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 ~~September 30, 2019~~March 31, 2020



☐	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 - ~~34,244,719~~39,242,510 shares as of ~~October 30, 2019~~May 8, 2020

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

INDEX

S&T BANCORP, INC. AND SUBSIDIARIES



		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets - ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	2

	Consolidated Statements of Comprehensive Income - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	3

	Consolidated Statements of Changes in Shareholders' Equity - Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	4

	Consolidated Statements of Cash Flows - ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	65

	Notes to Consolidated Financial Statements	76

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4243

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6159

Item 4.	Controls and Procedures	6260

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	6361

Item 1A.	Risk Factors	6361

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6462

Item 3.	Defaults Upon Senior Securities	6462

Item 4.	Mine Safety Disclosures	6462

Item 5.	Other Information	6562

Item 6.	Exhibits	6562

	Signatures	6663

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
(dollars in thousands, except per share data)	(Unaudited)				(Audited)				(Unaudited)				(Audited)
ASSETS
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
Cash and due from banks, including interest-bearing deposits of $113,505 and $124,491 at March 31, 2020 and December 31, 2019										$	187,684			$	197,823
Securities, at fair value		669,226				684,872				799,532				784,283
Loans held for sale		8,371				2,371				7,309				5,256
Portfolio loans, net of unearned income		6,195,765				5,946,648				7,246,745				7,137,152
Allowance for loan losses		(62,115		)		(60,996		)
Allowance for credit losses on loans										(96,850		)		(62,224		)
Portfolio loans, net		6,133,650				5,885,652				7,149,895				7,074,928
Bank owned life insurance		75,386				73,900				80,978				80,473
Premises and equipment, net		41,876				41,730				56,659				56,940
Operating lease right-of-use assets		37,534				—
Federal Home Loan Bank and other restricted stock, at cost		25,397				29,435				28,253				22,977
Goodwill		287,446				287,446				374,270				371,621
Other intangible assets, net		2,092				2,601				10,287				10,919
Other assets		117,404				88,725				310,629				159,429
Total Assets		$	7,571,991			$	7,252,221			$	9,005,496			$	8,764,649
LIABILITIES
Deposits:
Noninterest-bearing demand		$	1,490,409			$	1,421,156			$	1,702,960			$	1,698,082
Interest-bearing demand		751,881				573,693				962,937				962,331
Money market		1,660,569				1,482,065				1,967,692				1,949,811
Savings		753,464				784,970				836,237				830,919
Certificates of deposit		1,326,369				1,412,038				1,588,053				1,595,433
Total Deposits		5,982,692				5,673,922				7,057,879				7,036,576
Securities sold under repurchase agreements		13,925				18,383				69,644				19,888
Short-term borrowings		370,000				470,000				410,240				281,319
Long-term borrowings		69,156				70,314				50,180				50,868
Junior subordinated debt securities		45,619				45,619				64,038				64,277
Other liabilities		108,152				38,222				177,264				119,723
Total Liabilities		6,589,544				6,316,460				7,829,245				7,572,651
SHAREHOLDERS’ EQUITY
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
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—41,449,444 shares at March 31, 2020 and December 31, 2019 Outstanding— 39,125,425 shares at March 31, 2020 and 39,560,304 shares at December 31, 2019										103,623				103,623
Additional paid-in capital		212,040				210,345				400,387				399,944
Retained earnings		748,280				701,819				740,726				761,083
Accumulated other comprehensive loss		(7,313		)		(23,107		)		5,672				(11,670		)
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		)
Treasury stock (2,324,019 shares at March 31, 2020 and 1,889,140 shares at December 31, 2019, at cost)										(74,157		)		(60,982		)
Total Shareholders’ Equity		982,447				935,761				1,176,251				1,191,998
Total Liabilities and Shareholders’ Equity		$	7,571,991			$	7,252,221			$	9,005,496			$	8,764,649

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,							Nine Months Ended September 30,						Three Months Ended March 31,
(dollars in thousands, except per share data)	2019				2018			2019			2018			2020				2019
INTEREST AND DIVIDEND INCOME
Loans, including fees		$	75,080			$	68,631		$	223,200		$	198,296		$	82,051			$	73,392
Investment Securities:
Taxable		3,552				3,649			10,989			10,597			4,215				3,790
Tax-exempt		787				857			2,466			2,603			870				844
Dividends		394				490			1,373			1,741			453				564
Total Interest and Dividend Income		79,813				73,627			238,028			213,237			87,589				78,590
INTEREST EXPENSE
Deposits		16,207				10,871			47,243			27,883			15,338				14,981
Borrowings and junior subordinated debt securities		2,410				3,494			8,406			10,758			2,215				3,253
Total Interest Expense		18,617				14,365			55,649			38,641			17,553				18,234
NET INTEREST INCOME		61,196				59,262			182,379			174,596			70,036				60,356
Provision for loan losses		4,913				462			12,767			12,279
Net Interest Income After Provision for Loan Losses		56,283				58,800			169,612			162,317
Provision for credit losses															20,050				5,684
Net Interest Income After Provision for Credit Losses															49,986				54,672
NONINTEREST INCOME
Net gain on sale of securities		—				—			—			—			—				—
Service charges on deposit accounts															3,558				3,153
Debit and credit card		3,475				3,141			9,951			9,487			3,482				2,974
Service charges on deposit accounts		3,412				3,351			9,777			9,765
Commercial loan swap income															2,484				581
Wealth management		2,101				2,483			6,210			7,782			2,362				2,048
Mortgage banking		594				700			1,726			2,133			1,236				494
Gain on sale of a majority interest of insurance business		—				—			—			1,873
Other		3,481				2,367			9,662			7,046			(719		)		2,112
Total Noninterest Income		13,063				12,042			37,326			38,086			12,403				11,362
NONINTEREST EXPENSE
Salaries and employee benefits		19,936				19,769			61,135			57,195			21,335				20,910
Data processing and information technology		3,681				2,906			10,327			7,610			3,868				3,233
Net occupancy		2,898				2,722			8,883			8,399			3,765				3,036
Furniture, equipment and software		2,090				2,005			6,621			6,096			2,519				2,230
Merger related expenses															2,342				—
Other taxes		1,540				1,341			4,182			4,928			1,600				1,185
Marketing		1,062				1,023			3,514			2,916			1,111				1,141
Professional services and legal		1,054				1,181			3,382			3,120			1,048				1,184
Merger related expenses		552				—			1,171			—
FDIC insurance		(675		)		746			536			2,592			770				516
Other		5,529				5,392			17,187			16,174			8,033				5,449
Total Noninterest Expense		37,667				37,085			116,938			109,030			46,391				38,884
Income Before Taxes		31,679				33,757			90,000			91,373			15,998				27,150
Provision for income taxes		4,743				2,876			14,035			12,893			2,767				4,222
Net Income		$	26,936			$	30,881		$	75,965		$	78,480		$	13,231			$	22,928
Earnings per share—basic		$	0.79			$	0.89		$	2.22		$	2.26		$	0.34			$	0.67
Earnings per share—diluted		$	0.79			$	0.88		$	2.21		$	2.24		$	0.34			$	0.66
Dividends declared per share		$	0.27			$	0.25		$	0.81		$	0.72		$	0.28			$	0.27
Comprehensive Income		$	29,142			$	28,573		$	91,759		$	67,943		$	30,573			$	29,104

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 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
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 —
—
—
(2,308 ) —
(2,308 )
Cash dividends declared ($0.25 per share) —
—
(8,724 ) —
—
(8,724 )
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 —
452
—
—
—
452
Balance at September 30, 2018 $ 90,326
$ 209,685
$ 684,361
$ (33,253 ) $ (31,338 ) $ 919,781

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
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 —
—
—
2,206
—
2,206
Cash dividends declared ($0.27 per share) —
—
(9,239 ) —
—
(9,239 )
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 —
840
—
—
—
840
Balance at September 30, 2019 $ 90,326
$ 212,040
$ 748,280
$ (7,313 ) $ (60,886 ) $ 982,447



	For the three months ended March 31, 2019
(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings				Accumulated Other Comprehensive (Loss)/Income				Treasury Stock				Total
Balance at January 1, 2019		$	90,326		$	210,345		$	701,819			$	(23,107	)		$	(43,622	)		$	935,761
Net income for the three months ended March 31, 2019		—			—			22,928				—				—				22,928
Other comprehensive income (loss), net of tax		—			—			—				6,176				—				6,176
Adoption of accounting standard - Leases		—			—			167				—				—				167
Cash dividends declared ($0.27 per share)		—			—			(9,317		)		—				—				(9,317		)
Treasury stock issued for restricted stock awards (0 shares, net of forfeitures of 39,834 shares)		—			—			481				—				(1,357		)		(876		)
Repurchase of S&T Stock (313,904 shares)		—			—			—				—				(12,287		)		(12,287		)
Recognition of restricted stock compensation expense		—			604			—				—				—				604
Balance at March 31, 2019		$	90,326		$	210,949		$	716,078			$	(16,931	)		$	(57,266	)		$	943,156

	For the three months ended March 31, 2020
(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings				Accumulated Other Comprehensive (Loss)/Income				Treasury Stock				Total
Balance at January 1, 2020		$	103,623		$	399,944		$	761,083			$	(11,670	)		$	(60,982	)		$	1,191,998
Net income for the three months ended March 31, 2020		—			—			13,231				—				—				13,231
Other comprehensive income (loss), net of tax		—			—			—				17,342				—				17,342
Adoption of accounting standard - credit losses		—			—			(22,590		)		—				—				(22,590		)
Cash dividends declared ($0.28 per share)		—			—			(11,051		)		—				—				(11,051		)
Treasury stock issued for restricted stock awards (3,290 shares, net of forfeitures of 26,739 shares)		—			—			53				—				(616		)		(563		)
Repurchase of S&T Stock (411,430 shares)		—			—			—				—				(12,559		)		(12,559		)
Recognition of restricted stock compensation expense		—			443			—				—				—				443
Balance at March 31, 2020		$	103,623		$	400,387		$	740,726			$	5,672			$	(74,157	)		$	1,176,251

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 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
Balance at January 1, 2018 $ 90,326
$ 216,106
$ 628,107
$ (18,427 ) $ (32,081 ) $ 884,031
Net income for the nine months ended September 30, 2018 —
—
78,480
—
—
78,480
Other comprehensive income (loss), net of tax —
—
—
(10,537 ) —
(10,537 )
Reclassification of tax effects from the Tax Act ⁽¹⁾
—
—
3,427
(3,427 ) —
—
Reclassification of net unrealized gains on equity securities ⁽²⁾
—
—
862
(862 ) —
—
Cash dividends declared ($0.72 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 —
1,231
—
—
—
1,231
Balance at September 30, 2018 $ 90,326
$ 209,685
$ 684,361
$ (33,253 ) $ (31,338 ) $ 919,781

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
Balance at January 1, 2019 $ 90,326
$ 210,345
$ 701,819
$ (23,107 ) $ (43,622 ) $ 935,761
Net income for the nine months ended September 30, 2019 —
—
75,965
—
—
75,965
Other comprehensive income (loss), net of tax —
—
—
15,794
—
15,794
Impact of new lease standard —
—
167
—
—
167
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 —
1,820
—
—
—
1,820
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.~~

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,							Three Months Ended March 31,
(dollars in thousands)		2019			2018				2020			2019
OPERATING ACTIVITIES
Net income		$	75,965		$	78,480			$	13,231		$	22,928
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		12,767			12,279
Provision for (recovery of) unfunded loan commitments		303			(39		)
Provision for credit losses									20,050			5,649
Provision for unfunded loan commitments									—			35
Net depreciation, amortization and accretion		4,413			3,309				1,171			1,420
Net amortization of discounts and premiums on securities		2,470			2,387				1,154			776
Stock-based compensation expense		1,820			1,231				443			604
Gain on the sale of mortgage loans, net		(1,300		)	(1,195		)		(536		)	(293		)
Gain on the sale of majority interest of insurance business		—			(1,873		)
Pension contribution		—			(20,420		)
Mortgage loans originated for sale		(72,054		)	(68,898		)		(37,332		)	(14,506		)
Proceeds from the sale of mortgage loans		67,354			70,371				35,358			14,464
Net change in:
Interest receivable		(712		)	(1,506		)		26			(1,963		)
Interest payable		(1,399		)	803				(242		)	(789		)
Other assets		(31,570		)	352				(149,186		)	(3,466		)
Other liabilities		34,737			9,904				55,902			5,600
Net Cash Provided by Operating Activities		92,794			85,185
Net Cash (Used in) Provided by Operating Activities									(59,961		)	30,459
INVESTING ACTIVITIES
Purchases of securities		(37,123		)	(79,068		)		(30,292		)	(9,437		)
Proceeds from maturities, prepayments and calls of securities		68,906			71,433				33,869			20,193
Net proceeds from sales (purchases) of Federal Home Loan Bank stock		4,038			(1,909		)
Net increase in loans		(263,169		)	(64,387		)
Net (purchases of) proceeds from sales of Federal Home Loan Bank stock									(5,277		)	9,477
Net (increase) decrease in loans									(122,507		)	4,760
Proceeds from sale of loans not originated for resale		520			7,695				—			465
Purchases of premises and equipment		(4,054		)	(2,588		)		(1,429		)	(1,757		)
Proceeds from the sale of premises and equipment		44			135
Proceeds from the sale of majority interest of insurance business		—			4,540
Net Cash Used in Investing Activities		(230,838		)	(64,149		)
Net Cash (Used in) Provided by Investing Activities									(125,636		)	23,701
FINANCING ACTIVITIES
Net increase in core deposits		394,439			127,917				28,684			170,744
Net decrease in certificates of deposit		(85,606		)	(88,203		)		(7,042		)	(11,241		)
Net decrease in securities sold under repurchase agreements		(4,458		)	(4,961		)
Net decrease in short-term borrowings		(100,000		)	(5,000		)
Net increase in securities sold under repurchase agreements									49,756			5,044
Net increase (decrease) in short-term borrowings									128,921			(235,000		)
Proceeds from long-term borrowings									—			104
Repayments on long-term borrowings		(1,151		)	(1,867		)		(688		)	—
Treasury shares issued-net		(915		)	(657		)		(563		)	(876		)
Common stock issuance costs		(125		)	—
Cash dividends paid to common shareholders		(27,798		)	(25,115		)		(11,051		)	(9,317		)
Repurchase of common stock		(18,222		)	—				(12,559		)	(12,287		)
Repurchase of warrant		—			(7,652		)
Net Cash Provided by (Used in) Financing Activities		156,164			(5,538		)		175,458			(92,829		)
Net increase in cash and cash equivalents		18,120			15,498
Net decrease in cash and cash equivalents									(10,139		)	(38,669		)
Cash and cash equivalents at beginning of period		155,489			117,152				197,823			155,489
Cash and Cash Equivalents at End of Period		$	173,609		$	132,650			$	187,684		$	116,820
Supplemental Disclosures
Loans transferred to held for sale		$	520		$	7,695
Leased right-of-use operating assets and lease liabilities added to the balance sheet		$	38,919		$	—			$	91		$	35,686
Interest paid		$	57,047		$	37,838			$	17,795		$	19,023
Income taxes paid, net of refunds		$	11,178		$	15,728			$	210		$	1,432
Transfer net assets to investment in insurance company partnership		$	—		$	1,917
Transfers of loans to other real estate owned		$	492		$	647			$	110		$	80

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,~~2019, filed with the Securities and Exchange Commission, or SEC, on ~~February 21, 2019.~~March 2, 2020. 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~~we entered into an agreement to acquire 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 June~~the transaction was completed on November 30, ~~2019, entered into a definitive Agreement and Plan of Merger pursuant~~2019. Refer 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&TNote 2, Business Combinations 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 Shareholdersfurther details on ~~September 25, 2019. All required bank regulatory approvals have been received for~~ the merger. ~~The transaction is expected to be effective on or about November 30, 2019 and remains subject to the satisfaction or waiver of other customary closing 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~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting ~~Standards Codification, Section B-Conforming Amendments Related to Leases and Section C-Background Information and Basis~~ for ~~Conclusions~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board, or FASB, ~~established ASC Topic 842, by issuing~~issued ASU No. ~~2016-02,~~2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU apply to an entity that is a customer in a hosting arrangement that is a service contract. These amendments relate to accounting for implementation costs (e.g., implementation, setup and other upfront costs). These amendments require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which ~~requires lessees~~costs to ~~recognize leases~~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. We adopted this ASU on January 1, 2020. The amendments in this ASU did not materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

Fair Value Measurement - Changes to the ~~balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by~~Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued ASU No. ~~2018-01, Land Easement Practical Expedient~~2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for ~~Transition~~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 required us to ~~Topic 842;~~change our Fair Value disclosures beginning with the disclosures included in this Form 10-Q for the period ended March 31, 2020. We adopted this ASU ~~No. 2018-10, Codification Improvements~~on January 1, 2020. The amendments in this ASU did not materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income. Refer 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 theNote 4. Fair Value Measurements.

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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 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). 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. The amendments in this ASU will not materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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

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

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

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

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

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment (Topic 350). The main objective of this ASU is 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.~~sooner. 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~~We adopted the amendments of this ASU on ~~testing dates after~~ January 1, ~~2017.~~2020. The amendments in this ASU ~~are~~did 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~~On January 1, 2020, we adopted ASU ~~No.~~ 2016-13 Financial Instruments - Credit Losses (Topic 326): 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 replaceInstruments, which replaces the incurred loss ~~impairment~~ methodology ~~in current GAAP with a methodology that reflects expected~~for determining our provision for 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~~or ACL, with an expected loss methodology that is referred to as the Current Expected Credit Loss, or CECL, ~~or current~~model. The measurement of expected credit ~~loss model.~~losses under the CECL methodology is applicable to financial assets measured at amortized cost, including our loans and off-balance sheet credit exposures. In addition, ASU 2016-13 made changes to the accounting for available-for-sale debt securities. 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~~

We adopted ASU 2016-13 using the modified retrospective method for ~~interim~~all financial assets measured at amortized cost and ~~annual~~off-balance sheet credit exposures. Results for reporting periods ~~in fiscal years~~ beginning after ~~December 15, 2019. Early~~January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

We made the accounting policy election to not measure an ACL for accrued interest receivables for loans and securities. Accrued interest deemed uncollectible will be written off through interest income.

The majority of our available-for-sale debt securities are government agency-backed securities for which the risk of loss is minimal, and accordingly the ACL is immaterial.

In connection with our adoption ~~is permitted~~of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Refer to Note 7 Allowance 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.~~

~~Our CECL Committee governs the implementation~~Credit Losses for further discussion of these ~~amendments~~portfolio segments. Our new segmentation breaks out business banking loans from our other loan segments: Commercial Real Estate, or CRE, Commercial and ~~the Committee consists of key stakeholders from Credit Administration, Finance, Accounting, Risk Management~~Industrial, or C&I , Commercial Construction, Consumer Real Estate and ~~Audit~~Other Consumer. Business banking loans are commercial loans made to small businesses that are standard, non-complex products and ~~Advisory Services. We engaged~~evaluated through a ~~third-party consultant~~streamlined credit approval process that has been designed to assist us in developing our CECL methodology and we have completed a preliminary CECL model. The Model includes our loan segmentation and 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 methodology, designing and updating internal controls and financial statement disclosures. We will run parallelmaximize efficiency while maintaining high 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 provisionsquality standards.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

The following table details the impact of ASU 2016-13 and the reclassification of loans for the identification of new portfolio loan segments under CECL:



	January 1, 2020
(dollars in thousands)	As Reported Under ASU 2016-13				Pre-ASU 2016-13				Impact of ASU 2016-13 Adoption
Assets:
Loans held for investment (outstanding balance)
Commercial real estate		$	2,946,319			$	3,416,518			$	(470,199	)
Commercial and industrial		1,458,541				1,720,833				(262,292		)
Commercial construction		345,263				375,445				(30,182		)
Business banking		1,092,908				—				1,092,908
Consumer real estate		1,235,352				1,545,323				(309,971		)
Other consumer		58,769				79,033				(20,264		)
Allowance for credit losses on loans		(89,577		)		(62,224		)		(27,353		)
Total loans held for investment, net		$	7,047,575			$	7,074,928			$	(27,353	)
Net deferred tax asset		$	19,317			$	13,206			$	6,111
Liabilities:
Allowance for credit losses on unfunded loan commitments		$	4,462			$	3,113			$	1,349
Equity:
Retained earnings		$	738,493			$	761,083			$	(22,590	)

The adoption of ASU 2016-13 resulted in an increase to our ACL of $27.4 million on January 1, 2020. The increase included $8.2 million for S&T legacy loans and $9.3 million for acquired loans from the DNB merger. Under the previously applicable accounting guidance, a credit reserve was not recorded for acquired loans upon acquisition, however, ASU 2016-13 requires an ACL to be recognized for acquired loan similar to originated loans. We also recorded a day one adjustment of $9.9 million primarily related to a Commercial and Industrial, or C&I, relationship that was charged off in the first quarter of 2020. We obtained information on the relationship subsequent to filing our December 31, 2019 Form 10-K, but before the end of the first quarter of 2020. The updated information supported a loss existed at January 1, 2020. As of January 1, 2020, we recorded a cumulative-effect adjustment of $22.6 million to decrease retained earnings related to the adoption of ASU 2016-13.

Allowance for Credit Losses Policy

The ACL is a valuation reserve established and maintained by charges against operating income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period.

The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.

The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. The ACL model is comprised of six distinct portfolio segments: 1) Construction, 2) Commercial Real Estate, or CRE, 3) C&I, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. Each segment has a distinct set of risk characteristics monitored by management. We further evaluate the ACL at a disaggregated level which includes type of collateral, loan participations, non-owner occupied and our internal risk rating system for the commercial segments and type of collateral, lien position, and FICO score, for the consumer segments. Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on the unemployment forecast and management judgment. For periods beyond our two year reasonable and supportable forecast, we revert to the historical loss rate. We revert to historical loss rates utilizing a straight-line method over a one year reversion period. The qualitative adjustments for current conditions are based upon changes in lending policies and practices, experience and ability of lending staff, quality of the bank’s loan review system, value of underlying

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

collateral for collateral dependent loans, the existence of and changes in concentrations and other external factors. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve. A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in other liabilities.

The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed. We evaluate all commercial loans greater than $0.5 million that meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, 3) any commercial troubled debt restructuring, or TDR, or any loan reasonably expected to become a TDR whether on accrual or nonaccrual status and 4) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: 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 when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance.

Although we believe our process for determining the ACL appropriately considers all the factors that would likely result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual losses are higher than management estimates, additional provision for credit losses could be required and could adversely affect our earnings or financial position in future periods.

Accounting Standards Issued But Not Yet Adopted

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 financial statements.

Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance. The amendments in this ASU will be effective on January 1, 2021 and are not expected to have any impact on our consolidated financial statements.

Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. Modified contracts that meet certain scope guidance are eligible for relief from the modification accounting requirements in US GAAP. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. We are evaluating the impacts of this ASU ~~to determine the potential impact~~and have not yet determined whether LIBOR transition and this ASU will have material effects on our ~~Consolidated Balance Sheets~~business operations and ~~Consolidated Statements of Comprehensive Income and expect to disclose such impact in our 2019 Form 10-K~~.consolidated financial statements.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2. BUSINESS COMBINATIONS

On November 30, 2019, we completed our acquisition of DNB Financial Corporation, or DNB, and DNB First National Association, its wholly-owned bank subsidiary, located in Downingtown, Pennsylvania. The acquisition of DNB expanded our Eastern Pennsylvania market by adding 14 banking locations, in an all-stock transaction structured as a merger of DNB with and into S&T, with S&T being the surviving entity. The related systems conversion of DNB into S&T Bank occurred on February 7, 2020.

DNB shareholders received, without interest, 1.22 shares of S&T common stock for each share of DNB common stock. The total purchase price was approximately $201.0 million, which included $0.4 million of cash and 5,318,964 S&T common shares at a fair value of $37.72 per share. The fair value of $37.72 per share of S&T common stock was based on the November 30, 2019 closing price.

The Merger was accounted for under the acquisition method of accounting and our Consolidated Financial Statements include all DNB Bank transactions beginning on December 1, 2019. Goodwill of $86.0 million at March 31, 2020 was calculated as the excess of the consideration exchanged over the fair value of the identifiable net assets acquired. All of the goodwill was assigned to our Community Banking segment. The goodwill recognized is not deductible for tax purposes.

The following table provides a summary of the assets acquired and liabilities assumed by DNB, the preliminary estimates of the fair value adjustments necessary to adjust those acquired assets and assumed liabilities to estimated fair value and the preliminary estimates of the resultant fair values of those assets and liabilities by S&T at November 30, 2019, the acquisition date. Preliminary estimates were adjusted by $1.8 million during the three months ended March 31, 2020. These measurement period adjustments primarily related to $2.5 million reduction in the fair value of loans, $0.3 million reduction in the fair value of borrowings and $0.3 million in deferred taxes related to these valuation adjustments. Preliminary fair value adjustments continue to be evaluated by management and may be subject to further adjustment during the measurement period, which may not extend beyond one year following the acquisition.

The following table presents the preliminary fair value adjustments and the measurement period adjustments as of the dates presented:



	November 30, 2019									March 31, 2020
	As Recorded by DNB			Preliminary Fair Value Adjustments⁽¹⁾			As Recorded by S&T			Measurement Period Adjustments			As Recorded by S&T
Fair Value of Assets Acquired
Cash and cash equivalents	$	64,119		$	—		$	64,119		$	—		$	64,119
Securities and other investments	108,715			183			108,898			—			108,898
Loans	917,127			(8,143		)	908,984			(2,496		)	906,488
Allowance for credit losses	(6,487		)	6,487			—			—			—
Goodwill	15,525			(15,525		)	—			—			—
Premises and equipment	6,782			8,090			14,872			—			14,872
Accrued interest receivable	4,138			—			4,138			—			4,138
Deferred income taxes	2,017			(3,298		)	(1,281		)	311			(970		)
Core deposits and other intangible assets	269			(269		)	—			—			—
Other assets	24,883			(4,278		)	20,605			40			20,645
Total Assets Acquired	1,137,088			(16,753		)	1,120,335			(2,145		)	1,118,190
Fair Value of Liabilities Assumed
Deposits	966,263			1,002			967,265			(12		)	967,253
Borrowings	37,617			(276		)	37,341			(257		)	37,084
Accrued interest payable and other liabilities	11,157			(3,184		)	7,973			(68		)	7,905
Total Liabilities Assumed	1,015,037			(2,458		)	1,012,579			(337		)	1,012,242
Total Net Assets Acquired	$	122,051		$	(14,295	)	$	107,756		$	(1,808	)	$	105,948
Core Deposit Intangible Asset							$	7,288		$	—		$	7,288
Wealth Management Intangible Asset							1,772			—			1,772
Total Fair Value of Net Assets Acquired and Identified							$	116,816		$	(1,808	)	$	115,008
Consideration Paid
Cash							$	360		$	—		$	360
Common stock							200,631			—			200,631
Fair Value of Total Consideration							$	200,991		$	—		$	200,991
Goodwill							$	84,175		$	1,808		$	85,983

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2. BUSINESS COMBINATIONS – continued

⁽¹⁾Management is continuing to evaluate the purchase accounting fair value adjustments related to loans, including loan classification, deferred and current income taxes until the final valuations are complete and final tax returns are filed. Any changes in preliminary estimates will be adjusted in goodwill in subsequent periods, but not extending beyond one year from the date of acquisition.

Loans acquired in the Merger were recorded at fair value with 0 carryover of the related ACL from DNB. Determining the fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. The preliminary fair value of the loans acquired was estimated at $909.0 million, net of a $10.5 million discount. The discount is accreted to interest income over the remaining contractual life of the loans. During the three month period ended March 31, 2020, the fair value of acquired loans was reduced by an additional $2.5 million as we continue to finalize our evaluation of the loan portfolio.

As of March 31, 2020, direct costs related to the DNB merger of $13.7 million were recognized and expensed as incurred. During the three months ended March 31, 2020, we recognized $2.3 million of merger related expenses including $0.2 million in legal and professional fees, $1.4 million in severance payments and stay-bonuses, $0.4 million for data processing, and $0.3 million in other expenses. As of December 31, 2019, we recognized $11.4 million of merger related expenses, including $4.7 million for data processing contract termination and system conversion costs, $2.8 million in legal and professional expenses, $3.4 million in severance payments and $0.5 million in other expenses.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2.3. 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 September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands, except share and per share data)	2019			2018			2019			2018			2020			2019
Numerator for Earnings per Share—Basic:
Net income		$	26,936		$	30,881		$	75,965		$	78,480		$	13,231		$	22,928
Less: Income allocated to participating shares		72			87			204			229			29			62
Net Income Allocated to Shareholders		$	26,864		$	30,794		$	75,761		$	78,251		$	13,202		$	22,866

Numerator for Earnings per Share—Diluted:
Net income		$	26,936		$	30,881		$	75,965		$	78,480		$	13,231		$	22,928
Net Income Available to Shareholders		$	26,936		$	30,881		$	75,965		$	78,480		$	13,231		$	22,928

Denominators for Earnings per Share:
Weighted Average Shares Outstanding—Basic		34,090,779			34,799,174			34,221,479			34,783,175			39,271,540			34,414,555
Add: Potentially dilutive shares		79,502			220,118			105,746			228,909			108,116			128,256
Denominator for Treasury Stock Method—Diluted		34,170,281			35,019,292			34,327,225			35,012,084			39,379,656			34,542,811

Weighted Average Shares Outstanding—Basic		34,090,779			34,799,174			34,221,479			34,783,175			39,271,540			34,414,555
Add: Average participating shares outstanding		186,491			98,579			186,253			101,808			54,398			92,659
Denominator for Two-Class Method—Diluted		34,277,270			34,897,753			34,407,732			34,884,983			39,325,938			34,507,214

Earnings per share—basic		$	0.79		$	0.89		$	2.22		$	2.26		$	0.34		$	0.67
Earnings per share—diluted		$	0.79		$	0.88		$	2.21		$	2.24		$	0.34		$	0.66
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		254			113,451			360			113,390			41			68,314

⁽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 3.4. 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 held for investment, 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

Available-for-Sale 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 3.4. 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 Held for Investment

~~Impaired loans~~Loans that are ~~carried~~individually evaluated to determine whether a specific allocation of ACL is needed are reported at ~~the lower of carrying value or~~ fair value. Fair value is determined asusing 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~~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~~Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets carried at fair value are classified as Level 3.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. 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 3.4. 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. There were 0 transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.


	September 30, 2019								March 31, 2020
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS
Debt securities available-for-sale:
Available-for-sale debt securities:
U.S. Treasury securities	$	—	$	10,049	$	—	$	10,049	$	—	$	10,372	$	—	$	10,372
Obligations of U.S. government corporations and agencies	—		130,165		—		130,165		—		137,982		—		137,982
Collateralized mortgage obligations of U.S. government corporations and agencies	—		155,010		—		155,010		—		189,472		—		189,472
Residential mortgage-backed securities of U.S. government corporations and agencies	—		18,826		—		18,826		—		21,193		—		21,193
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		237,951		—		237,951		—		284,679		—		284,679
Corporate Bonds									—		7,551		—		7,551
Obligations of states and political subdivisions	—		112,519		—		112,519		—		144,717		—		144,717
Total Debt Securities Available-for-Sale	—		664,520		—		664,520
Total Available-for-sale Debt Securities									—		795,966		—		795,966
Marketable equity securities	—		4,706		—		4,706		3,504		62		—		3,566
Total Securities	—		669,226		—		669,226		3,504		796,028		—		799,532
Securities held in a deferred compensation plan	5,611		—		—		5,611		4,782		—		—		4,782
Derivative financial assets:
Interest rate swaps	—		32,825		—		32,825		—		88,135		—		88,135
Interest rate lock commitments	—		455		—		455		—		2,927		—		2,927
Forward sale contracts - mortgage loans	—		64		—		64
Total Assets	$	5,611	$	702,570	$	—	$	708,181	$	8,286	$	887,090	$	—	$	895,376
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	32,772	$	—	$	32,772	$	—	$	87,989	$	—	$	87,989
Forward sale contracts									—		1,292		—		1,292
Total Liabilities	$	—	$	32,772	$	—	$	32,772	$	—	$	89,281	$	—	$	89,281

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. FAIR VALUE MEASUREMENTS –- continued


	December 31, 2018								December 31, 2019
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS
Debt securities available-for-sale:
Available-for-sale debt securities:
U.S. Treasury securities	$	—	$	9,736	$	—	$	9,736	$	—	$	10,040	$	—	$	10,040
Obligations of U.S. government corporations and agencies	—		128,261		—		128,261		—		157,697		—		157,697
Collateralized mortgage obligations of U.S. government corporations and agencies	—		148,659		—		148,659		—		189,348		—		189,348
Residential mortgage-backed securities of U.S. government corporations and agencies	—		24,350		—		24,350		—		22,418		—		22,418
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		246,784		—		246,784		—		275,870		—		275,870
Corporate Bonds									—		7,627		—		7,627
Obligations of states and political subdivisions	—		122,266		—		122,266		—		116,133		—		116,133
Total Debt Securities Available-for-Sale	—		680,056		—		680,056
Total Available-for-Sale Debt Securities									—		779,133		—		779,133
Marketable equity securities	—		4,816		—		4,816		5,078		72		—		5,150
Total Securities	—		684,872		—		684,872		5,078		779,205		—		784,283
Securities held in a deferred compensation plan	4,725		—		—		4,725		5,987		—		—		5,987
Derivative financial assets:
Interest rate swaps	—		5,504		—		5,504		—		25,647		—		25,647
Interest rate lock commitments	—		251		—		251		—		321		—		321
Forward sale contracts	—		55		—		55		—		1		—		1
Total Assets	$	4,725	$	690,682	$	—	$	695,407	$	11,065	$	805,174	$	—	$	816,239
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	5,340	$	—	$	5,340	$	—	$	25,615	$	—	$	25,615
Total Liabilities	$	—	$	5,340	$	—	$	5,340	$	—	$	25,615	$	—	$	25,615

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 0 liabilities measured at fair value on a nonrecurring basis at either ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018.~~2019.

~~The following table presents our~~For Level 3 assets ~~that are~~ measured at fair value on a nonrecurring basis byas of March 31, 2020 and December 31, 2019, the significant unobservable inputs used in the fair value ~~hierarchy level~~measurements were as ~~of the dates presented:~~follows:

September 30, 2019 December 31, 2018
(dollars in thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
ASSETS⁽¹⁾

Impaired loans $ —
$ —
$ 33,473
$ 33,473
$ —
$ —
$ 21,441
$ 21,441
Other real estate owned —
—
1,353
1,353
—
—
2,826
2,826
Mortgage servicing rights —
—
3,485
3,485
—
—
1,197
1,197
Total Assets $ —
$ —
$ 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.

~~Table of Contents~~

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

Carrying
Value⁽¹⁾
Fair Value Measurements at September 30, 2019
(dollars in thousands) Total Level 1 Level 2 Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits $ 173,609
$ 173,609
$ 173,609
$ —
$ —
Securities 669,226
669,226
—
669,226
—
Loans held for sale 8,371
8,371
—
—
8,371
Portfolio loans, net 6,133,650
6,022,385
—
—
6,022,385
Bank owned life insurance 75,386
75,386
—
75,386
—
FHLB and other restricted stock 25,397
25,397
—
—
25,397
Securities held in a deferred compensation plan 5,611
5,611
5,611
—
—
Mortgage servicing rights 4,172
4,189
—
—
4,189
Interest rate swaps 32,825
32,825
—
32,825
—
Interest rate lock commitments 455
455
—
455
—
Forward sale contracts 64
64
—
64
—
LIABILITIES

Deposits $ 5,982,692
$ 5,981,492
$ 4,656,323
$ 1,325,169
$ —
Securities sold under repurchase agreements 13,925
13,925
13,925
—
—
Short-term borrowings 370,000
370,000
370,000
—
—
Long-term borrowings 69,156
69,738
39,329
30,409
—
Junior subordinated debt securities 45,619
45,619
45,619
—
—
Interest rate swaps 32,772
32,772
—
32,772
—
⁽¹⁾ As reported in the Consolidated Balance Sheets

Carrying
Value⁽¹⁾
Fair Value Measurements at December 31, 2018
(dollars in thousands) 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

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 4. SECURITIES~~

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

(dollars in thousands) September 30, 2019 December 31, 2018
Debt securities available-for-sale $ 664,520
$ 680,056
Marketable equity securities 4,706
4,816
Total Securities $ 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:~~

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

U.S. Treasury securities $ 9,966
$ 83
$ —
$ 10,049
$ 9,958
$ —
$ (222 ) $ 9,736
Obligations of U.S. government corporations and agencies 128,257
1,908
—
130,165
129,267
68
(1,074 ) 128,261
Collateralized mortgage obligations of U.S. government corporations and agencies 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 18,504
345
(23 ) 18,826
24,564
203
(417 ) 24,350
Commercial mortgage-backed securities of U.S. government corporations and agencies 234,076
3,911
(36 ) 237,951
251,660
—
(4,876 ) 246,784
Obligations of states and political subdivisions 108,355
4,164
—
112,519
119,872
2,448
(54 ) 122,266
Total Debt Securities Available-for-Sale $ 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:~~

September 30, 2019
Less Than 12 Months 12 Months or More Total
(dollars in thousands) Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
U.S. Treasury securities — $ —
$ —
— $ —
$ —
— $ —
$ —
Obligations of U.S. government corporations and agencies — —
—
— —
—
— —
—
Collateralized mortgage obligations of U.S. government corporations and agencies 2 6,465
(42 ) 6 27,869
(210 ) 8 34,334
(252 )
Residential mortgage-backed securities of U.S. government corporations and agencies 1 3,948
(1 ) 1 2,557
(22 ) 2 6,505
(23 )
Commercial mortgage-backed securities of U.S. government corporations and agencies 2 20,284
(8 ) 2 12,412
(28 ) 4 32,696
(36 )
Obligations of states and political subdivisions — —
—
— —
—
— —
—
Total Temporarily Impaired Debt Securities 5 $ 30,697
$ (51 ) 9 $ 42,838
$ (260 ) 14 $ 73,535
$ (311 )



	March 31, 2020		Valuation Technique(s)		Significant Unobservable Inputs	Range
(dollars in thousands)
Loans held for investment	$	20,926	Collateral Method	Third party appraisal	Costs to sell	0% - 17%
			Discounted cash flow method	Discount rate	Contractual loan rate	3.25%
Other real estate owned	3,045		Collateral method	Third party appraisal	Costs to sell	7%
Mortgage servicing rights	3,929		Discounted cash flow method	Third party service provider	Discount rate	9.39% - 12.54%
					Constant prepayment rates	7.46% - 12.74%
Total Assets	$	27,900

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS - continued



	December 31, 2019		Valuation Technique(s)		Significant Unobservable Inputs	Range
(dollars in thousands)
Impaired loans	$	38,697	Collateral Method	Third party appraisal	Costs to sell	0% - 20%
			Discounted cash flow method	Discount rate	Contractual loan rate	4.75% - 5.50%
Other real estate owned	3,231		Collateral method	Third party appraisal	Costs to sell	7%
Mortgage servicing rights	1,134		Discounted cash flow method	Third party service provider	Discount rate	9.39% - 12.54%
					Constant prepayment rates	7.46% - 12.74%
Total Assets	$	43,062

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS - continued

The carrying values and fair values of our financial instruments at March 31, 2020 and December 31, 2019 are presented in the following tables:



	Carrying Value⁽¹⁾		Fair Value Measurements at March 31, 2020
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	187,684	$	187,684	$	187,684	$	—	$	—
Securities	799,532		799,532		3,504		796,028		—
Loans held for sale	7,309		7,309		—		—		7,309
Portfolio loans, net	7,149,895		7,090,570		—		—		7,090,570
Bank owned life insurance	80,978		80,798		—		80,798		—
FHLB and other restricted stock	28,253		28,253		—		—		28,253
Securities held in a deferred compensation plan	4,782		4,782		4,782		—		—
Mortgage servicing rights	3,979		3,982		—		—		3,982
Interest rate swaps	88,135		88,135		—		88,135		—
Interest rate lock commitments	2,927		2,927		—		2,927		—
LIABILITIES
Deposits	$	7,057,879	$	7,065,896	$	5,469,826	$	1,596,070	$	—
Securities sold under repurchase agreements	69,644		69,644		69,644		—		—
Short-term borrowings	410,240		410,240		410,240		—		—
Long-term borrowings	50,180		51,675		4,630		47,045		—
Junior subordinated debt securities	64,038		64,038		64,038		—		—
Interest rate swaps	87,989		87,989		—		87,989		—
Forward sales contracts	1,292		1,292		—		1,292		—
⁽¹⁾ As reported in the Consolidated Balance Sheets



	Carrying Value⁽¹⁾		Fair Value Measurements at December 31, 2019
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	197,823	$	197,823	$	197,823	$	—	$	—
Securities	784,283		784,283		5,078		779,205		—
Loans held for sale	5,256		5,256		—		—		5,256
Portfolio loans, net	7,074,928		6,940,875		—		—		6,940,875
Bank owned life insurance	80,473		80,473		—		80,473		—
FHLB and other restricted stock	22,977		22,977		—		—		22,977
Securities held in a Deferred Compensation Plan	5,987		5,987		5,987		—		—
Mortgage servicing rights	4,662		4,650		—		—		4,650
Interest rate swaps	25,647		25,647		—		25,647		—
Interest rate lock commitments	321		321		—		321		—
Forward sale contracts	1		1		—		1		—
LIABILITIES
Deposits	$	7,036,576	$	7,034,595	$	5,441,143	$	1,593,452	$	—
Securities sold under repurchase agreements	19,888		19,888		19,888		—		—
Short-term borrowings	281,319		281,319		281,319		—		—
Long-term borrowings	50,868		51,339		4,678		46,661		—
Junior subordinated debt securities	64,277		64,277		64,277		—		—
Interest rate swaps	25,615		25,615		—		25,615		—
⁽¹⁾ As reported in the Consolidated Balance Sheets

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. SECURITIES

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



(dollars in thousands)	March 31, 2020			December 31, 2019
Available-for-sale debt securities		$	795,966		$	779,133
Marketable equity securities		3,566			5,150
Total Securities		$	799,532		$	784,283

Available-for-Sale Debt Securities

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



	March 31, 2020													December 31, 2019
(dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Fair Value
U.S. Treasury securities		$	9,972		$	400		$	—			$	10,372		$	9,969		$	71		$	—			$	10,040
Obligations of U.S. government corporations and agencies		132,938			5,044			—				137,982			155,969			1,773			(45		)		157,697
Collateralized mortgage obligations of U.S. government corporations and agencies		180,682			8,790			—				189,472			186,879			2,773			(304		)		189,348
Residential mortgage-backed securities of U.S. government corporations and agencies		20,391			802			—				21,193			22,120			321			(23		)		22,418
Commercial mortgage-backed securities of U.S. government corporations and agencies		272,651			12,028			—				284,679			273,771			2,680			(581		)		275,870
Corporate obligations		7,532			30			(11		)		7,551			7,603			24			—				7,627
Obligations of states and political subdivisions		139,530			5,187			—				144,717			112,116			4,017			—				116,133
Total Available-for-Sale Debt Securities ⁽¹⁾		$	763,696		$	32,281		$	(11	)		$	795,966		$	768,427		$	11,659		$	(953	)		$	779,133

⁽¹⁾Excludes interest receivable of $3.5 million at March 31, 2020 and $3.4 million at December 31, 2019. Interest receivable is included in other assets in the consolidated balance sheets.

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. SECURITIES – continued

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


	December 31, 2018																		March 31, 2020
	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	—	$	—	$	—		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		)	—	—		—			—	—		—		—	—		—
Corporate bonds																			2	2,989		(11		)	—	—		—		2	2,989		(11		)
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	)
Total																			2	$	2,989	$	(11	)	—	$	—	$	—	2	$	2,989	$	(11	)



	December 31, 2019
	Less Than 12 Months						12 Months or More						Total
(dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses
U.S. Treasury securities	—	$	—	$	—		—	$	—	$	—		—	$	—	$	—
Obligations of U.S. government corporations and agencies	3	22,638		(45		)	—	—		—			3	22,638		(45		)
Collateralized mortgage obligations of U.S. government corporations and agencies	6	23,393		(73		)	6	25,254		(231		)	12	48,647		(304		)
Residential mortgage-backed securities of U.S. government corporations and agencies	1	982		(2		)	1	2,534		(21		)	2	3,516		(23		)
Commercial mortgage-backed securities of U.S. government corporations and agencies	9	90,005		(581		)	—	—		—			9	90,005		(581		)
Corporate bonds	1	79		—			—	—		—			1	79		—
Obligations of states and political subdivisions	—	—		—			—	—		—			—	—		—
Total Temporarily Impaired Debt Securities	20	$	137,097	$	(701	)	7	$	27,788	$	(252	)	27	$	164,885	$	(953	)

We ~~do not believe any individual~~evaluate quarterly securities with unrealized ~~loss as of September 30, 2019 represents an~~losses to determine if the decline in fair value has resulted from credit losses or other ~~than temporary impairment, or OTTI. At September 30, 2019 there~~factors. There were 142 debt securities in an unrealized loss position at March 31, 2020 and ~~at December 31, 2018, there were 65~~27 debt securities in an unrealized loss ~~position.~~position at December 31, 2019. 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. 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~~concluded that the allowance for credit losses for debt securities was immaterial at March 31, 2020. Prior to ~~sell and it is more likely~~the adoption of ASU 2016-13 there was 0 other than ~~not that we will not be required to sell any of~~temporary impairment, or OTTI, recorded during the ~~securities in an unrealized loss position before recovery of their amortized cost.~~three months ended March 31, 2019.

