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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~~June 30, ~~2020~~2021


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

For the transition period from to

Commission file number 0-12508

______________________________________

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

(Exact name of registrant as specified in its charter)

______________________________________

Pennsylvania

25-1434426

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

800 Philadelphia Street

Indiana

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 - ~~39,310,734~~39,344,488 shares as of ~~October 31, 2020~~July 30, 2021

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

INDEX

S&T BANCORP, INC. AND SUBSIDIARIES


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets - ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	2

	~~Consolidated~~C ondensed C onsolidated Statements of Comprehensive Income - Three and Six ~~Nin~~e Months Ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	3

	Consolidated Statements of Changes in Shareholders' Equity - Three and Six Months ~~Nine~~ ~~Months~~ Ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	4

	Condensed Consolidated Statements of Cash Flows - ~~Nine~~Three and Six Months Ended ~~September~~June ~~30,~~3 0 , 2021 and 2020 ~~and 2019~~	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4938

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7256

Item 4.	Controls and Procedures	7458

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	7458

Item 1A.	Risk Factors	7458

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7559

Item 3.	Defaults Upon Senior Securities	7659

Item 4.	Mine Safety Disclosures	7760

Item 5.	Other Information	7760

Item 6.	Exhibits	7860

	Signatures	7961

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


		September 30, 2020			December 31, 2019				June 30, 2021			December 31, 2020
(dollars in thousands, except per share data)		(Unaudited)			(Audited)
( in thousands, except share and per share data)								( in thousands, except share and per share data)	(Unaudited)			(Audited)
ASSETS	ASSETS							ASSETS
Cash and due from banks, including interest-bearing deposits of $235,953 and $124,491 at September 30, 2020 and December 31, 2019			$	308,489		$	197,823
Cash and due from banks, including interest-bearing deposits of $897,999 and $158,903 at June 30, 2021 and December 31, 2020								Cash and due from banks, including interest-bearing deposits of $897,999 and $158,903 at June 30, 2021 and December 31, 2020		$	985,278		$	229,666
Securities, at fair value	Securities, at fair value		718,169			784,283		Securities, at fair value		840,375			773,693
Loans held for sale	Loans held for sale		16,724			5,256		Loans held for sale		7,648			18,528
Portfolio loans, net of unearned income	Portfolio loans, net of unearned income		7,394,868			7,137,152		Portfolio loans, net of unearned income		7,007,351			7,225,860
Allowance for credit losses on loans	Allowance for credit losses on loans		(120,998)			(62,224)		Allowance for credit losses on loans		(109,636)			(117,612)
Portfolio loans, net	Portfolio loans, net		7,273,870			7,074,928		Portfolio loans, net		6,897,715			7,108,248
Bank owned life insurance	Bank owned life insurance		81,873			80,473		Bank owned life insurance		83,087			82,303
Premises and equipment, net	Premises and equipment, net		56,254			56,940		Premises and equipment, net		54,173			55,614
Federal Home Loan Bank and other restricted stock, at cost	Federal Home Loan Bank and other restricted stock, at cost		15,777			22,977		Federal Home Loan Bank and other restricted stock, at cost		10,106			13,030
Goodwill	Goodwill		373,417			371,621		Goodwill		373,424			373,424
Other intangible assets, net	Other intangible assets, net		9,265			10,919		Other intangible assets, net		7,771			8,675
Other assets	Other assets		336,734			159,429		Other assets		236,255			304,716
Total Assets	Total Assets		$	9,190,572		$	8,764,649	Total Assets		$	9,495,832		$	8,967,897
LIABILITIES	LIABILITIES							LIABILITIES
Deposits:	Deposits:							Deposits:
Noninterest-bearing demand	Noninterest-bearing demand		$	2,232,706		$	1,698,082	Noninterest-bearing demand		$	2,668,833		$	2,261,994
Interest-bearing demand	Interest-bearing demand		982,956			962,331		Interest-bearing demand		979,300			864,510
Money market	Money market		2,033,585			1,949,811		Money market		2,047,254			1,937,063
Savings	Savings		938,475			830,919		Savings		1,050,256			969,508
Certificates of deposit	Certificates of deposit		1,446,096			1,595,433		Certificates of deposit		1,269,621			1,387,463

Total Deposits	Total Deposits		7,633,818			7,036,576		Total Deposits		8,015,264			7,420,538
Securities sold under repurchase agreements	Securities sold under repurchase agreements		42,706			19,888		Securities sold under repurchase agreements		68,587			65,163
Short-term borrowings	Short-term borrowings		83,000			281,319		Short-term borrowings		0			75,000
Long-term borrowings	Long-term borrowings		49,076			50,868		Long-term borrowings		22,969			23,681
Junior subordinated debt securities	Junior subordinated debt securities		64,068			64,277		Junior subordinated debt securities		64,113			64,083

Other liabilities	Other liabilities		175,789			119,723		Other liabilities		136,166			164,721
Total Liabilities	Total Liabilities		8,048,457			7,572,651		Total Liabilities		8,307,099			7,813,186
SHAREHOLDERS’ EQUITY	SHAREHOLDERS’ EQUITY							SHAREHOLDERS’ EQUITY
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—41,449,444 shares at September 30, 2020 and December 31, 2019 Outstanding— 39,251,638 shares at September 30, 2020 and 39,560,304 shares at December 31, 2019			103,623			103,623
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—41,449,444 shares at June 30, 2021 and December 31, 2020 Outstanding—39,345,719 shares at June 30, 2021 and 39,298,007 shares at December 31, 2020								Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—41,449,444 shares at June 30, 2021 and December 31, 2020 Outstanding—39,345,719 shares at June 30, 2021 and 39,298,007 shares at December 31, 2020		103,623			103,623
Additional paid-in capital	Additional paid-in capital		400,789			399,944		Additional paid-in capital		402,053			400,668
Retained earnings	Retained earnings		698,351			761,083		Retained earnings		746,472			710,061
Accumulated other comprehensive income (loss)			9,453			(11,670)
Treasury stock (2,197,806 shares at September 30, 2020 and 1,889,140 shares at December 31, 2019, at cost)			(70,101)			(60,982)
Accumulated other comprehensive income								Accumulated other comprehensive income		3,605			8,971
Treasury stock — 2,103,725 shares at June 30, 2021 and 2,151,437 shares at December 31, 2020, at cost								Treasury stock — 2,103,725 shares at June 30, 2021 and 2,151,437 shares at December 31, 2020, at cost		(67,020)			(68,612)
Total Shareholders’ Equity	Total Shareholders’ Equity		1,142,115			1,191,998		Total Shareholders’ Equity		1,188,733			1,154,711
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity		$	9,190,572		$	8,764,649	Total Liabilities and Shareholders’ Equity		$	9,495,832		$	8,967,897

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2020			2019			2020			2019			(dollars in thousands, except per share data)	2021			2020			2021			2020
INTEREST AND DIVIDEND INCOME	INTEREST AND DIVIDEND INCOME													INTEREST AND DIVIDEND INCOME
Loans, including fees	Loans, including fees		$	72,263		$	75,080		$	229,812		$	223,200	Loans, including fees		$	66,942		$	75,498		$	137,174		$	157,549
Investment Securities:	Investment Securities:													Investment Securities:
Taxable	Taxable		3,473			3,552			11,547			10,989		Taxable		3,793			3,791			7,356			8,074
Tax-exempt	Tax-exempt		885			787			2,646			2,466		Tax-exempt		690			959			1,503			1,762
Dividends	Dividends		227			394			911			1,373		Dividends		152			231			325			684
Total Interest and Dividend Income	Total Interest and Dividend Income		76,848			79,813			244,916			238,028		Total Interest and Dividend Income		71,577			80,479			146,358			168,069
INTEREST EXPENSE	INTEREST EXPENSE													INTEREST EXPENSE
Deposits	Deposits		6,626			16,207			31,191			47,243		Deposits		2,652			9,227			6,133			24,565
Borrowings and junior subordinated debt securities	Borrowings and junior subordinated debt securities		946			2,410			4,265			8,406		Borrowings and junior subordinated debt securities		621			1,104			1,263			3,320
Total Interest Expense	Total Interest Expense		7,572			18,617			35,456			55,649		Total Interest Expense		3,273			10,331			7,396			27,885
NET INTEREST INCOME	NET INTEREST INCOME		69,276			61,196			209,460			182,379		NET INTEREST INCOME		68,304			70,148			138,962			140,184
Provision for credit losses	Provision for credit losses		17,485			4,913			124,294			12,767		Provision for credit losses		(2,561)			(86,759)			(5,699)			(106,809)
Net Interest Income After Provision for Credit Losses	Net Interest Income After Provision for Credit Losses		51,791			56,283			85,166			169,612		Net Interest Income After Provision for Credit Losses		65,743			(16,611)			133,263			33,375
NONINTEREST INCOME	NONINTEREST INCOME													NONINTEREST INCOME
Net gain on sale of securities	Net gain on sale of securities		0			0			142			0		Net gain on sale of securities		29			142			29			142
Debit and credit card	Debit and credit card		4,171			3,475			11,264			9,951		Debit and credit card		4,744			3,612			8,906			7,093
Mortgage banking			3,964			594			7,823			1,726
Service charges on deposit accounts	Service charges on deposit accounts		2,820			3,412			8,720			9,777		Service charges on deposit accounts		3,642			2,805			7,116			6,821
Wealth management	Wealth management		2,522			2,101			7,471			6,210		Wealth management		3,167			2,586			6,111			4,949
Mortgage banking														Mortgage banking		1,734			2,623			6,044			3,859
Commercial loan swap income	Commercial loan swap income		499			1,464			3,928			3,147		Commercial loan swap income		299			945			393			3,429
Other	Other		2,507			2,017			4,762			6,515		Other		1,809			2,511			4,062			1,334
Total Noninterest Income	Total Noninterest Income		16,483			13,063			44,110			37,326		Total Noninterest Income		15,424			15,224			32,661			27,627
NONINTEREST EXPENSE	NONINTEREST EXPENSE													NONINTEREST EXPENSE
Salaries and employee benefits	Salaries and employee benefits		24,571			19,936			67,326			61,135		Salaries and employee benefits		24,515			21,419			47,842			42,754
Data processing and information technology	Data processing and information technology		4,218			3,681			11,671			10,327		Data processing and information technology		3,787			3,585			8,012			7,453
Net occupancy			3,441			2,898			10,643			8,883
Occupancy														Occupancy		3,434			3,437			7,261			7,202
Furniture, equipment and software	Furniture, equipment and software		2,440			2,090			7,965			6,621		Furniture, equipment and software		2,402			3,006			5,042			5,525
Other taxes														Other taxes		1,832			1,604			3,268			3,205
Professional services and legal	Professional services and legal		1,911			1,054			4,890			3,382		Professional services and legal		1,637			1,932			3,168			2,980
Marketing														Marketing		996			979			2,318			2,090
FDIC insurance	FDIC insurance		1,900			(675)			3,718			536		FDIC insurance		924			1,048			1,970			1,818
Marketing			1,793			1,062			3,883			3,514
Other taxes			1,612			1,540			4,816			4,182
Merger related expenses	Merger related expenses		0			552			2,342			1,171		Merger related expenses		0			0			0			2,342
Other	Other		6,360			5,529			20,861			17,187		Other		6,302			6,468			12,528			14,500
Total Noninterest Expense	Total Noninterest Expense		48,246			37,667			138,115			116,938		Total Noninterest Expense		45,829			43,478			91,409			89,869
Income (Loss) Before Taxes	Income (Loss) Before Taxes		20,028			31,679			(8,839)			90,000		Income (Loss) Before Taxes		35,338			(44,865)			74,515			(28,867)
Income tax expense (benefit)	Income tax expense (benefit)		3,323			4,743			(5,703)			14,035		Income tax expense (benefit)		6,971			(11,793)			14,247			(9,026)
Net Income (Loss)	Net Income (Loss)		$	16,705		$	26,936		$	(3,136)		$	75,965	Net Income (Loss)		$	28,367		$	(33,072)		$	60,268		$	(19,841)
Earnings (loss) per share—basic			$	0.43		$	0.79		$	(0.08)		$	2.22
Earnings (loss) per share—diluted			$	0.43		$	0.79		$	(0.08)		$	2.21
Earnings per share—basic														Earnings per share—basic		$	0.73		$	(0.85)		$	1.54		$	(0.51)
Earnings per share—diluted														Earnings per share—diluted		$	0.72		$	(0.85)		$	1.54		$	(0.51)
Dividends declared per share	Dividends declared per share		$	0.28		$	0.27		$	0.84		$	0.81	Dividends declared per share		$	0.28		$	0.28		$	0.56		$	0.56
Comprehensive Income			$	16,926		$	29,142		$	17,967		$	91,759
Comprehensive Income (Loss)														Comprehensive Income (Loss)		$	30,911		$	(29,512)		$	54,902		$	1,061

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, 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, 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 September 30, 2020
(dollars in thousands, except share and per share data) Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive Income Treasury
Stock Total
Balance at June 30, 2020 $ 103,623 $ 400,417 $ 692,240 $ 9,232 $ (69,735) $ 1,135,777
Net income for the three months ended September 30, 2020 — — 16,705 — — 16,705
Other comprehensive income, net of tax — — — 221 — 221
Cash dividends declared ($0.28 per share) — — (10,960) — — (10,960)
Forfeitures of restricted stock awards (11,822 shares) — — 366 — (366) 0
Repurchase of S&T Stock (0 shares) — — — — — 0
Recognition of restricted stock compensation expense — 372 — — — 372
Balance at September 30, 2020 $ 103,623 $ 400,789 $ 698,351 $ 9,453 $ (70,101) $ 1,142,115


	For the three months ended June 30, 2020
(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total
Balance at March 31, 2020		$	103,623		$	400,387		$	740,726		$	5,672		$	(74,157)		$	1,176,251
Net loss for the three months ended June 30, 2020		—			—			(33,072)			—			—			(33,072)
Other comprehensive income, net of tax		—			—			—			3,560			—			3,560

Cash dividends declared ($0.28 per share)		—			—			(10,961)			—			—			(10,961)
Treasury stock issued for restricted stock awards of 143,744 shares, net of forfeitures of 5,709 shares		—			—			(4,453)			—			4,422			(31)


Recognition of restricted stock compensation expense		—			30			—			—			—			30
Balance at June 30, 2020		$	103,623		$	400,417		$	692,240		$	9,232		$	(69,735)		$	1,135,777
See Notes to Consolidated Financial Statements
	For the three months ended June 30, 2021
(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total
Balance at March 31, 2021		$	103,623		$	401,353		$	731,718		$	1,061		$	(69,477)		$	1,168,278
Net income for the three months ended June 30, 2021		—			—			28,367			—			—			28,367
Other comprehensive income, net of tax		—			—			—			2,544			—			2,544

Cash dividends declared ($0.28 per share)		—			—			(10,989)			—			—			(10,989)
Treasury stock issued for restricted stock awards of 98,519 shares, net of forfeitures of 21,157		—			—			(2,624)			—			2,457			(167)

Recognition of restricted stock compensation expense		—			700			—			—			—			700
Balance at June 30, 2021		$	103,623		$	402,053		$	746,472		$	3,605		$	(67,020)		$	1,188,733
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, 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, 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
For the nine months ended September 30, 2020
(dollars in thousands, except share and per share data) Common
Stock Additional
Paid-in
Capital Retained
Earnings Accumulated
Other
Comprehensive Income (Loss) Treasury
Stock Total
Balance at January 1, 2020 $ 103,623 $ 399,944 $ 761,083 $ (11,670) $ (60,982) $ 1,191,998
Net loss for the nine months ended September 30, 2020 — — (3,136) — — (3,136)
Other comprehensive income, net of tax — — — 21,123 — 21,123
Adoption of accounting standard - credit losses — — (22,590) — — (22,590)
Cash dividends declared ($0.84 per share) — — (32,972) — — (32,972)
Treasury stock issued for restricted stock awards (147,034 shares, net of forfeitures of 44,270 shares) — — (4,034) — 3,440 (594)
Repurchase of common stock (411,430 shares) — — — — (12,559) (12,559)
Recognition of restricted stock compensation expense — 845 — — — 845
Balance at September 30, 2020 $ 103,623 $ 400,789 $ 698,351 $ 9,453 $ (70,101) $ 1,142,115


	Six months ended June 30, 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 loss for the six months ended June 30, 2020		—			—			(19,841)			—			—			(19,841)
Other comprehensive income, net of tax		—			—			—			20,902			—			20,902
Adoption of accounting standard - credit losses		—			—			(22,590)			—			—			(22,590)
Cash dividends declared ($0.56 per share)		—			—			(22,012)			—			—			(22,012)
Treasury stock issued for restricted stock awards (147,054 shares, net of forfeitures of 32,448 shares)		—			—			(4,400)			—			3,806			(594)

Repurchase of common stock (411,430 shares)		—			—			—			—			(12,559)			(12,559)
Recognition of restricted stock compensation expense		—			473			—			—			—			473
Balance at June 30, 2020		$	103,623		$	400,417		$	692,240		$	9,232		$	(69,735)		$	1,135,777

	Six months ended June 30, 2021
(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at January 1, 2021		$	103,623		$	400,668		$	710,061		$	8,971		$	(68,612)		$	1,154,711
Net income for the six months ended June 30, 2021		—			—			60,268			—			—			60,268
Other comprehensive loss, net of tax		—			—			—			(5,366)			—			(5,366)


Cash dividends declared ($0.56 per share)		—			—			(21,963)			—			—			(21,963)
Treasury stock issued for restricted stock awards (99,711 shares, net of forfeitures of 51,999 shares)		—			—			(1,894)			—			1,592			(302)


Recognition of restricted stock compensation expense		—			1,385			—			—			—			1,385
Balance at June 30, 2021		$	103,623		$	402,053		$	746,472		$	3,605		$	(67,020)		$	1,188,733

See Notes to Consolidated Financial Statements

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S&T BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine Months Ended September 30,						Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)		2020		2019		(dollars in thousands)		2021		2020
OPERATING ACTIVITIES
Net (loss) income			$	(3,136)	$	75,965
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses			124,294		12,767
Provision for unfunded loan commitments			0		303
Net depreciation, amortization and accretion			3,469		4,413
Net amortization of discounts and premiums on securities			3,199		2,470
Stock-based compensation expense			845		1,820
Gain on sale of securities			(142)		0

Gain on the sale of mortgage loans, net			(5,919)		(1,300)

Mortgage loans originated for sale			(278,741)		(72,054)
Proceeds from the sale of mortgage loans			272,735		67,354

Net change in:
Interest receivable			(5,432)		(712)

Interest payable			(1,882)		(1,399)
Other assets			(170,288)		(31,570)
Other liabilities			57,996		34,737
Net Cash (Used in) Provided by Operating Activities			(3,002)		92,794

Net Cash Provided by (Used in) Operating Activities							Net Cash Provided by (Used in) Operating Activities		$	128,043	$	(31,568)

INVESTING ACTIVITIES	INVESTING ACTIVITIES						INVESTING ACTIVITIES
Purchases of securities	Purchases of securities		(90,348)		(37,123)		Purchases of securities		(153,587)		(80,292)
Proceeds from maturities, prepayments and calls of securities	Proceeds from maturities, prepayments and calls of securities		176,103		68,906		Proceeds from maturities, prepayments and calls of securities		72,951		81,156
Proceeds from sales of securities	Proceeds from sales of securities		1,349		0		Proceeds from sales of securities		1,917		1,349
Net proceeds from sales of Federal Home Loan Bank stock	Net proceeds from sales of Federal Home Loan Bank stock		7,200		4,038		Net proceeds from sales of Federal Home Loan Bank stock		2,924		7,826
Net increase in loans			(350,884)		(263,169)
Proceeds from sale of loans not originated for resale			0		520
Net decrease (increase) in loans							Net decrease (increase) in loans		201,545		(491,457)
Proceeds from sale of portfolio loans							Proceeds from sale of portfolio loans		3,438		0
Purchases of premises and equipment	Purchases of premises and equipment		(4,356)		(4,054)		Purchases of premises and equipment		(1,926)		(2,862)
Proceeds from the sale of premises and equipment	Proceeds from the sale of premises and equipment		15		44		Proceeds from the sale of premises and equipment		74		0

Net Cash Used in Investing Activities			(260,921)		(230,838)
Net Cash Provided by (Used in) Investing Activities							Net Cash Provided by (Used in) Investing Activities		127,336		(484,280)
FINANCING ACTIVITIES	FINANCING ACTIVITIES						FINANCING ACTIVITIES
Net increase in core deposits	Net increase in core deposits		746,580		394,439		Net increase in core deposits		712,568		902,933
Net decrease in certificates of deposit	Net decrease in certificates of deposit		(148,573)		(85,606)		Net decrease in certificates of deposit		(117,782)		(71,007)
Net increase (decrease) in securities sold under repurchase agreements			22,818		(4,458)
Net increase in securities sold under repurchase agreements							Net increase in securities sold under repurchase agreements		3,424		72,271
Net decrease in short-term borrowings	Net decrease in short-term borrowings		(198,319)		(100,000)		Net decrease in short-term borrowings		(75,000)		(196,778)

Repayments on long-term borrowings	Repayments on long-term borrowings		(1,792)		(1,151)		Repayments on long-term borrowings		(712)		(2,864)

Treasury shares issued-net	Treasury shares issued-net		(594)		(915)		Treasury shares issued-net		(302)		(594)
Common stock issuance costs			0		(125)

Cash dividends paid to common shareholders	Cash dividends paid to common shareholders		(32,972)		(27,798)		Cash dividends paid to common shareholders		(21,963)		(22,012)
Repurchase of common stock	Repurchase of common stock		(12,559)		(18,222)		Repurchase of common stock		0		(12,559)

Net Cash Provided by Financing Activities	Net Cash Provided by Financing Activities		374,589		156,164		Net Cash Provided by Financing Activities		500,233		669,390
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents		110,666		18,120		Net increase in cash and cash equivalents		755,612		153,542
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period		197,823		155,489		Cash and cash equivalents at beginning of period		229,666		197,823
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period		$	308,489	$	173,609	Cash and Cash Equivalents at End of Period		$	985,278	$	351,365
Supplemental Disclosures	Supplemental Disclosures						Supplemental Disclosures
Loans transferred to held for sale	Loans transferred to held for sale		$	0	$	520	Loans transferred to held for sale		$	2,798	$	0

Leased right-of-use operating assets and lease liabilities			$	91	$	38,919

Interest paid	Interest paid		$	37,437	$	57,047	Interest paid		$	9,114	$	29,721
Income taxes paid, net of refunds	Income taxes paid, net of refunds		$	6,210	$	11,178	Income taxes paid, net of refunds		$	12,097	$	210

Transfers of loans to other real estate owned	Transfers of loans to other real estate owned		$	631	$	492	Transfers of loans to other real estate owned		$	90	$	513

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, ~~2019,~~2020, filed with the Securities and Exchange Commission, or SEC, on March ~~2, 2020.~~1, 2021. 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 we entered into an agreement to acquire DNB Financial Corporation, or DNB, and the transaction was completed on November 30, 2019. Refer to Note 2, Business Combinations in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details on the merger.

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

~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)~~Income Taxes (Topic 740): ~~Customer’s~~Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~Income Taxes

In ~~August 2018,~~December 2019, the ~~Financial Accounting Standards Board, or~~ FASB issued ASU No. ~~2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40)~~2019-12, Income Taxes (Topic 740): ~~Customer’s~~Simplifying the Accounting for ~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.~~Income Taxes. 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~~simplify the accounting for ~~implementation costs (e.g., implementation, setup~~income taxes by removing certain exceptions and improve the consistent application of GAAP by clarifying and amending 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.existing guidance. We adopted this ASU on January 1, ~~2020.~~2021. The amendments in this ASU did not ~~materially~~ impact our ~~Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.~~consolidated financial statements.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

~~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 required us to change our Fair Value disclosures beginning with the disclosures included in Form 10-Q for the period ended March 31, 2020. 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. Refer to Note 4, Fair Value Measurements.

~~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. This Update is effective for any interim and annual impairment tests in reporting periods in fiscal years beginning after December 15, 2019. We adopted the amendments of this ASU on January 1, 2020. The amendments in this ASU did not have any impact on our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

~~Financial Instruments - Credit Losses~~

On January 1, 2020, we adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology for determining our provision for credit losses, and allowance for credit losses, or ACL, with an expected loss methodology that is referred to as the Current Expected Credit Loss, or CECL, model. The measurement of expected credit 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.

We adopted ASU 2016-13 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after 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 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 Credit Losses for further discussion of these portfolio segments. Our new segmentation breaks out business banking loans from our other loan segments: Commercial Real Estate, or CRE, Commercial and Industrial, or C&I, Commercial Construction, Consumer Real Estate and Other Consumer. Business banking loans are commercial loans made to small businesses that are standard, non-complex products and evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards.

~~Table of Contents~~

~~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 0 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 loans similar to originated loans. 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 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. 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.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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 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.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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 impact of this ASU and we do not expect ~~LIBOR transition to impact our business operations, but we have not yet determined~~ the ~~impact to our consolidated financial statements.~~

~~Codification Improvements to Subtopic 310-20, Receivables--Nonrefundable Fees and Other Costs~~

~~In October 2020, the FASB issued ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables--Nonrefundable Fees and Other Costs. The~~ amendments in this ASU affect the guidance in ASU No. 2017-08, relating to Premium Amortization on Purchased Callable Debt Securities and clarify the Board's intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within scope of paragraph 310-20-35-33 for each reporting period. For each reporting period, to the extent that the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess shall be amortized to the next call date. If there is no remaining premium or if there are no further call dates, the entity shall reset the effective yield using the payment terms of the debt security. The amendments in this ASU will be effective on January 1, 2021 and are not expected to materially impact our consolidated financial statements.

~~SEC Release No. 2020-118 - Amendments to Improve Financial Disclosures about Acquisitions and Dispositions of Businesses~~

In May 2020, the Securities and Exchange Commission adopted amendments to the financial disclosure requirements in Regulation S-X for acquisitions and dispositions of businesses, including real estate operations, in Rules 3-05, 3-14, 8-04, 8-05, 8-06, and Article 11, as well as in other related rules and forms. In conjunction with these changes, the Commission also amended the significance tests in the “significant subsidiary” definition in Rule 1-02(w), Securities Act Rule 405, and Exchange Act Rule 12b-2 to improve their application and to assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed business is significant. In addition, to address the unique attributes of investment companies and business development companies, the Commission adopted new requirements regarding fund acquisitions specific to registered investment companies and business development companies. The amendments in this final rule are effective beginning January 1, 2021. We are evaluating the impact of this final rule and we expect these amendments to impact disclosures in our consolidated financial statements relating to any future acquisitions and disposition of businesses.

~~SEC Release No. 2020-205 - Modernizes Disclosures for Bank Registrants~~

In September 2020, the Securities and Exchange Commission adopted rules to update and expand the statistical disclosures that bank and savings and loan registrants provide to investors. The rules eliminate certain disclosure items that are duplicative of other Commission rules and requirements of U.S. GAAP or the International Financial Reporting Standards. The rules replace industry Guide 3, Statistical Disclosure by Bank Holding Companies, with updated disclosure requirements in new subpart 1400 of Regulation S-K. These rules are effective November 16, 2020 with a compliance date of December 31, 2021. We are evaluating the impact of this final rule and we expect these rules to impact disclosures in the Management's Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2021.

~~Table of Contents~~

~~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 September 30, 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.

Measurement period adjustments were $1.8 million during the nine months ended September 30, 2020 which reflect facts and circumstances in existence as of the closing date of the acquisition. These measurement period adjustments primarily related to a $2.4 million reduction in the fair value of loans, a $0.3 million reduction in the fair value of borrowings, a $0.1 million reduction of other liabilities, a $0.1 million reduction in other assets and a $0.3 million increase in deferred income tax assets.

