UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON, DC~~Washington, D.C. 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 June 30, ~~2018~~2019



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

For the transition period from to

Commission file number 0-12508

______________________________________

S&T BANCORP ~~INC.~~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~~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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $2.50 par value	STBA	The NASDAQ Stock Market LLC

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”~~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 - ~~35,008,546~~34,309,170 shares as of July ~~31, 2018~~30, 2019

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 - June 30, ~~2018~~2019 and December 31, ~~2017~~2018	2

	Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	3

	Consolidated Statements of Changes in Shareholders' Equity - Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	4

	Consolidated Statements of Cash Flows - Six Months Ended June 30, ~~2018~~2019 and ~~2017~~	5

	~~Notes to Consolidated Financial Statements~~2018	6

	~~Item 2.~~Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3842

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5660

Item 4.	Controls and Procedures	5761

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5962

Item 1A.	Risk Factors	5962

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5963

Item 3.	Defaults Upon Senior Securities	5963

Item 4.	Mine Safety Disclosures	5964

Item 5.	Other Information	5964

Item 6.	Exhibits	5964

	Signatures	6065

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2018				December 31, 2017				June 30, 2019				December 31, 2018
(dollars in thousands, except per share data)	(Unaudited)				(Audited)				(Unaudited)				(Audited)
ASSETS
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
Cash and due from banks, including interest-bearing deposits of $62,042 and $82,740 at June 30, 2019 and December 31, 2018										$	122,876			$	155,489
Securities, at fair value		688,341				698,291				668,588				684,872
Loans held for sale		3,801				4,485				8,135				2,371
Portfolio loans, net of unearned income		5,786,118				5,761,449				6,033,200				5,946,648
Allowance for loan losses		(60,517		)		(56,390		)		(61,479		)		(60,996		)
Portfolio loans, net		5,725,601				5,705,059				5,971,721				5,885,652
Bank owned life insurance		73,122				72,150				74,906				73,900
Premises and equipment, net		40,889				42,702				41,688				41,730
Federal Home Loan Bank and other restricted stock, at cost		35,782				29,270				22,491				29,435
Goodwill		287,446				291,670				287,446				287,446
Other intangible assets, net		2,909				3,677				2,255				2,601
Other assets		101,522				95,799				134,499				88,725
Total Assets		$	7,097,346			$	7,060,255			$	7,334,605			$	7,252,221
LIABILITIES
Deposits:
Noninterest-bearing demand		$	1,410,211			$	1,387,712			$	1,462,386			$	1,421,156
Interest-bearing demand		553,729				603,141				549,663				573,693
Money market		1,267,623				1,146,156				1,742,334				1,482,065
Savings		845,526				893,119				754,062				784,970
Certificates of deposit		1,316,444				1,397,763				1,348,255				1,412,038
Total Deposits		5,393,533				5,427,891				5,856,700				5,673,922
Securities sold under repurchase agreements		44,724				50,161				14,154				18,383
Short-term borrowings		600,000				540,000				295,000				470,000
Long-term borrowings		46,062				47,301				69,791				70,314
Junior subordinated debt securities		45,619				45,619				45,619				45,619
Other liabilities		60,275				65,252				88,388				38,222
Total Liabilities		6,190,213				6,176,224				6,369,652				6,316,460
SHAREHOLDERS’ EQUITY
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
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—36,130,480 shares at June 30, 2019 and at December 31, 2018 Outstanding— 34,330,338 shares at June 30, 2019 and 34,683,874 shares at December 31, 2018										90,326				90,326
Additional paid-in capital		216,885				216,106				211,325				210,345
Retained earnings		662,112				628,107				730,577				701,819
Accumulated other comprehensive (loss) income		(30,945		)		(18,427		)
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		)
Accumulated other comprehensive loss										(9,519		)		(23,107		)
Treasury stock (1,800,142 shares at June 30, 2019 and 1,446,606 shares at December 31, 2018, at cost)										(57,756		)		(43,622		)
Total Shareholders’ Equity		907,133				884,031				964,953				935,761
Total Liabilities and Shareholders’ Equity		$	7,097,346			$	7,060,255			$	7,334,605			$	7,252,221

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands, except per share data)	2018			2017			2018			2017			2019			2018			2019			2018
INTEREST INCOME
INTEREST AND DIVIDEND INCOME
Loans, including fees		$	66,610		$	60,558		$	129,665		$	117,458		$	74,728		$	66,610		$	148,120		$	129,665
Investment Securities:
Taxable		3,519			2,947			6,948			5,796			3,647			3,519			7,437			6,948
Tax-exempt		872			928			1,746			1,848			834			872			1,679			1,746
Dividends		580			481			1,251			963			415			580			978			1,251
Total Interest Income		71,581			64,914			139,610			126,065
Total Interest and Dividend Income														79,624			71,581			158,214			139,610
INTEREST EXPENSE
Deposits		9,166			5,976			17,012			11,355			16,055			9,166			31,036			17,012
Borrowings and junior subordinated debt securities		4,012			2,368			7,264			4,261			2,742			4,012			5,995			7,264
Total Interest Expense		13,178			8,344			24,276			15,616			18,797			13,178			37,031			24,276
NET INTEREST INCOME		58,403			56,570			115,334			110,449			60,827			58,403			121,183			115,334
Provision for loan losses		9,345			4,869			11,817			10,052			2,205			9,345			7,854			11,817
Net Interest Income After Provision for Loan Losses		49,058			51,701			103,517			100,397			58,622			49,058			113,329			103,517
NONINTEREST INCOME
Net gain (loss) on sale of securities		—			3,617			—			3,987
Net gain on sale of securities														—			—			—			—
Debit and credit card		3,309			3,042			6,347			5,885			3,501			3,309			6,476			6,347
Service charges on deposit accounts		3,227			2,997			6,468			6,012			3,212			3,227			6,365			6,468
Wealth management		2,616			2,428			5,298			4,831			2,062			2,616			4,109			5,298
Mortgage banking		831			675			1,432			1,408			637			831			1,131			1,432
Insurance		134			1,458			303			2,913
Gain on sale of a majority interest of insurance business		—			—			1,873			—			—			—			—			1,873
Other		2,134			2,048			4,323			4,225			3,489			2,268			6,182			4,626
Total Noninterest Income		12,251			16,265			26,044			29,261			12,901			12,251			24,263			26,044
NONINTEREST EXPENSE
Salaries and employee benefits		18,611			19,903			37,426			40,444			20,290			18,611			41,199			37,426
Data processing and information technology														3,414			2,379			6,646			4,704
Net occupancy		2,804			2,751			5,677			5,566			2,949			2,804			5,986			5,677
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			2,301			2,134			4,531			4,090
Other taxes		1,739			1,083			3,587			2,060			1,456			1,739			2,641			3,587
Marketing		1,190			948			1,892			1,702			1,310			1,190			2,452			1,892
Professional services and legal		888			931			1,939			1,999			1,145			888			2,329			1,939
FDIC insurance		739			1,185			1,847			2,308			695			739			1,211			1,847
Merger related expenses														618			—			618			—
Other		5,379			5,823			10,783			11,084			6,174			5,379			11,658			10,783
Total Noninterest Expense		35,863			36,597			71,945			73,406			40,352			35,863			79,271			71,945
Income Before Taxes		25,446			31,369			57,616			56,252			31,171			25,446			58,321			57,616
Provision for income taxes		4,010			8,604			10,017			15,299			5,070			4,010			9,292			10,017
Net Income		$	21,436		$	22,765		$	47,599		$	40,953		$	26,101		$	21,436		$	49,029		$	47,599
Earnings per share—basic		$	0.62		$	0.66		$	1.37		$	1.18		$	0.76		$	0.62		$	1.43		$	1.37
Earnings per share—diluted		$	0.61		$	0.65		$	1.36		$	1.17		$	0.76		$	0.61		$	1.43		$	1.36
Dividends declared per share		$	0.25		$	0.20		$	0.47		$	0.40		$	0.27		$	0.25		$	0.54		$	0.47
Comprehensive Income		$	20,444		$	22,503		$	35,081		$	41,879		$	33,513		$	20,444		$	62,617		$	35,081

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, 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



	For the three months ended June 30, 2018
(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 March 31, 2018		$	90,326		$	216,618		$	649,925			$	(29,953	)		$	(31,509	)		$	895,407
Net income for the three months ended June 30, 2018		—			—			21,436				—				—				21,436
Other comprehensive income (loss), net of tax		—			—			—				(1,256		)		—				(1,256		)
Reclassification of tax effects from the Tax Act ⁽¹⁾		—			—			(264		)		264				—				—
Cash dividends declared ($0.25 per share)		—			—			(8,722		)		—				—				(8,722		)
Treasury stock issued for restricted awards (9,443 shares, net of no forfeitures)		—			—			(263		)		—				264				1
Recognition of restricted stock compensation expense		—			267			—				—				—				267
Balance at June 30, 2018		$	90,326		$	216,885		$	662,112			$	(30,945	)		$	(31,245	)		$	907,133

	For the three months ended June 30, 2019
(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 March 31, 2019		$	90,326		$	210,949		$	716,078			$	(16,931	)		$	(57,266	)		$	943,156
Net Income for the three months ended June 30, 2019		—			—			26,101				—				—				26,101
Other comprehensive income (loss), net of tax		—			—			—				7,412				—				7,412
Cash dividends declared ($0.27 per share)		—			—			(9,242		)		—				—				(9,242		)
Treasury stock issued for restricted stock awards (83,056 shares, net of forfeitures of 10,918 shares)		—			—			(2,360		)		—				2,345				(15		)
Repurchase of common stock (71,936 shares)		—			—			—				—				(2,835		)		(2,835		)
Recognition of restricted stock compensation expense		—			376			—				—				—				376
Balance at June 30, 2019		$	90,326		$	211,325		$	730,577			$	(9,519	)		$	(57,756	)		$	964,953

See Notes to Consolidated Financial Statements

⁽¹⁾Reclassification due to the adoption of ASU No. 2018-02 -related to funded status of pension.

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)



	For the six months ended June 30, 2018
(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, 2018		$	90,326		$	216,106		$	628,107			$	(18,427	)		$	(32,081	)		$	884,031
Net income for the 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

	For the six months ended June 30, 2019
(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, 2019		$	90,326		$	210,345		$	701,819			$	(23,107	)		$	(43,622	)		$	935,761
Net Income for the six months ended June 30, 2019		—			—			49,029				—				—				49,029
Other comprehensive income (loss), net of tax		—			—			—				13,588				—				13,588
Impact of new lease standard		—			—			167				—				—				167
Cash dividends declared ($0.54 per share)		—			—			(18,559		)		—				—				(18,559		)
Treasury stock issued for restricted stock awards (83,056 shares, net of forfeitures of 50,752 shares)		—			—			(1,879		)		—				988				(891		)
Repurchase of common stock (385,840 shares)		—			—			—				—				(15,122		)		(15,122		)
Recognition of restricted stock compensation expense		—			980			—				—				—				980
Balance at June 30, 2019		$	90,326		$	211,325		$	730,577			$	(9,519	)		$	(57,756	)		$	964,953

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)


	Six Months Ended June 30,							Six Months Ended June 30,
(dollars in thousands)		2018			2017				2019			2018
OPERATING ACTIVITIES
Net income		$	47,599		$	40,953			$	49,029		$	47,599
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		11,817			10,052				7,854			11,817
Recovery for unfunded loan commitments		(114		)	(334		)
Net increase (decrease) in provision for unfunded loan commitments									208			(114		)
Net depreciation, amortization and accretion		2,174			850				2,872			2,174
Net amortization of discounts and premiums on securities		1,572			2,030				1,562			1,572
Stock-based compensation expense		779			1,843				980			779
Net (gain) loss on sale of securities		—			(3,987		)
Gain on the sale of mortgage loans, net									(683		)	(683		)
Gain on the sale of majority interest of insurance business									—			(1,873		)
Mortgage loans originated for sale		(41,631		)	(38,899		)		(38,720		)	(41,631		)
Proceeds from the sale of mortgage loans		42,998			38,041				33,639			42,998
Gain on the sale of mortgage loans, net		(683		)	(719		)
Gain on the sale of majority interest of insurance business		(1,873		)	—
Net increase in interest receivable		(520		)	(666		)
Net increase in interest payable		699			246
Net (increase) decrease in other assets		(853		)	4,484
Net increase (decrease) in other liabilities		2,529			(1,775		)
Net change in:
Interest receivable									(1,235		)	(520		)
Interest payable									(1,582		)	699
Other assets									(11,006		)	(853		)
Other liabilities									15,978			2,529
Net Cash Provided by Operating Activities		64,493			52,119				58,896			64,493
INVESTING ACTIVITIES
Purchases of securities		(54,481		)	(36,604		)		(9,438		)	(54,481		)
Proceeds from maturities, prepayments and calls of securities		45,487			35,256				40,260			45,487
Proceeds from sales of securities		—			7,751
Net (purchases) sales of Federal Home Loan Bank stock		(6,512		)	1,600
Net proceeds from sales (purchases) of Federal Home Loan Bank stock									6,944			(6,512		)
Net increase in loans		(37,957		)	(176,768		)		(95,691		)	(37,957		)
Proceeds from sale of loans not originated for resale		3,922			3,581				465			3,922
Purchases of premises and equipment		(804		)	(3,018		)		(2,559		)	(804		)
Proceeds from the sale of premises and equipment		110			273				9			110
Proceeds from the sale of majority interest of insurance business		4,540			—				—			4,540
Net Cash Used in Investing Activities		(45,695		)	(167,929		)		(60,010		)	(45,695		)
FINANCING ACTIVITIES
Net increase in core deposits		46,962			44,914				246,561			46,962
Net (decrease) increase in certificates of deposit		(81,255		)	92,427
Net decrease in securities sold under repurchase agreements		(5,437		)	(4,343		)
Net increase (decrease) in short-term borrowings		60,000			(15,000		)
Repayments of long-term borrowings		(1,239		)	(1,195		)
Net (decrease) in certificates of deposit									(63,736		)	(81,255		)
Net (decrease) in securities sold under repurchase agreements									(4,229		)	(5,437		)
Net (decrease) increase in short-term borrowings									(175,000		)	60,000
Repayments on long-term borrowings									(523		)	(1,239		)
Treasury shares issued-net		(657		)	(689		)		(891		)	(657		)
Cash dividends paid to common shareholders		(16,391		)	(13,927		)		(18,559		)	(16,391		)
Net Cash Provided by Financing Activities		1,983			102,187
Net increase (decrease) in cash and cash equivalents		20,781			(13,623		)
Repurchase of common stock									(15,122		)	—
Net Cash (Used in) Provided by Financing Activities									(31,499		)	1,983
Net (decrease) increase in cash and cash equivalents									(32,613		)	20,781
Cash and cash equivalents at beginning of period		117,152			139,486				155,489			117,152
Cash and Cash Equivalents at End of Period		$	137,933		$	125,863			$	122,876		$	137,933
Supplemental Disclosures
Loans transferred to held for sale		$	3,922		$	17,750			$	—		$	3,922
Leased right-of-use operating assets and lease liabilities added to the balance sheet									$	37,263		$	—
Interest paid		$	23,576		$	15,369			$	38,612		$	23,576
Income taxes paid, net of refunds		$	11,103		$	13,399			$	4,557		$	11,103
Transfer net assets to investment in insurance company partnership		$	1,917		$	—			$	—		$	1,917
Transfers to other real estate owned and other repossessed assets		$	2,841		$	1,407
Transfers of loans to other real estate owned									$	215		$	2,841

See Notes to Consolidated Financial Statements

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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~~Consolidated Financial Statements included in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, filed with the Securities and Exchange Commission, or SEC, on ~~March 1, 2018.~~February 21, 2019. 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.

On June 5, 2019, S&T and DNB Financial Corporation, or DNB, based in Downingtown, Pennsylvania with 14 branches in Chester, Delaware and Philadelphia counties and approximately $1.2 billion in assets as of March 31, 2019, entered into a definitive Agreement and Plan of Merger pursuant to which DNB will merge with and into S&T, with S&T continuing as the surviving entity. Under the terms of the Agreement and Plan of Merger, DNB shareholders will have the right to receive 1.22 shares of common stock, par value $2.50 per share, of S&T for each share of common stock, par value $1.00 per share, of DNB. Immediately following the merger of DNB and S&T, DNB’s wholly owned bank subsidiary, DNB First, National Association, will merge with and into S&T’s wholly owned bank subsidiary, S&T Bank, with S&T Bank as the surviving entity. The Agreement and Plan of Merger was unanimously approved by the Board of Directors of each of S&T and DNB. The transaction is expected to close in the fourth quarter of 2019, after satisfaction of customary closing conditions including regulatory approvals and approval of the shareholders of DNB.

On January 1, 2018, we sold a 70 percent majority interest in the assets of our wholly-owned subsidiary S&T Evergreen Insurance, LLC. We transferred our remaining 30 percent ownership interest in the net assets of S&T Evergreen Insurance, LLC to a new entity for a 30 percent ownership interest in a new ~~partnership~~insurance entity (see Note ~~13:~~15: Sale of a Majority Interest of Insurance Business). We use the equity method of accounting to recognize our 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

~~Income Statement~~Leases - ~~Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~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 ~~2018,~~2016, the Financial Accounting Standards Board, or FASB, ~~issued~~established ASC Topic 842, by issuing ASU No. ~~2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification~~2016-02, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use, or ROU, model that requires a lessee to recognize ROU assets and lease liabilities on the balance sheet. Leases will be classified as finance or operating leases, with classification affecting the pattern and classification of ~~Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments~~expense recognition in ~~this Update allow a reclassification from accumulated other comprehensive income, or AOCI, to retained earnings for stranded tax effects resulting from~~ the ~~Tax Cuts and Jobs Act, or Tax Act. The amendments eliminate~~statement of operations. We adopted the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users and will require certain disclosures about the stranded tax effects. This Update is effective for all entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, for public business 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 ofnew standard on January 1, 2018. As such, we have early adopted this Update and reclassified $3.4 million for the release of stranded income tax effects relating to unrealized gains and losses on our securities portfolio and our pension plan from AOCI to retained earnings as of March 31, 2018. The adoption of this ASU had no impact on our Consolidated Statements of Comprehensive Income. Our policy for releasing income tax effects from AOCI is to release them as investments are sold or mature and liabilities are extinguished.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

~~Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension Costs~~2019 (see Note 7: Right-of-use Assets and ~~Net Periodic Post Retirement Benefit Costs~~Lease Liabilities).

~~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~~new standard provides several optional practical expedients to ~~provide financial statement users with clearer and disaggregated information related~~elect in transition to the ~~components~~new lease guidance. We have elected the "package of practical expedients," which permit us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We elected the "use-of-hindsight" practical expedient which allows us to use hindsight in judgments that impact the lease term. We have also elected an accounting policy not to restate comparative periods upon adoption.

The most significant effects of adopting the new standard relate to the recognition of ROU assets and lease liabilities on our balance sheet for our real estate leases and providing significant new disclosures about our leasing activities. The carrying value of our ROU assets will be tested annually for impairment or more frequently if events or changes in circumstances indicate that an impairment might exist.

Upon adoption, we recognized additional finance lease liabilities of approximately $1.2 million and operating lease liabilities, net ~~periodic benefit cost and improve transparency~~of deferred rent, of approximately $33.7 million based on the present value of the ~~presentation~~remaining minimum rental payments under current leasing standards for existing leases. We also recognized corresponding finance ROU assets of ~~net periodic benefit cost in the financial statements. This Update was effective for interim~~$1.2 million and ~~annual reporting periods in fiscal years beginning after December 15, 2017. Early~~operating ROU assets of approximately $33.4 million. The adoption was 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 adoption of this ASU had no material impact on ~~our Consolidated Balance Sheets or~~the Consolidated Statements of Comprehensive Income.

~~Other Income - Gains and Losses from~~The new standard also provides practical expedients for our ongoing lease accounting. We elected the ~~Derecognition~~short-term lease recognition exemption for all leases with terms 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 of this ASU is to provide greater detail on what types of transactions should be accounted for as partial sales of nonfinancial assets.12 months or less. This ~~ASU, as originally issued in ASU No. 2014-09, is intended to reduce the complexity of current GAAP requirements by clarifying which accounting guidance applies to various types of contracts~~means that ~~transfer~~we will not recognize ROU assets or ~~ownership interest~~lease liabilities for existing short-term leases of those assets in transition. Beginning in 2019, we made changes to ~~another entity. This Update was effective for interim~~our disclosed lease recognition policies and ~~annual reporting periods in fiscal years beginning after December 15, 2017 and at~~practices, as well as to other related financial statement disclosures due to the same time that ASU No. 2014-09 was effective. Early adoption was permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The adoption of this ~~ASU was applied to the partial sale of our insurance subsidiary in January 2018. As such, the subsidiary is no longer included in our consolidated financial statements~~standard (See Note 7: Right-of-use Assets and ~~we recognized a $1.9 million gain on the 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)~~Lease Liabilities). 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 results in fewer acquisitions being accounted for as business combinations than under 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 was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption was permitted for transactions not yet reflected in financial statements that have been issued or made available for issuance. The adoption of this ASU had no impact on our Consolidated Balance Sheets or Consolidated Statements of 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 previous guidance, which 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 requires companies to defer the income tax effects only of intercompany transfers of inventory. This Update was effective for annual periods beginning after December 15, 2017. Early adoption was permitted as of the beginning of an annual period. If an entity chose to early adopt the amendments in the ASU, it had to do so in the first interim period of its annual financial statements. That is, an entity 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 adoption of this ASU had no impact on our Consolidated Balance Sheets or Consolidated Statements of 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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~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~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 was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption was permitted, provided that all of the amendments are adopted in the same period. The adoption of this ASU had no material impact to the presentation of activities in our Consolidated Statements of Cash Flows.