1922

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4.5. SECURITIES – continued

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


	September 30, 2019									December 31, 2018									March 31, 2020									December 31, 2019
(dollars in thousands)	Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/(Losses)			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized (Losses)/ Gains			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/(Losses)			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/(Losses)
Total unrealized gains/(losses) on debt securities available-for-sale	$	13,914		$	(311	)	$	13,603		$	3,514		$	(8,628	)	$	(5,114	)
Total unrealized gains/(losses) on available-for-sale debt securities																			$	32,281		$	(11	)	$	32,270		$	11,659		$	(953	)	$	10,706
Income tax (expense) benefit	(2,967		)	66			(2,901		)	(746		)	1,832			1,086			(6,873		)	2			(6,871		)	(2,486		)	203			(2,283		)
Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)	$	10,947		$	(245	)	$	10,702		$	2,768		$	(6,796	)	$	(4,028	)	$	25,408		$	(9	)	$	25,399		$	9,173		$	(750	)	$	8,423

The amortized cost and fair value of available-for-sale debt securities ~~available-for-sale~~ at ~~September 30, 2019~~March 31, 2020 by contractual maturity are included in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	September 30, 2019				March 31, 2020
(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	$	73,193	$	73,425	$	84,687	$	85,259
Due after one year through five years	103,058		105,407		100,877		106,112
Due after five years through ten years	55,237		58,034		65,732		68,913
Due after ten years	15,090		15,867		31,144		32,786
Debt Securities Available-for-Sale With Maturities	246,578		252,733
Available-for-Sale Debt Securities With Maturities					282,440		293,070
Collateralized mortgage obligations of U.S. government corporations and agencies	151,759		155,010		180,682		189,473
Residential mortgage-backed securities of U.S. government corporations and agencies	18,504		18,826		20,391		21,193
Commercial mortgage-backed securities of U.S. government corporations and agencies	234,076		237,951		272,651		284,679
Total Debt Securities Available-for-Sale	$	650,917	$	664,520
Corporate Securities					7,532		7,551
Total Available-for-Sale Debt Securities					$	763,696	$	795,966

Debt securities with carrying values of ~~$222.3~~$298.4 million at ~~September 30, 2019~~March 31, 2020 and ~~$236.0~~$286.0 million at December 31, ~~2018~~2019 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 September 30, Nine Months Ended
September 30,
(dollars in thousands) 2019
2018
2019
2018
Marketable Equity Securities
Net market gains/(losses) recognized $ 156
$ (111 ) $ (110 ) $ 171
Less: Net gains recognized for equity securities sold —
—
—
—
Unrealized Gains/(Losses) on Equity Securities Still Held $ 156
$ (111 ) $ (110 ) $ 171



	Three Months Ended March 31,
(dollars in thousands)	2020			2019
Marketable Equity Securities
Net gains and losses recognized during the period on equity securities	$	(1,585	)	$	(318	)
Less: Net gains and losses recognized during the period on equity securities sold during the period	—			—
Unrealized Losses/Gains Recognized During the Reporting Period on Equity Securities Still Held at the Reporting Date	$	(1,585	)	$	(318	)

~~Prior to January 1, 2018, net~~Total 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 recognized during the current period are included in other noninterest income on the Consolidated Statements of Comprehensive Income.

2023

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of ~~$4.6~~$5.0 million at ~~September 30, 2019~~March 31, 2020 and ~~$5.3~~$4.6 million at December 31, ~~2018.~~2019 and net of a discount related to purchase accounting fair value adjustments of $10.9 million and $12.3 million at March 31, 2020 and December 31, 2019. The following table ~~indicates the composition of~~presents loans as of the dates presented:


(dollars in thousands)	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Commercial
Commercial real estate	$	2,922,197	$	2,921,832	$	3,442,495	$	3,416,518
Commercial and industrial	1,626,854		1,493,416		1,781,402		1,720,833
Commercial construction	314,813		257,197		396,518		375,445
Total Commercial Loans	4,863,864		4,672,445		5,620,415		5,512,796
Consumer
Residential mortgage	770,882		726,679		988,816		998,585
Home equity	475,024		471,562
Home Equity					544,405		538,348
Installment and other consumer	74,460		67,546		79,887		79,033
Consumer construction	11,535		8,416		13,222		8,390
Total Consumer Loans	1,331,901		1,274,203		1,626,330		1,624,356
Total Portfolio Loans	6,195,765		5,946,648		7,246,745		7,137,152
Loans held for sale	8,371		2,371		7,309		5,256
Total Loans(1)	$	6,204,136	$	5,949,019	$	7,254,054	$	7,142,408

⁽¹⁾Excludes interest receivable of $22.1 million at both March 31, 2020 and December 31, 2019. Interest receivable is included in other assets in the consolidated balance sheets.

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~~77.6 percent of total portfolio loans at ~~September 30, 2019~~March 31, 2020 and ~~78.6~~77.2 percent at December 31, ~~2018.~~2019. Within our commercial portfolio, the ~~Commercial Real Estate, or~~ CRE and Commercial Construction portfolios combined comprised ~~$3.2~~$3.8 billion or ~~66.6~~68.3 percent of total commercial loans at ~~September 30, 2019~~March 31, 2020 and ~~$3.2~~$3.8 billion or ~~68.0~~68.8 percent of total commercial loans at December 31, ~~2018~~2019 and ~~52.2~~53.0 percent of total portfolio loans at ~~September 30, 2019~~March 31, 2020 and ~~53.5~~53.1 percent at December 31, ~~2018.~~2019. Further segmentation of the CRE and ~~Commercial Construction~~commercial construction portfolios by collateral type reveals 0 concentration in excess of ~~13.3~~13.6 percent of both total CRE and ~~Commercial Construction~~commercial construction loans at ~~September 30, 2019~~March 31, 2020 and ~~13.7~~11 percent at December 31, ~~2018.~~2019.

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~~commercial construction portfolios have exposure outside of this geography of ~~6.4~~5.4 percent of the combined portfolios and ~~3.4~~2.8 percent of total portfolio loans at ~~September 30, 2019.~~March 31, 2020. This compares to 5.4 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, ~~2018.~~2019.

We individually evaluate all substandard and nonaccrual 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~~such 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 5.6. LOANS AND LOANS HELD FOR SALE - continued

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


	September 30, 2019						December 31, 2018						March 31, 2020
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	21,448	$	10,880	$	32,328	$	2,054	$	1,139	$	3,193	$	30	$	28,973	$	29,003
Commercial and industrial	9,065		787		9,852		7,026		6,646		13,672		4,566		4,665		9,231
Commercial construction	1,913		406		2,319		1,912		406		2,318		3,316		—		3,316
Residential mortgage	1,922		1,195		3,117		2,214		1,543		3,757
Home equity	4,076		1,226		5,302		3,568		1,349		4,917
Installment and other consumer	10		2		12		12		5		17
Business banking													1,524		352		1,876
Consumer real estate													5,749		2,064		7,813
Other consumer													4		—		4
Total(1)	$	38,434	$	14,496	$	52,930	$	16,786	$	11,088	$	27,874	$	15,189	$	36,055	$	51,243

⁽¹⁾Refer to Note 1, Basis of Presentation for details of reclassification of our portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.



	December 31, 2019
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	22,233	$	6,713	$	28,946
Commercial and industrial	6,909		695		7,604
Commercial construction	1,425		—		1,425
Residential mortgage	2,013		822		2,835
Home equity	4,371		678		5,049
Installment and other consumer	9		4		13
Total	$	36,960	$	8,912	$	45,872

The significant increase in ~~performing~~nonperforming TDRs at March 31, 2020 compared to December 31, 2019 primarily related to a ~~$19.9~~$20.9 million CRE relationship that ~~was modified during~~became a performing TDR in the third quarter of ~~2019.~~2019 and then moved to nonperforming in the first quarter of 2020 when the borrower experienced financial deterioration that led to cash flow issues. The ~~modification granted a concession~~relationship was individually assessed at March 31, 2020 resulting in no ACL due to the borrower ~~that reduced~~being current on 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~~modified terms and ~~sufficient collateral value further support~~ the ~~performing status of the loan.~~relationship is fully collateralized.

There were 3 TDRs totaling $0.2 million that returned to accruing status during the three months ended September 30, 2019 and 5 TDRs totaling $0.2 million that returned to accruing status during the nine months ended September 30, 2019. There were 0 TDRs that returned to accruing status during the three ~~and nine~~ months ended ~~September 30, 2018.~~March 31, 2020. There were 3 TDRs totaling $1.7 million that returned to accruing status during the three months ended March 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE - continued

The following tables present the restructured loans by ~~loan~~portfolio segment and by type of concession for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018:~~2019:


	Three Months Ended September 30, 2019								Three Months Ended September 30, 2018								Three Months Ended March 31, 2020
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
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		)	—	—		—		—
Principal deferral and maturity date extension																	1	$	2,210	$	2,210	$	—
Total Commercial Real Estate	5	24,086		23,784		(302		)	1	256		250		(6		)	1	2,210		2,210		—
Commercial and Industrial
Principal deferral	1	1,250		1,250		—			—	—		—		—
Principal deferral and maturity date extension	1	292		277		(15		)	—	—		—		—			5	3,780		3,780		—
Total Commercial and Industrial	2	1,542		1,527		(15		)	—	—		—		—			5	3,780		3,780		—
Residential Mortgage
Commercial Construction																		—
Maturity date extension																	1	1,891		1,891		—
Total Commercial Construction																	1	1,891		1,891		—
Consumer Real Estate
Consumer bankruptcy⁽²⁾	—	—		—		—			2	188		186		(2		)	6	388		388		—
Total Residential Mortgage	—	—		—		—			2	188		186		(2		)
Home equity
Maturity date extension and reduction in payment																	1	27		27		—
Total Consumer Real Estate																	7	415		415		—
Totals by Concession Type
Principal deferral and maturity date extension																	6	5,991		5,991		—
Maturity date extension																	1	1,891		1,891		—
Consumer bankruptcy⁽²⁾	14	504		485		(19		)	6	193		191		(2		)	6	388		388		—
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.
Maturity date extension and payment reduction																	1	27		27		—
Total⁽³⁾																	14	$	8,297	$	8,297	$	—
⁽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. ⁽³⁾Refer to Note 1, Basis of Presentation for details of reclassification of our portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.																	⁽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. ⁽³⁾Refer to Note 1, Basis of Presentation for details of reclassification of our portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE - continued


	Nine Months Ended September 30, 2019								Nine Months Ended September 30, 2018								Three Months Ended March 31, 2019
(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
Totals by Loan Segment
Commercial real estate
Maturity date extension	1	$	1,322	$	1,298	$	(24	)	1	$	256	$	250	$	(6	)
Commercial and Industrial
Maturity date extension and interest rate reduction	1	151		147		(4		)	—	—		—		—			1	$	5,201	$	5,201	$	—
Principal deferral	3	23,517		23,236		(281		)	—	—		—		—
Principal forgiveness	1	4,690		4,518		(172		)	—	—		—		—
Non Market Rate Loan	2	569		548		(21		)	—	—		—		—
Total Commercial Real Estate	8	30,249		29,747		(502		)	1	256		250		(6		)
Commercial and Industrial
Maturity date extension	—	—		—		—			2	768		657		(111		)
Maturity date extension and interest rate reduction	1	4,751		4,333		(418		)	—	—		—		—
Principal deferral	1	1,250		1,250		—			3	4,815		4,466		(349		)
Principal deferral and Maturity date extension	1	292		277		(15		)	6	5,355		5,225		(130		)
Principal deferral and maturity date extension																	—	—		—		—
Total Commercial and Industrial	3	6,293		5,860		(433		)	11	10,938		10,348		(590		)	1	5,201		5,201		—
Residential Mortgage
Consumer bankruptcy⁽²⁾	3	165		160		(5		)	5	387		380		(7		)	1	49		49		—
Total Residential Mortgage	3	165		160		(5		)	5	387		380		(7		)	1	49		49		—
Home equity
Home Equity
Consumer bankruptcy⁽²⁾	27	801		746		(55		)	17	798		668		(130		)	7	191		168		(23		)
Interest rate reduction	2	190		189		(1		)	—	—		—		—			1	81		81		—
Maturity date extension and reduction in payment																	—	—		—		—
Total Home Equity																	8	272		249		(23		)
Totals by Concession Type
Maturity date extension and interest rate reduction	—	—		—		—			2	47		47		—			1	5,201		5,201		—
Total Home Equity	29	991		934		(56		)	19	845		715		(130		)
Installment and Other Consumer
Consumer bankruptcy⁽²⁾	3	13		10		(3		)	1	12		6		(6		)	8	240		217		(23		)
Total Installment and Other Consumer	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		)	—	—		—		—			1	81		81		—
Maturity date extension	1	1,322		1,298		(24		)	3	1,024		907		(117		)
Maturity date extension and interest rate reduction	2	4,902		4,480		(422		)	2	47		47		—
Principal deferral	4	24,767		24,486		(281		)	3	4,815		4,466		(349		)
Principal deferral and maturity date extension	1	292		277		(15		)	6	5,355		5,225		(130		)
Principal forgiveness	1	4,690		4,518		(172		)	—	—		—		—
Below market interest rate	2	569		548		(21		)	—	—		—		—
Total	46	$	37,711	$	36,712	$	(999	)	37	$	12,438	$	11,699	$	(739	)	10	$	5,522	$	5,499	$	(23	)
⁽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.																	⁽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.

In response to the COVID-19 pandemic and its economic impact to our customers, we implemented a short-term modification program that complies with the Coronavirus Aid, Relief, and Economic Security, or CARES Act to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. This program allows for a deferral of payments for 90 days, up to a maximum of 180 days for our commercial customers. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. For our consumer customers interest does not accrue during the deferral period and the maturity date is extended by the length of the deferral period. Under the applicable guidance, none of these loans were considered restructured as of March 31, 2020.

24As of March 31, 2020, we had 20 commitments to lend an additional $2.3 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 11 TDRs that defaulted during the three months ended March 31, 2020 totaling $21.1 million and 0 TDRs that defaulted during the three months ended March 31, 2019 that were restructured within the last 12 months prior to defaulting. The large increase in defaulted TDRs is related to one CRE customer with 5 notes totaling $20.9 million discussed above.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE - continued

As of September 30, 2019, we had 13 commitments to lend an additional $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 0 TDRs that defaulted during the three and nine months ended 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)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Nonperforming Assets
Nonaccrual loans		$	35,487		$	34,985		$	37,744		$	45,145
Nonaccrual TDRs		14,496			11,088			36,055			8,912
Total Nonaccrual Loans		49,983			46,073			73,799			54,057
OREO		1,724			3,092			3,389			3,525
Total Nonperforming Assets		$	51,707		$	49,165		$	77,188		$	57,582

The significant increase in nonperforming TDRs primarily related to a $20.9 million CRE relationship discussed above.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6.7. ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES

We maintain an ~~allowance for loan losses, or ALL,~~ACL at a level determined to be adequate to absorb estimated ~~probable~~expected credit losses ~~inherent~~ within the loan portfolio over the contractual life of an instrument that considers our historical loss experience, current conditions and forecasts of future economic conditions as of the balance sheet date. We develop and document a systematic ~~ALL~~ACL methodology based on the following portfolio segments: 1) Construction, 2) Commercial Real Estate, or CRE, 2)3) Commercial and Industrial, or C&I, ~~3) Commercial Construction,~~ 4) Business Banking, 5) Consumer Real Estate and 5)6) 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~~retail, multifamily, and ~~apartments.~~health care. 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.

Business Banking—Commercial loans made to small businesses that are standard, non-complex products evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards that meet small business market customers’ needs. The business banking portfolio is monitored by utilizing a standard and closely managed process focusing on behavioral and performance criteria. 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 business.

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

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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

The ALL 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, business banking and consumer loan portfolios, including ~~delinquency,~~changes in risk ratings, nonperforming status and ~~changes in risk ratings~~delinquency 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:~~

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
Commercial real estate $ 2,886,051
$ 1,845
$ 561
$ 33,740
$ 36,146
$ 2,922,197
Commercial and industrial 1,620,286
2,049
313
4,206
6,568
1,626,854
Commercial construction 313,190
480
—
1,143
1,623
314,813
Residential mortgage 760,601
1,566
1,331
7,384
10,281
770,882
Home equity 469,805
1,370
357
3,492
5,219
475,024
Installment and other consumer 74,233
132
77
18
227
74,460
Consumer construction 11,535
—
—
—
—
11,535
Loans held for sale 8,371
—
—
—
—
8,371
Total $ 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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued

Special Mention—A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in the strength of our credit position at some future date. ~~Economic and market conditions, beyond the borrower’s control, may in the future necessitate this classification.~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

Substandard—A substandard loan is not adequately protected by the net worth and/or paying capacity of the borrower or by the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful—Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

The following ~~tables present the recorded investment in commercial~~table presents loan ~~classes~~balances by year of origination and internally assigned risk ~~ratings~~rating for our portfolio segments as of ~~the dates presented:~~March 31, 2020:


	September 30, 2019																Risk Rating
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total		2020		2019		2018		2017		2016		2015 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Pass	$	2,767,646	94.7	%	$	1,547,375	95.0	%	$	304,135	96.6	%	$	4,618,155	94.9	%	$	169,367	$	483,699	$	452,024	$	359,553	$	416,420	$	882,326	$	59,032	—		$	2,822,421
Special mention	60,096		2.1	%	43,482		2.7	%	7,112		2.3	%	110,690		2.3	%
Special Mention																	—		3,236		187		11,591		10,005		26,575		850		—		52,444
Substandard	94,455		3.2	%	36,997		2.3	%	3,566		1.1	%	135,019		2.8	%	—		—		1,462		—		25,285		50,348		3,008		21		80,124
Total	$	2,922,197	100.0	%	$	1,626,854	100.0	%	$	314,813	100.0	%	$	4,863,864	100.0	%
Total Commercial Real Estate																	169,367		486,935		453,673		371,144		451,710		959,249		62,890		21		2,954,989

Commercial and Industrial
Pass																	75,969		240,261		165,631		103,537		73,798		282,138		486,045		—		1,427,379
Special Mention																	—		6,239		3,525		947		1,883		9,437		31,890		—		53,921
Substandard																	—		5,666		2,301		3,785		1,621		12,232		17,316		—		42,921
Total Commercial and Industrial																	75,969		252,166		171,457		108,269		77,302		303,807		535,251		—		1,524,221
	December 31, 2018
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Commercial Construction
Pass	$	2,776,292	95.0	%	$	1,394,427	93.4	%	$	233,190	90.7	%	$	4,403,909	94.3	%	23,004		179,956		117,527		17,122		18,986		11,586		11,992		—		380,173
Special mention	54,627		1.9	%	25,368		1.7	%	7,349		2.8	%	87,344		1.8	%
Special Mention																	—		—		—		—		—		5,117		91		—		5,208
Substandard	90,913		3.1	%	73,621		4.9	%	16,658		6.5	%	181,192		3.9	%	—		—		—		1,041		—		3,780		—		—		4,821
Total	$	2,921,832	100.0	%	$	1,493,416	100.0	%	$	257,197	100.0	%	$	4,672,445	100.0	%
Total Commercial Construction																	23,004		179,956		117,527		18,163		18,986		20,483		12,083		—		390,202

Business Banking
Pass																	40,952		181,242		148,419		103,027		89,925		327,333		125,800		—		1,016,698
Special Mention																	—		62		1,496		1,775		1,181		7,902		737		—		13,153
Substandard																	—		382		3,111		3,646		4,006		27,803		1,665		—		40,613
Total Business Banking																	40,952		181,686		153,026		108,448		95,112		363,038		128,202		—		1,070,464

Consumer Real Estate
Pass																	33,737		149,942		86,463		83,402		92,013		316,169		432,274		20,966		1,214,966
Special Mention																	—		—		—		—		798		304		—		—		1,102
Substandard																	—		190		71		537		1,103		7,410		305		1,385		11,001
Total Consumer Real Estate																	33,737		150,132		86,534		83,939		93,914		323,883		432,579		22,351		1,227,069

Other consumer
Pass																	8,706		9,522		10,670		6,474		5,088		3,365		28,156		773		72,754
Special Mention																	—		—		—		—		—		—		—		—		—
Substandard																	—		488		132		132		594		4,252		322		1,126		7,046
Total Other Consumer																	8,706		10,010		10,802		6,606		5,682		7,617		28,478		1,899		79,800

Total Loan Balance																	$	351,735	$	1,260,885	$	993,019	$	696,569	$	742,706	$	1,978,077	$	1,199,483	$	24,271	$	7,246,745

Substandard loans decreased $46.2 million to $135.0 million at 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 $23.4 million to $110.7 million at 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 commercial and consumer ~~portfolio~~portfolios on a monthly basis. Loans are considered nonperforming when interest and principal are 90 days or more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans.