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

November 30, 2019 September 30, 2020
As Recorded by DNB Fair Value Adjustments As Recorded by S&T Measurement Period Adjustments As Recorded by S&T
Fair Value of Assets Acquired
Cash and cash equivalents $ 64,119 $ 0 $ 64,119 $ 0 $ 64,119
Securities and other investments 108,715 183 108,898 0 108,898
Loans 917,127 (8,143) 908,984 (2,377) 906,607
Allowance for credit losses (6,487) 6,487 0 0 0
Goodwill 15,525 (15,525) — — —
Premises and equipment 6,782 8,090 14,872 0 14,872
Accrued interest receivable 4,138 0 4,138 0 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 (108) 20,497
Total Assets Acquired 1,137,088 (16,753) 1,120,335 (2,174) 1,118,161
Fair Value of Liabilities Assumed
Deposits 966,263 1,002 967,265 0 967,265
Borrowings 37,617 (276) 37,341 (257) 37,084
Accrued interest payable and other liabilities 11,157 (3,184) 7,973 (122) 7,851
Total Liabilities Assumed 1,015,037 (2,458) 1,012,579 (379) 1,012,200
Total Net Assets Acquired $ 122,051 $ (14,295) $ 107,756 $ (1,795) $ 105,961
Core Deposit Intangible Asset $ 7,288 $ 0 $ 7,288
Wealth Management Intangible Asset 1,772 0 1,772
Total Fair Value of Net Assets Acquired and Identified $ 116,816 $ (1,795) $ 115,021
Consideration Paid
Cash $ 360 $ — $ 360
Common stock 200,631 — 200,631
Fair Value of Total Consideration $ 200,991 $ — $ 200,991
Goodwill $ 84,175 $ 1,795 $ 85,970

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 2. BUSINESS COMBINATIONS – continued~~

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 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 nine month period ended September 30, 2020, the fair value of acquired loans was reduced by $2.4 million as we finalized our evaluation of the loan portfolio to reflect facts and circumstances in existence as of the acquisition date.

As of September 30, 2020, direct costs related to the DNB merger of $13.7 million were recognized and expensed as incurred. During the nine months ended September 30, 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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NOTE 3.2. EARNINGS ~~(LOSS)~~ PER SHARE

Diluted earnings ~~(loss)~~ 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. For the three and six months ended June 30, 2021 and 2020, diluted EPS was reported using the two-class method. The following table reconciles the numerators and denominators of basic and diluted earnings ~~(loss)~~ per share calculations for the periods presented.


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six months ended June 30,
(in thousands, except share and per share data)	(in thousands, except share and per share data)	2020			2019			2020			2019			(in thousands, except share and per share data)	2021			2020			2021			2020
Numerator for Earnings (Loss) per Share—Basic:
Net income (loss)			$	16,705		$	26,936		$	(3,136)		$	75,965
Numerator for Earnings per Share—Basic:														Numerator for Earnings per Share—Basic:
Net income														Net income		$	28,367		$	(33,072)		$	60,268		$	(19,841)
Less: Income allocated to participating shares	Less: Income allocated to participating shares		52			72			0			204		Less: Income allocated to participating shares		141			0			283			0
Net Income (Loss) Allocated to Shareholders			$	16,653		$	26,864		$	(3,136)		$	75,761
Net Income Allocated to Shareholders														Net Income Allocated to Shareholders		$	28,226		$	(33,072)		$	59,985		$	(19,841)

Numerator for Earnings (Loss) per Share—Diluted:
Net income (loss)			$	16,705		$	26,936		$	(3,136)		$	75,965
Net Income (Loss) Available to Shareholders			$	16,705		$	26,936		$	(3,136)		$	75,965
Numerator for Earnings per Share—Diluted:														Numerator for Earnings per Share—Diluted:
Net income														Net income		$	28,367		$	(33,072)		$	60,268		$	(19,841)
Net Income Available to Shareholders														Net Income Available to Shareholders		$	28,367		$	(33,072)		$	60,268		$	(19,841)

Denominators for Earnings (Loss) per Share:
Denominators for Earnings per Share:														Denominators for Earnings per Share:
Weighted Average Shares Outstanding—Basic	Weighted Average Shares Outstanding—Basic		39,020,811			34,090,779			39,101,309			34,221,479		Weighted Average Shares Outstanding—Basic		39,048,971			39,013,161			39,039,007			39,142,351
Add: Potentially dilutive shares	Add: Potentially dilutive shares		20,656			79,502			0			105,746		Add: Potentially dilutive shares		90,590			0			93,583			0
Denominator for Treasury Stock Method—Diluted	Denominator for Treasury Stock Method—Diluted		39,041,467			34,170,281			39,101,309			34,327,225		Denominator for Treasury Stock Method—Diluted		39,139,561			39,013,161			39,132,590			39,142,351

Weighted Average Shares Outstanding—Basic	Weighted Average Shares Outstanding—Basic		39,020,811			34,090,779			39,101,309			34,221,479		Weighted Average Shares Outstanding—Basic		39,048,971			39,013,161			39,039,007			39,142,351
Add: Average participating shares outstanding	Add: Average participating shares outstanding		0			186,491			0			186,253		Add: Average participating shares outstanding		0			0			0			0
Denominator for Two-Class Method—Diluted	Denominator for Two-Class Method—Diluted		39,020,811			34,277,270			39,101,309			34,407,732		Denominator for Two-Class Method—Diluted		39,048,971			39,013,161			39,039,007			39,142,351

Earnings (Loss) per share—basic			$	0.43		$	0.79		$	(0.08)		$	2.22
Earnings (Loss) per share—diluted			$	0.43		$	0.79		$	(0.08)		$	2.21
Earnings per share—basic														Earnings per share—basic		$	0.73		$	(0.85)		$	1.54		$	(0.51)
Earnings per share—diluted														Earnings per share—diluted		$	0.72		$	(0.85)		$	1.54		$	(0.51)

Restricted stock considered anti-dilutive excluded from potentially dilutive shares	Restricted stock considered anti-dilutive excluded from potentially dilutive shares		19,449			254			1,137			360		Restricted stock considered anti-dilutive excluded from potentially dilutive shares		25			21,333			424			82,624

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4.3. FAIR VALUE MEASUREMENTS

We use fair value measurements when recording and disclosing certain financial assets and liabilities. Debt securities, equity securities and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, individually assessed 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

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 fair value of U.S. treasury securities are based on quoted market prices in active markets and are classified as Level 1. The market valuation sources for other 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 4.3. FAIR VALUE MEASUREMENTS - continued

Securities Held in a 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 Condensed 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 forward commitments related to 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 are carried at the lower of cost or market and 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~~marked to fair value are classified as Level 3.2.

Loans ~~Held for Investment~~Individually Evaluated

Loans that are individually evaluated to determine whether a specific allocation of ACL is needed are reported at the lower of amortized cost or fair value. Fair value is determined using the following 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. Loans ~~carried at~~individually evaluated that are marked to 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. 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~~marked to fair value are classified as Level 3. OREO and other repossessed assets are reported in other assets in the Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4.3. FAIR VALUE MEASUREMENTS - continued

Mortgage Servicing Rights

~~The~~MSRs are reported pursuant to the amortization method and evaluated for impairment quarterly by comparing the carrying to the fair value of the MSRs. 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 Condensed 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

Our methodology to fair value loans includes an exit price notion. 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.

Collateral Receivable

Collateral receivable is cash that is made available to counterparties as collateral for our interest rate swaps. The carrying amount included in ~~Other Assets~~other assets on our Consolidated Balance Sheets approximates fair value.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 4. FAIR VALUE MEASUREMENTS - continued~~

Deposits

The fair values disclosed for deposits without defined maturities (e.g., noninterest and interest-bearing demand, money market and savings accounts) are by definition equal to the amounts payable on demand. The carrying amounts for variable rate, fixed-term time deposits approximate their fair values. Estimated fair values for fixed rate and other time deposits are based on discounted cash flow analysis using interest rates currently offered for time deposits with similar terms. The carrying amount of accrued interest approximates fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS - continued

Short-Term Borrowings

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

Long-Term Borrowings

The fair values disclosed for fixed rate long-term borrowings are determined by discounting their contractual cash flows using current interest rates for long-term borrowings of similar remaining maturities. The carrying amounts of variable rate long-term borrowings approximate their fair values.

Junior Subordinated Debt Securities

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

~~Loan Commitments and Standby Letters of Credit~~

Off-balance sheet financial instruments consist of commitments to extend credit and letters of credit. Except for interest rate lock commitments, estimates of the fair value of these off-balance sheet items are not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

~~Other~~

~~Estimates of fair value are not made for items that are not defined as financial instruments, including such items as our core deposit intangibles and the value of our trust operations.~~

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NOTE 4.3. FAIR VALUE MEASUREMENTS - continued

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at ~~September~~June 30, ~~2020~~2021 and December 31, ~~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.~~2020.


		September 30, 2020									June 30, 2021
(dollars in thousands)	(dollars in thousands)	Level 1		Level 2		Level 3		Total		(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS	ASSETS									ASSETS
Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
U.S. Treasury securities	U.S. Treasury securities	$	0	$	10,323	$	0	$	10,323	U.S. Treasury securities	$	74,804	$	0	$	0	$	74,804
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	0		93,351		0		93,351		Obligations of U.S. government corporations and agencies	0		81,624		0		81,624
Collateralized mortgage obligations of U.S. government corporations and agencies	Collateralized mortgage obligations of U.S. government corporations and agencies	0		183,032		0		183,032		Collateralized mortgage obligations of U.S. government corporations and agencies	0		201,350		0		201,350
Residential mortgage-backed securities of U.S. government corporations and agencies	Residential mortgage-backed securities of U.S. government corporations and agencies	0		17,352		0		17,352		Residential mortgage-backed securities of U.S. government corporations and agencies	0		63,859		0		63,859
Commercial mortgage-backed securities of U.S. government corporations and agencies	Commercial mortgage-backed securities of U.S. government corporations and agencies	0		280,224		0		280,224		Commercial mortgage-backed securities of U.S. government corporations and agencies	0		325,303		0		325,303
Corporate obligations	Corporate obligations	0		4,027		0		4,027		Corporate obligations	0		499		0		499
Obligations of states and political subdivisions	Obligations of states and political subdivisions	0		126,611		0		126,611		Obligations of states and political subdivisions	0		91,840		0		91,840
Total Available-for-sale Debt Securities	Total Available-for-sale Debt Securities	0		714,920		0		714,920		Total Available-for-sale Debt Securities	74,804		764,475		0		839,279
Marketable equity securities	Marketable equity securities	3,185		64		0		3,249		Marketable equity securities	1,015		81		0		1,096
Total Securities	Total Securities	3,185		714,984		0		718,169		Total Securities	75,819		764,556		0		840,375
Securities held in a deferred compensation plan	Securities held in a deferred compensation plan	5,990		0		0		5,990		Securities held in a deferred compensation plan	7,808		0		0		7,808
Derivative financial assets:	Derivative financial assets:									Derivative financial assets:
Interest rate swaps	Interest rate swaps	0		90,163		0		90,163		Interest rate swaps	0		49,078		0		49,078
Interest rate lock commitments	Interest rate lock commitments	0		3,198		0		3,198		Interest rate lock commitments	0		0		1,137		1,137

Total Assets	Total Assets	$	9,175	$	808,345	$	0	$	817,520	Total Assets	$	83,627	$	813,634	$	1,137	$	898,398
LIABILITIES	LIABILITIES									LIABILITIES
Derivative financial liabilities:	Derivative financial liabilities:									Derivative financial liabilities:
Interest rate swaps	Interest rate swaps	$	0	$	90,616	$	0	$	90,616	Interest rate swaps	$	0	$	49,477	$	0	$	49,477
Forward sale contracts	Forward sale contracts	0		450		0		450		Forward sale contracts	0		91		0		91
Total Liabilities	Total Liabilities	$	0	$	91,066	$	0	$	91,066	Total Liabilities	$	0	$	49,568	$	0	$	49,568


		December 31, 2019									December 31, 2020
(dollars in thousands)	(dollars in thousands)	Level 1		Level 2		Level 3		Total		(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS	ASSETS									ASSETS
Available-for-sale debt securities:	Available-for-sale debt securities:									Available-for-sale debt securities:
U.S. Treasury securities	U.S. Treasury securities	$	0	$	10,040	$	0	$	10,040	U.S. Treasury securities	$	10,282	$	0	$	0	$	10,282
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	0		157,697		0		157,697		Obligations of U.S. government corporations and agencies	0		82,904		0		82,904
Collateralized mortgage obligations of U.S. government corporations and agencies	Collateralized mortgage obligations of U.S. government corporations and agencies	0		189,348		0		189,348		Collateralized mortgage obligations of U.S. government corporations and agencies	0		209,296		0		209,296
Residential mortgage-backed securities of U.S. government corporations and agencies	Residential mortgage-backed securities of U.S. government corporations and agencies	0		22,418		0		22,418		Residential mortgage-backed securities of U.S. government corporations and agencies	0		67,778		0		67,778
Commercial mortgage-backed securities of U.S. government corporations and agencies	Commercial mortgage-backed securities of U.S. government corporations and agencies	0		275,870		0		275,870		Commercial mortgage-backed securities of U.S. government corporations and agencies	0		273,681		0		273,681
Corporate Bonds		0		7,627		0		7,627
Corporate obligations										Corporate obligations	0		2,025		0		2,025
Obligations of states and political subdivisions	Obligations of states and political subdivisions	0		116,133		0		116,133		Obligations of states and political subdivisions	0		124,427		0		124,427
Total Available-for-Sale Debt Securities		0		779,133		0		779,133
Total Available-for-sale Debt Securities										Total Available-for-sale Debt Securities	10,282		760,111		0		770,393
Marketable equity securities	Marketable equity securities	5,078		72		0		5,150		Marketable equity securities	3,228		72		0		3,300
Total Securities	Total Securities	5,078		779,205		0		784,283		Total Securities	13,510		760,183		0		773,693
Securities held in a deferred compensation plan	Securities held in a deferred compensation plan	5,987		0		0		5,987		Securities held in a deferred compensation plan	6,794		0		0		6,794
Derivative financial assets:	Derivative financial assets:									Derivative financial assets:
Interest rate swaps	Interest rate swaps	0		25,647		0		25,647		Interest rate swaps	0		78,319		0		78,319
Interest rate lock commitments	Interest rate lock commitments	0		321		0		321		Interest rate lock commitments	0		0		2,900		2,900
Forward sale contracts		0		1		0		1

Total Assets	Total Assets	$	11,065	$	805,174	$	0	$	816,239	Total Assets	$	20,304	$	838,502	$	2,900	$	861,706
LIABILITIES	LIABILITIES									LIABILITIES
Derivative financial liabilities:	Derivative financial liabilities:									Derivative financial liabilities:
Interest rate swaps	Interest rate swaps	$	0	$	25,615	$	0	$	25,615	Interest rate swaps	$	0	$	79,033	$	0	$	79,033

Forward sale contracts										Forward sale contracts	0		385		0		385
Total Liabilities	Total Liabilities	$	0	$	25,615	$0		$	25,615	Total Liabilities	$	0	$	79,418	$	0	$	79,418

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4.3. FAIR VALUE MEASUREMENTS - continued

Loans held for sale were transferred to Level 2 from Level 3 during the six months ended June 30 2021. Interest rate lock commitments to borrowers were transferred from Level 2 to Level 3 during the year ended December 31, 2020 due to pull-through factors being a significant unobservable input.

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~~June 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

For Level 3 assets measured at fair value on a nonrecurring basis as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the significant unobservable inputs used in the fair value measurements were as follows:


		September 30, 2020		Valuation Technique	Significant Unobservable Inputs		Range					Weighted Average (1) (2) (3)				June 30, 2021			Valuation Technique			Significant Unobservable Inputs			Range						Weighted Average (1) (2) (3)
(dollars in thousands)	(dollars in thousands)					(dollars in thousands)
Loans held for investment		$	46,857	Collateral method		Costs to sell			0%		-		22%	7.47%
				Discounted cash flow method	Discount rate		3.25%					3.25%
Loans individually evaluated															Loans individually evaluated		$	60,778			Collateral method			Appraisal adjustment			0%		-		32.00%		13.68%
Other real estate owned	Other real estate owned	2,098		Collateral method	Costs to sell		0%	-		7.00%		4.67%			Other real estate owned	1,088				Collateral method			Costs to sell			4.00%		-		7.00%		4.21%
Mortgage servicing rights	Mortgage servicing rights	$	4,665	Discounted cash flow method	Discount rate		9.33%	-		12.55%		9.43%			Mortgage servicing rights	6,658			Discounted cash flow method			Discount rate			9.21%		-		12.54%		9.39%
					Constant prepayment rates		7.39%	-		13.54%		13.33%										Constant prepayment rates			8.38%		-		15.10%		11.13%
Total Assets	Total Assets	$	53,620												Total Assets	$	68,524

December 31, 2019 Valuation Technique Significant Unobservable Inputs Range
Weighted Average (1) (2) (3)
(dollars in thousands)
Loans held for investment $ 38,697 Collateral method Costs to sell 0 % - 20 % 8.55%
Discounted cash flow method Discount rate 4.75 % - 5.50 % 5.28%
Other real estate owned 3,231 Collateral method Costs to sell 7.00% 7.00%
Mortgage servicing rights $ 1,134 Discounted cash flow method Discount rate 9.39 % - 12.54 % 9.49%
Constant prepayment rates 7.46 % - 12.74 % 9.73%
Total Assets $ 43,062
(1) Weighted averages for loans held for investment were weighted by loan amounts.
(2) Weighted averages for other real estate owned were weighted by OREO balances.
(3) Weighted averages for mortgage services rights discount rate and prepayment rates are based on note rate tranches and voluntary constant prepayment rates.


	December 31, 2020		Valuation Technique	Significant Unobservable Inputs	Range			Weighted Average (1) (2) (3)
(dollars in thousands)
Loans individually evaluated	$	67,402	Collateral method	Appraisal adjustment	0%	-	47.00%	16.90%
Other real estate owned	1,953		Collateral method	Costs to sell	4.00%	-	7.00%	4.92%
Mortgage servicing rights	4,976		Discounted cash flow method	Discount rate	9.24%	-	12.55%	9.42%
				Constant prepayment rates	8.82%	-	14.58%	13.37%
Loans held for sale	586		Contractual agreement	None	NA			NA
Total Assets	$	74,917
NA - not applicable
(1) Weighted averages for loans individually evaluated were weighted by loan amounts. (2) Weighted averages for other real estate owned were weighted by OREO balances. (3) Weighted averages for mortgage servicing rights discount rate and prepayment rates are based on note rate tranches and voluntary constant prepayment rates.

2015

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4.3. FAIR VALUE MEASUREMENTS - continued

The carrying values and fair values of our financial instruments at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020 are presented in the following tables:


		Carrying Value(1)		Fair Value Measurements at September 30, 2020									Carrying Value(1)		Fair Value Measurements at June 30, 2021
(dollars in thousands)	(dollars in thousands)			Total		Level 1		Level 2		Level 3		(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS	ASSETS											ASSETS
Cash and due from banks, including interest-bearing deposits	Cash and due from banks, including interest-bearing deposits	$	308,489	$	308,489	$	308,489	$	0	$	0	Cash and due from banks, including interest-bearing deposits	$	985,278	$	985,278	$	985,278	$	0	$	0
Securities	Securities	718,169		718,169		3,185		714,984		0		Securities	840,375		840,375		75,819		764,556		—
Loans held for sale	Loans held for sale	16,724		16,724		0		0		16,724		Loans held for sale	7,648		7,648		0		7,648		0
Portfolio loans, net	Portfolio loans, net	7,273,870		7,196,845		0		0		7,196,845		Portfolio loans, net	6,897,715		6,808,655		0		0		6,808,655
Bank owned life insurance	Bank owned life insurance	81,873		81,873		0		81,873		0		Bank owned life insurance	83,087		0		0		0		0
FHLB and other restricted stock		15,777		15,777		0		0		15,777

Collateral receivable	Collateral receivable	90,827		90,827		90,827		0		0		Collateral receivable	45,703		45,703		45,703		0		0
Securities held in a deferred compensation plan	Securities held in a deferred compensation plan	5,990		5,990		5,990		0		0		Securities held in a deferred compensation plan	7,808		7,808		7,808		0		0
Mortgage servicing rights	Mortgage servicing rights	4,717		4,718		0		0		4,718		Mortgage servicing rights	6,658		6,658		0		0		6,658
Interest rate swaps	Interest rate swaps	90,163		90,163		0		90,163		0		Interest rate swaps	49,078		49,078		0		49,078		0
Interest rate lock commitments	Interest rate lock commitments	3,198		3,198		0		3,198		0		Interest rate lock commitments	1,137		1,137		0		0		1,137

LIABILITIES	LIABILITIES											LIABILITIES
Deposits	Deposits	$	7,633,818	$	7,638,132	$	6,187,722	$	1,450,410	$	0	Deposits	$	8,015,264	$	8,014,963	$	6,745,643	$	1,269,320	$	0
Securities sold under repurchase agreements	Securities sold under repurchase agreements	42,706		42,706		42,706		0		0		Securities sold under repurchase agreements	68,587		68,587		68,587		0		0
Short-term borrowings	Short-term borrowings	83,000		83,000		83,000		0		0		Short-term borrowings	0		0		0		0		0
Long-term borrowings	Long-term borrowings	49,076		50,155		4,540		45,615		0		Long-term borrowings	22,969		23,529		4,398		19,131		0
Junior subordinated debt securities	Junior subordinated debt securities	64,068		64,068		64,068		0		0		Junior subordinated debt securities	64,112		64,112		64,112		0		0
Interest rate swaps	Interest rate swaps	90,616		90,616		0		90,616		0		Interest rate swaps	49,477		49,477		0		49,477		0
Forward sales contracts		450		450		0		450		0
Forward sale contracts												Forward sale contracts	91		91		0		91		0
(1) As reported in the Consolidated Balance Sheets	(1) As reported in the Consolidated Balance Sheets											(1) As reported in the Consolidated Balance Sheets


		Carrying Value(1)		Fair Value Measurements at December 31, 2019									Carrying Value(1)		Fair Value Measurements at December 31, 2020
(dollars in thousands)	(dollars in thousands)			Total		Level 1		Level 2		Level 3		(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS	ASSETS											ASSETS
Cash and due from banks, including interest-bearing deposits	Cash and due from banks, including interest-bearing deposits	$	197,823	$	197,823	$	197,823	$	0	$	0	Cash and due from banks, including interest-bearing deposits	$	229,666	$	229,666	$	229,666	$	0	$	0
Securities	Securities	784,283		784,283		5,078		779,205		0		Securities	773,693		773,693		13,510		760,183		0
Loans held for sale	Loans held for sale	5,256		5,256		0		0		5,256		Loans held for sale	18,528		18,528		0		0		18,528
Portfolio loans, net	Portfolio loans, net	7,074,928		6,940,875		0		0		6,940,875		Portfolio loans, net	7,108,248		7,028,446		0		0		7,028,446
Bank owned life insurance	Bank owned life insurance	80,473		80,473		0		80,473		0		Bank owned life insurance	82,303		82,303		0		82,303		0
FHLB and other restricted stock		22,977		22,977		0		0		22,977
Securities held in a Deferred Compensation Plan		5,987		5,987		5,987		0		0

Collateral receivable												Collateral receivable	77,936		77,936		77,936		0		0
Securities held in a deferred compensation plan												Securities held in a deferred compensation plan	6,794		6,794		6,794		0		0
Mortgage servicing rights	Mortgage servicing rights	4,662		4,650		0		0		4,650		Mortgage servicing rights	4,976		4,976		0		0		4,976
Interest rate swaps	Interest rate swaps	25,647		25,647		0		25,647		0		Interest rate swaps	78,319		78,319		0		78,319		0
Interest rate lock commitments	Interest rate lock commitments	321		321		0		321		0		Interest rate lock commitments	2,900		2,900		0		0		2,900
Forward sale contracts		1		1		0		1		0

LIABILITIES	LIABILITIES											LIABILITIES
Deposits	Deposits	$	7,036,576	$	7,034,595	$	5,441,143	$	1,593,452	$	0	Deposits	$	7,420,538	$	7,422,894	$	6,033,075	$	1,389,819	$	0
Securities sold under repurchase agreements	Securities sold under repurchase agreements	19,888		19,888		19,888		0		0		Securities sold under repurchase agreements	65,163		65,163		65,163		0		0
Short-term borrowings	Short-term borrowings	281,319		281,319		281,319		0		0		Short-term borrowings	75,000		75,000		75,000		0		0
Long-term borrowings	Long-term borrowings	50,868		51,339		4,678		46,661		0		Long-term borrowings	23,681		24,545		4,494		20,051		0
Junior subordinated debt securities	Junior subordinated debt securities	64,277		64,277		64,277		0		0		Junior subordinated debt securities	64,083		64,083		64,083		0		0
Interest rate swaps	Interest rate swaps	25,615		25,615		0		25,615		0		Interest rate swaps	79,033		79,033		0		79,033		0

Forward sale contracts												Forward sale contracts	385		385		0		385		0
(1) As reported in the Consolidated Balance Sheets	(1) As reported in the Consolidated Balance Sheets											(1) As reported in the Consolidated Balance Sheets

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.4. SECURITIES

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


(dollars in thousands)	(dollars in thousands)	September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020
Available-for-sale debt securities	Available-for-sale debt securities		$	714,920		$	779,133	Available-for-sale debt securities		$	839,279		$	770,393
Marketable equity securities	Marketable equity securities		3,249			5,150		Marketable equity securities		1,096			3,300
Total Securities	Total Securities		$	718,169		$	784,283	Total Securities		$	840,375		$	773,693

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:


		September 30, 2020												December 31, 2019													June 30, 2021												December 31, 2020
(dollars in thousands)	(dollars in thousands)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Fair Value			(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	U.S. Treasury securities		$	9,977		$	346		$	0		$	10,323		$	9,969		$	71		$	—		$	10,040	U.S. Treasury securities		$	74,253		$	551		$	0		$	74,804		$	9,980		$	302		$	0		$	10,282
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies		88,809			4,542			0			93,351			155,969			1,773			(45)			157,697		Obligations of U.S. government corporations and agencies		78,674			2,950			0			81,624			78,755			4,149			0			82,904
Collateralized mortgage obligations of U.S. government corporations and agencies	Collateralized mortgage obligations of U.S. government corporations and agencies		175,516			7,516			0			183,032			186,879			2,773			(304)			189,348		Collateralized mortgage obligations of U.S. government corporations and agencies		197,458			4,762			(870)			201,350			202,975			6,410			(89)			209,296
Residential mortgage-backed securities of U.S. government corporations and agencies	Residential mortgage-backed securities of U.S. government corporations and agencies		16,578			774			0			17,352			22,120			321			(23)			22,418		Residential mortgage-backed securities of U.S. government corporations and agencies		63,896			548			(585)			63,859			66,960			818			0			67,778
Commercial mortgage-backed securities of U.S. government corporations and agencies	Commercial mortgage-backed securities of U.S. government corporations and agencies		265,202			15,022			0			280,224			273,771			2,680			(581)			275,870		Commercial mortgage-backed securities of U.S. government corporations and agencies		314,228			11,114			(39)			325,303			258,875			14,806			0			273,681
Corporate obligations	Corporate obligations		4,023			5			(1)			4,027			7,603			24			0			7,627		Corporate obligations		500			0			(1)			499			2,021			5			(1)			2,025
Obligations of states and political subdivisions	Obligations of states and political subdivisions		119,368			7,243			0			126,611			112,116			4,017			0			116,133		Obligations of states and political subdivisions		86,271			5,569			0			91,840			117,439			6,988			0			124,427
Total Available-for-Sale Debt Securities (1)	Total Available-for-Sale Debt Securities (1)		$	679,473		$	35,448		$	(1)		$	714,920		$	768,427		$	11,659		$	(953)		$	779,133	Total Available-for-Sale Debt Securities (1)		$	815,280		$	25,494		$	(1,495)		$	839,279		$	737,005		$	33,478		$	(90)		$	770,393

(1) Excludes interest receivable of ~~$3.0~~$3.2 million at ~~September~~June 30, ~~2020~~2021 and ~~$3.4~~$3.1 million at December 31, ~~2019.~~2020. Interest receivable is included in other assets in the consolidated balance sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.4. 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:


		September 30, 2020																June 30, 2021
		Less Than 12 Months					12 Months or More					Total						Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	(dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		(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	U.S. Treasury securities	0	$	0	$	0	0	$	0	$	0	0	$	0	$	0	U.S. Treasury securities	0	$	0	$	0	0	$	0	$	0	0	$	0	$	0
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	0	—		0		0	0		0		0	0		0		Obligations of U.S. government corporations and agencies	0	0		0		0	0		0		0	0		0
Collateralized mortgage obligations of U.S. government corporations and agencies	Collateralized mortgage obligations of U.S. government corporations and agencies	0	0		0		0	0		0		0	0		0		Collateralized mortgage obligations of U.S. government corporations and agencies	5	67,822		(870)		0	0		0		5	67,822		(870)
Residential mortgage-backed securities of U.S. government corporations and agencies	Residential mortgage-backed securities of U.S. government corporations and agencies	0	0		0		0	0		0		0	0		0		Residential mortgage-backed securities of U.S. government corporations and agencies	2	49,159		(585)		0	0		0		2	49,159		(585)
Commercial mortgage-backed securities of U.S. government corporations and agencies	Commercial mortgage-backed securities of U.S. government corporations and agencies	0	0		0		0	0		0		0	0		0		Commercial mortgage-backed securities of U.S. government corporations and agencies	3	51,452		(39)		0	0		0		3	51,452		(39)
Corporate bonds	Corporate bonds	1	499		(1)		0	0		0		1	499		(1)		Corporate bonds	1	500		(1)		0	0		0		1	500		(1)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	0	0		0		0	0		0		0	0		0		Obligations of states and political subdivisions	0	0		0		0	0		0		0	0		0

