UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)



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

For the quarterly period ended ~~June~~September 30, 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

(Exact name of registrant as specified in its charter)

______________________________________



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

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

800-325-2265

(Registrant’s telephone number, including area code)

Not Applicable

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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	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 ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

Common Stock, $2.50 Par Value - ~~34,309,170~~34,244,719 shares as of ~~July~~October 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~~September 30, 2019 and December 31, 2018	2

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

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

	Consolidated Statements of Cash Flows - ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6061

Item 4.	Controls and Procedures	6162

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	6263

Item 1A.	Risk Factors	6263

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6364

Item 3.	Defaults Upon Senior Securities	6364

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	6465

Item 6.	Exhibits	6465

	Signatures	6566

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2019				December 31, 2018				September 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 $62,042 and $82,740 at June 30, 2019 and December 31, 2018		$	122,876			$	155,489
Cash and due from banks, including interest-bearing deposits of $69,021 and $82,740 at September 30, 2019 and December 31, 2018										$	173,609			$	155,489
Securities, at fair value		668,588				684,872				669,226				684,872
Loans held for sale		8,135				2,371				8,371				2,371
Portfolio loans, net of unearned income		6,033,200				5,946,648				6,195,765				5,946,648
Allowance for loan losses		(61,479		)		(60,996		)		(62,115		)		(60,996		)
Portfolio loans, net		5,971,721				5,885,652				6,133,650				5,885,652
Bank owned life insurance		74,906				73,900				75,386				73,900
Premises and equipment, net		41,688				41,730				41,876				41,730
Operating lease right-of-use assets										37,534				—
Federal Home Loan Bank and other restricted stock, at cost		22,491				29,435				25,397				29,435
Goodwill		287,446				287,446				287,446				287,446
Other intangible assets, net		2,255				2,601				2,092				2,601
Other assets		134,499				88,725				117,404				88,725
Total Assets		$	7,334,605			$	7,252,221			$	7,571,991			$	7,252,221
LIABILITIES
Deposits:
Noninterest-bearing demand		$	1,462,386			$	1,421,156			$	1,490,409			$	1,421,156
Interest-bearing demand		549,663				573,693				751,881				573,693
Money market		1,742,334				1,482,065				1,660,569				1,482,065
Savings		754,062				784,970				753,464				784,970
Certificates of deposit		1,348,255				1,412,038				1,326,369				1,412,038
Total Deposits		5,856,700				5,673,922				5,982,692				5,673,922
Securities sold under repurchase agreements		14,154				18,383				13,925				18,383
Short-term borrowings		295,000				470,000				370,000				470,000
Long-term borrowings		69,791				70,314				69,156				70,314
Junior subordinated debt securities		45,619				45,619				45,619				45,619
Other liabilities		88,388				38,222				108,152				38,222
Total Liabilities		6,369,652				6,316,460				6,589,544				6,316,460
SHAREHOLDERS’ EQUITY
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
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—36,130,480 shares at September 30, 2019 and at December 31, 2018 Outstanding— 34,244,719 shares at September 30, 2019 and 34,683,874 shares at December 31, 2018										90,326				90,326
Additional paid-in capital		211,325				210,345				212,040				210,345
Retained earnings		730,577				701,819				748,280				701,819
Accumulated other comprehensive loss		(9,519		)		(23,107		)		(7,313		)		(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		)
Treasury stock (1,885,761 shares at September 30, 2019 and 1,446,606 shares at December 31, 2018, at cost)										(60,886		)		(43,622		)
Total Shareholders’ Equity		964,953				935,761				982,447				935,761
Total Liabilities and Shareholders’ Equity		$	7,334,605			$	7,252,221			$	7,571,991			$	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 September 30,							Nine Months Ended September 30,
(dollars in thousands, except per share data)	2019			2018			2019			2018			2019				2018			2019			2018
INTEREST AND DIVIDEND INCOME
Loans, including fees		$	74,728		$	66,610		$	148,120		$	129,665		$	75,080			$	68,631		$	223,200		$	198,296
Investment Securities:
Taxable		3,647			3,519			7,437			6,948			3,552				3,649			10,989			10,597
Tax-exempt		834			872			1,679			1,746			787				857			2,466			2,603
Dividends		415			580			978			1,251			394				490			1,373			1,741
Total Interest and Dividend Income		79,624			71,581			158,214			139,610			79,813				73,627			238,028			213,237
INTEREST EXPENSE
Deposits		16,055			9,166			31,036			17,012			16,207				10,871			47,243			27,883
Borrowings and junior subordinated debt securities		2,742			4,012			5,995			7,264			2,410				3,494			8,406			10,758
Total Interest Expense		18,797			13,178			37,031			24,276			18,617				14,365			55,649			38,641
NET INTEREST INCOME		60,827			58,403			121,183			115,334			61,196				59,262			182,379			174,596
Provision for loan losses		2,205			9,345			7,854			11,817			4,913				462			12,767			12,279
Net Interest Income After Provision for Loan Losses		58,622			49,058			113,329			103,517			56,283				58,800			169,612			162,317
NONINTEREST INCOME
Net gain on sale of securities		—			—			—			—			—				—			—			—
Debit and credit card		3,501			3,309			6,476			6,347			3,475				3,141			9,951			9,487
Service charges on deposit accounts		3,212			3,227			6,365			6,468			3,412				3,351			9,777			9,765
Wealth management		2,062			2,616			4,109			5,298			2,101				2,483			6,210			7,782
Mortgage banking		637			831			1,131			1,432			594				700			1,726			2,133
Gain on sale of a majority interest of insurance business		—			—			—			1,873			—				—			—			1,873
Other		3,489			2,268			6,182			4,626			3,481				2,367			9,662			7,046
Total Noninterest Income		12,901			12,251			24,263			26,044			13,063				12,042			37,326			38,086
NONINTEREST EXPENSE
Salaries and employee benefits		20,290			18,611			41,199			37,426			19,936				19,769			61,135			57,195
Data processing and information technology		3,414			2,379			6,646			4,704			3,681				2,906			10,327			7,610
Net occupancy		2,949			2,804			5,986			5,677			2,898				2,722			8,883			8,399
Furniture, equipment and software		2,301			2,134			4,531			4,090			2,090				2,005			6,621			6,096
Other taxes		1,456			1,739			2,641			3,587			1,540				1,341			4,182			4,928
Marketing		1,310			1,190			2,452			1,892			1,062				1,023			3,514			2,916
Professional services and legal		1,145			888			2,329			1,939			1,054				1,181			3,382			3,120
Merger related expenses														552				—			1,171			—
FDIC insurance		695			739			1,211			1,847			(675		)		746			536			2,592
Merger related expenses		618			—			618			—
Other		6,174			5,379			11,658			10,783			5,529				5,392			17,187			16,174
Total Noninterest Expense		40,352			35,863			79,271			71,945			37,667				37,085			116,938			109,030
Income Before Taxes		31,171			25,446			58,321			57,616			31,679				33,757			90,000			91,373
Provision for income taxes		5,070			4,010			9,292			10,017			4,743				2,876			14,035			12,893
Net Income		$	26,101		$	21,436		$	49,029		$	47,599		$	26,936			$	30,881		$	75,965		$	78,480
Earnings per share—basic		$	0.76		$	0.62		$	1.43		$	1.37		$	0.79			$	0.89		$	2.22		$	2.26
Earnings per share—diluted		$	0.76		$	0.61		$	1.43		$	1.36		$	0.79			$	0.88		$	2.21		$	2.24
Dividends declared per share		$	0.27		$	0.25		$	0.54		$	0.47		$	0.27			$	0.25		$	0.81		$	0.72
Comprehensive Income		$	33,513		$	20,444		$	62,617		$	35,081		$	29,142			$	28,573		$	91,759		$	67,943

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)


	For the three months ended June 30, 2018																						For the three months ended September 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				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
Balance at June 30, 2018																								$	90,326		$	216,885			$	662,112			$	(30,945	)		$	(31,245	)		$	907,133
Net income for the three months ended September 30, 2018																								—			—				30,881				—				—				30,881
Other comprehensive income (loss), net of tax		—			—			—				(1,256		)		—				(1,256		)		—			—				—				(2,308		)		—				(2,308		)
Reclassification of tax effects from the Tax Act ⁽¹⁾		—			—			(264		)		264				—				—
Cash dividends declared ($0.25 per share)		—			—			(8,722		)		—				—				(8,722		)		—			—				(8,724		)		—				—				(8,724		)
Treasury stock issued for restricted awards (9,443 shares, net of no forfeitures)		—			—			(263		)		—				264				1
Treasury stock issued for restricted awards (no shares, net of 3,358 forfeitures)																								—			—				92				—				(93		)		(1		)
Repurchase of warrant																								—			(7,652		)		—				—				—				(7,652		)
Recognition of restricted stock compensation expense		—			267			—				—				—				267				—			452				—				—				—				452
Balance at June 30, 2018		$	90,326		$	216,885		$	662,112			$	(30,945	)		$	(31,245	)		$	907,133
Balance at September 30, 2018																								$	90,326		$	209,685			$	684,361			$	(33,253	)		$	(31,338	)		$	919,781

	For the three months ended June 30, 2019																						For the three months ended September 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				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
Balance at June 30, 2019																								$	90,326		$	211,325			$	730,577			$	(9,519	)		$	(57,756	)		$	964,953
Net income for the three months ended September 30, 2019																								—			—				26,936				—				—				26,936
Other comprehensive income (loss), net of tax		—			—			—				7,412				—				7,412				—			—				—				2,206				—				2,206
Cash dividends declared ($0.27 per share)		—			—			(9,242		)		—				—				(9,242		)		—			—				(9,239		)		—				—				(9,239		)
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		)
Treasury stock issued for restricted stock awards (954 shares, net of forfeitures of 1,705 shares)																								—			—				6				—				(30		)		(24		)
Common stock issuance cost																								—			(125		)		—				—				—				(125		)
Repurchase of common stock (84,868 shares)																								—			—				—				—				(3,100		)		(3,100		)
Recognition of restricted stock compensation expense		—			376			—				—				—				376				—			840				—				—				—				840
Balance at June 30, 2019		$	90,326		$	211,325		$	730,577			$	(9,519	)		$	(57,756	)		$	964,953
Balance at September 30, 2019																								$	90,326		$	212,040			$	748,280			$	(7,313	)		$	(60,886	)		$	982,447

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																						For the nine months ended September 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				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			$	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
Net income for the nine months ended September 30, 2018																								—			—				78,480				—				—				78,480
Other comprehensive income (loss), net of tax		—			—			—				(8,229		)		—				(8,229		)		—			—				—				(10,537		)		—				(10,537		)
Reclassification of tax effects from the Tax Act ⁽¹⁾		—			—			3,427				(3,427		)		—				—				—			—				3,427				(3,427		)		—				—
Reclassification of net unrealized gains on equity securities⁽²⁾		—			—			862				(862		)		—				—				—			—				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		)
Cash dividends declared ($0.72 per share)																								—			—				(25,115		)		—				—				(25,115		)
Treasury stock issued for restricted awards (75,608 shares, net of 40,950 forfeitures)																								—			—				(1,400		)		—				743				(657		)
Repurchase of warrant																								—			(7,652		)		—				—				—				(7,652		)
Recognition of restricted stock compensation expense		—			779			—				—				—				779				—			1,231				—				—				—				1,231
Balance at June 30, 2018		$	90,326		$	216,885		$	662,112			$	(30,945	)		$	(31,245	)		$	907,133
Balance at September 30, 2018																								$	90,326		$	209,685			$	684,361			$	(33,253	)		$	(31,338	)		$	919,781

	For the six months ended June 30, 2019																						For the nine months ended September 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				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			$	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
Net income for the nine months ended September 30, 2019																								—			—				75,965				—				—				75,965
Other comprehensive income (loss), net of tax		—			—			—				13,588				—				13,588				—			—				—				15,794				—				15,794
Impact of new lease standard		—			—			167				—				—				167				—			—				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		)
Cash dividends declared ($0.81 per share)																								—			—				(27,798		)		—				—				(27,798		)
Treasury stock issued for restricted stock awards (84,010 shares, net of forfeitures of 52,457 shares)																								—			—				(1,873		)		—				958				(915		)
Common stock issuance cost																								—			(125		)		—				—				—				(125		)
Repurchase of common stock (470,708 shares)																								—			—				—				—				(18,222		)		(18,222		)
Recognition of restricted stock compensation expense		—			980			—				—				—				980				—			1,820				—				—				—				1,820
Balance at June 30, 2019		$	90,326		$	211,325		$	730,577			$	(9,519	)		$	(57,756	)		$	964,953
Balance at September 30, 2019																								$	90,326		$	212,040			$	748,280			$	(7,313	)		$	(60,886	)		$	982,447

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.

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S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,							Nine Months Ended September 30,
(dollars in thousands)		2019			2018				2019			2018
OPERATING ACTIVITIES
Net income		$	49,029		$	47,599			$	75,965		$	78,480
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		7,854			11,817				12,767			12,279
Net increase (decrease) in provision for unfunded loan commitments		208			(114		)
Provision for (recovery of) unfunded loan commitments									303			(39		)
Net depreciation, amortization and accretion		2,872			2,174				4,413			3,309
Net amortization of discounts and premiums on securities		1,562			1,572				2,470			2,387
Stock-based compensation expense		980			779				1,820			1,231
Gain on the sale of mortgage loans, net		(683		)	(683		)		(1,300		)	(1,195		)
Gain on the sale of majority interest of insurance business		—			(1,873		)		—			(1,873		)
Pension contribution									—			(20,420		)
Mortgage loans originated for sale		(38,720		)	(41,631		)		(72,054		)	(68,898		)
Proceeds from the sale of mortgage loans		33,639			42,998				67,354			70,371
Net change in:
Interest receivable		(1,235		)	(520		)		(712		)	(1,506		)
Interest payable		(1,582		)	699				(1,399		)	803
Other assets		(11,006		)	(853		)		(31,570		)	352
Other liabilities		15,978			2,529				34,737			9,904
Net Cash Provided by Operating Activities		58,896			64,493				92,794			85,185
INVESTING ACTIVITIES
Purchases of securities		(9,438		)	(54,481		)		(37,123		)	(79,068		)
Proceeds from maturities, prepayments and calls of securities		40,260			45,487				68,906			71,433
Net proceeds from sales (purchases) of Federal Home Loan Bank stock		6,944			(6,512		)		4,038			(1,909		)
Net increase in loans		(95,691		)	(37,957		)		(263,169		)	(64,387		)
Proceeds from sale of loans not originated for resale		465			3,922				520			7,695
Purchases of premises and equipment		(2,559		)	(804		)		(4,054		)	(2,588		)
Proceeds from the sale of premises and equipment		9			110				44			135
Proceeds from the sale of majority interest of insurance business		—			4,540				—			4,540
Net Cash Used in Investing Activities		(60,010		)	(45,695		)		(230,838		)	(64,149		)
FINANCING ACTIVITIES
Net increase in core deposits		246,561			46,962				394,439			127,917
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
Net decrease in certificates of deposit									(85,606		)	(88,203		)
Net decrease in securities sold under repurchase agreements									(4,458		)	(4,961		)
Net decrease in short-term borrowings									(100,000		)	(5,000		)
Repayments on long-term borrowings		(523		)	(1,239		)		(1,151		)	(1,867		)
Treasury shares issued-net		(891		)	(657		)		(915		)	(657		)
Common stock issuance costs									(125		)	—
Cash dividends paid to common shareholders		(18,559		)	(16,391		)		(27,798		)	(25,115		)
Repurchase of common stock		(15,122		)	—				(18,222		)	—
Net Cash (Used in) Provided by Financing Activities		(31,499		)	1,983
Net (decrease) increase in cash and cash equivalents		(32,613		)	20,781
Repurchase of warrant									—			(7,652		)
Net Cash Provided by (Used in) Financing Activities									156,164			(5,538		)
Net increase in cash and cash equivalents									18,120			15,498
Cash and cash equivalents at beginning of period		155,489			117,152				155,489			117,152
Cash and Cash Equivalents at End of Period		$	122,876		$	137,933			$	173,609		$	132,650
Supplemental Disclosures
Loans transferred to held for sale		$	—		$	3,922			$	520		$	7,695
Leased right-of-use operating assets and lease liabilities added to the balance sheet		$	37,263		$	—			$	38,919		$	—
Interest paid		$	38,612		$	23,576			$	57,047		$	37,838
Income taxes paid, net of refunds		$	4,557		$	11,103			$	11,178		$	15,728
Transfer net assets to investment in insurance company partnership		$	—		$	1,917			$	—		$	1,917
Transfers of loans to other real estate owned		$	215		$	2,841			$	492		$	647

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 included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission, or SEC, on 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,~~June 30, 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. DNB shareholders approved the merger at a Special Meeting of Shareholders on September 25, 2019. All required bank regulatory approvals have been received for the merger. The transaction is expected to ~~close in~~be effective on or about November 30, 2019 and remains subject to the ~~fourth quarter~~satisfaction or waiver of ~~2019, after satisfaction of~~other customary closing ~~conditions including regulatory approvals and approval of the shareholders of DNB.~~conditions.