~~The following tables present the recorded investment in consumer loan classes by performing and nonperforming status as of the dates presented:~~

September 30, 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
Performing $ 763,498
99.0 % $ 471,532
99.3 % $ 74,442
100.0 % $ 11,535
100.0 % $ 1,321,007
99.2 %
Nonperforming 7,384
1.0 % 3,492
0.7 % 18
— % —
— % 10,894
0.8 %
Total $ 770,882
100.0 % $ 475,024
100.0 % $ 74,460
100.0 % $ 11,535
100.0 % $ 1,331,901
100.0 %

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
Performing $ 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 %
Total $ 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

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

~~or other impaired 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:~~

September 30, 2019 December 31, 2018
(dollars in thousands)
Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance
With a related allowance recorded:
Commercial real estate $ 13,081
$ 14,322
$ 2,006
$ 7,733
$ 7,733
$ 1,295
Commercial and industrial —
—
—
884
893
360
Commercial construction 490
490
128
489
489
87
Consumer real estate —
—
—
15
14
10
Other consumer 11
10
10
11
12
11
Total with a Related Allowance Recorded 13,582
14,822
2,144
9,132
9,141
1,763
Without a related allowance recorded:
Commercial real estate 38,368
42,784
—
3,636
4,046
—
Commercial and industrial 9,852
12,582
—
12,788
14,452
—
Commercial construction 2,318
3,828
—
15,286
19,198
—
Consumer real estate 8,418
9,309
—
8,659
9,635
—
Other consumer 2
9
—
5
18
—
Total without a Related Allowance Recorded 58,958
68,512
—
40,374
47,349
—
Total:
Commercial real estate 51,449
57,106
2,006
11,369
11,779
1,295
Commercial and industrial 9,852
12,582
—
13,672
15,345
360
Commercial construction 2,808
4,318
128
15,775
19,687
87
Consumer real estate 8,418
9,309
—
8,674
9,649
10
Other consumer 13
19
10
16
30
11
Total $ 72,540
$ 83,334
$ 2,144
$ 49,506
$ 56,490
$ 1,763

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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

Three Months Ended
September 30, 2019 September 30, 2018
(dollars in thousands)
Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized
With a related allowance recorded:
Commercial real estate $ 14,255
$ —
$ —
$ —
Commercial and industrial —
—
—
—
Commercial construction 490
—
496
—
Consumer real estate —
—
15
—
Other consumer 11
—
17
1
Total with a Related Allowance Recorded 14,756
—
528
1
Without a related allowance recorded:
Commercial real estate 39,179
231
3,744
41
Commercial and industrial 8,008
116
14,412
73
Commercial construction 2,318
34
2,809
61
Consumer real estate 8,830
97
9,320
112
Other consumer 3
—
13
—
Total without a Related Allowance Recorded 58,338
478
30,298
287
Total:
Commercial real estate 53,434
231
3,744
41
Commercial and industrial 8,008
116
14,412
73
Commercial construction 2,808
34
3,305
61
Consumer real estate 8,830
97
9,335
112
Other consumer 14
—
30
1
Total $ 73,094
$ 478
$ 30,826
$ 288

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

Nine months ended
September 30, 2019 September 30, 2018
(dollars in thousands)
Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized
With a related allowance recorded:
Commercial real estate $ 14,348
$ —
$ —
$ —
Commercial and industrial —
—
—
—
Commercial construction 490
—
585
—
Consumer real estate —
—
16
1
Other consumer 13
1
21
1
Total with a Related Allowance Recorded 14,851
1
622
2
Without a related allowance recorded:
Commercial real estate 39,788
712
3,895
126
Commercial and industrial 6,644
308
11,567
232
Commercial construction 2,318
117
2,813
134
Consumer real estate 8,993
297
10,031
370
Other consumer 4
—
15
—
Total without a Related Allowance Recorded 57,747
1,434
28,321
862
Total:
Commercial real estate 54,136
712
3,895
126
Commercial and industrial 6,644
308
11,567
232
Commercial construction 2,808
117
3,398
134
Consumer real estate 8,993
297
10,047
371
Other consumer 17
1
36
1
Total $ 72,598
$ 1,435
$ 28,943
$ 864

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6.7. ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES – continued

The following ~~tables detail activity in the ALL~~table presents loan balances by year of origination and performing and nonperforming status for ~~the periods presented:~~our portfolio segments as of March 31, 2020:

Three Months Ended September 30, 2019
(dollars in thousands)
Commercial
Real Estate

Commercial and
Industrial

Commercial
Construction

Consumer
Real Estate

Other
Consumer

Total
Loans
Balance at beginning of period $ 32,836
$ 13,227
$ 7,254
$ 6,571
$ 1,591
$ 61,479
Charge-offs (2,304 ) (1,467 ) —
(404 ) (525 ) (4,700 )
Recoveries 6
210
1
102
104
423
Net (Charge-offs)/Recoveries (2,298 )
(1,257 )
1

(302 )
(421 ) (4,277 )
Provision for loan losses 1,292

2,397

620

65

539

4,913
Balance at End of Period $ 31,831
$ 14,366
$ 7,875
$ 6,334
$ 1,709
$ 62,115

Three 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 $ 31,232
$ 10,874
$ 11,676
$ 5,241
$ 1,494
$ 60,517
Charge-offs (141 ) (181 ) —
(487 ) (425 ) (1,234 )
Recoveries 64
504
4
70
169
811
Net (Charge-offs)/Recoveries (77 ) 323
4
(417 ) (256 ) (423 )
Provision for loan losses 1,735
(971 ) (765 ) 214
249
462
Balance at End of Period $ 32,890
$ 10,226
$ 10,915
$ 5,038
$ 1,487
$ 60,556

Nine Months Ended September 30, 2019
(dollars in thousands)
Commercial
Real Estate

Commercial and
Industrial

Commercial
Construction

Consumer
Real Estate

Other
Consumer

Total
Loans
Balance at beginning of period $ 33,707
$ 11,596
$ 7,983
$ 6,187
$ 1,523
$ 60,996
Charge-offs (2,833 ) (8,379 ) —
(815 ) (1,364 ) (13,391 )
Recoveries 134
718
4
595
292
1,743
Net (Charge-offs)/Recoveries (2,699 )
(7,661 )
4

(220 )
(1,072 )
(11,648 )
Provision for loan losses 823

10,431

(112 )
367

1,258

12,767
Balance at End of Period $ 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



(dollars in thousands)	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Performing	$	169,367	$	486,935	$	453,673	$	371,144	$	431,919	$	935,536	$	59,882	$	—	$	2,908,456
Nonperforming	—		—		—		—		19,791		23,713		3,008		21		46,533
Total Commercial Real Estate	169,367		486,935		453,673		371,144		451,710		959,249		62,890		21		2,954,989

Commercial and Industrial
Performing	75,969		252,166		171,093		108,269		76,593		303,745		531,881		—		1,519,716
Nonperforming	—		—		364		—		709		62		3,370		—		4,505
Total Commercial and Industrial	75,969		252,166		171,457		108,269		77,302		303,807		535,251		—		1,524,221

Commercial Construction
Performing	23,004		179,956		117,527		18,055		18,986		20,020		12,083		—		389,631
Nonperforming	—		—		—		108		—		463		—		—		571
Total Commercial Construction	23,004		179,956		117,527		18,163		18,986		20,483		12,083		—		390,202

Business Banking
Performing	40,952		181,576		151,933		107,176		94,230		355,259		128,022		—		1,059,148
Nonperforming	—		110		1,093		1,272		882		7,779		180		—		11,316
Total Business Banking	40,952		181,686		153,026		108,448		95,112		363,038		128,202		—		1,070,464

Consumer Real Estate
Performing	33,737		149,942		86,401		83,526		90,151		318,926		432,403		21,367		1,216,453
Nonperforming	—		190		133		413		3,763		4,957		176		984		10,616
Total Consumer Real Estate	33,737		150,132		86,534		83,939		93,914		323,883		432,579		22,351		1,227,069

Other Consumer
Performing	8,706		10,010		10,802		6,606		5,682		7,359		28,478		1,899		79,542
Nonperforming	—		—		—		—		—		258		—		—		258
Total Other Consumer	8,706		10,010		10,802		6,606		5,682		7,617		28,478		1,899		79,800

Performing	351,735		1,260,585		991,429		694,776		717,561		1,940,845		1,192,749		23,266		7,172,946
Nonperforming	—		300		1,590		1,793		25,145		37,232		6,734		1,005		73,799
Total Loan Balance	$	351,735	$	1,260,885	$	993,019	$	696,569	$	742,706	$	1,978,077	$	1,199,483	$	24,271	$	7,246,745

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



	March 31, 2020
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due⁽¹⁾		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	2,901,375	$	6,381	$	—	$	700	$	46,533	$	53,614	$	2,954,989
Commercial and industrial	1,516,639		463		—		2,615		4,505		7,582		1,524,221
Commercial construction	388,122		576		—		933		571		2,080		390,202
Business banking	1,048,241		6,758		3,381		768		11,316		22,223		1,070,464
Consumer real estate	1,211,865		3,859		646		83		10,616		15,203		1,227,069
Other consumer	79,083		174		91		195		258		717		79,800
Total	$	7,145,326	$	18,211	$	4,117	$	5,294	$	73,799	$	101,419	$	7,246,745

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6.7. ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES – continued



	December 31, 2019
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Past Due⁽¹⁾		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	3,025,505	$	7,749	$	71	$	911	$	25,356	$	34,087	$	3,059,592
Commercial and industrial	1,466,460		126		1,589		1,443		10,911		14,069		1,480,529
Commercial construction	367,204		956		1,163		—		737		2,856		370,060
Business banking	830,735		5,093		1,099		—		9,863		16,055		846,790
Consumer real estate	1,283,591		2,620		1,758		1,175		6,063		11,616		1,295,207
Other consumer	81,866		1,448		305		228		1,127		3,108		84,974
Total	$	7,055,361	$	17,992	$	5,985	$	3,757	$	54,057	$	81,791	$	7,137,152

⁽¹⁾Represents acquired loans that were recorded at fair value at the acquisition date and remain performing at March 31, 2020 and December 31, 2019.

The following ~~tables present the ALL~~table presents loans on nonaccrual status and ~~recorded investments in~~ loans past due 90 days or more and still accruing by ~~category as~~class of ~~the periods presented:~~loan:


	September 30, 2019
	Allowance for Loan Losses						Portfolio Loans						As or for the Three Months Ended March 31, 2020
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing		Interest Income Recognized on Nonaccrual
Commercial real estate	$	2,006	$	29,825	$	31,831	$	51,449	$	2,870,748	$	2,922,197		$25,356	$	46,533		$39,454	$	700		$684
Commercial and industrial	—		14,366		14,366		9,852		1,617,002		1,626,854		10,911		4,505		4,054		2,615		64
Commercial construction	128		7,747		7,875		2,808		312,005		314,813		737		571		285		933		—
Business banking													9,863		11,316		2,363		768		58
Consumer real estate	—		6,334		6,334		8,418		1,249,023		1,257,441		6,063		10,616		398		83		47
Other consumer	10		1,699		1,709		13		74,447		74,460		1,127		258		—		195		28
Total	$	2,144	$	59,971	$	62,115	$	72,540	$	6,123,225	$	6,195,765		$54,057		$73,799		$46,554	$	5,294		$881

	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

The following table presents collateral-dependent loans by class of loan:



	March 31, 2020
	Type of Collateral
(dollars in thousands)	Real Estate		Blanket Lien		Investment/Cash		Other
Commercial real estate		$51,630		$—		$—		$—
Commercial and industrial	4,686		4,545		40		—
Commercial construction	3,602		—		—		—
Business banking	2,322		876		—		689
Consumer real estate	—		—		—		—
Other consumer	398		—		—		—
Total		$62,638		$5,421		$40		$689

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued

The following table presents activity in the ACL for the three months ended March 31, 2020:



	Three Months Ended March 31, 2020
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Business Banking⁽¹⁾			Consumer Real Estate			Other Consumer			Total Loans
Allowance for credit losses on loans:
Balance at beginning of period	$	30,577		$	15,681		$	7,900		$	—		$	6,337		$	1,729		$	62,224
Impact of CECL adoption	4,810			7,853			(3,376		)	12,898			4,525			642			27,352
Provision for credit losses on loans	7,639			6,196			2,309			1,194			472			620			18,430
Charge-offs	(442		)	(9,879		)	(229		)	(460		)	(172		)	(248		)	(11,430		)
Recoveries	27			19			2			74			38			114			274
Net (Charge-offs)/Recoveries	(415		)	(9,860		)	(227		)	(386		)	(134		)	(134		)	(11,156		)
Balance at End of Period	$	42,611		$	19,870		$	6,606		$	13,706		$	11,200		$	2,857		$	96,850

⁽¹⁾ In connection with our adoption of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Our new segmentation breaks out business banking loans from our other loan segments: CRE, C&I , commercial construction, consumer real estate and other consumer. The business banking allowance balance at the beginning of period is included in the other segments and reclassified to business banking through the impact of CECL adoption line.

The adoption of ASU 2016-13 resulted in an increase to our ACL of $27.4 million on January 1, 2020. The increase included $8.2 million for S&T legacy loans and $9.3 million for acquired loans from the DNB merger. We also recorded a day one adjustment of $9.9 million primarily related to a C&I relationship that was charged off in the first quarter of 2020. We obtained information on the relationship subsequent to filing our December 31, 2019 10-K, but before the end of the first quarter of 2020. The updated information supported a loss existed at January 1, 2020. The significant increase in the provision for credit losses during the three months ended March 31, 2020 was mainly due to the COVID-19 pandemic. We added approximately $14.9 million to the ACL in the first quarter of 2020 related to qualitative factors. This included $11.2 million for a revised economic forecast and the impact of that forecast on certain loan portfolios due to the COVID-19 pandemic. Changes in current conditions resulted in an additional $3.7 million increase in the ACL.

Prior to the adoption of ASU 326 on January 1, 2020, we calculated our allowance for loan losses using an incurred loan loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.

The following table presents the recorded investment in commercial loan classes by internally assigned risk ratings as of December 31, 2019:



	December 31, 2019
(dollars in thousands)	Commercial Real Estate		% of Total		Commercial and Industrial		% of Total		Commercial Construction		% of Total		Total		% of Total
Pass	$	3,270,437	95.7	%	$	1,636,314	93.4	%	$	347,324	92.5	%	$	5,254,076	95.3	%
Special mention	57,285		1.7	%	36,484		1.7	%	10,109		2.7	%	103,878		1.9	%
Substandard	86,772		2.5	%	47,980		4.9	%	17,899		4.8	%	152,651		2.8	%
Doubtful	2,023		—	%	55		—	%	133		—	%	2,191		—	%
Total	$	3,416,518	100.0	%	$	1,720,833	100.0	%	$	375,445	100.0	%	$	5,512,796	100.0	%

The following table presents the recorded investment in consumer loan classes by performing and nonperforming status as of December 31, 2019:



	December 31, 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
Performing	$	991,066	99.2	%	$	535,709	99.5	%	$	78,993	99.9	%	$	8,390	100.0	%	$	1,614,158	99.4	%
Nonperforming	7,519		0.8	%	2,639		0.5	%	40		0.1	%	—		—	%	10,198		0.6	%
Total	$	998,585	100.0	%	$	538,348	100.0	%	$	79,033	100.0	%	$	8,390	100.0	%	$	1,624,356	100.0	%

The following table presents investments in loans considered to be impaired and related information on those impaired loans as of December 31, 2019:

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ~~RIGHT-OF-USE ASSETS~~ALLOWANCE FOR CREDIT LOSSES – continued



	December 31, 2019
(dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance
With a related allowance recorded:
Commercial real estate	$	13,011	$	14,322	$	2,023
Commercial and industrial	10,001		10,001		55
Commercial construction	489		489		113
Consumer real estate	—		—		—
Other consumer	9		9		9
Total with a Related Allowance Recorded	23,510		24,821		2,200
Without a related allowance recorded:
Commercial real estate	34,909		40,201		—
Commercial and industrial	7,605		10,358		—
Commercial construction	1,425		2,935		—
Consumer real estate	7,884		8,445		—
Other consumer	4		11		—
Total without a Related Allowance Recorded	51,827		61,950		—
Total:
Commercial real estate	47,920		54,523		2,023
Commercial and industrial	17,606		20,359		55
Commercial construction	1,914		3,424		113
Consumer real estate	7,884		8,445		—
Other consumer	13		20		9
Total	$	75,337	$	86,771	$	2,200

Table of Contents

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

~~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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued

The following table presents average recorded investment 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 isinterest income recognized on ~~a straight-line basis over~~impaired loans for the ~~lease term~~three months ended March 31, 2019:



	Three months ended
	March 31, 2019
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:
Commercial real estate	$	15,107	$	144
Commercial and industrial	12,780		209
Commercial construction	2,319		140
Consumer real estate	8,846		417
Other consumer	4		—
Total with a Related Allowance Recorded	39,056		910
Without a related allowance recorded:
Commercial real estate	12,983		400
Commercial and industrial	980		35
Commercial construction	489		—
Consumer real estate	14		1
Other consumer	10		1
Total without a Related Allowance Recorded	14,476		437
Total:
Commercial real estate	28,090		544
Commercial and industrial	13,760		244
Commercial construction	2,808		140
Consumer real estate	8,860		418
Other consumer	14		1
Total	$	53,532	$	1,347

The following table details activity in the allowance for ~~operating leases. Interest and amortization expenses are recognized~~loan losses for ~~finance leases over~~ the ~~lease term.~~three months ended March 31, 2019:



	Three Months Ended March 31, 2019
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Consumer Real Estate			Other Consumer			Total Loans
Balance at beginning of period	$	33,707		$	11,596		$	7,983		$	6,187		$	1,494		$	6,996
Charge-offs	(1		)	(5,477		)	—			(162		)	(425		)	(6,023		)
Recoveries	122			417			—			148			169			787
Net (Charge-offs)/Recoveries	121			(5,060		)	—			(14		)	(256		)	(5,236		)
Provision for credit losses	1,075			5,460			(1,226		)	5			249			5,649
Balance at End of Period	$	34,903		$	11,996		$	6,757		$	6,178		$	1,487		$	61,409

~~We have~~ 45 ~~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~~ 43 ~~operating leases and~~ 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~~the allowance for loan losses and ~~maturity analysis of lease liabilities for finance and operating leases~~recorded investments in loans by category as of ~~September 30, 2019 and for the periods presented:~~December 31,2019:

September 30, 2019
(in thousands, except weighted-averages) Three Months Ended Nine Months Ended
Operating lease expense $ 995
$ 3,061
Amortization of ROU assets - finance leases 23
68
Interest on lease liabilities - finance leases ⁽¹⁾
18
54
Total Lease Expense $ 1,036
$ 3,183
Operating Leases
ROU assets $ 37,534
Operating cash flows $ 931
Finance Leases
ROU assets $ 1,168
Operating cash flows $ 55
Financing cash flows $ 34
Weighted Average Lease Term - Years
Operating leases 19.94
Finance leases 15.16
Weighted Average Discount Rate
Operating leases 6.13 %
Finance leases 5.98 %

⁽¹⁾ ~~Included in borrowings interest expense in our Consolidated Statements of Comprehensive Income. All other lease costs in this table are included in net occupancy expense.~~

(dollars in thousands)
Maturity Analysis Finance
Operating Total
2019 $ 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



	December 31, 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	$	2,023	$	28,554	$	30,577	$	47,920	$	3,368,598	$	3,416,518
Commercial and industrial	55		15,626		15,681		17,606		1,703,227		1,720,833
Commercial construction	113		7,787		7,900		1,914		373,531		375,445
Consumer real estate	—		6,337		6,337		7,884		1,537,439		1,545,323
Other consumer	9		1,720		1,729		13		79,020		79,033
Total	$	2,200	$	60,024	$	62,224	$	75,337	$	7,061,815	$	7,137,152

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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 relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

Derivatives contain an element of credit risk, the possibility that we will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by our Asset and Liability Committee, or ALCO, and derivatives with customers may only be executed with customers within credit exposure limits approved by our Senior Loan Committee. Interest rate swaps are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings and included in other noninterest income in the Consolidated Statements of Comprehensive Income.

Interest Rate Lock Commitments and Forward Sale Contracts

In the normal course of business, we sell originated mortgage loans into the secondary mortgage loan market. We also offer interest rate lock commitments to potential borrowers. The commitments are generally for a period of 60 days and guarantee a specified interest rate for a loan if underwriting standards are met, but the commitment does not obligate the potential borrower to close on the loan. Accordingly, some commitments expire prior to becoming loans. We may encounter pricing risks if interest rates increase significantly before the loan can be closed and sold. We may utilize forward sale contracts in order to mitigate this pricing risk. Whenever a customer desires these products, a mortgage originator quotes a secondary market rate guaranteed for that day by the investor. The rate lock is executed between the mortgagee and us and in turn a forward sale contract may be executed between us and the investor. Both the rate lock commitment and the corresponding forward sale contract for each customer are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives during the commitment period are recorded in current earnings and included in mortgage banking in the Consolidated Statements of Comprehensive Income.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued

The following 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)	September 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019			March 31, 2020			December 31, 2019
Derivatives not Designated as Hedging Instruments:
Interest Rate Swap Contracts - Commercial Loans
Fair value		$	32,825		$	5,504		$	32,772		$	5,340		$	88,135		$	25,647		$	87,989		$	25,615
Notional amount		547,151			325,750			547,151			325,750			918,481			740,762			918,481			740,762
Collateral received/posted		—			160			32,208			—
Collateral posted														—			—			86,720			26,127
Interest Rate Lock Commitments - Mortgage Loans
Fair value		455			251			—			—			2,927			321			—			—
Notional amount		16,788			6,054			—			—			86,674			9,829			—			—
Forward Sale Contracts - Mortgage Loans
Fair value		64			55			—			—			—			1			1,292			—
Notional amount		$	24,750		$	6,000		$	—		$	—		$	—		$	12,750		$	91,750		$	—

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)	September 30, 2019				December 31, 2018				September 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019				March 31, 2020				December 31, 2019
Derivatives not Designated as Hedging Instruments:
Gross amounts recognized		$	32,827			$	8,733			$	32,774			$	8,569			$	90,723			$	26,146			$	90,577			$	26,114
Gross amounts offset		(2		)		(3,229		)		(2		)		(3,229		)		(2,588		)		(499		)		(2,588		)		(499		)
Net Amounts Presented in the Consolidated Balance Sheets		32,825				5,504				32,772				5,340				88,135				25,647				87,989				25,615
Gross amounts not offset⁽¹⁾		—				(160		)		(32,208		)		—				—				—				(86,720		)		(26,127		)
Net Amount		$	32,825			$	5,344			$	564			$	5,340			$	88,135			$	25,647			$	1,269			$	(512	)

⁽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 September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
(dollars in thousands)	2019				2018				2019				2018				2020				2019
Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans		$	(16	)		$	31			$	(112	)		$	(55	)		$	114			$	(122	)
Interest rate lock commitments—mortgage loans		(194		)		(169		)		204				3				2,606				88
Forward sale contracts—mortgage loans		169				99				9				66				(1,293		)		33
Total Derivatives Gain/(Loss)		$	(41	)		$	(39	)		$	101			$	14			$	1,427			$	(1	)

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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 ~~$14.6~~$66.4 million and carrying value of ~~$15.0~~$70.0 million at ~~September 30, 2019~~March 31, 2020 and amortized cost of ~~$24.2~~$22.7 million and carrying value of ~~$23.9~~$23.0 million at December 31, ~~2018,~~2019, 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, 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 ~~$4.8~~$45.6 million at a fixed rate and ~~$63.1~~$67.1 million at a variable rate at ~~September 30, 2019,~~March 31, 2020, excluding our finance leases.