Total	Total	1	$	499	$	(1)	0	$	0	$	0	1	$	499	$	(1)	Total	11	$	168,933	$	(1,495)	0	$	0	$	0	11	$	168,933	$	(1,495)


		December 31, 2019																December 31, 2020
		Less Than 12 Months					12 Months or More					Total						Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	(dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		(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	U.S. Treasury securities	0	$	0	$	0	0	$	0	$	0	0	$	0	$	0	U.S. Treasury securities	0	$	0	$	0	0	$	0	$	0	0	$	0	$	0
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies	3	22,638		(45)		0	0		0		3	22,638		(45)		Obligations of U.S. government corporations and agencies	0	0		0		0	0		0		0	0		0
Collateralized mortgage obligations of U.S. government corporations and agencies	Collateralized mortgage obligations of U.S. government corporations and agencies	6	23,393		(73)		6	25,254		(231)		12	48,647		(304)		Collateralized mortgage obligations of U.S. government corporations and agencies	2	35,697		(89)		0	0		0		2	35,697		(89)
Residential mortgage-backed securities of U.S. government corporations and agencies	Residential mortgage-backed securities of U.S. government corporations and agencies	1	982		(2)		1	2,534		(21)		2	3,516		(23)		Residential mortgage-backed securities of U.S. government corporations and agencies	0	0		0		0	0		0		0	0		0
Commercial mortgage-backed securities of U.S. government corporations and agencies	Commercial mortgage-backed securities of U.S. government corporations and agencies	9	90,005		(581)		0	0		0		9	90,005		(581)		Commercial mortgage-backed securities of U.S. government corporations and agencies	0	0		0		0	0		0		0	0		0
Corporate bonds	Corporate bonds	1	79		0		0	0		0		1	79		0		Corporate bonds	1	499		(1)		0	0		0		1	499		(1)
Obligations of states and political subdivisions	Obligations of states and political subdivisions	0	0		0		0	0		0		0	0		0		Obligations of states and political subdivisions	0	0		0		0	0		0		0	0		0

Total Temporarily Impaired Debt Securities		20	$	137,097	$	(701)	7	$	27,788	$	(252)	27	$	164,885	$	(953)
Total																	Total	3	$	36,196	$	(90)	0	$	0	$	0	3	$	36,196	$	(90)

We evaluate securities with unrealized losses quarterly to determine if the decline in fair value has resulted from credit losses or other factors. There ~~was 1~~were 11 debt ~~security~~securities in an unrealized loss position at ~~September~~June 30, ~~2020~~2021 and 273 debt securities in an unrealized loss position at December 31, ~~2019.~~2020. We do not intend to sell and it is more likely than not that we will not be required to sell the ~~security~~securities in an unrealized loss position before recovery of ~~its~~their amortized cost. The unrealized ~~loss~~losses on the debt ~~security was~~securities were attributable to changes in interest rates and not related to the credit quality of the ~~issuer.~~issuers. All debt securities were determined to be investment grade and paying principal and interest according to the contractual terms of the security. We concluded that the allowance for credit losses for debt securities was immaterial at September 30, 2020. Prior to the adoption of ASU 2016-13 there was 0 other than temporary impairment, or OTTI, recorded during the nine months ended September 30, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.4. SECURITIES – continued

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


		September 30, 2020						December 31, 2019							June 30, 2021						December 31, 2020
(dollars in thousands)	(dollars in thousands)	Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gains/(Losses)		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gains/(Losses)		(dollars in thousands)	Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gains/(Losses)		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gains/(Losses)
Total unrealized gains/(losses) on available-for-sale debt securities	Total unrealized gains/(losses) on available-for-sale debt securities	$	35,448	$	(1)	$	35,447	$	11,659	$	(953)	$	10,706	Total unrealized gains/(losses) on available-for-sale debt securities	$	25,494	$	(1,495)	$	23,999	$	33,478	$	(90)	$	33,388
Income tax (expense) benefit	Income tax (expense) benefit	(7,548)		0		(7,548)		(2,486)		203		(2,283)		Income tax (expense) benefit	(5,424)		318		(5,107)		(7,128)		19		(7,109)
Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)	Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)	$	27,900	$	(1)	$	27,899	$	9,173	$	(750)	$	8,423	Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)	$	20,070	$	(1,177)	$	18,892	$	26,350	$	(71)	$	26,279

The amortized cost and fair value of available-for-sale debt securities at ~~September~~June 30, ~~2020~~2021 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, 2020					June 30, 2021
(dollars in thousands)	(dollars in thousands)	Amortized Cost		Fair Value		(dollars in thousands)	Amortized Cost		Fair Value
Obligations of the U.S. Treasury, U.S. government corporations and agencies, and obligations of states and political subdivisions	Obligations of the U.S. Treasury, U.S. government corporations and agencies, and obligations of states and political subdivisions					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	Due in one year or less	$	41,497	$	42,069	Due in one year or less	$	35,066	$	35,402
Due after one year through five years	Due after one year through five years	111,446		117,923		Due after one year through five years	87,794		91,953
Due after five years through ten years	Due after five years through ten years	38,856		41,458		Due after five years through ten years	95,316		97,577
Due after ten years	Due after ten years	26,355		28,835		Due after ten years	21,022		23,336
Available-for-Sale Debt Securities With Maturities	Available-for-Sale Debt Securities With Maturities	218,154		230,285		Available-for-Sale Debt Securities With Maturities	239,198		248,268

Collateralized mortgage obligations of U.S. government corporations and agencies	Collateralized mortgage obligations of U.S. government corporations and agencies	175,516		183,032		Collateralized mortgage obligations of U.S. government corporations and agencies	197,458		201,350
Residential mortgage-backed securities of U.S. government corporations and agencies	Residential mortgage-backed securities of U.S. government corporations and agencies	16,578		17,352		Residential mortgage-backed securities of U.S. government corporations and agencies	63,896		63,859
Commercial mortgage-backed securities of U.S. government corporations and agencies	Commercial mortgage-backed securities of U.S. government corporations and agencies	265,202		280,224		Commercial mortgage-backed securities of U.S. government corporations and agencies	314,228		325,303
Corporate Securities	Corporate Securities	4,023		4,027		Corporate Securities	500		499

Total Available-for-Sale Debt Securities	Total Available-for-Sale Debt Securities	$	679,473	$	714,920	Total Available-for-Sale Debt Securities	$	815,280	$	839,279

Debt securities with carrying values of ~~$297.4~~$380 million at ~~September~~June 30, ~~2020~~2021 and ~~$286.0~~$308 million at December 31, ~~2019~~2020 were pledged for various regulatory and legal requirements.

Marketable Equity Securities

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

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2020 2019 2020 2019
Marketable Equity Securities
Net gains and losses recognized during the period on equity securities $ 585 $ 156 $ (552) $ (110)
Less: Net gains and losses recognized during the period on equity securities sold during the period 0 0 142 0
Unrealized Losses/Gains Recognized During the Reporting Period on Equity Securities Still Held at the Reporting Date $ 585 $ 156 $ (694) $ (110)


	Three Months Ended June 30,				Six Months Ended June 30,
(dollars in thousands)	2021		2020		2021		2020
Marketable Equity Securities
Net market gains/(losses) recognized	$	28	$	448	$	143	$	(1,137)
Less: Net gains recognized for equity securities sold	3		142		29		142
Unrealized Gains/(Losses) on Equity Securities Still Held	$	25	$	306	$	114	$	(1,279)

Total unrealized gains and losses on marketable equity securities recognized during the current period are included in other noninterest income on the Condensed Consolidated Statements of Comprehensive Income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6.5. LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of ~~$18.6~~$16.5 million at ~~September~~June 30, ~~2020~~2021 and ~~$4.6~~$16.0 million at December 31, ~~2019~~2020 and net of a discount related to purchase accounting fair value adjustments of ~~$9.3~~$6.9 million at ~~September~~June 30, ~~2020~~2021 and ~~$12.3~~$8.6 million at December 31, ~~2019.~~2020. The following table presents loans as of the dates presented:


(dollars in thousands)	(dollars in thousands)	September 30, 2020		December 31, 2019		(dollars in thousands)	June 30, 2021		December 31, 2020
Commercial	Commercial					Commercial
Commercial real estate	Commercial real estate	$	3,290,138	$	3,416,518	Commercial real estate	$	3,246,533	$	3,244,974
Commercial and industrial	Commercial and industrial	2,042,467		1,720,833		Commercial and industrial	1,774,358		1,954,453
Commercial construction	Commercial construction	477,429		375,445		Commercial construction	478,153		474,280
Total Commercial Loans	Total Commercial Loans	5,810,034		5,512,796		Total Commercial Loans	5,499,044		5,673,707
Consumer	Consumer					Consumer
Residential mortgage		950,887		998,585
Home Equity		537,869		538,348
Installment and other consumer		80,735		79,033
Consumer construction		15,343		8,390
Consumer real estate						Consumer real estate	1,420,097		1,471,238
Other consumer						Other consumer	88,210		80,915
Total Consumer Loans	Total Consumer Loans	1,584,834		1,624,356		Total Consumer Loans	1,508,307		1,552,153
Total Portfolio Loans	Total Portfolio Loans	7,394,868		7,137,152		Total Portfolio Loans	7,007,351		7,225,860
Loans held for sale	Loans held for sale	16,724		5,256		Loans held for sale	7,648		18,528
Total Loans(1)	Total Loans(1)	$	7,411,592	$	7,142,408	Total Loans (1)	$	7,014,999	$	7,244,388

(1) Excludes interest receivable of ~~$28.0~~$21.0 million at ~~September~~June 30, ~~2020~~2021 and ~~$22.1~~$24.7 million at December 31, ~~2019.~~2020. Interest receivable is included in other assets in the consolidated balance sheets.

Commercial and industrial loans, or C&I, included ~~$550.1~~$336.1 million of loans originated under the Paycheck Protection Program, or PPP, at ~~September~~June 30, 2021 compared to $465.0 million at December 31, 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law. The CARES Act included the PPP, a program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks. 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. The loans are 100 percent guaranteed by the Small Business Administration, or SBA. These loans carry a fixed rate of 1.00 percent and a term of two years, or five years for loans approved by the SBA, on or after June 5, 2020. Payments are deferred for at least six months of the loan. The SBA pays us a processing fee ranging from 1 percent to 5 percent based on the size of the loan. Interest is accrued as earned and loan origination fees and direct costs are deferred and accreted or amortized into interest income over the life of the loan using the level yield method. When a PPP loan is paid off or forgiven by the SBA, the remaining unaccreted or unamortized net origination fees or costs will be immediately recognized into income.

At June 30, 2021, our business banking segment was $1.1 billion compared to $1.2 billion at December 31, 2020. Business banking consists of 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. Business banking consisted of $506.2 million of commercial real estate loans, $228.1 million of C&I loans, $10.3 million of commercial construction loans, $326.2 million of consumer real estate loans and $0.03 million of other consumer loans that have a commercial purpose at June 30, 2021. At December 31, 2020 business banking consisted of $453.0 million of commercial real estate loans, $394.9 million of C&I loans, $8.2 million of commercial construction loans and $303.9 million of consumer real estate loans that have a commercial purpose. During the first quarter of 2021, $90.2 million of commercial loans and $23.2 million of consumer loans were reclassified into the business banking segment.

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 ~~78.6~~78.5 percent of total portfolio loans at ~~September~~both June 30, ~~2020~~2021 and ~~77.2 percent at~~ December 31, ~~2019.~~2020. Within our commercial portfolio, the CRE and ~~Commercial Construction~~commercial construction portfolios combined comprised ~~$3.8~~$3.7 billion, or ~~64.8~~67.7 percent, of total commercial loans at ~~September~~June 30, ~~2020~~2021 and ~~$3.8~~$3.7 billion, or ~~68.8~~65.6 percent, of total commercial loans at December 31, ~~2019~~2020 and ~~50.9~~53.2 percent of total portfolio loans at ~~September~~June 30, ~~2020~~2021 and ~~53.1~~51.5 percent at December 31, 2019. Further segmentation of the CRE and commercial construction portfolios by collateral type reveals 0 concentration in excess of 15 percent of both total CRE and commercial construction loans at September 30, 2020 and 11 percent at December 31, 2019.2020.

We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this geography, resulting in a concentration. We believe our knowledge and familiarity with customers and conditions locally outweighs this geographic concentration risk. The conditions of the local and regional economies are monitored closely through publicly available data and information supplied by our customers. We also use subscription services for additional geographic and industry specific information. Our CRE and commercial construction portfolios have exposure outside of this geography of 6.0 percent of the combined portfolios and 3.1 percent of total portfolio loans at September 30, 2020. This compares to 5.4 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, 2019.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6.5. LOANS AND LOANS HELD FOR SALE - continued

concentration risk. The conditions of the local and regional economies are monitored closely through publicly available data and information supplied by our customers. We also use subscription services for additional geographic and industry specific information. Our CRE and commercial construction portfolios have exposure outside of this geography of 5.4 percent of the combined portfolios and 2.9 percent of total portfolio loans at June 30, 2021. This compares to 5.9 percent of the combined portfolios and 3.0 percent of total portfolio loans at December 31, 2020.

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 will be reported as 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. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

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

September 30, 2020
(dollars in thousands) Performing
TDRs Nonperforming
TDRs Total
TDRs
Commercial real estate $ 19 $ 14,504 $ 14,523
Commercial and industrial 7,322 1,549 8,871
Commercial construction 3,986 0 3,986
Business banking 1,539 441 1,980
Consumer real estate 5,606 2,154 7,760
Other consumer 6 0 6
Total(1)
$ 18,478 $ 18,648 $ 37,126

~~(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 0 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 nonperforming TDRs at September 30, 2020 compared to December 31, 2019 was primarily related to a $21.3 million CRE relationship, which was placed on nonaccrual in the first quarter of 2020 and charged down by $10.0 million in the third quarter of 2020, leaving a remaining outstanding balance of $11.3 million. The relationship experienced continued deterioration as a result of the COVID-19 pandemic.


	June 30, 2021						December 31, 2020
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs		Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	4	$	6,415	$	6,418	$	14	$	16,654	$	16,668
Commercial and industrial	3,579		11,183		14,763		7,090		9,885		16,975
Commercial construction	3,222		0		3,222		3,267		0		3,267
Business banking	1,439		1,508		2,947		1,503		430		1,933
Consumer real estate	6,073		1,544		7,617		5,581		2,319		7,900
Other consumer	4		0		4		5		0		5
Total	$	14,321	$	20,650	$	34,971	$	17,460	$	29,288	$	46,748

There were 24 TDRs ~~totaling $0.1~~for a total of $0.5 million that returned to accruing status during the three months ended ~~September~~June 30, ~~2020 and 3~~2021 compared to 4 TDRs ~~totaling $22.7~~for a total of $0.1 million for the three months ended June 30, 2020. There were 5 TDRs for a total of $0.5 million that returned to accruing status during the ~~nine~~six months ended ~~September~~June 30, ~~2020. There were 3~~2021 compared to 4 TDRs ~~totaling $0.2~~for a total of $0.1 million ~~that returned to accruing status during~~for the ~~three~~six months ended ~~September~~June 30, ~~2019~~2020.

The following tables present the restructured loans by portfolio segment and ~~5 TDRs totaling $0.2 million that returned to accruing status during~~by type of concession for the ~~nine months ended September 30, 2019.~~periods presented:


	Three Months Ended June 30, 2021
	Number of Contracts	Type of Modification										Total Post-Modification Outstanding Recorded Investment(2)		Total Pre-Modification Outstanding Recorded Investment(2)
(dollars in thousands)		Bankruptcy(1)		Forbearance		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial industrial	0	0		0		0		0		0		0		0
Commercial construction	0	0		0		0		0		0		0		0
Business banking	4	0		0		1,130		0		0		1,130		1,130
Consumer real estate	4	247		0		0		0		0		247		254
Other consumer	0	0		0		0		0		0		0		0
Total	8	$	247	$	0	$	1,130	$	0	$	0	$	1,377	$	1,384
(1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6.5. LOANS AND LOANS HELD FOR SALE - continued

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


	Three Months Ended June 30, 2020
	Number of Contracts	Type of Modification										Total Post-Modification Outstanding Recorded Investment(2)		Total Pre-Modification Outstanding Recorded Investment(2)
(dollars in thousands)		Bankruptcy(1)		Forbearance		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial industrial	1	0		0		0		0		75		75		75
Commercial construction	2	0		0		701		0		0		701		701
Business banking	1	0		0		0		0		27		27		93
Consumer real estate	7	350		0		150		0		0		500		500
Other consumer	0	0		0		0		0		0		0		0
Total	11	$	350	$	0	$	851	$	0	$	102	$	1,303	$	1,369
(1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) 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.

Three Months Ended September 30, 2020 Nine Months Ended September 30, 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
Totals by Loan Segment
Commercial Real Estate
Principal deferral and maturity date extension 0 0 0 0 1 2,210 2,210 0
Maturity date extension and payment delay 1 333 171 (162) 1 333 171 (162)
Total Commercial Real Estate 1 333 171 (162) 2 2,543 2,381 (162)
Commercial and Industrial
Principal deferral and maturity date extension 0 0 0 0 1 2,467 1,263 (1,205)
Maturity date extension and interest rate reduction 1 3,735 3,735 0 1 3,735 3,735 0
Below market interest rate and payment delay 1 287 287 0 2 362 361 (1)
Payment deferral resulting in payment delay 0 0 0 0 1 93 23 (70)
Total Commercial and Industrial 2 4,022 4,022 0 5 6,657 5,381 (1,276)
Commercial Construction
Maturity date extension 0 0 0 0 3 2,593 2,561 (32)
Total Commercial Construction 0 0 0 0 3 2,593 2,561 (32)
Residential Mortgage
Consumer bankruptcy(2)
2 98 96 (2) 5 575 567 (8)
Maturity date extension and payment reduction 0 0 0 0 3 176 176 0
Total Residential Mortgage 2 98 96 (2) 8 751 743 (8)
Home Equity
Consumer bankruptcy(2)
7 206 239 33 14 456 485 29
Maturity date extension and payment delay 1 30 30 0 1 30 30 0
Total Home Equity 8 8 236 269 33 15 486 515 29
Installment and Other Consumer
Consumer bankruptcy(2)
1 4 4 0 1 4 4 0
Total Installment and Other Consumer $ 1 $ 4 $ 4 $ 0 $ 1 $ 4 $ 4 $ 0
Totals by Concession Type
Principal deferral and maturity date extension 0 0 0 0 2 4,677 3,473 (1,204)
Maturity date extension and interest rate reduction 1 3,735 3,735 0 1 3,735 3,735 0
Payment deferral resulting in payment delay 0 0 0 0 1 93 23 (70)
Maturity date extension 0 0 0 0 3 2,593 2,561 (32)
Consumer bankruptcy(2)
10 308 339 31 20 1,035 1,056 21
Maturity date extension and payment delay 2 363 201 (162) 2 363 201 (162)
Below market interest rate and payment delay 1 287 287 0 2 362 361 (1)
Maturity date extension and payment reduction 0 0 0 0 3 176 176 0
Total(3)
14 $ 4,693 $ 4,562 $ (131) 34 $ 13,034 $ 11,586 $ (1,448)
(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.


	Six Months Ended June 30, 2021
	Number of Contracts	Type of Modification										Total Post-Modification Outstanding Recorded Investment(2)		Total Pre-Modification Outstanding Recorded Investment(2)
(dollars in thousands)		Bankruptcy(1)		Forbearance		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Commercial industrial	2	0		0		796		5,433		0		6,229		6,304
Commercial construction	0	0		0		0		0		0		0		0
Business banking	5	0		80		1,130		0		0		1,210		1,210
Consumer real estate	13	573		0		0		0		147		720		739
Other consumer	1	0		0		0		0		0		0		1
Total	21	$	573	$	80	$	1,926	$	5,433	$	147	$	8,159	$	8,254
(1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) 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.


	Six Months Ended June 30, 2020
	Number of Contracts	Type of Modification										Total Post-Modification Outstanding Recorded Investment(2)		Total Pre-Modification Outstanding Recorded Investment(2)
(dollars in thousands)		Bankruptcy(1)		Forbearance		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	1	$	0	$	0	$	2,210	$	0	$	0	$	2,210	$	2,210
Commercial industrial	2	0		0		2,068		0		75		2,143		2,542
Commercial construction	3	0		0		2,572		0		0		2,572		2,592
Business banking	1	0		0		0		0		27		27		93
Consumer real estate	13	723		0		177		0		0		900		912
Other consumer	0	0		0		0		0		0		0		0
Total	20	$	723	$	0	$	7,027	$	0	$	102	$	7,852	$	8,349
(1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6.5. LOANS AND LOANS HELD FOR SALE - continued

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

Three Months Ended September 30, 2019 Nine Months Ended September 30, 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
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 0 0 0 0 1 1,322 1,298 (24)
Maturity date extension and interest rate reduction 0 0 0 0 1 151 147 (4)
Principal deferral 3 23,517 23,236 (281) 3 23,517 23,236 (281)
Principal forgiveness 0 0 0 0 1 4,690 4,518 (172)
Below market interest rate 2 569 548 (21) 2 569 548 (21)
Total Commercial Real Estate 5 24,086 23,784 (302) 8 30,249 29,747 (502)
Commercial and Industrial
Maturity date extension and interest rate reduction 0 0 0 0 1 4,751 4,333 (418)
Principal deferral 1 1,250 1,250 0 1 1,250 1,250 0
Principal deferral and maturity date extension 1 292 277 (15) 1 292 277 (15)
Total Commercial and Industrial 2 1,542 1,527 (15) 3 6,293 5,860 (433)
Residential Mortgage
Consumer bankruptcy(2)
0 0 0 0 3 165 160 (5)
Total Residential Mortgage 0 0 0 0 3 165 160 (5)
Home Equity
Consumer bankruptcy(2)
14 504 485 (19) 27 801 746 (55)
Interest rate reduction 0 0 0 0 2 190 189 (1)
Total Home Equity 14 504 485 (19) 29 991 935 (56)
Installment and Other Consumer
Consumer bankruptcy(2)
1 4 4 0 3 13 10 (3)
Total Installment and Other Consumer $ 1 $ 4 $ 4 $ 0 $ 3 $ 13 $ 10 $ (3)
Totals by Concession Type
Maturity date extension 0 0 0 0 1 1,322 1,298 (24)
Maturity date extension and interest rate reduction 0 0 0 0 2 4,902 4,480 (422)
Principal forgiveness 0 0 0 0 1 4,690 4,518 (172)
Consumer bankruptcy(2)
15 508 489 (19) 33 979 916 (63)
Interest rate reduction 0 0 0 0 2 190 189 (1)
Principal deferral 4 24,767 24,486 (281) 4 24,767 24,486 (281)
Principal deferral and maturity date extension 1 292 277 (15) 1 292 277 (15)
Below market interest rate 2 569 548 (21) 2 569 548 (21)
Total(3)
22 $ 26,136 $ 25,800 $ (336) 46 $ 37,711 $ 36,712 $ (999)

~~(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.

In response to the coronavirus, or COVID-19, pandemic and its economic impact on our customers, we implemented a short-term modification program that complies with the CARES Act to provide temporary payment relief to those borrowers directly impacted by ~~COVID-19~~the pandemic 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 and up to a maximum of 180 days for our commercial customers. The customer remains

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 6. LOANS AND LOANS HELD FOR SALE - continued~~

responsible for deferred payments along with any additional interest accrued during ~~the deferral period. 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 ~~September~~June 30, ~~2020.~~2021. We had ~~144~~42 commercial loans that were modified totaling ~~$350.0~~$68.7 million at ~~September~~June 30, ~~2020~~2021 compared to ~~2,360~~52 commercial loans that were modified totaling ~~$1.4 billion~~$195.6 million at ~~June 30,~~December 31, 2020.

As of ~~September~~June 30, ~~2020,~~2021, we had 2114 commitments to lend an additional ~~$1.7~~$0.7 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 six months ended ~~September~~June 30, ~~2020 and 6 TDRs totaling $18.1 million~~2021. There was 1 TDR that defaulted during the ~~nine~~three months ended ~~September~~June 30, 2020 ~~that were restructured within the last 12 months prior to defaulting. Included in the $18.1~~for a total of $0.1 million ~~of defaulted TDRs for the nine months ended September 30, 2020 was the $11.3 million CRE relationship discussed above. There were 0~~and 11 TDRs that defaulted during the ~~three and nine~~six months ended ~~September~~June 30, ~~2019~~2020 for a total of $21.1 million 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
(dollars in thousands) September 30, 2020 December 31, 2019
Nonperforming Assets
Nonaccrual loans $ 65,424 $ 45,145
Nonaccrual TDRs 18,648 8,912
Total Nonaccrual Loans 84,072 54,057
OREO 2,317 3,525
Total Nonperforming Assets $ 86,389 $ 57,582


	Nonperforming Assets
(dollars in thousands)	June 30, 2021			December 31, 2020
Nonperforming Assets
Nonaccrual loans		$	91,969		$	117,485
Nonaccrual TDRs		20,650			29,289
Total Nonaccrual Loans		112,619			146,774
OREO		1,145			2,155
Total Nonperforming Assets		$	113,764		$	148,929

The ~~significant increases~~decrease in ~~nonperforming~~nonaccrual loans of $34.2 million at ~~September~~June 30, ~~2020~~2021 compared to December 31, ~~2019~~2020 was primarily related to the ~~above mentioned $21.3~~payoff of 3 CRE relationships for a total of $14.4 million ~~CRE relationship, the $10.9 million lending relationship related to the customer fraud~~ and a charge off of a $4.9 million CRE ~~relationship. The $21.3~~relationship and a $3.9 million CRE relationship was placed on nonaccrual in the first quarter of 2020 and charged down by $10.0 million in the third quarter of 2020, leaving a remaining outstanding balance of $11.3 million. The relationship experienced continued deterioration as a result of the COVID-19 pandemic. The $10.9 million lending relationship relating to the customer fraud was moved to nonperforming in the second quarter of 2020 and the $4.9 million CRE relationship moved to nonperforming in the third quarter of 2020.C&I relationship.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7.6. ALLOWANCE FOR CREDIT LOSSES

We maintain an ACL at a level determined to be adequate to absorb estimated expected credit losses 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 ACL methodology based on the following portfolio segments: 1) Commercial Real Estate, or CRE, 2) Commercial and Industrial, or C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 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, retail, multifamily and 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~~construction/development 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 purpose 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 and credit cards.~~lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

Management monitors various credit quality indicators for the commercial, business banking and consumer loan portfolios, including changes in risk ratings, nonperforming status and delinquency on a monthly basis.

We 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7.6. 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.