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 insurance entity (see Note 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

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 Financial Accounting Standards Board, or FASB, established ASC Topic 842, by issuing ASU No. 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 expense recognition in the statement of operations. We adopted the new standard on January 1,~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

pattern and classification of expense recognition in the statement of operations. We adopted the new standard on January 1, 2019 (see Note 7: Right-of-use Assets and Lease Liabilities).

The new standard provides several optional practical expedients to elect in transition to the 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 of deferred rent, of approximately $33.7 million based on the present value of the remaining minimum rental payments under current leasing standards for existing leases. We also recognized corresponding finance ROU assets of $1.2 million and operating ROU assets of approximately $33.4 million. The adoption had no material impact on the Consolidated Statements of Comprehensive Income.

The new standard also provides practical expedients for our ongoing lease accounting. We elected the short-term lease recognition exemption for all leases with terms of 12 months or less. This means that we will not recognize ROU assets or lease liabilities for existing short-term leases of those assets in transition. Beginning in 2019, we made changes to our disclosed lease recognition policies and practices, as well as to other related financial statement disclosures due to the adoption of this standard (See Note 7: Right-of-use Assets and Lease Liabilities).

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~~1 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.)~~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 beginning after December 15, 2019. Early adoption of the amendments is permitted, including adoption in any interim period. ~~We are evaluating the~~The amendments in this ~~ASU; however, we do~~ASU will not ~~anticipate that these amendments will~~ materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

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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 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. The amendments in this ASU isare 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. Credit losses related to available-for-sale debt securities (regardless of whether the impairment is considered to be other-than-temporary) will be measured in a manner similar to the present, except that such losses will be recorded as allowances rather than as reductions in the amortized cost of the related securities. 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~~Our CECL Committee ~~to govern~~governs the implementation of these amendments ~~consisting~~and the Committee consists of key stakeholders from Credit Administration, Finance, Accounting, Risk Management and ~~Internal Audit.~~Audit and Advisory Services. We ~~have~~ engaged a third-party consultant to assist us in developing our CECL ~~methodology. We~~methodology and we have ~~made~~completed a preliminary CECL model. The Model includes our ~~decision on~~ loan segmentation and ~~currently are in the process of testing and validating two methodologies for calculating~~ the quantitative and qualitative components of the calculation which incorporates a forecasting component of certain economic variables. We are currently working to finalize our documentation around the CECL ~~allowance.~~ ~~Our next steps include developing the qualitative allowance framework,~~methodology, designing and ~~designing~~updating internal controls and financial statement disclosures. We will run parallel credit loss models for both the third and fourth quarters of 2019 prior to adoption of the CECL standard. The CECL model will be reviewed and validated by an independent consultant during the fourth quarter of 2019 and recommendations will be reviewed and implemented prior to adoption on January 1, 2020. While we anticipate an increase in the allowance for credit losses upon adoption of CECL, we are still in the process of validating the results of our model in order to determine the financial impact. The impact of adopting CECL depends on various factors including, the mix of the loan portfolio, forecasted macroeconomic variables at the time of adoption and the assessment of loans acquired from DNB. We will continue to evaluate the provisions ~~of this ASU to determine the potential impact on our Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income.~~

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

of this ASU to determine the potential impact on our Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income and expect to disclose such impact in our 2019 Form 10-K.

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.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share data)	2019			2018			2019			2018			2019			2018			2019			2018
Numerator for Earnings per Share—Basic:
Net income		$	26,101		$	21,436		$	49,029		$	47,599		$	26,936		$	30,881		$	75,965		$	78,480
Less: Income allocated to participating shares		71			62			137			141			72			87			204			229
Net Income Allocated to Shareholders		$	26,029		$	21,374		$	48,892		$	47,458		$	26,864		$	30,794		$	75,761		$	78,251

Numerator for Earnings per Share—Diluted:
Net income		$	26,101		$	21,436		$	49,029		$	47,599		$	26,936		$	30,881		$	75,965		$	78,480
Net Income Available to Shareholders		$	26,101		$	21,436		$	49,029		$	47,599		$	26,936		$	30,881		$	75,965		$	78,480

Denominators for Earnings per Share:
Weighted Average Shares Outstanding—Basic		34,158,136			34,793,160			34,298,185			34,775,043			34,090,779			34,799,174			34,221,479			34,783,175
Add: Potentially dilutive shares		52,850			264,416			88,121			267,998			79,502			220,118			105,746			228,909
Denominator for Treasury Stock Method—Diluted		34,210,986			35,057,576			34,386,306			35,043,041			34,170,281			35,019,292			34,327,225			35,012,084

Weighted Average Shares Outstanding—Basic		34,158,136			34,793,160			34,298,185			34,775,043			34,090,779			34,799,174			34,221,479			34,783,175
Add: Average participating shares outstanding		93,433			100,212			96,261			103,449			186,491			98,579			186,253			101,808
Denominator for Two-Class Method—Diluted		34,251,569			34,893,372			34,394,446			34,878,492			34,277,270			34,897,753			34,407,732			34,884,983

Earnings per share—basic		$	0.76		$	0.62		$	1.43		$	1.37		$	0.79		$	0.89		$	2.22		$	2.26
Earnings per share—diluted		$	0.76		$	0.61		$	1.43		$	1.36		$	0.79		$	0.88		$	2.21		$	2.24
Warrants considered anti-dilutive excluded from potentially dilutive shares - exercise price $31.53 per share, expires January 2019 ⁽¹⁾														—			285,915			—			351,166
Restricted stock considered anti-dilutive excluded from potentially dilutive shares		5,183			—			44,153			2,047			254			113,451			360			113,390

⁽¹⁾We repurchased our outstanding warrant on September 11, 2018 for $7.7 million. Prior to the repurchase, the warrant provided the holder the right to 517,012 shares of common stock at a strike price of $31.53 per share via cashless exercise.

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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 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 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 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.

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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 equity security assets. 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 deferred compensation plan and are invested in readily quoted mutual funds. Accordingly, these assets are classified as Level 1. Deferred compensation plan assets are reported in other assets in the Consolidated Balance Sheets.

Derivative Financial Instruments

We use derivative instruments, including interest rate swaps for commercial loans with our customers, interest rate lock commitments and the sale of mortgage loans in the secondary market. We calculate the fair value for derivatives using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Each valuation considers the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, such as interest rate curves and implied volatilities. Accordingly, derivatives are classified as Level 2. We incorporate credit valuation adjustments into the valuation models to appropriately reflect both our own nonperformance risk and the respective counterparties’ nonperformance risk in calculating fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements and collateral postings.

Nonrecurring Basis

Loans Held for Sale

Loans held for sale consist of 1-4 family residential loans originated for sale in the secondary market and, from time to time, certain loans are 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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S&T BANCORP, INC. AND SUBSIDIARIES

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. Since the valuation model includes significant unobservable 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 mortgage banking income in the Consolidated Statements of Comprehensive Income.

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

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., 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.

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~~September 30, 2019 and December 31, 2018. There were no0 transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.


	June 30, 2019								September 30, 2019
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities	$	—	$	10,007	$	—	$	10,007	$	—	$	10,049	$	—	$	10,049
Obligations of U.S. government corporations and agencies	—		129,773		—		129,773		—		130,165		—		130,165
Collateralized mortgage obligations of U.S. government corporations and agencies	—		150,405		—		150,405		—		155,010		—		155,010
Residential mortgage-backed securities of U.S. government corporations and agencies	—		20,936		—		20,936		—		18,826		—		18,826
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		235,292		—		235,292		—		237,951		—		237,951
Obligations of states and political subdivisions	—		117,624		—		117,624		—		112,519		—		112,519
Total Debt Securities Available-for-Sale	—		664,037		—		664,037		—		664,520		—		664,520
Marketable equity securities	—		4,551		—		4,551		—		4,706		—		4,706
Total Securities	—		668,588		—		668,588		—		669,226		—		669,226
Securities held in a deferred compensation plan	5,532		—		—		5,532		5,611		—		—		5,611
Derivative financial assets:					��
Interest rate swaps	—		22,688		—		22,688		—		32,825		—		32,825
Interest rate lock commitments	—		649		—		649		—		455		—		455
Forward sale contracts - mortgage loans									—		64		—		64
Total Assets	$	5,532	$	691,925	$	—	$	697,457	$	5,611	$	702,570	$	—	$	708,181
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	22,620	$	—	$	22,620	$	—	$	32,772	$	—	$	32,772
Forward sale contracts	—		105		—		105
Total Liabilities	$	—	$	22,725	$	—	$	22,725	$	—	$	32,772	$	—	$	32,772

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S&T BANCORP, INC. AND SUBSIDIARIES

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

Assets Recorded at Fair Value on a Nonrecurring Basis

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 no0 liabilities measured at fair value on a nonrecurring basis at either ~~June~~September 30, 2019 or December 31, 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									September 30, 2019								December 31, 2018
(dollars in thousands)		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS⁽¹⁾
Impaired loans		$	—	$	—	$	30,456	$	30,456	$	—	$	—	$	21,441	$	21,441		$	—	$	—	$	33,473	$	33,473	$	—	$	—	$	21,441	$	21,441
Other real estate owned		—		—		1,353		1,353		—		—		2,826		2,826			—		—		1,353		1,353		—		—		2,826		2,826
Mortgage servicing rights		—		—		1,141		1,141		—		—		1,197		1,197			—		—		3,485		3,485		—		—		1,197		1,197
Total Assets		$	—	$	—	$	32,950	$	32,950	$	—	$	—	$	25,464	$	25,464		$	—	$	—	$	38,311	$	38,311	$	—	$	—	$	25,464	$	25,464
⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.	⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.																	⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.

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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~~September 30, 2019 and December 31, 2018 are presented in the following tables:


	Carrying Value⁽¹⁾		Fair Value Measurements at June 30, 2019								Carrying Value⁽¹⁾		Fair Value Measurements at September 30, 2019
(dollars in thousands)			Total		Level 1		Level 2		Level 3				Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	122,876	$	122,876	$	122,876	$	—	$	—	$	173,609	$	173,609	$	173,609	$	—	$	—
Securities	668,588		668,588		—		668,588		—		669,226		669,226		—		669,226		—
Loans held for sale	8,135		8,135		—		—		8,135		8,371		8,371		—		—		8,371
Portfolio loans, net	5,971,721		5,836,651		—		—		5,836,651		6,133,650		6,022,385		—		—		6,022,385
Bank owned life insurance	74,906		74,906		—		74,906		—		75,386		75,386		—		75,386		—
FHLB and other restricted stock	22,491		22,491		—		—		22,491		25,397		25,397		—		—		25,397
Securities held in a deferred compensation plan	5,532		5,532		5,532		—		—		5,611		5,611		5,611		—		—
Mortgage servicing rights	4,214		4,728		—		—		4,728		4,172		4,189		—		—		4,189
Interest rate swaps	22,688		22,688		—		22,688		—		32,825		32,825		—		32,825		—
Interest rate lock commitments	649		649		—		649		—		455		455		—		455		—
Forward sale contracts											64		64		—		64		—
LIABILITIES
Deposits	$	5,856,700	$	5,854,053	$	4,508,445	$	1,345,608	$	—	$	5,982,692	$	5,981,492	$	4,656,323	$	1,325,169	$	—
Securities sold under repurchase agreements	14,154		14,154		14,154		—		—		13,925		13,925		13,925		—		—
Short-term borrowings	295,000		295,000		295,000		—		—		370,000		370,000		370,000		—		—
Long-term borrowings	69,791		70,405		39,334		31,071		—		69,156		69,738		39,329		30,409		—
Junior subordinated debt securities	45,619		45,619		45,619		—		—		45,619		45,619		45,619		—		—
Interest rate swaps	22,620		22,620		—		22,620		—		32,772		32,772		—		32,772		—
Forward sales contracts	105		105		—		105		—
⁽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

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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			September 30, 2019			December 31, 2018
Debt securities available-for-sale		$	664,037		$	680,056		$	664,520		$	680,056
Marketable equity securities		4,551			4,816			4,706			4,816
Total Securities		$	668,588		$	684,872		$	669,226		$	684,872

Debt Securities Available-for-Sale

The following tables present the amortized cost and fair value of debt securities available-for-sale as of the dates presented:


	June 30, 2019													December 31, 2018													September 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			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		$	9,966		$	83		$	—			$	10,049		$	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			128,257			1,908			—				130,165			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			151,759			3,503			(252		)		155,010			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			18,504			345			(23		)		18,826			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			234,076			3,911			(36		)		237,951			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			108,355			4,164			—				112,519			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		$	650,917		$	13,914		$	(311	)		$	664,520		$	685,170		$	3,514		$	(8,628	)		$	680,056

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


	June 30, 2019																		September 30, 2019
	Less Than 12 Months						12 Months or More						Total						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			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		)	2	6,465		(42		)	6	27,869		(210		)	8	34,334		(252		)
Residential mortgage-backed securities of U.S. government corporations and agencies	—	—		—			2	6,740		(57		)	2	6,740		(57		)	1	3,948		(1		)	1	2,557		(22		)	2	6,505		(23		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	—	—		—			5	48,119		(172		)	5	48,119		(172		)	2	20,284		(8		)	2	12,412		(28		)	4	32,696		(36		)
Obligations of states and political subdivisions	—	—		—			—	—		—			—	—		—			—	—		—			—	—		—			—	—		—
Total Temporarily Impaired Debt Securities	1	$	3,613	$	(6	)	18	$	121,393	$	(558	)	19	$	125,006	$	(564	)	5	$	30,697	$	(51	)	9	$	42,838	$	(260	)	14	$	73,535	$	(311	)

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES – continued



	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	)

We do not believe any individual unrealized loss as of ~~June~~September 30, 2019 represents an other than temporary impairment, or OTTI. At ~~June~~September 30, 2019 there were 1914 debt securities in an unrealized loss position and at December 31, 2018, there were 65 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 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.

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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, 2019									December 31, 2018									September 30, 2019									December 31, 2018
(dollars in thousands)	Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized (Losses)/Gains			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
Total unrealized gains/(losses) on debt securities available-for-sale	$	11,816		$	(564	)	$	11,252		$	3,514		$	(8,628	)	$	(5,114	)	$	13,914		$	(311	)	$	13,603		$	3,514		$	(8,628	)	$	(5,114	)
Income tax (expense) benefit	(2,520		)	120			(2,400		)	(746		)	1,832			1,086			(2,967		)	66			(2,901		)	(746		)	1,832			1,086
Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)	$	9,296		$	(444	)	$	8,852		$	2,768		$	(6,796	)	$	(4,028	)	$	10,947		$	(245	)	$	10,702		$	2,768		$	(6,796	)	$	(4,028	)

The amortized cost and fair value of debt securities available-for-sale at ~~June~~September 30, 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				September 30, 2019
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of the U.S. Treasury, U.S. government corporations and agencies, and obligations of states and political subdivisions
Due in one year or less	$	47,630	$	47,770	$	73,193	$	73,425
Due after one year through five years	122,824		124,741		103,058		105,407
Due after five years through ten years	63,472		66,144		55,237		58,034
Due after ten years	17,805		18,750		15,090		15,867
Debt Securities Available-for-Sale With Maturities	251,731		257,405		246,578		252,733
Collateralized mortgage obligations of U.S. government corporations and agencies	147,692		150,405		151,759		155,010
Residential mortgage-backed securities of U.S. government corporations and agencies	20,705		20,936		18,504		18,826
Commercial mortgage-backed securities of U.S. government corporations and agencies	232,657		235,291		234,076		237,951
Total Debt Securities Available-for-Sale	$	652,785	$	664,037	$	650,917	$	664,520

Debt securities with carrying values of ~~$201.2~~$222.3 million at ~~June~~September 30, 2019 and $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,					Three Months September 30,					Nine Months Ended September 30,
(dollars in thousands)	2019		2018		2019			2018		2019		2018			2019			2018
Marketable Equity Securities
Net market (losses)/gains recognized	$	52	$	230	$	(266	)	$	282
Net market gains/(losses) recognized										$	156	$	(111	)	$	(110	)	$	171
Less: Net gains recognized for equity securities sold	—		—		—			—		—		—			—			—
Unrealized (Losses)/Gains on Equity Securities Still Held	$	52	$	230	$	(266	)	$	282
Unrealized Gains/(Losses) on Equity Securities Still Held										$	156	$	(111	)	$	(110	)	$	171

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.