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


	September 30, 2019						December 31, 2018						March 31, 2020						December 31, 2019
(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		$	13,925		0.74	%		$	18,383		0.46	%		$	69,644		0.25	%		$	19,888		0.74	%
Short-term borrowings		370,000			2.18	%		470,000			2.65	%		410,240			0.44	%		281,319			1.84	%
Total Short-term Borrowings		383,925			2.13	%		488,383			2.57	%		479,884			0.41	%		301,207			1.76	%
Long-term Borrowings
Long-term borrowings		69,156			2.53	%		70,314			2.84	%		50,180			2.59	%		50,868			2.60	%
Junior subordinated debt securities		45,619			4.58	%		45,619			5.25	%		64,038			3.63	%		64,277			3.59	%
Total Long-term Borrowings		114,775			3.34	%		115,933			3.79	%		114,218			3.17	%		115,145			3.15	%
Total Borrowings		$	498,700		2.41	%		$	604,316		2.80	%		$	594,102		0.94	%		$	416,352		2.14	%

We had total borrowings at the FHLB of Pittsburgh of ~~$437.9~~$458.9 million at ~~September 30, 2019~~March 31, 2020 and ~~$540.3~~$532.9 million at December 31, ~~2018.~~2019. The ~~$437.9~~$458.9 million at ~~September 30, 2019~~March 31, 2020 consisted of ~~$370.0~~$410.2 million in short-term borrowings and ~~$67.9~~$50.2 million in long-term borrowings. Our maximum borrowing capacity with the FHLB of Pittsburgh was ~~$2.6~~$3.1 billion at ~~September 30, 2019.~~March 31, 2020. We utilized ~~$621.9~~$698.1 million of our borrowing capacity at ~~September 30, 2019~~March 31, 2020 consisting of ~~$437.9~~$458.9 million for borrowings and ~~$184.0~~$239.2 million for letters of credit to collateralize public funds. Our remaining borrowing availability at ~~September 30, 2019~~March 31, 2020 is ~~$2.0~~$2.4 billion.

We have completed three private placements of trust preferred securities to financial institutions. As a result, we own 100 percent of the common equity of STBA Capital Trust I, DNB Capital Trust I and DNB Capital Trust II, collectively the Trusts. The Trusts were formed to issue mandatorily redeemable capital securities to third-party investors. The proceeds from the sale of the securities and the issuance of the common equity by the Trusts were invested in junior subordinated debt securities issued by us. The Trusts are variable interest entities, and the third-party investors are the primary beneficiaries; therefore, the trusts are not consolidated into our financial statements. The Trusts pays dividends on the securities at the same rate as the interest paid by us on the junior subordinated debt held by the Trusts. DNB Capital Trust I and DNB Capital Trust II were acquired with the DNB merger.

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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)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Commitments to extend credit		$	1,653,465		$	1,464,892		$	1,967,190		$	1,910,805
Standby letters of credit		75,054			77,134			85,021			80,040
Total		$	1,728,519		$	1,542,026		$	2,052,211		$	1,990,845

Allowance for Credit Losses on Unfunded Loan Commitments

We maintain an allowance for credit losses on unfunded commercial lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on our Consolidated Statements of Comprehensive Income. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

The activity in the allowance for credit losses on unfunded loan commitments for the three months ended March 31, 2020 was as follows:



(dollars in thousands)	Total
Three months ended March 31, 2020
Allowance for credit losses on unfunded loan commitments:
Balance at beginning of period	$	3,112
Impact of adopting ASU 2016-13	1,349
January 1, 2020	4,461
Provision for credit losses	1,616
March 31, 2020	$	6,077

Litigation

In the normal course of business, we are subject to various legal and administrative proceedings and claims. While any type of litigation contains a level of uncertainty, we believe that the outcome of such proceedings or claims pending will not have a material adverse effect on our consolidated financial position or results of operations.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 11. REVENUE FROM CONTRACTS WITH CUSTOMERS

We earn revenue from contracts with our customers when we have completed our performance obligations and recognize that revenue when services are provided to our customers. Our contracts with customers are primarily in the form of account agreements. Generally, our services are transferred at a point in time in response to transactions initiated and controlled by our customers under service agreements with an expected duration of one year or less. Our customers have the right to terminate their ~~services~~service 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, while 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 September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
Revenue Streams	Point of Revenue Recognition	2019		2018		2019		2018		Point of Revenue Recognition	2020		2019
Service charges on deposit accounts	Over a period of time	$	473	$	312	$	1,381	$	1,244	Over a period of time	$	484	$	457
	At a point in time	2,939		3,039		8,396		8,520		At a point in time	3,074		2,696
		$	3,412	$	3,351	$	9,777	$	9,765		$	3,558	$	3,153

Debit and credit card	Over a period of time	$	180	$	158	$	542	$	496	Over a period of time	$	194	$	185
	At a point in time	3,295		2,983		9,409		8,991		At a point in time	3,287		2,789
		$	3,475	$	3,141	$	9,951	$	9,487		$	3,482	$	2,974

Wealth management	Over a period of time	$	1,703	$	1,815	$	4,991	$	5,517	Over a period of time	$	345	$	413
	At a point in time	398		669		1,219		2,265		At a point in time	2,018		1,635
		$	2,101	$	2,483	$	6,210	$	7,782		$	2,362	$	2,048

Other fee revenue	At a point in time	$	864	$	1,000	$	2,928	$	2,862	At a point in time	$	919	$	919

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 12. OTHER COMPREHENSIVE INCOME/(LOSS)

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


	Three Months Ended September 30, 2019										Three Months Ended September 30, 2018												Three Months Ended March 31, 2020										Three Months Ended March 31, 2019
(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 (Expense) Benefit				Net of Tax Amount
Change in net unrealized gains/(losses) on debt securities available-for-sale		$	2,350		$	(501	)		$	1,849		$	(3,521	)		$	748			$	(2,773	)
Change in net unrealized gains/(losses) on available-for-sale debt securities ⁽¹⁾																								$	21,568		$	(4,592	)		$	16,976		$	7,398		$	(1,578	)		$	5,820
Adjustment to funded status of employee benefit plans		454			(97		)		357			590				(125		)		465				465			(99		)		366			453			(97		)		356
Other Comprehensive Income/(Loss)		$	2,804		$	(598	)		$	2,206		$	(2,931	)		$	623			$	(2,308	)		$	22,033		$	(4,691	)		$	17,342		$	7,851		$	(1,675	)		$	6,176

	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
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		1,359			(290		)		1,069			1,913				(406		)		1,507
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⁾ 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 net gain on sale of securities, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income. There were no reclassification adjustments for the three months ended March 31, 2020 or 2019.																							⁽¹⁾ Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the Consolidated Statements of Comprehensive Income as follows: the pre-tax amount is included in net gain on sale of securities, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income. There were no reclassification adjustments for the three months ended March 31, 2020 or 2019.

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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, 0 service costs are included in net periodic pension expense.

AtThe defined benefit plan of DNB was merged into S&T's defined benefit plan at November 30, 2019 and the ~~end~~components of net periodic pension cost at March 31, 2020 include the impact of the ~~third quarter~~addition of ~~2018, we made a $20.4 million contribution to our qualified~~the DNB defined benefit plan.

The investment policy for ~~the Plan now~~S&T's defined benefit plan 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.~~cash. The expected long-term rate of return on plan assets is ~~4.80~~3.50 percent compared to ~~7.50~~4.80 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 September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
(dollars in thousands)	2019				2018				2019				2018				2020				2019
Components of Net Periodic Pension Cost
Interest cost on projected benefit obligation		$	989			$	978			$	2,967			$	2,912			$	891			$	989
Expected return on plan assets		(1,181		)		(1,566		)		(3,541		)		(4,700		)		(972		)		(1,180		)
Net amortization		395				512				1,184				1,601				384				394
Net Periodic Pension Expense		$	203			$	(76	)		$	610			$	(187	)		$	303			$	203

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

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 ~~$5.0~~$6.4 million at ~~September 30, 2019~~March 31, 2020 and ~~$6.0~~$4.8 million at December 31, ~~2018.~~2019. Amortization expense, included in other noninterest expense in the Consolidated Statements of Comprehensive Income, was ~~$0.7 million and $2.0~~$0.6 million for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~September 30, 2018.~~$0.7 million for the three months ended March 31, 2019. The amortization expense was offset by tax credits of ~~$0.7 million and $2.2~~$0.6 million for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~$0.8 million and $2.3~~$0.7 million for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 as a reduction to our federal tax provision.

~~Our total investment in historic rehabilitation was $1.1 million at~~On September ~~30,~~11, 2019, and $0.3 million at December 31, 2018. Federal tax credits of $0.3 million and $0.9 million were recognized as a reduction to our federal tax provision for the three and nine months ended September 30, 2019. NaN 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~~qualified affordable housing project and committed to an investment of $10.2 million. As of March 31, 2020, we have invested $3.6 million in this new project. NaN amortization expense or tax credits will be recognized for ~~a 30 percent partnership interest~~this new project until complete, which we expect to be later 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.2020.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

NOTE ~~16.~~15. SHARE REPURCHASE PLAN

On ~~March 19, 2018,~~September 16, 2019, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which was effective through August 31, 2019, 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 the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of common stock, legal and contractual requirements, applicable securities laws and 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. ~~Since its approval, 0~~During the three months ended March 31, 2020, we repurchased 411,430 common shares ~~have been repurchased under~~at a total cost of $12.6 million, or an average of $30.52 per share. Repurchase activity was suspended in March as the ~~new share repurchase plan.~~impact of the COVID-19 pandemic spread.

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NOTE 16. SUBSEQUENT EVENTS

Paycheck Protection Program

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law. It contains substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act includes the Paycheck Protection Program, or PPP, a $349 billion program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks. The Paycheck Protection Program and Health Care Enhancement Act, or PPP/HCEA Act, was signed into law on April 24, 2020. Among other provisions, the PPP/HCEA Act authorized an additional $310 billion of funding under the CARES Act for PPP loans. These loans are intended to cover eight weeks of payroll and other costs to help those businesses remain viable. As of May 5, 2020, we had obtained approvals for 2,959 loans totaling $548.0 million.

PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted expenses in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00 percent and a term of two years, if not forgiven, in whole or in part. Payments are deferred for the first six months of the loan. The loans are 100 percent guaranteed by the SBA. The SBA pays the originating bank a processing fee ranging from 1 percent to 5 percent based on the size of the loan.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations at and for the three ~~and nine~~ month periods ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. 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~~operations. Forward-looking statements are typically identified by words or phrases such as “will likely result”, “expect”, “anticipate”, “estimate”, “forecast”, “project”, “intend”, “ believe”, “assume”, “strategy”, “trend”, “plan”, “outlook”, “outcome”, “continue”, “remain”, “potential”, “opportunity”, “believe”, “comfortable”, “current”, “position”, “maintain”, “sustain”, “seek”, “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. 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 and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for 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;~~oversight, including changes in regulatory capital requirements and our ability to address those requirements; changes in accounting policies, practices, or guidance, for example, our adoption of CECL; 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,including DNB, 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;

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

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; an interruption or cessation of an important service by a third-party provider; general economic or business ~~conditions;~~conditions, including the strength of regional economic conditions in our market area; the duration and severity of the coronavirus (“COVID-19”) pandemic, both in our principal area of operations and nationally, including the ultimate impact of the pandemic on the economy generally and on our operations; 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; the stability of our core deposit base and access to contingency funding; re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses.

Many of these factors, as well as other factors, are described in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, including Part I, Item 1A-"Risk Factors" and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

Critical Accounting Policies and Estimates

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2020 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2019 under Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” except for we have updated our allowance for credit losses policy in response to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Allowance for Credit Losses

The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. The ACL model is comprised of six distinct portfolio segments: 1) Construction, 2) Commercial Real Estate, or CRE, 3) Commercial and Industrial, or C&I, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. Each segment has a distinct set of risk characteristics monitored by management. We further evaluate the ACL at a disaggregated level which includes type of collateral and our internal risk rating system for the commercial segments and type of collateral, lien position, and FICO score, for the consumer segments. Historical credit loss experience is the basis for the estimation of expected credit losses. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast adjustment is based on the unemployment forecast and management judgment. For periods beyond which we are able to develop reasonable and supportable forecasts, we revert to the historical loss rate. The qualitative adjustments for current conditions are based upon changes in lending policies and practices, experience and ability of lending staff, quality of the bank’s loan review system, value of underlying collateral for collateral dependent loans, the existence of and changes in concentrations and other external factors. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve. A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in other liabilities.

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

~~Critical Accounting Policies~~The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and ~~Estimates~~

therefore, should be individually assessed. We evaluate all commercial loans greater than $0.5 million that meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, 3) any commercial troubled debt restructuring (TDR), or any loan reasonably expected to become a TDR whether on accrual or nonaccrual status and 4) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: 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 when the loan is collateral dependent. Our ~~critical accounting policies involving significant judgments and assumptions used~~individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the recorded investment in the ~~preparation of~~loan balance.

Although we believe our process for determining the ~~Consolidated Financial Statements as of September 30, 2019 have remained unchanged from~~ACL appropriately considers all the ~~disclosures presented~~factors that would likely result in credit losses, the process includes subjective elements and may be susceptible to significant change. To the extent actual losses are higher than management estimates, additional provision for credit losses could be required and could adversely affect our ~~Annual Report on Form 10-K for the year ended December 31, 2018 under Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.~~earnings or financial position in future periods.

Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of ~~$7.6~~$9.0 billion at ~~September 30, 2019.~~March 31, 2020. We operate in five markets including Western Pennsylvania, ~~Central~~Eastern Pennsylvania, Northeast Ohio, Central Ohio, and Upstate New York. We employ a geographic market based strategy 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. Each of our five markets is in a different stage of development and our market based strategy 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.~~brokerage services. Our common stock trades on the NASDAQ Global Select Market under the symbol “STBA”.

We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. We incur expenses for the cost of deposits and other funding sources, provision for ~~loan~~credit 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.~~serve which will enable us to continue to be a high performing regional community bank. We strive to do this by delivering exceptional service and ~~value.~~value, one customer at a time. Our strategic plan ~~focuses~~follows a disciplined approach focused on organic growth, which includes both growth within our current footprint and ~~growth~~ through market expansion. We employ a geographic market-based growth platform in order to drive organic growth. Each of our five markets is led by a Market President who is responsible for developing strategic initiatives specific to each market. We acknowledge that each of our five markets are in different stages of development and that our market based strategy will allow us to customize our approach to each market given its developmental stage and unique characteristics. We also actively evaluate acquisition opportunities that align with our strategic objectives 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. We continuously work to maintain and improve the efficiency of our different lines of business.

~~On June 5, 2019, we entered into a definitive Agreement and Plan of Merger to acquire~~We merged with DNB Financial Corporation ~~or DNB, based~~(DNB) on November 30, 2019. The merger expanded S&T’s footprint in ~~Downingtown, Pennsylvania. DNB had approximately $1.2 billion~~Eastern Pennsylvania gaining a new presence in ~~assets at June 30, 2019 and maintains 14 branches in~~the counties of Chester, Delaware and ~~Philadelphia counties.~~Philadelphia. 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 $2.50merger was valued at $201.0 million, or $37.72 per share, and added approximately $899.3 million of ~~S&T for each share~~portfolio loans and $990.6 million 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 mergerdeposits at ~~a Special Meeting of Shareholders on September 25,~~December 31, 2019. All required bank regulatory approvals have been received for the merger. The transaction is expected to be effective on or about November 30, 2019 and remains subject to the satisfaction or waiver of other customary closing 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 decreased $3.9 million, or 12.8 percent, for~~COVID-19 Update

S&T is monitoring and will continue to monitor the ~~three months ended September 30, 2019~~impact of the novel coronavirus (“COVID-19”) pandemic and ~~decreased $2.5 million, or 3.2 percent, for~~has

taken and will continue to take steps to mitigate the ~~nine months ended September 30, 2019 compared~~potential risks and impact on S&T and to promote the health and safety of

our employees, and the customers and communities we serve. In response to the ~~same periods~~COVID-19 pandemic, preventive health

measures including social distancing, wearing masks, remote work where feasible, extra cleaning and branch access restrictions

have been implemented. Our Business Continuity teams were activated and have guided our efforts to respond to the

rapidly developing situation. Furthermore, as described in ~~2018. Net income for~~Note 16 of Notes to Consolidated Financial Statements, we are participating in the ~~three~~PPP, designed to aid small and ~~nine months ended September 30, 2019 was $26.9 million and $76.0 million, or $0.79 and $2.21 diluted earnings per share, as compared~~medium sized businesses to ~~$30.9 million and $78.5 million, or $0.88 and $2.24 diluted earnings per share for~~address the ~~same periods in 2018.~~impact of the COVID-19 pandemic.

The ~~decrease in net income for the three month period ended September 30, 2019 of $3.9 million was primarily due~~extent to an increase in the provision for loan losses of $4.4 million, increases in noninterest expense of $0.6 million and $1.8 in the provision for income taxes offset by increases in net interest income of $1.9 million and noninterest income of $1.0 million. The decrease in net income for the nine month period ended September 30, 2019 of $2.5 million was primarily due to increases in noninterest expense of $7.9 million, the provision for income taxes of $1.1 million and the provision for loan losses of $0.5 million and a decrease in noninterest income of $0.8 million offset by an increase in net interest income of $7.8 million.which COVID-19 may adversely impact our business depends on future developments, which are highly

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uncertain and unpredictable. The COVID-19 pandemic has had, and we expect that it will continue to have, negative impacts

on S&T’s commercial and consumer loan customers and the economy as a whole. The severity and length of the

COVID-19 pandemic’s impact on S&T and the U.S. and global economies are unknown. In order to assist our customers through this difficult period we have provided the following assistance, which may have an adverse impact on our results in the short term, but which we believe will provide better outcomes in the long term for our customers and for S&T:

We have provided needs-based payment deferrals and modifications to interest only periods to commercial loan

customers.

We have provided mortgage and consumer loan payment deferrals with no negative credit bureau reporting to

consumer customers.

We have paused foreclosures/repossessions for mortgages and consumer loans.

Earnings Summary

Net income decreased $9.7 million, or 42.3 percent, to $13.2 million, or $0.34 per diluted share, for the three months ended March 31, 2020 compared to $22.9 million, or $0.66 per diluted share, in 2019. The decrease in net income was primarily due to the potential impact of COVID-19 on our expected credit losses which contributed to an increased provision for credit losses of $14.4 million, an increase in other noninterest expenses of $7.5 million, which included $2.3 million, or $0.05 per diluted share, of merger related expenses. These increases were offset by an increase of $9.7 million in net interest income which was primarily a result of the merger.

Net interest income increased ~~$1.9~~$9.7 million, ~~and $7.8~~or 16.0 percent, to $70.0 million compared to ~~$61.2 million and $182.4~~$60.3 million for the three ~~and nine~~ months ended ~~September 30, 2019 compared~~March 31, 2019. The increase was primarily due to ~~net interest income of $59.3 million and $174.6 million for the same periods in 2018. Average~~higher average interest-earning assets ~~increased $304.1~~of $1.4 billion. The majority of the increase came from higher average loans of $1.2 billion from organic loan growth combined with $900 million ~~and $218.8 million for~~of loans from the ~~three and nine months ended September 30, 2019 compared to the same periods in 2018.~~DNB Merger. Average interest-bearing liabilities increased ~~$187.6 million and $91.2 for~~$1.0 billion, primarily from increases in average interest-bearing deposits from the ~~three and nine months ended September 30, 2019 compared to the same periods in 2018.~~DNB merger. Net interest margin, on a fully taxable-equivalent, or FTE, basis (non-GAAP), ~~decreased five~~declined 18 basis points to ~~3.62~~3.53 percent ~~in the three month period and increased four basis points to 3.67 percent in the nine month period ended September 30, 2019~~ compared to ~~3.67~~3.71 percent ~~and 3.63 percent for~~from the ~~same periods in 2018.~~year ago period due to the declining interest rate environment. Net interest margin is reconciled to net interest income adjusted to an FTE basis below in the ~~"Results of Operations - Three and Nine Months Ended September 30, 2019 Compared to Three and Nine Months Ended September 30, 2018 - Net~~"Net Interest Income" section of this MD&A.

The provision for ~~loan~~credit losses, which includes a provision for losses on unfunded commitments, increased ~~$4.4 million and $0.5~~$14.4 million to $4.9 million and $12.8 million for the three and nine months ended September 30, 2019 compared to $0.5 million and $12.3 million for the same periods in 2018. The 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. Impaired loans increased $41.8 million to $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 the prior year. 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 increased to 0.28 percent and 0.26 percent for the three and nine months ended September 30, 2019 compared to 0.03 percent and 0.19 percent for the same periods in 2018.~~Nonperforming loans increased $29.3 million to $50.0 million at September 30, 2019 compared to $20.7 million at September 30, 2018.~~

~~Noninterest income increased $1.0 million to $13.1~~$20.1 million for the three months ended ~~September 30, 2019 and decreased $0.8~~March 31, 2020 compared to $5.7 million in the same period of 2019. The significant increase in the provision for credit losses was mainly due to a $16.3 million increase in our ACL in response to the COVID-19 pandemic. Net loan charge-offs increased $6.0 million to ~~$37.3~~$11.2 million, or 0.63 percent of average loans, for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to $5.2 million, or 0.36 percent of average loans, in the same ~~periods~~period in ~~2018. Other~~2019.

Total noninterest income increased ~~$1.1~~$1.0 million ~~and $2.6~~to $12.4 million for the three ~~and nine~~ months ended ~~September~~March 31, 2020 compared to $11.4 million in the same period of 2019. Total noninterest income includes the impact of the DNB merger in the three months ended March 31, 2020 since the merger closed on November 30, ~~2019~~2019. The increase in noninterest income primarily related to higher commercial loan swap income of $1.9 million as we continue to see a high demand for this product in the current rate environment. Also impacting the increase was $0.7 million in mortgage banking fees, $0.5 million in debit and credit card fees and $0.4 million in service charges on deposit accounts. Offsetting these increases was a $2.8 million decrease in other income primarily attributable to the decline in stock market performance during the first quarter of 2020 resulting in a change in the valuation related to a deferred compensation plan of $1.8 million, which has a corresponding offset in salaries and benefit expense resulting in no impact to net income and a decrease in the equity securities portfolio of $1.3 million compared to the prior period.

Noninterest expense increased $7.5 million to $46.4 million in three months ended March 31, 2020 compared to $38.9 million in the same period in 2019. Total noninterest expense includes the impact of the DNB merger in the three months ended March 31, 2020 since the merger closed on November 30, 2019. We incurred $2.3 million of merger related expenses in the three months ended March 31, 2020 and higher operating expenses after the merger with DNB. Other noninterest expense increased $2.6 million mainly due to $1.1 million increase related to historic tax credits and $0.5 million of additional amortization related to the DNB merger.

The provision for income taxes decreased $1.5 million to $2.7 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~~March 31, 2020 compared to $4.2 million in the same ~~periods~~period in ~~2018. Offsetting this increase for~~2019 as a result of 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. Further, wealth management fees decreased $0.4 million for the three months ended and $1.6 million for the nine months ended September 30, 2019 due to a decline in financial service revenue and market conditions.