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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7.6. ALLOWANCE FOR CREDIT LOSSES – continued

The following ~~table~~tables presents loan balances by year of origination and internally assigned risk rating for our portfolio segments as of ~~September 30, 2020:~~the dates presented:


																					June 30, 2021
		Risk Rating																			Risk Rating
(dollars in thousands)	(dollars in thousands)	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Revolving-Term		Total		(dollars in thousands)	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Commercial real estate																				Commercial real estate
Pass	Pass	$	277,760	$	406,883	$	446,299	$	289,243	$	326,634	$	644,888	$	47,764	0		$	2,439,471	Pass	$	179,504	$	326,531	$	457,287	$	347,132	$	229,164	$	778,930	$	40,398	0		$	2,358,945
Special Mention		0		37,197		186		21,850		43,805		64,855		850		0		168,743
Special mention																				Special mention	0		448		29,581		8,310		38,927		112,654		0		0		189,920
Substandard	Substandard	0		18,489		8,066		15,039		54,975		105,474		1,500		0		203,543		Substandard	0		0		17,007		15,516		19,229		131,668		1,500		0		184,920
Doubtful	Doubtful	0		0		0		0		341		6,129		0		0		6,470		Doubtful	0		0		751		0		0		5,760		0		0		6,511
Total Commercial Real Estate		277,760		462,569		454,551		326,132		425,755		821,346		50,114		0		2,818,227
Total commercial real estate																				Total commercial real estate	179,504		326,979		504,625		370,957		287,320		1,029,012		41,898		0		2,740,296

Commercial and Industrial
Commercial and industrial																				Commercial and industrial
Pass	Pass	682,632		209,253		149,912		76,118		38,877		199,772		347,762		0		1,704,326		Pass	395,929		265,953		153,588		102,789		45,641		140,169		370,282		0		1,474,351
Special Mention		3,829		20,396		3,613		968		8,563		6,998		30,552		0		74,919
Special mention																				Special mention	51		3,008		22,124		3,369		0		1,141		11,574		0		41,266
Substandard	Substandard	0		4,861		2,519		14,704		71		11,789		2,317		0		36,261		Substandard	5,433		0		8,962		1,573		5,572		5,357		3,733		0		30,630
Doubtful	Doubtful	0		238		173		2,537		195		0		0		—		3,143		Doubtful	0		0		0		0		0		0		0		0		0
Total Commercial and Industrial		686,461		234,748		156,217		94,327		47,706		218,559		380,631		0		1,818,649
Total commercial and industrial																				Total commercial and industrial	401,413		268,962		184,674		107,731		51,213		146,667		385,588		—		1,546,247

Commercial Construction
Commercial construction																				Commercial construction
Pass	Pass	102,950		223,433		79,733		15,844		9,854		9,915		11,127		0		452,856		Pass	61,289		126,858		182,394		48,374		1,352		5,131		19,761		0		445,159
Special Mention		0		0		3,823		0		0		5,033		91		0		8,947
Special mention																				Special mention	0		1,380		3,269		0		0		8,421		0		0		13,071
Substandard	Substandard	0		3,567		0		1,752		0		3,738		0		0		9,057		Substandard	0		2,138		4,058		0		500		2,945		0		0		9,642
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total Commercial Construction		102,950		227,000		83,556		17,596		9,854		18,686		11,218		0		470,860
Total commercial construction																				Total commercial construction	61,289		130,376		189,721		48,374		1,853		16,498		19,761		0		467,871

Business Banking
Business banking																				Business banking
Pass	Pass	97,367		163,334		133,688		93,886		81,481		289,927		104,721		336		964,740		Pass	100,800		115,666		158,725		123,708		85,193		337,243		104,566		455		1,026,356
Special Mention		0		59		1,049		1,719		1,093		7,055		691		123		11,789
Special mention																				Special mention	117		637		1,919		1,665		1,564		6,958		287		121		13,270
Substandard	Substandard	104		646		3,204		3,755		3,759		26,517		754		683		39,422		Substandard	0		72		1,694		3,364		1,376		23,139		954		651		31,249
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total Business Banking		97,471		164,039		137,941		99,360		86,333		323,499		106,166		1,142		1,015,951
Total business banking																				Total business banking	100,917		116,374		162,338		128,737		88,133		367,340		105,808		1,228		1,070,875

Consumer Real Estate
Consumer real estate																				Consumer real estate
Pass	Pass	95,412		136,136		74,500		70,027		79,784		263,696		436,392		22,546		1,178,493		Pass	43,351		111,065		98,684		49,815		45,224		241,295		467,802		22,670		1,079,907
Special Mention		0		0		0		0		798		153		0		0		951
Special mention																				Special mention	0		0		0		0		0		2,205		0		0		2,205
Substandard	Substandard	0		187		555		880		1,036		7,193		212		973		11,036		Substandard	0		58		185		1,595		1,404		6,963		356		1,205		11,766
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		0		0		0		0
Total Consumer Real Estate		95,412		136,323		75,055		70,907		81,618		271,042		436,604		23,519		1,190,480
Total consumer real estate																				Total consumer real estate	43,351		111,123		98,869		51,411		46,628		250,463		468,158		23,875		1,093,878

Other consumer	Other consumer																			Other consumer
Pass	Pass	8,703		15,078		7,953		4,270		3,039		854		33,216		641		73,754		Pass	12,668		12,283		9,842		4,764		2,016		1,767		36,611		1,040		80,990
Special Mention		0		0		0		0		0		0		0		0		0
Special mention																				Special mention	0		0		0		0		0		0		0		0		0
Substandard	Substandard	0		481		129		115		611		3,868		396		1,347		6,947		Substandard	0		0		113		123		208		4,910		275		1,560		7,190
Doubtful	Doubtful	0		0		0		0		0		0		0		0		0		Doubtful	0		0		0		0		0		4		0		0		4
Total Other Consumer		8,703		15,559		8,082		4,385		3,650		4,722		33,612		1,988		80,701
Total other consumer																				Total other consumer	12,668		12,283		9,955		4,887		2,223		6,681		36,886		2,600		88,184

Total Loan Balance		$	1,268,757	$	1,240,238	$	915,402	$	612,707	$	654,916	$	1,657,854	$	1,018,345	$	26,649	$	7,394,868
Pass																				Pass	793,541		958,356		1,060,518		676,582		408,589		1,504,535		1,039,420		24,166		6,465,707
Special mention																				Special mention	168		5,474		56,894		13,343		40,492		131,379		11,861		121		259,732
Substandard																				Substandard	5,433		2,268		32,019		22,172		28,289		174,983		6,818		3,415		275,397
Doubtful																				Doubtful	0		0		751		0		0		5,764		0		0		6,514
Total																				Total	$	799,142	$	966,097	$	1,150,182	$	712,097	$	477,370	$	1,816,661	$	1,058,098	$	27,703	$	7,007,351

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued


	December 31, 2020
	Risk Rating
(dollars in thousands)	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Revolving-Term		Total

Commercial real estate
Pass	$	334,086	$	422,800	$	394,963	$	277,724	$	307,321	$	615,217	$	46,330	$	0	$	2,398,441
Special mention	0		35,499		10,200		22,502		55,174		75,022		0		0		198,397
Substandard	0		17,259		12,781		19,914		50,700		83,792		1,500		0		185,946
Doubtful	0		645		0		0		1,989		6,529		0		0		9,163
Total commercial real estate	334,086		476,203		417,944		320,140		415,184		780,560		47,830		0		2,791,947

Commercial and industrial
Pass	454,131		199,453		140,049		68,607		27,645		206,782		383,082		0		1,479,749
Special mention	3,697		8,211		2,628		697		768		1,046		23,527		0		40,574
Substandard	0		7,793		2,613		8,544		75		13,781		2,022		0		34,828
Doubtful	0		0		0		4,401		0		0		0		0		4,401
Total commercial and industrial	457,828		215,457		145,290		82,249		28,488		221,609		408,631		0		1,559,552

Commercial construction
Pass	131,235		224,794		59,649		2,420		6,346		4,555		12,778		0		441,777
Special mention	1,578		2,533		3,886		0		0		8,593		0		0		16,590
Substandard	0		3,580		0		501		0		3,629		0		0		7,710
Doubtful	0		0		0		0		0		0		0		0		0
Total commercial construction	132,813		230,907		63,535		2,921		6,346		16,777		12,778		0		466,077

Business banking
Pass	296,254		154,335		123,207		86,552		77,238		266,042		103,571		291		1,107,490
Special mention	0		1,060		1,147		1,602		1,084		6,866		637		123		12,519
Substandard	103		1,078		3,896		3,209		3,880		25,871		1,341		680		40,058
Doubtful	0		0		0		0		0		0		0		0		0
Total business banking	296,357		156,473		128,250		91,363		82,202		298,779		105,549		1,094		1,160,067

Consumer real estate
Pass	120,736		122,171		67,700		63,653		73,805		243,939		438,888		22,667		1,153,559
Special mention	0		0		1,489		0		0		150		132		0		1,771
Substandard	0		373		742		1,480		2,449		6,958		0		0		12,002
Doubtful	0		0		0		0		0		0		0		0		0
Total consumer real estate	120,736		122,544		69,931		65,133		76,254		251,047		439,020		22,667		1,167,332

Other consumer
Pass	18,849		13,162		6,784		3,395		2,082		687		26,647		2,767		74,373
Special mention	0		0		0		0		0		0		0		0		0
Substandard	15		0		0		0		0		3,367		744		2,386		6,512
Doubtful	0		0		0		0		0		0		0		0		0
Total other consumer	18,864		13,162		6,784		3,395		2,082		4,054		27,391		5,153		80,885


Pass	1,355,291		1,136,715		792,352		502,350		494,436		1,337,221		1,011,297		25,726		6,655,389
Special Mention	5,274		47,302		19,350		24,802		57,026		91,677		24,296		123		269,851
Substandard	118		30,083		20,032		33,648		57,105		137,398		5,607		3,066		287,056
Doubtful	0		645		0		4,401		1,989		6,529		0		0		13,564
Total	$	1,360,684	$	1,214,746	$	831,734	$	565,201	$	610,556	$	1,572,826	$	1,041,199	$	28,914	$	7,225,860

We monitor the delinquent status of the commercial and consumer 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7.6. ALLOWANCE FOR CREDIT LOSSES – continued

The following ~~table~~tables presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of ~~September~~June 30, 2021 and December 31, 2020:


																					June 30, 2021
(dollars in thousands)	(dollars in thousands)	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Revolving-Term		Total		(dollars in thousands)	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Commercial real estate																				Commercial real estate
Performing	Performing	$	277,760	$	462,569	$	454,551	$	326,132	$	411,947	$	788,059	$	50,114	$	0	$	2,771,132	Performing	$	179,504	$	326,979	$	488,368	$	368,211	$	280,693	$	974,576	$	41,898	$	0	$	2,660,229
Nonperforming	Nonperforming	0		0		0		0		13,808		33,287		0		0		47,095		Nonperforming	0		0		16,257		2,747		6,628		54,435		0		0		80,067
Total Commercial Real Estate		277,760		462,569		454,551		326,132		425,755		821,346		50,114		0		2,818,227
Total commercial real estate																				Total commercial real estate	179,504		326,979		504,625		370,957		287,320		1,029,012		41,898		0		2,740,296

Commercial and Industrial
Commercial and industrial																				Commercial and industrial
Performing	Performing	683,514		234,748		155,958		94,327		47,706		217,628		379,082		0		1,812,963		Performing	395,980		268,962		184,674		107,347		45,711		146,416		384,959		0		1,534,049
Nonperforming	Nonperforming	2,947		0		259		0		0		931		1,549		0		5,686		Nonperforming	5,433		0		0		384		5,501		250		629		0		12,198
Total Commercial and Industrial		686,461		234,748		156,217		94,327		47,706		218,559		380,631		0		1,818,649
Total commercial and industrial																				Total commercial and industrial	401,413		268,962		184,674		107,731		51,213		146,667		385,588		0		1,546,247

Commercial Construction
Commercial construction																				Commercial construction
Performing	Performing	102,950		227,000		83,556		16,555		9,854		18,223		11,218		0		469,356		Performing	61,289		130,376		189,721		48,374		1,853		16,113		19,761		0		467,486
Nonperforming	Nonperforming	0		0		0		1,041		0		463		0		0		1,504		Nonperforming	0		0		0		0		0		385		0		0		385
Total Commercial Construction		102,950		227,000		83,556		17,596		9,854		18,686		11,218		0		470,860
Total commercial construction																				Total commercial construction	61,289		130,376		189,721		48,374		1,853		16,498		19,761		0		467,871

Business Banking
Business banking																				Business banking
Performing	Performing	97,471		163,734		136,249		98,042		84,263		311,076		105,951		1,084		997,870		Performing	100,917		116,374		162,077		127,306		87,342		358,870		105,753		1,170		1,059,810
Nonperforming	Nonperforming	0		305		1,692		1,318		2,070		12,423		215		58		18,081		Nonperforming	0		0		261		1,431		791		8,470		55		57		11,064
Total Business Banking		97,471		164,039		137,941		99,360		86,333		323,499		106,166		1,142		1,015,951
Total business banking																				Total business banking	100,917		116,374		162,338		128,737		88,133		367,340		105,808		1,228		1,070,875

Consumer Real Estate
Consumer real estate																				Consumer real estate
Performing	Performing	94,828		136,323		74,440		69,663		80,532		265,917		436,328		22,639		1,180,670		Performing	43,351		110,441		98,578		51,161		46,018		244,783		467,827		22,934		1,085,094
Nonperforming	Nonperforming	584		0		615		1,244		1,086		5,125		276		880		9,810		Nonperforming	0		682		291		249		610		5,680		331		940		8,783
Total Consumer Real Estate		95,412		136,323		75,055		70,907		81,618		271,042		436,604		23,519		1,190,480
Total consumer real estate																				Total consumer real estate	43,351		111,123		98,869		51,411		46,628		250,463		468,158		23,875		1,093,878

Other Consumer
Other consumer																				Other consumer
Performing	Performing	8,567		15,157		8,082		4,299		3,379		4,043		33,425		1,853		78,805		Performing	12,668		12,162		9,955		4,887		2,223		6,681		36,886		2,600		88,062
Nonperforming	Nonperforming	136		402		0		86		271		679		187		135		1,896		Nonperforming	0		121		0		0		0		0		0		0		121
Total Other Consumer		8,703		15,559		8,082		4,385		3,650		4,722		33,612		1,988		80,701
Total other consumer																				Total other consumer	12,668		12,283		9,955		4,887		2,223		6,681		36,886		2,600		88,184

Performing	Performing	1,265,090		1,239,531		912,836		609,018		637,681		1,604,946		1,016,118		25,576		7,310,796		Performing	793,709		965,293		1,133,373		707,286		463,841		1,747,440		1,057,084		26,705		6,894,731
Nonperforming	Nonperforming	3,667		707		2,566		3,689		17,235		52,908		2,227		1,073		84,072		Nonperforming	5,433		803		16,809		4,811		13,529		69,221		1,015		998		112,619
Total Loan Balance		$	1,268,757	$	1,240,238	$	915,402	$	612,707	$	654,916	$	1,657,854	$	1,018,345	$	26,649	$	7,394,868
Total																				Total	$	799,142	$	966,097	$	1,150,182	$	712,097	$	477,370	$	1,816,661	$	1,058,098	$	27,703	$	7,007,351

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued


	December 31, 2020
(dollars in thousands)	2020		2019		2018		2017		2016		2015 and Prior		Revolving		Revolving-Term		Total

Commercial real estate
Performing	$	334,086	$	459,799	$	417,944	$	313,465	$	394,972	$	722,782	$	47,830	$	0	$	2,690,879
Nonperforming	0		16,404		0		6,675		20,212		57,778		0		0		101,070
Total commercial real estate	334,086		476,203		417,944		320,140		415,184		780,560		47,830		0		2,791,947

Commercial and industrial
Performing	457,828		214,144		143,706		69,411		28,426		220,701		408,350		0		1,542,566
Nonperforming	0		1,313		1,584		12,838		62		908		281		0		16,985
Total commercial and industrial	457,828		215,457		145,290		82,249		28,488		221,609		408,631		0		1,559,552

Commercial construction
Performing	132,813		230,907		63,535		2,921		6,346		16,393		12,778		0		465,692
Nonperforming	0		0		0		0		0		384		0		0		384
Total commercial construction	132,813		230,907		63,535		2,921		6,346		16,777		12,778		0		466,077

Business Banking
Performing	296,327		156,164		126,432		90,414		80,106		286,970		105,494		1,037		1,142,944
Nonperforming	30		309		1,818		949		2,096		11,809		55		57		17,123
Total business banking	296,357		156,473		128,250		91,363		82,202		298,779		105,549		1,094		1,160,067

Consumer real estate
Performing	120,736		122,315		69,225		63,647		74,690		245,331		438,702		21,572		1,156,216
Nonperforming	0		229		706		1,486		1,564		5,716		318		1,096		11,116
Total consumer real estate	120,736		122,544		69,931		65,133		76,254		251,047		439,020		22,667		1,167,332

Other consumer
Performing	18,864		13,162		6,784		3,395		2,082		3,958		27,391		5,153		80,789
Nonperforming	0		0		0		0		0		96		0		0		96
Total other consumer	18,864		13,162		6,784		3,395		2,082		4,054		27,391		5,153		80,885

Performing	1,360,654		1,196,491		827,625		543,253		586,622		1,496,135		1,040,544		27,762		7,079,086
Nonperforming	30		18,254		4,108		21,948		23,934		76,691		654		1,153		146,774
Total	$	1,360,684	$	1,214,746	$	831,734	$	565,201	$	610,556	$	1,572,826	$	1,041,199	$	28,914	$	7,225,860

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


		September 30, 2020(2)															June 30, 2021
(dollars in thousands)	(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		(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	Commercial real estate	$	2,771,132	$	0	$	0	$	0	$	47,095	$	47,095	$	2,818,227	Commercial real estate	$	2,648,221	$	12,007	$	0	$	80,067	$	92,075	2,740,296
Commercial and industrial	Commercial and industrial	1,811,342		1,235		0		386		5,686		7,307		1,818,649		Commercial and industrial	1,534,049		0		0		12,198		12,198		1,546,247
Commercial construction	Commercial construction	469,356		0		0		0		1,504		1,504		470,860		Commercial construction	466,987		0		500		385		885		467,871
Business banking	Business banking	994,389		2,733		748		0		18,081		21,562		1,015,951		Business banking	1,057,279		2,311		222		11,064		13,597		1,070,875
Consumer real estate	Consumer real estate	1,177,782		1,723		1,031		134		9,810		12,698		1,190,480		Consumer real estate	1,083,947		640		507		8,783		9,930		1,093,878
Other consumer	Other consumer	78,310		349		146		0		1,896		2,391		80,701		Other consumer	87,905		105		52		121		278		88,184
Total	Total	$	7,302,311	$	6,040	$	1,925	$	520	$	84,072	$	92,556	$	7,394,868	Total	$	6,878,389	$	15,063	$	1,281	$	112,619	$	128,962	$	7,007,351

(1)~~Represents acquired loans that were recorded at fair value at the acquisition date and remain performing at September 30, 2020.~~

~~(2)~~ We had ~~144~~42 loans that were modified totaling ~~$350.0~~$68.7 million under the CARES Act at ~~September~~June 30, ~~2020.~~2021. These customers were not considered past due as a result of their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. Due to the ~~modification program,~~modifications, this delinquency table may not accurately reflect the credit risk associated with these loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7.6. ALLOWANCE FOR 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 0 737 2,856 370,060
Business banking 830,735 5,093 1,099 0 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 remained performing at December 31, 2019.~~


	December 31, 2020
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Past Due 90+ Days Still Accruing (2)		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	2,690,877	$	0	$	0	$	0	$	101,070	$	101,070	$	2,791,947
Commercial and industrial	1,542,567		0		0		0		16,985		16,985		1,559,552
Commercial construction	462,094		19		3,580		0		384		3,983		466,077
Business banking	1,140,581		1,614		379		371		17,122		19,486		1,160,067
Consumer real estate	1,153,028		1,087		1,968		132		11,117		14,304		1,167,332
Other consumer	80,583		168		37		0		96		302		80,885
Total(1)	$	7,069,730	$	2,888	$	5,965	$	503	$	146,774	$	156,130	$	7,225,860
(1) We had 52 loans that were modified totaling $195.6 million under the CARES Act at December 31, 2020. These customers were not considered past due as a result of their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. Due to the modification program, this delinquency table may not accurately reflect the credit risk associated with these loans. (2) Represents acquired loans that were recorded at fair value at the acquisition date and remain performing at December 31, 2020.

The following table presents loans on nonaccrual status ~~and loans past due 90 days or more and still accruing~~ by class of loan:


									September 30, 2020										June 30, 2021
		September 30, 2020							For the three months ended	For the nine months ended		June 30, 2021						For the three and six months ended
(dollars in thousands)	(dollars in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance	Past Due 90+ Days Still Accruing		Interest Income Recognized on Nonaccrual(1)	Interest Income Recognized on Nonaccrual(1)	(dollars in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance			Interest Income Recognized on Nonaccrual(1)		Interest Income Recognized on Nonaccrual(1)
Commercial real estate	Commercial real estate	$	25,356	$	47,095	$26,996	$	0	$8	$19	Commercial real estate	$	101,070	$	80,067	$	47,648		$	5	$	66
Commercial and industrial	Commercial and industrial	10,911		5,686		967	386		31	52	Commercial and industrial	16,985		12,198		11,183			72		115
Commercial construction	Commercial construction	737		1,504		1,218	0		0	0	Commercial construction	384		385		0			0		0
Business banking	Business banking	9,863		18,081		5,197	0		59	163	Business banking	17,122		11,064		1,508			139		275
Consumer real estate	Consumer real estate	6,063		9,810		398	134		90	262	Consumer real estate	11,117		8,783		0			210		319
Other consumer	Other consumer	1,127		1,896		0	0		1	4	Other consumer	96		121		0			0		1
Total	Total	$	54,057	$	84,072	$34,776	$	520	$189	$500	Total	$	146,774	$	112,619	$	60,340		$	426	$	776

(1) Represents only cash payments received and applied to interest on nonaccrual loans.

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


		September 30, 2020													December 31, 2020
		Type of Collateral					December 31, 2020								For the twelve months ended
(dollars in thousands)	(dollars in thousands)	Real Estate	Blanket Lien	Investment/Cash	Other	(dollars in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing		Interest Income Recognized on Nonaccrual(1)
Commercial real estate	Commercial real estate	$46,965	$40	$0	$0	Commercial real estate	$	25,356	$	101,070	$	60,401	$	0	$	22
Commercial and industrial	Commercial and industrial	6,065	20,548	0	0	Commercial and industrial	10,911		16,985		6,436		0		101
Commercial construction	Commercial construction	5,203	0	0	0	Commercial construction	737		384		285		0		0
Business banking	Business banking	4,427	1,621	0	689	Business banking	9,863		17,122		3,890		371		275
Consumer real estate	Consumer real estate	398	0	0	0	Consumer real estate	6,063		11,117		398		132		423

Other consumer						Other consumer	1,127		96		0		0		4
Total	Total	$63,058	$22,209	$0	$689	Total	$	54,057	$	146,774	$	71,410	$	503	$	826

(1) Represents only cash payments received and applied to interest on nonaccrual loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7.6. ALLOWANCE FOR CREDIT LOSSES – continued

The following ~~table presents~~tables present collateral-dependent loans by class of loan as of the dates presented:


	June 30, 2021
	Type of Collateral
(dollars in thousands)	Real Estate		Business Assets		Investment/Cash		Other
Commercial real estate	$	76,437	$	0	$	0	$	0
Commercial and industrial	302		14,461		0		0
Commercial construction	3,222		0		0		0
Business banking	1,806		1,141		0		0
Consumer real estate	0		0		0		0

Total	$	81,767	$	15,602	$	0	$	0


	December 31, 2020
	Type of Collateral
(dollars in thousands)	Real Estate		Business Assets		Investment/Cash		Other
Commercial real estate	$	100,450	$	0	$	0	$	0
Commercial and industrial	1,040		15,080		0		0
Commercial construction	3,552		0		0		0
Business banking	3,085		1,619		0		689
Consumer real estate	398		0		0		0

Total	$	108,525	$	16,699	$	0	$	689

The following tables present activity in the ACL for the ~~three and nine months ended September 30, 2020:~~periods presented:


		Three Months Ended September 30, 2020															Three Months Ended June 30, 2021
(dollars in thousands)	(dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Business Banking		Consumer Real Estate		Other Consumer		Total Loans		(dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Business Banking		Consumer Real Estate		Other Consumer		Total Loans
Allowance for credit losses on loans:	Allowance for credit losses on loans:															Allowance for credit losses on loans:
Balance at beginning of period	Balance at beginning of period	$	57,730	$	19,164	$	8,874	$	14,404	$	11,585	$	2,852	$	114,609	Balance at beginning of period	$	66,842	$	14,663	$	6,329	$	15,680	$	8,981	$	2,606	$	115,101
Provision for credit losses on loans(1)	Provision for credit losses on loans(1)	23,839		(4,155)		(1,617)		2,072		(797)		(40)		19,302		Provision for credit losses on loans(1)	2,937		225		(426)		(560)		(410)		243		2,008
Charge-offs	Charge-offs	(10,187)		(1,196)		0		(1,748)		(252)		(284)		(13,667)		Charge-offs	(7,558)		(473)		0		(410)		(76)		(221)		(8,737)
Recoveries	Recoveries	172		398		1		64		41		78		754		Recoveries	965		11		2		47		152		88		1,264
Net (Charge-offs)/Recoveries	Net (Charge-offs)/Recoveries	(10,015)		(798)		1		(1,684)		(211)		(206)		(12,913)		Net (Charge-offs)/Recoveries	(6,594)		(462)		2		(363)		76		(132)		(7,473)
Balance at End of Period	Balance at End of Period	$	71,554	$	14,211	$	7,258	$	14,792	$	10,577	$	2,606	$	120,998	Balance at End of Period	$	63,186	$	14,426	$	5,905	$	14,756	$	8,647	$	2,717	$	109,636
(1) Excludes unfunded commitments																(1) Excludes unfunded commitments


		Nine Months Ended September 30, 2020															Three Months Ended June 30, 2020
(dollars in thousands)	(dollars in thousands)	Commercial Real Estate		Commercial and Industrial (2)		Commercial Construction		Business Banking(1)		Consumer Real Estate		Other Consumer		Total Loans		(dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Business Banking		Consumer Real Estate		Other Consumer		Total Loans
Allowance for credit losses on loans:	Allowance for credit losses on loans:															Allowance for credit losses on loans:
Balance at beginning of period	Balance at beginning of period	$	30,577	$	15,681	$	7,900	$	0	$	6,337	$	1,729	$	62,224	Balance at beginning of period	$	42,611	$	19,870	$	6,606	$	13,706	$	11,200	$	2,857	$	96,850
Impact of CECL adoption	Impact of CECL adoption	4,810		7,853		(3,376)		12,898		4,525		642		27,352		Impact of CECL adoption	0		0		0		0		0		0		0
Provision for credit losses on loans(1)	Provision for credit losses on loans(1)	52,185		62,949		2,712		4,197		32		1,489		123,564		Provision for credit losses on loans(1)	20,681		60,906		2,249		918		400		677		85,831
Charge-offs	Charge-offs	(16,229)		(72,692)		0		(2,469)		(470)		(1,556)		(93,416)		Charge-offs	(5,600)		(61,616)		0		(260)		(37)		(790)		(68,303)
Recoveries	Recoveries	211		420		22		166		153		302		1,274		Recoveries	38		4		19		40		22		108		231
Net (Charge-offs)/Recoveries	Net (Charge-offs)/Recoveries	(16,018)		(72,272)		22		(2,303)		(317)		(1,254)		(92,142)		Net (Charge-offs)/Recoveries	(5,562)		(61,612)		19		(220)		(15)		(682)		(68,072)
Balance at End of Period	Balance at End of Period	$	71,554	$	14,211	$	7,258	$	14,792	$	10,577	$	2,606	$	120,998	Balance at End of Period	$	57,730	$	19,164	$	8,874	$	14,404	$	11,585	$	2,852	$	114,609

(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.Excludes unfunded commitments

~~(2)~~ ~~During the three months ended June 30, 2020, we experienced a pre-tax loss~~Table of ~~$58.7 million related to a customer fraud resulting from a check kiting scheme.~~Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued


	Six Months Ended June 30, 2021
(dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Business Banking		Consumer Real Estate		Other Consumer		Total Loans
Allowance for credit losses on loans:
Balance at beginning of period	$	65,656	$	16,100	$	7,239	$	15,917	$	10,014	$	2,686	$	117,612
Provision for credit losses on loans(1)	4,933		2,953		(1,337)		(46)		(1,254)		61		5,308
Charge-offs	$	(8,369)	$	(4,774)	$	0	$	(1,327)	$	(347)	$	(453)	$	(15,270)
Recoveries	965		148		3		213		234		423		1,985
Net (Charge-offs)/Recoveries	(7,403)		(4,627)		3		(1,115)		(113)		(30)		(13,285)
Balance at End of Period	$	63,186	$	14,426	$	5,905	$	14,756	$	8,647	$	2,717	$	109,636
(1) Excludes unfunded commitments


	Six Months Ended June 30, 2020
(dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Business Banking		Consumer Real Estate		Other Consumer		Total Loans
Allowance for credit losses on loans:
Balance at beginning of period	$	30,577	$	15,681	$	7,900	$	0	$	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(1)	28,345		67,104		4,329		2,126		829		1,529		104,262
Charge-offs	(6,042)		(71,496)		0		(721)		(218)		(1,272)		(79,749)
Recoveries	40		22		21		101		112		224		520
Net (Charge-offs)/Recoveries	(6,002)		(71,474)		21		(620)		(106)		(1,048)		(79,229)
Balance at End of Period	$	57,730	$	19,164	$	8,874	$	14,404	$	11,585	$	2,852	$	114,609
(1) Excludes unfunded commitments

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 Form 10-K, but before the end of the first quarter of 2020. The updated information supported a loss existed at January 1, 2020.

The provision for credit losses, which includes a provision for losses on loans and on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date. The provision for credit losses decreased $84.2 million and $101.1 million to $2.6 million and $5.7 million for the three and six months ended June 30, 2021 compared to $86.8 million and $106.8 million for the same periods in 2020. The provision for credit losses includes $0.6 million and $0.4 million for the reserve for unfunded commitments for the three and six months ended June 30, 2021.