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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 $4.6 million at September 30, 2019 and $5.3 million at ~~June 30, 2019 and~~ December 31, 2018. The following table indicates the composition of loans as of the dates presented:


(dollars in thousands)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Commercial
Commercial real estate	$	2,906,895	$	2,921,832	$	2,922,197	$	2,921,832
Commercial and industrial	1,559,727		1,493,416		1,626,854		1,493,416
Commercial construction	267,203		257,197		314,813		257,197
Total Commercial Loans	4,733,825		4,672,445		4,863,864		4,672,445
Consumer
Residential mortgage	751,355		726,679		770,882		726,679
Home equity	464,195		471,562		475,024		471,562
Installment and other consumer	72,041		67,546		74,460		67,546
Consumer construction	11,784		8,416		11,535		8,416
Total Consumer Loans	1,299,375		1,274,203		1,331,901		1,274,203
Total Portfolio Loans	6,033,200		5,946,648		6,195,765		5,946,648
Loans held for sale	8,135		2,371		8,371		2,371
Total Loans	$	6,041,335	$	5,949,019	$	6,204,136	$	5,949,019

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 78.5 percent of total portfolio loans at ~~June~~September 30, 2019 and 78.6 percent at December 31, 2018. Within our commercial portfolio, the Commercial Real Estate, or CRE, and Commercial Construction portfolios combined comprised $3.2 billion or 6766.6 percent of total commercial loans at ~~June~~September 30, 2019 and $3.2 billion or 6868.0 percent of total commercial loans at December 31, 2018 and 5352.2 percent of total portfolio loans at ~~both June~~September 30, 2019 and 53.5 percent at December 31, 2018. Further segmentation of the CRE and Commercial Construction portfolios by collateral type reveals no0 concentration in excess of 1413.3 percent of both total CRE and Commercial Construction loans at ~~both June~~September 30, 2019 and 13.7 percent at December 31, 2018.

We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this geography, resulting in a 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 exposure outside of this geography of 6.4 percent of the combined portfolios and 3.4 percent of total portfolio loans at ~~June~~September 30, 2019. This compares to 5.4 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, 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.

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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						September 30, 2019						December 31, 2018
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	3,519	$	5,600	$	9,119	$	2,054	$	1,139	$	3,193	$	21,448	$	10,880	$	32,328	$	2,054	$	1,139	$	3,193
Commercial and industrial	9,671		980		10,651		7,026		6,646		13,672		9,065		787		9,852		7,026		6,646		13,672
Commercial construction	1,913		406		2,319		1,912		406		2,318		1,913		406		2,319		1,912		406		2,318
Residential mortgage	1,997		1,497		3,494		2,214		1,543		3,757		1,922		1,195		3,117		2,214		1,543		3,757
Home equity	3,577		1,458		5,035		3,568		1,349		4,917		4,076		1,226		5,302		3,568		1,349		4,917
Installment and other consumer	13		3		16		12		5		17		10		2		12		12		5		17
Total	$	20,690	$	9,944	$	30,634	$	16,786	$	11,088	$	27,874	$	38,434	$	14,496	$	52,930	$	16,786	$	11,088	$	27,874

The significant increase in performing TDRs primarily related to a $19.9 million CRE relationship that was modified during the third quarter of 2019. The modification granted a concession to the borrower that reduced their monthly payments resulting in the TDR. The loan remains in performing status based on the strong historical repayment performance of the borrower prior to the restructure as well as recent changes occurring in the business which demonstrate the borrower’s ability to pay under the revised contractual terms. Guarantor support and sufficient collateral value further support the performing status of the loan.

There were ~~three~~3 TDRs totaling ~~$0.1~~$0.2 million that returned to accruing status during the three months ended ~~June~~September 30, 2019 and ~~four~~5 TDRs totaling ~~$1.8~~$0.2 million that returned to accruing status during the ~~six~~nine months ended ~~June~~September 30, 2019. There were no0 TDRs that returned to accruing status during the three and ~~six~~nine months ended ~~June~~September 30, 2018.

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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~~nine months ended ~~June~~September 30, 2019 and 2018:



	Three Months Ended September 30, 2019								Three Months Ended September 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
Totals by Loan Segment
Commercial Real Estate
Maturity date extension	—	$	—	$	—	$	—		1	$	256	$	250	$	(6	)
Principal deferral	3	23,517		23,236		(281		)	—	—		—		—
Below market interest rate	2	569		548		(21		)	—	—		—		—
Total Commercial Real Estate	5	24,086		23,784		(302		)	1	256		250		(6		)
Commercial and Industrial
Principal deferral	1	1,250		1,250		—			—	—		—		—
Principal deferral and maturity date extension	1	292		277		(15		)	—	—		—		—
Total Commercial and Industrial	2	1,542		1,527		(15		)	—	—		—		—
Residential Mortgage
Consumer bankruptcy⁽²⁾	—	—		—		—			2	188		186		(2		)
Total Residential Mortgage	—	—		—		—			2	188		186		(2		)
Home equity
Consumer bankruptcy⁽²⁾	14	504		485		(19		)	6	193		191		(2		)
Total Home Equity	14	504		485		(19		)	6	193		191		(2		)
Installment and Other Consumer
Consumer bankruptcy⁽²⁾	1	4		4		—			1	12		6		(6		)
Total Installment and Other Consumer	1	$	4	$	4	$	—		1	$	12	$	6	$	(6	)
Totals by Concession Type
Consumer bankruptcy⁽²⁾	15	508		489		(19		)	9	393		383		$	(10	)
Maturity date extension	—	—		—		—			1	256		250		$	(6	)
Principal deferral	4	24,767		24,486		(281		)	—	—		—		$	—
Principal deferral and maturity date extension	1	292		277		(15		)	—	—		—		—
Below market interest rate	2	569		548		(21		)	—	—		—		—
Total	22	$	26,136	$	25,800	$	(336	)	10	$	649	$	633	$	(16	)
⁽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⁾ Consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.

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
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
Principal deferral —
—
—
—
3
4,815
5,034
219
Total Commercial and Industrial —
—
—
—
3
4,815
5,034
219
Residential Mortgage
Chapter 7 bankruptcy⁽²⁾
2
116
115
(1 ) 1
41
41
—
Total Residential Mortgage 2
116
115
(1 ) 1
41
41
—
Home equity
Chapter 7 bankruptcy⁽²⁾
6
107
105
(2 ) 2
26
26
—
Interest rate reduction 1
109
108
(1 ) —
—
—
—
Maturity date extension and interest rate reduction —
—
—
—
2
47
47
—
Total Home Equity 7
216
214
(3 ) 4
73
73
—
Installment and Other Consumer
Chapter 7 bankruptcy⁽²⁾
2
9
9
—
2
8
7
(1 )
Total Installment and Other Consumer 2
$ 9
$ 9
$ —
2
$ 8
$ 7
$ (1 )
Totals by Concession Type
Maturity date extension 1

$ 1,322

$ 1,311

$ (11 )
—

$ —

$ —
$ —
Chapter 7 bankruptcy⁽²⁾
10

232

229
(3 ) 5

75

74
(1 )
Maturity date extension and interest rate reduction 1

151

148

(3 )
2

47

47
—
Principal deferral —

—

—

—

3

4,815

5,034
219
Interest rate reduction 1
109
108
—
—

—

—

—
Principal forgiveness 1

4,690

4,631

(59 )
—

—

—
—
Total 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.

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, 2019								Six Months Ended June 30, 2018								Nine Months Ended September 30, 2019								Nine Months Ended September 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⁾			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	)	—	$	—	$	—	$	—		1	$	1,322	$	1,298	$	(24	)	1	$	256	$	250	$	(6	)
Maturity date extension and interest rate reduction	1	151		148		(3		)	—	—		—		—			1	151		147		(4		)	—	—		—		—
Principal deferral																	3	23,517		23,236		(281		)	—	—		—		—
Principal forgiveness	1	4,690		4,631		(59		)	—	—		—		—			1	4,690		4,518		(172		)	—	—		—		—
Non Market Rate Loan																	2	569		548		(21		)	—	—		—		—
Total Commercial Real Estate	3	6,163		6,090		(73		)	—	—		—		—			8	30,249		29,747		(502		)	1	256		250		(6		)
Commercial and Industrial
Maturity date extension	—	—		—		—			2	768		582		(186		)	—	—		—		—			2	768		657		(111		)
Maturity date extension and interest rate reduction	1	4,751		4,529		(222		)	—	—		—		—			1	4,751		4,333		(418		)	—	—		—		—
Principal deferral	—	—		—		—			3	4,815		5,034		219			1	1,250		1,250		—			3	4,815		4,466		(349		)
Principal deferral and Maturity date extension	—	—		—		—			6	5,355		5,229		(126		)	1	292		277		(15		)	6	5,355		5,225		(130		)
Total Commercial and Industrial	1	4,751		4,529		(222		)	11	10,938		10,845		(93		)	3	6,293		5,860		(433		)	11	10,938		10,348		(590		)
Residential Mortgage
Chapter 7 bankruptcy⁽²⁾	3	166		163		(3		)	3	199		196		(3		)
Consumer bankruptcy⁽²⁾																	3	165		160		(5		)	5	387		380		(7		)
Total Residential Mortgage	3	166		163		(3		)	3	199		196		(3		)	3	165		160		(5		)	5	387		380		(7		)
Home equity
Chapter 7 bankruptcy⁽²⁾	13	298		268		(30		)	11	605		574		(31		)
Consumer bankruptcy⁽²⁾																	27	801		746		(55		)	17	798		668		(130		)
Interest rate reduction	2	190		189		(1		)	—	—		—		—			2	190		189		(1		)	—	—		—		—
Maturity date extension and interest rate reduction	—	—		—		—			2	47		47		—			—	—		—		—			2	47		47		—
Total Home Equity	15	488		457		(31		)	13	652		621		(31		)	29	991		934		(56		)	19	845		715		(130		)
Installment and Other Consumer
Chapter 7 bankruptcy⁽²⁾	3	9		9		—			4	25		23		(2		)
Consumer bankruptcy⁽²⁾																	3	13		10		(3		)	1	12		6		(6		)
Total Installment and Other Consumer	3	$	9	$	9	$	—		4	25		$	23	$	(2	)	3	$	13	$	10	$	(3	)	1	$	12	$	6	$	(6	)
Totals by Concession Type
Chapter 7 bankruptcy(2)																	33	979		916		(63		)	23	1,197		1,054		(143		)
Interest rate reduction																	2	190		189		(1		)	—	—		—		—
Maturity date extension	1	1,322		1,311		(11		)	2	768		582		(186		)	1	1,322		1,298		(24		)	3	1,024		907		(117		)
Maturity date extension and interest rate reduction	2	4,902		4,677		(225		)	2	47		47		—			2	4,902		4,480		(422		)	2	47		47		—
Principal deferral	—	—		—		—			3	4,815		5,034		219			4	24,767		24,486		(281		)	3	4,815		4,466		(349		)
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 deferral and maturity date extension																	1	292		277		(15		)	6	5,355		5,225		(130		)
Principal forgiveness	1	4,690		4,631		(59		)	—	—		4,690		4,690			1	4,690		4,518		(172		)	—	—		—		—
Below market interest rate																	2	569		548		(21		)	—	—		—		—
Total	25	$	11,577	$	11,248	$	(328	)	31	$	11,814	$	16,375	$	4,561		46	$	37,711	$	36,712	$	(999	)	37	$	12,438	$	11,699	$	(739	)
⁽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⁾ Consumer 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⁾ Consumer 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

As of ~~June~~September 30, 2019, we had 813 commitments to lend an additional ~~$10.8~~$10.5 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 no0 TDRs that defaulted during the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 that were restructured within the last 12 months prior to defaulting.

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


		Nonperforming Assets					Nonperforming Assets
(dollars in thousands)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Nonperforming Assets
Nonaccrual loans		$	35,083		$	34,985		$	35,487		$	34,985
Nonaccrual TDRs		9,944			11,088			14,496			11,088
Total Nonaccrual Loans		45,027			46,073			49,983			46,073
OREO		1,495			3,092			1,724			3,092
Total Nonperforming Assets		$	46,522		$	49,165		$	51,707		$	49,165

NOTE 6. ALLOWANCE FOR LOAN LOSSES

We maintain an allowance for loan losses, or ALL, at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date. We develop and document a systematic 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 does 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 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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NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

We further assess risk within each portfolio segment by pooling loans with similar risk characteristics. For the commercial loan classes, the most important indicator of risk is the internally assigned risk rating, including pass, special mention and substandard. Consumer loans are pooled by type of collateral, lien position and loan to value, or LTV, for Consumer Real Estate loans. Historical loss rates are applied to these loan pools to determine the reserve for loans collectively evaluated for impairment.

The ALL methodology for groups of loans collectively evaluated for impairment is comprised of both a quantitative and qualitative analysis. A key assumption in the quantitative component of the reserve is the loss emergence period, or LEP. 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												September 30, 2019
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Non - performing		Total Past Due Loans		Total Loans		Current		30-59 Days Past Due		60-89 Days Past Due		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	2,875,439	$	1,456	$	1,217	$	28,783	$	31,456	$	2,906,895	$	2,886,051	$	1,845	$	561	$	33,740	$	36,146	$	2,922,197
Commercial and industrial	1,554,081		606		910		4,130		5,646		1,559,727		1,620,286		2,049		313		4,206		6,568		1,626,854
Commercial construction	265,977		—		—		1,226		1,226		267,203		313,190		480		—		1,143		1,623		314,813
Residential mortgage	741,453		1,900		1,220		6,782		9,902		751,355		760,601		1,566		1,331		7,384		10,281		770,882
Home equity	457,296		2,555		264		4,081		6,900		464,195		469,805		1,370		357		3,492		5,219		475,024
Installment and other consumer	71,808		126		81		25		232		72,041		74,233		132		77		18		227		74,460
Consumer construction	11,784		—		—		—		—		11,784		11,535		—		—		—		—		11,535
Loans held for sale	8,135		—		—		—		—		8,135		8,371		—		—		—		—		8,371
Total	$	5,985,973	$	6,643	$	3,692	$	45,027	$	55,362	$	6,041,335	$	6,144,072	$	7,442	$	2,639	$	49,983	$	60,064	$	6,204,136



	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

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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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																September 30, 2019
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total		Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	2,750,338	94.6	%	$	1,483,519	95.1	%	$	256,351	95.9	%	$	4,490,208	94.9	%	$	2,767,646	94.7	%	$	1,547,375	95.0	%	$	304,135	96.6	%	$	4,618,155	94.9	%
Special mention	63,993		2.2	%	34,527		2.2	%	7,189		2.7	%	105,708		2.2	%	60,096		2.1	%	43,482		2.7	%	7,112		2.3	%	110,690		2.3	%
Substandard	92,564		3.2	%	41,681		2.7	%	3,664		1.4	%	137,909		2.9	%	94,455		3.2	%	36,997		2.3	%	3,566		1.1	%	135,019		2.8	%
Total	$	2,906,895	100.0	%	$	1,559,727	100.0	%	$	267,203	100.0	%	$	4,733,825	100.0	%	$	2,922,197	100.0	%	$	1,626,854	100.0	%	$	314,813	100.0	%	$	4,863,864	100.0	%

	December 31, 2018																December 31, 2018
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total		Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	2,776,292	95.0	%	$	1,394,427	93.4	%	$	233,190	90.7	%	$	4,403,909	94.3	%	$	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	%	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	%	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	%	$	2,921,832	100.0	%	$	1,493,416	100.0	%	$	257,197	100.0	%	$	4,672,445	100.0	%

Substandard loans decreased ~~$43.3~~$46.2 million to ~~$137.9~~$135.0 million at ~~June~~September 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~~$23.4 million to ~~$105.7~~$110.7 million at ~~June~~September 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, 2019																				September 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	$	744,573	99.1	%	$	460,114	99.1	%	$	72,016	100.0	%	$	11,784	100.0	%	$	1,288,487	99.2	%	$	763,498	99.0	%	$	471,532	99.3	%	$	74,442	100.0	%	$	11,535	100.0	%	$	1,321,007	99.2	%
Nonperforming	6,782		0.9	%	4,081		0.9	%	25		—	%	—		—	%	10,888		0.8	%	7,384		1.0	%	3,492		0.7	%	18		—	%	—		—	%	10,894		0.8	%
Total	$	751,355	100.0	%	$	464,195	100.0	%	$	72,041	100.0	%	$	11,784	100.0	%	$	1,299,375	100.0	%	$	770,882	100.0	%	$	475,024	100.0	%	$	74,460	100.0	%	$	11,535	100.0	%	$	1,331,901	100.0	%

	December 31, 2018																				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	$	719,551	99.0	%	$	467,864	99.2	%	$	67,504	99.9	%	$	8,416	100.0	%	$	1,263,335	99.1	%	$	719,551	99.0	%	$	467,864	99.2	%	$	67,504	99.9	%	$	8,416	100.0	%	$	1,263,335	99.1	%
Nonperforming	7,128		1.0	%	3,698		0.8	%	42		0.1	%	—		—	%	10,868		0.9	%	7,128		1.0	%	3,698		0.8	%	42		0.1	%	—		—	%	10,868		0.9	%
Total	$	726,679	100.0	%	$	471,562	100.0	%	$	67,546	100.0	%	$	8,416	100.0	%	$	1,274,203	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. 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 each TDR