~~Revenue from Contracts with Customers~~

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This revenue pronouncement established a single 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 are derived from interest and dividends earned on loans, investment securities and other financial instruments that are not within the scope of ASU No. 2014-09. We evaluated the nature of our contracts with customers and related revenue streams, including service charges on deposit accounts, debit and credit cards and wealth management and determined that revenue recognition did not change significantly from current practice. We evaluated certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue. The adoption of this ASU had no material impact on our Consolidated Balance Sheets or Consolidated Statements of 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. We have one land easement lease that we previously accounted for under Topic 840; as such, this lease has been recognized as an operating lease under Topic 842. We adopted the amendments in this ASU in conjunction with the adoption of the new lease standard, ASU 2016-02.

Accounting Standards Issued But Not Yet Adopted

Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU apply to an entity that is a customer in a hosting arrangement that is a service contract. These amendments relate to accounting for implementation costs (e.g., implementation, setup and other upfront costs.) These amendments require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which costs to capitalize and which costs to expense. These amendments require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This ASU is effective for annual and interim periods ~~in fiscal years~~ beginning after December 15, ~~2018.~~2019. Early adoption of the amendments is permitted, including adoption in any interim period. 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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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this ASU apply to all employers that sponsor defined benefit pension or other postretirement plans. These amendments remove certain disclosures from Topic 715-20 and require additional disclosures. The amendments in this ASU will require S&T to update our employee benefits disclosures beginning with our Form 10-Q for the period ended March 31, 2021. The amendments in this ASU will have no impact on our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this ASU remove certain disclosures from Topic 820, modify disclosures and/or require additional disclosures. The amendments in this Update will require us to change our Fair Value disclosures beginning with our Form 10-Q for the period ended March 31, 2020. The amendments in this ASU will have no impact on our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

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~~The amendments in this ASU ~~will materially~~is not expected to have any impact on 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 did not adopt this ASU at its early adoption date.

We have created a CECL Committee to govern the implementation of these amendments consisting of key stakeholders from Credit Administration, Finance, Accounting, Risk Management and Internal Audit. We have engaged a third-party to assist us in developing our CECL methodology. We have made our decision on loan segmentation and currently are in the process of testing and validating two methodologies for calculating the quantitative component of our CECL allowance. Our next steps include developing the qualitative allowance framework, and designing internal controls and financial statement disclosures. 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 Consolidated Statements of Comprehensive Income.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2. EARNINGS PER SHARE

Diluted earnings per share is calculated using both the two-class and the treasury stock methods with the more dilutive method used to determine diluted earnings per share. The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods ~~presented:~~presented.



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except share and per share data)	2019			2018			2019			2018
Numerator for Earnings per Share—Basic:
Net income		$	26,101		$	21,436		$	49,029		$	47,599
Less: Income allocated to participating shares		71			62			137			141
Net Income Allocated to Shareholders		$	26,029		$	21,374		$	48,892		$	47,458

Numerator for Earnings per Share—Diluted:
Net income		$	26,101		$	21,436		$	49,029		$	47,599
Net Income Available to Shareholders		$	26,101		$	21,436		$	49,029		$	47,599

Denominators for Earnings per Share:
Weighted Average Shares Outstanding—Basic		34,158,136			34,793,160			34,298,185			34,775,043
Add: Potentially dilutive shares		52,850			264,416			88,121			267,998
Denominator for Treasury Stock Method—Diluted		34,210,986			35,057,576			34,386,306			35,043,041

Weighted Average Shares Outstanding—Basic		34,158,136			34,793,160			34,298,185			34,775,043
Add: Average participating shares outstanding		93,433			100,212			96,261			103,449
Denominator for Two-Class Method—Diluted		34,251,569			34,893,372			34,394,446			34,878,492

Earnings per share—basic		$	0.76		$	0.62		$	1.43		$	1.37
Earnings per share—diluted		$	0.76		$	0.61		$	1.43		$	1.36
Restricted stock considered anti-dilutive excluded from potentially dilutive shares		5,183			—			44,153			2,047

Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except share and per share data) 2018 2017 2018 2017
Numerator for Earnings per Share—Basic:

Net income $ 21,436
$ 22,765
$ 47,599
$ 40,953
Less: Income allocated to participating shares 62
81
141
141
Net Income Allocated to Shareholders $ 21,374
$ 22,684
$ 47,458
$ 40,812

Numerator for Earnings per Share—Diluted:

Net income $ 21,436
$ 22,765
$ 47,599
$ 40,953
Net Income Available to Shareholders $ 21,436
$ 22,765
$ 47,599
$ 40,953

Denominators for Earnings per Share:

Weighted Average Shares Outstanding—Basic 34,793,160
34,724,925
34,775,043
34,707,683
Add: Potentially dilutive shares 264,416
181,571
267,998
199,693
Denominator for Treasury Stock Method—Diluted 35,057,576
34,906,496
35,043,041
34,907,376

Weighted Average Shares Outstanding—Basic 34,793,160
34,724,925
34,775,043
34,707,683
Add: Average participating shares outstanding 100,212
123,729
103,449
119,585
Denominator for Two-Class Method—Diluted 34,893,372
34,848,654
34,878,492
34,827,268

Earnings per share—basic $ 0.62
$ 0.66
$ 1.37
$ 1.18
Earnings per share—diluted $ 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 374,314
466,554
386,747
456,749
Restricted stock considered anti-dilutive excluded from potentially dilutive shares 89,974
126,332
76,325
105,187

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS

We use fair value measurements when recording and disclosing certain financial assets and liabilities. 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 are 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

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~~services which 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 ~~evaluation~~valuation sources for debt securities include observable inputs rather than significant unobservable inputs and are classified as Level 2. The service provider utilizes pricing models that vary by asset class and include available trade, bid and other market information. Generally, the methodologies include broker quotes, proprietary models, vast descriptive terms and conditions databases, 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~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

Deferred Compensation Plan Assets

We use quoted market prices to determine the fair value of our ~~trading~~equity security assets. ~~Our trading~~These securities are reported at fair value with the gains and losses included in noninterest income in our Consolidated Statements of Comprehensive Income. These 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~~Deferred compensation plan assets are reported in other assets in the Consolidated Balance Sheets.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~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'~~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) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral less estimated selling costs when the loan is collateral dependent and we expect to liquidate 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

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~~Since the valuation model includes significant unobservable ~~inputs; therefore,~~inputs as listed above, MSRs are classified as Level 3. MSRs are reported in other assets in the Consolidated Balance Sheets and are amortized into ~~noninterest~~mortgage banking income in the Consolidated Statements of Comprehensive Income.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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 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 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 loans is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans adjusted for liquidity and credit risk.

Bank Owned Life Insurance

Fair value approximates net cash surrender value of bank owned life 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; it is presented at carrying value.

Deposits

The fair values disclosed for deposits without defined maturities ~~(e.g.~~(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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

Short-Term Borrowings

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

~~Table of Contents~~

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

~~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.

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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

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 June 30, ~~2018~~2019 and December 31, ~~2017.~~2018. There were no transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.



	June 30, 2019
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities	$	—	$	10,007	$	—	$	10,007
Obligations of U.S. government corporations and agencies	—		129,773		—		129,773
Collateralized mortgage obligations of U.S. government corporations and agencies	—		150,405		—		150,405
Residential mortgage-backed securities of U.S. government corporations and agencies	—		20,936		—		20,936
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		235,292		—		235,292
Obligations of states and political subdivisions	—		117,624		—		117,624
Total Debt Securities Available-for-Sale	—		664,037		—		664,037
Marketable equity securities	—		4,551		—		4,551
Total Securities	—		668,588		—		668,588
Securities held in a deferred compensation plan	5,532		—		—		5,532
Derivative financial assets:					��
Interest rate swaps	—		22,688		—		22,688
Interest rate lock commitments	—		649		—		649
Total Assets	$	5,532	$	691,925	$	—	$	697,457
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	22,620	$	—	$	22,620
Forward sale contracts	—		105		—		105
Total Liabilities	$	—	$	22,725	$	—	$	22,725

June 30, 2018
(dollars in thousands) Level 1 Level 2 Level 3 Total
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities $ —
$ 9,619
$ —
$ 9,619
Obligations of U.S. government corporations and agencies —
155,069
—
155,069
Collateralized mortgage obligations of U.S. government corporations and agencies —
118,742
—
118,742
Residential mortgage-backed securities of U.S. government corporations and agencies —
28,442
—
28,442
Commercial mortgage-backed securities of U.S. government corporations and agencies —
247,128
—
247,128
Obligations of states and political subdivisions —
123,916
—
123,916
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 4,988
—
—
4,988
Derivative financial assets:
Interest rate swaps —
6,157
—
6,157
Interest rate lock commitments —
398
—
398
Total Assets $ 4,988
$ 694,896
$ —
$ 699,884
LIABILITIES
Derivative financial liabilities:
Interest rate swaps $ —
$ 6,223
$ —
$ 6,223
Forward sale contracts —
39
—
39
Total Liabilities $ —
$ 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued



	December 31, 2018
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities	$	—	$	9,736	$	—	$	9,736
Obligations of U.S. government corporations and agencies	—		128,261		—		128,261
Collateralized mortgage obligations of U.S. government corporations and agencies	—		148,659		—		148,659
Residential mortgage-backed securities of U.S. government corporations and agencies	—		24,350		—		24,350
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		246,784		—		246,784
Obligations of states and political subdivisions	—		122,266		—		122,266
Total Debt Securities Available-for-Sale	—		680,056		—		680,056
Marketable equity securities	—		4,816		—		4,816
Total Securities	—		684,872		—		684,872
Securities held in a deferred compensation plan	4,725		—		—		4,725
Derivative financial assets:
Interest rate swaps	—		5,504		—		5,504
Interest rate lock commitments	—		251		—		251
Forward sale contracts	—		55		—		55
Total Assets	$	4,725	$	690,682	$	—	$	695,407
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	5,340	$	—	$	5,340
Total Liabilities	$	—	$	5,340	$	—	$	5,340

December 31, 2017
(dollars in thousands) Level 1 Level 2 Level 3 Total
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities $ —
$ 19,789
$ —
$ 19,789
Obligations of U.S. government corporations and agencies —
162,193
—
162,193
Collateralized mortgage obligations of U.S. government corporations and agencies —
108,688
—
108,688
Residential mortgage-backed securities of U.S. government corporations and agencies —
32,854
—
32,854
Commercial mortgage-backed securities of U.S. government corporations and agencies —
242,221
—
242,221
Obligations of states and political subdivisions —
127,402
—
127,402
Total Debt Securities Available-for-Sale —
693,147
—
693,147
Marketable equity securities —
5,144
—
5,144
Total Securities —
698,291
—
698,291
Trading securities held in a Rabbi Trust 5,080
—
—
5,080
Derivative financial assets:
Interest rate swaps —
3,074
—
3,074
Interest rate lock commitments —
226
—
226
Total Assets $ 5,080
$ 701,591
$ —
$ 706,671
LIABILITIES
Derivative financial liabilities:
Interest rate swaps $ —
$ 3,055
$ —
$ 3,055
Forward sale contracts —
5
—
5
Total Liabilities $ —
$ 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.~~Assets Recorded at Fair Value on a Nonrecurring Basis

~~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 June 30, ~~2018~~2019 or December 31, ~~2017.~~2018.

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:



	June 30, 2019								December 31, 2018
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS⁽¹⁾
Impaired loans	$	—	$	—	$	30,456	$	30,456	$	—	$	—	$	21,441	$	21,441
Other real estate owned	—		—		1,353		1,353		—		—		2,826		2,826
Mortgage servicing rights	—		—		1,141		1,141		—		—		1,197		1,197
Total Assets	$	—	$	—	$	32,950	$	32,950	$	—	$	—	$	25,464	$	25,464
⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.

June 30, 2018 December 31, 2017
(dollars in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
ASSETS⁽¹⁾

Impaired loans $ —
$ —
$ 5,487
$ 5,487
$ —
$ —
$ 6,759
$ 6,759
Other real estate owned —
—
2,719
2,719
—
—
444
444
Mortgage servicing rights —
—
89
89
—
—
178
178
Total Assets $ —
$ —
$ 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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

The carrying values and fair values of our financial instruments at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 are presented in the following tables:



	Carrying Value⁽¹⁾		Fair Value Measurements at June 30, 2019
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	122,876	$	122,876	$	122,876	$	—	$	—
Securities	668,588		668,588		—		668,588		—
Loans held for sale	8,135		8,135		—		—		8,135
Portfolio loans, net	5,971,721		5,836,651		—		—		5,836,651
Bank owned life insurance	74,906		74,906		—		74,906		—
FHLB and other restricted stock	22,491		22,491		—		—		22,491
Securities held in a deferred compensation plan	5,532		5,532		5,532		—		—
Mortgage servicing rights	4,214		4,728		—		—		4,728
Interest rate swaps	22,688		22,688		—		22,688		—
Interest rate lock commitments	649		649		—		649		—
LIABILITIES
Deposits	$	5,856,700	$	5,854,053	$	4,508,445	$	1,345,608	$	—
Securities sold under repurchase agreements	14,154		14,154		14,154		—		—
Short-term borrowings	295,000		295,000		295,000		—		—
Long-term borrowings	69,791		70,405		39,334		31,071		—
Junior subordinated debt securities	45,619		45,619		45,619		—		—
Interest rate swaps	22,620		22,620		—		22,620		—
Forward sales contracts	105		105		—		105		—
⁽¹⁾ As reported in the Consolidated Balance Sheets

Carrying
Value⁽¹⁾
Fair Value Measurements at June 30, 2018
(dollars in thousands) Total Level 1 Level 2 Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits $ 137,933
$ 137,933
$ 137,933
$ —
$ —
Securities 688,341
688,341
—
688,341
—
Loans held for sale 3,801
3,927
—
—
3,927
Portfolio loans, net 5,725,601
5,558,333
—
—
5,558,333
Bank owned life insurance 73,122
73,122
—
73,122
—
FHLB and other restricted stock 35,782
35,782
—
—
35,782
Trading securities held in a Rabbi Trust 4,988
4,988
4,988
—
—
Mortgage servicing rights 4,296
5,198
—
—
5,198
Interest rate swaps 6,157
6,157
—
6,157
—
Interest rate lock commitments 398
398
—
398
—
LIABILITIES

Deposits $ 5,393,533
$ 5,378,467
$ —
$ —
$ 5,378,467
Securities sold under repurchase agreements 44,724
44,724
—
—
44,724
Short-term borrowings 600,000
600,000
—
—
600,000
Long-term borrowings 46,062
46,226
—
—
46,226
Junior subordinated debt securities 45,619
45,619
—
—
45,619
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, 2018
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	155,489	$	155,489	$	155,489	$	—	$	—
Securities	684,872		684,872		—		684,872		—
Loans held for sale	2,371		2,469		—		—		2,469
Portfolio loans, net	5,885,652		5,728,843		—		—		5,728,843
Bank owned life insurance	73,900		73,900		—		73,900		—
FHLB and other restricted stock	29,435		29,435		—		—		29,435
Securities held in a Deferred Compensation Plan	4,725		4,725		4,725		—		—
Mortgage servicing rights	4,464		5,181		—		—		5,181
Interest rate swaps	5,504		5,504		—		5,504		—
Interest rate lock commitments	251		251		—		251		—
Forward sale contracts	55		55		—		55		—
LIABILITIES
Deposits	$	5,673,922	$	5,662,193	$	4,261,884	$	1,400,309	$	—
Securities sold under repurchase agreements	18,383		18,383		18,383		—		—
Short-term borrowings	470,000		470,000		470,000		—		—
Long-term borrowings	70,314		70,578		38,610		31,968		—
Junior subordinated debt securities	45,619		45,619		45,619		—		—
Interest rate swaps	5,340		5,340		—		5,340		—
⁽¹⁾ As reported in the Consolidated Balance Sheets

Carrying
Value⁽¹⁾
Fair Value Measurements at December 31, 2017
(dollars in thousands) Total Level 1 Level 2 Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits $ 117,152
$ 117,152
$ 117,152
$ —
$ —
Securities 698,291
698,291
—
698,291
—
Loans held for sale 4,485
4,583
—
—
4,583
Portfolio loans, net 5,705,059
5,690,292
—
—
5,690,292
Bank owned life insurance 72,150
72,150
—
72,150
—
FHLB and other restricted stock 29,270
29,270
—
—
29,270
Trading securities held in a Rabbi Trust 5,080
5,080
5,080
—
—
Mortgage servicing rights 4,133
4,571
—
—
4,571
Interest rate swaps 3,074
3,074
—
3,074
—
Interest rate lock commitments 226
226
—
226
—
LIABILITIES
Deposits $ 5,427,891
$ 5,426,928
$ —
$ —
$ 5,426,928
Securities sold under repurchase agreements 50,161
50,161
—
—
50,161
Short-term borrowings 540,000
540,000
—
—
540,000
Long-term borrowings 47,301
47,618
—
—
47,618
Junior subordinated debt securities 45,619
45,619
—
—
45,619
Interest rate swaps 3,055
3,055
—
3,055
—
Forward sales contracts 5
5
—
5
—
⁽¹⁾ As reported in the Consolidated Balance Sheets.

1617

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES

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



(dollars in thousands)	June 30, 2019			December 31, 2018
Debt securities available-for-sale		$	664,037		$	680,056
Marketable equity securities		4,551			4,816
Total Securities		$	668,588		$	684,872

(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~~Available-for-Sale

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



	June 30, 2019													December 31, 2018
(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		$	9,964		$	43		$	—			$	10,007		$	9,958		$	—		$	(222	)		$	9,736
Obligations of U.S. government corporations and agencies		128,260			1,532			(19		)		129,773			129,267			68			(1,074		)		128,261
Collateralized mortgage obligations of U.S. government corporations and agencies		147,692			3,029			(316		)		150,405			149,849			795			(1,985		)		148,659
Residential mortgage-backed securities of U.S. government corporations and agencies		20,704			289			(57		)		20,936			24,564			203			(417		)		24,350
Commercial mortgage-backed securities of U.S. government corporations and agencies		232,657			2,807			(172		)		235,292			251,660			—			(4,876		)		246,784
Obligations of states and political subdivisions		113,508			4,116			—				117,624			119,872			2,448			(54		)		122,266
Total Debt Securities Available-for-Sale		$	652,785		$	11,816		$	(564	)		$	664,037		$	685,170		$	3,514		$	(8,628	)		$	680,056

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.~~

~~Table of Contents~~

~~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~~available-for-sale by investment category as of the dates presented:



	June 30, 2019
	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	—	$	—	$	—		—	$	—	$	—		—	$	—	$	—
Obligations of U.S. government corporations and agencies	—	—		—			3	24,932		(19		)	3	24,932		(19		)
Collateralized mortgage obligations of U.S. government corporations and agencies	1	3,613		(6		)	8	41,602		(310		)	9	45,215		(316		)
Residential mortgage-backed securities of U.S. government corporations and agencies	—	—		—			2	6,740		(57		)	2	6,740		(57		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	—	—		—			5	48,119		(172		)	5	48,119		(172		)
Obligations of states and political subdivisions	—	—		—			—	—		—			—	—		—
Total Temporarily Impaired Debt Securities	1	$	3,613	$	(6	)	18	$	121,393	$	(558	)	19	$	125,006	$	(564	)

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES – continued

June 30, 2018
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 $ 9,618
$ (334 ) — $ —
$ —
1 $ 9,618
$ (334 )
Obligations of U.S. government corporations and agencies 16 129,180
(1,728 ) 2 10,993
(31 ) 18 140,173
(1,759 )
Collateralized mortgage obligations of U.S. government corporations and agencies 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 3 4,803
(131 ) 2 7,721
(398 ) 5 12,524
(529 )
Commercial mortgage-backed securities of U.S. government corporations and agencies 22 199,634
(5,190 ) 5 47,494
(2,140 ) 27 247,128
(7,330 )
Obligations of states and political subdivisions 5 23,109
(48 ) — —
—
5 23,109
(48 )
Total Temporarily Impaired Debt Securities 57 $ 432,363
$ (8,498 ) 16 $ 107,226
$ (4,452 ) 73 $ 539,589
$ (12,950 )



	December 31, 2018
	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	$	9,736	$	(222	)	1	$	9,736	$	(222	)
Obligations of U.S. government corporations and agencies	7	67,649		(613		)	6	35,760		(461		)	13	103,409		(1,074		)
Collateralized mortgage obligations of U.S. government corporations and agencies	2	12,495		(44		)	14	76,179		(1,941		)	16	88,674		(1,985		)
Residential mortgage-backed securities of U.S. government corporations and agencies	2	2,327		(45		)	3	9,241		(372		)	5	11,568		(417		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	8	75,466		(1,032		)	19	171,318		(3,844		)	27	246,784		(4,876		)
Obligations of states and political subdivisions	2	9,902		(23		)	1	5,247		(31		)	3	15,149		(54		)
Total Temporarily Impaired Debt Securities	21	$	167,839	$	(1,757	)	44	$	307,481	$	(6,871	)	65	$	475,320	$	(8,628	)

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~~2019 represents an other than temporary impairment, or OTTI. At June 30, ~~2018~~2019 there were 7319 debt securities in an unrealized loss position and at December 31, ~~2017~~2018, there were 5165 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.~~issuers. 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.