During the three months ended June 30, 2020, we ~~had~~recognized a charge-off of $58.7 million related to a ~~previously disclosed~~ customer fraud ~~resulting~~ from a check kiting scheme. ~~The fraud was perpetrated by a single business customer and~~We continue to pursue all available resources of recovery to mitigate the ~~customer has plead guilty in an ongoing criminal investigation. The check kiting scheme resulted in a deposit account overdraft, which became a loan to us that was charged off through the ACL.~~loss. The customer also had a lending relationship ~~that was originally~~of $15.1 million ~~including a $14.3 million CRE loan and a $0.8 million line of credit. We recognized~~that had a $4.2 million charge-off ~~related to this~~during the three months ended June 30, 2020. We received a recovery of $0.9 million on the lending relationship during the three months ended June 30, ~~2020 and the remaining outstanding balance of $10.9 million is a nonperforming loan at September 30, 2020. A specific reserve of $3.4 million was recognized~~2021.

The significant decrease in the ~~three months ended September 30, 2020 based upon new liens identified against the collateral.~~

~~Our qualitative reserve changed ($13.5) million and $15.8 million~~provision for credit losses during the three and ~~nine~~six months ended ~~September~~June 30, 2020. Included in these amounts were ($13.3) million for the three months ended and $12.7 million for the nine months ended for the economic forecast and an allocation for our hotel portfolio and business banking portfolios2021 was mainly due to the ~~COVID-19 pandemic.~~above mentioned customer fraud and an improved economic forecast in 2021 compared to 2020. Our economic forecast covers a period of two years and is driven ~~in part~~primarily by national unemployment data. The ~~reduction in qualitative reserve for the three months ended September~~forecasted national unemployment rate improved at June 30, ~~2020 was due to a meaningful improvement in expected unemployment levels of the forecast period. We added $2.0 million of ACL~~2021 compared to the ~~business banking portfolio during the three months ended September 30, 2020 due to the COVID-19 pandemic. Changes~~same periods in ~~our current conditions qualitative factors resulted in a decrease of $0.2 million and an increase of $3.1 million to the ACL for the three and nine months ended September 30,~~ 2020. ~~Offsetting the decrease in qualitative ACL for the three months ended September 30, 2020 was the impact~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued~~

of the hotel portfolio downgrades on the quantitative model. Our total hotel portfolio was $243.0 million with 95 percent of this portfolio on deferral at September 30, 2020. During the three months ended September 30, 2020, we did an extensive review of the hotel portfolio and as a result downgraded a significant amount of loans within this portfolio. As of September 30, 2020, $92.9 million of hotel loans were risk rated special mention and $126.6 million were substandard. The ACL at September 30, 2020 reflects our estimate of potential loss for the hotel loans. Our estimate will be updated in the fourth quarter when we obtain appraisals on the substandard hotel portfolio.

The C&I portfolio included $550.1 million of loans originated under the PPP at September 30, 2020. The loans are 100 percent guaranteed by the SBA, therefore, we have not assigned any ACL to these loans at September 30, 2020.

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 $ 3,270,438 95.7 % $ 1,636,314 95.1 % $ 347,304 92.5 % $ 5,254,056 95.3 %
Special mention 57,285 1.7 % 36,484 2.1 % 10,109 2.7 % 103,878 1.9 %
Substandard 86,772 2.5 % 47,980 2.8 % 17,899 4.8 % 152,651 2.8 %
Doubtful 2,023 0.1 % 55 0 % 133 0 % 2,211 0 %
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 % 0 0 % 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 %

~~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 investments in loans considered to be impaired and related information on those impaired loans as of December 31, 2019:~~

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 0 0 0
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 0
Other consumer 13 20 9
Total $ 75,337 $ 86,771 $ 2,200

~~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 average recorded investment and interest income recognized on impaired loans for the three and nine months ended September 30, 2019:~~

Three months ended Nine months ended
September 30, 2019 September 30, 2019
(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 $ 0 $ 14,348 $ 0
Commercial and industrial 0 0 0 0
Commercial construction 490 0 490 0
Consumer real estate 0 0 0 0
Other consumer 11 0 13 1
Total with a Related Allowance Recorded 14,756 0 14,851 1
Without a related allowance recorded:
Commercial real estate 39,179 231 39,788 712
Commercial and industrial 8,008 116 6,644 308
Commercial construction 2,318 34 2,318 117
Consumer real estate 8,830 97 8,993 297
Other consumer 3 0 4 0
Total without a Related Allowance Recorded 58,338 478 57,747 1,434
Total:
Commercial real estate 53,434 231 54,136 712
Commercial and industrial 8,008 116 6,644 308
Commercial construction 2,808 34 2,808 117
Consumer real estate 8,830 97 8,993 297
Other consumer 14 0 17 1
Total $ 73,094 $ 478 $ 72,598 $ 1,435

~~The following table details activity in the allowance for loan losses for the three and nine months ended September 30, 2019:~~

Three Months Ended September 30, 2019
(dollars in thousands) Commercial
Real Estate Commercial and
Industrial Commercial
Construction Consumer
Real Estate Other
Consumer Total
Loans
Balance at beginning of period $ 32,836 $ 13,227 $ 7,254 $ 6,571 $ 1,591 $ 61,479
Charge-offs (2,304) (1,467) 0 (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 credit losses 1,292 2,397 620 65 539 4,913
Balance at End of Period $ 31,830 $ 14,367 $ 7,875 $ 6,334 $ 1,709 $ 62,115

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) 0 (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 credit losses 822 10,432 (112) 367 1,258 12,767
Balance at End of Period $ 31,830 $ 14,367 $ 7,875 $ 6,334 $ 1,709 $ 62,115

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued~~

~~The following tables present the allowance for loan losses and recorded investments in loans by category as of December 31, 2019:~~

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 0 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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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8.7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Swaps

In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the balance sheet at fair value. Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate loan with us receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.

Pursuant to our agreements with various financial institutions, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. ~~Based upon our~~Our current ~~positions and related future~~ collateral requirements ~~relating to them, we believe any~~do not have a material effect on our cash flow or liquidity ~~position to be immaterial.~~position.

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 Condensed 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 Condensed Consolidated Statements of Comprehensive Income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8.7. 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)	(dollars in thousands)	September 30, 2020			December 31, 2019			September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020			June 30, 2021			December 31, 2020
Derivatives not Designated as Hedging Instruments:	Derivatives not Designated as Hedging Instruments:													Derivatives not Designated as Hedging Instruments:
Interest Rate Swap Contracts - Commercial Loans	Interest Rate Swap Contracts - Commercial Loans													Interest Rate Swap Contracts - Commercial Loans
Fair value	Fair value		$	90,163		$	25,647		$	90,616		$	25,615	Fair value		$	49,078		$	78,319		$	49,477		$	79,033
Notional amount	Notional amount		943,369			740,762			943,369			740,762		Notional amount		1,003,946			983,638			1,003,946			983,638
Collateral posted	Collateral posted		0			0			90,820			26,127		Collateral posted		0			—			45,700			77,930
Interest Rate Lock Commitments - Mortgage Loans	Interest Rate Lock Commitments - Mortgage Loans													Interest Rate Lock Commitments - Mortgage Loans
Fair value	Fair value		3,198			321			0			0		Fair value		1,137			2,900			0			0
Notional amount	Notional amount		51,985			9,829			0			0		Notional amount		26,238			51,053			0			0
Forward Sale Contracts - Mortgage Loans	Forward Sale Contracts - Mortgage Loans													Forward Sale Contracts - Mortgage Loans
Fair value	Fair value		0			1			450			0		Fair value		0			0			91			385
Notional amount	Notional amount		$	0		$	12,750		$	51,871		$	0	Notional amount		$	0		$	0		$	23,245		$	47,062

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)	(dollars in thousands)	September 30, 2020			December 31, 2019			September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020			June 30, 2021			December 31, 2020
Derivatives not Designated as Hedging Instruments:	Derivatives not Designated as Hedging Instruments:													Derivatives not Designated as Hedging Instruments:
Gross amounts recognized	Gross amounts recognized		$	94,821		$	26,146		$	94,779		$	26,114	Gross amounts recognized		$	50,158		$	82,655		$	50,934		$	82,626
Gross amounts offset	Gross amounts offset		(4,658)			(499)			(4,163)			(499)		Gross amounts offset		(1,080)			(4,336)			(1,457)			(3,593)
Net Amounts Presented in the Consolidated Balance Sheets	Net Amounts Presented in the Consolidated Balance Sheets		90,163			25,647			90,616			25,615		Net Amounts Presented in the Consolidated Balance Sheets		49,078			78,319			49,477			79,033
Gross amounts not offset(1)	Gross amounts not offset(1)		0			0			(90,820)			(26,127)		Gross amounts not offset(1)		0			0			(45,700)			(77,930)
Net Amount	Net Amount		$	90,163		$	25,647		$	(204)		$	(512)	Net Amount		$	49,078		$	78,319		$	3,777		$	1,103

(1) Amounts represent collateral 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 June 30,						Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2020			2019			2020			2019			(dollars in thousands)	2021			2020			2021			2020
Derivatives not Designated as Hedging Instruments	Derivatives not Designated as Hedging Instruments													Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans	Interest rate swap contracts—commercial loans		$	(537)		$	(16)		$	(485)		$	(112)	Interest rate swap contracts—commercial loans		$	5		$	(62)		$	315		$	52
Interest rate lock commitments—mortgage loans	Interest rate lock commitments—mortgage loans		86			(194)			2,877			204		Interest rate lock commitments—mortgage loans		(883)			186			(2,642)			2,792
Forward sale contracts—mortgage loans	Forward sale contracts—mortgage loans		144			169			(451)			9		Forward sale contracts—mortgage loans		194			698			1,173			(595)
Total Derivatives (Loss)/Gain	Total Derivatives (Loss)/Gain		$	(307)		$	(41)		$	1,941		$	101	Total Derivatives (Loss)/Gain		$	(684)		$	822		$	(1,154)		$	2,249

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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 $42.0 million and carrying value of $44.0 million at September 30, 2020 and amortized cost of $22.7 million and carrying value of $23.0 million at December 31, 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, 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 $2.5 million at a fixed and $45.1 million at a variable rate at September 30, 2020, excluding our finance leases.

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

September 30, 2020 December 31, 2019
(dollars in thousands) Balance Weighted
Average Rate Balance Weighted
Average Rate
Short-term Borrowings
Securities sold under repurchase agreements $ 42,706 0.25 % $ 19,888 0.74 %
Short-term borrowings 83,000 0.36 % 281,319 1.84 %
Total Short-term Borrowings 125,706 0.32 % 301,207 1.76 %
Long-term Borrowings
Long-term borrowings 49,076 2.47 % 50,868 2.60 %
Junior subordinated debt securities 64,068 3.03 % 64,277 3.59 %
Total Long-term Borrowings 113,144 2.79 % 115,145 3.15 %
Total Borrowings $ 238,850 1.49 % $ 416,352 2.14 %

We had total borrowings at the FHLB of Pittsburgh of $130.6 million at September 30, 2020 and $532.9 million at December 31, 2019. The $130.6 million at September 30, 2020 consisted of $83.0 million in short-term borrowings and $47.6 million in long-term borrowings. Our maximum borrowing capacity with the FHLB of Pittsburgh was $3.0 billion at September 30, 2020. We utilized $523.3 million of our borrowing capacity at September 30, 2020 consisting of $130.6 million for borrowings and $392.7 million for letters of credit to collateralize public funds. Our remaining borrowing availability at September 30, 2020 is $2.5 billion.

We have completed 3 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 pay 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.

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

NOTE ~~10.~~8. 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)	(dollars in thousands)	September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020
Commitments to extend credit	Commitments to extend credit		$	2,251,106		$	1,910,805	Commitments to extend credit		$	2,476,630		$	2,185,752
Standby letters of credit	Standby letters of credit		88,529			80,040		Standby letters of credit		86,532			89,095
Total	Total		$	2,339,635		$	1,990,845	Total		$	2,563,162		$	2,274,847

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 Condensed Consolidated Statements of Comprehensive Income. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

The following table presents activity in the allowance for credit losses on unfunded loan commitments ~~is summarized~~ as of the dates presented:

(dollars in thousands) Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Balance at beginning of period $ 7,004 $ 2,346
Provision for credit losses (1,816) 95
Total $ 5,188 $ 2,441
(dollars in thousands) Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Balance at beginning of period $ 3,112 $ 2,139
Impact of adopting ASU 2016-13 at January 1, 2020 1,349 0
Balance after adoption of ASU 2016-13 4,461 2,139
Provision for credit losses 727 302
Total $ 5,188 $ 2,441

The decrease in allowance for credit losses on unfunded loan commitments for the three months ended September 30, 2020 was due to a decrease in the loss rates for the construction portfolio. The increase for the nine months ended September 30, 2020 was primarily related to higher expected credit losses due to the COVID-19 pandemic.


	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	2021			2020			2021			2020
Balance at beginning of period		$	4,303		$	6,077		$	4,467		$	3,112
Impact of adopting ASU 2016-13 at January 1, 2020		0			0			0			1,349
Balance after adoption of ASU 2016-13		4,303			6,077			4,467			4,461
Provision for credit losses		555			927			391			2,543
Total		$	4,858		$	7,004		$	4,858		$	7,004

Litigation

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

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 11. REVENUE FROM CONTRACTS WITH CUSTOMERS~~

We earn revenue from contracts with our customers when we have completed our performance obligations and recognize that revenue when services are provided to our customers. Our contracts with customers are primarily in the form of account agreements. Generally, our services are transferred at a point in time in response to transactions initiated and controlled by our customers under service agreements with an expected duration of one year or less. Our customers have the right to terminate their 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,
Revenue Streams Point of Revenue Recognition 2020 2019 2020 2019
Service charges on deposit accounts Over a period of time $ 423 $ 473 $ 1,347 $ 1,381
At a point in time 2,397 2,939 7,373 8,396
$ 2,820 $ 3,412 $ 8,720 $ 9,777
Debit and credit card Over a period of time $ 178 $ 180 $ 556 $ 542
At a point in time 3,993 3,295 10,708 9,409
$ 4,171 $ 3,475 $ 11,264 $ 9,951
Wealth management Over a period of time $ 1,992 $ 1,703 $ 5,944 $ 4,991
At a point in time 530 398 1,527 1,219
$ 2,522 $ 2,101 $ 7,471 $ 6,210
Other fee revenue At a point in time $ 978 $ 864 $ 2,771 $ 2,928

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE ~~12.~~9. OTHER COMPREHENSIVE INCOME (LOSS)

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

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
(dollars in thousands) Pre-Tax
Amount Tax
(Expense)
Benefit Net of Tax
Amount Pre-Tax
Amount Tax Benefit (Expense) Net of Tax
Amount
Change in net unrealized gains/(losses) on debt securities available-for-sale
$ (882) $ 188 $ (694) $ 2,350 $ (501) $ 1,849
Reclassification adjustment for net (gains)/losses on debt securities available-for-sale included in net income (1)
0 0 0 0 0 0
Adjustment to funded status of employee benefit plans (2)
1,163 (248) 915 454 (97) 357
Other Comprehensive Income (Loss) $ 281 $ (60) $ 221 $ 2,804 $ (598) $ 2,206
Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
(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 available-for-sale debt securities
$ 24,883 $ (5,294) $ 19,589 $ 18,716 $ (3,991) $ 14,725
Reclassification adjustment for net (gains)/losses on debt securities available-for-sale included in net income (1)
(142) 30 (112) 0 0 0
Adjustment to funded status of employee benefit plans (2)
2,092 (446) 1,646 1,359 (290) 1,069
Other Comprehensive Income/(Loss) $ 26,833 $ (5,710) $ 21,123 $ 20,075 $ (4,281) $ 15,794


	Three Months Ended June 30, 2021									Three Months Ended June 30, 2020
(dollars in thousands)	Pre-Tax Amount			Tax (Expense) Benefit			Net of Tax Amount			Pre-Tax Amount			Tax Benefit (Expense)			Net of Tax Amount
Change in net unrealized gains/(losses) on debt securities available-for-sale		$	324		$	(69)		$	255		$	4,059		$	(864)		$	3,195
Adjustment to funded status of employee benefit plans (1)		2,910			(621)			2,289			464			(99)			365
Other Comprehensive Income		$	3,234		$	(690)		$	2,544		$	4,523		$	(963)		$	3,560
(1) Pension settlement accounting was recognized during the periods ended June 30, 2021 resulting in a charge of $0.2 million for the three months ended June 30, 2021 immediately recognizing a portion of unrecognized actuarial loss and a remeasurement of our pension obligation.

	Six Months Ended June 30, 2021									Six Months Ended June 30, 2020
(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 available-for-sale debt securities		$	(9,388)		$	2,003		$	(7,385)		$	25,623		$	(5,452)		$	20,171
Adjustment to funded status of employee benefit plans (1)		2,567			(548)			2,019			929			(198)			731
Other Comprehensive (Loss)/Income		$	(6,821)		$	1,455		$	(5,366)		$	26,552		$	(5,650)		$	20,902
(1) Pension settlement accounting was recognized during the periods ended June 30, 2021 resulting in a charge of $0.9 million for the six months ended June 30, 2021 immediately recognizing a portion of unrecognized actuarial loss and a remeasurement of our pension obligation.

~~(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.

~~(2)~~ Pension settlement accounting was triggered during the three and nine months ended September 30, 2020 resulting in a charge of $0.7 million immediately recognizing a portion of unrecognized actuarial loss and a remeasurement of our pension obligation.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE ~~13.~~10. 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~~projected 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.

The defined benefit plan of DNB was merged into S&T's defined benefit plan at November 30, 2019 and the components of net periodic pension cost at September 30, 2020 include the impact of the addition of the DNB defined benefit plan.

~~The~~ investment policy for S&T's defined benefit plan is 90 percent fixed income and 10 percent equity and cash. The expected long-term rate of return on plan assets is 2.42 percent as of June 30, 2021 compared to 3.45 percent ~~compared to 4.80 percent~~for the same period in ~~prior periods.~~

~~We contributed $0.1 million to our pension plan during the three and nine months ended September 30,~~ 2020.

We remeasured our pension obligation and recognized a pension settlement charge of ~~$0.7~~$0.2 million and $0.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. A settlement charge is incurred when the aggregate amount of lump-sum distributions during the year is greater than the sum of the interest cost component of the annual net periodic pension cost.

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


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2020			2019			2020			2019			(dollars in thousands)	2021			2020			2021			2020
Components of Net Periodic Pension Cost	Components of Net Periodic Pension Cost													Components of Net Periodic Pension Cost

Interest cost on projected benefit obligation	Interest cost on projected benefit obligation		$	905		$	989		$	2,686		$	2,967	Interest cost on projected benefit obligation		$	797		$	890		$	1,500		$	1,781
Expected return on plan assets	Expected return on plan assets		(970)			(1,181)			(2,913)			(3,541)		Expected return on plan assets		(645)			(971)			(1,361)			(1,943)
Net amortization	Net amortization		411			395			1,180			1,184		Net amortization		298			385			546			769
Settlement Charge	Settlement Charge		671			0			671			0		Settlement Charge		177			0			926			0

Net Periodic Pension Expense	Net Periodic Pension Expense		$	1,017		$	203		$	1,624		$	610	Net Periodic Pension Expense		$	627		$	304		$	1,611		$	607

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

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 14. QUALIFIED AFFORDABLE HOUSING~~

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 partnerships, or LIHPs. 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. These investments are recorded in other assets on our balance sheet. Our maximum exposure to loss associated with these investments consists of the investments' fair value plus any unfunded commitments as well as the denial of the tax credits if the project is deemed non-compliant. We do not have any loss reserves recorded related to these investments because we believe the likelihood of any loss to be remote. Our investments in LIHPs represent unconsolidated variable interest entities, or VIEs, and the assets and liabilities of the partnerships are not recorded on our balance sheet. We have determined that we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance.

Our total investment in qualified affordable housing projects was $8.9 million at September 30, 2020 and $4.8 million at December 31, 2019. Amortization expense, included in other noninterest expense in the Consolidated Statements of Comprehensive Income, was $0.5 million and $2.8 million for the three and nine months ended September 30, 2020 and $0.7 million and $2.0 million for the three and nine months ended September 30, 2019. The amortization expense was offset by tax credits of $0.6 million and $1.7 million for the three and nine months ended September 30, 2020 and $0.7 million and $2.2 million for the three and nine months ended September 30, 2019 as a reduction to our federal tax provision.

On September 11, 2019, we entered into a new qualified affordable housing project and committed to an investment of $10.2 million. As of September 30, 2020, we have invested $7.1 million in this new project. NaN amortization expense or tax credits will be recognized for this new project until complete, which we expect to be in the first quarter of 2021.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

NOTE ~~15.~~11. SHARE REPURCHASE PLAN

On ~~September 16, 2019,~~March 15, 2021, our Board of Directors authorized aan extension of its $50 million share repurchase ~~plan.~~plan, which was set to expire March 31, 2021. This authorization extended the expiration date of the repurchase ~~authorization, which is effective~~plan through March 31, ~~2021,~~2022. The plan permits S&T to repurchase from time to time up to the previously authorized $50 million in aggregate value of shares of S&T's common stock, with $37.4 million of capacity remaining at June 30, 2021, 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. Any share repurchases will not begin until permissible under applicable laws. During the three and six months ended ~~September~~June 30, ~~2020,~~2021, we had 0 repurchases. Repurchase activity was suspended in March of 2020 due to the impact of the COVID-19 pandemic. During the ~~nine months~~year ended ~~September 30,~~December 31, 2020, we repurchased 411,430 common shares at a total cost of $12.6 million, or an average of $30.52 per share. ~~Repurchase activity was suspended in March of 2020 due to the impact of the COVID-19 pandemic.~~

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations at and for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. 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. Forward-looking statements are typically identified by words or phrases such as “will likely result”, “expect”, “anticipate”, “estimate”, “forecast”, “project”, “intend”, “ believe”, “assume”, “strategy”, “trend”, “plan”, “outlook”, “outcome”, “continue”, “remain”, “potential”, “opportunity”~~, “believe”~~, “comfortable”, “current”, “position”, “maintain”, “sustain”, “seek”, “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses 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; operational risks or risk management failures by us or critical third parties, including fraud risk; our ability to manage our reputational risks; 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; the transition from LIBOR as a reference rate; regulatory supervision and oversight, including changes in regulatory capital requirements and our ability to address those ~~requirements~~; requirements; unanticipated changes in our liquidity position; 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; containing costs and expenses; reliance on significant customer relationships; an interruption or cessation of an important service by a third-party ~~provider~~;provider; our ability to attract and retain talented executives and employees; our ability to successfully manage our CEO transition; general economic or business 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; our participation in the Paycheck Protection Program; 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, ~~2019,~~2020, including Part I, Item 1A-"Risk Factors" and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.

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

Critical Accounting Policies and Estimates

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of ~~September~~June 30, ~~2020 have~~2021 remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 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 and our goodwill and other intangible assets policy in response to the adoption of ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.

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

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

~~Goodwill and Other Intangible Assets~~

As a result of acquisitions, we have recorded goodwill and identifiable intangible assets in our Consolidated Balance Sheets. Goodwill represents the excess of the purchase price over the fair value of net assets acquired.

We have one reporting unit, Community Banking. Existing goodwill relates to value inherent in the Community Banking reporting unit and that value is dependent upon our ability to provide quality, cost-effective services in the face of competition from other market participants. This ability relies upon continuing investments in processing systems, the development of value-added service features and the ease of use of our services. As such, goodwill value is supported ultimately by profitability that is driven by the volume of business transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill, which could adversely impact our earnings in the period in which impairment occurs.

The carrying value of goodwill is tested annually for impairment each October 1st or more frequently if it is determined that a triggering event has occurred. We completed the annual goodwill impairment assessment as required in 2019, 2018 and 2017. The results indicated that the fair value exceeded the carrying value; as such, no impairment charge was recognized.

Determining the fair value of a reporting unit, under the goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions. Our existing goodwill is allocated entirely to our one reporting unit, Community Banking. On January 1, 2020, we adopted the amendments of ASU 2017-04, Simplifying the Test for Goodwill Impairment. This standard eliminated Step 2 from the goodwill impairment test. We test for impairment by comparing the fair value of our Community Banking reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill. We completed an interim goodwill impairment assessment in the third quarter ended September 30, 2020. The results indicated that the fair value exceeded the carrying value; as such, no impairment charge was recognized.

We determine the amount of identifiable intangible assets based upon independent core deposit and insurance contract valuations at the time of acquisition. Intangible assets with finite useful lives, consisting primarily of core deposit and customer list intangibles, are amortized using straight-line or accelerated methods over their estimated weighted average useful lives, ranging from 10 to 20 years. Intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. No such events or changes in circumstances occurred during the years ended December 31, 2019, 2018 and 2017.

The financial services industry and securities markets can be adversely affected by declining values. If economic conditions result in a prolonged period of economic weakness in the future, our business may be adversely affected. In the event that we determine that our goodwill is impaired, recognition of an impairment charge could have a significant adverse impact on our financial position or results of operations in the period in which the impairment occurs..

Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of ~~$9.2~~$9.5 billion at ~~September~~June 30, ~~2020.~~2021. We operate in five markets including Western Pennsylvania, Eastern Pennsylvania, Northeast Ohio, Central Ohio and Upstate New York.

We provide a full range of financial services with retail and commercial banking products, cash management services, trust and 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 credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

Our mission is to become the financial services provider of choice within the markets that we serve which will enable us to be a high performing regional community bank. We strive to do this by delivering exceptional service and ~~value, one customer at a time.~~value. Our strategic plan follows a disciplined approach focused on organic growth, which includes both growth within our current footprint and 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.

~~We merged with DNB Financial Corporation, or DNB,~~

COVID-19 Update

The extent to which the COVID-19 pandemic may adversely impact our business depends on ~~November 30, 2019.~~future developments, which remain highly uncertain and unpredictable. The ~~merger expanded~~pandemic has had, and we expect that it will continue to have, negative impacts on S&T’s ~~footprint~~commercial and consumer loan customers and the economy as a whole. The severity and length of the pandemic’s impact on S&T and the U.S. and global economies continue to be unknown.

As we navigate through the uncertainty resulting from the pandemic, our first priority remains the safety of both our employees and customers. Our financial performance continues to be negatively impacted in ~~Eastern Pennsylvania gaining~~many ways due to the pandemic. We are closely monitoring our asset quality with a focus on the loan portfolios that have been significantly impacted by the pandemic, including our hotel portfolio. We did experience some improvement in our asset quality during the three and six months ended June 30, 2021, but remain cautious given the current environment. Our balance sheet is asset sensitive resulting in our net interest income and net interest margin, or NIM, being negatively impacted in this low interest rate environment. Our net interest income is also being impacted by declining loan balances as new ~~presence~~loan originations have decreased in the ~~counties~~current environment. Partially offsetting this impact was the Paycheck Protection Program, or PPP. Net interest income was favorably impacted by PPP loans which contributed $4.1 million and $9.9 million for the three and six months ended June 30, 2021 to interest income.

Earnings Summary

We recognized net income of ~~Chester, Delaware~~$28.4 million, or $0.72 per diluted share and ~~Philadelphia.~~$60.3 million, or $1.54 per diluted share for the three and six months ended June 30, 2021 compared to a net loss of ($33.1) million, or ($0.85) per diluted share and ($19.8) million, or ($0.51) per diluted share for the same periods in 2020. The ~~merger~~increase in net income for the three and six months ended June 30, 2021 was ~~valued at~~primarily due to significant decrease of $84.2 million and $101.1 million in our provision for credit losses compared to the same periods in 2020. The significant decrease in the provision for credit losses during the three and six months ended June 30, 2021 was mainly due to a customer fraud in 2020 that resulted in a $58.7 million charge-off as well as the impact of the COVID-19 pandemic.

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

~~$201.0~~Net interest income decreased $1.8 million ~~or $37.72 per share,~~ and ~~added approximately $899.3~~$1.2 million ~~of portfolio loans~~to $68.3 million and ~~$990.6~~$139.0 million ~~of deposits at December 31, 2019.~~

~~Three and Nine Months Ended September 30, 2020 Update~~

During the nine months ended September 30, 2020, we experienced a pre-tax loss of $58.7 million related to a customer fraud resulting from a check kiting scheme. This matter was disclosed in our Form 8-K filed on May 26, 2020. The fraud was perpetrated by a single business customer and the customer has plead guilty in an ongoing criminal investigation. This fraud loss reduced net income by $46.3 million, or $1.19 per diluted share, for the ~~nine months ended September 30, 2020. We continue to pursue all available sources of recovery to mitigate the loss. An internal review of the matter has been completed~~three and various process and monitoring enhancements have been substantially implemented. The customer also had a lending relationship that was originally $15.1 million, including a $14.3 million commercial real estate, or CRE, loan and a $0.8 million line of credit. We recognized a $4.2 million charge-off related to this lending relationship during the threesix months ended June 30, 2020. A specific reserve of $3.4 million was recognized in the three months ended September 30, 2020 based upon new liens identified against the collateral. The remaining balance of $10.9 million is a nonperforming loan at September 30, 2020.