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

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

The following 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						September 30, 2019						December 31, 2018
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With a related allowance recorded:
Commercial real estate	$	7,703	$	7,703	$	1,530	$	7,733	$	7,733	$	1,295	$	13,081	$	14,322	$	2,006	$	7,733	$	7,733	$	1,295
Commercial and industrial	834		761		204		884		893		360		—		—		—		884		893		360
Commercial construction	490		489		157		489		489		87		490		490		128		489		489		87
Consumer real estate	666		666		307		15		14		10		—		—		—		15		14		10
Other consumer	13		14		14		11		12		11		11		10		10		11		12		11
Total with a Related Allowance Recorded	9,706		9,633		2,212		9,132		9,141		1,763		13,582		14,822		2,144		9,132		9,141		1,763
Without a related allowance recorded:
Commercial real estate	21,592		24,894		—		3,636		4,046		—		38,368		42,784		—		3,636		4,046		—
Commercial and industrial	9,817		12,550		—		12,788		14,452		—		9,852		12,582		—		12,788		14,452		—
Commercial construction	2,318		3,828		—		15,286		19,198		—		2,318		3,828		—		15,286		19,198		—
Consumer real estate	7,863		8,415		—		8,659		9,635		—		8,418		9,309		—		8,659		9,635		—
Other consumer	3		9		—		5		18		—		2		9		—		5		18		—
Total without a Related Allowance Recorded	41,593		49,696		—		40,374		47,349		—		58,958		68,512		—		40,374		47,349		—
Total:
Commercial real estate	29,295		32,597		1,530		11,369		11,779		1,295		51,449		57,106		2,006		11,369		11,779		1,295
Commercial and industrial	10,651		13,311		204		13,672		15,345		360		9,852		12,582		—		13,672		15,345		360
Commercial construction	2,808		4,317		157		15,775		19,687		87		2,808		4,318		128		15,775		19,687		87
Consumer real estate	8,529		9,081		307		8,674		9,649		10		8,418		9,309		—		8,674		9,649		10
Other consumer	16		23		14		16		30		11		13		19		10		16		30		11
Total	$	51,299	$	59,329	$	2,212	$	49,506	$	56,490	$	1,763	$	72,540	$	83,334	$	2,144	$	49,506	$	56,490	$	1,763

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

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


	Three Months Ended								Three Months Ended
	June 30, 2019				June 30, 2018				September 30, 2019				September 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	$	7,703	$	—	$	—	$	—	$	14,255	$	—	$	—	$	—
Commercial and industrial	758		13		—		—		—		—		—		—
Commercial construction	489		—		—		—		490		—		496		—
Consumer real estate	666		—		—		—		—		—		15		—
Other consumer	16		—		38		1		11		—		17		1
Total with a Related Allowance Recorded	9,633		13		38		1		14,756		—		528		1
Without a related allowance recorded:
Commercial real estate	21,802		77		3,609		54		39,179		231		3,744		41
Commercial and industrial	7,568		131		8,060		210		8,008		116		14,412		73
Commercial construction	2,319		48		3,443		33		2,318		34		2,809		61
Consumer real estate	7,952		93		9,483		118		8,830		97		9,320		112
Other consumer	3		—		10		—		3		—		13		—
Total without a Related Allowance Recorded	39,643		349		24,605		415		58,338		478		30,298		287
Total:
Commercial real estate	29,505		77		3,609		54		53,434		231		3,744		41
Commercial and industrial	8,326		144		8,060		210		8,008		116		14,412		73
Commercial construction	2,808		48		3,443		33		2,808		34		3,305		61
Consumer real estate	8,618		93		9,483		118		8,830		97		9,335		112
Other consumer	19		—		48		1		14		—		30		1
Total	$	49,276	$	362	$	24,643	$	416	$	73,094	$	478	$	30,826	$	288

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued


	Six Months Ended								Nine months ended
	June 30, 2019				June 30, 2018				September 30, 2019				September 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	$	—	$	—	$	—	$	14,348	$	—	$	—	$	—
Commercial and industrial	772		26		—		—		—		—		—		—
Commercial construction	489		—		—		—		490		—		585		—
Consumer real estate	666		—		—		—		—		—		16		1
Other consumer	18		1		40		2		13		1		21		1
Total with a Related Allowance Recorded	9,649		27		40		2		14,851		1		622		2
Without a related allowance recorded:
Commercial real estate	22,093		124		3,712		85		39,788		712		3,895		126
Commercial and industrial	5,329		189		7,796		218		6,644		308		11,567		232
Commercial construction	2,319		83		3,445		73		2,318		117		2,813		134
Consumer real estate	7,979		188		10,128		253		8,993		297		10,031		370
Other consumer	4		—		11		—		4		—		15		—
Total without a Related Allowance Recorded	37,723		584		25,092		629		57,747		1,434		28,321		862
Total:
Commercial real estate	29,797		124		3,712		85		54,136		712		3,895		126
Commercial and industrial	6,101		215		7,796		218		6,644		308		11,567		232
Commercial construction	2,808		83		3,445		73		2,808		117		3,398		134
Consumer real estate	8,645		188		10,128		253		8,993		297		10,047		371
Other consumer	22		1		51		2		17		1		36		1
Total	$	47,373	$	611	$	25,132	$	631	$	72,598	$	1,435	$	28,943	$	864

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

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


	Three Months Ended June 30, 2019																		Three Months Ended September 30, 2019
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans			Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	34,903		$	11,996		$	6,757		$	6,178		$	1,575		$	61,409		$	32,836		$	13,227		$	7,254		$	6,571		$	1,591		$	61,479
Charge-offs	(528		)	(1,435		)	—			(247		)	(457		)	(2,667		)	(2,304		)	(1,467		)	—			(404		)	(525		)	(4,700		)
Recoveries	6			91			2			344			89			532			6			210			1			102			104			423
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		)
Net (Charge-offs)/Recoveries																			(2,298		)	(1,257		)	1			(302		)	(421		)	(4,277		)
Provision for loan losses	321			7,432			1,275			6			311			9,345			1,292			2,397			620			65			539			4,913
Balance at End of Period	$	31,232		$	10,874		$	11,676		$	5,241		$	1,494		$	60,517		$	31,831		$	14,366		$	7,875		$	6,334		$	1,709		$	62,115


	Six Months Ended June 30, 2019																		Three Months Ended September 30, 2018
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans			Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	33,707		$	11,596		$	7,983		$	6,187		$	1,523		$	60,996		$	31,232		$	10,874		$	11,676		$	5,241		$	1,494		$	60,517
Charge-offs	(529		)	(6,912		)	—			(410		)	(840		)	(8,691		)	(141		)	(181		)	—			(487		)	(425		)	(1,234		)
Recoveries	128			508			3			492			189			1,320			64			504			4			70			169			811
Net (Charge-offs)/Recoveries	(401		)	(6,404		)	3			82			(651		)	(7,371		)	(77		)	323			4			(417		)	(256		)	(423		)
Provision for loan losses	(470		)	8,035			(732		)	302			719			7,854			1,735			(971		)	(765		)	214			249			462
Balance at End of Period	$	32,836		$	13,227		$	7,254		$	6,571		$	1,591		$	61,479		$	32,890		$	10,226		$	10,915		$	5,038		$	1,487		$	60,556


	Six Months Ended June 30, 2018																		Nine Months Ended September 30, 2019
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans			Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	27,235		$	8,966		$	13,167		$	5,479		$	1,543		$	56,390		$	33,707		$	11,596		$	7,983		$	6,187		$	1,523		$	60,996
Charge-offs	(232		)	(8,222		)	(321		)	(429		)	(872		)	(10,076		)	(2,833		)	(8,379		)	—			(815		)	(1,364		)	(13,391		)
Recoveries	228			480			1,130			323			225			2,386			134			718			4			595			292			1,743
Net Charge-offs	(4		)	(7,742		)	809			(106		)	(647		)	(7,690		)
Net (Charge-offs)/Recoveries																			(2,699		)	(7,661		)	4			(220		)	(1,072		)	(11,648		)
Provision for loan losses	4,001			9,650			(2,300		)	(132		)	598			11,817			823			10,431			(112		)	367			1,258			12,767
Balance at End of Period	$	31,232		$	10,874		$	11,676		$	5,241		$	1,494		$	60,517		$	31,831		$	14,366		$	7,875		$	6,334		$	1,709		$	62,115


																			Nine Months Ended September 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																			(373		)	(8,403		)	(321		)	(916		)	(1,298		)	(11,311		)
Recoveries																			293			985			1,134			393			393			3,198
Net (Charge-offs)/Recoveries																			(80		)	(7,418		)	813			(523		)	(905		)	(8,113		)
Provision for loan losses																			5,735			8,678			(3,065		)	82			849			12,279
Balance at End of Period																			$	32,890		$	10,226		$	10,915		$	5,038		$	1,487		$	60,556

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

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


	June 30, 2019												September 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	$	1,530	$	31,306	$	32,836	$	29,295	$	2,877,600	$	2,906,895	$	2,006	$	29,825	$	31,831	$	51,449	$	2,870,748	$	2,922,197
Commercial and industrial	204		13,023		13,227		10,651		1,549,076		1,559,727		—		14,366		14,366		9,852		1,617,002		1,626,854
Commercial construction	157		7,097		7,254		2,808		264,395		267,203		128		7,747		7,875		2,808		312,005		314,813
Consumer real estate	307		6,264		6,571		8,529		1,218,805		1,227,334		—		6,334		6,334		8,418		1,249,023		1,257,441
Other consumer	14		1,577		1,591		16		72,025		72,041		10		1,699		1,709		13		74,447		74,460
Total	$	2,212	$	59,267	$	61,479	$	51,299	$	5,981,901	$	6,033,200	$	2,144	$	59,971	$	62,115	$	72,540	$	6,123,225	$	6,195,765

	December 31, 2018												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	$	1,295	$	32,412	$	33,707	$	11,369	$	2,910,463	$	2,921,832	$	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		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		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		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		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	$	1,763	$	59,233	$	60,996	$	49,506	$	5,897,142	$	5,946,648

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

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 4445 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 4243 operating leases and ~~two~~2 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~~September 30, 2019 and for the periods presented:


	June 30, 2019							September 30, 2019
(in thousands, except weighted-averages)	Three months ended			Six months ended				Three Months Ended			Nine Months Ended
Operating lease expense		$	1,034		$	2,066			$	995		$	3,061
Amortization of ROU assets - finance leases		23			45				23			68
Interest on lease liabilities - finance leases ⁽¹⁾		18			36				18			54
Total Lease Expense		$	1,075		$	2,147			$	1,036		$	3,183
Operating Leases
ROU assets					$	36,417						$	37,534
Operating cash flows					$	662						$	931
Finance Leases
ROU assets					$	1,191						$	1,168
Operating cash flows					$	36						$	55
Financing cash flows					$	22						$	34
Weighted Average Lease Term - Years
Operating leases					20.14							19.94
Finance leases					15.34							15.16
Weighted Average Discount Rate
Operating leases					6.15		%					6.13		%
Finance leases					5.98		%					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.

⁽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



(dollars in thousands)
Maturity Analysis	Finance			Operating				Total
2019	$	125			$	3,726		$	3,851
2020	126				3,681			3,807
2021	127				3,759			3,886
2022	128				3,836			3,964
2023	130				3,872			4,002
Thereafter	1,309				59,170			60,479
Total	$	1,945			$	78,044		$	79,989
Less: Present value discount	(716		)		(35,800		)	(36,516		)
Lease Liabilities	$	1,229			$	42,244		$	43,473

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 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, 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.

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued

The following 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)					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			September 30, 2019			December 31, 2018			September 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		$	32,825		$	5,504		$	32,772		$	5,340
Notional amount		449,576			325,750			449,576			325,750			547,151			325,750			547,151			325,750
Collateral received/posted		—			160			21,556			—			—			160			32,208			—
Interest Rate Lock Commitments - Mortgage Loans
Fair value		649			251			—			—			455			251			—			—
Notional amount		15,104			6,054			—			—			16,788			6,054			—			—
Forward Sale Contracts - Mortgage Loans
Fair value		—			55			105			—			64			55			—			—
Notional amount		$	—		$	6,000		$	15,404		$	—		$	24,750		$	6,000		$	—		$	—

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 we are permitted to offset the asset position and the liability position resulting in a net presentation.

The following 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, 2019				December 31, 2018				June 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018
Derivatives not Designated as Hedging Instruments:
Gross amounts recognized		$	22,810			$	8,733			$	22,742			$	8,569			$	32,827			$	8,733			$	32,774			$	8,569
Gross amounts offset		(122		)		(3,229		)		(122		)		(3,229		)		(2		)		(3,229		)		(2		)		(3,229		)
Net Amounts Presented in the Consolidated Balance Sheets		22,688				5,504				22,620				5,340				32,825				5,504				32,772				5,340
Gross amounts not offset⁽¹⁾		—				(160		)		(21,556		)		—				—				(160		)		(32,208		)		—
Net Amount		$	22,688			$	5,344			$	1,064			$	5,340			$	32,825			$	5,344			$	564			$	5,340

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

The following 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,								Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2019				2018				2019				2018				2019				2018				2019				2018
Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans		$	26			$	(201	)		$	(96	)		$	(85	)		$	(16	)		$	31			$	(112	)		$	(55	)
Interest rate lock commitments—mortgage loans		310				128				398				172				(194		)		(169		)		204				3
Forward sale contracts—mortgage loans		(193		)		(15		)		(160		)		(33		)		169				99				9				66
Total Derivatives Gain/(Loss)		$	143			$	(88	)		$	142			$	54			$	(41	)		$	(39	)		$	101			$	14

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 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 FHLB advances. All REPOs are overnight short-term investments and are not insured by the Federal Deposit Insurance 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 secured borrowings. Mortgage-backed securities with amortized cost of ~~$16.5~~$14.6 million and carrying value of ~~$16.7~~$15.0 million at ~~June~~September 30, 2019 and amortized cost of $24.2 million and carrying value of $23.9 million at December 31, 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, ~~two capital~~2 finance 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 ~~$5.5~~$4.8 million at a fixed rate and $63.1 million at a variable rate at ~~June~~September 30, 2019, excluding our ~~capital~~finance leases.

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


	June 30, 2019						December 31, 2018						September 30, 2019						December 31, 2018
(dollars in thousands)	Balance			Weighted Average Rate			Balance			Weighted Average Rate			Balance			Weighted Average Rate			Balance			Weighted Average Rate
Short-term Borrowings
Securities sold under repurchase agreements		$	14,154		0.74	%		$	18,383		0.46	%		$	13,925		0.74	%		$	18,383		0.46	%
Short-term borrowings		295,000			2.50	%		470,000			2.65	%		370,000			2.18	%		470,000			2.65	%
Total Short-term Borrowings		309,154			2.42	%		488,383			2.57	%		383,925			2.13	%		488,383			2.57	%
Long-term Borrowings
Long-term borrowings		69,791			2.73	%		70,314			2.84	%		69,156			2.53	%		70,314			2.84	%
Junior subordinated debt securities		45,619			4.87	%		45,619			5.25	%		45,619			4.58	%		45,619			5.25	%
Total Long-term Borrowings		115,410			3.58	%		115,933			3.79	%		114,775			3.34	%		115,933			3.79	%
Total Borrowings		$	424,564		2.74	%		$	604,316		2.80	%		$	498,700		2.41	%		$	604,316		2.80	%

We had total borrowings at the FHLB of Pittsburgh of ~~$363.6~~$437.9 million at ~~June~~September 30, 2019 and $540.3 million at December 31, 2018. The ~~$363.6~~$437.9 million at ~~June~~September 30, 2019 consisted of ~~$295.0~~$370.0 million in short-term borrowings and ~~$68.6~~$67.9 million in long-term borrowings. Our maximum borrowing capacity with the FHLB of Pittsburgh was $2.6 billion at ~~June~~September 30, 2019. We utilized ~~$545.5~~$621.9 million of our borrowing capacity at ~~June~~September 30, 2019 consisting of ~~$363.6~~$437.9 million for borrowings and ~~$181.9~~$184.0 million for letters of credit to collateralize public funds. Our remaining borrowing availability at ~~June~~September 30, 2019 is ~~$2.1~~$2.0 billion.

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 10. COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event 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.

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			September 30, 2019			December 31, 2018
Commitments to extend credit		$	1,561,464		$	1,464,892		$	1,653,465		$	1,464,892
Standby letters of credit		74,270			77,134			75,054			77,134
Total		$	1,635,734		$	1,542,026		$	1,728,519		$	1,542,026

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.