1819

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES – continued

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


	June 30, 2018									December 31, 2017									June 30, 2019									December 31, 2018
(dollars in thousands)	Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/ (Losses)			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/ (Losses)			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized (Losses)/Gains			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
Total unrealized gains/(losses) on debt securities available-for-sale																			$	11,816		$	(564	)	$	11,252		$	3,514		$	(8,628	)	$	(5,114	)
Income tax (expense) benefit	(607		)	2,750			2,143			(1,982		)	1,393			(589		)	(2,520		)	120			(2,400		)	(746		)	1,832			1,086
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		$	9,296		$	(444	)	$	8,852		$	2,768		$	(6,796	)	$	(4,028	)

The amortized cost and fair value of debt securities available-for-sale at June 30, ~~2018~~2019 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.



	June 30, 2019
(dollars in thousands)	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	$	47,630	$	47,770
Due after one year through five years	122,824		124,741
Due after five years through ten years	63,472		66,144
Due after ten years	17,805		18,750
Debt Securities Available-for-Sale With Maturities	251,731		257,405
Collateralized mortgage obligations of U.S. government corporations and agencies	147,692		150,405
Residential mortgage-backed securities of U.S. government corporations and agencies	20,705		20,936
Commercial mortgage-backed securities of U.S. government corporations and agencies	232,657		235,291
Total Debt Securities Available-for-Sale	$	652,785	$	664,037

June 30, 2018
(dollars in thousands)
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 $ 33,878
$ 33,888
Due after one year through five years 152,588
152,374
Due after five years through ten years 73,099
72,961
Due after ten years 28,692
29,381
288,257
288,604
Collateralized mortgage obligations of U.S. government corporations and agencies 121,631
118,742
Residential mortgage-backed securities of U.S. government corporations and agencies 28,662
28,442
Commercial mortgage-backed securities of U.S. government corporations and agencies 254,458
247,128
Total Debt Securities Available-for-Sale $ 693,008
$ 682,916

~~At June 30, 2018 and December 31, 2017, debt~~Debt securities with carrying values of ~~$231~~$201.2 million at June 30, 2019 and ~~$249~~$236.0 million at December 31, 2018 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)	2019		2018		2019			2018
Marketable Equity Securities
Net market (losses)/gains recognized	$	52	$	230	$	(266	)	$	282
Less: Net gains recognized for equity securities sold	—		—		—			—
Unrealized (Losses)/Gains on Equity Securities Still Held	$	52	$	230	$	(266	)	$	282

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. As of January 1, 2018, gains and losses on marketable equity securities are included in other noninterest income on the Consolidated Statements of Comprehensive Income.

1920

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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 ~~$5.4 million and $5.2~~$5.3 million at June 30, ~~2018~~2019 and December 31, ~~2017.~~

2018. The following table indicates the composition of loans as of the dates presented:



(dollars in thousands)	June 30, 2019		December 31, 2018
Commercial
Commercial real estate	$	2,906,895	$	2,921,832
Commercial and industrial	1,559,727		1,493,416
Commercial construction	267,203		257,197
Total Commercial Loans	4,733,825		4,672,445
Consumer
Residential mortgage	751,355		726,679
Home equity	464,195		471,562
Installment and other consumer	72,041		67,546
Consumer construction	11,784		8,416
Total Consumer Loans	1,299,375		1,274,203
Total Portfolio Loans	6,033,200		5,946,648
Loans held for sale	8,135		2,371
Total Loans	$	6,041,335	$	5,949,019

(dollars in thousands) June 30, 2018 December 31, 2017
Commercial

Commercial real estate $ 2,788,641
$ 2,685,994
Commercial and industrial 1,455,578
1,433,266
Commercial construction 299,787
384,334
Total Commercial Loans 4,544,006
4,503,594
Consumer

Residential mortgage 698,440
698,774
Home equity 471,622
487,326
Installment and other consumer 66,638
67,204
Consumer construction 5,412
4,551
Total Consumer Loans 1,242,112
1,257,855
Total Portfolio Loans 5,786,118
5,761,449
Loans held for sale 3,801
4,485
Total Loans $ 5,789,919
$ 5,765,934

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 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 7978.5 percent of total portfolio loans at June 30, ~~2018~~2019 and 7878.6 percent at December 31, ~~2017.~~2018. Within our commercial portfolio, the Commercial Real Estate, or CRE, and Commercial Construction portfolios combined comprised ~~$3.1~~$3.2 billion or 67 percent of total commercial loans at June 30, 2019 and $3.2 billion or 68 percent of total commercial loans at December 31, 2018 and 53 percent of total portfolio loans at both June 30, ~~2018~~2019 and at December 31, ~~2017.~~2018. Further segmentation of the CRE and Commercial Construction portfolios by collateral type reveals no concentration in excess of 1314 percent of both total CRE and Commercial Construction loans at both June 30, ~~2018~~2019 and ~~14 percent at~~ December 31, ~~2017.~~2018.

~~Our market area includes~~We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia ~~New York~~ and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this ~~market area,~~geography, resulting in a ~~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 and information supplied by our customers. We also use subscription services for additional geographic and industry specific information. Our CRE and Commercial Construction portfolios have ~~out-of-market~~ exposure outside of ~~5.3~~this geography of 6.4 percent of ~~their~~the combined portfolios and ~~2.8~~3.4 percent of total portfolio loans at June 30, ~~2018.~~2019. This compares to ~~5.2~~5.4 percent of ~~their~~the combined portfolios and ~~2.8~~2.9 percent of total portfolio loans at December 31, ~~2017.~~2018.

We individually evaluate all substandard commercial loans that have experienced a forbearance or change in terms agreement, 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.

2021

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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 table summarizes restructured loans as of the dates presented:



	June 30, 2019						December 31, 2018
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	3,519	$	5,600	$	9,119	$	2,054	$	1,139	$	3,193
Commercial and industrial	9,671		980		10,651		7,026		6,646		13,672
Commercial construction	1,913		406		2,319		1,912		406		2,318
Residential mortgage	1,997		1,497		3,494		2,214		1,543		3,757
Home equity	3,577		1,458		5,035		3,568		1,349		4,917
Installment and other consumer	13		3		16		12		5		17
Total	$	20,690	$	9,944	$	30,634	$	16,786	$	11,088	$	27,874

June 30, 2018 December 31, 2017
(dollars in thousands)
Performing
TDRs

Nonperforming
TDRs

Total
TDRs

Performing
TDRs

Nonperforming
TDRs

Total
TDRs
Commercial real estate $ 2,136
$ 925
$ 3,061
$ 2,579
$ 967
$ 3,546
Commercial and industrial 14,149
2,599
16,748
3,946
3,197
7,143
Commercial construction 2,400
410
2,810
2,420
2,413
4,833
Residential mortgage 2,157
1,924
4,081
2,039
3,585
5,624
Home equity 3,569
1,536
5,105
3,885
979
4,864
Installment and other consumer 43
1
44
32
9
41
Total $ 24,454
$ 7,395
$ 31,849
$ 14,901
$ 11,150
$ 26,051

There were three TDRs totaling $0.1 million that returned to accruing status during the three months ended June 30, 2019 and four TDRs totaling $1.8 million that returned to accruing status during the six months ended June 30, 2019. There were no TDRs that returned to accruing status during the three and six months ended June 30, 2018. ~~There was one TDR that returned to accruing status totaling $2.0 million during the three and six months ended June 30, 2017.~~

2122

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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 the restructured loans by loan segment and by type of concession for the three and six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:


	Three Months Ended June 30, 2018								Three Months Ended June 30, 2017								Three Months Ended June 30, 2019								Three Months Ended June 30, 2018
(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	$	—
Commercial Real Estate
Maturity date extension																	1	$	1,322	$	1,311	$	(11	)	—	$	—	$	—	$	—
Maturity date extension and interest rate reduction																	1	151		148		(3		)	—	—		—		—
Principal forgiveness																	1	4,690		4,631		(59		)	—	—		—		—
Total Commercial Real Estate	—	—		—		—			1	100		100		—			3	6,163		6,090		(73		)	—	—		—		—
Commercial and industrial
Maturity date extension and interest rate reduction	—	—		—		—			2	1,800		1,800		—
Commercial and Industrial
Principal deferral	3	4,815		5,034		219			1	429		429		—			—	—		—		—			3	4,815		5,034		219
Total Commercial and Industrial	3	4,815		5,034		219			3	2,229		2,229		—			—	—		—		—			3	4,815		5,034		219
Commercial Construction		.
Total Commercial Construction	—	—		—		—			—	—		—		—
Residential mortgage
Residential Mortgage
Chapter 7 bankruptcy⁽²⁾	1	41		41		—			1	33		33		—			2	116		115		(1		)	1	41		41		—
Total Residential Mortgage	1	41		41		—			1	33		33		—			2	116		115		(1		)	1	41		41		—
Home equity
Chapter 7 bankruptcy⁽²⁾	2	26		26		—			3	40		38		(2		)	6	107		105		(2		)	2	26		26		—
Maturity date extension	—	—		—		—			1	231		231		—
Interest rate reduction																	1	109		108		(1		)	—	—		—		—
Maturity date extension and interest rate reduction	2	47		47		—			—	—		—		—			—	—		—		—			2	47		47		—
Total Home Equity	4	73		73		—			4	271		269		(2		)	7	216		214		(3		)	4	73		73		—
Installment and other consumer
Installment and Other Consumer
Chapter 7 bankruptcy⁽²⁾	2	8		7		(1		)	2	37		34		(3		)	2	9		9		—			2	8		7		(1		)
Total Installment and Other Consumer	2	8		7		(1		)	2	37		34		(3		)	2	$	9	$	9	$	—		2	$	8	$	7	$	(1	)
Totals by Concession Type
Maturity date extension																	1	$	1,322	$	1,311	$	(11	)	—	$	—	$	—	$	—
Chapter 7 bankruptcy⁽²⁾	5	75		74		(1		)	6	110		105		$	(5	)	10	232		229		(3		)	5	75		74		(1		)
Maturity date extension and interest rate reduction	2	47		47		—			2	1,800		1,800		—			1	151		148		(3		)	2	47		47		—
Maturity date extension	—	—		—		—			1	231		231		—
Principal deferral	3	4,815		5,034		219			2	529		529		—			—	—		—		—			3	4,815		5,034		219
Interest rate reduction																	1	109		108		—			—	—		—		—
Principal forgiveness																	1	4,690		4,631		(59		)	—	—		—		—
Total	10	$	4,937	$	5,155	$	218		11	$	2,670	$	2,665	$	(5	)	14	$	6,504	$	6,427	$	(76	)	10	$	4,937	$	5,155	$	218
⁽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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued



	Six Months Ended June 30, 2019								Six Months Ended June 30, 2018
(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	Number of Loans		Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾
Totals by Loan Segment
Commercial real estate
Maturity date extension	1	$	1,322	$	1,311	$	(11	)	—	$	—	$	—	$	—
Maturity date extension and interest rate reduction	1	151		148		(3		)	—	—		—		—
Principal forgiveness	1	4,690		4,631		(59		)	—	—		—		—
Total Commercial Real Estate	3	6,163		6,090		(73		)	—	—		—		—
Commercial and Industrial
Maturity date extension	—	—		—		—			2	768		582		(186		)
Maturity date extension and interest rate reduction	1	4,751		4,529		(222		)	—	—		—		—
Principal deferral	—	—		—		—			3	4,815		5,034		219
Principal deferral and Maturity date extension	—	—		—		—			6	5,355		5,229		(126		)
Total Commercial and Industrial	1	4,751		4,529		(222		)	11	10,938		10,845		(93		)
Residential Mortgage
Chapter 7 bankruptcy⁽²⁾	3	166		163		(3		)	3	199		196		(3		)
Total Residential Mortgage	3	166		163		(3		)	3	199		196		(3		)
Home equity
Chapter 7 bankruptcy⁽²⁾	13	298		268		(30		)	11	605		574		(31		)
Interest rate reduction	2	190		189		(1		)	—	—		—		—
Maturity date extension and interest rate reduction	—	—		—		—			2	47		47		—
Total Home Equity	15	488		457		(31		)	13	652		621		(31		)
Installment and Other Consumer
Chapter 7 bankruptcy⁽²⁾	3	9		9		—			4	25		23		(2		)
Total Installment and Other Consumer	3	$	9	$	9	$	—		4	25		$	23	$	(2	)
Totals by Concession Type
Maturity date extension	1	1,322		1,311		(11		)	2	768		582		(186		)
Maturity date extension and interest rate reduction	2	4,902		4,677		(225		)	2	47		47		—
Principal deferral	—	—		—		—			3	4,815		5,034		219
Principal deferral and Maturity date extension	—	—		—		—			6	5,355		5,229		(126		)
Chapter 7 bankruptcy⁽²⁾	19	473		440		(33		)	18	829		793		(36		)
Interest rate reduction	2	190		189		—			—	—		—		—
Principal forgiveness	1	4,690		4,631		(59		)	—	—		4,690		4,690
Total	25	$	11,577	$	11,248	$	(328	)	31	$	11,814	$	16,375	$	4,561
⁽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.

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued

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
Totals by Loan Segment
Commercial real estate
Principal deferral —
$ —
$ —
$ —
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⁾
3
199
196
(3 ) 1
33
33
—
Total Residential Mortgage 3
199
196
(3 ) 1
33
33
—
Home equity
Chapter 7 bankruptcy⁽²⁾
11
605
574
(31 ) 9
309
304
(5 )
Maturity date extension —
—
—
—
1
231
231
—
Maturity date extension and interest rate reduction 2
47
47
—
1
173
172
(1 )
Total Home Equity 13

652

621
(31 ) 11
713
707
(6 )
Installment and other consumer
Chapter 7 bankruptcy⁽²⁾
4
25
23
(2 ) 2
37
34
(3 )
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 3
4,815
5,034
219
2
529
529
—
Principal deferral and maturity date extension 6

5,355

5,229
(126 ) —
—
—
—
Total 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.

As of June 30, ~~2018,~~2019, we had ~~seven~~8 commitments to lend an additional ~~$5.6~~$10.8 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 June 30, ~~2018~~2019 and ~~2017~~2018 that were restructured within the last 12 months prior to defaulting.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 5. LOANS AND LOANS HELD FOR SALE - continued~~

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



		Nonperforming Assets
(dollars in thousands)	June 30, 2019			December 31, 2018
Nonperforming Assets
Nonaccrual loans		$	35,083		$	34,985
Nonaccrual TDRs		9,944			11,088
Total Nonaccrual Loans		45,027			46,073
OREO		1,495			3,092
Total Nonperforming Assets		$	46,522		$	49,165

Nonperforming Assets
(dollars in thousands) June 30, 2018 December 31, 2017
Nonperforming Assets

Nonaccrual loans $ 13,977
$ 12,788
Nonaccrual TDRs 7,395
11,150
Total Nonaccrual Loans 21,372
23,938
OREO 2,999
469
Total Nonperforming Assets $ 24,371
$ 24,407

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.

NOTE 6. ALLOWANCE FOR LOAN LOSSES

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

The following are key risks within each portfolio segment:

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

C&I—Loans made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the company is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the company. Collateral for these types of loans often dodoes 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.~~of credit. 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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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 ~~ALLL~~ALL 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.~~period, or LEP. 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 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.

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



	June 30, 2019
(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	$	2,875,439	$	1,456	$	1,217	$	28,783	$	31,456	$	2,906,895
Commercial and industrial	1,554,081		606		910		4,130		5,646		1,559,727
Commercial construction	265,977		—		—		1,226		1,226		267,203
Residential mortgage	741,453		1,900		1,220		6,782		9,902		751,355
Home equity	457,296		2,555		264		4,081		6,900		464,195
Installment and other consumer	71,808		126		81		25		232		72,041
Consumer construction	11,784		—		—		—		—		11,784
Loans held for sale	8,135		—		—		—		—		8,135
Total	$	5,985,973	$	6,643	$	3,692	$	45,027	$	55,362	$	6,041,335

June 30, 2018
(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 $ 2,781,239
$ 2,473
$ 312
$ 4,617
$ 7,402
$ 2,788,641
Commercial and industrial 1,450,174
432
119
4,853
5,404
1,455,578
Commercial construction 297,849
68
—
1,870
1,938
299,787
Residential mortgage 689,751
1,445
1,132
6,112
8,689
698,440
Home equity 465,261
1,906
584
3,871
6,361
471,622
Installment and other consumer 66,371
172
46
49
267
66,638
Consumer construction 5,412
—
—
—
—
5,412
Loans held for sale 3,801
—
—
—
—
3,801
Total $ 5,759,858
$ 6,496
$ 2,193
$ 21,372
$ 30,061
$ 5,789,919



	December 31, 2018
(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	$	2,903,997	$	3,638	$	2,145	$	12,052	$	17,835	$	2,921,832
Commercial and industrial	1,482,473		1,000		983		8,960		10,943		1,493,416
Commercial construction	243,004		—		—		14,193		14,193		257,197
Residential mortgage	717,447		1,584		520		7,128		9,232		726,679
Home equity	465,152		2,103		609		3,698		6,410		471,562
Installment and other consumer	67,281		148		75		42		265		67,546
Consumer construction	8,416		—		—		—		—		8,416
Loans held for sale	2,371		—		—		—		—		2,371
Total	$	5,890,141	$	8,473	$	4,332	$	46,073	$	58,878	$	5,949,019

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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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.

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



	June 30, 2019
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	2,750,338	94.6	%	$	1,483,519	95.1	%	$	256,351	95.9	%	$	4,490,208	94.9	%
Special mention	63,993		2.2	%	34,527		2.2	%	7,189		2.7	%	105,708		2.2	%
Substandard	92,564		3.2	%	41,681		2.7	%	3,664		1.4	%	137,909		2.9	%
Total	$	2,906,895	100.0	%	$	1,559,727	100.0	%	$	267,203	100.0	%	$	4,733,825	100.0	%

	December 31, 2018
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	2,776,292	95.0	%	$	1,394,427	93.4	%	$	233,190	90.7	%	$	4,403,909	94.3	%
Special mention	54,627		1.9	%	25,368		1.7	%	7,349		2.8	%	87,344		1.8	%
Substandard	90,913		3.1	%	73,621		4.9	%	16,658		6.5	%	181,192		3.9	%
Total	$	2,921,832	100.0	%	$	1,493,416	100.0	%	$	257,197	100.0	%	$	4,672,445	100.0	%

June 30, 2018
(dollars in thousands)
Commercial
Real Estate
% of
Total

Commercial
and Industrial
% of
Total

Commercial
Construction
% of
Total
Total
% of
Total
Pass $ 2,636,581
94.5 % $ 1,337,331
91.9 % $ 272,433
90.9 % $ 4,246,345
93.4 %
Special mention 74,169
2.7 % 50,142
3.4 % 8,566
2.8 % 132,877
3.0 %
Substandard 77,891
2.8 % 68,105
4.7 % 18,788
6.3 % 164,784
3.6 %
Total $ 2,788,641
100.0 % $ 1,455,578
100.0 % $ 299,787
100.0 % $ 4,544,006
100.0 %

December 31, 2017
(dollars in thousands)
Commercial
Real Estate
% of
Total

Commercial
and Industrial
% of
Total

Commercial
Construction
% of
Total
Total
% of
Total
Pass $ 2,588,847
96.4 % $ 1,345,810
93.9 % $ 368,105
95.8 % $ 4,302,762
95.5 %
Special mention 66,436
2.5 % 54,320
3.8 % 9,345
2.4 % 130,101
2.9 %
Substandard 30,711
1.1 % 33,136
2.3 % 6,884
1.8 % 70,731
1.6 %
Total $ 2,685,994
100.0 % $ 1,433,266
100.0 % $ 384,334
100.0 % $ 4,503,594
100.0 %
Substandard loans decreased $43.3 million to $137.9 million at June 30, 2019 compared to $181.2 million at December 31, 2018 mainly due to loan pay-offs and upgrades of risk ratings. Special mention loans increased $18.4 million to $105.7 million at June 30, 2019 compared to $87.3 million at December 31, 2018 due to downgrades as a result of updated financial information.

