financial performance when that information did not adequately support the loan risk rating.

Notwithstanding the material weakness discussed above, the company's management, including the CEO and CFO, has concluded that the company's financial statements included in this Form 10-Q present fairly, in all material respects, the company's financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles.

Remediation Plan

Management is in the process of remediating this material weakness and has engaged an independent third-party to evaluate our policies, procedures and resources related to the assessment of risk ratings. The independent third-party has completed the portion of the engagement that encompassed a review of our policies, procedures and processes, as well as an in-depth examination of the support for the judgments applied to risk rating conclusions. We anticipate that the engagement will be completed during the third quarter of 2018 and that we will satisfactorily address any recommendations by September 30, 2018.

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S&T BANCORP, INC. AND SUBSIDIARIES

We have provided additional training internally and improved our documentation to strengthen the support for the judgments applied to risk rating conclusions by our internal Loan Review Department.

Changes in Internal Control Over Financial Reporting

There have been no other changes in S&T’s internal control over financial reporting that occurred during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, S&T’s internal control over financial ~~reporting.~~reporting, other than as described above under "Remediation Plan".

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S&T BANCORP, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

None

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, ~~2016,~~2017, as filed with the SEC on ~~February 24, 2017.~~March 1, 2018.

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

~~None~~

On March 19, 2018, the Board of Directors of S&T Bancorp, Inc. authorized a $50 million share repurchase plan. This purchase authorization, which is effective through August 31, 2019, permits S&T to repurchase from time to time up to $50 million in aggregate value of shares of S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and S&T’s financial performance. The repurchase plan does not obligate S&T to repurchase any particular number of shares. S&T expects to fund any repurchases from cash on hand and internally generated funds. During the three months ended June 30, 2018, there were no purchases under the plan and no other purchases of S&T common stock by S&T or an affiliated purchaser.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

Item 6. Exhibits



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

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

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

101	The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017~~2018 is formatted in eXtensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheet at ~~September~~June 30, ~~2017~~2018 and Audited Consolidated Balance Sheet at December 31, ~~2016,~~2017, (ii) Unaudited Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, (iii) Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the ~~Nine~~Three and Six Months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, (iv) Unaudited Consolidated Statements of Cash Flows for the ~~Nine~~Six Months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 and (v) Notes to Unaudited Consolidated Financial Statements.	Filed herewith

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S&T BANCORP, INC. AND SUBSIDIARIES

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)

~~November~~August 1, ~~2017~~2018	/s/ Mark Kochvar
	Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)