Table of Contents

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,					Three Months Ended September 30,				Nine Months Ended September 30,
Revenue Streams	Point of Revenue Recognition	2019		2018		2019		2018		Point of Revenue Recognition	2019		2018		2019		2018
Service charges on deposit accounts	Over a period of time	$	451	$	453	$	908	$	987	Over a period of time	$	473	$	312	$	1,381	$	1,244
	At a point in time	2,761		2,774		5,457		5,481		At a point in time	2,939		3,039		8,396		8,520
		$	3,212	$	3,227	$	6,365	$	6,468		$	3,412	$	3,351	$	9,777	$	9,765

Debit and credit card	Over a period time	$	177	$	151	$	362	$	339	Over a period of time	$	180	$	158	$	542	$	496
	At a point in time	3,324		3,158		6,114		6,008		At a point in time	3,295		2,983		9,409		8,991
		$	3,501	$	3,309	$	6,476	$	6,347		$	3,475	$	3,141	$	9,951	$	9,487

Wealth management	Over a period of time	$	409	$	793	$	822	$	1,596	Over a period of time	$	1,703	$	1,815	$	4,991	$	5,517
	At a point in time	1,653		1,823		3,288		3,702		At a point in time	398		669		1,219		2,265
		$	2,062	$	2,616	$	4,109	$	5,298		$	2,101	$	2,483	$	6,210	$	7,782

Other fee revenue	At a point in time	$	1,145	$	887	$	2,064	$	1,754	At a point in time	$	864	$	1,000	$	2,928	$	2,862

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 12. OTHER COMPREHENSIVE INCOME/(LOSS)

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


	Three Months Ended June 30, 2019										Three Months Ended June 30, 2018												Three Months Ended September 30, 2019										Three Months Ended September 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				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	)		$	2,350		$	(501	)		$	1,849		$	(3,521	)		$	748			$	(2,773	)
Adjustment to funded status of employee benefit plans		452			(96		)		356			702				(149		)		553				454			(97		)		357			590				(125		)		465
Other Comprehensive Income/(Loss)		$	9,420		$	(2,008	)		$	7,412		$	(1,594	)		$	338			$	(1,256	)		$	2,804		$	(598	)		$	2,206		$	(2,931	)		$	623			$	(2,308	)

	Six Months Ended June 30, 2019										Six Months Ended June 30, 2018												Nine Months Ended September 30, 2019										Nine Months Ended September 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				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	)
Change in net unrealized gains/(losses) on debt securities available-for-sale ⁽¹⁾																								$	18,716		$	(3,991	)		$	14,725		$	(15,291	)		$	3,247			$	(12,044	)
Adjustment to funded status of employee benefit plans		905			(193		)		712			1,323				(281		)		1,042				1,359			(290		)		1,069			1,913				(406		)		1,507
Other Comprehensive (Loss)/Income		$	17,271		$	(3,683	)		$	13,588		$	(10,447	)		$	2,218			$	(8,229	)
Other Comprehensive Income/(Loss)																								$	20,075		$	(4,281	)		$	15,794		$	(13,378	)		$	2,841			$	(10,537	)
⁽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.	⁽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.																						⁽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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 13. EMPLOYEE BENEFITS

Our qualified and nonqualified defined benefit plans were amended to freeze benefit accruals for all persons entitled to benefits under the 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 plans, as well as income from expected investment returns on pension assets. Since the plans have been frozen, no0 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 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,								Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2019				2018				2019				2018				2019				2018				2019				2018
Components of Net Periodic Pension Cost
Interest cost on projected benefit obligation		$	989			$	967			$	1,978			$	1,934			$	989			$	978			$	2,967			$	2,912
Expected return on plan assets		(1,181		)		(1,567		)		(2,361		)		(3,134		)		(1,181		)		(1,566		)		(3,541		)		(4,700		)
Net amortization		395				545				789				1,089				395				512				1,184				1,601
Net Periodic Pension Expense		$	203			$	(55	)		$	406			$	(111	)		$	203			$	(76	)		$	610			$	(187	)

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

NOTE 14. QUALIFIED AFFORDABLE HOUSING AND HISTORIC REHABILITATION PROJECTS

As part of our responsibilities under the Community Reinvestment Act 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 ~~$4.6~~$5.0 million at ~~June~~September 30, 2019 and $6.0 million at December 31, 2018. Amortization expense, included in other noninterest expense in the Consolidated Statements of Comprehensive Income, was $0.7 million and ~~$1.4~~$2.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and ~~June~~September 30, 2018. The amortization expense was offset by tax credits of $0.7 million and ~~$1.5~~$2.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and $0.8 million and ~~$1.5~~$2.3 million for the three and ~~six~~nine months ended ~~June~~September 30, 2018 as a reduction to our federal tax provision.

Our total investment in historic rehabilitation was $1.1 million at September 30, 2019 and $0.3 million at ~~June 30, 2019 and~~ December 31, 2018. Federal tax credits of ~~$0.2~~$0.3 million and ~~$0.5~~$0.9 million were recognized as a reduction to our federal tax provision for the three and ~~six~~nine months ended ~~June~~September 30, 2019. NoNaN federal historic rehabilitation tax credits were earned in 2018.

NOTE 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 16. SHARE REPURCHASE PLAN

On March 19, 2018, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which iswas effective through August 31, 2019, ~~permits~~permitted 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. During the three months ended September 30, 2019, we repurchased 84,868 common shares at a total cost of $3.1 million, or an average of $36.52 per share. For the nine months ended September 30, 2019, we repurchased 470,708 common shares under this plan at a total cost of $18.2 million, or an average of $38.71 per share. Under the March 19, 2018 plan, we repurchased 792,439 common shares at a total cost of $30.5 million, or an average of $38.46 per share.

On September 16, 2019, our Board of Directors authorized a new $50 million share repurchase plan. This new repurchase authorization, which is effective through March 31, 2021, permits S&T to repurchase from time to time up to $50 million in aggregate value of shares of S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at ~~our~~the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of ~~the~~ common stock, legal and contractual requirements, applicable securities laws and ~~our~~S&T's 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. ~~During the three months ended June 30, 2019, we repurchased 71,936~~Since its approval, 0 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, 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 behave been repurchased under ~~this plan through August 31, 2019.~~the new share repurchase plan.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations at and for the three and ~~six~~nine month periods ended ~~June~~September 30, 2019 and 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 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; the possibility that the merger transaction with DNB 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 merger parties are unable to implement successful integration strategies; reputational risks and the reaction of the parties' customers to the merger transaction; diversion of management time to merger-related issues; 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, 2018, including Part I, Item 1A-"Risk Factors" and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

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~~September 30, 2019 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2018 under Part II, Item ~~7-“Management’s~~7 - “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations”.

Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of ~~$7.3~~$7.6 billion at ~~June~~September 30, 2019. We operate in five markets including Western Pennsylvania, Central Pennsylvania, Northeast Ohio, Central 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~~Each of our five markets ~~are~~is in a different ~~stages~~stage of development and ~~that~~ our market based strategy ~~will allow~~allows 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, trust and financial services and insurance products. Our common stock trades on the NASDAQ Global Select Market under the symbol ~~“STBA.”~~“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. 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,~~June 30, 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. DNB shareholders approved the merger at a Special Meeting of Shareholders on September 25, 2019. All required bank regulatory approvals have been received for the merger. The transaction is expected to ~~close in~~be effective on or about November 30, 2019 and remains subject to the ~~fourth quarter~~satisfaction or waiver of ~~2019 after satisfaction of~~other customary closing ~~conditions, including regulatory approvals and approval of the shareholders of DNB.~~conditions.

Our focus continues to be on organic loan and deposit growth and implementing opportunities to increase fee income while closely 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.

Earnings Summary

Net income ~~increased $4.7~~decreased $3.9 million, or ~~21.8~~12.8 percent, for the three months ended ~~June~~September 30, 2019 and ~~increased $1.4~~decreased $2.5 million, or ~~3.0~~3.2 percent, for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. Net income for the three and ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$26.1~~$26.9 million and ~~$49.0~~$76.0 million, or ~~$0.76~~$0.79 and ~~$1.43~~$2.21 diluted earnings per share, as compared to ~~$21.4~~$30.9 million and ~~$47.6~~$78.5 million, or ~~$0.61~~$0.88 and ~~$1.36~~$2.24 diluted earnings per share for the same periods in 2018.

The ~~increase~~decrease in net income for the three month period ended ~~June~~September 30, 2019 of $4.7 million was primarily due to a decrease in the provision for loan losses of $7.1 million and an increase in net interest income of $2.4 million offset by an increase in noninterest expense of $4.5 million and an increase of $1.1 million in the provision for income taxes. The increase in net income for the six month period ended June 30, 2019 of $1.4$3.9 million was primarily due to an increase in ~~net interest income of $5.9 million, a decrease in~~ the provision for loan losses of ~~$3.9~~$4.4 million, increases in noninterest expense of $0.6 million and ~~a decrease of $0.7 million~~$1.8 in the provision for income taxes offset by ~~a decrease noninterest income of $1.8 million and an increase of $7.3 million~~increases in ~~noninterest expense.~~

~~Net interest income increased $2.4 million and $5.9 million to $60.8 million and $121.2 million for the three and six months ended June 30, 2019 compared to~~ net interest income of ~~$58.4~~$1.9 million and ~~$115.3 million~~noninterest income of $1.0 million. The decrease in net income for the ~~same periods~~nine month period ended September 30, 2019 of $2.5 million was primarily due to increases in ~~2018. Average interest-earning assets increased $178.6~~noninterest expense of $7.9 million, the provision for income taxes of $1.1 million and ~~$175.5~~the provision for loan losses of $0.5 million ~~for the three~~ and ~~six months ended June 30, 2019~~a decrease in noninterest income of $0.8 million offset by an increase in net interest income of $7.8 million.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

Net interest income increased $1.9 million and $7.8 million to $61.2 million and $182.4 million for the three and nine months ended September 30, 2019 compared to net interest income of $59.3 million and $174.6 million for the same periods in 2018. Average interest-earning assets increased $304.1 million and $218.8 million for the three and nine months ended September 30, 2019 compared to the same periods in 2018. Average interest-bearing liabilities increased ~~$42.6~~$187.6 million and ~~$42.2~~$91.2 for the three and ~~six~~nine months ended ~~June~~September 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~~decreased five basis points to ~~3.68 percent and 3.70~~3.62 percent in the three month period and ~~six months~~increased four basis points to 3.67 percent in the nine month period ended ~~June~~September 30, 2019 compared to ~~3.64~~3.67 percent and ~~3.61~~3.63 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.~~ Net interest margin is reconciled to net interest income adjusted to an FTE basis in the "Results of Operations - Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 Compared to Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2018 - Net Interest Income" section of this MD&A.

The provision for loan losses ~~decreased $7.1~~increased $4.4 million and ~~$3.9~~$0.5 million to ~~$2.2~~$4.9 million and ~~$7.9~~$12.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~$9.3~~$0.5 million and ~~$11.8~~$12.3 million for the same periods in 2018. The ~~decrease~~increase in the provision for loan losses was mainly due to an increase in impaired loans resulting in higher net charge-offs and specific reserves for both ~~periods mainly related~~periods. Impaired loans increased $41.8 million to ~~a decrease~~$72.5 million at September 30, 2019 compared to $30.7 million at September 30, 2018 and specific reserves on impaired loans increased $1.8 million compared to the same period in ~~loan charge-offs.~~the prior year. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, we had net charges-offs of ~~$2.1~~$4.3 million and ~~$7.4~~$11.6 million compared to ~~$7.9~~$0.4 million and ~~$7.7~~$8.1 million for the same periods in 2018. Annualized net loan charge-offs to average loans ~~was 0.14~~increased to 0.28 percent and ~~0.25~~0.26 percent for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~0.55~~0.03 percent and ~~0.27~~0.19 percent for the same periods in 2018. ~~Impaired~~Nonperforming loans increased ~~$17.5~~$29.3 million to ~~$51.3~~$50.0 million at ~~June~~September 30, 2019 compared to ~~$33.8~~$20.7 million at ~~June 30, 2018 and specific reserves on impaired loans increased $2.2 million compared to the same period in the prior year.Nonperforming loans increased $23.6 million to $45.0 million at June 30, 2019 compared to $21.4 million at June~~September 30, 2018.

Noninterest income increased ~~$0.7~~$1.0 million to ~~$12.9~~$13.1 million for the three months ended ~~June~~September 30, 2019 and decreased ~~$1.8~~$0.8 million to ~~$24.3~~$37.3 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. ~~The decrease~~Other income increased $1.1 million and $2.6 million for the ~~six~~three and nine months ~~ending June~~ended September 30, 2019 ~~was partially~~primarily related to higher commercial loan swap fees of $1.5 million for the three months ended and $3.1 million for the nine months ended September 30, 2019 due to an increase in customer demand for this product compared to the same periods in 2018. Offsetting this increase for the nine months ended September 30, 2019 was 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~~Further, wealth management fees decreased ~~$0.6~~$0.4 million for the three months ended and ~~$1.2~~$1.6 million for the ~~six~~nine months ended ~~June~~September 30, 2019 due to a decline in financial service revenue and 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.

~~The provision for income taxes increased $1.1~~$1.4 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~~and $2.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018 ~~primarily~~related to Small Bank Assessment Credits that were received by all banking institutions with assets of less than $10 billion and improvements in the financial ratios used to determine the assessment.

The provision for income taxes increased $1.8 million for the three months ended September 30, 2019 and $1.1 million for the nine months ended September 30, 2019 compared to the same periods in 2018. The increase was mainly due to ~~non-recurring discrete items~~a tax benefit in the third quarter of ~~$0.9 million~~2018 related to ~~the sale of~~ a ~~majority interest of~~$20.4 million contribution to our ~~insurance business in the first quarter of 2018.~~defined benefit plan. Our effective tax rate increased to ~~16.3~~15.0 percent and 15.6 percent for the three month ~~period~~and nine month periods ended ~~June 30, 2019 and decreased to 15.9 percent for the six month period ended June~~September 30, 2019 compared to ~~15.8~~8.5 percent and ~~17.4~~14.1 percent for the same periods in 2018.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

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 are non-GAAP financial measures. Management believes 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 they facilitate comparisons with the performance of other companies in the financial services industry. Although management believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered alternatives to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor 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 on an FTE basis and net interest margin adjusted on an FTE basis in the "Results of Operations - Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 Compared to Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2018 - Net Interest Income" section of this MD&A.

~~Table of Contents~~

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

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

RESULTS OF OPERATIONS

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

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 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 for 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 September 30,								Nine Months Ended September 30,
(dollars in thousands)	2019				2018				2019				2018				2019				2018				2019				2018
Total interest income		$	79,624			$	71,581			$	158,214			$	139,610			$	79,813			$	73,627			$	238,028			$	213,237
Total interest expense		18,797				13,178				37,031				24,276				18,617				14,365				55,649				38,641
Net Interest Income per Consolidated Statements of Comprehensive Income		60,827				58,403				121,183				115,334				61,196				59,262				182,379				174,596
Adjustment to FTE basis		958				938				1,919				1,878				935				951				2,854				2,830
Net Interest Income on an FTE Basis (Non-GAAP)		$	61,785			$	59,341			$	123,102			$	117,212			$	62,131			$	60,213			$	185,233			$	177,426
Net interest margin		3.63		%		3.58		%		3.64		%		3.56		%		3.57		%		3.62		%		3.61		%		3.58		%
Adjustment to FTE basis		0.05		%		0.06		%		0.06		%		0.05		%		0.05		%		0.05		%		0.06		%		0.05		%
Net Interest Margin on an FTE Basis (Non-GAAP)		3.68		%		3.64		%		3.70		%		3.61		%		3.62		%		3.67		%		3.67		%		3.63		%

Income amounts are annualized for rate calculations.