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:


	June 30, 2018																				June 30, 2019
(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	$	692,328	99.1	%	$	467,751	99.2	%	$	66,589	99.9	%	$	5,412	100.0	%	$	1,232,080	99.2	%	$	744,573	99.1	%	$	460,114	99.1	%	$	72,016	100.0	%	$	11,784	100.0	%	$	1,288,487	99.2	%
Nonperforming	6,112		0.9	%	3,871		0.8	%	49		0.1	%	—		—	%	10,032		0.8	%	6,782		0.9	%	4,081		0.9	%	25		—	%	—		—	%	10,888		0.8	%
Total	$	698,440	100.0	%	$	471,622	100.0	%	$	66,638	100.0	%	$	5,412	100.0	%	$	1,242,112	100.0	%	$	751,355	100.0	%	$	464,195	100.0	%	$	72,041	100.0	%	$	11,784	100.0	%	$	1,299,375	100.0	%

	December 31, 2017																				December 31, 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	$	691,609	99.0	%	$	483,611	99.2	%	$	67,133	99.9	%	$	4,551	100.0	%	$	1,246,904	99.1	%	$	719,551	99.0	%	$	467,864	99.2	%	$	67,504	99.9	%	$	8,416	100.0	%	$	1,263,335	99.1	%
Nonperforming	7,165		1.0	%	3,715		0.8	%	71		0.1	%	—		—	%	10,951		0.9	%	7,128		1.0	%	3,698		0.8	%	42		0.1	%	—		—	%	10,868		0.9	%
Total	$	698,774	100.0	%	$	487,326	100.0	%	$	67,204	100.0	%	$	4,551	100.0	%	$	1,257,855	100.0	%	$	726,679	100.0	%	$	471,562	100.0	%	$	67,546	100.0	%	$	8,416	100.0	%	$	1,274,203	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~~A TDR 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 and all~~each TDR

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

or other impaired ~~loans,~~loan, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate.

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



	June 30, 2019						December 31, 2018
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With a related allowance recorded:
Commercial real estate	$	7,703	$	7,703	$	1,530	$	7,733	$	7,733	$	1,295
Commercial and industrial	834		761		204		884		893		360
Commercial construction	490		489		157		489		489		87
Consumer real estate	666		666		307		15		14		10
Other consumer	13		14		14		11		12		11
Total with a Related Allowance Recorded	9,706		9,633		2,212		9,132		9,141		1,763
Without a related allowance recorded:
Commercial real estate	21,592		24,894		—		3,636		4,046		—
Commercial and industrial	9,817		12,550		—		12,788		14,452		—
Commercial construction	2,318		3,828		—		15,286		19,198		—
Consumer real estate	7,863		8,415		—		8,659		9,635		—
Other consumer	3		9		—		5		18		—
Total without a Related Allowance Recorded	41,593		49,696		—		40,374		47,349		—
Total:
Commercial real estate	29,295		32,597		1,530		11,369		11,779		1,295
Commercial and industrial	10,651		13,311		204		13,672		15,345		360
Commercial construction	2,808		4,317		157		15,775		19,687		87
Consumer real estate	8,529		9,081		307		8,674		9,649		10
Other consumer	16		23		14		16		30		11
Total	$	51,299	$	59,329	$	2,212	$	49,506	$	56,490	$	1,763

June 30, 2018 December 31, 2017
(dollars in thousands)
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 —
—
—
1,735
1,787
29
Commercial construction —
—
—
—
—
—
Consumer real estate —
—
—
21
21
21
Other consumer 35
35
35
27
27
27
Total with a Related Allowance Recorded 35
35
35
1,783
1,835
77
Without a related allowance recorded:
Commercial real estate 3,555
3,828
—
3,546
3,811
—
Commercial and industrial 17,539
19,281
—
5,549
7,980
—
Commercial construction 3,441
4,950
—
5,464
8,132
—
Consumer real estate 9,186
10,132
—
10,467
11,357
—
Other consumer 9
13
—
14
22
—
Total without a Related Allowance Recorded 33,730
38,204
—
25,040
31,302
—
Total:
Commercial real estate 3,555
3,828
—
3,546
3,811
—
Commercial and industrial 17,539
19,281
—
7,284
9,767
29
Commercial construction 3,441
4,950
—
5,464
8,132
—
Consumer real estate 9,186
10,132
—
10,488
11,378
21
Other consumer 44
48
35
41
49
27
Total $ 33,765
$ 38,239
$ 35
$ 26,823
$ 33,137
$ 77

2728

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



	Three Months Ended
	June 30, 2019				June 30, 2018
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:
Commercial real estate	$	7,703	$	—	$	—	$	—
Commercial and industrial	758		13		—		—
Commercial construction	489		—		—		—
Consumer real estate	666		—		—		—
Other consumer	16		—		38		1
Total with a Related Allowance Recorded	9,633		13		38		1
Without a related allowance recorded:
Commercial real estate	21,802		77		3,609		54
Commercial and industrial	7,568		131		8,060		210
Commercial construction	2,319		48		3,443		33
Consumer real estate	7,952		93		9,483		118
Other consumer	3		—		10		—
Total without a Related Allowance Recorded	39,643		349		24,605		415
Total:
Commercial real estate	29,505		77		3,609		54
Commercial and industrial	8,326		144		8,060		210
Commercial construction	2,808		48		3,443		33
Consumer real estate	8,618		93		9,483		118
Other consumer	19		—		48		1
Total	$	49,276	$	362	$	24,643	$	416

Three Months Ended
June 30, 2018 June 30, 2017
(dollars in thousands)
Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized
With a related allowance recorded:
Commercial real estate $ —
$ —
$ —
$ —
Commercial and industrial —
—
813
6
Commercial construction —
—
—
—
Consumer real estate —
—
24
1
Other consumer 38
1
26
—
Total with a Related Allowance Recorded 38
1
863
7
Without a related allowance recorded:
Commercial real estate 3,609
54
6,934
35
Commercial and industrial 8,060
210
17,625
95
Commercial construction 3,443
33
4,262
42
Consumer real estate 9,483
118
11,280
125
Other consumer 10
—
11
1
Total without a Related Allowance Recorded 24,605
415
40,112
298
Total:
Commercial real estate 3,609
54
6,934
35
Commercial and industrial 8,060
210
18,438
101
Commercial construction 3,443
33
4,262
42
Consumer real estate 9,483
118
11,304
126
Other consumer 48
1
37
1
Total $ 24,643
$ 416
$ 40,975
$ 305

2829

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued



	Six Months Ended								Six Months Ended
	June 30, 2018				June 30, 2017				June 30, 2019				June 30, 2018
(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	$	—	$	—	$	—	$	—	$	7,704	$	—	$	—	$	—
Commercial and industrial	—		—		628		11		772		26		—		—
Commercial construction	—		—		—		—		489		—		—		—
Consumer real estate	—		—		25		1		666		—		—		—
Other consumer	40		2		27		1		18		1		40		2
Total with a Related Allowance Recorded	40		2		680		13		9,649		27		40		2
Without a related allowance recorded:
Commercial real estate	3,712		85		7,028		70		22,093		124		3,712		85
Commercial and industrial	7,796		218		16,382		124		5,329		189		7,796		218
Commercial construction	3,445		73		4,267		79		2,319		83		3,445		73
Consumer real estate	10,128		253		11,514		255		7,979		188		10,128		253
Other consumer	11		—		12		—		4		—		11		—
Total without a Related Allowance Recorded	25,092		629		39,203		528		37,723		584		25,092		629
Total:
Commercial real estate	3,712		85		7,028		70		29,797		124		3,712		85
Commercial and industrial	7,796		218		17,010		135		6,101		215		7,796		218
Commercial construction	3,445		73		4,267		79		2,808		83		3,445		73
Consumer real estate	10,128		253		11,539		256		8,645		188		10,128		253
Other consumer	51		2		39		1		22		1		51		2
Total	$	25,132	$	631	$	39,883	$	541	$	47,373	$	611	$	25,132	$	631

2930

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



	Three Months Ended June 30, 2019
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	34,903		$	11,996		$	6,757		$	6,178		$	1,575		$	61,409
Charge-offs	(528		)	(1,435		)	—			(247		)	(457		)	(2,667		)
Recoveries	6			91			2			344			89			532
Net Recoveries/(Charge-offs)	(522		)	(1,344		)	2			97			(368		)	(2,135		)
Provision for loan losses	(1,545		)	2,575			495			296			384			2,205
Balance at End of Period	$	32,836		$	13,227		$	7,254		$	6,571		$	1,591		$	61,479


	Three Months Ended June 30, 2018
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	30,963		$	10,472		$	10,721		$	5,418		$	1,472		$	59,046
Charge-offs	(237		)	(7,392		)	(321		)	(268		)	(414		)	(8,632		)
Recoveries	185			362			1			85			125			758
Net Recoveries/(Charge-offs)	(52		)	(7,030		)	(320		)	(183		)	(289		)	(7,874		)
Provision for loan losses	321			7,432			1,275			6			311			9,345
Balance at End of Period	$	31,232		$	10,874		$	11,676		$	5,241		$	1,494		$	60,517


	Six Months Ended June 30, 2019
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	33,707		$	11,596		$	7,983		$	6,187		$	1,523		$	60,996
Charge-offs	(529		)	(6,912		)	—			(410		)	(840		)	(8,691		)
Recoveries	128			508			3			492			189			1,320
Net (Charge-offs)/Recoveries	(401		)	(6,404		)	3			82			(651		)	(7,371		)
Provision for loan losses	(470		)	8,035			(732		)	302			719			7,854
Balance at End of Period	$	32,836		$	13,227		$	7,254		$	6,571		$	1,591		$	61,479


	Six Months Ended June 30, 2018
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	27,235		$	8,966		$	13,167		$	5,479		$	1,543		$	56,390
Charge-offs	(232		)	(8,222		)	(321		)	(429		)	(872		)	(10,076		)
Recoveries	228			480			1,130			323			225			2,386
Net Charge-offs	(4		)	(7,742		)	809			(106		)	(647		)	(7,690		)
Provision for loan losses	4,001			9,650			(2,300		)	(132		)	598			11,817
Balance at End of Period	$	31,232		$	10,874		$	11,676		$	5,241		$	1,494		$	60,517

Three Months Ended June 30, 2018
(dollars in thousands)
Commercial
Real Estate

Commercial and
Industrial

Commercial
Construction

Consumer
Real Estate

Other
Consumer

Total
Loans
Balance at beginning of period $ 30,963
$ 10,472
$ 10,721
$ 5,418
$ 1,472
$ 59,046
Charge-offs (237 ) (7,392 ) (321 ) (268 ) (414 ) (8,632 )
Recoveries 185
362
1
85
125
758
Net (Charge-offs)/ Recoveries (52 ) (7,030 ) (320 ) (183 ) (289 ) (7,874 )
Provision for loan losses 321
7,432
1,275
6
311
9,345
Balance at End of Period $ 31,232
$ 10,874
$ 11,676
$ 5,241
$ 1,494
$ 60,517

Three Months Ended June 30, 2017
(dollars in thousands)
Commercial
Real Estate

Commercial and
Industrial

Commercial
Construction

Consumer
Real Estate

Other
Consumer

Total
Loans
Balance at beginning of period $ 20,570
$ 13,244
$ 14,102
$ 5,956
$ 1,944
$ 55,816
Charge-offs (1,673 ) (2,682 ) —
(1,097 ) (370 ) (5,822 )
Recoveries 155
69
113
76
75
488
Net (Charge-offs)/ Recoveries (1,518 ) (2,613 ) 113
(1,021 ) (295 ) (5,334 )
Provision for loan losses 5,306
(1,375 ) (271 ) 868
341
4,869
Balance at End of Period $ 24,358
$ 9,256
$ 13,944
$ 5,803
$ 1,990
$ 55,351

Six Months Ended June 30, 2018
(dollars in thousands)
Commercial
Real Estate

Commercial and
Industrial

Commercial
Construction

Consumer
Real Estate

Other
Consumer

Total
Loans
Balance at beginning of period $ 27,235
$ 8,966
$ 13,167
$ 5,479
$ 1,543
$ 56,390
Charge-offs (232 ) (8,222 ) (321 ) (429 ) (872 ) (10,076 )
Recoveries 228
480
1,130
323
225
2,386
Net (Charge-offs)/Recoveries (4 ) (7,742 ) 809
(106 ) (647 ) (7,690 )
Provision for loan losses 4,001
9,650
(2,300 ) (132 ) 598
11,817
Balance at End of Period $ 31,232
$ 10,874
$ 11,676
$ 5,241
$ 1,494
$ 60,517

Six Months Ended June 30, 2017
(dollars in thousands)
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
Charge-offs (2,063 ) (3,396 ) (644 ) (1,856 ) (804 ) (8,763 )
Recoveries 233
255
369
179
251
1,287
Net (Charge-offs)/Recoveries (1,830 ) (3,141 ) (275 ) (1,677 ) (553 ) (7,476 )
Provision for loan losses 6,212
1,587
220
1,385
648
10,052
Balance at End of Period $ 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.

3031

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



	June 30, 2019
	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
Commercial real estate	$	1,530	$	31,306	$	32,836	$	29,295	$	2,877,600	$	2,906,895
Commercial and industrial	204		13,023		13,227		10,651		1,549,076		1,559,727
Commercial construction	157		7,097		7,254		2,808		264,395		267,203
Consumer real estate	307		6,264		6,571		8,529		1,218,805		1,227,334
Other consumer	14		1,577		1,591		16		72,025		72,041
Total	$	2,212	$	59,267	$	61,479	$	51,299	$	5,981,901	$	6,033,200

	December 31, 2018
	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
Commercial real estate	$	1,295	$	32,412	$	33,707	$	11,369	$	2,910,463	$	2,921,832
Commercial and industrial	360		11,236		11,596		13,672		1,479,744		1,493,416
Commercial construction	87		7,896		7,983		15,775		241,422		257,197
Consumer real estate	10		6,177		6,187		8,674		1,197,983		1,206,657
Other consumer	11		1,512		1,523		16		67,530		67,546
Total	$	1,763	$	59,233	$	60,996	$	49,506	$	5,897,142	$	5,946,648

June 30, 2018
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
Commercial real estate $ —
$ 31,232
$ 31,232
$ 3,555
$ 2,785,086
$ 2,788,641
Commercial and industrial —
10,874
10,874
17,539
1,438,039
1,455,578
Commercial construction —
11,676
11,676
3,441
296,346
299,787
Consumer real estate —
5,241
5,241
9,186
1,166,288
1,175,474
Other consumer 35
1,459
1,494
44
66,594
66,638
Total $ 35
$ 60,482
$ 60,517
$ 33,765
$ 5,752,353
$ 5,786,118

December 31, 2017
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
Commercial real estate $ —
$ 27,235
$ 27,235
$ 3,546
$ 2,682,448
$ 2,685,994
Commercial and industrial 29
8,937
8,966
7,284
1,425,982
1,433,266
Commercial construction —
13,167
13,167
5,464
378,870
384,334
Consumer real estate 21
5,458
5,479
10,488
1,180,163
1,190,651
Other consumer 27
1,516
1,543
41
67,163
67,204
Total $ 77
$ 56,313
$ 56,390
$ 26,823
$ 5,734,626
$ 5,761,449

3132

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES

We determine if a contract is or contains a lease at inception. Leases are classified as either finance or operating leases. We recognize leases on our Consolidated Balance Sheets as ROU assets and related lease liabilities. Finance ROU assets are included in property and equipment and related finance lease liabilities are included in long-term borrowings. Operating lease ROU assets are included in other assets and related operating lease liabilities are included in other liabilities. We estimate lease liabilities and ROU assets using our estimated incremental borrowing rate with similar terms at commencement date. Lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term for operating leases. Interest and amortization expenses are recognized for finance leases over the lease term.

We have 44 lease contracts that we have recognized under the new lease standard, ASC Topic 842. These leases are for our branch, loan production and support services facilities. We have recognized 42 operating leases and two finance leases under the new lease accounting standard. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term in Net Occupancy on our Consolidated Statements of Comprehensive Income.

The following tables present our ROU assets, lease expense, weighted average term, discount rate and maturity analysis of lease liabilities for finance and operating leases as of June 30, 2019 and for the periods presented:



	June 30, 2019
(in thousands, except weighted-averages)	Three months ended			Six months ended
Operating lease expense		$	1,034		$	2,066
Amortization of ROU assets - finance leases		23			45
Interest on lease liabilities - finance leases ⁽¹⁾		18			36
Total Lease Expense		$	1,075		$	2,147
Operating Leases
ROU assets					$	36,417
Operating cash flows					$	662
Finance Leases
ROU assets					$	1,191
Operating cash flows					$	36
Financing cash flows					$	22
Weighted Average Lease Term - Years
Operating leases					20.14
Finance leases					15.34
Weighted Average Discount Rate
Operating leases					6.15		%
Finance leases					5.98		%
⁽¹⁾ Included in borrowings interest expense in our consolidated statements of comprehensive income. All other lease costs in this table are included in net occupancy expense.



(dollars in thousands)
Maturity Analysis	Finance			Operating				Total
2019	$	117			$	3,744		$	3,861
2020	126				3,623			3,749
2021	126				3,686			3,812
2022	128				3,768			3,896
2023	130				3,703			3,833
Thereafter	1,342				58,045			59,387
Total	$	1,969			$	76,569		$	78,538
Less: Present value discount	(735		)		(35,507		)	(36,242		)
Lease Liabilities	$	1,234			$	41,062		$	42,296

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7.8. 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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued

The following ~~tables indicate~~table indicates 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)
(dollars in thousands)	June 30, 2019			December 31, 2018			June 30, 2019			December 31, 2018
Derivatives not Designated as Hedging Instruments:
Interest Rate Swap Contracts - Commercial Loans
Fair value		$	22,688		$	5,504		$	22,620		$	5,340
Notional amount		449,576			325,750			449,576			325,750
Collateral received/posted		—			160			21,556			—
Interest Rate Lock Commitments - Mortgage Loans
Fair value		649			251			—			—
Notional amount		15,104			6,054			—			—
Forward Sale Contracts - Mortgage Loans
Fair value		—			55			105			—
Notional amount		$	—		$	6,000		$	15,404		$	—

Derivatives
(included in Other Assets)

Derivatives
(included in Other Liabilities)
(dollars in thousands) June 30, 2018 December 31, 2017 June 30, 2018 December 31, 2017
Derivatives not Designated as Hedging Instruments:

Interest Rate Swap Contracts - Commercial Loans

Fair value $ 6,157
$ 3,074
$ 6,223
$ 3,055
Notional amount 246,494
263,841
246,494
263,841
Net collateral received/posted 2,560
—
—
1,448
Interest Rate Lock Commitments - Mortgage Loans

Fair value 398
226
—
—
Notional amount 12,711
6,860
—
—
Forward Sale Contracts - Mortgage Loans

Fair value —
—
39
5
Notional amount $ —
$ —
$ 12,250
$ 6,580

~~Table of Contents~~

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

~~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 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 ~~tables indicate~~table indicates 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)	June 30, 2018			December 31, 2017			June 30, 2018			December 31, 2017			June 30, 2019				December 31, 2018				June 30, 2019				December 31, 2018
Derivatives not Designated as Hedging Instruments:
Gross amounts recognized	$	7,258		$	4,974		$	7,324		$	4,955			$	22,810			$	8,733			$	22,742			$	8,569
Gross amounts offset	(1,101		)	(1,900		)	(1,101		)	(1,900		)		(122		)		(3,229		)		(122		)		(3,229		)
Net Amounts Presented in the Consolidated Balance Sheets	6,157			3,074			6,223			3,055				22,688				5,504				22,620				5,340
Gross amounts not offset⁽¹⁾	(2,560		)	—			—			(1,448		)		—				(160		)		(21,556		)		—
Net Amount	$	3,597		$	3,074		$	6,223		$	1,607			$	22,688			$	5,344			$	1,064			$	5,340

⁽¹⁾ Amounts represent collateral received/posted ~~collateral.~~for the periods presented.

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



	Three Months Ended June 30,								Six Months Ended June 30,
(dollars in thousands)	2019				2018				2019				2018
Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans		$	26			$	(201	)		$	(96	)		$	(85	)
Interest rate lock commitments—mortgage loans		310				128				398				172
Forward sale contracts—mortgage loans		(193		)		(15		)		(160		)		(33		)
Total Derivatives Gain/(Loss)		$	143			$	(88	)		$	142			$	54

Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2018 2017 2018 2017
Derivatives not Designated as Hedging Instruments

Interest rate swap contracts—commercial loans $ (201 ) $ (8 ) $ (85 ) $ 16
Interest rate lock commitments—mortgage loans 128
(13 ) 172
220
Forward sale contracts—mortgage loans (15 ) 76
(33 ) 40
Total Derivatives (Loss)/Gain $ (88 ) $ 55
$ 54
$ 276

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8.9. 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.~~Corporation, or FDIC. 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.~~borrowings. Mortgage-backed securities with amortized cost of ~~$51.4~~$16.5 million and carrying value of ~~$49.9~~$16.7 million at June 30, ~~2018~~2019 and amortized cost of ~~$57.5~~$24.2 million and carrying value of ~~$56.8~~$23.9 million at December 31, ~~2017~~2018, 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, atwo capital ~~lease~~leases 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 ~~$7.9~~$5.5 million at a fixed rate and ~~$38.1~~$63.1 million at a variable rate at June 30, ~~2018,~~2019, excluding our capital ~~lease.~~

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

leases.