Noninterest expense increased $0.6 million to $37.7 million for the three months ended September 30, 2019 and $7.9 million to $116.9 million for the nine months ended September 30, 2019 compared to the same periods in 2018. Salaries and employee benefits expense increased $0.2 million for the three months ended and $3.9 million for the nine months ended September 30, 2019 compared to the same periods in 2018 mainly due to annual merit increases and higher severance, incentive and pension costs. Data processing and information technology increased $0.8 million for the three months ended and $2.7 million for the nine months ended September 30, 2019 compared to the same periods in 2018 due to the recent outsourcing arrangement for certain components of our information technology function and the annual increase with our third-party data processor. Additionally, we incurred merger related expenses of $0.6 million and $1.2 million for the three and nine months ended September 30, 2019. These increases were partially offset by a decrease in ~~FDIC insurance~~pretax income of $1.4 million for the three months ended and $2.1 million for the nine months ended September 30, 2019 compared to the same periods in 2018 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 a tax benefit in the third quarter of 2018 related to a $20.4 million contribution to our defined benefit plan.$11.2 million. Our effective tax rate increased to ~~15.0~~17.3 percent ~~and~~for the three months ended March 31, 2020 compared to 15.6 percent for the ~~three month and nine month periods ended September 30, 2019~~same period in 2019. The increase in the effective tax rate is primarily due to a $1.7 million decrease in benefits from tax credits in the first quarter of 2020 compared to ~~8.5 percent and 14.1 percent for~~ the same ~~periods in 2018.~~period of 2019.

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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 Nine~~ Months Ended ~~September 30, 2019~~March 31, 2020 Compared to Three ~~and Nine~~ Months Ended ~~September 30, 2018~~March 31, 2019 - Net Interest Income" section of this MD&A.

RESULTS OF OPERATIONS

Three ~~and Nine~~ Months Ended ~~September 30, 2019~~March 31, 2020 Compared to

Three ~~and Nine~~ Months Ended ~~September 30, 2018~~March 31, 2019

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 September 30,								Nine Months Ended September 30,								Three Months Ended March 31,
(dollars in thousands)	2019				2018				2019				2018				2020				2019
Total interest income		$	79,813			$	73,627			$	238,028			$	213,237			$	87,589			$	78,590
Total interest expense		18,617				14,365				55,649				38,641				17,553				18,234
Net Interest Income per Consolidated Statements of Comprehensive Income		61,196				59,262				182,379				174,596				70,036				60,356
Adjustment to FTE basis		935				951				2,854				2,830				849				961
Net Interest Income on an FTE Basis (Non-GAAP)		$	62,131			$	60,213			$	185,233			$	177,426			$	70,885			$	61,317
Net interest margin		3.57		%		3.62		%		3.61		%		3.58		%		3.48		%		3.65		%
Adjustment to FTE basis		0.05		%		0.05		%		0.06		%		0.05		%		0.05		%		0.06		%
Net Interest Margin on an FTE Basis (Non-GAAP)		3.62		%		3.67		%		3.67		%		3.63		%		3.53		%		3.71		%

Income amounts are annualized for rate calculations.

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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 September 30, 2019							Three Months Ended September 30, 2018							Three Months Ended March 31, 2020							Three Months Ended March 31, 2019
(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate		Average Balance		Interest			Rate		Average Balance		Interest			Rate
ASSETS
Interest-bearing deposits with banks	$	53,725		$	311	2.32	%	$	57,012		$	303	2.13	%	$	99,646		$	355	1.42	%	$	53,588		$	352	2.63	%
Securities, at fair value⁽²⁾⁽³⁾	661,752			4,287		2.59	%	680,464			4,479		2.63	%	786,858			4,995		2.54	%	680,517			4,558		2.68	%
Loans held for sale	2,712			27		3.98	%	1,571			18		4.71	%	1,867			18		3.76	%	894			9		4.07	%
Commercial real estate	2,922,767			35,993		4.89	%	2,779,019			33,668		4.81	%	3,408,684			40,093		4.73	%	2,905,272			35,964		5.02	%
Commercial and industrial	1,566,369			19,994		5.06	%	1,432,936			17,298		4.79	%	1,751,678			19,738		4.53	%	1,508,658			19,333		5.20	%
Commercial construction	282,175			3,653		5.14	%	291,512			3,734		5.08	%	386,363			4,495		4.68	%	249,997			3,312		5.37	%
Total Commercial Loans	4,771,311			59,640		4.96	%	4,503,467			54,700		4.82	%	5,546,725			64,326		4.66	%	4,663,927			58,609		5.10	%
Residential mortgage	753,649			8,339		4.41	%	696,267			7,517		4.30	%	990,866			10,328		4.18	%	722,554			7,869		4.38	%
Home equity	469,567			6,345		5.36	%	472,466			5,877		4.94	%	540,193			6,501		4.84	%	467,739			6,269		5.44	%
Installment and other consumer	72,606			1,299		7.10	%	66,693			1,162		6.92	%	79,680			1,388		7.01	%	69,099			1,222		7.17	%
Consumer construction	11,056			150		5.39	%	5,846			74		5.04	%	10,508			120		4.61	%	9,466			144		6.19	%
Total Consumer Loans	1,306,878			16,133		4.91	%	1,241,272			14,630		4.69	%	1,621,247			18,337		4.54	%	1,268,858			15,504		4.93	%
Total Portfolio Loans	6,078,189			75,773		4.95	%	5,744,739			69,330		4.79	%	7,167,972			82,663		4.64	%	5,932,785			74,113		5.06	%
Total Loans⁽¹⁾⁽²⁾	6,080,901			75,800		4.95	%	5,746,310			69,348		4.79	%	7,169,839			82,681		4.64	%	5,933,679			74,122		5.06	%
Federal Home Loan Bank and other restricted stock	19,981			350		7.00	%	28,512			448		6.28	%	23,601			407		6.90	%	24,471			519		8.90	%
Total Interest-earning Assets	6,816,359			80,748		4.70	%	6,512,298			74,578		4.55	%	8,079,944			88,438		4.40	%	6,692,255			79,551		4.81	%
Noninterest-earning assets	538,514							496,268							687,382							518,500
Total Assets	$	7,354,873						$	7,008,566						$	8,767,326						$	7,210,755
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	655,735		$	1,195	0.72	%	$	566,579		$	514	0.36	%	$	942,030		$	1,382	0.59	%	$	54,695		$	553	0.41	%
Money market	1,709,248			7,880		1.83	%	1,330,489			4,932		1.47	%	1,993,764			6,318		1.27	%	1,568,417			7,292		1.89	%
Savings	749,287			449		0.24	%	823,215			424		0.20	%	830,985			477		0.23	%	770,587			472		0.25	%
Certificates of deposit	1,345,474			6,683		1.97	%	1,310,526			5,001		1.51	%	1,601,324			7,161		1.80	%	1,434,511			6,664		1.88	%
Total Interest-bearing Deposits	4,459,744			16,207		1.44	%	4,030,809			10,871		1.07	%	5,368,103			15,338		1.15	%	4,319,210			14,981		1.41	%
Securities sold under repurchase agreements	14,030			26		0.73	%	42,183			55		0.52	%	30,790			42		0.56	%	23,170			29		0.52	%
Short-term borrowings	218,799			1,362		2.47	%	455,689			2,616		2.28	%	286,365			1,145		1.61	%	319,389			2,145		2.72	%
Long-term borrowings	69,421			468		2.68	%	45,699			272		2.36	%	51,845			325		2.52	%	70,196			493		2.84	%
Junior subordinated debt securities	45,619			554		4.82	%	45,619			551		4.79	%	64,195			703		4.40	%	45,619			586		5.21	%
Total Borrowings	347,869			2,410		2.75	%	589,190			3,494		2.35	%	433,195			2,215		2.06	%	458,374			3,253		2.88	%
Total Interest-bearing Liabilities	4,807,613			18,617		1.54	%	4,619,999			14,365		1.23	%	5,801,298			17,553		1.22	%	4,777,584			18,234		1.55	%
Noninterest-bearing liabilities	1,573,549							1,475,059							1,776,453							1,448,057
Shareholders’ equity	973,711							913,508							1,189,575							945,114
Total Liabilities and Shareholders’ Equity	$	7,354,873						$	7,008,566						$	8,767,326						$	7,210,755
Net Interest Income ⁽²⁾⁽³⁾				$	62,131						$	60,213						$	70,885						$	61,317
Net Interest Margin ⁽²⁾⁽³⁾						3.62	%						3.67	%						3.53	%						3.71	%

⁽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~~2020 and ~~2018.~~2019.

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

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

Nine Months Ended September 30, 2019 Nine Months Ended September 30, 2018
(dollars in thousands) Average Balance Interest Rate Average Balance Interest Rate
ASSETS
Interest-bearing deposits with banks $ 52,421
$ 937
2.38 % $ 56,015
$ 754
1.80 %
Securities, at fair value⁽²⁾⁽³⁾
671,727
13,327
2.65 % 684,146
13,282
2.59 %
Loans held for sale 1,693
52
4.11 % 1,681
74
5.90 %
Commercial real estate 2,907,792
108,115
4.97 % 2,748,620
96,592
4.70 %
Commercial and industrial 1,544,962
59,414
5.14 % 1,432,133
49,485
4.62 %
Commercial construction 258,239
10,207
5.28 % 330,219
11,767
4.76 %
Total Commercial Loans 4,710,993
177,736
5.04 % 4,510,972
157,844
4.68 %
Residential mortgage 736,972
24,462
4.43 % 694,075
22,071
4.24 %
Home equity 466,936
18,880
5.41 % 475,450
16,852
4.74 %
Installment and other consumer 71,021
3,807
7.17 % 66,913
3,404
6.80 %
Consumer construction 10,517
443
5.63 % 4,749
173
4.86 %
Total Consumer Loans 1,285,446
47,592
4.95 % 1,241,187
42,500
4.57 %
Total Portfolio Loans 5,996,439
225,328
5.02 % 5,752,159
200,344
4.66 %
Total Loans⁽¹⁾⁽²⁾
5,998,132
225,380
5.02 % 5,753,840
200,418
4.66 %
Federal Home Loan Bank and other restricted stock 21,848
1,237
7.55 % 31,277
1,613
6.88 %
Total Interest-earning Assets 6,744,128
240,881
4.77 % 6,525,278
216,067
4.43 %
Noninterest-earning assets 526,788
492,428

Total Assets $ 7,270,916
$ 7,017,706

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand $ 584,280
$ 2,378
0.54 % $ 571,040
$ 1,320
0.31 %
Money market 1,658,187
23,341
1.88 % 1,259,071
12,191
1.29 %
Savings 760,128
1,406
0.25 % 849,558
1,289
0.20 %
Certificates of deposit 1,389,658
20,118
1.94 % 1,320,374
13,083
1.32 %
Total Interest-bearing Deposits 4,392,253
47,243
1.44 % 4,000,043
27,883
0.93 %
Securities sold under repurchase agreements 17,812
83
0.63 % 46,292
151
0.44 %
Short-term borrowings 259,947
5,149
2.65 % 556,017
8,304
2.00 %
Long-term borrowings 69,886
1,461
2.79 % 46,313
762
2.20 %
Junior subordinated debt securities 45,619
1,712
5.02 % 45,619
1,541
4.52 %
Total Borrowings 393,264
8,405
2.86 % 694,241
10,758
2.07 %
Total Interest-bearing Liabilities 4,785,517
55,648
1.55 % 4,694,284
38,641
1.10 %
Noninterest-bearing liabilities 1,528,573
1,421,276

Shareholders’ equity 956,826
902,146

Total Liabilities and Shareholders’ Equity $ 7,270,916
$ 7,017,706

Net Interest Income ⁽²⁾⁽³⁾
$ 185,233
$ 177,426

Net Interest Margin ⁽²⁾⁽³⁾
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 ~~$1.9~~$9.6 million, or~~3.2~~ 15.6 percent, for the three months ended ~~September 30, 2019 and increased $7.8 million, or 4.4 percent, for the nine months ended September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period in ~~2018.~~2019. The net interest margin on an FTE basis (non-GAAP) decreased ~~five~~18 basis points for the three months ended ~~September 30, 2019 and increased four basis points for the nine months ended September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period in ~~2018.~~2019.

Interest income on an FTE basis (non-GAAP) increased ~~$6.2~~$8.9 million, or ~~8.3~~11.2 percent, for the three months ended ~~September 30, 2019 and increased $24.8 million, or 11.5 percent, for the nine months ended September 30, 2019~~March 31, 2020 compared to the same

~~Table of Contents~~

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

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

~~periods~~ period in ~~2018.~~2019. The ~~increases were~~increase was primarily due to increases in average interest-earning assets of ~~$304.1 million and $218.8 million~~$1.4 billion for the three ~~and nine~~ months ended ~~September 30, 2019 and higher~~March 31, 2020 offset by lower short-term interest rates compared to the same ~~periods~~period in ~~2018.~~2019. Average loan balances increased ~~$334.6 million and $244.3 million~~$1.2 billion compared to the same ~~periods~~period in ~~2018,~~2019 due to the DNB merger and organic loan ~~growth, primarily in the commercial loan portfolio.~~growth. The average rate earned on loans ~~increased 16 and 36~~decreased 42 basis points compared to the same ~~periods~~period in ~~2018~~2019 primarily due to ~~higher~~lower short-term interest rates. Average investment securities ~~decreased $18.7 million and $12.4~~increased $106.3 million and the average rate earned decreased ~~four basis pointsand increased six~~14 basis points compared to the same ~~periods~~period in ~~2018.~~2019. Overall, the FTE rate on interest-earning assets (non-GAAP) ~~increased 15 and 34~~decreased 41 basis points for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period in ~~2018.~~2019.

Interest expense ~~increased $4.3 million and $17.0~~decreased $0.7 million for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period in ~~2018.~~2019. The ~~increases were~~decrease was primarily due to ~~higher~~lower short-term interest rates compared to the same ~~periods~~period in ~~2018.~~2019. Average interest-bearing deposits increased ~~$428.9 million and $392.2 million for the three and nine months ended September 30, 2019~~$1.0 billion compared to the same ~~periods~~period in ~~2018.~~2019 due to the DNB merger and organic deposit growth. The average rate paid decreased 26 basis points compared to the same period in 2019 primarily due to lower short-term interest rates. Average ~~money market balances increased $378.8~~total borrowings decreased $25.2 million and the average rate paid ~~increased 36~~decreased 82 basis points compared to the same period in 2019. Overall, the cost of interest-bearing liabilities decreased 33 basis points for the three months ended ~~September 30, 2019 and increased $399.1 million and 59 basis points for the nine months ended September 30, 2019~~March 31, 2020, compared to the same ~~periods~~period in 2018 due to higher short-term interest rates and promotional pricing. Average total borrowings decreased $241.3 million and $301.0 million for the three and nine months ended September 30, 2019, compared to the same periods in 2018, due to increased deposits. Overall, the cost of interest-bearing liabilities increased 31 and 45 basis points for the three and nine months ended September 30, 2019, compared to the same periods in 2018.2019.

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


	Three Months Ended September 30, 2019 Compared to September 30, 2018									Nine Months Ended September 30, 2019 Compared to September 30, 2018									Three Months Ended March 31, 2020 Compared to March 31, 2019
(dollars in thousands)	Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total			Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total			Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total
Interest earned on:
Interest-bearing deposits with banks	$	(17	)	$	25		$	8		$	(48	)	$	231		$	183		$	302		$	(299	)	$	3
Securities, at fair value⁽²⁾⁽³⁾	(123		)	(69		)	(192		)	(240		)	285			45			712			(274		)	438
Loans held for sale	13			(4		)	9			1			(23		)	(22		)	10			(1		)	9
Commercial real estate	1,741			584			2,325			5,594			5,929			11,523			6,232			(2,103		)	4,129
Commercial and industrial	1,611			1,085			2,696			3,899			6,030			9,929			3,114			(2,709		)	405
Commercial construction	(120		)	39			(81		)	(2,566		)	1,006			(1,560		)	1,807			(623		)	1,184
Total Commercial Loans	3,232			1,708			4,940			6,927			12,965			19,892			11,153			(5,435		)	5,718
Residential mortgage	619			203			822			1,364			1,027			2,391			2,922			(463		)	2,459
Home equity	(36		)	504			468			(302		)	2,330			2,028			971			(739		)	232
Installment and other consumer	103			34			137			209			194			403			187			(21		)	166
Consumer construction	67			9			76			210			60			270			16			(40		)	(24		)
Total Consumer Loans	753			750			1,503			1,481			3,611			5,092			4,096			(1,263		)	2,833
Total Portfolio Loans	3,985			2,458			6,443			8,408			16,576			24,984			15,249			(6,698		)	8,551
Total Loans⁽¹⁾⁽²⁾	3,998			2,454			6,452			8,409			16,553			24,962			15,259			(6,699		)	8,560
Federal Home Loan Bank and other restricted stock	(133		)	35			(98		)	(488		)	112			(376		)	(18		)	(94		)	(112		)
Change in Interest Earned on Interest-earning Assets	3,725			2,445			6,170			7,633			17,181			24,814			16,255			(7,366		)	8,889
Interest paid on:
Interest-bearing demand		$81			$600			$681			$31			$1,027			$1,058			$401			$428			$829
Money market	1,403			1,545			2,948			3,865			7,285			11,150			1,977			(2,951		)	(974		)
Savings	(38		)	63			25			(136		)	253			117			37			(33		)	4
Certificates of deposit	134			1,548			1,682			686			6,349			7,035			775			(278		)	497
Total Interest-bearing Deposits	1,580			3,756			5,336			4,446			14,914			19,360			3,190			(2,834		)	356
Securities sold under repurchase agreements	(37		)	8			(29		)	(93		)	25			(68		)	10			4			14
Short-term borrowings	(1,360		)	106			(1,254		)	(4,422		)	1,267			(3,155		)	(222		)	(779		)	(1,001		)
Long-term borrowings	141			55			196			388			311			699			(129		)	(39		)	(168		)
Junior subordinated debt securities	—			3			3			—			171			171			239			(121		)	118
Total Borrowings	(1,256		)	172			(1,084		)	(4,127		)	1,774			(2,353		)	(102		)	(935		)	(1,037		)
Change in Interest Paid on Interest-bearing Liabilities	324			3,928			4,252			319			16,688			17,007			3,088			(3,769		)	(681		)
Change in Net Interest Income	$	3,401		$	(1,483	)	$	1,918		$	7,314		$	493		$	7,807		$	13,167		$	(3,597	)	$	9,570

⁽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~~2020 and ~~2018.~~2019.

⁽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~~Credit Losses

The provision for ~~loan~~credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ~~adjustment to the allowance for loan losses, or ALL, after net loan charge-offs have been deducted to bring the ALL to~~ACL at a level ~~determined to be adequate to absorb probable~~consistent with management's assessment of expected losses ~~inherent~~ in the loan ~~portfolio.~~portfolio at the balance sheet date. At January 1, 2020, we increased the ACL by $27.3 million for the day one CECL adjustment. The provision for ~~loan~~credit losses increased ~~$4.4 million and $0.5~~$14.4 million to ~~$4.9 million and $12.8~~$20.1 million for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 compared to ~~$0.5 million and $12.3~~$5.7 million for the same ~~periods~~period in ~~2018.~~2019. The provision for credit losses includes $1.6 million for the reserve for unfunded commitments for the three months ended March 31, 2020.

The significant increase in the provision for ~~loan~~credit losses during the three months ended March 31, 2020 was mainly due to the COVID-19 pandemic. We added approximately $14.9 million to the ACL in the first quarter of 2020 related to qualitative factors. This included $11.2 million for a revised economic forecast and the impact of that forecast on certain loan portfolios due to the COVID-19 pandemic. Changes in current conditions resulted in an additional $3.7 million increase in impaired loans resulting in higher net charge-offs and specific reserves for both periods. Impaired loans increased $41.8 million to $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 the prior year. 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 contractualACL.

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~~terms. Guarantor support and sufficient collateral value further support~~Net loan charge-offs increased $6.0 million to $11.2 million, or 0.63 percent of average loans, for the ~~performing status~~first quarter of 2020 compared to $5.2 million, or 0.36 percent of average loans, for the same period in 2019. The most significant charge-off for the first quarter related to a $9.9 million C&I relationship that was charged off due to potential irregularities of the ~~loan. Further increasing impaired loans and specific reserves from September 30, 2018 were two commercial relationships,~~borrower that are still under review. We obtained information on the relationship subsequent to filing our Annual Report on Form 10-K for the year ended December 31, 2019, but before the end of the first ~~was a $7.7 million commercial real estate (CRE) loan that moved to impaired in the fourth~~ quarter of ~~2018 and had~~2020; therefore, we recorded a ~~$1.3~~$9.9 million specific reserve in the day one CECL adjustment. The updated information supported a loss existed at ~~September 30, 2019 and~~January 1, 2020. Nonperforming loans increased $25.8 million to $73.8 million at March 31, 2020 compared to $48.0 million at March 31, 2019. The significant increase in nonperforming loans primarily related to the ~~second was~~addition of a ~~$5.4~~$20.9 million CRE ~~loan moved to impaired~~relationship and a $5.9 million C&I relationship, which was partially offset by the $9.9 million C&I relationship that was charged off during the quarter. The $20.9 million CRE relationship became a performing TDR in the third quarter of 2019 ~~with a $0.8 million specific reserve~~and then moved to nonperforming in the first quarter of 2020 when the borrower experienced financial deterioration that lead to cash flow issues. The relationship was individually assessed 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~~March 31, 2020 resulting 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 $29.3 million to $50.0 million at September 30, 2019 compared to $20.7 million at September 30, 2018 in part~~no ACL due to the ~~CRE impaired loans discussed above.~~

~~The ALL at September 30, 2019 was $62.1 million compared to $60.6 million at September 30, 2018. The ALL as a percent of total portfolio loans was 1.00 percent at September 30, 2019~~borrower being current on their payments under the modified terms and ~~1.04 percent at September 30, 2018. Refer to “Financial Condition~~the relationship being fully collateralized as of ~~September 30, 2019 - Allowance for Loan Losses” in~~March 31, 2020 or as of the filing date of this ~~MD&A for additional information.~~Form 10-Q.