As we navigate through the uncertainty resulting from the COVID-19 pandemic, our first priority is the safety of both our employees and customers. Our financial performance has been negatively impacted in many ways due to the COVID-19 pandemic. We are closely monitoring our asset quality with a focus on the portfolios that have been significantly impacted by the COVID-19 pandemic, including our hotel portfolio. We have increased our ACL to be responsive to this additional risk within our loan portfolio. Our balance sheet is asset sensitive so we have experienced a negative impact to our net interest income and net interest margin, or NIM, in this low interest rate environment. Our net interest income is also being impacted by declining loan balances as new loan originations have decreased in the current environment. Our noninterest income has also been negatively impacted due to changes in our customers' behavior during these times which has been somewhat mitigated by strong mortgage banking income due to significant refinance activity. We are taking a prudent approach to capital management given the economic uncertainty. Our internally-run capital stress test results demonstrate that we have adequate capital cushions. We are well capitalized and we believe that we have sufficient excess capital to manage the uncertainty resulting from the COVID-19 pandemic.

In response to the current economic environment as a result of the COVID-19 pandemic, we completed an interim quantitative goodwill impairment analysis as of September 30, 2020. Based upon our impairment analysis, we determined that our goodwill of $373.4 million was not impaired at September 30, 2020. We expect to evaluate goodwill for impairment quarterly given the current environment.

~~COVID-19 Update~~

S&T is monitoring the impact of the COVID-19 pandemic and has taken steps to mitigate the potential risks and impact on S&T and to promote the health and safety of our employees, and the customers and communities that we serve. We have taken preventive health measures for our employees through rigorous sanitation, social distancing, wearing masks, remote work where feasible and providing access to financial wellness programs. We reopened our branches with extensive safety measures and are encouraging our customers to use online and mobile banking solutions. We have also extended our solution center hours to allow for customer consultation without entering a branch. Our Business Continuity teams were activated and have guided our efforts to respond to the rapidly developing situation.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included 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, was signed into law on April 24, 2020. The PPP/HCEA authorized an additional $310 billion of funding under the CARES Act for PPP loans among other provisions. On July 4, 2020, legislation was passed to extend the application period for the PPP program through August 8, 2020. These loans are intended to cover eight weeks of payroll and other permitted expenses to help those businesses remain viable.

As of September 30, 2020, we originated $550.1 million of PPP loans. 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, or five years for loans approved by the Small Business Administration, or SBA, on or after June 5, 2020. Payments are deferred for at least six months of the loan. The loans are 100 percent guaranteed by the SBA.

The extent to which COVID-19 may adversely impact our business depends on future developments, which are highly uncertain and unpredictable. The COVID-19 pandemic has had, and we expect that it will continue to have, negative impacts on

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

S&T’s commercial and consumer loan customers and the economy as a whole. The pandemic caused, among other things, an increase in the provision for credit losses, a higher ACL as a percentage of total portfolio loans for each of the quarters ended in 20202021 compared to ~~December 31, 2019,~~$70.1 million and ~~exclusive of the increase~~$140.2 million in portfolio loans due to the PPP portfolio, a decrease in portfolio loans compared to December 31, 2019. The severity and length of the COVID-19 pandemic’s impact on S&T and the U.S. and global economies continue to be 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 provided needs-based payment deferrals and modifications to interest only periods to commercial loans totaling $1.4 billion at September 30, 2020. Only $350.0 million remain on deferral at September 30, 2020.

•We provided loan payment deferrals, with no negative credit bureau reporting, to mortgage and consumer loans totaling $69.0 million at September 30, 2020. No loans remain on deferral at September 30, 2020.

•~~We paused foreclosures/repossessions for mortgages and consumer loans.~~

~~Earnings Summary~~

We recognized net income of $16.7 million, or $0.43 per diluted share for the three months ended September 30, 2020 and a net loss of ($3.1) million, or ($0.08) per diluted share for the nine months ended September 30, 2020. The decrease in net interest income ~~for the three months ended September 30, 2020 of $10.2 million, or 38.0 percent, compared to $26.9 million, or $0.79 per diluted share, in the same period of 2019~~ was primarily due to an increase of $12.6 million in our provision for credit losses mainly related to the COVID-19 pandemic and an increase of $10.6 million in noninterest expense offset by iniax expense. The decrease in net income for the nine months ended September 30, 2020 of $79.1 million to a ($3.1) million net loss compared to $76.0 million of net income, or $2.21 per diluted share, in the same period of 2019 was primarily the result of the $58.7 million pre-tax fraud loss recognized in the second quarter of 2020 which reduced net income by $46.3 million, or $1.19 per diluted share. The $79.1 million decrease in net income for the nine months ended September 30, 2020 compared to the same period in 2019 included an increase of $111.5 million in the provision for credit losses, due to the above mentioned fraud loss and the impact of COVID-19, an increase of $21.2 million in noninterest expense offset by increases of $27.1 million in netlower short-term interest ~~income and $6.8 million in noninterest income~~rates and a decrease in average loan balances of ~~$19.7 million in the provision for income taxes.~~

~~Net interest income increased $8.1~~$537.6 million and ~~$27.1 million to $69.3 million and $209.5~~$239.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 compared to $61.2 million and $182.4 million for the same periods in 2019. The increases were primarily due to higher average interest-earning assets offset by lower short-term interest rates~~2021 compared to the same periods in ~~2019.~~2020. Average ~~interest-earning assets increased $1.7 billion~~interest-bearing deposits decreased $186.4 million and ~~$1.6 billion~~$174.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in 2019. Average loan balances increased $1.4 billion for both the three and nine months ended September 30, 2020 compared to the same periods in 2019 due to the DNB merger, PPP loans and organic loan growth. Average interest-bearing liabilities increased $905.8 million and $1.0 billion for the three and nine months ended September 30, 2020 compared to the same periods in 2019 due to the DNB merger and organic deposit growth. Net2020. Our net interest margin on ~~a fully taxable-equivalent, or~~an FTE basis (non-GAAP), decreased ~~33 and 30 basis points~~ to ~~3.29~~3.16 percent and ~~3.37~~3.31 percent for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~3.62~~3.31 percent and ~~3.67~~3.42 percent for the same periods in ~~2019~~2020 primarily due to ~~the decline in~~lower short-term interest rates ~~during 2020.~~and higher interest bearing deposits with banks. Net interest margin is reconciled to net interest income adjusted to an FTE basis ~~below~~ in the "Net Interest Income" section of this MD&A.

The provision for credit losses, which includes a provision for losses on loans and on unfunded commitments, ~~increased $12.6~~decreased $84.2 million and ~~$111.5~~$101.1 million to ~~$17.5~~$2.6 million and ~~$124.3~~$5.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$4.9~~$86.8 million and ~~$12.8~~$106.8 million infor the same periods in ~~2019.~~2020. The significant ~~increase~~decrease in the provision for credit losses during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was mainly due to a ~~$58.7~~customer fraud in 2020 and an improved economic forecast in 2021 compared to 2020.

Noninterest income increased $0.2 million ~~charge-off that occurred in~~and $5.0 million for the three and six months ended June 30, ~~2020 that was~~2021 compared to the ~~result of customer fraud, a $10.1 million charge-off related to a CRE relationship~~same periods in ~~the three months ended September 30, 2020~~2020. Debit and ~~the impact of the COVID-19 pandemic~~credit card and service charges on deposit accounts increased in both ~~periods. For~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, we had net charge-offs~~2021 as customer activity has increased in the improving economic environment. Wealth management income increased in both periods due to higher assets under management from market appreciation and an increase in customer activity. Partially offsetting these increases was a decrease in commercial loan swap income due to lower activity as a result of ~~$12.9~~the pandemic and interest rate environment.

Noninterest expense increased $2.4 million and ~~$92.1~~$1.5 million to $45.8 million and $91.4 million for the three and six months ended June 30, 2021 compared to ~~net charge-offs of $4.3~~$43.5 million and ~~$11.6~~$89.9 million for the same periods in ~~2019. Annualized net loan charge-offs~~2020. The higher noninterest expense was mainly due to ~~average loans were 0.69 percent~~increases of $3.1 million and ~~1.66 percent~~$5.1 million of salaries and employee benefits for the three and ~~nine~~six months ended ~~September~~June 30, 2021. The increase for the six month period was offset by $2.3 million of merger-related expenses recognized in the six months ended June 30, 2020 compared to ~~0.28 percent and 0.26 percent~~no merger-related expenses in 2021.

The provision for ~~the same periods in 2019.~~

~~Noninterest~~ income taxes increased ~~$3.4~~$18.8 million and ~~$6.8~~$23.3 million to ~~$16.5~~$7.0 million and ~~$44.1~~$14.2 million for the three and ~~nine~~six months ended ~~September~~June 30, 2020 compared to $13.1 million and $37.3 million for the same periods in 2019. Total noninterest income includes the impact of the DNB merger in both the three and nine months ended September 30, 2020 since the merger closed on November 30, 2019. Our noninterest income has been negatively impacted due to changes in our customers' behavior

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

since the COVID-19 pandemic. The increase in noninterest income primarily related to an increase of $3.4 million and $6.1 million in mortgage banking fees for the three and nine months ended September 30, 2020 due to an increase in the volume of loans originated for sale in the secondary market due to a decline in mortgage rates2021 compared to the same periods in ~~2019.~~

Noninterest expense increased $10.6 million and $21.2 million to $48.2 million and $138.1 million in three and nine months ended September 30, 2020 compared to $37.7 million and $116.9 million in the same periods in 2019. Total noninterest expense includes the impact of the DNB merger in both the three and nine months ended September 30, 2020 since the merger closed on November 30, 2019. FDIC insurance increased $2.6 million and $3.2 million for the three and nine months ended September 30, 2020 due to the impact of recent results on certain components of the assessment calculation, such as our net loss in the second quarter of 2020, and also due to Small Bank Assessment Credits that were received by all banking institutions with assets of less than $10.0 billion in the three months ended September 30, 2019 that were not received in 2020. Salaries and employee benefits increased $4.6 million for the three months and $6.2 million for the nine months primarily due to additional employees, mainly related to the merger, and higher pension expense due to anThe increase in ~~retirees electing lump-sum distributions causing settlement accounting.~~

~~The provision for~~ income ~~taxes decreased $1.4 million to a $3.3 million~~ tax expense for the three months ended September 30, 2020 and decreased $19.7 million to a $5.7 million tax benefit for the nine months ended September 30, 2020 compared to the same periods in 2019. Pretax income decreased $11.7 million for the three months ended September 30, 2020 and decreased $98.8 million for the nine months ended September 30, 2020 resulting in a pretax loss. The pretax loss was primarily due to the ~~$58.7 million~~tax benefit from the net loss ~~recognized~~noted above during the same periods in ~~the quarter ended June 30, 2020 resulting from customer fraud.~~2020. Our effective tax rate was ~~16.6~~19.7 percent and 19.1 percent for the three and six months ended ~~September~~June 30, ~~2020 and changed to a 64.5 percent benefit for the nine months ended September 30, 2020~~2021 compared to ~~15.0~~26.3 percent and ~~15.6~~31.3 percent for the same ~~periods~~period in ~~2019.~~2020. The change in our effective tax rate for the ~~nine~~three and six months ended ~~September~~June 30, ~~2020~~2021 was primarily due to the increases in pretax ~~loss.~~income compared to pretax losses in 2020.

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, each 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 Condensed 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~~Six Months Ended ~~September~~June 30, ~~2020~~2021 Compared to Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 - Net Interest Income" section of this MD&A.

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

RESULTS OF OPERATIONS

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 Compared to

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020

Net Interest Income

Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or ALCO, in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what we believe is an acceptable level of net interest income.

The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory tax rate of 21 percent for each period and the dividend-received deduction for equity securities. We believe this to be the preferred industry

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

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 Condensed 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, 2020									Three Months Ended June 30,								Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2020				2019				2020				2019				(dollars in thousands)	2021				2020				2021				2020
Total interest income	Total interest income		$	76,848			$	79,813			$	244,916			$	238,028		Total interest income		$	71,577			$	80,479			$	146,358			$	168,069
Total interest expense	Total interest expense		7,572				18,617				35,456				55,649			Total interest expense		3,273				10,331				7,396				27,885
Net Interest Income per Consolidated Statements of Comprehensive Income			69,276				61,196				209,460				182,379
Net Interest Income per Condensed Consolidated Statements of Comprehensive Income																		Net Interest Income per Condensed Consolidated Statements of Comprehensive Income		68,304				70,148				138,962				140,184
Adjustment to FTE basis	Adjustment to FTE basis		780				935				2,477				2,854			Adjustment to FTE basis		585				847				1,249				1,697
Net Interest Income on an FTE Basis (Non-GAAP)	Net Interest Income on an FTE Basis (Non-GAAP)		$	70,056			$	62,131			$	211,937			$	185,233		Net Interest Income on an FTE Basis (Non-GAAP)		$	68,889			$	70,995			$	140,211			$	141,881
Net interest margin	Net interest margin		3.25		%		3.57		%		3.33		%		3.61		%	Net interest margin		3.13		%		3.27		%		3.28		%		3.37		%
Adjustment to FTE basis	Adjustment to FTE basis		0.04		%		0.05		%		0.04		%		0.06		%	Adjustment to FTE basis		0.03		%		0.04		%		0.03		%		0.05		%
Net Interest Margin on an FTE Basis (Non-GAAP)	Net Interest Margin on an FTE Basis (Non-GAAP)		3.29		%		3.62		%		3.37		%		3.67		%	Net Interest Margin on an FTE Basis (Non-GAAP)		3.16		%		3.31		%		3.31		%		3.42		%

Income amounts are annualized for rate calculations.

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

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, 2020							Three Months Ended September 30, 2019								Three Months Ended June 30, 2021							Three Months Ended June 30, 2020
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate		(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate
ASSETS	ASSETS															ASSETS
Interest-bearing deposits with banks	Interest-bearing deposits with banks	$	213,051		$	61	0.11	%	$	53,725		$	311	2.32	%	Interest-bearing deposits with banks	$	785,465		$	175	0.09	%	$	163,019		$	33	0.08	%
Securities, at fair value~~(3)~~(2)	Securities, at fair value~~(3)~~(2)	759,094			4,570		2.41	%	661,752			4,287		2.59	%	Securities, at fair value~~(3)~~(2)	826,861			4,529		2.19	%	785,229			5,024		2.56	%
Loans held for sale	Loans held for sale	4,432			34		3.09	%	2,712			27		3.98	%	Loans held for sale	4,353			33		3.01	%	9,931			77		3.08	%
Commercial real estate	Commercial real estate	3,322,656			33,569		4.02	%	2,922,767			35,993		4.89	%	Commercial real estate	3,251,894			29,930		3.69	%	3,389,616			35,617		4.23	%
Commercial and industrial	Commercial and industrial	2,107,750			18,300		3.45	%	1,566,369			19,994		5.06	%	Commercial and industrial	1,890,538			18,363		3.90	%	2,200,148			19,733		3.61	%
Commercial construction	Commercial construction	469,214			4,047		3.43	%	282,175			3,653		5.14	%	Commercial construction	462,928			3,854		3.34	%	430,912			4,020		3.75	%
Total Commercial Loans	Total Commercial Loans	5,899,620			55,916		3.77	%	4,771,311			59,640		4.96	%	Total Commercial Loans	5,605,359			52,147		3.73	%	6,020,676			59,370		3.97	%
Residential mortgage	Residential mortgage	954,861			10,365		4.33	%	753,649			8,339		4.41	%	Residential mortgage	863,254			8,996		4.17	%	976,916			10,241		4.20	%
Home equity	Home equity	536,735			5,037		3.73	%	469,567			6,345		5.36	%	Home equity	535,933			4,682		3.50	%	543,770			4,993		3.69	%
Installment and other consumer	Installment and other consumer	79,649			1,295		6.47	%	72,606			1,299		7.10	%	Installment and other consumer	84,259			1,271		6.05	%	79,944			1,259		6.34	%
Consumer construction	Consumer construction	14,475			157		4.32	%	11,056			150		5.39	%	Consumer construction	13,264			211		6.39	%	12,758			145		4.58	%
Total Consumer Loans	Total Consumer Loans	1,585,720			16,854		4.24	%	1,306,878			16,133		4.91	%	Total Consumer Loans	1,496,710			15,160		4.06	%	1,613,388			16,638		4.14	%
Total Portfolio Loans	Total Portfolio Loans	7,485,340			72,770		3.87	%	6,078,189			75,773		4.95	%	Total Portfolio Loans	7,102,069			67,307		3.80	%	7,634,064			76,008		4.00	%
Total Loans~~(2)~~(3)	Total Loans~~(2)~~(3)	7,489,772			72,804		3.87	%	6,080,901			75,800		4.95	%	Total Loans~~(2)~~(3)	7,106,422			67,339		3.80	%	7,643,995			76,085		4.00	%
Federal Home Loan Bank and other restricted stock	Federal Home Loan Bank and other restricted stock	15,157			193		5.11	%	19,981			350		7.00	%	Federal Home Loan Bank and other restricted stock	10,529			119		4.51	%	19,709			184		3.75	%
Total Interest-earning Assets	Total Interest-earning Assets	8,477,074			77,628		3.65	%	6,816,359			80,748		4.70	%	Total Interest-earning Assets	8,729,277			72,162		3.31	%	8,611,952			81,326		3.80	%
Noninterest-earning assets	Noninterest-earning assets	815,930							538,514							Noninterest-earning assets	704,635							817,767
Total Assets	Total Assets	$	9,293,004						$	7,354,873						Total Assets	$	9,433,911						$	9,429,719
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY															LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	Interest-bearing demand	$	967,735		$	434	0.18	%	$	655,735		$	1,195	0.72	%	Interest-bearing demand	$	998,134		$	230	0.09	%	$	1,033,905		$	610	0.24	%
Money market	Money market	2,074,862			1,713		0.33	%	1,709,248			7,880		1.83	%	Money market	2,037,976			894		0.18	%	2,076,483			2,578		0.50	%
Savings	Savings	923,208			162		0.07	%	749,287			449		0.24	%	Savings	1,044,899			70		0.03	%	887,357			162		0.07	%
Certificates of deposit	Certificates of deposit	1,486,016			4,317		1.16	%	1,345,474			6,683		1.97	%	Certificates of deposit	1,291,194			1,458		0.45	%	1,560,885			5,877		1.51	%
Total Interest-bearing Deposits	Total Interest-bearing Deposits	5,451,821			6,626		0.48	%	4,459,744			16,207		1.44	%	Total Interest-bearing Deposits	5,372,203			2,652		0.20	%	5,558,630			9,227		0.67	%
Securities sold under repurchase agreements	Securities sold under repurchase agreements	64,000			41		0.25	%	14,030			26		0.73	%	Securities sold under repurchase agreements	67,838			17		0.10	%	85,302			53		0.25	%
Short-term borrowings	Short-term borrowings	84,310			81		0.38	%	218,799			1,362		2.47	%	Short-term borrowings	—			—		—	%	178,273			167		0.38	%
Long-term borrowings	Long-term borrowings	49,269			311		2.52	%	69,421			468		2.68	%	Long-term borrowings	23,113			116		2.01	%	49,774			314		2.53	%
Junior subordinated debt securities	Junior subordinated debt securities	64,057			513		3.19	%	45,619			554		4.82	%	Junior subordinated debt securities	64,103			488		3.06	%	64,044			570		3.58	%
Total Borrowings	Total Borrowings	261,636			946		1.44	%	347,869			2,410		2.75	%	Total Borrowings	155,054			621		1.61	%	377,393			1,104		1.18	%
Total Interest-bearing Liabilities	Total Interest-bearing Liabilities	5,713,457			7,572		0.53	%	4,807,613			18,617		1.54	%	Total Interest-bearing Liabilities	5,527,256			3,273		0.24	%	5,936,023			10,331		0.70	%
Noninterest-bearing liabilities	Noninterest-bearing liabilities	2,433,665							1,573,549							Noninterest-bearing liabilities	2,727,653							2,302,676
Shareholders’ equity	Shareholders’ equity	1,145,882							973,711							Shareholders’ equity	1,179,002							1,191,020
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	9,293,004						$	7,354,873						Total Liabilities and Shareholders’ Equity	$	9,433,911						$	9,429,719
Net Interest Income ~~(3)~~(2)	Net Interest Income ~~(3)~~(2)				$	70,056						$	62,131			Net Interest Income ~~(3)~~(2)				$	68,889						$	70,995
Net Interest Margin ~~(3)~~(2)	Net Interest Margin ~~(3)~~(2)						3.29	%						3.62	%	Net Interest Margin ~~(3)~~(2)						3.16	%						3.31	%

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

~~(2)~~Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent for ~~2020~~2021 and ~~2019.~~2020.

~~(3)~~(2) Taxable investment income is adjusted for the dividend-received deduction for equity securities.

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

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


		Nine Months Ended September 30, 2020							Nine Months Ended September 30, 2019								Six months ended June 30, 2021							Six months ended June 30, 2020
(dollars in thousands)	(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate		(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate
ASSETS	ASSETS															ASSETS
Interest-bearing deposits with banks	Interest-bearing deposits with banks	$	158,771		$	449	0.38	%	$	52,421		$	937	2.38	%	Interest-bearing deposits with banks	$	545,177		$	240	0.09	%	$	131,332		$	388	0.59	%
Securities, at fair value~~(3)~~(2)	Securities, at fair value~~(3)~~(2)	776,995			14,590		2.50	%	671,727			13,327		2.65	%	Securities, at fair value~~(3)~~(2)	804,613			9,095		2.26	%	786,043			10,020		2.55	%
Loans held for sale	Loans held for sale	5,407			129		3.17	%	1,693			52		4.11	%	Loans held for sale	5,351			78		2.90	%	5,899			94		3.19	%
Commercial real estate	Commercial real estate	3,373,466			109,278		4.33	%	2,907,792			108,115		4.97	%	Commercial real estate	3,252,763			60,066		3.72	%	3,399,150			75,710		4.48	%
Commercial and industrial	Commercial and industrial	2,020,179			57,771		3.82	%	1,544,962			59,414		5.14	%	Commercial and industrial	1,923,813			39,180		4.10	%	1,975,913			39,471		4.02	%
Commercial construction	Commercial construction	428,977			12,562		3.91	%	258,239			10,207		5.28	%	Commercial construction	474,037			7,887		3.36	%	408,638			8,515		4.19	%
Total Commercial Loans	Total Commercial Loans	5,822,622			179,611		4.12	%	4,710,993			177,736		5.04	%	Total Commercial Loans	5,650,613			107,134		3.82	%	5,783,701			123,696		4.30	%
Residential mortgage	Residential mortgage	974,144			30,934		4.24	%	736,972			24,462		4.43	%	Residential mortgage	880,246			18,412		4.20	%	983,891			20,569		4.19	%
Home equity	Home equity	540,220			16,530		4.09	%	466,936			18,880		5.41	%	Home equity	534,329			9,473		3.58	%	541,981			11,493		4.26	%
Installment and other consumer	Installment and other consumer	79,757			3,942		6.60	%	71,021			3,807		7.17	%	Installment and other consumer	82,095			2,518		6.19	%	79,812			2,648		6.67	%
Consumer construction	Consumer construction	12,587			423		4.49	%	10,517			443		5.63	%	Consumer construction	14,578			399		5.52	%	11,633			266		4.59	%
Total Consumer Loans	Total Consumer Loans	1,606,708			51,829		4.31	%	1,285,446			47,592		4.95	%	Total Consumer Loans	1,511,249			30,803		4.10	%	1,617,317			34,976		4.34	%
Total Portfolio Loans	Total Portfolio Loans	7,429,330			231,440		4.16	%	5,996,439			225,328		5.02	%	Total Portfolio Loans	7,161,862			137,936		3.88	%	7,401,018			158,672		4.31	%
Total Loans~~(2)~~(3)	Total Loans~~(2)~~(3)	7,434,737			231,569		4.16	%	5,998,132			225,380		5.02	%	Total Loans~~(2)~~(3)	7,167,213			138,014		3.88	%	7,406,917			158,766		4.31	%
Federal Home Loan Bank and other restricted stock	Federal Home Loan Bank and other restricted stock	19,473			785		5.38	%	21,848			1,237		7.55	%	Federal Home Loan Bank and other restricted stock	10,884			257		4.73	%	21,655			592		5.47	%
Total Interest-earning Assets	Total Interest-earning Assets	8,389,976			247,393		3.94	%	6,744,128			240,881		4.77	%	Total Interest-earning Assets	8,527,887			147,607		3.49	%	8,345,947			169,766		4.09	%
Noninterest-earning assets	Noninterest-earning assets	772,404							526,788							Noninterest-earning assets	730,117							752,576
Total Assets	Total Assets	$	9,162,380						$	7,270,916						Total Assets	$	9,258,003						$	9,098,523
LIABILITIES AND SHAREHOLDERS’ EQUITY	LIABILITIES AND SHAREHOLDERS’ EQUITY															LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	Interest-bearing demand	$	981,174		$	2,425	0.33	%	$	584,280		$	2,378	0.54	%	Interest-bearing demand	$	947,295		$	452	0.10	%	$	987,968		$	1,991	0.41	%
Money market	Money market	2,048,466			10,610		0.69	%	1,658,187			23,341		1.88	%	Money market	2,003,569			1,837		0.18	%	2,035,124			8,896		0.88	%
Savings	Savings	880,673			801		0.12	%	760,128			1,406		0.25	%	Savings	1,020,201			221		0.04	%	859,171			639		0.15	%
Certificates of deposit	Certificates of deposit	1,549,177			17,355		1.50	%	1,389,658			20,118		1.94	%	Certificates of deposit	1,317,751			3,623		0.55	%	1,581,104			13,039		1.66	%
Total Interest-bearing Deposits	Total Interest-bearing Deposits	5,459,490			31,191		0.76	%	4,392,253			47,243		1.44	%	Total Interest-bearing Deposits	5,288,816			6,133		0.23	%	5,463,367			24,565		0.90	%
Securities sold under repurchase agreements	Securities sold under repurchase agreements	60,045			137		0.30	%	17,812			83		0.63	%	Securities sold under repurchase agreements	66,254			42		0.13	%	58,046			96		0.33	%
Short-term borrowings	Short-term borrowings	182,623			1,392		1.02	%	259,947			5,149		2.65	%	Short-term borrowings	12,707			12		0.19	%	232,319			1,312		1.14	%
Long-term borrowings	Long-term borrowings	50,292			950		2.52	%	69,886			1,461		2.79	%	Long-term borrowings	23,291			232		2.01	%	50,809			639		2.53	%
Junior subordinated debt securities	Junior subordinated debt securities	64,099			1,786		3.72	%	45,619			1,712		5.02	%	Junior subordinated debt securities	64,095			977		3.07	%	64,120			1,273		3.99	%
Total Borrowings	Total Borrowings	357,059			4,265		1.60	%	393,264			8,405		2.86	%	Total Borrowings	166,348			1,262		1.53	%	405,294			3,320		1.65	%
Total Interest-bearing Liabilities	Total Interest-bearing Liabilities	5,816,549			35,456		0.81	%	4,785,517			55,648		1.55	%	Total Interest-bearing Liabilities	5,455,164			7,396		0.27	%	5,868,661			27,885		0.96	%
Noninterest-bearing liabilities	Noninterest-bearing liabilities	2,170,447							1,528,573							Noninterest-bearing liabilities	2,633,219							2,039,565
Shareholders’ equity	Shareholders’ equity	1,175,384							956,826							Shareholders’ equity	1,169,620							1,190,297
Total Liabilities and Shareholders’ Equity	Total Liabilities and Shareholders’ Equity	$	9,162,380						$	7,270,916						Total Liabilities and Shareholders’ Equity	$	9,258,003						$	9,098,523
Net Interest Income ~~(3)~~(2)	Net Interest Income ~~(3)~~(2)				$	211,937						$	185,233			Net Interest Income ~~(3)~~(2)				$	140,211						$	141,881
Net Interest Margin ~~(3)~~(2)	Net Interest Margin ~~(3)~~(2)						3.37	%						3.67	%	Net Interest Margin ~~(3)~~(2)						3.31	%						3.42	%

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

~~(2)~~Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent for ~~2020~~2021 and ~~2019.~~2020.