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



	June 30, 2019						December 31, 2018
(dollars in thousands)	Balance			Weighted Average Rate			Balance			Weighted Average Rate
Short-term Borrowings
Securities sold under repurchase agreements		$	14,154		0.74	%		$	18,383		0.46	%
Short-term borrowings		295,000			2.50	%		470,000			2.65	%
Total Short-term Borrowings		309,154			2.42	%		488,383			2.57	%
Long-term Borrowings
Long-term borrowings		69,791			2.73	%		70,314			2.84	%
Junior subordinated debt securities		45,619			4.87	%		45,619			5.25	%
Total Long-term Borrowings		115,410			3.58	%		115,933			3.79	%
Total Borrowings		$	424,564		2.74	%		$	604,316		2.80	%

June 30, 2018 December 31, 2017
(dollars in thousands) Balance
Weighted
Average Rate
Balance
Weighted
Average Rate
Short-term Borrowings

Securities sold under repurchase agreements $ 44,724
0.46 % $ 50,161
0.39 %
Short-term borrowings 600,000
2.16 % 540,000
1.47 %
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 %
Junior subordinated debt securities 45,619
4.80 % 45,619
3.78 %
Total Long-term Borrowings 91,681
3.55 % 92,920
2.81 %
Total Borrowings $ 736,405
2.23 % $ 683,081
1.57 %

We had total borrowings at ~~June 30, 2018 and December 31, 2017 at~~ the FHLB of Pittsburgh of ~~$646 million and $587 million. The $646~~$363.6 million at June 30, ~~2018~~2019 and $540.3 million at December 31, 2018. The $363.6 million at June 30, 2019 consisted of ~~$600~~$295.0 million in short-term borrowings and ~~$46.1~~$68.6 million in long-term borrowings. Our maximum borrowing capacity with the FHLB of Pittsburgh was ~~$2.5~~$2.6 billion at June 30, ~~2018.~~2019. We utilized ~~$790~~$545.5 million of our borrowing capacity at June 30, ~~2018~~2019 consisting of ~~$646~~$363.6 million for borrowings and ~~$144~~$181.9 million for letters of credit to collateralize public funds. Our remaining borrowing availability at June 30, ~~2018~~2019 is ~~$1.7~~$2.1 billion.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 9.10. COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event 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 June 30, 2018 and $2.2 million at December 31, 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 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)	June 30, 2019			December 31, 2018
Commitments to extend credit		$	1,561,464		$	1,464,892
Standby letters of credit		74,270			77,134
Total		$	1,635,734		$	1,542,026

(dollars in thousands) June 30, 2018
December 31, 2017
Commitments to extend credit $ 1,413,700
$ 1,420,428
Standby letters of credit 80,709
80,918
Total $ 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 the outcome of 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 11. REVENUE FROM CONTRACTS WITH CUSTOMERS

We earn revenue from contracts with our customers when we have completed our performance obligations and recognize that revenue when services are provided to our customers. Our contracts with customers are primarily in the form of account agreements. Generally, our services are transferred at a point in time in response to transactions initiated and controlled by our customers under service agreements with an expected duration of one year or less. Our customers have the right to terminate their services agreements at any time.

We do not defer incremental direct costs to obtain contracts with customers that would be amortized in one year or less. These costs are primarily salaries and employee benefits recognized as expense in the period incurred.

Service charges on deposit accounts - We recognize monthly service charges for both commercial and personal banking customers based on account fee schedules. Our performance obligation is generally satisfied and the related revenue recognized at a point in time or over time when the services are provided. Other fees are earned based on specific transactions or customer activity within the customers' deposit accounts. These are earned at the time the transaction or customer activity occurs.

Debit and credit card services - Interchange fees are earned whenever debit and credit cards are processed through third-party card payment networks. ATM fees are based on transactions by our customers' and other customers' use of our ATMs or other ATMs. Debit and credit card revenue is recognized at a point in time when the transaction is settled. Our performance obligation to our customers is generally satisfied and the related revenue is recognized at a point in time when the service is provided. Third-party service contracts include annual volume and marketing incentives which are recognized over a period of twelve months when we meet thresholds as stated in the service contract.

Wealth management services - Wealth management services are primarily comprised of fees earned from the management and administration of trusts, assets under administration and other financial advisory services. Generally, wealth management fees are earned over a period of time between monthly and annually, per the related fee schedules. Our performance obligations with our customers are generally satisfied when we provide the services as stated in the customers' agreements. The fees are based on a fixed amount or a scale based on the level of services provided or amount of assets under management.

Other fee revenue - Other fee revenue includes a variety of other traditional banking services such as, electronic banking fees, letters of credit origination fees, wire transfer fees, money orders, treasury checks, checksale fees and transfer fees. Our performance obligations are generally satisfied at a point in time, fee revenue is recognized when the services are provided or the transaction is settled.

The information presented in the following table presents the point of revenue recognition for revenue from contracts with customers. Other revenue streams such as: interest income, net securities gains and losses, insurance, mortgage banking and other revenues that are accounted for under other generally accepted accounting principles are excluded.



(dollars in thousands)		Three Months Ended June 30,				Six Months Ended June 30,
Revenue Streams	Point of Revenue Recognition	2019		2018		2019		2018
Service charges on deposit accounts	Over a period of time	$	451	$	453	$	908	$	987
	At a point in time	2,761		2,774		5,457		5,481
		$	3,212	$	3,227	$	6,365	$	6,468

Debit and credit card	Over a period time	$	177	$	151	$	362	$	339
	At a point in time	3,324		3,158		6,114		6,008
		$	3,501	$	3,309	$	6,476	$	6,347

Wealth management	Over a period of time	$	409	$	793	$	822	$	1,596
	At a point in time	1,653		1,823		3,288		3,702
		$	2,062	$	2,616	$	4,109	$	5,298

Other fee revenue	At a point in time	$	1,145	$	887	$	2,064	$	1,754

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE ~~10.~~12. OTHER COMPREHENSIVE ~~INCOME~~

INCOME/(LOSS)

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



	Three Months Ended June 30, 2019										Three Months Ended June 30, 2018
(dollars in thousands)	Pre-Tax Amount			Tax (Expense) Benefit				Net of Tax Amount			Pre-Tax Amount				Tax Benefit (Expense)				Net of Tax Amount
Change in net unrealized gains/(losses) on debt securities available-for-sale		$	8,968		$	(1,912	)		$	7,056		$	(2,296	)		$	487			$	(1,809	)
Adjustment to funded status of employee benefit plans		452			(96		)		356			702				(149		)		553
Other Comprehensive Income/(Loss)		$	9,420		$	(2,008	)		$	7,412		$	(1,594	)		$	338			$	(1,256	)

	Six Months Ended June 30, 2019										Six Months Ended June 30, 2018
(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 (losses)/gains on debt securities available-for-sale ⁽¹⁾		$	16,366		$	(3,490	)		$	12,876		$	(11,770	)		$	2,499			$	(9,271	)
Adjustment to funded status of employee benefit plans		905			(193		)		712			1,323				(281		)		1,042
Other Comprehensive (Loss)/Income		$	17,271		$	(3,683	)		$	13,588		$	(10,447	)		$	2,218			$	(8,229	)
⁽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.
⁽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.

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.~~13. EMPLOYEE BENEFITS

Our qualified and nonqualified defined benefit plans were amended to freeze benefit accruals for all persons entitled to benefits under the ~~plan~~plans in 2016. We will continue recording pension expense related to these plans, primarily representing interest costs on the accumulated benefit obligation and amortization of actuarial losses accumulated in the ~~plan,~~plans, as well as income from expected investment returns on pension assets. Since the plans have been frozen, no service costs are included in net periodic pension expense.

At the end of the third quarter of 2018, we made a $20.4 million contribution to our qualified defined benefit plan. The investment policy for the Plan now is 85 percent to 95 percent fixed income and 5 percent to 15 percent equity and cash, which is a shift from 50 percent to 70 percent in equities and 30 percent to 50 percent fixed income and cash in 2018. The expected long-term rate of return on plan assets is 4.80 percent compared to 7.50 ~~percent.~~percent in prior periods.

The pension contribution was deducted on our 2017 Consolidated Federal Income Tax Return and we recognized a return to provision discrete tax benefit of $2.9 million due to the decrease in the federal statutory rate of 35 percent to 21 percent resulting from tax legislation in December 2017.

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



	Three Months Ended June 30,								Six Months Ended June 30,
(dollars in thousands)	2019				2018				2019				2018
Components of Net Periodic Pension Cost
Interest cost on projected benefit obligation		$	989			$	967			$	1,978			$	1,934
Expected return on plan assets		(1,181		)		(1,567		)		(2,361		)		(3,134		)
Net amortization		395				545				789				1,089
Net Periodic Pension Expense		$	203			$	(55	)		$	406			$	(111	)

Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands) 2018 2017 2018 2017
Components of Net Periodic Pension Cost

Interest cost on projected benefit obligation $ 967
$ 1,025
$ 1,934
$ 2,050
Expected return on plan assets (1,567 ) (1,582 ) (3,134 ) (3,164 )
Amortization of prior service credit 545
475
1,089
949
Net Periodic Pension Expense $ (55 ) $ (82 ) $ (111 ) $ (165 )

The components of net periodic pension expense are included in salaries and employee benefits on the Consolidated Statements of Comprehensive Income.

NOTE ~~12.~~14. QUALIFIED AFFORDABLE HOUSING AND HISTORIC REHABILITATION PROJECTS

~~We invest in affordable housing projects primarily to satisfy~~

As part of our responsibilities under the Community Reinvestment Act ~~requirements.~~and due to their favorable federal income tax benefits, we invest in Low Income Housing and Historic Rehabilitation projects. 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 ~~$7.3~~$4.6 million at June 30, ~~2018~~2019 and ~~$8.7~~$6.0 million at December 31, ~~2017.~~2018. Amortization expense, included in other noninterest expense in the Consolidated Statements of Comprehensive Income, was $0.7 million and $1.4 million for the three and six months ended June 30, ~~2018~~2019 and ~~$0.8~~June 30, 2018. The amortization expense was offset by tax credits of $0.7 million and ~~$1.6~~$1.5 million for the three and six months ended June 30, ~~2017. The amortization expense was offset by tax credits of~~2019 and $0.8 million and $1.5 million for the three and six months ended June 30, 2018 as a reduction to our federal tax provision.

Our total investment in historic rehabilitation was $0.3 million at June 30, 2019 and ~~$0.9~~December 31, 2018. Federal tax credits of $0.2 million and ~~$1.7~~$0.5 million were recognized as a reduction to our federal tax provision for the three and six months ended June 30, ~~2017 as a reduction to our~~2019. No federal historic rehabilitation tax ~~provision.~~credits were earned in 2018.

NOTE ~~13.~~15. SALE OF A MAJORITY INTEREST OF INSURANCE BUSINESS

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. The partial sale was accounted for as the sale of a business. At the date of the sale, January 1, 2018, we ceased to have a controlling financial interest, 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. 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 losses of the new insurance entity.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE ~~14.~~16. 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~~During the three months ended June 30, 2019, we repurchased 71,936 common shares at a total cost of $2.8 million, or an average of $39.41 per share. For the six months ended June 30, ~~2018.~~2019, we repurchased 385,840 common shares under this plan at a total cost of $15.1 million, or an average of $39.19 per share. Up to an additional $22.6 million of our common stock may be repurchased under this plan through August 31, 2019.

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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 six month periods ended June 30, ~~2018~~2019 and ~~2017.~~2018. Our MD&A should be read in conjunction with our Consolidated Financial Statements and 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.~~operations including statements related to the expected timing of the closing of the proposed merger and the expected returns and other benefits of the proposed merger to shareholders. 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. Forward-looking statements represent management’s beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance. 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; and 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. Additionally, there can be no assurances that the proposed merger with DNB will close when expected or the expected returns and other benefits of the proposed merger to shareholders will be achieved. Factors that could cause or contribute to such differences include, but are not limited to, the possibility that expected benefits may not materialize in the time frames expected or at all, or may be more costly to achieve; that the merger transaction may not be timely completed, if at all; that prior to completion of the merger transaction or thereafter, the parties’ respective businesses may not perform as expected due to transaction-related uncertainties or other factors; that the parties are unable to implement successful integration strategies; that the required regulatory, shareholder, or other closing conditions are not satisfied in a timely manner, or at all; reputational risks and the reaction of the parties’ customers to the merger transaction; diversion of management time to merger-related issues. 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,~~2018, including Part I, Item ~~1A,~~ 1A-"Risk ~~Factors~~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.

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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~~2019 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 under ~~the section “Management’s~~Part II, Item 7-“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of ~~$7.1~~$7.3 billion at June 30, ~~2018.~~2019. We operate ~~bank branches~~ in five markets including Western Pennsylvania, ~~and~~Central Pennsylvania, Northeast Ohio, Central Ohio, and ~~loan production offices in Pennsylvania, Ohio and~~Upstate New York. We employ a geographic market based strategy in order to drive organic growth. Each of our five markets is led by a Market President who is responsible for developing strategic initiatives specific to each market. We acknowledge that each of our five markets are in different stages of development and that our market based strategy will allow us to customize our approach to each market given its developmental stage and unique characteristics.

We provide a full range of financial services with retail and commercial banking products, cash management services, ~~and~~ trust and ~~brokerage services.~~financial services and insurance products. Our common stock trades on the NASDAQ Global Select Market under the symbol “STBA.”

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.~~value. 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.

On June 5, 2019, we entered into a definitive Agreement and Plan of Merger to acquire DNB Financial Corporation, or DNB, based in Downingtown, Pennsylvania. DNB had approximately $1.2 billion in assets at March 31, 2019 and maintains 14 branches in Chester, Delaware and Philadelphia counties. The acquisition will expand our footprint into Southeastern Pennsylvania. Pursuant to the Agreement and Plan of Merger, DNB will merge with and into S&T, with S&T continuing as the surviving entity. Under the terms of the Agreement and Plan of Merger, DNB shareholders will have the right to receive 1.22 shares of common stock, par value $2.50 per share, of S&T for each share of common stock, par value $1.00 per share, of DNB. Immediately following the merger of DNB and S&T, DNB’s wholly owned bank subsidiary, DNB First, National Association, will merge with and into S&T’s wholly owned bank subsidiary, S&T Bank, with S&T Bank as the surviving entity. The Agreement and Plan of Merger was unanimously approved by the Board of Directors of each of S&T and DNB. The transaction is expected to close in the fourth quarter of 2019 after satisfaction of customary closing conditions, including regulatory approvals and approval of the shareholders of DNB.

Our focus continues to be on organic loan and deposit growth and implementing opportunities to increase fee income while closely ~~managing~~monitoring 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. We have benefited from recent increases in short-term interest rates and expect to benefit from any future 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, 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 ~~decreased $1.4~~increased $4.7 million, or ~~5.8~~21.8 percent, for the three months ended June 30, ~~2018~~2019 and increased ~~$6.6~~$1.4 million, or ~~16.2~~3.0 percent, for the six months ended June 30, ~~2018~~2019 compared to the same periods in ~~2017.~~2018. Net income for the three and six months ended June 30, ~~2018~~2019 was $26.1 million and $49.0 million, or $0.76 and $1.43 diluted earnings per share, as compared to $21.4 million and $47.6 million, or $0.61 and $1.36 diluted earnings per share ~~as compared to $22.8 million and $41.0 million, or $0.65 and $1.17 diluted earnings per share~~ for the same periods in ~~2017.~~2018.

The ~~decrease~~increase in net income for the three month period ended June 30, ~~2018~~2019 of ~~$1.4~~$4.7 million was primarily due to ~~an increase~~a decrease in the provision for loan losses of ~~$4.4~~$7.1 million and ~~a decrease~~an increase in ~~noninterest~~net interest income of ~~$4.0~~$2.4 million offset by an increase in noninterest expense of ~~$1.8~~$4.5 million ~~in net interest income~~ and ~~decreases~~an increase of ~~$4.6~~$1.1 million in the provision for income ~~taxes and $0.7 million in noninterest expense.~~taxes. The increase toin net income for the six month period ended June 30, ~~2018~~2019 of ~~$6.6~~$1.4 million was primarily due to an increase in net interest income of ~~$4.9~~$5.9 million, a decrease in the provision for loan losses of $3.9 million and ~~decreases~~a decrease of $0.7 million in the provision for income taxes offset by a decrease noninterest income of ~~$5.3~~$1.8 million and ~~noninterest expense~~an increase of ~~$1.5 million offset by decreases of $3.3~~$7.3 million in noninterest ~~income and an increase to the provision for loan losses of $1.7 million.~~expense.

Net interest income increased ~~$1.8~~$2.4 million and ~~$4.9~~$5.9 million to ~~$58.4~~$60.8 million and ~~$115.3~~$121.2 million for the three and six months ended June 30, ~~2018~~2019 compared to ~~$56.6~~net interest income of $58.4 million and ~~$110.4~~$115.3 million for the same periods in ~~2017.~~2018. Average interest-earning assets increased $178.6 million and $175.5 million for the three and six months ended June 30, 2019

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

compared to the same periods in 2018. Average interest-bearing liabilities increased $42.6 million and $42.2 for the three and six months ended June 30, 2019 compared to the same periods in 2018. Net interest margin, on a fully taxable-equivalent, or FTE basis (non-GAAP), increased four and nine basis points to 3.68 percent and 3.70 percent in the three and six months ended June 30, 2019 compared to 3.64 percent and 3.61 percent for the same periods in 2018. The increases in short-term interest rates over the past year positively impacted both net interest income and net interest margin. ~~Average interest-earning assets decreased $24.2 million for~~Net interest margin is reconciled to net interest income adjusted to an FTE basis in the ~~three month period~~"Results of Operations - Three and ~~increased $24.6 million for the six month period ended~~Six Months Ended June 30, 2019 Compared to Three and Six Months Ended June 30, 2018 ~~compared to the same periods in 2017. Average interest-bearing liabilities~~- Net Interest Income" section of this MD&A.

The provision for loan losses decreased ~~$126.7~~$7.1 million and ~~$94.3~~$3.9 million to $2.2 million and $7.9 million for the three and six months ended June 30, ~~2018~~2019 compared to the same periods in 2017. Net interest margin, on a fully taxable-equivalent, or FTE, basis (non-GAAP), increased seven and eight basis points to 3.64 and 3.61 percent in 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 increased $4.4~~$9.3 million and ~~$1.7 million to $9.3 and~~ $11.8 ~~million for the three and six months ended June 30, 2018 compared to $4.9 and $10.1~~ million for the same periods in ~~2017.~~2018. The ~~increases~~decrease in the provision for loan losses ~~were~~for both periods mainly ~~due~~related to ~~higher net charge-offs~~a decrease in ~~both periods.~~loan charge-offs. For the three and six months ended June 30, ~~2018,~~2019, we had net charges-offs of $2.1 million and $7.4 million compared to $7.9 million and $7.7 ~~million compared to net charges-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 loss resulted from fraudulent activities believed to be perpetrated by one or more executives employed by the borrower and its related entities.2018. Annualized net loan charge-offs to average loans ~~were 0.55~~was 0.14 percent and ~~0.27~~0.25 percent for the three and six months ended June 30, ~~2018~~2019 compared to ~~0.37~~0.55 percent and ~~0.26~~0.27 percent for the same periods in ~~2017.~~ 2018.Impaired loans ~~decreased $6.7~~increased $17.5 million to $51.3 million at June 30, 2019 compared to $33.8 million at June

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

30, 2018 and specific reserves on impaired loans increased $2.2 million compared to ~~$40.5~~the same period in the prior year.Nonperforming loans increased $23.6 million to $45.0 million at June 30, ~~2017. Nonperforming loans decreased $15.3 million~~2019 compared to $21.4 million at June 30, ~~2018 compared to $36.7 million at June 30, 2017.~~2018.

Noninterest income ~~decreased $4.0 million and $3.3~~increased $0.7 million to ~~$12.3 million and $26.0~~$12.9 million for the three months ended June 30, 2019 and decreased $1.8 million to $24.3 million for the six months ended June 30, 2018 compared to $16.3 million and $29.3 million for the same periods in 2017. The 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 periods2019 compared to the same periods in ~~2017 due~~2018. The decrease for the six months ending June 30, 2019 was partially related to a $1.9 million gain on the sale of a majority interest in ~~our insurance business~~S&T Evergreen Insurance, LLC 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~~Wealth management fees decreased ~~$0.7 million and $1.5 million to $35.9 million and $71.9~~$0.6 million for the three ~~and six~~ months ended ~~June 30, 2018 compared to $36.6~~and $1.2 million and $73.4 million for the same periods in 2017. The decreases in noninterest expense were primarily due to $1.3 million and $3.0 million decreases in salaries and employee benefits 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 lower restricted stock, incentive and commission costs and fewer employees due to the sale of our insurance business in the first quarter of 2018. The increases in other taxes were primarily related to a state sales tax assessment.

The provision for income taxes decreased $4.6 and $5.3 million for the three and six months ended June 30, 2018 compared to the same periods in 2017. The decreases were 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 and 17.4 percent for the six months ended June 30, ~~2018 compared~~2019 due to ~~27.4 percent~~a decline in financial service revenue and ~~27.2 percent~~market conditions. Offsetting these decreases were increases of $1.2 million and $1.6 million in other income primarily related to higher commercial loan swap fees of $0.9 million and $1.4 million due to an increase in customer demand for this product.

Noninterest expense increased $4.5 million to $40.4 million for the ~~same periods in the prior year. Included in the effective tax rate~~three months ended June 30, 2019 and $7.3 million to $79.3 million for the six months ended June 30, 2019 compared to the same periods in 2018. The most significant increases in expense related to salaries and employee benefits and data processing and information technology. Salaries and employee benefits expense increased $1.7 million for the three months ended and $3.8 million for the six months ended June 30, 2019 compared to the same periods in 2018 ~~were~~mainly due to annual merit increases and higher severance, incentive and pension costs. Data processing and information technology increased $1.0 million for the three months ended and $1.9 million for the six months ended June 30, 2019 compared to the same periods in 2018 due to the recent outsourcing arrangement for certain components of our IT function and the annual increase with our third-party data processor. Additionally, we incurred merger related expenses of $0.6 million for professional services during the second quarter of 2019.