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

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

Average Balance Sheet and Net Interest Income Analysis (FTE)

The following 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, 2019							Three Months Ended June 30, 2018							Three Months Ended September 30, 2019							Three Months Ended September 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	$	49,949		$	274	2.19	%	$	55,015		$	221	1.60	%	$	53,725		$	311	2.32	%	$	57,012		$	303	2.13	%
Securities, at fair value⁽²⁾⁽³⁾	673,117			4,482		2.66	%	685,132			4,450		2.60	%	661,752			4,287		2.59	%	680,464			4,479		2.63	%
Loans held for sale	1,452			16		4.44	%	1,528			28		7.43	%	2,712			27		3.98	%	1,571			18		4.71	%
Commercial real estate	2,895,146			36,158		5.01	%	2,774,882			32,617		4.71	%	2,922,767			35,993		4.89	%	2,779,019			33,668		4.81	%
Commercial and industrial	1,559,222			20,087		5.17	%	1,431,861			16,627		4.66	%	1,566,369			19,994		5.06	%	1,432,936			17,298		4.79	%
Commercial construction	242,192			3,242		5.37	%	324,934			3,857		4.76	%	282,175			3,653		5.14	%	291,512			3,734		5.08	%
Total Commercial Loans	4,696,560			59,487		5.08	%	4,531,677			53,101		4.70	%	4,771,311			59,640		4.96	%	4,503,467			54,700		4.82	%
Residential mortgage	734,372			8,253		4.50	%	691,634			7,314		4.23	%	753,649			8,339		4.41	%	696,267			7,517		4.30	%
Home equity	463,480			6,267		5.42	%	472,927			5,676		4.81	%	469,567			6,345		5.36	%	472,466			5,877		4.94	%
Installment and other consumer	71,319			1,286		7.23	%	67,186			1,138		6.79	%	72,606			1,299		7.10	%	66,693			1,162		6.92	%
Consumer construction	11,014			149		5.41	%	4,570			54		4.76	%	11,056			150		5.39	%	5,846			74		5.04	%
Total Consumer Loans	1,280,185			15,955		4.99	%	1,236,317			14,182		4.60	%	1,306,878			16,133		4.91	%	1,241,272			14,630		4.69	%
Total Portfolio Loans	5,976,745			75,442		5.06	%	5,767,994			67,283		4.68	%	6,078,189			75,773		4.95	%	5,744,739			69,330		4.79	%
Total Loans⁽¹⁾⁽²⁾	5,978,197			75,458		5.06	%	5,769,522			67,311		4.68	%	6,080,901			75,800		4.95	%	5,746,310			69,348		4.79	%
Federal Home Loan Bank and other restricted stock	21,141			368		6.97	%	34,130			537		6.30	%	19,981			350		7.00	%	28,512			448		6.28	%
Total Interest-earning Assets	6,722,404			80,582		4.81	%	6,543,799			72,519		4.44	%	6,816,359			80,748		4.70	%	6,512,298			74,578		4.55	%
Noninterest-earning assets	523,636							491,246							538,514							496,268
Total Assets	$	7,246,040						$	7,035,045						$	7,354,873						$	7,008,566
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	550,200		631		0.46	%	$	571,260		437		0.31	%	$	655,735		$	1,195	0.72	%	$	566,579		$	514	0.36	%
Money market	1,695,349			8,169		1.93	%	1,251,171			4,027		1.29	%	1,709,248			7,880		1.83	%	1,330,489			4,932		1.47	%
Savings	760,743			484		0.26	%	851,702			429		0.20	%	749,287			449		0.24	%	823,215			424		0.20	%
Certificates of deposit	1,389,968			6,771		1.95	%	1,295,473			4,273		1.32	%	1,345,474			6,683		1.97	%	1,310,526			5,001		1.51	%
Total Interest-bearing Deposits	4,396,260			16,055		1.46	%	3,969,606			9,166		0.93	%	4,459,744			16,207		1.44	%	4,030,809			10,871		1.07	%
Securities sold under repurchase agreements	16,337			28		0.69	%	48,980			50		0.41	%	14,030			26		0.73	%	42,183			55		0.52	%
Short-term borrowings	242,759			1,642		2.71	%	617,891			3,179		2.06	%	218,799			1,362		2.47	%	455,689			2,616		2.28	%
Long-term borrowings	70,049			500		2.86	%	46,317			259		2.24	%	69,421			468		2.68	%	45,699			272		2.36	%
Junior subordinated debt securities	45,619			572		5.03	%	45,619			525		4.61	%	45,619			554		4.82	%	45,619			551		4.79	%
Total Borrowings	374,764			2,742		2.94	%	758,807			4,012		2.12	%	347,869			2,410		2.75	%	589,190			3,494		2.35	%
Total Interest-bearing Liabilities	4,771,024			18,797		1.58	%	4,728,413			13,178		1.12	%	4,807,613			18,617		1.54	%	4,619,999			14,365		1.23	%
Noninterest-bearing liabilities	1,523,676							1,403,771							1,573,549							1,475,059
Shareholders’ equity	951,340							902,861							973,711							913,508
Total Liabilities and Shareholders’ Equity	$	7,246,040						$	7,035,045						$	7,354,873						$	7,008,566
Net Interest Income ⁽²⁾⁽³⁾				$	61,785						$	59,341						$	62,131						$	60,213
Net Interest Margin ⁽²⁾⁽³⁾						3.68	%						3.64	%						3.62	%						3.67	%

⁽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 2019 and 2018.

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

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

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


	Six Months Ended June 30, 2019							Six Months Ended June 30, 2018							Nine Months Ended September 30, 2019							Nine Months Ended September 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	$	51,758		$	626	2.42	%	$	55,509		$	451	1.63	%	$	52,421		$	937	2.38	%	$	56,015		$	754	1.80	%
Securities, at fair value⁽²⁾⁽³⁾	676,797			9,039		2.67	%	686,017			8,803		2.57	%	671,727			13,327		2.65	%	684,146			13,282		2.59	%
Loans held for sale	1,175			25		4.29	%	1,737			56		6.44	%	1,693			52		4.11	%	1,681			74		5.90	%
Commercial real estate	2,900,181			72,122		5.01	%	2,733,168			62,924		4.64	%	2,907,792			108,115		4.97	%	2,748,620			96,592		4.70	%
Commercial and industrial	1,534,080			39,420		5.18	%	1,431,725			32,187		4.53	%	1,544,962			59,414		5.14	%	1,432,133			49,485		4.62	%
Commercial construction	246,073			6,554		5.37	%	349,893			8,032		4.63	%	258,239			10,207		5.28	%	330,219			11,767		4.76	%
Total Commercial Loans	4,680,334			118,096		5.09	%	4,514,786			103,143		4.61	%	4,710,993			177,736		5.04	%	4,510,972			157,844		4.68	%
Residential mortgage	728,495			16,123		4.44	%	692,961			14,554		4.21	%	736,972			24,462		4.43	%	694,075			22,071		4.24	%
Home equity	465,598			12,536		5.43	%	476,967			10,975		4.64	%	466,936			18,880		5.41	%	475,450			16,852		4.74	%
Installment and other consumer	70,215			2,508		7.20	%	67,025			2,241		6.74	%	71,021			3,807		7.17	%	66,913			3,404		6.80	%
Consumer construction	10,244			293		5.77	%	4,192			98		4.73	%	10,517			443		5.63	%	4,749			173		4.86	%
Total Consumer Loans	1,274,552			31,460		4.96	%	1,241,145			27,868		4.52	%	1,285,446			47,592		4.95	%	1,241,187			42,500		4.57	%
Total Portfolio Loans	5,954,886			149,556		5.06	%	5,755,931			131,011		4.59	%	5,996,439			225,328		5.02	%	5,752,159			200,344		4.66	%
Total Loans⁽¹⁾⁽²⁾	5,956,061			149,581		5.06	%	5,757,668			131,067		4.59	%	5,998,132			225,380		5.02	%	5,753,840			200,418		4.66	%
Federal Home Loan Bank and other restricted stock	22,797			887		7.79	%	32,681			1,167		7.13	%	21,848			1,237		7.55	%	31,277			1,613		6.88	%
Total Interest-earning Assets	6,707,413			160,133		4.81	%	6,531,875			141,488		4.36	%	6,744,128			240,881		4.77	%	6,525,278			216,067		4.43	%
Noninterest-earning assets	521,082							490,476							526,788							492,428
Total Assets	$	7,228,495						$	7,022,351						$	7,270,916						$	7,017,706
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	547,960		1,183		0.44	%	$	573,307		806		0.28	%	$	584,280		$	2,378	0.54	%	$	571,040		$	1,320	0.31	%
Money market	1,632,234			15,461		1.91	%	1,222,770			7,259		1.20	%	1,658,187			23,341		1.88	%	1,259,071			12,191		1.29	%
Savings	765,638			957		0.25	%	862,947			866		0.20	%	760,128			1,406		0.25	%	849,558			1,289		0.20	%
Certificates of deposit	1,412,117			13,435		1.92	%	1,325,379			8,081		1.23	%	1,389,658			20,118		1.94	%	1,320,374			13,083		1.32	%
Total Interest-bearing Deposits	4,357,949			31,036		1.44	%	3,984,403			17,012		0.86	%	4,392,253			47,243		1.44	%	4,000,043			27,883		0.93	%
Securities sold under repurchase agreements	19,735			57		0.59	%	48,380			96		0.40	%	17,812			83		0.63	%	46,292			151		0.44	%
Short-term borrowings	280,862			3,787		2.72	%	607,013			5,687		1.89	%	259,947			5,149		2.65	%	556,017			8,304		2.00	%
Long-term borrowings	70,122			993		2.85	%	46,626			490		2.12	%	69,886			1,461		2.79	%	46,313			762		2.20	%
Junior subordinated debt securities	45,619			1,158		5.12	%	45,619			991		4.38	%	45,619			1,712		5.02	%	45,619			1,541		4.52	%
Total Borrowings	416,338			5,995		2.90	%	747,638			7,264		1.96	%	393,264			8,405		2.86	%	694,241			10,758		2.07	%
Total Interest-bearing Liabilities	4,774,287			37,031		1.56	%	4,732,041			24,276		1.03	%	4,785,517			55,648		1.55	%	4,694,284			38,641		1.10	%
Noninterest-bearing liabilities	1,505,964							1,393,939							1,528,573							1,421,276
Shareholders’ equity	948,244							896,371							956,826							902,146
Total Liabilities and Shareholders’ Equity	$	7,228,495						$	7,022,351						$	7,270,916						$	7,017,706
Net Interest Income ⁽²⁾⁽³⁾				$	123,102						$	117,212						$	185,233						$	177,426
Net Interest Margin ⁽²⁾⁽³⁾						3.70	%						3.61	%						3.67	%						3.63	%

⁽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 2019 and 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 ~~$2.4~~$1.9 million, or ~~4.1~~ 3.2percent, for the three months ended ~~June~~September 30, 2019 and increased ~~$5.9~~$7.8 million, or ~~5.0~~4.4 percent, for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. The net interest margin on an FTE basis (non-GAAP) ~~increased four~~decreased five basis points for the three months ended ~~June~~September 30, 2019 and ~~nine~~increased four basis points for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. ~~The increases were primarily due to higher short-term interest rates.~~

Interest income on an FTE basis (non-GAAP) increased ~~$8.1~~$6.2 million, or ~~11.1~~8.3 percent, for the three months ended ~~June~~September 30, 2019 and increased ~~$18.6~~$24.8 million, or ~~13.2~~11.5 percent, for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same ~~periods in~~

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

periods in 2018. The increases were primarily due to increases in average interest-earning assets of ~~$178.6~~$304.1 million and ~~$175.5~~$218.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and higher short-term interest rates compared to the same periods in 2018. Average loan balances increased ~~$208.7~~$334.6 million and ~~$198.4~~$244.3 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 3816 and 4736 basis points compared to the same periods in 2018 primarily due to higher short-term interest rates. Average investment securities decreased ~~$12.0~~$18.7 million and ~~$9.2~~ $12.4million and the average rate earned decreased four basis pointsand increased six ~~and ten~~ basis points, ~~due to higher rates,~~ compared to the same periods in 2018. Overall, the FTE rate on interest-earning assets (non-GAAP) increased 3715 and 4534 basis points for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018.

Interest expense increased ~~$5.6~~$4.3 million and ~~$12.8~~$17.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. The increases were primarily due to higher short-term interest ~~rates.~~rates compared to the same periods in 2018. Average interest-bearing deposits increased ~~$426.7~~$428.9 million and ~~$373.5~~$392.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. Average money market balances increased ~~$444.2~~$378.8 million and the average rate paid increased 64 36basis points for the three months ended ~~June~~September 30, 2019 and increased ~~$409.5~~$399.1 million and 7159 basis points for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018 due to higher short-term interest 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 balances declined during these periods. The growth in average interest-bearing deposits is complemented by average noninterest-bearing demand balance increases of $103.9Average total borrowings decreased $241.3 million and ~~$98.0~~$301.0 million for the three and ~~six~~nine months ended ~~June 30, 2019, compared to the same periods in 2018. Average total borrowings decreased $384.0 million and $331.3 million for the three and six months ended June~~September 30, 2019, compared to the same periods in 2018, due to increased deposits. Overall, the cost of interest-bearing liabilities increased 4631 and 5345 basis points for the three and ~~six~~nine months ended ~~June~~September 30, 2019, compared to the same periods in 2018.

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

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, 2019 Compared to June 30, 2018									Six Months Ended June 30, 2019 Compared to June 30, 2018									Three Months Ended September 30, 2019 Compared to September 30, 2018									Nine Months Ended September 30, 2019 Compared to September 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	$	(20	)	$	73		$	53		$	(30	)	$	205		$	175		$	(17	)	$	25		$	8		$	(48	)	$	231		$	183
Securities, at fair value⁽²⁾⁽³⁾	(78		)	110			32			(119		)	355			236			(123		)	(69		)	(192		)	(240		)	285			45
Loans held for sale	(1		)	(11		)	(12		)	(18		)	(13		)	(31		)	13			(4		)	9			1			(23		)	(22		)
Commercial real estate	1,414			2,127			3,541			3,845			5,353			9,198			1,741			584			2,325			5,594			5,929			11,523
Commercial and industrial	1,479			1,981			3,460			2,301			4,932			7,233			1,611			1,085			2,696			3,899			6,030			9,929
Commercial construction	(982		)	367			(615		)	(2,383		)	905			(1,478		)	(120		)	39			(81		)	(2,566		)	1,006			(1,560		)
Total Commercial Loans	1,911			4,475			6,386			3,763			11,190			14,953			3,232			1,708			4,940			6,927			12,965			19,892
Residential mortgage	451			488			939			747			822			1,569			619			203			822			1,364			1,027			2,391
Home equity	(113		)	704			591			(261		)	1,822			1,561			(36		)	504			468			(302		)	2,330			2,028
Installment and other consumer	70			78			148			107			160			267			103			34			137			209			194			403
Consumer construction	77			18			95			142			53			195			67			9			76			210			60			270
Total Consumer Loans	485			1,288			1,773			735			2,857			3,592			753			750			1,503			1,481			3,611			5,092
Total Portfolio Loans	2,396			5,763			8,159			4,498			14,047			18,545			3,985			2,458			6,443			8,408			16,576			24,984
Total Loans⁽¹⁾⁽²⁾	2,395			5,752			8,147			4,480			14,034			18,514			3,998			2,454			6,452			8,409			16,553			24,962
Federal Home Loan Bank and other restricted stock	(204		)	35			(169		)	(355		)	75			(280		)	(133		)	35			(98		)	(488		)	112			(376		)
Change in Interest Earned on Interest-earning Assets	2,093			5,970			8,063			3,976			14,669			18,645			3,725			2,445			6,170			7,633			17,181			24,814
Interest paid on:
Interest-bearing demand		($15	)		$209			$194			($36	)		$413			$377			$81			$600			$681			$31			$1,027			$1,058
Money market	1,430			2,712			4,142			2,432			5,770			8,202			1,403			1,545			2,948			3,865			7,285			11,150
Savings	(46		)	101			55			(98		)	189			91			(38		)	63			25			(136		)	253			117
Certificates of deposit	312			2,186			2,498			529			4,825			5,354			134			1,548			1,682			686			6,349			7,035
Total Interest-bearing Deposits	1,681			5,208			6,889			2,827			11,197			14,024			1,580			3,756			5,336			4,446			14,914			19,360
Securities sold under repurchase agreements	(33		)	11			(22		)	(57		)	18			(39		)	(37		)	8			(29		)	(93		)	25			(68		)
Short-term borrowings	(1,930		)	393			(1,537		)	(3,056		)	1,156			(1,900		)	(1,360		)	106			(1,254		)	(4,422		)	1,267			(3,155		)
Long-term borrowings	132			109			241			248			255			503			141			55			196			388			311			699
Junior subordinated debt securities	—			47			47			—			167			167			—			3			3			—			171			171
Total Borrowings	(1,831		)	560			(1,271		)	(2,865		)	1,596			(1,269		)	(1,256		)	172			(1,084		)	(4,127		)	1,774			(2,353		)
Change in Interest Paid on Interest-bearing Liabilities	(150		)	5,768			5,618			(38		)	12,793			12,755			324			3,928			4,252			319			16,688			17,007
Change in Net Interest Income	$	2,243		$	202		$	2,445		$	4,014		$	1,876		$	5,890		$	3,401		$	(1,483	)	$	1,918		$	7,314		$	493		$	7,807

⁽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 2019 and 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 adjustment to the allowance for loan losses, or ALL, after net loan charge-offs have been deducted to bring the ALL to a level determined to be adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses ~~decreased $7.1~~increased $4.4 million and ~~$3.9~~$0.5 million to ~~$2.2~~$4.9 million and ~~$7.9~~$12.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~$9.3~~$0.5 million and ~~$11.8~~$12.3 million for the same periods in 2018.

The ~~decrease~~increase in the provision for loan losses was mainly due to ~~lower~~an increase in impaired loans resulting in higher net charge-offs and specific reserves for both periods. ~~For the three and six months ended June~~Impaired loans increased $41.8 million to $72.5 million at September 30, 2019 ~~we had net charges-offs of $2.1~~compared to $30.7 million at September 30, 2018 and ~~$7.4~~specific reserves on impaired loans increased $1.8 million compared to ~~$7.9 million and $7.7 million for~~ the same ~~periods~~period in ~~2018. Net charge-offs for~~ the ~~three months ended June 30, 2018 was significantly impacted by~~prior year. During the third quarter of 2019, we modified a ~~$5.2~~$19.9 million ~~loan charge-off for~~commercial relationship. The modification granted a ~~commercial customer arising from a participation loan agreement with a lead bank and other participating banks. The loss resulted from fraudulent activities believed~~concession to ~~be perpetrated by one or more executives employed by~~ the borrower ~~and its related entities. Annualized net~~that reduced their monthly payments resulting in the TDR. The loan ~~charge-offs~~remains in performing status based on the strong historical repayment performance of the borrower prior to ~~average loans for~~ the ~~three and six months ended June 30, 2019 were 0.14 percent and 0.25 percent compared~~restructure as well as recent changes occurring in the business which demonstrate the borrower’s ability to ~~0.55 percent and 0.27 percent for~~pay under the ~~same periods in 2018.~~revised contractual

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

~~Impaired~~terms. Guarantor support and sufficient collateral value further support the performing status of the loan. Further increasing 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~~from September 30, 2018 were two commercial relationships, the ~~same period in the prior year. The increase in specific reserves related to~~first was a $7.7 million commercial real estate (CRE) loan that ~~had a specific reserve of $1.3 million recorded~~moved to impaired in the fourth quarter of 2018 and had a $1.3 million specific reserve at September 30, 2019 and the second was a $5.4 million CRE loan moved to impaired in the third quarter of 2019 with a $0.8 million specific reserve at September 30, 2019.