Noninterest Income


	Three Months Ended September 30,													Nine Months Ended September 30,													Three Months Ended March 31,
(dollars in thousands)	2019			2018			$ Change				% Change			2019			2018			$ Change				% Change			2020				2019			$ Change				% Change
Net gain on sale of securities		$	—		$	—		$	—			—			$	—		$	—		$	—			—			$	—			$	—		$	—			—
Service charges on deposit accounts																												3,558				3,153			405				12.8	%
Debit and credit card		3,475			3,141			334				10.6	%		9,951			9,487			464				4.9	%		3,482				2,974			508				17.1	%
Service charges on deposit accounts		3,412			3,351			61				1.8			9,777			9,765			12				0.1
Commercial loan swap income																												2,484				581			1,903				327.5	%
Wealth management		2,101			2,483			(382		)		(15.4	)		6,210			7,782			(1,572		)		(20.2	)		2,362				2,048			314				15.3	%
Mortgage banking		594			700			(106		)		(15.1	)		1,726			2,133			(407		)		(19.1	)		1,236				494			742				150.2	%
Gain on sale of a majority interest of insurance business		—			—			—				NM			—			1,873			(1,873		)		NM
Other		3,481			2,367			1,114				47.1			9,662			7,046			2,616				37.1			(719		)		2,112			(2,831		)		(134.0	)%
Total Noninterest Income		$	13,063		$	12,042		$	1,021			8.5	%		$	37,326		$	38,086		$	(760	)		(2.0	)%		$	12,403			$	11,362		$	1,041			9.2	%

NM - not meaningful

Noninterest income increased $1.0 million to ~~$13.1~~$12.4 million for the three months ended ~~September 30, 2019 and decreased $0.8 million to $37.3 million for the nine months ended September 30, 2019~~March 31, 2020 compared to the same ~~periods~~period in ~~2018. Other~~2019. Total noninterest income ~~increased $1.1 million and $2.6 million for~~includes the impact of the DNB merger in the three ~~and nine~~ months ended ~~September~~March 31, 2020 which closed on November 30, ~~2019 primarily~~2019. The increase was also related to higher commercial loan swap ~~fees~~income of ~~$1.5~~$1.9 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~~in the current interest rate environment. Mortgage banking fees increased $0.7 million due to an increase in the ~~same periods~~volume of loans originated for sale in ~~2018.~~the secondary market due to a decline in mortgage rates from the comparable period. 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~~2019 due to increased debit card usage, the DNB merger and the timing of referral merchant revenue. Offsetting these increases ~~for the nine months ending September 30, 2019~~ was a ~~$1.9~~$2.8 million ~~gain on~~decrease in other income primarily attributable to the ~~sale of a majority interest~~decline in ~~S&T Evergreen Insurance, LLC in~~stock market performance during the first quarter of ~~2018. Further, wealth management fees decreased $0.4 million for~~2020 resulting in a change in the ~~three months ended and $1.6 million for the nine months ended September 30, 2019 due~~valuation related to a ~~decline~~deferred compensation plan of $1.8 million, which has a corresponding

offset in ~~financial service revenue~~salaries and ~~market conditions.~~benefit expense resulting in no impact to net income and a decrease in the equity securities portfolio of $1.3 million compared to the prior period.

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Noninterest Expense


	Three Months Ended September 30,														Nine Months Ended September 30,													Three Months Ended March 31,
(dollars in thousands)	2019				2018			$ Change				% Change			2019			2018			$ Change				% Change			2020			2019			$ Change				% Change
Salaries and employee benefits(1)		$	19,936			$	19,769		$	167			0.8	%		$	61,135		$	57,195		$	3,940			6.9	%		$	21,335		$	20,910		$	425			2.0	%
Data processing and information technology(1)		3,681				2,906			775				26.7			10,327			7,610			2,717				35.7			3,868			3,233			635				19.6	%
Net occupancy(1)		2,898				2,722			176				6.5			8,883			8,399			484				5.8			3,765			3,036			729				24.0	%
Furniture, equipment and software(1)		2,090				2,005			85				4.2			6,621			6,096			525				8.6			2,519			2,230			289				13.0	%
Merger related expenses																													2,342			—			2,342				NM
Other taxes		1,540				1,341			199				14.8			4,182			4,928			(746		)		(15.1	)		1,600			1,185			415				35.0	%
Marketing		1,062				1,023			39				3.8			3,514			2,916			598				20.5
Marketing⁽¹⁾																													1,111			1,141			(30		)		(2.6	)%
Professional services and legal⁽¹⁾		1,054				1,181			(127		)		(10.8	)		3,382			3,120			262				8.4			1,048			1,184			(136		)		(11.5	)%
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	)		770			516			254				49.2	%
Other(1)		5,529				5,392			137				2.5			17,187			16,174			1,013				6.3			8,033			5,449			2,584				47.4	%
Total Noninterest Expense		$	37,667			$	37,085		$	582			1.6	%		$	116,938		$	109,030		$	7,908			7.3	%		$	46,391		$	38,884		$	7,507			19.3	%

⁽¹⁾Excludes Merger related expenses for ~~2019~~2020 amounts only.

NM - not meaningful

Noninterest expense increased ~~$0.6~~$7.5 million, or 19.3 percent, to ~~$37.7~~$46.4 million ~~for~~in 2020 compared to 2019. Total noninterest expense includes the impact of the DNB merger in the three months ended ~~September~~March 31, 2020 which closed on November 30, ~~2019 and $7.9 million to $116.9 million for the nine months ended September 30, 2019 compared to the same periods in 2018.~~2019. Total merger related expenses ~~for~~of $2.3 million incurred in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 included $1.4 million of ~~$1.2 million included $0.5~~salaries and employee benefits, $0.4 million for data processing, ~~and $0.6~~$0.2 million for professional ~~services.~~services and $0.3 million in various other expenses. Other noninterest expense increased $2.6 million mainly due to $1.1 million increase related to historic tax credits and $0.5 million additional amortization related to the DNB merger. Net occupancy expenses increased $0.7 million due to additional locations acquired as part of the DNB merger. Salaries and employee benefits ~~expense~~ increased ~~$0.2~~$0.4 million ~~for the three months ended and $3.9 million for the nine months ended September 30, 2019 compared to the same periods in 2018 mainly~~primarily due to ~~annual merit increases and higher severance, incentives and pension costs.~~additional employees. Data processing and information technology increased ~~$0.8~~$0.6 million ~~for the three months ended and $2.7 million for the nine months ended September 30, 2019 compared to the same periods in 2018~~ due to the outsourcing agreement for certain components of our information technology function, ~~and~~ the annual increase with our third-party data ~~processor. These increases were partially offset by a decrease in FDIC insurance of $1.4~~processor and the merger. Other taxes increased $0.4 million ~~for the three months ended and $2.1 million for the nine months ended September 30, 2019 compared~~due to the ~~same periods~~merger and growth resulting in ~~2018 related to Small Bank Assessment Credits that were received by all banking institutions with assets of less than $10 billion and improvements~~an increase 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.~~our shares tax.

Provision for Income Taxes

The provision for income taxes ~~increased $1.8~~decreased $1.5 million to $2.7 million for the three months ended ~~September 30, 2019~~March 31, 2020 compared to $4.2 million in the same period in ~~2018 due to~~2019 as a ~~return to provision tax benefit in the third quarter~~result of ~~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 for the three month period in 2019 compared to the same period in 2018. The provision for income taxes increased $1.1 million for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to non-recurring discrete items 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.~~$11.2 million. Our effective tax rate increased to ~~15.0~~17.3 percent ~~and~~for the three months ended March 31, 2020 compared to 15.6 percent for the ~~three and nine months~~same period ~~ended September 30, 2019~~in 2019. The increase in the effective tax rate is primarily due to a $1.7 million decrease in tax benefits from tax credits compared to ~~8.5 percent and 14.1 percent for the same periods in 2018.~~2019.

Financial Condition as of ~~September 30, 2019~~March 31, 2020

Total assets increased ~~$0.3~~$0.2 billion to ~~$7.6~~$9.0 billion at ~~September 30, 2019~~March 31, 2020 compared ~~$7.3~~$8.8 billion at December 31, ~~2018.~~2019. Total portfolio loans increased ~~$249.1~~$109.6 million to $7.2 billion at March 31, 2020 compared to $7.1 billion at December 31, 2019. The increase in portfolio loans primarily related to growth in the commercial loan portfolio of $107.6 million with increases of $60.5 million in C&I, $26.0 million in CRE and $21.1 million in commercial construction compared to December 31, 2019. Consumer loans increased $2.0 million compared to December 31, 2019 with increases in all ~~the loan portfolios. Commercial~~categories except residential mortgages. Home equity increased $6.1 million, consumer construction loans increased ~~$191.4~~$4.8 million, and consumer loans increased $57.7 million. The increase of $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 loans. The increase in consumer loans of $57.7 million related to $44.2 million in residential mortgages, $6.9 million in installment and other consumer ~~loans, $3.5~~increased $0.9 million offset by a decrease of $9.8 million in ~~home equity loans and $3.1 million in consumer construction.~~ residential mortgages.

Securities ~~decreased $15.7~~increased $15.2 million to ~~$669.2~~$799.5 million at ~~September 30, 2019~~March 31, 2020 from ~~$684.9~~$784.3 million at December 31, ~~2018.~~2019. The ~~decrease~~increase in securities is primarily due to increases in the unrealized gains of $21.6 million during the three months ended March 31, 2020 partially offset by pay downs on mortgage-backed ~~securities offset by limited purchases and an increase in the unrealized gain during the nine months ended September~~

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

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

~~30, 2019.~~securities. The bond portfolio had an unrealized gain of ~~$13.6~~$32.3 million at ~~September 30, 2019~~March 31, 2020 compared to ~~an unrealized loss of $5.1~~$10.7 million at December 31, ~~2018~~2019 due to a decrease in interest rates.

Our deposits increased ~~$308.8~~$21.3 million, ~~or 5.4 percent,~~ with total deposits of ~~$6.0~~$7.1 billion at ~~September 30, 2019~~March 31, 2020 compared to ~~$5.7~~$7.0 billion at December 31, ~~2018.~~2019. Customer deposits increased ~~$465.8~~$37.3 million ~~with growth in money~~from December 31, 2019. Money market ~~of $382.2~~deposits increased $17.9 million, ~~or 32.4 percent, noninterest-bearing demand deposit accounts of $69.2 million and~~ certificates of deposit ~~of $64.7~~increased $8.5 million, ~~which was offset by declines in~~ savings ~~accounts of $31.5~~increased $5.3 million, noninterest-bearing demand deposits increased $4.9 million, and interest-bearing demand ~~deposit accounts of $18.8~~increased $0.7 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~~$16.0 million ~~at September 30, 2019~~from December 31, 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.

Total borrowings increased $177.8 million, or 42.7 percent, compared to December 31, ~~2018 due~~2019 to ~~strong customer deposit~~fund asset growth.

Total short-term borrowings ~~decreased $105.6~~increased by $128.9 million, or 45.8 percent compared to December 31, ~~2018~~2019. Securities sold under repurchase agreements increased $49.8 million to $69.6 million at March 31, 2020 compared to December 31, 2019 due to ~~a decrease in funding needs. Total short-term borrowings decreased~~repositioning by ~~$100.0 million, or 21.3 percent, and long-term borrowings decreased $1.2 million.~~our REPO customers,

Total shareholders’ equity ~~increased~~decreased by ~~$46.6~~$15.8 million ~~to $982.4 million~~and remains at ~~September 30, 2019~~$1.2 billion at March 31, 2020 compared to ~~$935.8 million~~$1.2 billion at December 31, ~~2018.~~2019. The ~~increase~~decrease was primarily due to the $22.6 million cumulative-effect adjustment related to the adoption of ASU 2016-13, share repurchases of $12.6 million and $11.1 million of dividends partially offset by net income of ~~$76.0 million offset partially by dividends of $27.8~~$13.2 million and ~~share repurchases of $18.2 million.~~$17.3 million increase in other comprehensive income. The ~~$15.8 million~~ increase in other comprehensive income was due to a ~~$14.7~~$17.0 million increase in unrealized gains on our available-for-sale investment securities, net of tax, and a ~~$1.1~~$0.3 million change in the funded status of our employee benefit plans.

Securities Activity


(dollars in thousands)	September 30, 2019			December 31, 2018			$ Change				March 31, 2020			December 31, 2019			$ Change
U.S. treasury securities		$	10,049		$	9,736		$	313			$	10,372		$	10,040		$	332
Obligations of U.S. government corporations and agencies		130,165			128,261			1,904				137,982			157,697			(19,715		)
Collateralized mortgage obligations of U.S. government corporations and agencies		155,010			148,659			6,351				189,472			189,348			124
Residential mortgage-backed securities of U.S. government corporations and agencies		18,826			24,350			(5,524		)		21,193			22,418			(1,225		)
Commercial mortgage-backed securities of U.S. government corporations and agencies		237,951			246,784			(8,833		)		284,679			275,870			8,809
Corporate obligations												7,551			7,627			(76		)
Obligations of states and political subdivisions		112,519			122,266			(9,747		)		144,717			116,133			28,584
Debt Securities Available-for-Sale		664,520			680,056			(15,536		)
Available-for-Sale Debt Securities												795,966			779,133			16,833
Marketable equity securities		4,706			4,816			(110		)		3,566			5,150			(1,584		)
Total Securities		$	669,226		$	684,872		$	(15,646	)		$	799,532		$	784,283		$	15,249

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 $15.7~~increased $15.2 million to ~~$669.2~~$799.5 million at ~~September 30, 2019~~March 31, 2020 from ~~$684.9~~$784.3 million at December 31, ~~2018.~~2019. The ~~decrease~~increase in securities is primarily due to ~~pay downs on mortgage-backed securities offset by limited purchases and~~ an increase in ~~the unrealized gain during the nine months ended September 30,~~market value compared to December 31, 2019.

At ~~September 30, 2019~~March 31, 2020 our bond portfolio was in a net unrealized gain position of ~~$13.6~~$32.3 million compared to a net unrealized ~~loss~~gain position of ~~$5.1~~$10.7 million at December 31, ~~2018.~~2019. At ~~September 30, 2019~~March 31, 2020 total gross unrealized gains in the bond portfolio were ~~$13.9~~$32.3 million ~~offset by $0.3 million of gross unrealized losses,~~ compared to December 31, ~~2018,~~2019, when total gross unrealized gains were ~~$3.5~~$11.7 million offset by gross unrealized losses of ~~$8.6~~$1.0 million. Management evaluates the securities portfolio ~~for other than temporary impairment, or OTTI, on a quarterly basis.~~to determine if an ACL is needed each quarter. During the ~~nine~~three months ended ~~September 30, 2019 and 2018,~~March 31, 2020 we did not record ~~any OTTI.~~an ACL related to the securities portfolio.

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

Loan Composition


	September 30, 2019				December 31, 2018				March 31, 2020				December 31, 2019
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans
Commercial
Commercial real estate	$	2,922,197	47.16	%	$	2,921,832	49.13	%	$	3,442,495	47.50	%	$	3,416,518	47.87	%
Commercial and industrial	1,626,854		26.26		1,493,416		25.11		1,781,402		24.58		1,720,833		24.11
Construction	314,813		5.08		257,197		4.33		396,518		5.47		375,445		5.26
Total Commercial Loans	4,863,864		78.50	%	4,672,445		78.57	%	5,620,415		77.56	%	5,512,796		77.24	%
Consumer
Residential mortgage	770,882		12.44	%	726,679		12.22	%	988,816		13.64	%	998,585		13.99	%
Home equity	475,024		7.67		471,562		7.93		544,405		7.51		538,348		7.54
Installment and other consumer	74,460		1.20		67,546		1.13		79,887		1.10		79,033		1.10
Construction	11,535		0.19		8,416		0.14		13,222		0.18		8,390		0.12
Total Consumer Loans	1,331,901		21.50	%	1,274,203		21.43	%	1,626,329		22.44	%	1,624,356		22.76	%
Total Portfolio Loans	6,195,765		100.00	%	5,946,648		100.00	%	7,246,745		100.00	%	7,137,152		100.00	%
Loans held for sale	8,371				2,371				7,309				5,256
Total Loans	$	6,204,136			$	5,949,019			$	7,254,054			$	7,142,408

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,~~commercial construction, comprised ~~78.5~~77.6 percent of total portfolio loans at ~~September 30, 2019~~March 31, 2020 and ~~78.6~~77.2 percent at December 31, ~~2018.~~2019. Total portfolio loans increased ~~$249.1~~$109.6 million to ~~$6.2~~$7.2 billion at ~~September 30, 2019~~March 31, 2020 compared to ~~$5.9~~$7.1 billion at December 31, ~~2018.~~2019. The increase of ~~$191.4~~$107.6 million in the commercial loans related to ~~$133.4~~$60.5 million in C&I, ~~$57.6~~$26.0 million in CRE and $21.1 million in commercial construction ~~and $0.4 million in CRE~~ loans compared to December 31, ~~2018.~~2019.

Consumer loans represent ~~21.5~~22.4 percent of our total portfolio loans at ~~September 30, 2019~~March 31, 2020 and ~~21.4~~22.8 percent at December 31, ~~2018.~~2019. Consumer loans increased ~~$57.7~~$2.0 million compared to December 31, ~~2018~~2019 with increases in all ~~categories. Residential mortgages~~categories except residential mortgages. Home equity increased ~~$44.2~~$6.1 million, consumer construction loans increased $4.8 million, installment and other consumer increased ~~$6.9~~$0.9 million ~~home equity increased $3.5~~offset by a decrease of $9.8 million ~~and consumer construction loans increased $3.1 million.~~in residential mortgages.

Allowance for ~~Loan~~Credit Losses

We maintain an ~~ALL~~ACL at a level determined to be adequate to absorb estimated ~~probable~~expected credit losses ~~inherent~~ within the loan portfolio over the contractual life of a loan that considers our historical loss experience, current conditions and forecasts of future economic conditions 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.~~date. We develop and document a systematic ~~ALL~~ACL methodology based on the following portfolio segments: 1) Construction, 2) CRE, 2)3) C&I, ~~3) Commercial Construction,~~ 4) Business Banking, 5) Consumer Real Estate and 5)6) Other Consumer.

The following ~~is a discussion of the~~are key risks bywithin each portfolio ~~segment that management assesses in preparing the ALL.~~segment:

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

C&I ~~loans are~~—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.

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Commercial Construction ~~loans are~~—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.

Business Banking—Commercial loans made to small businessesthat are standard, non-complex products evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards that meet small business market customers’ needs. The business banking portfolio is monitored by utilizing a standard and closely managed process focusing on behavioral and performance criteria. 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 business.

Consumer Real Estate ~~loans are~~—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 ~~markets~~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 are~~—Loans made to individuals ~~and~~that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans, unsecured loans and lines and credit cards. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

The following ~~tables summarize~~table presents activity in the ~~ALL and recorded investments in loans by category and the related ratios~~ACL for the ~~dates presented:~~three months ended March 31, 2020:

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



	Three Months Ended March 31, 2020
(dollars in thousands)	Commercial Real Estate			Commercial and Industrial			Commercial Construction			Business Banking⁽¹⁾			Consumer Real Estate			Other Consumer			Total Loans
Three months ended March 31, 2020
Allowance for credit losses on loans:
Balance at beginning of period	$	30,577		$	15,681		$	7,900		$	—		$	6,337		$	1,729		$	62,224
Impact of CECL adoption	4,810			7,853			(3,376		)	12,898			4,525			642			27,352
Provision for credit losses on loans	7,639			6,196			2,309			1,194			472			620			18,430
Charge-offs	(442		)	(9,879		)	(229		)	(460		)	(172		)	(248		)	(11,430		)
Recoveries	27			19			2			74			38			114			274
Net (Charge-offs)/Recoveries	(415		)	(9,860		)	(227		)	(386		)	(134		)	(134		)	(11,156		)
Balance at End of Period	$	42,611		$	19,870		$	6,606		$	13,706		$	11,200		$	2,857		$	96,850

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 %



	March 31, 2020			December 31, 2019
Ratio of net charge-offs to average loans outstanding	0.63	%	*	0.22	%
Allowance for credit losses as a percentage of total loans	1.34	%		0.87	%
Allowance for credit losses to nonperforming loans	131	%		115	%

^* Annualized

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

The ~~ALL was $62.1 million, or 1.00 percent of total portfolio loans, at September 30, 2019 compared to $61.0 million, or 1.03 percent of total portfolio loans at December 31, 2018. The~~significant increase in the ~~ALL~~provision for credit losses of ~~$1.1~~$18.4 million during the three months ended March 31, 2020 was ~~in part~~mainly due to the COVID-19 pandemic. Net loan charge-offs were $11.2 million, or 0.63 percent of average loans, for the three months ended March 31, 2020. The most significant charge-off for the first quarter related to a ~~$0.4~~$9.9 million ~~increase in~~C&I relationship that was charged off due to potential irregularities of the ~~reserve for~~borrower that are still under review. We obtained information on the relationship subsequent to filing our December 31, 2019 10-K, but before the end of the first quarter of 2020; therefore, we recorded a day one CECL adjustment through a $9.9 million specific reserve. The updated information supported a loss existed at January 1, 2020.

Commercial substandard loans ~~individually evaluated for impairment~~increased $15.8 million to $168.5 million at March 31, 2020 compared to ~~December 31, 2018. Impaired loans increased $23.0 million to $72.5 million compared to $49.5~~$152.7 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 $22.8~~increased $20.8 million to ~~$245.7~~$124.7 million ~~from $268.5~~at March 31, 2020 compared to $103.9 million at December 31, 2018. Substandard loans decreased $46.2 million and special mention increased $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 increased2019 due to downgrades as a result of updated financial information.

~~For the three and nine months ended September 30, 2019, we had net charges-offs of $4.3~~Nonperforming loans increased $19.7 million ~~and $11.6~~to $73.8 million at March 31, 2020 compared to ~~$0.4~~$54.1 million ~~and $8.1 million for the same periods in 2018.~~at

December 31, 2019. The provision for loan losses increased $4.4 million and $0.5 million to $4.9 million and $12.8 million for the three and nine months ended September 30, 2019 compared to $0.5 million and $12.3 million for the same periods in 2018. Thesignificant increase in ~~the provision for loan losses was mainly due to higher net charge-offs for both periods.~~

~~We individually evaluate all substandard and nonaccrual commercial~~nonperforming 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~~primarily related to the ~~contractual terms~~addition of a $20.9 million CRE relationship and a $5.9 million C&I relationship, which was partially offset by the ~~loan agreement. Our methodology for evaluating whether~~$9.9 million C&I relationship that was charged off during the quarter. The $20.9 million CRE relationship became a ~~loan is impaired includes risk-rating credits on an individual basis~~performing TDR in the third quarter of 2019 and ~~consideration~~then moved to nonperforming in the first quarter of 2020 when the ~~borrower’s overall~~borrower experienced 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~~deterioration that led to cash flow ~~when warranted.~~

Troubled debt restructurings, or TDRs, whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concessionissues. The relationship was individually assessed at March 31, 2020 resulting in no ACL due 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~~being current on 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~~payments under 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~~relationship is fully collateralized 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 March 31, 2020.

The adoption of the ~~restructuring for a new loan with comparable risk~~CECL accounting standard as of January 1, 2020 and ~~we fully expect that~~ the ~~remaining principal and interest will be collected according~~uncertainty around the COVID-19 pandemic both contributed to the ~~restructured agreement. For all TDRs, regardless~~higher ACL of ~~size,~~1.34 percent of total portfolio loans as ~~well as all other impaired loans, we conduct further analysis~~of March 31, 2020 compared 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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~~Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~adjusted to be equal to or greater than the rate that would be accepted~~0.87 percent at ~~the time of the restructuring for a new loan with comparable risk.~~December 31, 2019.