The provision for income taxes increased $1.1 million for the three months ended June 30, 2019 as a result of an increase in pretax income of $5.7 million compared to the same period in 2018. The provision for income taxes decreased $0.7 million for the six months ended June 30, 2019 compared to the same periods in 2018 primarily due to non-recurring discrete ~~tax expense~~ items of ~~$0.7~~$0.9 million ~~primarily~~ related to the sale of a majority interest of our insurance ~~business.~~business in the first quarter of 2018. Our effective tax rate increased to 16.3 percent for the three month period ended June 30, 2019 and decreased to 15.9 percent for the six month period ended June 30, 2019 compared to 15.8 percent and 17.4 percent for the same periods in 2018.

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 and net interest margin on a fully taxable equivalent, or FTE, basis, which ~~is a~~are non-GAAP financial ~~measure.~~measures. Management believes ~~this measure provides~~net interest income and net interest margin on an FTE basis provide information useful to investors in understanding our underlying business, operational performance and performance trends as ~~it facilitates~~they facilitate comparisons with the performance of other companies in the financial services industry. Although management believes that ~~this~~these non-GAAP financial ~~measure enhances~~measures enhance investors’ understanding of our business and performance, ~~this~~these non-GAAP financial ~~measure~~measures should not be considered ~~an alternative~~alternatives to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor ~~is it~~are they necessarily comparable with non-GAAP measures which may be presented by other companies.

We believe the presentation of net interest income and net interest margin 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 (GAAP) per the Consolidated Statements of Comprehensive Income is reconciled to net interest income adjusted toon an FTE basis and net interest margin adjusted on an FTE basis in ~~the Net Interest Income section of~~ the "Results of Operations - Three and Six Months Ended June 30, ~~2018~~2019 Compared to Three and Six Months Ended June 30, ~~2017."~~2018 - Net Interest Income" section of this MD&A.

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

RESULTS OF OPERATIONS

Three and Six Months Ended June 30, ~~2018~~2019 Compared to

Three and Six Months Ended June 30, ~~2017~~2018

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 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 the three and six months ended June 30, 2017~~each period 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 June 30,						Six Months Ended June 30,						Three Months Ended June 30,								Six Months Ended June 30,
(dollars in thousands)	2018			2017			2018			2017			2019				2018				2019				2018
Total interest income	$	71,581		$	64,914		$	139,610		$	126,065			$	79,624			$	71,581			$	158,214			$	139,610
Total interest expense	13,178			8,344			24,276			15,616				18,797				13,178				37,031				24,276
Net Interest Income per Consolidated Statements of Comprehensive Income	58,403			56,570			115,334			110,449				60,827				58,403				121,183				115,334
Adjustment to FTE basis	936			1,877			1,878			3,747				958				938				1,919				1,878
Net Interest Income on an FTE Basis (Non-GAAP)	$	59,339		$	58,447		$	117,212		$	114,196			$	61,785			$	59,341			$	123,102			$	117,212
Net interest margin	3.58		%	3.45		%	3.56		%	3.42		%		3.63		%		3.58		%		3.64		%		3.56		%
Adjustment to FTE basis	0.06		%	0.12		%	0.05		%	0.11		%		0.05		%		0.06		%		0.06		%		0.05		%
Net Interest Margin on an FTE Basis (Non-GAAP)	3.64		%	3.57		%	3.61		%	3.53		%		3.68		%		3.64		%		3.70		%		3.61		%

Income amounts are annualized for rate calculations.

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

Average Balance Sheet and Net Interest Income Analysis (FTE)

The following ~~table provides~~tables provide 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 June 30, 2018						Three Months Ended June 30, 2017						Three Months Ended June 30, 2019							Three Months Ended June 30, 2018
(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	$	55,015	$	221	1.60	%	$	48,547	$	110	0.91	%	$	49,949		$	274	2.19	%	$	55,015		$	221	1.60	%
Securities, at fair value⁽²⁾⁽³⁾	685,132		4,450		2.60	%	709,208		4,403		2.48	%	673,117			4,482		2.66	%	685,132			4,450		2.60	%
Loans held for sale	1,528		28		7.43	%	5,053		33		2.61	%	1,452			16		4.44	%	1,528			28		7.43	%
Commercial real estate	2,774,882		32,617		4.71	%	2,664,696		28,544		4.30	%	2,895,146			36,158		5.01	%	2,774,882			32,617		4.71	%
Commercial and industrial	1,431,861		16,627		4.66	%	1,430,080		15,347		4.30	%	1,559,222			20,087		5.17	%	1,431,861			16,627		4.66	%
Commercial construction	324,934		3,857		4.76	%	421,456		4,300		4.09	%	242,192			3,242		5.37	%	324,934			3,857		4.76	%
Total Commercial Loans	4,531,677		53,101		4.70	%	4,516,232		48,191		4.28	%	4,696,560			59,487		5.08	%	4,531,677			53,101		4.70	%
Residential mortgage	691,634		7,314		4.23	%	700,406		7,237		4.14	%	734,372			8,253		4.50	%	691,634			7,314		4.23	%
Home equity	472,927		5,676		4.81	%	481,039		5,255		4.38	%	463,480			6,267		5.42	%	472,927			5,676		4.81	%
Installment and other consumer	67,186		1,138		6.79	%	69,899		1,125		6.46	%	71,319			1,286		7.23	%	67,186			1,138		6.79	%
Consumer construction	4,570		54		4.76	%	4,572		56		4.93	%	11,014			149		5.41	%	4,570			54		4.76	%
Total Consumer Loans	1,236,317		14,182		4.60	%	1,255,916		13,673		4.36	%	1,280,185			15,955		4.99	%	1,236,317			14,182		4.60	%
Total Portfolio Loans	5,767,994		67,283		4.68	%	5,772,148		61,864		4.30	%	5,976,745			75,442		5.06	%	5,767,994			67,283		4.68	%
Total Loans⁽¹⁾⁽²⁾	5,769,522		67,311		4.68	%	5,777,201		61,897		4.30	%	5,978,197			75,458		5.06	%	5,769,522			67,311		4.68	%
Federal Home Loan Bank and other restricted stock	34,130		537		6.30	%	33,082		381		4.60	%	21,141			368		6.97	%	34,130			537		6.30	%
Total Interest-earning Assets	6,543,799		72,519		4.44	%	6,568,038		66,791		4.08	%	6,722,404			80,582		4.81	%	6,543,799			72,519		4.44	%
Noninterest-earning assets	491,246						507,425						523,636							491,246
Total Assets	$	7,035,045					$	7,075,463					$	7,246,040						$	7,035,045
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	571,260	$	438	0.31	%	$	649,440	$	352	0.22	%	$	550,200		631		0.46	%	$	571,260		437		0.31	%
Money market	1,251,171		4,027		1.29	%	937,272		1,690		0.72	%	1,695,349			8,169		1.93	%	1,251,171			4,027		1.29	%
Savings	851,702		429		0.20	%	1,019,220		539		0.21	%	760,743			484		0.26	%	851,702			429		0.20	%
Certificates of deposit	1,295,473		4,273		1.32	%	1,457,107		3,395		0.93	%	1,389,968			6,771		1.95	%	1,295,473			4,273		1.32	%
Total Interest-bearing Deposits	3,969,606		9,167		0.93	%	4,063,039		5,976		0.59	%	4,396,260			16,055		1.46	%	3,969,606			9,166		0.93	%
Securities sold under repurchase agreements	48,980		50		0.41	%	50,082		7		0.06	%	16,337			28		0.69	%	48,980			50		0.41	%
Short-term borrowings	617,891		3,179		2.06	%	682,584		1,849		1.09	%	242,759			1,642		2.71	%	617,891			3,179		2.06	%
Long-term borrowings	46,317		259		2.24	%	13,765		102		2.96	%	70,049			500		2.86	%	46,317			259		2.24	%
Junior subordinated debt securities	45,619		525		4.61	%	45,619		410		3.60	%	45,619			572		5.03	%	45,619			525		4.61	%
Total Borrowings	758,807		4,013		2.12	%	792,050		2,368		1.20	%	374,764			2,742		2.94	%	758,807			4,012		2.12	%
Total Interest-bearing Liabilities	4,728,413		13,180		1.12	%	4,855,089		8,344		0.69	%	4,771,024			18,797		1.58	%	4,728,413			13,178		1.12	%
Noninterest-bearing liabilities:
Noninterest-bearing liabilities	1,403,771						1,354,711						1,523,676							1,403,771
Shareholders’ equity	902,861						865,663						951,340							902,861
Total Liabilities and Shareholders’ Equity	$	7,035,045					$	7,075,463					$	7,246,040						$	7,035,045
Net Interest Income ⁽²⁾⁽³⁾			$	59,339					$	58,447						$	61,785						$	59,341
Net Interest Margin ^{(2) (3)}					3.64	%					3.57	%
Net Interest Margin ⁽²⁾⁽³⁾																		3.68	%						3.64	%

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

⁽²⁾ Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent for ~~2018~~2019 and ~~35 percent for 2017.~~2018.

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

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


	Six Months Ended June 30, 2018						Six Months Ended June 30, 2017						Six Months Ended June 30, 2019							Six Months Ended June 30, 2018
(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	$	55,509	$	451	1.63	%	$	57,311	$	251	0.87	%	$	51,758		$	626	2.42	%	$	55,509		$	451	1.63	%
Securities, at fair value⁽²⁾⁽³⁾	686,017		8,803		2.57	%	703,300		8,664		2.46	%	676,797			9,039		2.67	%	686,017			8,803		2.57	%
Loans held for sale	1,737		56		6.44	%	3,639		57		3.16	%	1,175			25		4.29	%	1,737			56		6.44	%
Commercial real estate	2,733,168		62,924		4.64	%	2,595,163		55,005		4.27	%	2,900,181			72,122		5.01	%	2,733,168			62,924		4.64	%
Commercial and industrial	1,431,725		32,187		4.53	%	1,421,986		29,838		4.23	%	1,534,080			39,420		5.18	%	1,431,725			32,187		4.53	%
Commercial construction	349,893		8,032		4.63	%	438,079		8,456		3.89	%	246,073			6,554		5.37	%	349,893			8,032		4.63	%
Total Commercial Loans	4,514,786		103,143		4.61	%	4,455,228		93,299		4.22	%	4,680,334			118,096		5.09	%	4,514,786			103,143		4.61	%
Residential mortgage	692,961		14,554		4.21	%	700,129		14,297		4.10	%	728,495			16,123		4.44	%	692,961			14,554		4.21	%
Home equity	476,967		10,975		4.64	%	480,727		10,160		4.26	%	465,598			12,536		5.43	%	476,967			10,975		4.64	%
Installment and other consumer	67,025		2,241		6.74	%	69,036		2,216		6.47	%	70,215			2,508		7.20	%	67,025			2,241		6.74	%
Consumer construction	4,192		98		4.73	%	4,971		105		4.25	%	10,244			293		5.77	%	4,192			98		4.73	%
Total Consumer Loans	1,241,145		27,868		4.52	%	1,254,863		26,778		4.29	%	1,274,552			31,460		4.96	%	1,241,145			27,868		4.52	%
Total Portfolio Loans	5,755,931		131,011		4.59	%	5,710,091		120,077		4.24	%	5,954,886			149,556		5.06	%	5,755,931			131,011		4.59	%
Total Loans⁽¹⁾⁽²⁾	5,757,668		131,067		4.59	%	5,713,730		120,134		4.24	%	5,956,061			149,581		5.06	%	5,757,668			131,067		4.59	%
Federal Home Loan Bank and other restricted stock	32,681		1,166		7.13	%	32,888		763		4.64	%	22,797			887		7.79	%	32,681			1,167		7.13	%
Total Interest-earning Assets	6,531,875		141,487		4.36	%	6,507,229		129,812		4.02	%	6,707,413			160,133		4.81	%	6,531,875			141,488		4.36	%
Noninterest-earning assets	490,476						509,265						521,082							490,476
Total Assets	$	7,022,351					$	7,016,494					$	7,228,495						$	7,022,351
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	573,307	$	806	0.28	%	$	641,381	$	628	0.20	%	$	547,960		1,183		0.44	%	$	573,307		806		0.28	%
Money market	1,222,770		7,259		1.20	%	937,641		3,096		0.67	%	1,632,234			15,461		1.91	%	1,222,770			7,259		1.20	%
Savings	862,947		866		0.20	%	1,030,371		1,075		0.21	%	765,638			957		0.25	%	862,947			866		0.20	%
Certificates of deposit	1,325,379		8,081		1.23	%	1,430,599		6,556		0.92	%	1,412,117			13,435		1.92	%	1,325,379			8,081		1.23	%
Total Interest-bearing Deposits	3,984,403		17,012		0.86	%	4,039,992		11,355		0.57	%	4,357,949			31,036		1.44	%	3,984,403			17,012		0.86	%
Securities sold under repurchase agreements	48,380		96		0.40	%	49,492		8		0.03	%	19,735			57		0.59	%	48,380			96		0.40	%
Short-term borrowings	607,013		5,687		1.89	%	677,214		3,249		0.97	%	280,862			3,787		2.72	%	607,013			5,687		1.89	%
Long-term borrowings	46,626		490		2.12	%	14,062		206		2.94	%	70,122			993		2.85	%	46,626			490		2.12	%
Junior subordinated debt securities	45,619		990		4.38	%	45,619		798		3.53	%	45,619			1,158		5.12	%	45,619			991		4.38	%
Total Borrowings	747,638		7,263		1.96	%	786,387		4,261		1.09	%	416,338			5,995		2.90	%	747,638			7,264		1.96	%
Total Interest-bearing Liabilities	4,732,041		24,275		1.03	%	4,826,379		15,616		0.65	%	4,774,287			37,031		1.56	%	4,732,041			24,276		1.03	%
Noninterest-bearing liabilities:
Noninterest-bearing liabilities	1,393,939						1,332,181						1,505,964							1,393,939
Shareholders’ equity	896,371						857,934						948,244							896,371
Total Liabilities and Shareholders’ Equity	$	7,022,351					$	7,016,494					$	7,228,495						$	7,022,351
Net Interest Income⁽²⁾⁽³⁾			$	117,212					$	114,196						$	123,102						$	117,212
Net Interest Margin⁽²⁾⁽³⁾					3.61	%					3.53	%						3.70	%						3.61	%

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

⁽²⁾ Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent for ~~2018~~2019 and ~~35 percent for 2017.~~2018.

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

Net interest income on an FTE basis (non-GAAP) increased ~~$0.9~~$2.4 million, or ~~1.5~~4.1 percent, for the three months ended June 30, 2019 and increased ~~$3.0~~$5.9 million, or ~~2.6~~5.0 percent, for the six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017.~~2018. The net interest margin on an FTE basis (non-GAAP) increased ~~seven and eight~~four basis points for the three months ended June 30, 2019 and nine basis points for the six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017.~~2018. 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.~~rates.

Interest income on an FTE basis (non-GAAP) increased ~~$5.7~~$8.1 million, or ~~8.6~~11.1 percent, for the three months ended June 30, 2019 and ~~$11.7~~increased $18.6 million, or ~~9.0~~13.2 percent, for the six months ended June 30, ~~2018~~2019, 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.~~2018. 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~~increases were primarily due to ~~higher short-term interest rates. Average interest-bearing deposits with banks, which is primarily cash at the Federal Reserve, remained relatively flat~~increases in average interest-earning assets of $178.6 million and ~~the average rates earned increased 69 and 76 basis points due to higher short-term interest rates~~$175.5 million for the three and six months ended June 30, ~~2018~~2019 and higher short-term interest rates, compared to the same periods in ~~2017.~~2018. Average loan balances increased $208.7 million and $198.4 million compared to the same periods in 2018, due to organic loan growth, primarily in the commercial loan portfolio. The average rate earned on loans increased 38 and 47 basis points compared to the same periods in 2018, primarily due to higher short-term interest rates. Average investment securities decreased ~~$24.1~~$12.0 million and ~~$17.3~~$9.2 million ~~with no significant changes~~and the average rate earned increased six and ten basis points due to higher rates, compared 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 ratesame periods in 2018. Overall, the FTE ~~rates~~rate on interest-earning assets (non-GAAP) increased 3637 and 3445 basis points for the three and six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017.~~2018.

Interest expense increased ~~$4.8~~$5.6 million and ~~$8.7~~$12.8 million for the three and six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017.~~2018. The increases were primarily due to higher short-term interest rates.Average interest-bearing deposits ~~decreased $93.4~~increased $426.7 million and ~~$55.6~~$373.5 million for the three and six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017.~~2018. Average money market balances increased ~~$314~~$444.2 million and the average rate paid increased 5764 basis points for the three months ended June 30, 2019 and increased ~~$285~~$409.5 million and 5371 basis points for the six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017~~2018, due to higher short-term interest ~~rates.~~rates and promotional pricing. The money market balance increases are partially attributable to a shift in deposit mix, as average interest-bearing demand and savings ~~and certificates of deposit~~ balances ~~declined.~~declined during these periods. The ~~overall decline~~growth in average ~~interest bearing~~interest-bearing deposits is ~~favorably offset~~complemented by ~~increased~~ average noninterest-bearing demand ~~deposit balances~~balance increases of ~~$44.1~~$103.9 million and ~~$58.9 million.Average total borrowings decreased $33.2 million and $38.7~~$98.0 million for the three and six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017. Over~~2018. Average total borrowings decreased $384.0 million and $331.3 million for the three and six months ended June 30, 2019, compared to 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~~in 2018, 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.~~deposits. Overall, the cost of interest-bearing liabilities increased 4346 and 3853 basis points for the three and six months ended June 30, ~~2018~~2019, compared to the same periods in ~~2017.~~2018.

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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 June 30, 2018 compared to June 30, 2017									Six Months Ended June 30, 2018 compared to June 30, 2017									Three Months Ended June 30, 2019 Compared to June 30, 2018									Six Months Ended June 30, 2019 Compared to June 30, 2018
(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	$	15		$	96		$	111		$	(8	)	$	208		$	200		$	(20	)	$	73		$	53		$	(30	)	$	205		$	175
Securities, at fair value⁽²⁾⁽³⁾	(149		)	196			47			(213		)	352			139			(78		)	110			32			(119		)	355			236
Loans held for sale	(23		)	18			(5		)	(30		)	29			(1		)	(1		)	(11		)	(12		)	(18		)	(13		)	(31		)
Commercial real estate	1,180			2,893			4,073			2,925			4,994			7,919			1,414			2,127			3,541			3,845			5,353			9,198
Commercial and industrial	19			1,261			1,280			204			2,145			2,349			1,479			1,981			3,460			2,301			4,932			7,233
Commercial construction	(985		)	542			(443		)	(1,702		)	1,278			(424		)	(982		)	367			(615		)	(2,383		)	905			(1,478		)
Total Commercial Loans	215			4,695			4,910			1,427			8,417			9,844			1,911			4,475			6,386			3,763			11,190			14,953
Residential mortgage	(91		)	168			77			(146		)	403			257			451			488			939			747			822			1,569
Home equity	(89		)	510			421			(79		)	894			815			(113		)	704			591			(261		)	1,822			1,561
Installment and other consumer	(44		)	57			13			(65		)	90			25			70			78			148			107			160			267
Consumer construction	—			(2		)	(2		)	(16		)	9			(7		)	77			18			95			142			53			195
Total Consumer Loans	(223		)	732			509			(306		)	1,396			1,090			485			1,288			1,773			735			2,857			3,592
Total Portfolio Loans	(8		)	5,427			5,419			1,121			9,813			10,934			2,396			5,763			8,159			4,498			14,047			18,545
Total Loans⁽¹⁾⁽²⁾	(31		)	5,445			5,414			1,091			9,842			10,933			2,395			5,752			8,147			4,480			14,034			18,514
Federal Home Loan Bank and other restricted stock	12			144			156			(5		)	408			403			(204		)	35			(169		)	(355		)	75			(280		)
Change in Interest Earned on Interest-earning Assets	$	(154	)	$	5,882		$	5,728		$	865		$	10,810		$	11,675		2,093			5,970			8,063			3,976			14,669			18,645
Interest paid on:
Interest-bearing demand	$	(42	)	$	128		$	86			($67	)		$245			$178			($15	)		$209			$194			($36	)		$413			$377
Money market	566			1,771			2,337			941			3,222			4,163			1,430			2,712			4,142			2,432			5,770			8,202
Savings	(89		)	(21		)	(110		)	(175		)	(34		)	(209		)	(46		)	101			55			(98		)	189			91
Certificates of deposit	(377		)	1,255			878			(482		)	2,007			1,525			312			2,186			2,498			529			4,825			5,354
Total Interest-bearing Deposits	58			3,133			3,191			217			5,440			5,657			1,681			5,208			6,889			2,827			11,197			14,024
Securities sold under repurchase agreements	—			43			43			—			88			88			(33		)	11			(22		)	(57		)	18			(39		)
Short-term borrowings	(175		)	1,505			1,330			(337		)	2,775			2,438			(1,930		)	393			(1,537		)	(3,056		)	1,156			(1,900		)
Long-term borrowings	241			(84		)	157			477			(193		)	284			132			109			241			248			255			503
Junior subordinated debt securities	—			115			115			—			192			192			—			47			47			—			167			167
Total Borrowings	66			1,579			1,645			140			2,862			3,002			(1,831		)	560			(1,271		)	(2,865		)	1,596			(1,269		)
Change in Interest Paid on Interest-bearing Liabilities	124			4,712			4,836			357			8,302			8,659			(150		)	5,768			5,618			(38		)	12,793			12,755
Change in Net Interest Income	$	(278	)	$	1,170		$	892		$	508		$	2,508		$	3,016		$	2,243		$	202		$	2,445		$	4,014		$	1,876		$	5,890

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

⁽²⁾ Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent for ~~2018~~2019 and ~~35 percent for 2017.~~2018.