~~(3)~~(2) Taxable investment income is adjusted for the dividend-received deduction for equity securities.

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

Net interest income on an FTE basis (non-GAAP) ~~increased $7.9~~decreased $2.1 million and ~~$26.7~~$1.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019.~~2020. Net interest income was favorably impacted by ~~purchase accounting fair value adjustments of $0.8~~PPP loans which contributed $4.1 million and ~~$3.5~~$9.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021 to interest income. The net interest margin on an FTE basis (non-GAAP) decreased 3315 and 3011 basis points for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in 2019. This is mostly due to decreases in short-term interest rates of approximately 225 basis points. Purchase accounting fair value adjustments favorably impacted the net interest margin rate on an FTE basis by 4 and 6 basis points for the three and nine months ended September 30, 2020. PPP loans ~~negatively~~positively impacted the net interest margin on an FTE basis (non-GAAP) by 72 and 46 basis points for the three and ~~nine~~six months ended ~~September~~June 30, 2021.

Interest income on an FTE basis (non-GAAP) decreased $9.2 million and $22.2 million for the three and six months ended June 30, 2021 compared to the same periods in 2020. The decrease in interest income was primarily due to lower short-term interest rates and lower average loan balances compared to the same periods in 2020. Average loan balances decreased $537.6 million and $239.7 million for the three and six months ended June 30, 2021 compared to the same periods in 2020. Average

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~~Interest income on an FTE basis (non-GAAP) decreased $3.1~~PPP loans increased $8.3 million ~~or 3.9 percent,~~and $231.5 million for the three and six months ended ~~September~~June 30, ~~2020 and increased $6.5 million, or 2.7 percent, for the nine months ended September 30, 2020,~~2021 compared to the same periods in ~~2019. The changes~~2020. These increases were ~~primarily due to increases in average interest-earning assets of $1.7 billion and $1.6 billion for the three and nine months ended September 30, 2020~~ offset by lower ~~short-term interest rates compared~~loan activity related to the same periods in 2019. Average loan balances increased $1.4 billion for both the three-month and nine-month periods ended September 30, 2020 compared to the same periods in 2019 due to the DNB merger and organic loan growth. PPP loans contributed $549.3 million and $333.7 million of the three month and nine month average increase in loans.COVID-19 pandemic. The average rate earned on loans decreased ~~108 basis points~~20 and 8643 basis points for the three and ~~nine~~six months ended June 30, 2021 compared to the same periods in ~~2019~~2020 primarily due to lower short-term interest rates. Average interest-bearing deposits with banks increased ~~$159.3~~$622.4 million and $413.8 million for the ~~three-months~~three and ~~$106.4 million for the nine-months and the average rate earned decreased 221 and 200 basis points~~six months ended June 30, 2021 compared to the same periods in ~~2019. Average investment securities increased $97.3 million for the three months~~2020 due to PPP forgiveness, lower loan balances and ~~$105.3 million for the nine months~~a significant increase in average deposits as a result of customer PPP loans and ~~the average rate earned decreased 18 and 15 basis points compared to the same periods in 2019.~~stimulus payments along with customers' liquidity preferences. Overall, the FTE rate on interest-earning assets (non-GAAP) decreased ~~105~~49 and 8360 basis points for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019.~~2020.

Interest expense decreased ~~$11.0 million~~$7.1 and ~~$20.2~~$20.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019.~~2020. The decreases were primarily due to lower short-term interest rates compared to the same periods in ~~2019.~~2020. Average interest-bearing deposits ~~increased $992.1~~decreased $186.4 million and ~~$1.1 billion~~$174.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to the same periods in ~~2019~~2020. The average rate paid on interest-bearing deposits decreased 47 and 67 basis points compared to the same periods in 2020 primarily due to lower short-term interest rates. The interest-bearing deposits decreases are favorably offset by $473.8 million and $595.3 million increases in demand deposits for the ~~DNB merger~~three and ~~organic deposit growth.~~six months ended June 30, 2021. We experienced demand deposit growth ~~throughout 2020~~ due to customer PPP loans and stimulus payments along with ~~customers conservatively holding cash~~customers' liquidity preferences. Brokered deposits ~~in these uncertain times. The average rate paid~~ decreased 96$332.6 million and ~~68 basis points~~$319.8 million for the three and six months ended June 30, 2021 compared to the same periods in ~~2019 primarily~~2020 due to ~~lower short-term interest rates.~~this funding source no longer being needed. Average total borrowings decreased ~~$86.2~~$222.3 million and ~~$36.2~~$238.9 million for the three and ~~the average rate paid decreased 131 and 126 basis points~~six months ended June 30, 2021 compared to the same periods in ~~2019.~~2020 due to this funding source no longer being needed. Overall, the cost of interest-bearing liabilities decreased ~~101~~46 and 7469 basis points for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021 compared to the same periods in ~~2019.~~2020.

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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, 2020 Compared to September 30, 2019						Nine Months Ended September 30, 2020 Compared to September 30, 2019							Three Months Ended June 30, 2021 Compared to June 30, 2020						Six Months Ended June 30, 2021 Compared to June 30, 2020
(dollars in thousands)	(dollars in thousands)	Volume (4)		Rate (4)		Total		Volume (4)		Rate (4)		Total		(dollars in thousands)	Volume (4)		Rate (4)		Total		Volume (4)		Rate (4)		Total
Interest earned on:	Interest earned on:													Interest earned on:
Interest-bearing deposits with banks	Interest-bearing deposits with banks	$	924	$	(1,174)	$	(250)	$	1,901	$	(2,389)	$	(488)	Interest-bearing deposits with banks	$	126	$	15	$	141	$	1,223	$	(1,371)	$	(149)
Securities, at fair value~~(3)~~(2)	Securities, at fair value~~(3)~~(2)	631		(348)		283		2,088		(825)		1,263		Securities, at fair value~~(3)~~(2)	266		(761)		(495)		237		(1,161)		(925)
Loans held for sale	Loans held for sale	17		(10)		7		115		(38)		77		Loans held for sale	(43)		(1)		(44)		(9)		(8)		(16)
Commercial real estate	Commercial real estate	4,924		(7,348)		(2,424)		17,314		(16,151)		1,163		Commercial real estate	(1,447)		(4,240)		(5,687)		(3,261)		(12,383)		(15,643)
Commercial and industrial	Commercial and industrial	6,910		(8,604)		(1,694)		18,275		(19,918)		(1,643)		Commercial and industrial	(2,777)		1,407		(1,370)		(1,041)		750		(291)
Commercial construction	Commercial construction	2,422		(2,028)		394		6,749		(4,394)		2,355		Commercial construction	299		(465)		(166)		1,363		(1,991)		(628)
Total Commercial Loans	Total Commercial Loans	14,256		(17,980)		(3,724)		42,338		(40,463)		1,875		Total Commercial Loans	(3,925)		(3,298)		(7,223)		(2,938)		(13,623)		(16,562)
Residential mortgage	Residential mortgage	2,226		(200)		2,026		7,872		(1,400)		6,472		Residential mortgage	(1,192)		(54)		(1,245)		(2,167)		10		(2,157)
Home equity	Home equity	908		(2,216)		(1,308)		2,964		(5,314)		(2,350)		Home equity	(72)		(239)		(311)		(162)		(1,858)		(2,020)
Installment and other consumer	Installment and other consumer	126		(130)		(4)		468		(333)		135		Installment and other consumer	68		(57)		11		76		(205)		(130)
Consumer construction	Consumer construction	47		(40)		7		87		(107)		(20)		Consumer construction	6		60		66		67		66		134
Total Consumer Loans	Total Consumer Loans	3,307		(2,586)		721		11,391		(7,154)		4,237		Total Consumer Loans	(1,190)		(289)		(1,478)		(2,186)		(1,987)		(4,173)
Total Portfolio Loans	Total Portfolio Loans	17,563		(20,566)		(3,003)		53,729		(47,617)		6,112		Total Portfolio Loans	(5,115)		(3,586)		(8,701)		(5,125)		(15,610)		(20,735)
Total Loans ~~(2)~~(3)	Total Loans ~~(2)~~(3)	17,580		(20,576)		(2,996)		53,844		(47,655)		6,189		Total Loans ~~(2)~~(3)	(5,158)		(3,587)		(8,745)		(5,133)		(15,618)		(20,751)
Federal Home Loan Bank and other restricted stock	Federal Home Loan Bank and other restricted stock	(84)		(73)		(157)		(135)		(317)		(452)		Federal Home Loan Bank and other restricted stock	(86)		20		(66)		(294)		(40)		(334)
Change in Interest Earned on Interest-earning Assets	Change in Interest Earned on Interest-earning Assets	19,051		(22,171)		(3,120)		57,698		(51,186)		6,512		Change in Interest Earned on Interest-earning Assets	$	(4,851)	$	(4,313)	$	(9,165)	$	(3,968)	$	(18,191)	$	(22,159)
Interest paid on:	Interest paid on:													Interest paid on:
Interest-bearing demand	Interest-bearing demand	$569		($1,330)		($761)		$1,615		($1,568)		$47		Interest-bearing demand	$	(21)	$	(358)	$	(380)	$	(82)	$	(1,458)	$	(1,540)
Money market	Money market	1,686		(7,853)		(6,167)		5,494		(18,225)		(12,731)		Money market	(48)		(1,636)		(1,684)		(138)		(6,921)		(7,059)
Savings	Savings	104		(391)		(287)		223		(828)		(605)		Savings	29		(122)		(93)		120		(537)		(418)
Certificates of deposit	Certificates of deposit	698		(3,064)		(2,366)		2,309		(5,072)		(2,763)		Certificates of deposit	(1,016)		(3,404)		(4,420)		(2,172)		(7,244)		(9,416)
Total Interest-bearing Deposits	Total Interest-bearing Deposits	3,057		(12,638)		(9,581)		9,641		(25,693)		(16,052)		Total Interest-bearing Deposits	(1,056)		(5,520)		(6,576)		(2,272)		(16,160)		(18,432)
Securities sold under repurchase agreements	Securities sold under repurchase agreements	92		(77)		15		198		(144)		54		Securities sold under repurchase agreements	(11)		(25)		(36)		14		(68)		(54)
Short-term borrowings	Short-term borrowings	(837)		(444)		(1,281)		(1,532)		(2,225)		(3,757)		Short-term borrowings	(167)		—		(167)		(1,240)		(60)		(1,300)
Long-term borrowings	Long-term borrowings	(136)		(21)		(157)		(410)		(101)		(511)		Long-term borrowings	(168)		(30)		(198)		(346)		(61)		(407)
Junior subordinated debt securities	Junior subordinated debt securities	224		(265)		(41)		694		(620)		74		Junior subordinated debt securities	1		(82)		(82)		—		(296)		(296)
Total Borrowings	Total Borrowings	(657)		(807)		(1,464)		(1,050)		(3,090)		(4,140)		Total Borrowings	(346)		(137)		(483)		(1,573)		(484)		(2,057)
Change in Interest Paid on Interest-bearing Liabilities	Change in Interest Paid on Interest-bearing Liabilities	2,400		(13,445)		(11,045)		8,591		(28,783)		(20,192)		Change in Interest Paid on Interest-bearing Liabilities	(1,401)		(5,657)		$	(7,058)	(3,845)		(16,644)		(20,489)
Change in Net Interest Income	Change in Net Interest Income	$	16,651	$	(8,726)	$	7,925	$	49,107	$	(22,403)	$	26,704	Change in Net Interest Income	$	(3,450)	$	1,344	$	(2,106)	$	(123)	$	(1,546)	$	(1,670)

(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 ~~2020~~2021 and ~~2019.~~2020.

~~(3)~~(2) Taxable investment income is adjusted for the dividend-received deduction for equity securities.

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

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

Provision for Credit Losses

The provision for credit losses, which includes a provision for losses on loans and on unfunded ~~loan~~ commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date. The provision for credit losses ~~increased $12.6~~decreased $84.2 million and ~~$111.5~~$101.1 million to ~~$17.5~~$2.6 million and ~~$124.3~~$5.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$4.9~~$86.8 million and ~~$12.8~~$106.8 million for the same periods in ~~2019.~~2020. The provision for credit losses included ~~($1.8)~~$0.6 million and ~~$0.7~~$0.4 million for the reserve for unfunded ~~loan~~ commitments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020. The decrease in the in reserve for unfunded loan commitments for the three months ended September 30, 2020 was due to a decrease in the expected loss rates for the construction portfolio.~~2021.

The significant ~~increase~~decrease in the provision for credit losses during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was mainly due to the customer fraud in 2020 discussed below and an improved economic forecast in 2021 compared to 2020. Our economic forecast covers a ~~$58.7 million charge-off that occurred~~period of two years and is driven primarily by national unemployment data. The forecasted national unemployment rate improved at June 30, 2021 compared to the same time in 2020.

For the three and six months ended June 30, ~~2020 that was~~2021, we had net charge-offs of $7.4 million and $13.3 million compared to $68.1 million and $79.2 million for the ~~result of customer fraud, a $10.1 million~~same periods in 2020. The most significant charge-off ~~related to a CRE relationship in~~for the three ~~months ended September 30, 2020~~ and ~~the impact of~~six months

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

ended June 30, 2021 was a $4.9 million charge-off related to a CRE relationship. Our policy is to obtain appraisals annually on loans individually assessed for impairment. The $4.9 million charge-off was a result of the ~~COVID-19 pandemic~~receipt of the annual appraisal which evidenced a deterioration in ~~both periods. Our qualitative reserve changed ($13.5) million and $15.8 million for~~ the ~~three and nine months ended September~~value of the collateral at June 30, 2020. Included in these amounts were ($13.3) million for the three months ended and $12.7 million for the nine months ended for the economic forecast and allocations for our hotel and business banking portfolios due to the COVID-19 pandemic. The reduction in qualitative reserve for the three months ended September 30, 2020 was due primarily to an improved economic forecast. Our forecast covers a period of two years and is driven primarily by national unemployment data. We added a $2.0 million ACL to the business banking portfolio during the three months ended September 30, 2020 due to the COVID-19 pandemic.2021.

During the three months ended September 30, 2020, we recognized a charge-off of $10.1 million related to a CRE relationship that plans to cease operations in November of 2020. The relationship experienced continued deterioration as a result of the COVID-19 pandemic. As a result, the loans were charged down to the liquidation value based upon the most recent appraisals. This relationship became a performing TDR in the third quarter of 2019 and then moved to nonperforming in the first quarter of 2020 when the borrower experienced financial deterioration that led to cash flow issues. In the second quarter of 2020, the loan was individually assessed resulting in a $0.6 million specific reserve due to the relationship being under-collateralized.

~~During the nine months ended September~~June 30, 2020, we recognized a charge-off of $58.7 million related to a customer fraud ~~resulting~~ from a check kiting scheme. ~~The fraud was perpetrated by a single business customer and the customer has plead guilty in an ongoing criminal investigation.~~ We continue to pursue all available ~~sources~~resources of recovery to mitigate the loss. The customer also had a lending relationship of $15.1 million ~~including a $14.3 million CRE loan and a $0.8 million line of credit. $10.9 million of the loans were moved to nonperforming after recognizing~~that had a $4.2 million charge-off during the three months ended June 30, 2020. ~~A specific reserve~~We received a recovery of ~~$3.4~~$0.9 million ~~was recognized in~~on the ~~three months ended September 30, 2020 based upon new liens identified against the collateral.~~

For the three and nine months ended September 30, 2020, we had net charges-offs of $12.9 million and $92.1 million compared to $4.3 million and $11.6 million for the same periods in 2019. In addition to the $10.1 million charge-off related to the CRElending relationship ~~during the three months ended September 30, 2020 and the $58.7 million charge-off from the customer fraud that occurred~~ during the three months ended June 30, 2020, both discussed above, the most significant charge-off for the nine months ended September 30, 2020 was a $9.9 million C&I relationship. 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 quarter of 2020; therefore, we recorded a $9.9 million specific reserve in the day one CECL adjustment. The updated information supported a loss existed at January 1, 2020.2021.

Nonperforming loans increased ~~$34.1~~$22.5 million to ~~$84.1~~$112.6 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$50.0~~$90.1 million at ~~September~~June 30, ~~2019.~~2020. The ~~significant~~ increase in nonperforming loans primarily related to the addition of $48.7 million of hotel loans which moved to nonperforming during the fourth quarter of 2020 as a ~~$11.3~~result of continued deterioration due to the pandemic. The increase was partially offset by the $4.9 million charge-off of the CRE relationship mentioned above and payoffs of three commercial relationships totaling approximately $12.6 million, all of which occurred during the ~~$10.9 million related to the customer fraud, both noted above, a $4.9 million CRE relationship and a $4.3 million C&I relationship.~~three months ended June 30, 2021.

Noninterest Income


		Three Months Ended September 30,												Nine Months Ended September 30,													Three Months Ended June 30,												Six Months Ended June 30,
(dollars in thousands)	(dollars in thousands)	2020			2019			$ Change			% Change			2020			2019			$ Change			% Change			(dollars in thousands)	2021			2020			$ Change			% Change			2021			2020			$ Change			% Change
Net gain on sale of securities	Net gain on sale of securities		$	—		$	—		$	—		—			$	142		$	—		$	142		—		Net gain on sale of securities		$	29		$	142		$	(113)		(79.6)			$	29		$	142		$	(113)		(79.6)
Debit and credit card	Debit and credit card		4,171			3,475			696			20.0	%		11,264			9,951			1,313			13.2	%	Debit and credit card		4,744			3,612			1,132			31.3	%		8,906			7,093			1,813			25.6	%
Mortgage banking	Mortgage banking		3,964			594			3,370			567.3	%		7,823			1,726			6,097			353.2	%	Mortgage banking		1,734			2,623			(889)			(33.9)	%		6,044			3,859			2,185			56.6	%
Service charges on deposit accounts	Service charges on deposit accounts		2,820			3,412			(592)			(17.4)	%		8,720			9,777			(1,057)			(10.8)	%	Service charges on deposit accounts		3,642			2,805			837			29.8	%		7,116			6,821			295			4.3	%
Wealth management	Wealth management		2,522			2,101			421			20.0	%		7,471			6,210			1,261			20.3	%	Wealth management		3,167			2,586			581			22.4	%		6,111			4,949			1,162			23.5	%
Commercial loan swap income	Commercial loan swap income		499			1,464			(965)			(65.9)	%		3,928			3,147			781			24.8	%	Commercial loan swap income		299			945			(646)			(68.4)	%		393			3,429			(3,036)			(88.5)	%
Other	Other		2,507			2,017			490			24.3	%		4,762			6,515			(1,753)			(26.9)	%	Other		1,809			2,511			(702)			(28.0)	%		4,062			1,334			2,728			204.5	%
Total Noninterest Income	Total Noninterest Income		$	16,483		$	13,063		$	3,420		26.2	%		$	44,110		$	37,326		$	6,784		18.2	%	Total Noninterest Income		$	15,424		$	15,224		$	200		1.3	%		$	32,661		$	27,627		$	5,034		18.2	%

Noninterest income increased ~~$3.4~~$0.2 million and $5.0 million for the three and six months ended June 30, 2021 compared to ~~$16.5~~the same periods in 2020. Debit and credit card income increased $1.1 million and $1.8 million for the three and six months ended June 30, 2021 due to increased activity related to the improving economic environment. Service charges on deposit accounts increased $0.8 million and $0.3 million due to fee changes and the improving economic environment. Wealth management income increased $0.6 million and $1.2 million due to higher assets under management from market appreciation and an increase in customer activity. Mortgage banking decreased $0.9 million and increased $2.2 million for the three and six months ended June 30, 2021 due to changes in the valuation of the mortgage derivative and mortgage servicing rights compared to the same periods in 2020. Other income decreased $0.7 million for the three months ended ~~September~~June 30, ~~2020~~2021 and increased ~~$6.8 million to $44.1~~$2.7 million for the ~~nine~~six months ended ~~September~~June 30, 2020 compared to the same periods in 2019. Total noninterest income includes the impact of the DNB merger in the three and nine months ended September 30, 2020 which closed on November 30, 2019. Mortgage banking income increased $3.4 million and $6.1 million for the three and nine months ended September 30, 2020 primarily2021 due to an increase in the volume of loans originated for sale in the secondary market resulting from a decline in mortgage interest rates from the comparable period. Wealth management income increased $0.4 million and $1.3 million for the three and nine months ended September 30, 2020 due to the merger. Other income increased

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

~~$0.5 million for the three months and decreased $1.8 million for the nine months ended related~~ to changes in the valuation of our deferred compensation plan, which has a corresponding offset in salaries and employee benefits expense resulting in no impact to net income, and the change in value in the equity securities portfolio compared to the prior periods. Also reducing other income for both the three and nine months ended was a $0.5 million credit valuation adjustment for our commercial loan swaps for risk associated with our hotel customers.same periods in 2020. Commercial loan swap income decreased ~~$1.0~~$0.6 million and $3.0 million for the three ~~months~~ and ~~increased $0.8 million for the nine~~six months ended ~~September~~June 30, ~~2020. Commercial loan swap~~2021 as activity was significant in the first ~~quarter~~half of 2020, but activity has declined ~~throughout 2020~~ due to the COVID-19 pandemic. Service charges on deposit accounts decreased $0.6 million and $1.1 million for the three and nine months ended September 30, 2020 due to reduced activity related to the COVID-19 pandemic.

~~Noninterest Expense~~

Three Months Ended September 30, Nine Months Ended September 30, 2020
(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change
Salaries and employee benefits(1)
$ 24,571 $ 19,936 $ 4,635 23.3 % $ 67,326 $ 61,135 $ 6,191 10.1 %
Data processing and information technology(1)
4,218 3,681 537 14.6 % 11,671 10,327 1,344 13.0 %
Net occupancy(1)
3,441 2,898 543 18.7 % 10,643 8,883 1,760 19.8 %
Furniture, equipment and software(1)
2,440 2,090 350 16.7 % 7,965 6,621 1,344 20.3 %
Professional services and legal(1)
1,911 1,054 857 81.3 % 4,890 3,382 1,508 44.6 %
FDIC insurance 1,900 (675) 2,575 (381.5) % 3,718 536 3,182 593.7 %
Marketing(1)
1,793 1,062 731 68.8 % 3,883 3,514 369 10.5 %
Other taxes 1,612 1,540 72 4.7 % 4,816 4,182 634 15.2 %
Merger related expenses — 552 (552) (100.0) % 2,342 1,171 1,171 100.0 %
Other(1)
6,360 5,529 831 15.0 % 20,861 17,187 3,674 21.4 %
Total Noninterest Expense $ 48,246 $ 37,667 $ 10,579 28.1 % $ 138,115 $ 116,938 $ 21,177 18.1 %

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

Noninterest expense increased $10.6 million to $48.2 million for the three months ended September 30, 2020 and $21.2 million to $138.1 million for the nine months ended September 30, 2020 compared to the same periods in 2019. Total noninterest expense includes the impact of the DNB merger in the three and nine months ended September 30, 2020 which closed on November 30, 2019. Increases in net occupancy expense, furniture, equipment and software, FDIC insurance and other taxes for both the three and nine month periods related to the DNB merger. Further causing the increase in the FDIC insurance of $2.6 million and $3.2 million for the three and nine months ended September 30, 2020 was the impact of recent results on certain components of the assessment calculation, such as our net loss in the second quarter of 2020, and also the Small Bank Assessment Credits that were received by all banking institutions with assets of less than $10.0 billion in the three months ended September 30, 2019 that were not received in 2020. Marketing expense increased $0.7 million for the three months ended September 30, 2020 due to the timing of marketing initiativespandemic and the redesign of our website. Total merger related expenses of $2.3 million for the nine months ended September 30, 2020 included $1.4 million of salaries and employee benefits, $0.4 million for data processing, $0.2 million for professional services and $0.3 million in various other expenses. Other noninterest expense increased during the nine-month period due to higher amortization related to the core deposit intangible asset from the merger and due to historic tax credits for $1.2 million. Salaries and employee benefits increased $4.6 million for the three months and $6.2 million for the nine months primarily due to additional employees, mainly related to the merger, and higher pension expense due to an increase in retirees electing lump-sum distributions causing settlement accounting. Professional services and legal expenses increased $0.9 million for the three months and $1.5 million for the nine months mainly due to higher legal expense. Data processing and information technology increased $0.5 million for the three months and $1.3 million for the nine months due to the annual increase with our third-party data processor and the merger.

~~Provision for Income Taxes~~

The provision for income taxes decreased $1.4 million to a $3.3 million tax expense for the three months ended September 30, 2020 and decreased $19.7 million to a $5.7 million tax benefit for the nine months ended September 30, 2020 compared to the same periods in 2019. Pretax income decreased $11.7 million for the three months ended September 30, 2020 and decreased $98.8 million for the nine months ended September 30, 2020 resulting in a pretax loss. The pretax loss was primarily due to the $58.7 million loss recognized in the quarter ended June 30, 2020 resulting from customer fraud.interest rate environment.

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~~For~~Noninterest Expense


	Three Months Ended June 30,												Six Months Ended June 30,
(dollars in thousands)	2021			2020			$ Change			% Change				2021		2020			$ Change			% Change
Salaries and employee benefits(1)		$	24,515		$	21,419		$	3,096		14.5	%		$	47,842		$	42,754		$	5,088		11.9	%
Data processing and information technology(1)		3,787			3,585			202			5.6	%		8,012			7,453			559			7.5	%
Occupancy(1)		3,434			3,437			(3)			(0.1)	%		7,261			7,202			59			0.8	%
Furniture, equipment and software(1)		2,402			3,006			(604)			(20.1)	%		5,042			5,525			(483)			(8.7)	%
Professional services and legal(1)		1,637			1,932			(295)			(15.3)	%		3,168			2,980			188			6.3	%
FDIC insurance		924			1,048			(124)			(11.8)	%		1,970			1,818			152			8.4	%
Marketing(1)		996			979			17			1.7	%		2,318			2,090			228			10.9	%
Other taxes		1,832			1,604			228			14.2	%		3,268			3,205			63			2.0	%
Merger related expenses		—			—			—			—	%		—			2,342			(2,342)			(100.0)	%
Other(1)		6,302			6,468			(166)			(2.6)	%		12,528			14,500			(1,972)			(13.6)	%
Total Noninterest Expense		$	45,829		$	43,478		$	2,351		5.4	%		$	91,409		$	89,869		$	1,540		1.7	%

(1) Excludes merger related expenses for 2020 amounts only

Noninterest expense increased $2.4 million to $45.8 million for the ~~quarter~~three months ended ~~September~~June 30, 2021 and increased $1.5 million to $91.4 million for the six months ended June 30, 2021 compared to the same periods in 2020. Salaries and employee benefits increased $3.1 million and $5.1 million for the three and six months ended June 30, 2021 due to higher deferred origination costs related to PPP loans in 2020, higher payroll incentives and restricted stock expense, a change in the valuation related to a deferred compensation plan, which has a corresponding offset in other noninterest income resulting in no impact to net income, and higher pension expense due to an increase in retirees electing lump-sum distributions causing settlement accounting and higher medical expenses. Professional services and legal expenses decreased $0.3 million for the three months ended June 30, 2021 and increased $0.2 million for the six months ended June 30, 2021 mainly due to lower legal expense for both periods and higher consulting expense for the six-month period. Other noninterest expense decreased during the six months ended June 30, 2021 due to lower amortization related to our qualified affordable housing projects and core deposit intangible asset compared to the same period in 2020. Total merger related expenses of $2.3 million for the six months ended June 30, 2020 ~~we utilized the actual effective tax rate~~included $1.4 million of salaries and employee benefits, $0.4 million for data processing, $0.2 million for professional services and $0.3 million in various other expenses.

Provision for Income Taxes

The provision for income taxes increased $18.8 million and $23.3 million to calculate the September 30, 2020 tax provision. The actual effective tax rate is applied when the application of the estimated annual effective tax rate, or EAETR, is impractical because it is not possible to forecast a reliable EAETR$7.0 million and $14.2 million for the ~~reporting period.~~three and six months ended June 30, 2021 compared to the same periods in 2020. The ~~actual effective tax rate approach treats the year-to-date period as if it is the annual period and determines the~~increase in income tax expense orwas primarily due to the tax benefit ~~on that basis. The use of~~from the ~~actual effective tax rate is more appropriate than~~net loss noted above during the ~~EAETR, at this time, because small changes~~same periods in ~~estimated ordinary pretax income result in significant changes in the EAETR.~~2020. Our effective tax rate was ~~16.6~~19.7 percent and 19.1 percent for the three and six months ended ~~September~~June 30, ~~2020 and changed to a 64.5 percent benefit for the nine months ended September 30, 2020~~2021 compared to ~~15.0~~26.3 percent and ~~15.6~~31.3 percent for the same ~~periods~~period in ~~2019.~~2020. The change in our effective tax rate for the ~~nine~~three and six months ended ~~September~~June 30, ~~2020~~2021 was primarily due to the increases in pretax ~~loss.~~income compared to pretax losses in 2020.