For the three and nine months ended September 30, 2019, we had net charges-offs of $4.3 million and $11.6 million compared to $0.4 million and $8.1 million for the same periods in 2018. Annualized net loan charge-offs to average loans for the three and nine months ended September 30, 2019 were 0.28 percent and 0.26 percent compared to 0.03 percent and 0.19 percent for the same periods in 2018.

Nonperforming loans also increased ~~$23.6~~$29.3 million to ~~$45.0~~$50.0 million at ~~June~~September 30, 2019 compared to ~~$21.4~~$20.7 million at ~~June~~September 30, ~~2018.~~2018 in part due to the CRE impaired loans discussed above.

The ALL at ~~June~~September 30, 2019 was ~~$61.5~~$62.1 million compared to ~~$60.5~~$60.6 million at ~~June~~September 30, 2018. The ALL as a percent of total portfolio loans was ~~1.02~~1.00 percent at ~~June~~September 30, 2019 and ~~1.05~~1.04 percent at ~~June~~September 30, 2018. Refer to “Financial Condition as of ~~June~~September 30, 2019 - Allowance for Loan Losses” in this MD&A for additional information.

Noninterest Income


	Three Months Ended June 30,													Six Months Ended June 30,													Three Months Ended September 30,													Nine Months Ended September 30,
(dollars in thousands)	2019			2018			$ Change				% Change			2019			2018			$ Change				% Change			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	%		3,475			3,141			334				10.6	%		9,951			9,487			464				4.9	%
Service charges on deposit accounts		3,212			3,227			(15		)		(0.5	)		6,365			6,468			(103		)		(1.6	)		3,412			3,351			61				1.8			9,777			9,765			12				0.1
Wealth management		2,062			2,616			(554		)		(21.2	)		4,109			5,298			(1,189		)		(22.4	)		2,101			2,483			(382		)		(15.4	)		6,210			7,782			(1,572		)		(20.2	)
Mortgage banking		637			831			(194		)		(23.3	)		1,131			1,432			(301		)		(21.0	)		594			700			(106		)		(15.1	)		1,726			2,133			(407		)		(19.1	)
Gain on sale of a majority interest of insurance business		—			—			—				NM			—			1,873			(1,873		)		NM			—			—			—				NM			—			1,873			(1,873		)		NM
Other		3,489			2,268			1,221				53.8			6,182			4,626			1,556				33.6			3,481			2,367			1,114				47.1			9,662			7,046			2,616				37.1
Total Noninterest Income		$	12,901		$	12,251		$	650			5.3	%		$	24,263		$	26,044		$	(1,781	)		(6.8	)%		$	13,063		$	12,042		$	1,021			8.5	%		$	37,326		$	38,086		$	(760	)		(2.0	)%

NM - not meaningful

Noninterest income increased ~~$0.7~~$1.0 million to ~~$12.9~~$13.1 million for the three months ended ~~June~~September 30, 2019 and decreased ~~$1.8~~$0.8 million to ~~$24.3~~$37.3 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. ~~The decrease~~Other income increased $1.1 million and $2.6 million for the ~~six~~three and nine months ended ~~June~~September 30, 2019 ~~was partially~~primarily related to higher commercial loan swap fees of $1.5 million for the three months ended and $3.1 million for the nine months ended September 30, 2019 due to an increase in customer demand for this product compared to the same periods in 2018. Debit and credit card fees also increased $0.3 million and $0.5 million for the three and nine months ended September 30, 2019 compared to 2018 due to increased debit card usage and the timing of referral merchant revenue. Offsetting these increases for the nine months ending September 30, 2019 was 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~~Further, wealth management fees decreased ~~$0.6~~$0.4 million for the three months ended and ~~$1.2~~$1.6 million for the ~~six~~nine months ended ~~June~~September 30, 2019 due to a decline in financial service revenue and 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~~

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 2019 amounts only.~~

~~NM - not meaningful~~

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

Noninterest Expense



	Three Months Ended September 30,														Nine Months Ended September 30,
(dollars in thousands)	2019				2018			$ Change				% Change			2019			2018			$ Change				% Change
Salaries and employee benefits		$	19,936			$	19,769		$	167			0.8	%		$	61,135		$	57,195		$	3,940			6.9	%
Data processing and information technology		3,681				2,906			775				26.7			10,327			7,610			2,717				35.7
Net occupancy		2,898				2,722			176				6.5			8,883			8,399			484				5.8
Furniture, equipment and software		2,090				2,005			85				4.2			6,621			6,096			525				8.6
Other taxes		1,540				1,341			199				14.8			4,182			4,928			(746		)		(15.1	)
Marketing		1,062				1,023			39				3.8			3,514			2,916			598				20.5
Professional services and legal⁽¹⁾		1,054				1,181			(127		)		(10.8	)		3,382			3,120			262				8.4
Merger related expenses		552				—			552				NM			1,171			—			1,171				NM
FDIC insurance		(675		)		746			(1,421		)		(190.5	)		536			2,592			(2,056		)		(79.3	)
Other		5,529				5,392			137				2.5			17,187			16,174			1,013				6.3
Total Noninterest Expense		$	37,667			$	37,085		$	582			1.6	%		$	116,938		$	109,030		$	7,908			7.3	%

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

NM - not meaningful

Noninterest expense increased ~~$4.5~~$0.6 million to ~~$40.4~~$37.7 million for the three months ended ~~June~~September 30, 2019 and ~~$7.3~~$7.9 million to ~~$79.3~~$116.9 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018. ~~During the second quarter of 2019, we incurred~~Total merger related expenses for the nine months ended September 30, 2019 of $1.2 million included $0.5 million for data processing and $0.6 million for professional ~~services in the three and six months ended June 30, 2019.~~services. Salaries and employee benefits expense increased ~~$1.7~~$0.2 million for the three months ended and ~~$3.8~~$3.9 million for the ~~six~~nine months ended ~~June~~September 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~~$2.7 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same periods in 2018 due to ~~higher loan related expenses~~the outsourcing agreement for certain components of our information technology function and ~~other real estate owned, or OREO, losses and expenses.~~the annual increase with our third-party data processor. These increases were partially offset by a decrease in ~~other taxes~~FDIC insurance of ~~$0.3~~$1.4 million for the three months ended and ~~$0.9~~$2.1 million for the ~~six~~nine 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~~September 30, 2019 compared to the same periods in 2018 ~~due~~related to Small Bank Assessment Credits that were received by all banking institutions with assets of less than $10 billion and improvements in the financial ratios used to determine the assessment. Other taxes decreased $0.7 million for the nine months ended September 30, 2019 due to a state tax assessment in 2018.

Provision for Income Taxes

The provision for income taxes increased ~~$1.1~~$1.8 million for the three months ended ~~June~~September 30, 2019 ascompared to the same period in 2018 due to a ~~result~~return to provision tax benefit in the third quarter of ~~an increase~~2018 resulting from the decrease in the federal statutory rate of 35 percent to 21 percent on a $20.4 million contribution to our defined benefit plan offset by lower pretax income ~~of $5.7 million~~for the three month period in 2019 compared to the same period in 2018. The provision for income taxes ~~decreased $0.7~~increased $1.1 million for the ~~six~~nine months ended ~~June~~September 30, 2019 compared to the same ~~periods~~period in 2018 primarily due to non-recurring discrete items ~~of $0.9 million~~ related to the tax benefit from the pension contribution in the third quarter of 2018 as discussed above offset by the sale of a majority interest of our insurance business in the first quarter of 2018. Our effective tax rate increased to ~~16.3~~15.0 percent and 15.6 percent for the three ~~month~~and nine months period ended ~~June 30, 2019 and decreased to 15.9 percent for the six month period ended June~~September 30, 2019 compared to ~~15.8~~8.5 percent and ~~17.4~~14.1 percent for the same periods in 2018.

Financial Condition as of ~~June~~September 30, 2019

Total assets ~~were relatively unchanged~~increased $0.3 billion to $7.6 billion at September 30, 2019 compared $7.3 billion at ~~June 30, 2019 compared to~~ December 31, 2018. Total portfolio loans increased ~~$86.6~~$249.1 million with increases ~~primarily~~in all the loan portfolios. Commercial loans increased $191.4 million and consumer loans increased $57.7 million. The increase of $191.4 million in the commercial ~~loan portfolio. The Commercial~~loans related to $133.4 million in C&I, $57.6 million in commercial construction and ~~Industrial and Commercial Construction loans increased $66.3 million and $10.0 million offset by a decrease of $14.9~~$0.4 million in CRE loans. ~~Consumer~~The increase in consumer loans ~~increased $25.2~~of $57.7 million ~~primarily as a result of the $24.7~~related to $44.2 million ~~increase~~ in residential mortgages, ~~and minor increases~~$6.9 million in ~~all~~installment and other consumer ~~categories except the~~loans, $3.5 million in home equity ~~portfolio.~~loans and $3.1 million in consumer construction. Securities decreased ~~$16.3~~$15.7 million to ~~$668.6~~$669.2 million at ~~June~~September 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~~nine 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 $29.2 million to $965.0 million at June 30, 2019 compared to $935.8 million at December 31, 2018. The increase was primarily due to net income of $49.0 million offset partially by dividends of $18.6 million and share repurchases of $15.1 million. The $13.6 million increase in other comprehensive income was due to a $12.9 million increase in unrealized gains on our available-for-sale investment securities and a $0.7 million change in the funded status of our employee benefit plans.September

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30, 2019. The bond portfolio had an unrealized gain of $13.6 million at September 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 $308.8 million, or 5.4 percent, with total deposits of $6.0 billion at September 30, 2019 compared to $5.7 billion at December 31, 2018. Customer deposits increased $465.8 million with growth in money market of $382.2 million, or 32.4 percent, noninterest-bearing demand deposit accounts of $69.2 million and certificates of deposit of $64.7 million which was offset by declines in savings accounts of $31.5 million and interest-bearing demand deposit accounts of $18.8 million. The significant increase of $382.2 million in money market deposits is related to a promotional rate product offered in selected markets. Total brokered deposits decreased $157.1 million at September 30, 2019 compared to December 31, 2018 due to strong customer deposit growth.

Total borrowings decreased $105.6 million compared to December 31, 2018 due to a decrease in funding needs. Total short-term borrowings decreased by $100.0 million, or 21.3 percent, and long-term borrowings decreased $1.2 million.

Total shareholders’ equity increased by $46.6 million to $982.4 million at September 30, 2019 compared to $935.8 million at December 31, 2018. The increase was primarily due to net income of $76.0 million offset partially by dividends of $27.8 million and share repurchases of $18.2 million. The $15.8 million increase in other comprehensive income was due to a $14.7 million increase in unrealized gains on our available-for-sale investment securities and a $1.1 million change in the funded status of our employee benefit plans.

Securities Activity


(dollars in thousands)	June 30, 2019			December 31, 2018			$ Change				September 30, 2019			December 31, 2018			$ Change
U.S. treasury securities		$	10,007		$	9,736		$	271			$	10,049		$	9,736		$	313
Obligations of U.S. government corporations and agencies		129,773			128,261			1,512				130,165			128,261			1,904
Collateralized mortgage obligations of U.S. government corporations and agencies		150,405			148,659			1,746				155,010			148,659			6,351
Residential mortgage-backed securities of U.S. government corporations and agencies		20,936			24,350			(3,414		)		18,826			24,350			(5,524		)
Commercial mortgage-backed securities of U.S. government corporations and agencies		235,292			246,784			(11,492		)		237,951			246,784			(8,833		)
Obligations of states and political subdivisions		117,624			122,266			(4,642		)		112,519			122,266			(9,747		)
Debt Securities Available-for-Sale		664,037			680,056			(16,019		)		664,520			680,056			(15,536		)
Marketable equity securities		4,551			4,816			(265		)		4,706			4,816			(110		)
Total Securities		$	668,588		$	684,872		$	(16,284	)		$	669,226		$	684,872		$	(15,646	)

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 ~~$16.3~~$15.7 million to ~~$668.6~~$669.2 million at ~~June~~September 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~~nine months ended ~~June~~September 30, 2019.

At ~~June~~September 30, 2019 our bond portfolio was in a net unrealized gain position of ~~$11.3~~$13.6 million compared to a net unrealized loss position of $5.1 million at December 31, 2018. At ~~June~~September 30, 2019 total gross unrealized gains in the bond portfolio were ~~$11.8~~$13.9 million offset by ~~$0.5~~$0.3 million of gross unrealized losses, compared to December 31, 2018, when total gross unrealized gains were $3.5 million offset by gross unrealized losses of $8.6 million. Management evaluates the securities portfolio for other than temporary impairment, or OTTI, on a quarterly basis. During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, we did not record any OTTI.

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Loan Composition


	June 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans
Commercial
Commercial real estate	$	2,906,895	48.18	%	$	2,921,832	49.13	%	$	2,922,197	47.16	%	$	2,921,832	49.13	%
Commercial and industrial	1,559,727		25.85		1,493,416		25.11		1,626,854		26.26		1,493,416		25.11
Construction	267,203		4.43		257,197		4.33		314,813		5.08		257,197		4.33
Total Commercial Loans	4,733,825		78.46	%	4,672,445		78.57	%	4,863,864		78.50	%	4,672,445		78.57	%
Consumer
Residential mortgage	751,355		12.45	%	726,679		12.22	%	770,882		12.44	%	726,679		12.22	%
Home equity	464,195		7.69		471,562		7.93		475,024		7.67		471,562		7.93
Installment and other consumer	72,041		1.19		67,546		1.13		74,460		1.20		67,546		1.13
Construction	11,784		0.20		8,416		0.14		11,535		0.19		8,416		0.14
Total Consumer Loans	1,299,375		21.54	%	1,274,203		21.43	%	1,331,901		21.50	%	1,274,203		21.43	%
Total Portfolio Loans	6,033,200		100.00	%	5,946,648		100.00	%	6,195,765		100.00	%	5,946,648		100.00	%
Loans held for sale	8,135				2,371				8,371				2,371
Total Loans	$	6,041,335			$	5,949,019			$	6,204,136			$	5,949,019

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

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Commercial loans, including CRE, C&I and Commercial Construction, comprised 78.5 percent of total portfolio loans at ~~June~~September 30, 2019 and 78.6 percent at December 31, 2018. Total portfolio loans increased ~~$86.6~~$249.1 million to ~~$6.0~~$6.2 billion at ~~June~~September 30, 2019 compared to $5.9 billion at December 31, 2018. The increase ~~was primarily due to $61.4 million in our commercial loan portfolio. C&I portfolio increased $66.3 million and Commercial Construction loans increased $10.0 million offset by a decrease~~ of ~~$14.9~~$191.4 million in the commercial loans related to $133.4 million in C&I, $57.6 million in commercial construction and $0.4 million in CRE ~~portfolio~~loans compared to December 31, 2018.

Consumer loans represent 21.5 percent of our total portfolio loans at ~~June~~September 30, 2019 and 21.4 percent at December 31, 2018. Consumer loans increased ~~$25.2~~$57.7 million compared to December 31, 2018 with ~~minor~~ increases in all ~~categories except the home equity portfolio.~~categories. Residential mortgages increased ~~$24.7~~$44.2 million, installment and other consumer increased ~~$4.5~~$6.9 million, home equity increased $3.5 million and consumer construction loans increased ~~$3.4 million offset by a decrease of $7.4 million in home equity loans.~~$3.1 million.

Allowance for Loan Losses

We maintain an ALL at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date, and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ALL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ALL has two main components: evaluation and impairment tests of individual loans and evaluation and impairment tests of certain groups of homogeneous loans with similar risk characteristics.

An inherent risk to the loan portfolio as a whole is the condition of the economy in our markets. In addition, each loan segment carries with it risks specific to the segment. We develop and document a systematic ALL methodology based on the following portfolio segments: 1) CRE, 2) C&I, 3) Commercial Construction, 4) Consumer Real Estate and 5) Other Consumer.