⁽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~~adjustment to the allowance for loan losses, or ~~ALLL,~~ALL, after ~~considering~~net loan charge-offs ~~and recoveries~~have been deducted to bring the ~~ALLL~~ALL to a level determined to be ~~appropriate in management's judgment~~adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses ~~increased $4.4~~decreased $7.1 million and ~~$1.7~~$3.9 million to ~~$9.3~~$2.2 million and ~~$11.8~~$7.9 million for the three and six months ended June 30, ~~2018~~2019 compared to ~~$4.9~~$9.3 million and ~~$10.1~~$11.8 million for the same periods in ~~2017.~~2018.

The ~~increases~~decrease in the provision for loan losses ~~were~~was mainly due to ~~higher~~lower net charge-offs infor both periods. For the three and six months ended June 30, ~~2018,~~2019, we had net charges-offs of $2.1 million and $7.4 million compared to $7.9 million and $7.7 ~~million compared to net charges-offs of $5.3 million and $7.5~~ million for the same periods in ~~2017.~~2018. Net charge-offs for ~~both periods in~~the three months ended June 30, 2018 ~~were~~was 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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~~S&T BANCORP, INC. AND SUBSIDIARIES~~

~~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 0.55 and 0.27 percent~~ for the three and six months ended June 30, ~~2018~~2019 were 0.14 percent and 0.25 percent compared to ~~0.37~~0.55 percent and ~~0.26~~0.27 percent for the same periods in 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 $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 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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Impaired loans increased $17.5 million to $51.3 million at June 30, 2019 compared to $33.8 million at June 30, 2018 and specific reserves on impaired loans increased $2.2 million compared to the same period in the prior year. The increase in specific reserves related to a $7.7 million commercial real estate loan that had a specific reserve of $1.3 million recorded in the fourth quarter of 2018. Nonperforming loans also increased $23.6 million to $45.0 million at June 30, 2019 compared to $21.4 million at June 30, 2018.

The ALL at June 30, 2019 was $61.5 million compared to $60.5 million at June 30, 2018. The ALL as a percent of total portfolio loans was 1.02 percent at June 30, 2019 and 1.05 percent at June 30, 2018. Refer to “Financial Condition as of June 30, 2019 - ~~continued~~

Allowance for Loan Losses” in this MD&A for additional information.

Noninterest ~~Expense~~Income

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 )%



	Three Months Ended June 30,													Six Months Ended June 30,
(dollars in thousands)	2019			2018			$ Change				% Change			2019			2018			$ Change				% Change
Net gain on sale of securities		$	—		$	—		$	—			NM			$	—		$	—		$	—			NM
Debit and credit card		3,501			3,309			192				5.8			6,476			6,347			129				2.0	%
Service charges on deposit accounts		3,212			3,227			(15		)		(0.5	)		6,365			6,468			(103		)		(1.6	)
Wealth management		2,062			2,616			(554		)		(21.2	)		4,109			5,298			(1,189		)		(22.4	)
Mortgage banking		637			831			(194		)		(23.3	)		1,131			1,432			(301		)		(21.0	)
Gain on sale of a majority interest of insurance business		—			—			—				NM			—			1,873			(1,873		)		NM
Other		3,489			2,268			1,221				53.8			6,182			4,626			1,556				33.6
Total Noninterest Income		$	12,901		$	12,251		$	650			5.3	%		$	24,263		$	26,044		$	(1,781	)		(6.8	)%

Noninterest ~~expense decreased~~income increased $0.7 million to ~~$35.9~~$12.9 million for the three months ended June 30, ~~2018~~2019 and decreased ~~$1.5~~$1.8 million to ~~$71.9~~$24.3 million for the six months ended June 30, ~~2018~~2019 compared to the same periods in ~~2017. Salaries and employee benefits expense~~2018. The decrease for the six months ended June 30, 2019 was partially related to a $1.9 million gain on the sale of a majority interest in S&T Evergreen Insurance, LLC in the first quarter of 2018. Wealth management fees decreased ~~$1.3~~$0.6 million for the three months ended and ~~$3.0~~$1.2 million for the six months ended June 30, 2018 compared to the same periods in 2017 due to lower restricted stock, incentive and commission costs and fewer employees mainly due to the sale of a majority of our insurance business in the first quarter 2018. FDIC insurance decreased $0.4 million for the three months ended and $0.5 million for the six months ended June 30, 2018 compared to the same periods in 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 primarily2019 due to a ~~decrease~~decline in financial service revenue and market conditions. Offsetting these decreases were increases of ~~$0.5~~$1.2 million and $1.6 million in ~~the reserve for unfunded~~other income primarily related to higher commercial loan ~~commitments~~swap fees of $0.9 million and ~~decreases in amortization of both our core deposit intangible asset and qualified affordable housing projects. These decreases were offset by~~$1.4 million due to an increase in ~~other taxes of $0.7 million~~customer demand for ~~the three months ended and $1.5 million~~this product.

Noninterest Expense



	Three Months Ended June 30,													Six Months Ended June 30,
(dollars in thousands)	2019			2018			$ Change				% Change			2019			2018			$ Change				% Change
Salaries and employee benefits		$	20,290		$	18,611		$	1,679			9.0	%		$	41,199		$	37,426		$	3,773			10.1	%
Data processing and information technology		3,414			2,379			1,035				43.5			6,646			4,704			1,942				41.3
Net occupancy		2,949			2,804			145				5.2			5,986			5,677			309				5.4
Furniture, equipment and software		2,301			2,134			167				7.8			4,531			4,090			441				10.8
Other taxes		1,456			1,739			(283		)		(16.3	)		2,641			3,587			(946		)		(26.4	)
Marketing		1,310			1,190			120				10.1			2,452			1,892			560				29.6
Professional services and legal⁽¹⁾		1,145			888			257				28.9			2,329			1,939			390				20.1
FDIC insurance		695			739			(44		)		(6.0	)		1,211			1,847			(636		)		(34.5	)
Merger related expenses		618			—			618				NM			618			—			618				NM
Other		6,174			5,379			795				14.8			11,658			10,783			875				8.1
Total Noninterest Expense		$	40,352		$	35,863		$	4,489			12.5	%		$	79,271		$	71,945		$	7,326			10.2	%

⁽¹⁾Excludes Merger related expenses 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.2019 amounts only.

NM - not meaningful

~~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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Noninterest expense increased $4.5 million to $40.4 million for the three months ended June 30, 2019 and $7.3 million to $79.3 million for the six months ended June 30, 2019 compared to the same periods in 2018. During the second quarter of 2019, we incurred merger related expenses of $0.6 million for professional services in the three and six months ended June 30, 2019. Salaries and employee benefits expense increased $1.7 million for the three months ended and $3.8 million for the six months ended June 30, 2019 compared to the same periods in 2018 mainly due to annual merit increases and higher severance, higher incentives and higher pension costs. Data processing and information technology increased $1.0 million for the three months ended and $1.9 million for the six months ended June 30, 2019 compared to the same periods in 2018 due the recent outsourcing arrangement for certain components of our IT function and the annual increase with our third-party data processor. Other noninterest expense increased $0.8 million for the three months ended and $0.9 million for the six months ended June 30, 2019 compared to the same periods in 2018 due to higher loan related expenses and other real estate owned, or OREO, losses and expenses. These increases were partially offset by a decrease in other taxes of $0.3 million for the three months ended and $0.9 million for the six months ended June 30, 2018 due to a state sales tax assessment in 2018. FDIC insurance remained relatively unchanged for the three months ended but decreased $0.6 million for the six months ended June 30, 2019 compared to the same periods in 2018 due to improvements in the financial ratios used to determine the assessment.

Provision for Income Taxes

The provision for income taxes increased $1.1 million for the three months ended June 30, 2019 as a result of an increase in pretax income of $5.7 million compared to the same period in 2018. The provision for income taxes decreased $0.7 million for the six months ended June 30, 2019 compared to the same periods in 2018 primarily due to non-recurring discrete items of $0.9 million related to the sale of a majority interest of our insurance business in the first quarter of 2018. Our effective tax rate increased to 16.3 percent for the three month period ended June 30, 2019 and decreased to 15.9 percent for the six month period ended June 30, 2019 compared to 15.8 percent and 17.4 percent for the same periods in 2018.

Financial Condition as of June 30, 2019

Total assets were relatively unchanged at $7.3 billion at June 30, 2019 compared to December 31, 2018. Total portfolio loans increased $86.6 million with increases primarily in the commercial loan portfolio. The Commercial and Industrial and Commercial Construction loans increased $66.3 million and $10.0 million offset by a decrease of $14.9 million in CRE loans. Consumer loans increased $25.2 million primarily as a result of the $24.7 million increase in residential mortgages and minor increases in all other consumer categories except the home equity portfolio. Securities decreased $16.3 million to $668.6 million at June 30, 2019 from $684.9 million at December 31, 2018. The decrease in securities is due to pay downs on mortgage-backed securities offset by limited purchases and an increase in the unrealized gain during the six months ended June 30, 2019. The bond portfolio had an unrealized gain of $11.3 million at June 30, 2019 compared to an unrealized loss of $5.1 million at December 31, 2018 due to a decrease in interest rates.

Our deposits increased $182.8 million, or 3.2 percent, with total deposits of $5.9 billion at June 30, 2019 compared to $5.7 billion at December 31, 2018. Customer deposits increased $291.5 million with growth in money market of $267.9 million, or 22.7 percent, in noninterest-bearing demand accounts of $41.2 million and certificates of deposit of $36.5 million which was offset by declines in savings accounts of $30.9 million and interest-bearing demand accounts of $23.2 million. The significant increase of $267.9 million in money market deposits is related to a competitively-priced indexed product and a promotional rate product offered in selected markets. Total brokered deposits decreased $108.7 million at June 30, 2019 compared to December 31, 2018.

Total borrowings decreased $179.7 million compared to December 31, 2018 due to a decrease in funding needs. Total short-term borrowings decreased by $179.2 million, or 36.7 percent, and long-term borrowings decreased $0.5 million.

Total shareholders’ equity increased by ~~$23.1~~$29.2 million to $965.0 million at June 30, ~~2018~~2019 compared to $935.8 million at December 31, ~~2017.~~2018. The increase was primarily due to net income of ~~$47.6~~$49.0 million offset partially by dividends of ~~$16.4~~$18.6 million and share repurchases of $15.1 million. The ~~$8.2~~$13.6 million ~~decrease~~increase in other comprehensive income ~~compared to December 31, 2017~~ was due to a ~~$9.3~~$12.9 million ~~decrease~~increase in unrealized ~~losses~~gains on our available-for-sale investment securities and a ~~$1.1~~$0.7 million change in the funded status of our employee benefit plans.

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

Securities Activity


(dollars in thousands)	June 30, 2018		December 31, 2017		$ Change			June 30, 2019			December 31, 2018			$ Change
U.S. treasury securities	$	9,619	$	19,789	$	(10,170	)		$	10,007		$	9,736		$	271
Obligations of U.S. government corporations and agencies	155,069		162,193		(7,124		)		129,773			128,261			1,512
Collateralized mortgage obligations of U.S. government corporations and agencies	118,742		108,688		10,054				150,405			148,659			1,746
Residential mortgage-backed securities of U.S. government corporations and agencies	28,442		32,854		(4,412		)		20,936			24,350			(3,414		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	247,128		242,221		4,907				235,292			246,784			(11,492		)
Obligations of states and political subdivisions	123,916		127,402		(3,486		)		117,624			122,266			(4,642		)
Debt Securities Available-for-Sale	682,916		693,147		(10,231		)		664,037			680,056			(16,019		)
Marketable equity securities	5,425		5,144		281				4,551			4,816			(265		)
Total Securities	$	688,341	$	698,291	$	(9,950	)		$	668,588		$	684,872		$	(16,284	)

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 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 decreased ~~$10.0~~$16.3 million to ~~$688~~$668.6 million at June 30, ~~2018~~2019 from ~~$698~~$684.9 million at December 31, ~~2017 primarily~~2018. The decrease in securities is due to ~~normal investing activity.~~pay downs on mortgage-backed securities offset by limited purchases and an increase in the unrealized gain during the six months ended June 30, 2019.

At June 30, ~~2018~~2019 our bond portfolio was in a net unrealized ~~loss~~gain position of ~~$10.1~~$11.3 million compared to a net unrealized ~~gain~~loss position of ~~$1.7~~$5.1 million at December 31, ~~2017.~~2018. At June 30, ~~2018~~2019 total gross unrealized ~~losses~~gains in the bond portfolio were ~~$13.0~~$11.8 million offset by ~~$2.9~~$0.5 million of gross unrealized ~~gains,~~losses, compared to December 31, ~~2017,~~2018, when total gross unrealized gains were ~~$5.6~~$3.5 million offset by gross unrealized losses of ~~$3.9~~$8.6 million. Management evaluates the securities portfolio for other than temporary impairment, or OTTI, on a quarterly basis. During the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, we did not record any OTTI. ~~The performance of the debt securities market could generate impairments in future periods requiring realized losses to be reported.~~

Loan Composition


	June 30, 2018				December 31, 2017				June 30, 2019				December 31, 2018
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans
Commercial
Commercial real estate	$	2,788,641	48.20	%	$	2,685,994	46.62	%	$	2,906,895	48.18	%	$	2,921,832	49.13	%
Commercial and industrial	1,455,578		25.16		1,433,266		24.88		1,559,727		25.85		1,493,416		25.11
Construction	299,787		5.18		384,334		6.67		267,203		4.43		257,197		4.33
Total Commercial Loans	4,544,006		78.54	%	4,503,594		78.17	%	4,733,825		78.46	%	4,672,445		78.57	%
Consumer
Residential mortgage	698,440		12.07	%	698,774		12.13	%	751,355		12.45	%	726,679		12.22	%
Home equity	471,622		8.15		487,326		8.46		464,195		7.69		471,562		7.93
Installment and other consumer	66,638		1.15		67,204		1.16		72,041		1.19		67,546		1.13
Construction	5,412		0.09		4,551		0.08		11,784		0.20		8,416		0.14
Total Consumer Loans	1,242,112		21.46	%	1,257,855		21.83	%	1,299,375		21.54	%	1,274,203		21.43	%
Total Portfolio Loans	5,786,118		100.00	%	5,761,449		100.00	%	6,033,200		100.00	%	5,946,648		100.00	%
Loans Held for Sale	3,801				4,485
Loans held for sale									8,135				2,371
Total Loans	$	5,789,919			$	5,765,934			$	6,041,335			$	5,949,019

~~Table of Contents~~

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

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

~~Our~~The loan portfolio represents ~~our~~the most significant source of interest ~~income.~~income for us. 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~~borrower’s industry or the overall economic climate can significantly impact the borrower’s ability to pay.

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

Commercial loans, including CRE, C&I and Commercial Construction, comprised 78.5 percent of total portfolio loans at June 30, 2019 and 78.6 percent at December 31, 2018. Total portfolio loans increased ~~$24.7~~$86.6 million ~~and remain at $5.8~~to $6.0 billion at ~~both~~ June 30, ~~2018 and~~2019 compared to $5.9 billion at December 31, ~~2017.~~2018. The increase was primarily due to ~~growth~~$61.4 million in our commercial loan portfolio. ~~CRE~~C&I portfolio increased $66.3 million and Commercial Construction loans increased ~~$103~~$10.0 million ~~or 3.8 percent, and C&I loans increased $22.3 million, or 1.6 percent, over the six-month period~~ offset by a decrease of $14.9 million in the ~~commercial construction~~CRE portfolio ~~of $84.6 million. Loan growth has been impacted by higher than usual loan payoffs.~~ compared to December 31, 2018.

Consumer loans ~~decreased $15.7~~represent 21.5 percent of our total portfolio loans at June 30, 2019 and 21.4 percent at December 31, 2018. Consumer loans increased $25.2 million ~~over the six-month period~~compared to December 31, 2018 with ~~the decrease mainly~~minor increases in all categories except the home equity portfolio. Residential mortgages increased $24.7 million, installment and other consumer increased $4.5 million and consumer construction loans increased $3.4 million offset by a decrease of $7.4 million in home equity loans.

Allowance for Loan Losses

We maintain an ~~ALLL~~ALL at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date, and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ~~ALLL~~ALL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ~~ALLL~~ALL 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 ~~ALLL~~ALL methodology based on the following portfolio segments: 1.1) CRE, 2.2) C&I, 3.3) Commercial Construction, 4.4) Consumer Real Estate and 5.5) Other Consumer.

The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ~~ALLL.~~ALL.

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

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


	June 30, 2018												June 30, 2019
	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	$	—	$	31,232	$	31,232	$	3,555	$	2,785,086	$	2,788,641		$	1,530		$	31,306		$	32,836		$	29,295		$	2,877,600		$	2,906,895
Commercial and industrial	—		10,874		10,874		17,539		1,438,039		1,455,578			204			13,023			13,227			10,651			1,549,076			1,559,727
Commercial construction	—		11,676		11,676		3,441		296,346		299,787			157			7,097			7,254			2,808			264,395			267,203
Consumer real estate	—		5,241		5,241		9,186		1,166,288		1,175,474			307			6,264			6,571			8,529			1,218,805			1,227,334
Other consumer	35		1,459		1,494		44		66,594		66,638			14			1,577			1,591			16			72,025			72,041
Total	$	35	$	60,482	$	60,517	$	33,765	$	5,752,353	$	5,786,118		$	2,212		$	59,267		$	61,479		$	51,299		$	5,981,901		$	6,033,200


	December 31, 2017												December 31, 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	$	—	$	27,235	$	27,235	$	3,546	$	2,682,448	$	2,685,994		$	1,295		$	32,412		$	33,707		$	11,369		$	2,910,463		$	2,921,832
Commercial and industrial	29		8,937		8,966		7,284		1,425,982		1,433,266			360			11,236			11,596			13,672			1,479,744			1,493,416
Commercial construction	—		13,167		13,167		5,464		378,870		384,334			87			7,896			7,983			15,775			241,422			257,197
Consumer real estate	21		5,458		5,479		10,488		1,180,163		1,190,651			10			6,177			6,187			8,674			1,197,983			1,206,657
Other consumer	27		1,516		1,543		41		67,163		67,204			11			1,512			1,523			16			67,530			67,546
Total	$	77	$	56,313	$	56,390	$	26,823	$	5,734,626	$	5,761,449		$	1,763		$	59,233		$	60,996		$	49,506		$	5,897,142		$	5,946,648


	June 30, 2018			December 31, 2017		June 30, 2019			December 31, 2018
Ratio of net charge-offs to average loans outstanding	0.27	%	*	0.18	%	0.25	%	*	0.18	%
Allowance for loan losses as a percentage of total loans	1.05	%		0.98	%	1.02	%		1.03	%
Allowance for loan losses to nonperforming loans	283	%		236	%	137	%		144	%

^* Annualized

The ~~ALLL~~ALL was ~~$60.5~~$61.5 million, or ~~1.05~~1.02 percent of total portfolio loans, at June 30, ~~2018~~2019 compared to ~~$56.4~~$61.0 million, or ~~0.98~~1.03 percent of total portfolio loans at December 31, ~~2017.~~2018. The minor increase in the ~~ALLL~~ALL of ~~$4.1~~$0.5 million ~~and the seven basis point increase to the ALLL as a percent of total portfolio loans~~ was primarily due to a ~~$4.2~~$0.4 million increase in the reserve for loans ~~collectively~~individually evaluated for impairment compared to December 31, ~~2017.~~2018. Impaired loans increased $1.8 million to $51.3 million compared to $49.5 million at December 31, 2018. Commercial special mention, substandard and doubtful loans ~~increased $96.8~~decreased $24.9 million to ~~$298~~$243.6 million ~~compared to $201~~from $268.5 million at December 31, ~~2017, with an increase of $2.8~~2018. Substandard loans decreased $43.3 million inand special mention increased $18.4 million. The decrease in substandard loans from December 31, 2018 was mainly due to pay-offs and ~~an increase of $94.1 million in substandard. Impaired~~loan risk rating upgrades. Special mention loans increased ~~$6.9 million~~due to ~~$33.8 million at June 30, 2018 with no significant specific reserves.~~downgrades as a result of updated financial information.