TDRs increased ~~$25.0~~$5.4 million to ~~$52.9~~$51.3 million at ~~September 30, 2019~~March 31, 2020 compared to ~~$27.9~~$45.9 million at December 31, 2018. The increase is primarily due to new TDRs totaling $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 ~~$52.9~~$51.3 million at ~~September 30, 2019~~March 31, 2020 included ~~$38.4~~$15.2 million, or ~~72.6~~29.6 percent, that were accruing and ~~$14.5~~$36.1 million, or ~~27.4~~70.4 percent, that were 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~~credit losses on unfunded commercial lending commitments and letters of credit provide for the risk of expected loss in these arrangements. The allowance is ~~determined~~computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the ~~ALL. Amounts are added to~~probability of a draw-down on the ~~allowance~~commitment. The provision for ~~lending-related~~credit losses on unfunded loan commitments ~~by a charge to current earnings through noninterest expense. The reserve~~ is ~~calculated by applying historical loss rates to unfunded commitments taking into consideration qualitative factors.~~included in the provision for credit losses on our consolidated statement of comprehensive income. The allowance for unfunded loan commitments was ~~$2.4~~$6.1 million at ~~September 30, 2019 and $2.2~~March 31, 2020 compared to $3.1 million at December 31, ~~2018.~~2019. The adoption of ASU 2016-13 resulted in an increase to our allowance for unfunded commitments of $1.4 million on January 1, 2020. We increased the allowance for unfunded loan commitments $1.6 million during the three months ended March 31, 2020 mainly in response to COVID-19 pandemic. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

5655

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S&T BANCORP, INC. AND SUBSIDIARIES

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

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


(dollars in thousands)	September 30, 2019				December 31, 2018				$ Change				March 31, 2020				December 31, 2019				$ Change
Nonperforming Loans
Commercial real estate		$	22,860			$	10,913			$	11,947			$	21,267			$	22,427			$	(1,160	)
Commercial and industrial		3,418				2,314				1,104				4,348				13,287				(8,939		)
Commercial construction		737				13,787				(13,050		)		571				737				(166		)
Residential mortgage		6,190				5,585				605				9,271				6,697				2,574
Home equity		2,266				2,349				(83		)		2,029				1,961				68
Installment and other consumer		16				37				(21		)		258				36				222
Total Nonperforming Loans		35,487				34,985				502				37,744				45,145				(7,400		)
Nonperforming Troubled Debt Restructurings
Commercial real estate		10,880				1,139				9,741				29,242				6,713				22,529
Commercial and industrial		787				6,646				(5,859		)		4,734				695				4,039
Commercial construction		406				406				—				—				—				—
Residential mortgage		1,195				1,543				(348		)		1,311				822				489
Home equity		1,226				1,349				(123		)		768				678				90
Installment and other consumer		2				5				(3		)		—				4				(4		)
Total Nonperforming Troubled Debt Restructurings		14,496				11,088				3,408				36,055				8,912				27,142
Total Nonperforming Loans		49,983				46,073				3,910				73,799				54,057				19,742
OREO		1,724				3,092				(1,368		)		3,389				3,525				(136		)
Total Nonperforming Assets		$	51,707			$	49,165			$	2,542			$	77,188			$	57,582			$	19,606

Asset Quality Ratios:
Nonperforming loans as a percent of total loans		0.81		%		0.77		%						1.02		%		0.76		%
Nonperforming assets as a percent of total loans plus OREO		0.83		%		0.83		%						1.06		%		0.81		%

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 increased ~~$3.9~~$19.7 million to ~~$50.0~~$73.8 million at ~~September 30, 2019~~March 31, 2020 compared to ~~$46.1~~$54.1 million at

December 31, ~~2018.~~2019 mainly due to the $20.9 million CRE relationship discussed above.

Deposits


(dollars in thousands)	September 30, 2019			December 31, 2018			$ Change				March 31, 2020			December 31, 2019			$ Change
Customer Deposits
Noninterest-bearing demand		$	1,490,409		$	1,421,156		$	69,253			$	1,702,960		$	1,698,082		$	4,878
Interest-bearing demand		548,700			567,492			(18,792		)		762,783			762,111			672
Money market		1,560,426			1,178,211			382,215				1,867,602			1,849,684			17,918
Savings		753,464			784,970			(31,506		)		836,237			830,919			5,318
Certificates of deposit		1,326,369			1,261,704			64,665				1,543,790			1,535,305			8,485
Total Customer Deposits		5,679,368			5,213,533			465,835				6,713,371			6,676,101			37,271
Brokered Deposits
Interest-bearing demand		203,181			6,201			196,980				200,154			200,220			(66		)
Money market		100,143			303,854			(203,711		)		100,090			100,127			(37		)
Certificates of deposit		—			150,334			(150,334		)		44,263			60,128			(15,865		)
Total Brokered Deposits		303,324			460,389			(157,065		)		344,507			360,475			(15,969		)
Total Deposits		$	5,982,692		$	5,673,922		$	308,770			$	7,057,879		$	7,036,576		$	21,303

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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 ~~September 30, 2019~~March 31, 2020 increased ~~$308.8~~$21.3 million from December 31, ~~2018.~~2019. Total customer deposits increased ~~$465.8~~$37.3 million from December 31, ~~2018.~~2019. Money market deposits ~~primarily accounted for this change with an increase~~increased $17.9 million, certificates of ~~$382.2~~deposit increased $8.5 million, savings increased $5.3 million, noninterest-bearing demand deposits increased $69.2 million and certificate of deposits increased $64.7 million. The significant increase in money market deposits is related to a promotional rate product offered in selected markets. These increases were offset by declines in savings deposits of $31.5$4.9 million, and interest-bearing demand ~~deposits of $18.8~~increased $0.7 million. ~~These decreases were mainly a result of migration into money market products and outflows due to repositioning by our customers.~~ Total brokered deposits decreased ~~$157.1~~$16.0 million from December 31, 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)	September 30, 2019			December 31, 2018			$ Change				March 31, 2020			December 31, 2019			$ Change
Securities sold under repurchase agreements		$	13,925		$	18,383		$	(4,458	)		$	69,644		$	19,888		$	49,756
Short-term borrowings		370,000			470,000			(100,000		)		410,240			281,319			128,921
Long-term borrowings		69,156			70,314			(1,158		)		50,180			50,868			(688		)
Junior subordinated debt securities		45,619			45,619			—				64,038			64,277			(239		)
Total Borrowings		$	498,700		$	604,316		$	(105,616	)		$	594,102		$	416,352		$	177,750

Borrowings are an additional source of funding for us. At ~~September 30, 2019~~March 31, 2020 total borrowings ~~decreased $105.6~~increased $177.8 million, or ~~17.5~~42.7 percent, compared to December 31, ~~2018 due~~2019 to ~~a decrease in funding needs as a result of strong customer deposit~~fund asset growth. Total short-term borrowings ~~decreased~~increased by ~~$100.0~~$128.9 million, or ~~21.3~~45.8 percent, compared to December 31, ~~2018.~~

~~Table of Contents~~

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

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

2019. Securities sold under repurchase agreements increased $49.8 million to $69.6 million during the three month period compared to December 31, 2019 due to repositioning by our REPO customers.

Information pertaining to short-term borrowings is summarized in the tables below for the ~~nine~~three months ended March 31, 2020 and for the twelve months ended ~~September 30, 2019 and~~ December 31, ~~2018.~~2019.


	Securities Sold Under Repurchase Agreements						Securities Sold Under Repurchase Agreements
(dollars in thousands)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Balance at the period end	$	13,925		$	18,383		$	69,644		$	19,888
Average balance during the period	$	17,812		$	45,992		$	30,790		$	16,863
Average interest rate during the period	0.63		%	0.48		%	0.56		%	0.65		%
Maximum month-end balance during the period	$	23,427		$	54,579		$	69,644		$	23,427
Average interest rate at the period end	0.74		%	0.46		%	0.25		%	0.74		%

	Short-Term Borrowings						Short-Term Borrowings
(dollars in thousands)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Balance at the period end	$	370,000		$	470,000		$	410,240		$	281,319
Average balance during the period	$	259,947		$	525,172		$	286,365		$	255,264
Average interest rate during the period	2.65		%	2.11		%	1.61		%	2.51		%
Maximum month-end balance during the period	$	425,000		$	690,000		$	410,240		$	425,000
Average interest rate at the period end	2.18		%	2.65		%	0.44		%	1.84		%

Information pertaining to long-term borrowings is summarized in the tables below for the ~~nine~~three months ended March 31, 2020 and for the twelve months ended ~~September 30, 2019 and~~ December 31, ~~2018.~~2019.


	Long-Term Borrowings						Long-Term Borrowings
(dollars in thousands)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Balance at the period end	$	69,156		$	70,314		$	50,180		$	50,868
Average balance during the period	$	69,886		$	47,986		$	51,845		$	66,392
Average interest rate during the period	2.79		%	2.35		%	2.52		%	2.76		%
Maximum month-end balance during the period	$	70,418		$	70,314		$	50,635		$	70,418
Average interest rate at the period end	2.53		%	2.84		%	2.59		%	2.61		%

	Junior Subordinated Debt Securities						Junior Subordinated Debt Securities
(dollars in thousands)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Balance at the period end	$	45,619		$	45,619		$	64,038		$	64,277
Average balance during the period	$	45,619		$	45,619		$	64,195		$	47,934
Average interest rate during the period	5.02		%	4.60		%	4.40		%	4.82		%
Maximum month-end balance during the period	$	45,619		$	45,619		$	64,648		$	64,277
Average interest rate at the period end	4.58		%	5.25		%	3.63		%	4.42		%

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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 the 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"~~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 ~~September 30, 2019,~~March 31, 2020, we had ~~$519.3~~$618.0 million in highly liquid assets, which consisted of ~~$68.8~~$113.2 million in interest-bearing deposits with banks, ~~$442.1~~$497.5 million in unpledged securities and ~~$8.4~~$7.3 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of 6.9 percent at ~~September 30, 2019.~~March 31, 2020. Also, at ~~September 30, 2019,~~March 31, 2020, we had a remaining borrowing availability of ~~$2.0~~$2.4 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		September 30, 2019				December 31, 2018				Adequately Capitalized		Well- Capitalized		March 31, 2020				December 31, 2019
(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	%	$	843,703	10.03	%	$	854,146	10.29	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	685,600		11.35	%	669,778		11.38	%	4.50	%	6.50	%	814,703		10.93	%	825,146		11.43	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	705,600		11.68	%	689,778		11.72	%	6.00	%	8.00	%	843,703		11.32	%	854,146		11.84	%
Total capital to risk-weighted assets	8.00	%	10.00	%	794,426		13.15	%	777,913		13.21	%	8.00	%	10.00	%	948,509		12.73	%	954,094		13.22	%
S&T Bank
Tier 1 leverage	4.00	%	5.00	%	$	675,236	9.71	%	$	659,304	9.63	%	4.00	%	5.00	%	$	821,488	9.79	%	$	832,113	10.04	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	675,236		11.20	%	659,304		11.23	%	4.50	%	6.50	%	821,488		11.04	%	832,113		11.56	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	675,236		11.20	%	659,304		11.23	%	6.00	%	8.00	%	821,488		11.04	%	832,113		11.56	%
Total capital to risk-weighted assets	8.00	%	10.00	%	764,061		12.68	%	747,438		12.73	%	8.00	%	10.00	%	918,495		12.35	%	922,310		12.81	%

We have filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, with the SEC, which allows for the issuance of a variety of securities including debt and capital securities, preferred and common stock and warrants. We may use the proceeds from the sale of securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of ~~September 30, 2019,~~March 31, 2020, we had not issued any securities pursuant to this shelf registration statement.

S&T is monitoring and will continue to monitor the impact of the COVID-19 pandemic and has taken and will continue to take steps to mitigate the potential risks and impact on our liquidity and capital resources. Due to the economic uncertainty, we are taking a prudent approach to capital management and have established access to the Federal Reserve’s PPP Lending Facility.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For most financial institutions, including S&T, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes also affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by ALCO. ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, analyses and by performing stress tests and simulations in order to mitigate earnings and market value fluctuations due to changes in interest rates.

Rate shock analyses results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. S&T policy guidelines limit the change in pretax net interest income over 12 and 24 month horizons using rate shocks in increments of +/- 100 basis points. Policy guidelines define the percentage change in pretax net interest income by graduated risk tolerance levels of minimal, moderate and high. We have temporarily suspended the analyses on downward rate shocks of 200 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 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.


	September 30, 2019							December 31, 2018								March 31, 2020									December 31, 2019
	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	12.2	%	14.3	%	% Change in EVE	4.9	%		8.3	%		11.6	%		(10.0	)%	10.3	%		13.5	%		0.3	%		9.6	%		14.4	%		(1.8	)%
300	9.2		10.8		8.7			6.1			8.5			(4.6	)	7.6			10.1			4.6			7.2			10.8			2.8
200	6.3		7.5		10.0			4.0			5.6			0.6		5.7			7.6			7.6			5.0			7.6			5.5
100	3.4		4.2		7.5			2.2			3.1			1.4		3.5			4.6			6.9			2.7			4.2			5.1
(100)	(4.8	)	(6.2	)	(13.1	)		(3.8	)		(5.4	)		(7.5	)	(8.4	)		(10.5	)		(18.5	)		(4.3	)		(6.4	)		(10.8	)
(200)	NM		NM		NM			(7.8	)		(11.2	)		(16.8	)	NM			NM			NM			—			—			—

NM - not meaningful

The results from the rate shock analyses on pretax net interest income are consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means more assets than liabilities will reprice during the measured time frames. The implications of an asset sensitive balance sheet will differ depending upon the change in market interest rates. For example, with an asset sensitive balance sheet in a declining interest rate environment, more assets than liabilities will decrease in rate. This situation could result in a decrease in net interest income and operating income. Conversely, with an asset sensitive balance sheet in a rising interest rate environment, more assets than liabilities will increase in rate. This situation could result in an increase in net interest income and operating income.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our rate shock analyses show an improvement in the percentage change in pretax net interest income in the 1-12 month rates up scenarios, a decline in the 13-24 month rates up scenarios, and a decline in the rates down scenarios in months 1 - 12 and 13 - 24 when comparing March 31, 2020 to December 31, ~~2018 to 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 March 31, 2020 to December 31, ~~2018 to September 30,~~ 2019.

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 ~~September 30, 2019.~~March 31, 2020. 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 ~~September 30, 2019,~~March 31, 2020, 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,~~2019, as filed with the SEC on ~~February 21, 2019~~March 2, 2020 other than the risks described below related to ~~the pending merger with DNB.~~COVID-19.

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~~duration and severity of the ~~merger, holders~~COVID-19 pandemic, in our principal area of ~~DNB common stock will become holders of S&T common stock.~~operations, nationally and globally, could adversely impact S&T’s business, ~~differs in important respects from that of DNB, and, accordingly, the~~ results of operations and financial condition. While it is difficult to predict the impact of the ~~combined company~~COVID-19 pandemic (or any other outbreak) on the economy and S&T, the future impacts may include, but are not limited to, the following:


•	Our results of operations may be negatively impacted by general economic or business conditions and uncertainty, including the strength of economic conditions in our principal area of operations impacting the demand for our products and services.

The low interest rate environment resulting from the Federal Reserve decreasing the Federal Funds target rates will negatively impact our net interest income and net interest margin.

Credit losses may be higher and our provision for credit losses may increase, due to deterioration in the financial condition of S&T’s commercial and consumer loan customers.

Declining asset and collateral values may necessitate increases in our provision for credit losses and net charge-offs.

Expense management will be impacted by the uncertainty of the effects of the pandemic and S&T’s continued efforts to promote the health and safety of our employees, and the customers and communities we serve.


•	S&T’s liquidity and regulatory capital could be adversely impacted.


•	We may have an interruption or cessation of an important service provided by a third-party provider.

Any new or revised regulations regarding capital and liquidity adopted in response to the COVID-19 pandemic may require us to maintain materially more capital or liquidity.

Investors may have less confidence in the equity markets in general and in financial services industry in particular, which could have a negative impact on S&T’s stock price and resulting market ~~price~~valuation.

To the extent the COVID-19 pandemic continues to adversely affect the global economy it may also increase the likelihood and/or magnitude of other risks described in the Part I, Item IA. “Risk Factors” in S&T’s Annual Report on Form 10-K for the year ended December 31, 2019.

The impact that the COVID-19 pandemic will have on S&T’s credit losses is uncertain, and continued economic uncertainty and deterioration since January 1, 2020 in the forward looking economic forecasts used to estimate credit losses may adversely affect our ACL.

S&T ~~common stock after~~calculates the ~~completion~~ACL, using to the CECL accounting standard adopted January 1, 2020. The CECL methodology reflects expected credit losses and requires consideration of a broad range of reasonable and supportable information to form credit loss estimates. The CECL accounting standard bases the measurement of expected credit losses on historical loss experience, current conditions and reasonable and supportable forecasts that affect the collectability of the ~~merger may be affected by factors different from those currently affecting the independent results of operations of S&T.~~

~~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, onreported amount. S&T’s ability to ~~successfully combine~~assess expected credit losses may be impaired if the ~~businesses~~models and approaches we use become less predictive of ~~S&T and DNB. To realize these anticipated benefits and cost savings, after~~future behaviors. In particular, the ~~completion~~reliance on supportable economic forecasts in light of the ~~merger, S&T expects~~COVID-19 pandemic has had and is expected to ~~integrate DNB’s business into its own.~~

~~It is possible that~~have an impact on the ~~integration process could result in the loss~~estimates of ~~key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures~~our ACL. These forecasts have deteriorated since January 1, 2020 and ~~policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors~~continued adverse economic forecasts and ~~employees or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees~~economic uncertainty 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 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, 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;~~our ACL.

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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 ~~third~~first quarter of ~~2019:~~2020:

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⁾



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
						$50,000,000
01/01/2020 - 01/31/2020	—	—		—	50,000,000

02/01/2020 - 02/29/2020	96,699	34.97		96,699	46,618,003

03/01/2020 - 03/31/2020	314,731	29.16		314,731	37,441,683
Total	411,430		$30.52	411,430		$37,441,683

⁽¹⁾On ~~March 19, 2018,~~September 16, 2019, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which was effective through August 31, 2019, 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 the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of common stock, legal and contractual requirements, applicable securities laws and 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. ~~Since its approval, no common shares have been repurchased under~~Repurchase activity was suspended in March 2020 as the ~~new share repurchase plan.~~impact of the COVID-19 pandemic spread.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

Item 5. Other Information

None

Item 6. Exhibits



2.1	Agreement and Plan of Merger, dated 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 5, 2019, and incorporated herein by reference.
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)

~~October 30, 2019~~May 8, 2020	/s Mark Kochvar
	Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

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	Carrying Value⁽¹⁾		Fair Value Measurements at September 30, 2019
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	173,609	$	173,609	$	173,609	$	—	$	—
Securities	669,226		669,226		—		669,226		—
Loans held for sale	8,371		8,371		—		—		8,371
Portfolio loans, net	6,133,650		6,022,385		—		—		6,022,385
Bank owned life insurance	75,386		75,386		—		75,386		—
FHLB and other restricted stock	25,397		25,397		—		—		25,397
Securities held in a deferred compensation plan	5,611		5,611		5,611		—		—
Mortgage servicing rights	4,172		4,189		—		—		4,189
Interest rate swaps	32,825		32,825		—		32,825		—
Interest rate lock commitments	455		455		—		455		—
Forward sale contracts	64		64		—		64		—
LIABILITIES
Deposits	$	5,982,692	$	5,981,492	$	4,656,323	$	1,325,169	$	—
Securities sold under repurchase agreements	13,925		13,925		13,925		—		—
Short-term borrowings	370,000		370,000		370,000		—		—
Long-term borrowings	69,156		69,738		39,329		30,409		—
Junior subordinated debt securities	45,619		45,619		45,619		—		—
Interest rate swaps	32,772		32,772		—		32,772		—
⁽¹⁾ As reported in the Consolidated Balance Sheets



	Three Months September 30,					Nine Months Ended September 30,
(dollars in thousands)	2019		2018			2019			2018
Marketable Equity Securities
Net market gains/(losses) recognized	$	156	$	(111	)	$	(110	)	$	171
Less: Net gains recognized for equity securities sold	—		—			—			—
Unrealized Gains/(Losses) on Equity Securities Still Held	$	156	$	(111	)	$	(110	)	$	171



	Three Months Ended
	September 30, 2019				September 30, 2018
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:
Commercial real estate	$	14,255	$	—	$	—	$	—
Commercial and industrial	—		—		—		—
Commercial construction	490		—		496		—
Consumer real estate	—		—		15		—
Other consumer	11		—		17		1
Total with a Related Allowance Recorded	14,756		—		528		1
Without a related allowance recorded:
Commercial real estate	39,179		231		3,744		41
Commercial and industrial	8,008		116		14,412		73
Commercial construction	2,318		34		2,809		61
Consumer real estate	8,830		97		9,320		112
Other consumer	3		—		13		—
Total without a Related Allowance Recorded	58,338		478		30,298		287
Total:
Commercial real estate	53,434		231		3,744		41
Commercial and industrial	8,008		116		14,412		73
Commercial construction	2,808		34		3,305		61
Consumer real estate	8,830		97		9,335		112
Other consumer	14		—		30		1
Total	$	73,094	$	478	$	30,826	$	288



	Nine months ended
	September 30, 2019				September 30, 2018
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:
Commercial real estate	$	14,348	$	—	$	—	$	—
Commercial and industrial	—		—		—		—
Commercial construction	490		—		585		—
Consumer real estate	—		—		16		1
Other consumer	13		1		21		1
Total with a Related Allowance Recorded	14,851		1		622		2
Without a related allowance recorded:
Commercial real estate	39,788		712		3,895		126
Commercial and industrial	6,644		308		11,567		232
Commercial construction	2,318		117		2,813		134
Consumer real estate	8,993		297		10,031		370
Other consumer	4		—		15		—
Total without a Related Allowance Recorded	57,747		1,434		28,321		862
Total:
Commercial real estate	54,136		712		3,895		126
Commercial and industrial	6,644		308		11,567		232
Commercial construction	2,808		117		3,398		134
Consumer real estate	8,993		297		10,047		371
Other consumer	17		1		36		1
Total	$	72,598	$	1,435	$	28,943	$	864



	September 30, 2019
(in thousands, except weighted-averages)	Three Months Ended			Nine Months Ended
Operating lease expense		$	995		$	3,061
Amortization of ROU assets - finance leases		23			68
Interest on lease liabilities - finance leases ⁽¹⁾		18			54
Total Lease Expense		$	1,036		$	3,183
Operating Leases
ROU assets					$	37,534
Operating cash flows					$	931
Finance Leases
ROU assets					$	1,168
Operating cash flows					$	55
Financing cash flows					$	34
Weighted Average Lease Term - Years
Operating leases					19.94
Finance leases					15.16
Weighted Average Discount Rate
Operating leases					6.13		%
Finance leases					5.98		%



(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