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

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

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

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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, unsecured loans and lines and credit cards. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

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



	September 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		$	2,006		$	29,825		$	31,831		$	51,449		$	2,870,748		$	2,922,197
Commercial and industrial		—			14,366			14,366			9,852			1,617,002			1,626,854
Commercial construction		128			7,747			7,875			2,808			312,005			314,813
Consumer real estate		—			6,334			6,334			8,418			1,249,023			1,257,441
Other consumer		10			1,699			1,709			13			74,447			74,460
Total		$	2,144		$	59,971		$	62,115		$	72,540		$	6,123,225		$	6,195,765



	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



	September 30, 2019			December 31, 2018
Ratio of net charge-offs to average loans outstanding	0.26	%	*	0.18	%
Allowance for loan losses as a percentage of total loans	1.00	%		1.03	%
Allowance for loan losses to nonperforming loans	124	%		132	%

^* Annualized

5354

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The ~~following tables summarize the ALL and recorded investments in loans by category and the related ratios for the dates 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, 2019
December 31, 2018
Ratio of net charge-offs to average loans outstanding 0.25 % * 0.18 %
Allowance for loan losses as a percentage of total loans 1.02 % 1.03 %
Allowance for loan losses to nonperforming loans 137 % 144 %

^* ~~Annualized~~

~~The~~ ALL was ~~$61.5~~$62.1 million, or ~~1.02~~1.00 percent of total portfolio loans, at ~~June~~September 30, 2019 compared to $61.0 million, or 1.03 percent of total portfolio loans at December 31, 2018. The ~~minor~~ increase in the ALL of ~~$0.5~~$1.1 million was ~~primarily~~in part due to a $0.4 million increase in the reserve for loans individually evaluated for impairment compared to December 31, 2018. Impaired loans increased ~~$1.8~~$23.0 million to ~~$51.3~~$72.5 million compared to $49.5 million at December 31, 2018. During the third quarter of 2019, we modified a $19.9 million commercial relationship. The modification granted a concession to the borrower that reduced their monthly payments resulting in the TDR. The loan remains in performing status based on the strong historical repayment performance of the borrower prior to the restructure as well as recent changes occurring in the business which demonstrate the borrower’s ability to pay under the revised contractual terms. Guarantor support and sufficient collateral value further support the performing status of the loan. Commercial special mention, substandard and doubtful loans decreased ~~$24.9~~$22.8 million to ~~$243.6~~$245.7 million from $268.5 million at December 31, 2018. Substandard loans decreased ~~$43.3~~$46.2 million and special mention increased ~~$18.4~~$23.4 million. The decrease in substandard loans from December 31, 2018 was mainly due to pay-offs and loan risk rating upgrades. Special mention loans increased due to downgrades as a result of updated financial information.

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, we had net charges-offs of ~~$2.1~~$4.3 million and ~~$7.4~~$11.6 million compared to ~~$7.9~~$0.4 million and ~~$7.7~~$8.1 million for the same periods in 2018. The provision for loan losses ~~decreased $7.1~~increased $4.4 million and ~~$3.9~~$0.5 million to ~~$2.2~~$4.9 million and ~~$7.9~~$12.8 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019 compared to ~~$9.3~~$0.5 million and ~~$11.8~~$12.3 million for the same periods in 2018. The ~~decrease~~increase in the provision for loan losses was mainly due to ~~lower~~higher 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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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 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

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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 ~~$2.7million~~$25.0 million to ~~$30.6~~$52.9 million at ~~June~~September 30, 2019 compared to $27.9 million at December 31, 2018. The increase is primarily due to new TDRs totaling ~~$11.2~~$36.7 million in 2019, which were offset by principal reductions and charge-offs. The significant increase in performing TDRs primarily related to a $19.9 million CRE relationship that was modified during the third quarter of 2019. The modification granted a concession to the borrower that reduced their monthly payments resulting in the TDR. The loan remains in performing status based on the strong historical repayment performance of the borrower prior to the restructure as well as recent changes occurring in the business which demonstrate the borrower’s ability to pay under the revised contractual terms. Guarantor support and sufficient collateral value further support the performing status of the loan. Total TDRs of ~~$30.6~~$52.9 million at ~~June~~September 30, 2019 included ~~$20.7~~$38.4 million, or ~~67.5~~72.6 percent, that were accruing and ~~$9.9~~$14.5 million, or ~~32.5~~27.4 percent, that were ~~nonaccruing.~~not accruing.

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

•the status of a bankruptcy proceeding;

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

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

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~~taking into consideration qualitative factors. The allowance for unfunded loan commitments was ~~$2.3~~$2.4 million at ~~June~~September 30, 2019 and $2.2 million at December 31, 2018. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

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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, 2019				December 31, 2018				$ Change				September 30, 2019				December 31, 2018				$ Change
Nonperforming Loans
Commercial real estate		$	23,184			$	10,913			$	12,271			$	22,860			$	10,913			$	11,947
Commercial and industrial		3,150				2,314				836				3,418				2,314				1,104
Commercial construction		820				13,787				(12,967		)		737				13,787				(13,050		)
Residential mortgage		5,285				5,585				(300		)		6,190				5,585				605
Home equity		2,623				2,349				274				2,266				2,349				(83		)
Installment and other consumer		22				37				(15		)		16				37				(21		)
Total Nonperforming Loans		35,083				34,985				98				35,487				34,985				502
Nonperforming Troubled Debt Restructurings
Commercial real estate		5,600				1,139				4,461				10,880				1,139				9,741
Commercial and industrial		980				6,646				(5,666		)		787				6,646				(5,859		)
Commercial construction		406				406				—				406				406				—
Residential mortgage		1,497				1,543				(46		)		1,195				1,543				(348		)
Home equity		1,458				1,349				109				1,226				1,349				(123		)
Installment and other consumer		3				5				(2		)		2				5				(3		)
Total Nonperforming Troubled Debt Restructurings		9,944				11,088				(1,145		)		14,496				11,088				3,408
Total Nonperforming Loans		45,027				46,073				(1,046		)		49,983				46,073				3,910
OREO		1,495				3,092				(1,597		)		1,724				3,092				(1,368		)
Total Nonperforming Assets		$	46,522			$	49,165			$	(2,643	)		$	51,707			$	49,165			$	2,542

Asset Quality Ratios:
Nonperforming loans as a percent of total loans		0.75		%		0.77		%						0.81		%		0.77		%
Nonperforming assets as a percent of total loans plus OREO		0.77		%		0.83		%						0.83		%		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 $1.1~~increased $3.9 million to ~~$45.0~~$50.0 million at ~~June~~September 30, 2019 compared to $46.1 million at

December 31, 2018.

Deposits


(dollars in thousands)	June 30, 2019			December 31, 2018			$ Change				September 30, 2019			December 31, 2018			$ Change
Customer Deposits
Noninterest-bearing demand		$	1,462,386		$	1,421,156		$	41,230			$	1,490,409		$	1,421,156		$	69,253
Interest-bearing demand		544,265			567,492			(23,227		)		548,700			567,492			(18,792		)
Money market		1,446,086			1,178,211			267,875				1,560,426			1,178,211			382,215
Savings		754,062			784,970			(30,908		)		753,464			784,970			(31,506		)
Certificates of deposit		1,298,255			1,261,704			36,551				1,326,369			1,261,704			64,665
Total Customer Deposits		5,505,054			5,213,533			291,521				5,679,368			5,213,533			465,835
Brokered Deposits
Interest-bearing demand		5,398			6,201			(803		)		203,181			6,201			196,980
Money market		296,248			303,854			(7,606		)		100,143			303,854			(203,711		)
Certificates of deposit		50,000			150,334			(100,334		)		—			150,334			(150,334		)
Total Brokered Deposits		351,646			460,389			(108,743		)		303,324			460,389			(157,065		)
Total Deposits		$	5,856,700		$	5,673,922		$	182,778			$	5,982,692		$	5,673,922		$	308,770

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

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~~September 30, 2019 increased ~~$182.8~~$308.8 million from December 31, 2018. Total customer deposits increased ~~$291.5~~$465.8 million from December 31, 2018. Money market deposits primarily accounted for this change with an increase of ~~$267.9~~$382.2 million, noninterest-bearing demand deposits increased ~~$41.2~~$69.2 million and certificate of deposits increased ~~$36.5~~$64.7 million. The significant increase in money market deposits is related to ~~a competitively-priced indexed product and~~ a promotional rate product offered in selected markets. These increases were offset by declines in savings deposits of ~~$30.9~~$31.5 million and interest-bearing demand deposits of ~~$23.2~~$18.8 million. These decreases were mainly a result of migration into ~~the indexed~~ money market ~~product~~products and outflows due to repositioning by our customers. Total brokered deposits decreased ~~$108.7~~$157.1 million from December 31, ~~2018.~~2018 due to the customer deposit growth. The approximate $200 million shift between money market and interest-bearing demand brokered deposits related to a change in our brokered deposit program during the second quarter of 2019. 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, 2019			December 31, 2018			$ Change				September 30, 2019			December 31, 2018			$ Change
Securities sold under repurchase agreements		$	14,154		$	18,383		$	(4,229	)		$	13,925		$	18,383		$	(4,458	)
Short-term borrowings		295,000			470,000			(175,000		)		370,000			470,000			(100,000		)
Long-term borrowings		69,791			70,314			(523		)		69,156			70,314			(1,158		)
Junior subordinated debt securities		45,619			45,619			—				45,619			45,619			—
Total Borrowings		$	424,564		$	604,316		$	(179,752	)		$	498,700		$	604,316		$	(105,616	)

Borrowings are an additional source of funding for us. At ~~June~~September 30, 2019 total borrowings decreased ~~$179.8~~$105.6 million, or ~~29.7~~17.5 percent, compared to December 31, 2018 due to a decrease in funding needs as a result of strong customer deposit growth. Total short-term borrowings decreased by ~~$175.0~~$100.0 million, or ~~37.2~~21.3 percent, compared to December 31, 2018.

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

Information pertaining to short-term borrowings is summarized in the tables below for the ~~six~~nine and twelve months ended ~~June~~September 30, 2019 and December 31, 2018.


	Securities Sold Under Repurchase Agreements						Securities Sold Under Repurchase Agreements
(dollars in thousands)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Balance at the period end	$	14,154		$	18,383		$	13,925		$	18,383
Average balance during the period	19,735			45,992			$	17,812		$	45,992
Average interest rate during the period	0.59		%	0.48		%	0.63		%	0.48		%
Maximum month-end balance during the period	$	23,427		$	54,579		$	23,427		$	54,579
Average interest rate at the period end	0.74		%	0.46		%	0.74		%	0.46		%

	Short-Term Borrowings						Short-Term Borrowings
(dollars in thousands)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Balance at the period end	$	295,000		$	470,000		$	370,000		$	470,000
Average balance during the period	280,862			525,172			$	259,947		$	525,172
Average interest rate during the period	2.72		%	2.11		%	2.65		%	2.11		%
Maximum month-end balance during the period	$	425,000		$	690,000		$	425,000		$	690,000
Average interest rate at the period end	2.71		%	2.65		%	2.18		%	2.65		%

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


	Long-Term Borrowings						Long-Term Borrowings
(dollars in thousands)	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
Balance at the period end	$	69,791		$	70,314		$	69,156		$	70,314
Average balance during the period	70,122			47,986			$	69,886		$	47,986
Average interest rate during the period	2.85		%	2.35		%	2.79		%	2.35		%
Maximum month-end balance during the period	$	70,418		$	70,314		$	70,418		$	70,314
Average interest rate at the period end	2.73		%	2.84		%	2.53		%	2.84		%

	Junior Subordinated Debt Securities						Junior Subordinated Debt Securities
(dollars in thousands)	June 30, 2019			December 31, 2018			September 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	5.03		%	4.60		%	5.02		%	4.60		%
Maximum month-end balance during the period	$	45,619		$	45,619		$	45,619		$	45,619
Average interest rate at the period end	5.07		%	5.25		%	4.58		%	5.25		%

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

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 having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Refer to the "Financial Condition- Deposits" section 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 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~~September 30, 2019, we had ~~$532.7~~$519.3 million in highly liquid assets, which consisted of ~~$61.8~~$68.8 million in interest-bearing deposits with banks, ~~$462.8~~$442.1 million in unpledged securities and ~~$8.1~~$8.4 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of ~~7.3~~6.9 percent at ~~June~~September 30, 2019. Also, at ~~June~~September 30, 2019, we had a remaining borrowing availability of $2.0 billion with the FHLB of Pittsburgh. Refer to Note 9: Borrowings in the Notes to Consolidated Financial Statements and the "Financial Condition- Borrowings" section of this MD&A for more details.

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


(dollars in thousands)	Adequately Capitalized		Well- Capitalized		June 30, 2019				December 31, 2018				Adequately Capitalized		Well- Capitalized		September 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	%	$	705,600	10.12	%	$	689,778	10.05	%	4.00	%	5.00	%	$	705,600	10.12	%	$	689,778	10.05	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	685,600		11.35	%	669,778		11.38	%	4.50	%	6.50	%	685,600		11.35	%	669,778		11.38	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	705,600		11.68	%	689,778		11.72	%	6.00	%	8.00	%	705,600		11.68	%	689,778		11.72	%
Total capital to risk-weighted assets	8.00	%	10.00	%	794,426		13.15	%	777,913		13.21	%	8.00	%	10.00	%	794,426		13.15	%	777,913		13.21	%
S&T Bank
Tier 1 leverage	4.00	%	5.00	%	$	675,236	9.71	%	$	659,304	9.63	%	4.00	%	5.00	%	$	675,236	9.71	%	$	659,304	9.63	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	675,236		11.20	%	659,304		11.23	%	4.50	%	6.50	%	675,236		11.20	%	659,304		11.23	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	675,236		11.20	%	659,304		11.23	%	6.00	%	8.00	%	675,236		11.20	%	659,304		11.23	%
Total capital to risk-weighted assets	8.00	%	10.00	%	764,061		12.68	%	747,438		12.73	%	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~~September 30, 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 ~~300~~200 basis points or 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 ~~300~~200 basis points or more for 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, 2019							December 31, 2018								September 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	11.9	%	13.3	%	% Change in EVE	(0.3	)%		8.3	%		11.6	%		(10.0	)%	12.2	%		14.3	%		4.9	%		8.3	%		11.6	%		(10.0	)%
300	8.9		9.8		4.0			6.1			8.5			(4.6	)	9.2			10.8			8.7			6.1			8.5			(4.6	)
200	6.0		6.6		6.1			4.0			5.6			0.6		6.3			7.5			10.0			4.0			5.6			0.6
100	3.2		3.7		5.4			2.2			3.1			1.4		3.4			4.2			7.5			2.2			3.1			1.4
(100)	(4.7	)	(5.7	)	(11.3	)		(3.8	)		(5.4	)		(7.5	)	(4.8	)		(6.2	)		(13.1	)		(3.8	)		(5.4	)		(7.5	)
(200)	(9.3	)	(11.5	)	(25.4	)		(7.8	)		(11.2	)		(16.8	)	NM			NM			NM			(7.8	)		(11.2	)		(16.8	)

NM - not meaningful

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 and a decline in the rates down scenarios in months 1 - 12 and 13 - 24 when comparing December 31, 2018 to ~~June~~September 30, 2019. Our EVE analyses show an improvement in the percentage change in EVE in the rates up scenarios and a decline in the rates down scenario when comparing December 31, 2018 to ~~June~~September 30, 2019.

~~Table of 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.

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~~September 30, 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 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~~September 30, 2019, there were no changes made to S&T’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, S&T’s internal control over financial reporting.

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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, 2018, as filed with the SEC on 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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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;

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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~~third 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



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plan⁽¹⁾⁽²⁾	Approximate dollar value of shares that may yet be purchased under the plan
						$22,621,633
07/01/2019 - 07/31/2019	26,068		$37.99	26,068	21,631,310

08/01/2019 - 08/31/2019	58,800	35.87		58,800	—		^'⁽¹⁾

09/01/2019 - 09/30/2019	—	—		—	50,000,000		^'⁽²⁾
Total	84,868		$36.52	84,868		$50,000,000	^'⁽²⁾

⁽¹⁾On March 19, 2018, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which iswas effective through August 31, 2019, ~~permits~~permitted 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. As of September 30, 2019, 792,439 common shares were repurchased under this plan at a total cost of $30.5 million, or an average of $38.46 per share.

⁽²⁾On September 16, 2019, our Board of Directors authorized a new $50 million share repurchase plan. This new repurchase authorization, which is effective through March 31, 2021, permits S&T to repurchase from time to time up to $50 million in aggregate value of shares of S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at ~~our~~the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of ~~the~~ common stock, legal and contractual requirements, applicable securities laws and ~~our~~S&T's 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. ~~As of June 30, 2019, there were 707,571~~Since its approval, no common shares have been repurchased under ~~this plan at a total cost of $27.4 million, or an average of $38.69 per share. Up to an additional $22.6 million of our common stock may be repurchased under this plan through August 31, 2019.~~the new share repurchase plan.

Item 3. Defaults Upon Senior Securities

None

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Item 4. Mine Safety Disclosures

Not Applicable

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

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 4,5, 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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema
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
104	Cover Page Interactive Data File ((formatted as Inline XBRL and contained in Exhibits 101))

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SIGNATURES

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



	S&T Bancorp, Inc. (Registrant)

~~July 31,~~October 30, 2019	/s Mark Kochvar
	Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

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