~~During~~For the three and six months ended June 30, ~~2018 there were~~2019, we had net ~~loan charge-offs~~charges-offs of $2.1 million and $7.4 million compared to $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 loss resulted from fraudulent activities believed to be perpetrated by one or more executives employed by the borrower and its related entities.2018. The provision for loan ~~loss was $9.3~~losses decreased $7.1 million and ~~$11.8~~$3.9 million to $2.2 million and $7.9 million for the three and six months ended June 30, ~~2018~~2019 compared to ~~$4.9~~$9.3 million and ~~$10.1~~$11.8 million for the same periods in ~~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~~

2018. The decrease in the provision for loan losses was mainly due to lower net charge-offs for both periods.

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.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

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 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~~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 ~~$5.7 million~~$2.7million to ~~$31.8~~$30.6 million at June 30, ~~2018~~2019 compared to ~~$26.1~~$27.9 million at December 31, ~~2017.~~2018. The increase is primarily due to new TDRs totaling ~~$11.7~~$11.2 million in 2019, which were offset by principal reductions and charge-offs. Total TDRs of ~~$31.8~~$30.6 million at June 30, ~~2018~~2019 included ~~$24.4~~$20.7 million, or ~~76.8~~67.5 percent, that were accruing and ~~$7.4~~$9.9 million, or ~~23.2~~32.5 percent, that were ~~nonaccrual.~~nonaccruing.

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~~the status of a bankruptcy proceeding;

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

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

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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~~

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~~$2.3 million at June 30, ~~2018 compared to~~2019 and $2.2 million at December 31, ~~2017.~~2018. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

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


(dollars in thousands)	June 30, 2018			December 31, 2017			$ Change			June 30, 2019				December 31, 2018				$ Change
Nonperforming Loans
Commercial real estate	$	3,692		$	2,501		$	1,191			$	23,184			$	10,913			$	12,271
Commercial and industrial	2,254			2,449			(195		)		3,150				2,314				836
Commercial construction	1,460			1,460			—				820				13,787				(12,967		)
Residential mortgage	4,188			3,580			608				5,285				5,585				(300		)
Home equity	2,335			2,736			(401		)		2,623				2,349				274
Installment and other consumer	48			62			(14		)		22				37				(15		)
Consumer construction	—			—			—
Total Nonperforming Loans	13,977			12,788			1,189				35,083				34,985				98
Nonperforming Troubled Debt Restructurings
Commercial real estate	925			967			(42		)		5,600				1,139				4,461
Commercial and industrial	2,599			3,197			(598		)		980				6,646				(5,666		)
Commercial construction	410			2,413			(2,003		)		406				406				—
Residential mortgage	1,924			3,585			(1,661		)		1,497				1,543				(46		)
Home equity	1,536			979			557				1,458				1,349				109
Installment and other consumer	1			9			(8		)		3				5				(2		)
Total Nonperforming Troubled Debt Restructurings	7,395			11,150			(3,755		)		9,944				11,088				(1,145		)
Total Nonperforming Loans	21,372			23,938			(2,566		)		45,027				46,073				(1,046		)
OREO	2,999			469			2,530				1,495				3,092				(1,597		)
Total Nonperforming Assets	$	24,371		$	24,407		$	(36	)		$	46,522			$	49,165			$	(2,643	)

Asset Quality Ratios:
Nonperforming loans as a percent of total loans	0.37		%	0.42		%					0.75		%		0.77		%
Nonperforming assets as a percent of total loans plus OREO	0.42		%	0.42		%					0.77		%		0.83		%

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 loans decreased ~~$2.5~~$1.1 million to ~~$21.4~~$45.0 million at June 30, ~~2018~~2019 compared to ~~$23.9~~$46.1 million at

December 31, ~~2017. The $2.5 million decrease in nonperforming loans was due to the payoff of a commercial construction loan for $2.0 million during the first quarter of~~ 2018. ~~The increase in OREO of $2.5 million related to two land lots that are no longer intended to be future branch locations.~~

Deposits



(dollars in thousands)	June 30, 2019			December 31, 2018			$ Change
Customer Deposits
Noninterest-bearing demand		$	1,462,386		$	1,421,156		$	41,230
Interest-bearing demand		544,265			567,492			(23,227		)
Money market		1,446,086			1,178,211			267,875
Savings		754,062			784,970			(30,908		)
Certificates of deposit		1,298,255			1,261,704			36,551
Total Customer Deposits		5,505,054			5,213,533			291,521
Brokered Deposits
Interest-bearing demand		5,398			6,201			(803		)
Money market		296,248			303,854			(7,606		)
Certificates of deposit		50,000			150,334			(100,334		)
Total Brokered Deposits		351,646			460,389			(108,743		)
Total Deposits		$	5,856,700		$	5,673,922		$	182,778

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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~~

~~Deposits~~

(dollars in thousands) June 30, 2018
December 31, 2017
$ Change
Customer Deposits
Noninterest-bearing demand $ 1,410,211
$ 1,387,712
$ 22,499
Interest-bearing demand 548,572
599,986
(51,414 )
Money market 1,036,749
880,330
156,419
Savings 845,526
893,119
(47,593 )
Certificates of deposit 1,165,962
1,286,988
(121,026 )
Total Customer Deposits 5,007,020
5,048,135
(41,115 )
Brokered Deposits
Interest-bearing demand 5,157
3,155
2,002
Money market 230,874
265,826
(34,952 )
Certificates of deposit 150,482
110,775
39,707
Total Brokered Deposits 386,513
379,756
6,757
Total Deposits $ 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 June 30, ~~2018 decreased $34.4~~2019 increased $182.8 million from December 31, ~~2017.~~2018. Total customer deposits ~~decreased $41.1~~increased $291.5 million from December 31, ~~2017. Noninterest-bearing~~2018. Money market deposits primarily accounted for this change with an increase of $267.9 million, noninterest-bearing demand deposits increased ~~$22.5~~$41.2 million and ~~money market~~certificate of deposits increased ~~$156~~$36.5 million. The significant increase in money market deposits is related to a competitively-priced indexed ~~product.~~product and a promotional rate product offered in selected markets. These increases were offset by declines in savings deposits of $30.9 million and interest-bearing demand deposits of ~~$51.4 million, savings deposits of $47.6 million and certificates of deposits of $121~~$23.2 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 combined with some seasonality in a number of sectors, including public funds.~~customers. Total brokered deposits ~~increased $6.8~~decreased $108.7 million from December 31, ~~2017.~~2018. Brokered deposits are an additional source of funds utilized by ALCO as a way to diversify funding sources, as well as manage our funding costs and structure.

Borrowings


(dollars in thousands)	June 30, 2018		December 31, 2017		$ Change			June 30, 2019			December 31, 2018			$ Change
Securities sold under repurchase agreements	$	44,724	$	50,161	$	(5,437	)		$	14,154		$	18,383		$	(4,229	)
Short-term borrowings	600,000		540,000		60,000				295,000			470,000			(175,000		)
Long-term borrowings	46,062		47,301		(1,239		)		69,791			70,314			(523		)
Junior subordinated debt securities	45,619		45,619		—				45,619			45,619			—
Total Borrowings	$	736,405	$	683,081	$	53,324			$	424,564		$	604,316		$	(179,752	)

Borrowings are an additional source of funding for us. ~~Total~~At June 30, 2019 total borrowings ~~increased $53.3~~decreased $179.8 million, ~~from~~or 29.7 percent, compared to December 31, ~~2017~~2018 due to ~~increased~~a decrease in funding ~~needs.~~needs as a result of strong customer deposit growth. Total short-term borrowings decreased by $175.0 million, or 37.2 percent, compared to December 31, 2018.

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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 for the six and twelve months ~~period~~ ended June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.


	Securities Sold Under Repurchase Agreements						Securities Sold Under Repurchase Agreements
(dollars in thousands)	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Balance at the period end	$	44,724		$	50,161		$	14,154		$	18,383
Average balance during the period	48,980			46,662			19,735			45,992
Average interest rate during the period	0.41		%	0.12		%	0.59		%	0.48		%
Maximum month-end balance during the period	$	54,579		$	53,609		$	23,427		$	54,579
Average interest rate at the period end	0.46		%	0.39		%	0.74		%	0.46		%

	Short-Term Borrowings						Short-Term Borrowings
(dollars in thousands)	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Balance at the period end	$	600,000		$	540,000		$	295,000		$	470,000
Average balance during the period	617,891			644,864			280,862			525,172
Average interest rate during the period	2.06		%	1.15		%	2.72		%	2.11		%
Maximum month-end balance during the period	$	690,000		$	734,600		$	425,000		$	690,000
Average interest rate at the period end	2.16		%	1.47		%	2.71		%	2.65		%

Information pertaining to long-term borrowings is summarized in the tables below for the six and twelve ~~month periods~~months ended June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.


	Long-Term Borrowings						Long-Term Borrowings
(dollars in thousands)	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Balance at the period end	$	46,062		$	47,301		$	69,791		$	70,314
Average balance during the period	46,317			18,057			70,122			47,986
Average interest rate during the period	2.24		%	2.57		%	2.85		%	2.35		%
Maximum month-end balance during the period	$	47,096		$	47,505		$	70,418		$	70,314
Average interest rate at the period end	2.31		%	1.88		%	2.73		%	2.84		%

	Junior Subordinated Debt Securities						Junior Subordinated Debt Securities
(dollars in thousands)	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
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	4.61		%	3.65		%	5.03		%	4.60		%
Maximum month-end balance during the period	$	45,619		$	45,619		$	45,619		$	45,619
Average interest rate at the period end	4.80		%	3.78		%	5.07		%	5.25		%

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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 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~~"Financial Condition- Deposits" 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 the FHLB of Pittsburgh, ~~Federal Funds~~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 June 30, ~~2018,~~2019, we had ~~$534~~$532.7 million in highly liquid assets, which consisted of ~~$79.1~~$61.8 million in interest-bearing deposits with banks, ~~$451~~$462.8 million in unpledged securities and ~~$3.8~~$8.1 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of ~~7.6~~7.3 percent at June 30, ~~2018.~~2019. Also, at June 30, ~~2018,~~2019, we had a remaining borrowing availability of ~~$1.7~~$2.0 billion with the FHLB of Pittsburgh. Refer to Note 89: Borrowings in the Notes to Consolidated Financial Statements and the ~~Financial Condition - Borrowings~~"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		June 30, 2018				December 31, 2017				Adequately Capitalized		Well- Capitalized		June 30, 2019				December 31, 2018
(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	%	$	668,793	9.87	%	$	628,876	9.17	%	4.00	%	5.00	%	$	705,600	10.12	%	$	689,778	10.05	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	648,793		11.18	%	608,876		10.71	%	4.50	%	6.50	%	685,600		11.35	%	669,778		11.38	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	668,793		11.53	%	628,876		11.06	%	6.00	%	8.00	%	705,600		11.68	%	689,778		11.72	%
Total capital to risk-weighted assets	8.00	%	10.00	%	756,388		13.04	%	713,056		12.55	%	8.00	%	10.00	%	794,426		13.15	%	777,913		13.21	%
S&T Bank
Tier 1 leverage	4.00	%	5.00	%	$	621,589	9.19	%	$	582,929	8.52	%	4.00	%	5.00	%	$	675,236	9.71	%	$	659,304	9.63	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	621,589		10.75	%	582,929		10.29	%	4.50	%	6.50	%	675,236		11.20	%	659,304		11.23	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	621,589		10.75	%	582,929		10.29	%	6.00	%	8.00	%	675,236		11.20	%	659,304		11.23	%
Total capital to risk-weighted assets	8.00	%	10.00	%	709,185		12.26	%	666,560		11.76	%	8.00	%	10.00	%	764,061		12.68	%	747,438		12.73	%

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 June 30, ~~2018,~~2019, 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 ALCO. 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.

Rate shock 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 12 and 24 month horizons using rate shocks in increments of +/- 100 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 analyses on downward rate shocks of ~~200~~300 basis points or ~~more. Due to the low interest rate environment, we believe the impact to net interest income when evaluating these basis point rate shock scenarios does~~more because they do not provide meaningful insight into our interest rate risk position.

In order to monitor interest rate risk beyond the 24 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 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 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 using rate shocks in increments of +/- 100 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 downward rate shocks of ~~200~~300 basis points or more for ~~EVE due to the low interest rate environment.~~EVE.

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


	June 30, 2018							December 31, 2017								June 30, 2019									December 31, 2018
	1 - 12 Months		13 - 24 Months		% Change in EVE			1 - 12 Months			13 - 24 Months			% Change in EVE		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 Pretax Net Interest Income			% Change in Pretax Net Interest Income			% Change in Pretax Net Interest Income	% Change in EVE				% 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	%	% Change in EVE	(13.0	)%		5.5	%		12.4	%		(9.2	)%	11.9	%		13.3	%		(0.3	)%		8.3	%		11.6	%		(10.0	)%
300	4.8		7.7		(7.0	)		4.2			9.3			(3.6	)	8.9			9.8			4.0			6.1			8.5			(4.6	)
200	2.9		4.9		(2.4	)		2.4			5.9			0.3		6.0			6.6			6.1			4.0			5.6			0.6
100	1.5		2.6		0.4			1.3			3.2			1.9		3.2			3.7			5.4			2.2			3.1			1.4
(100)	(3.6	)	(5.3	)	(7.0	)		(3.6	)		(6.5	)		(8.0	)	(4.7	)		(5.7	)		(11.3	)		(3.8	)		(5.4	)		(7.5	)
(200)																(9.3	)		(11.5	)		(25.4	)		(7.8	)		(11.2	)		(16.8	)

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.

~~Table of Contents~~

~~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 the rates up scenarios ~~in months 1 - 12~~ and ~~no change~~a decline in the rates down ~~when comparing June 30, 2018 to December 31, 2017. The improvement is mainly a result of less rate sensitivity~~scenarios in ~~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 shock analyses for both the 1 - 12 and 13 - 24 ~~month periods continue~~when comparing December 31, 2018 to ~~remain within minimal risk tolerance levels.~~

June 30, 2019. Our EVE analyses show ~~a decline~~an improvement in the percentage change in EVE in the rates up scenarios and ~~an improvement~~a decline in the rates down scenario when comparing December 31, 2018 to June 30, ~~2018 to December 31, 2017. The changes are mainly a result~~2019.

Table of ~~deposit valuation enhancements and the change in value of our core deposits.~~Contents

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 changes other than the policy guidelines, yield curve shape changes, significant balance mix changes and various growth scenarios. 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.

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 June 30, ~~2018.~~2019. 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 in Internal Control over Financial Reporting

During the quarter ended June 30, ~~2018 due~~2019, there were no changes made to ~~a material weakness in~~ S&T’s internal control over financial reporting ~~as previously described~~(as defined in ~~our Annual Report on Form 10-K for~~Rule 13a-15(f) under the ~~period ended December 31, 2017.~~

~~A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such~~Exchange Act) 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, other than as described above under "Remediation Plan".~~reporting.

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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 Part I, Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the SEC on ~~March 1, 2018.~~February 21, 2019 other than the risks described below related to the pending merger with DNB.

The market price of S&T common stock after the merger may be affected by factors different from those affecting the shares of S&T currently.

Upon completion of the merger, holders of DNB common stock will become holders of S&T common stock. S&T’s business differs in important respects from that of DNB, and, accordingly, the results of operations of the combined company and the market price of S&T common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of S&T.

Approvals required to complete the merger may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the merger.

Before the merger and the bank merger may be completed, S&T and DNB must obtain approvals from the Federal Reserve Board, the FDIC and the Pennsylvania Department of Banking and Securities, as well as from the shareholders of DNB. Other approvals, waivers or consents from regulators may also be required. If these approvals are not obtained or waived, to the extent permitted by law or stock exchange rules, the merger may not occur or may be delayed. Additionally, regulators may impose conditions on the completion of the merger or require changes to the terms of the merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or imposing additional costs on or limiting the revenues of the combined company following the merger, any of which might have an adverse effect on the combined company following the merger.

Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.

S&T and DNB have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on S&T’s ability to successfully combine the businesses of S&T and DNB. To realize these anticipated benefits and cost savings, after the completion of the merger, S&T expects to integrate DNB’s business into its own.

It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect S&T’s ability to successfully conduct its business in the markets in which DNB now operates, which could have an adverse effect on S&T’s financial results and the value of its common stock. If S&T experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected.

As with any merger of financial institutions, there also may be business disruptions that cause S&T and/or DNB to lose customers or cause customers to remove their accounts from S&T and/or DNB and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of S&T and DNB during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the merger could be less than anticipated.

Termination of the merger agreement could negatively impact S&T.

There may be various negative consequences if the merger agreement is terminated. For example, S&T’s businesses may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is

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S&T BANCORP, INC. AND SUBSIDIARIES

terminated, the market price of S&T’s common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed.

Failure to complete the merger could negatively impact the stock price and the future business and financial results of S&T.

If the merger is not completed for any reason, including as a result of DNB shareholders declining to approve the merger agreement and the transactions contemplated by the merger agreement, the ongoing business of S&T may be adversely affected and, without realizing any of the benefits of having completed the merger, S&T would be subject to a number of risks, including the following:

S&T may experience negative reactions from the financial markets, including negative impacts on its stock price;

S&T may experience negative reactions from its customers, vendors and employees;

The merger agreement places certain restrictions on the conduct of S&T’s business prior to completion of the merger, such restrictions, the waiver of which is subject to the consent of DNB (not to be unreasonably withheld or delayed) may prevent S&T from taking certain specified actions during the pendency of the merger; and

Matters relating to the merger (including integration planning) will require substantial commitments of time and resources by S&T management, which would otherwise have been devoted to other opportunities that may have been beneficial to S&T as an independent company.

If the merger is not completed, S&T will have incurred substantial expenses without realizing the expected benefits of the merger.

S&T has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the merger agreement. If the merger is not completed, S&T would have to recognize these and other expenses without realizing the expected benefits of the merger.

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

Purchases of Equity Securities

The following table is a summary of our purchases of common stock during the second quarter of 2019:



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plan⁽¹⁾	Approximate dollar value of shares that may yet be purchased under the plan
						$25,456,631
04/01/2019 - 04/30/2019	71,936		$39.41	71,936	22,621,633

05/01/2019 - 05/31/2019	—	—		—	22,621,633

06/01/2019 - 06/30/2019	—	—		—	22,621,633
Total	71,936		$39.41	71,936		$22,621,633

⁽¹⁾On March 19, 2018, ~~the~~our Board of Directors ~~of S&T Bancorp, Inc.~~ authorized a $50 million share repurchase plan. This ~~purchase~~repurchase authorization, which is effective through August 31, 2019, permits ~~S&T~~us to repurchase from time to time up to $50 million in aggregate value of shares of ~~S&T's~~our common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at ~~the~~our 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~~our financial performance. The repurchase plan does not obligate ~~S&T~~us to repurchase any particular number of shares. ~~S&T expects~~We expect to fund any repurchases from cash on hand and internally generated funds. ~~During the three months ended~~As of June 30, ~~2018,~~2019, there were ~~no purchases~~707,571 common shares repurchased under ~~the~~this plan ~~and no other purchases~~at a total cost of ~~S&T~~$27.4 million, or an average of $38.69 per share. Up to an additional $22.6 million of our common stock ~~by S&T or an affiliated purchaser.~~

may be repurchased under this plan through August 31, 2019.

Item 3. Defaults Upon Senior Securities

None

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Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

Item 6. Exhibits



2.1	Agreement and Plan of Merger, dated as of June 5, 2019, by and between DNB Financial Corporation and S&T Bancorp, Inc. Filed as Exhibit 2.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on June 4, 2019, and incorporated herein by reference.
10.1	Severance Agreement, by and between David G. Antolik and S&T Bancorp, Inc., dated May 17, 2019.	Filed herewith
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.INS	XBRL Instance Document
~~101~~101.SCH	The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 is formatted in eXtensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheet at June 30, 2018 and Audited Consolidated Balance Sheet at December 31, 2017, (ii) Unaudited Consolidated Statements of Comprehensive Income for the Three and Six Months ended June 30, 2018 and 2017, (iii) Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months ended June 30, 2018 and 2017, (iv) Unaudited Consolidated Statements of Cash Flows for the Six Months ended June 30, 2018 and 2017 and (v) Notes to Unaudited Consolidated Financial Statements. XBRL Taxonomy Extension Schema	~~Filed herewith~~
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

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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)

~~August 1, 2018~~July 31, 2019	/s/s Mark Kochvar
	Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

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	Carrying Value⁽¹⁾		Fair Value Measurements at June 30, 2018
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	137,933	$	137,933	$	137,933	$	—	$	—
Securities	688,341		688,341		—		688,341		—
Loans held for sale	3,801		3,927		—		—		3,927
Portfolio loans, net	5,725,601		5,558,333		—		—		5,558,333
Bank owned life insurance	73,122		73,122		—		73,122		—
FHLB and other restricted stock	35,782		35,782		—		—		35,782
Trading securities held in a Rabbi Trust	4,988		4,988		4,988		—		—
Mortgage servicing rights	4,296		5,198		—		—		5,198
Interest rate swaps	6,157		6,157		—		6,157		—
Interest rate lock commitments	398		398		—		398		—
LIABILITIES
Deposits	$	5,393,533	$	5,378,467	$	—	$	—	$	5,378,467
Securities sold under repurchase agreements	44,724		44,724		—		—		44,724
Short-term borrowings	600,000		600,000		—		—		600,000
Long-term borrowings	46,062		46,226		—		—		46,226
Junior subordinated debt securities	45,619		45,619		—		—		45,619
Interest rate swaps	6,223		6,223		—		6,223		—
Forward sales contracts	39		39		—		39		—
⁽¹⁾ As reported in the Consolidated Balance Sheets