Financial Condition as of ~~September~~June 30, ~~2020~~2021

Total assets increased ~~$425.9~~$527.9 million to ~~$9.2~~$9.5 billion at ~~September~~June 30, ~~2020~~2021 compared to ~~$8.8~~$9.0 billion at December 31, ~~2019. Total portfolio loans~~2020. Cash and due from banks increased ~~$257.7~~$755.6 million to ~~$7.4 billion~~$985.3 million at ~~September~~June 30, 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 $297.2 million with increases of $321.6 million in C&I, which included $550.1 million of loans from the PPP, and $102.0 million in commercial construction offset by a decrease of $126.4 million in the CRE portfolio2021 compared to December 31, ~~2019.~~2020 due to PPP forgiveness and a significant increase in deposits as a result of government stimulus programs, a second round of PPP loans and our customers' liquidity preferences. Total portfolio loans decreased $218.5 million to $7.0 billion at June 30, 2021 compared to December 31, 2020. The commercial loan portfolio decreased $174.7 million compared to December 31, 2020. C&I loans decreased $180.1 million which mainly related to a net decline in PPP loans of $128.9 million since December 31, 2020. The consumer loan portfolio decreased $43.8 million with decreases in residential mortgage of $59.1 million and consumer construction of $4.5 million offset by increases in home equity of $12.5 million and other consumer of $7.3 million. Excluding the PPP loans, portfolio loans decreased ~~$292.4~~$89.6 million compared to December 31, ~~2019~~2020 due to decreased activity related to the COVID-19 pandemic. ~~Consumer loans decreased $39.5 million compared to December 31, 2019 primarily due to a decrease in the residential mortgage portfolio of $47.7 million.~~

Securities ~~decreased $66.1~~increased $66.7 million to ~~$718.2~~$840.4 million at ~~September~~June 30, ~~2020~~2021 from ~~$784.3~~$773.7 million at December 31, ~~2019.~~2020. The ~~decrease~~increase in securities is primarily due to ~~proceeds from calls, maturities and pay downs of $85.8 million that were not reinvested and net amortization of $3.2 million offset by increases~~an increase in ~~unrealized gains of $24.7 million compared to December 31, 2019.~~overall investing activities. The bond portfolio had ana net unrealized gain of ~~$35.4~~$24.0 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$10.7~~$33.4 million at December 31, ~~2019~~2020 due to ~~a decrease in~~rising interest ~~rates.~~

~~Our deposits increased $597.2 million, with total deposits~~rates during the first six months of $7.6 billion at September 30, 2020 compared to $7.0 billion at December 31, 2019. Customer deposits increased $889.5 million from December 31, 2019. The increase in customer deposits primarily related to PPP and stimulus programs along with customers conservatively holding cash deposits during these uncertain times. Customer noninterest-bearing demand deposits increased $534.6 million, interest-bearing demand increased $220.8 million, money market deposits increased $133.9 million and savings increased $107.6 million offset by a decrease in certificates of deposit of $107.4 million. Total brokered deposits decreased $292.2 million from December 31, 2019 due to the customer deposit growth. 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 decreased $177.5 million to $238.9 million at September 30, 2020 compared to $416.4 million at December 31, 2019 due to an increase in deposits. The decrease in borrowings primarily related to a decline in short-term borrowings of $198.3 million offset by an increase in securities sold under repurchase agreements of $22.8 million due to demand for the product by our REPO customers.

Total shareholders’ equity decreased by $49.9 million to $1.1 billion at September 30, 2020 compared to $1.2 billion at December 31, 2019. The decrease was primarily due to the previously disclosed fraud loss, net of tax, of $46.4 million that resulted in a net loss of $3.1 million, the cumulative-effect adjustment related to the adoption of ASU 2016-13, Credit Losses, of $22.6 million, share repurchases of $12.6 million, and dividends of $33.0 million, offset by a $21.1 million increase in other comprehensive income. The increase in other comprehensive income was due to a $19.6 million increase in unrealized gains on our available-for-sale investment securities, net of tax, and a $1.6 million change in the funded status of our employee benefit plans.2021.

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Our deposits increased $594.7 million with total deposits of $8.0 billion at June 30, 2021 compared to $7.4 billion at December 31, 2020. Customer deposits increased $658.0 million from December 31, 2020. The increase in customer deposits is primarily related to government stimulus programs, PPP and our customers' liquidity preferences. Total brokered deposits decreased $63.2 million from December 31, 2020 due to a reduced need for wholesale funding due to strong customer deposit growth.

Total borrowings decreased $72.3 million to $155.7 million at June 30, 2021 compared to $227.9 million at December 31, 2020 due to increased customer deposits. The decrease in borrowings primarily related to a decline in short-term borrowings of $75.0 million compared to December 31, 2020.

Total shareholders’ equity increased by $34.0 million to $1.2 billion at both June 30, 2021 and December 31, 2020. The increase was primarily due to net income of $60.3 million offset partially by dividends of $22.0 million and a decrease in other comprehensive income of $5.4 million. The $5.4 million decrease in other comprehensive income was due to a $7.4 million decrease in unrealized gains on our available-for-sale investment securities and a $2.0 million change in the funded status of our employee benefit plans, net of taxes.

Securities Activity


(dollars in thousands)	(dollars in thousands)	September 30, 2020			December 31, 2019			$ Change			(dollars in thousands)	June 30, 2021			December 31, 2020			$ Change
U.S. treasury securities			$	10,323		$	10,040		$	283
U.S. Treasury securities											U.S. Treasury securities		$	74,804		$	10,282		$	64,522
Obligations of U.S. government corporations and agencies	Obligations of U.S. government corporations and agencies		93,351			157,697			(64,346)		Obligations of U.S. government corporations and agencies		81,624			82,904			(1,280)
Collateralized mortgage obligations of U.S. government corporations and agencies	Collateralized mortgage obligations of U.S. government corporations and agencies		183,032			189,348			(6,316)		Collateralized mortgage obligations of U.S. government corporations and agencies		201,350			209,296			(7,946)
Residential mortgage-backed securities of U.S. government corporations and agencies	Residential mortgage-backed securities of U.S. government corporations and agencies		17,352			22,418			(5,066)		Residential mortgage-backed securities of U.S. government corporations and agencies		63,859			67,778			(3,919)
Commercial mortgage-backed securities of U.S. government corporations and agencies	Commercial mortgage-backed securities of U.S. government corporations and agencies		280,224			275,870			4,354		Commercial mortgage-backed securities of U.S. government corporations and agencies		325,303			273,681			51,622
Corporate obligations	Corporate obligations		4,027			7,627			(3,600)		Corporate obligations		499			2,025			(1,526)
Obligations of states and political subdivisions	Obligations of states and political subdivisions		126,611			116,133			10,478		Obligations of states and political subdivisions		91,840			124,427			(32,587)
Available-for-Sale Debt Securities	Available-for-Sale Debt Securities		714,920			779,133			(64,213)		Available-for-Sale Debt Securities		839,279			770,393			68,886
Marketable equity securities	Marketable equity securities		3,249			5,150			(1,901)		Marketable equity securities		1,096			3,300			(2,204)
Total Securities	Total Securities		$	718,169		$	784,283		$	(66,114)	Total Securities		$	840,375		$	773,693		$	66,682

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 $66.1~~increased $66.7 million to ~~$718.2~~$840.4 million at ~~September~~June 30, ~~2020~~2021 from ~~$784.3~~$773.7 million at December 31, ~~2019.~~2020. The ~~decrease~~increase in securities is primarily due to ~~proceeds from calls, maturities and pay downs of $85.8 million that were not reinvested and net amortization of $3.2 million offset by increases~~an increase in ~~unrealized gains of $24.7 million compared to December 31, 2019.~~overall investing activities.

At ~~September~~June 30, ~~2020~~2021 our bond portfolio was in a net unrealized gain position of ~~$35.4~~$24.0 million compared to a net unrealized gain position of ~~$10.7~~$33.4 million at December 31, ~~2019.~~2020. At ~~September~~June 30, ~~2020~~2021 total gross unrealized gains in the bond portfolio were ~~$35.4 million compared to December 31, 2019, when total gross unrealized gains were $11.7~~$25.5 million offset by gross unrealized losses of ~~$1.0~~$1.5 million compared to December 31, 2020, when total gross unrealized gains were $33.5 million offset by gross unrealized losses of $0.1 million. ~~Management evaluates~~The decrease in the ~~securities portfolio~~net unrealized gain position was primarily due to ~~determine if~~ an ~~ACL is needed each quarter. We did not record an ACL related~~increase in interest rates from December 31, 2020 to ~~the securities portfolio at September~~June 30, ~~2020.~~2021.

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Loan Composition


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
(dollars in thousands)	(dollars in thousands)	Amount		% of Loans		Amount		% of Loans		(dollars in thousands)	Amount		% of Loans		Amount		% of Loans
Commercial	Commercial									Commercial
Commercial real estate	Commercial real estate	$	3,290,138	44.5	%	$	3,416,518	47.9	%	Commercial real estate	$	3,246,533	46.3	%	$	3,244,974	44.9	%
Commercial and industrial	Commercial and industrial	2,042,467		27.6		1,720,833		24.1		Commercial and industrial	1,774,358		25.4	%	1,954,453		27.0	%
Construction		477,429		6.5		375,445		5.2
Commercial construction										Commercial construction	478,153		6.8	%	474,280		6.6	%

Total Commercial Loans	Total Commercial Loans	5,810,034		78.6	%	5,512,796		77.2	%	Total Commercial Loans	5,499,044		78.5	%	5,673,707		78.5	%
Consumer	Consumer									Consumer
Residential mortgage		950,887		12.9	%	998,585		14.0	%
Home equity		537,869		7.3		538,348		7.6
Installment and other consumer		80,735		1.0		79,033		1.1
Construction		15,343		0.2		8,390		0.1
Consumer real estate										Consumer real estate	1,420,097		20.2	%	1,471,238		20.4	%
Other consumer										Other consumer	88,210		1.3	%	80,915		1.1	%
Total Consumer Loans	Total Consumer Loans	1,584,834		21.4	%	1,624,356		22.8	%	Total Consumer Loans	1,508,307		21.5	%	1,552,153		21.5	%
Total Portfolio Loans	Total Portfolio Loans	7,394,868		100.0	%	7,137,152		100.0	%	Total Portfolio Loans	7,007,351		100.0	%	7,225,860		100.0	%
Loans held for sale	Loans held for sale	16,724				5,256				Loans held for sale	7,648				18,528
Total Loans	Total Loans	$	7,411,592			$	7,142,408			Total Loans	$	7,014,999			$	7,244,388

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

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

June 30, 2021, 71 percent of our total loans are variable rate loans and 29 percent are fixed rate loans. Total portfolio loans decreased $218.5 million to $7.0 billion at June 30, 2021 compared to December 31, 2020. Excluding the PPP loans, portfolio loans decreased $89.6 million compared to December 31, 2020 due to decreased activity related to the COVID-19 pandemic.

Commercial loans, including CRE, C&I and commercial construction, comprised ~~78.6~~78.5 percent of total portfolio loans at ~~September~~June 30, ~~2020~~2021 and ~~77.2 percent at~~ December 31, ~~2019. Total~~2020 The commercial loan portfolio ~~loans increased $257.7~~decreased $174.7 million ~~to $7.4 billion~~ at ~~September~~June 30, 2020 compared to $7.1 billion at December 31, 2019. The increase of $297.2 million in commercial loans related to $321.6 million in C&I, which included $550.1 million of loans from the PPP, and $102.0 million in commercial construction loans offset by a decrease of $126.4 million in CRE2021 compared to December 31, ~~2019. Excluding the PPP loans, portfolio~~2020. C&I loans decreased ~~$292.4~~$180.1 million ~~compared~~at June 30, 2021 which mainly related to a net PPP decline of $128.9 million since December 31, ~~2019 due to decreased activity related to the COVID-19 pandemic.~~2020.

As of ~~September~~June 30, ~~2020,~~2021, we ~~originated $550.1~~had $336.1 million of PPP ~~loans.~~loans included in C&I. 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, or five years for loans approved by the SBA on or after June 5, 2020. Payments are deferred for the first six months of the loan. The loans are 100 percent guaranteed by the SBA. The SBA pays us a processing fee ranging from 1 percent to 5 percent based on the size of the loan.

Consumer loans represent ~~21.4~~21.5 percent of our total portfolio loans at ~~September~~June 30, ~~2020~~2021 and ~~22.8 percent at~~ December 31, ~~2019. Consumer loans~~2020. The consumer loan portfolio decreased ~~$39.5~~$43.8 million ~~compared to December 31, 2019~~at June 30, 2021 with decreases ~~of $47.7 million~~ in residential ~~mortgages~~mortgage of $59.1 million and ~~$0.5~~consumer construction of $4.5 million ~~in home equity loans~~ offset by increases in ~~consumer construction~~home equity of ~~$7.0~~$12.5 million ~~and installment~~ and other consumer of ~~$1.7~~$7.3 million.

Allowance for Credit Losses

We maintain an ACL at a level determined to be adequate to absorb estimated expected credit losses within the loan portfolio over the contractual life of ~~a loan~~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 ACL methodology based on the following portfolio segments: 1) Commercial Real Estate, or CRE, 2) Commercial and Industrial, or C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 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, retail, multifamily and healthcare. 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.

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

The following table presents activity in the ACL for the periods presented:

Three Months Ended September 30, 2020
(dollars in thousands) Commercial
Real Estate Commercial and
Industrial Commercial
Construction Business Banking Consumer
Real Estate Other
Consumer Total
Loans
Allowance for credit losses on loans:
Balance at beginning of period $ 57,730 $ 19,164 $ 8,874 $ 14,404 $ 11,585 $ 2,852 $ 114,609
Provision for credit losses on loans 23,839 (4,155) (1,617) 2,072 (797) (40) 19,302
Charge-offs (10,187) (1,196) — (1,748) (252) (284) (13,667)
Recoveries 172 398 1 64 41 78 754
Net (Charge-offs)/Recoveries (10,015) (798) 1 (1,684) (211) (206) (12,913)
Balance at End of Period $ 71,554 $ 14,211 $ 7,258 $ 14,792 $ 10,577 $ 2,606 $ 120,998

September 30, 2020 December 31, 2019
Ratio of net charge-offs to average loans outstanding 0.69 % * 0.12 %
Allowance for credit losses as a percentage of total loans 1.64 % 0.87 %
Allowance for loan losses as a percentage of total loans - excluding PPP loans 1.77 % NA
Allowance for credit losses to nonperforming loans 144 % 115 %


	Six Months Ended June 30, 2021
(dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Business Banking		Consumer Real Estate		Other Consumer		Total Loans
Allowance for credit losses on loans:
Balance at beginning of period	$	65,656	$	16,100	$	7,239	$	15,917	$	10,014	$	2,686	$	117,612
Provision for credit losses on loans(1)	4,933		2,953		(1,337)		(46)		(1,254)		61		5,308
Charge-offs	(8,369)		(4,774)		—		(1,327)		(347)		(453)		(15,270)
Recoveries	965		148		3		213		234		423		1,985
Net (Charge-offs)/Recoveries	(7,403)		(4,627)		3		(1,115)		(113)		(30)		(13,285)
Balance at End of Period	$	63,186	$	14,426	$	5,905	$	14,756	$	8,647	$	2,717	$	109,636
(1) Excludes unfunded commitments


	June 30, 2021			December 31, 2020
Ratio of net charge-offs to average loans outstanding	0.37	%	*	0.61	%
Allowance for credit losses as a percentage of total portfolio loans	1.56	%		1.63	%
Allowance for loan losses as a percentage of total portfolio loans - excluding PPP loans	1.64	%		1.74	%
Allowance for credit losses to nonperforming loans	97	%		80	%

* Annualized

Nine Months Ended September 30, 2020
(dollars in thousands) Commercial
Real Estate
Commercial and
Industrial(2)
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 52,185 62,949 2,712 4,197 32 1,489 123,564
Charge-offs (16,229) (72,692) — (2,469) (470) (1,556) (93,416)
Recoveries 211 420 22 166 153 302 1,274
Net (Charge-offs)/Recoveries (16,018) (72,272) 22 (2,303) (317) (1,254) (92,142)
Balance at End of Period $ 71,554 $ 14,211 $ 7,258 $ 14,792 $ 10,577 $ 2,606 $ 120,998

September 30, 2020 December 31, 2019
Ratio of net charge-offs to average loans outstanding 1.66 % * 0.22 %

* ~~Annualized~~

~~(1)~~ ~~In connection with our adoption of ASU 2016-13, we made changes~~The ACL decreased $8.0 million to ~~our loan portfolio segments~~$109.6 million at June 30, 2021 compared to ~~align with~~$117.6 million at December 31, 2020. Our total qualitative reserve decreased $5.1 million for 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.~~

~~(2)During the three months~~ ended June 30, ~~2020, we experienced a pre-tax loss of $58.7 million related~~2021 compared to ~~a customer fraud resulting from a check kiting scheme.~~

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 Annual Report on Form 10-K for the year ended December 31, ~~2019, but before the end of the first quarter of 2020. The updated information supported that a loss existed at January 1, 2020.~~

~~The significant increase in the provision for credit losses during the three months ended September 30,~~ 2020 ~~was mainly~~ due to ~~a $10.1~~improved economic trends and forecast. Specific reserves on loans individually assessed decreased $7.0 million ~~charge-off related~~from December 31, 2020 primarily due to ~~a CRE relationship, a $6.2~~$6.9 million ~~increase in specific reserves and an increase due~~of charge-offs.

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The ACL as a percentage of total portfolio loans decreased 7 basis points to ~~the COVID-19 pandemic. The increase in the provision for the nine months ended September 30, 2020 was due to a $58.7 million charge-off that occurred in the three months ended~~1.56 percent at June 30, ~~2020 that~~2021 compared to 1.63 percent at December 31, 2020. The ACL excluding PPP loans as a percentage of total portfolio loans was ~~the result~~1.64 percent as of ~~customer fraud and the impact of the COVID-19 pandemic.~~June 30, 2021 compared to 1.74 percent at December 31, 2020.

Net loan charge-offs were ~~$12.9~~$7.4 million, or ~~0.69~~0.43 percent of average loans and ~~$92.1~~$13.3 million, or ~~1.66~~0.37 percent of average loans for the three and ~~nine~~six months ended ~~September~~June 30, 2020. In addition to the $10.1 million charge-off related to the CRE customer in the third quarter of 2020 and the $58.7 million charge-off from the customer fraud that occurred during the second quarter of 2020, the2021. The most significant charge-off for the ~~nine~~three and six months ~~ended September~~ending June 30, ~~2020~~2021 was a ~~$9.9~~$4.9 million ~~C&I~~charge-off related to a CRE relationship. ~~We obtained information~~Our policy is to obtain appraisals annually on ~~the relationship subsequent to filing our December 31, 2019 10-K, but before the end~~loans individually assessed for impairment. The $4.9 million charge-off was a result of the ~~first quarter~~receipt of ~~2020; therefore, we recorded~~the annual appraisal which evidenced a ~~day one CECL adjustment through a $9.9 million specific reserve. The updated information supported a loss existed~~deterioration in the value of the collateral at ~~January 1, 2020.~~June 30, 2021.

~~Commercial substandard~~Substandard loans ~~increased $137.1~~decreased $11.7 million to ~~$289.8~~$275.4 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$152.7~~$287.1 million at December 31, ~~2019~~2020 and special mention loans ~~increased $160.5~~decreased $10.2 million to ~~$264.4~~$259.7 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$103.9~~$269.9 million at December 31, ~~2019.~~2020. The ~~significant increase~~decrease in ~~commercial~~ substandard ~~and special mention~~ loans iswas primarily due to ~~substantial downgrades taking place in our hotel portfolio during~~ the ~~three months ended September 30, 2020 as a result~~payoffs of the COVID-19 pandemic. Our total hotel portfolio was $243.0 million with 95 percent of this portfolio on deferral at September 30, 2020. During the three months ended September 30, 2020, we did an extensive review of the hotel portfolio and as a result downgraded a significant amount of loans within this portfolio. As of September 30, 2020, $92.9 million of hotel loans were risk rated special mention and $126.6 million were substandard. The ACL at September 30, 2020 reflects our estimate of potential loss for the hotel loans. These estimates will be updated in the fourth quarter as we obtain appraisals on the substandard hotel portfolio.

The adoption of the CECL accounting standard as of January 1, 2020 and the uncertainty around the COVID-19 pandemic both contributed to the higher ACL of 1.64 percent of total portfolio loans as of September 30, 2020 compared to 0.87 percent at December 31, 2019. When excluding PPP loans, the ACL as a percentage of total portfolio loans was 1.77 percent as of September 30, 2020.

~~TDRs decreased $8.8 million to $37.1 million at September 30, 2020 compared to $45.9 million at December 31, 2019. The decrease in TDRs related to the payoff of a~~two CRE ~~TDR~~relationships of $5.3 million and $4.5 million and the above noted ~~third quarter~~ charge-off of ~~$10.1~~a $4.9 million onCRE relationship. The decrease in special mention loans was primarily due to the downgrade of a $11.9 million CRE relationship from special mention to substandard due to declining revenue that led to cash flow shortfalls.

Troubled debt restructurings, or TDRs, decreased $11.8 million to $34.9 million at June 30, 2021 compared to $46.7 million at December 31, 2020. The decrease in TDRs was primarily due to payoffs of $4.5 million and $3.7 million CRE relationships and a charge-off of a $4.9 million CRE relationship. Total TDRs of ~~$37.1~~$34.9 million at ~~September~~June 30, ~~2020~~2021 included ~~$18.5~~$14.3 million, or ~~49.8~~41.0 percent, that were accruing and ~~$18.6~~$20.6 million, or ~~50.2~~59.0 percent, that were not accruing.

Our allowance for credit losses on unfunded commercial lending commitments and letters of credit provide for the risk of expected loss in these arrangements. The allowance is computed using a methodology similar to that used to determine the ACL 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 Condensed Consolidated Statements of Comprehensive Income. The allowance for unfunded loan commitments was ~~$5.2~~$4.9 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$3.1~~$4.5 million at December 31, ~~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. The allowance for unfunded loan commitments decreased $1.8 million for the three months ended September 30, 2020 due to a decrease in loss rates for the construction portfolio and increased $0.7 million during the nine months ended September 30, 2020, mainly in response to the COVID-19 pandemic. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

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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, 2020 December 31, 2019 $ Change
Nonperforming Loans
Commercial real estate $ 37,884 $ 22,427 $ 15,457
Commercial and industrial 10,925 13,287 (2,362)
Commercial construction 1,504 737 767
Residential mortgage 11,765 6,697 5,068
Home equity 3,205 1,961 1,244
Installment and other consumer 141 36 105
Total Nonperforming Loans 65,424 45,145 20,279
Nonperforming Troubled Debt Restructurings
Commercial real estate 14,922 6,713 8,209
Commercial and industrial 1,573 695 878
Commercial construction — — —
Residential mortgage 1,252 822 430
Home equity 901 678 223
Installment and other consumer — 4 (4)
Total Nonperforming Troubled Debt Restructurings 18,648 8,912 9,736
Total Nonperforming Loans 84,072 54,057 30,015
OREO 2,317 3,525 (1,208)
Total Nonperforming Assets $ 86,389 $ 57,582 $ 28,807
Asset Quality Ratios:
Nonperforming loans as a percent of total loans 1.13 % 0.76 %
Nonperforming assets as a percent of total loans plus OREO 1.17 % 0.81 %


(dollars in thousands)	June 30, 2021				December 31, 2020				$ Change
Nonperforming Loans
Commercial real estate		$	73,652			$	84,416			$	(10,764)
Commercial and industrial		1,015				7,100				(6,085)
Commercial construction		385				384				1
Business banking		9,557				16,692				(7,135)
Consumer real estate		7,239				8,798				(1,559)
Other Consumer		121				96				25
Total Nonperforming Loans		91,969				117,486				(25,517)
Nonperforming Troubled Debt Restructurings
Commercial real estate		6,415				16,654				(10,239)
Commercial and industrial		11,183				9,885				1,298
Commercial construction		—				—				—
Business banking		1,508				430				1,078
Consumer real estate		1,544				2,319				(775)
Other Consumer		—				—				—
Total Nonperforming Troubled Debt Restructurings		20,650				29,288				(8,638)
Total Nonperforming Loans		112,619				146,774				(34,155)
OREO		1,145				2,155				(1,010)
Total Nonperforming Assets		$	113,764			$	148,929			$	(35,165)
Asset Quality Ratios:
Nonperforming loans as a percent of total portfolio loans		1.61		%		2.03		%
Nonperforming assets as a percent of total portfolio loans plus OREO		1.62		%		2.06		%

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.~~

the contractual due date. Nonperforming loans ~~increased $30.0~~decreased $34.2 million to ~~$84.1~~$112.6 million at ~~September~~June 30, ~~2020~~2021 compared to ~~$54.1~~$146.8 million at December 31, ~~2019.~~2020. The significant ~~increase~~decrease in nonperforming loans primarily related to the ~~addition~~payoff of ~~a $11.3~~three CRE relationships totaling $14.4 million ~~CRE relationship, the $10.9 million lending relationship related to the customer fraud,~~and charge- offs of a $4.9 million CRE relationship and a ~~$4.3~~$3.9 million C&I ~~relationship. The $11.3 million CRE~~ relationship ~~became a performing TDR in~~during the third quarter of 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 relationship was individually assessed at Septembersix months ended June 30, ~~2020, and based upon the appraisal liquidation value, a $10.1 million charge-off was taken due to the relationship being under-collateralized.~~2021.

Deposits


(dollars in thousands)	June 30, 2021			December 31, 2020			$ Change
Customer Deposits
Noninterest-bearing demand		$	2,668,833		$	2,261,994		$	406,839
Interest-bearing demand		979,300			864,510			114,790
Money market		2,047,254			1,887,051			160,203
Savings		1,050,256			969,508			80,748
Certificates of deposit		1,264,621			1,369,239			(104,618)
Total Customer Deposits		8,010,264			7,352,302			657,962
Brokered Deposits
Interest-bearing demand		—			—			—
Money market		—			50,012			(50,012)
Certificates of deposit		5,000			18,224			(13,224)
Total Brokered Deposits		5,000			68,236			(63,236)

Total Deposits		$	8,015,264		$	7,420,538		$	594,726

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~~Deposits~~

(dollars in thousands) September 30, 2020 December 31, 2019 $ Change
Customer Deposits
Noninterest-bearing demand $ 2,232,706 $ 1,698,082 $ 534,624
Interest-bearing demand 982,956 762,111 220,845
Money market 1,983,571 1,849,684 133,887
Savings 938,475 830,919 107,556
Certificates of deposit 1,427,872 1,535,305 (107,433)
Total Customer Deposits 7,565,580 6,676,101 889,479
Brokered Deposits
Interest-bearing demand — 200,220 (200,220)
Money market 50,014 100,127 (50,113)
Certificates of deposit 18,224 60,128 (41,904)
Total Brokered Deposits 68,238 360,475 (292,237)
Total Deposits $ 7,633,818 $ 7,036,576 $ 597,242

Deposits are our primary source of funds. We believe that our deposit base is stable and that we have the ability to attract new deposits. Total deposits at ~~September~~June 30, ~~2020~~2021 increased ~~$597.2~~$594.7 million, or 8.0 percent, from December 31, 2020. Total customer deposits increased $658.0 million from December 31, ~~2019. Total customer deposits increased $889.5 million from December 31, 2019.~~2020. The increase in customer deposits is primarily related to government stimulus programs, PPP and stimulus programs along with customers conservatively holding cash deposits during these uncertain times. Customer noninterest-bearing demand deposits increased $534.6 million, interest-bearing demand deposits increased $220.8 million, money market deposits increased $133.9 million and savings deposits increased $107.6 million. These increases were offset by a decline in certificate of deposits of $107.4 million which was mainly a result of repositioning by our ~~customers.~~customers’ liquidity preferences. Total brokered deposits decreased ~~$292.2~~$63.2 million from December 31, ~~2019~~2020 due to a reduced need for this funding given the customer deposit growth. 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)	(dollars in thousands)	September 30, 2020			December 31, 2019			$ Change			(dollars in thousands)	June 30, 2021			December 31, 2020			$ Change
Securities sold under repurchase agreements	Securities sold under repurchase agreements		$	42,706		$	19,888		$	22,818	Securities sold under repurchase agreements		$	68,587		$	65,163		$	3,424
Short-term borrowings	Short-term borrowings		83,000			281,319			(198,319)		Short-term borrowings		—			75,000			(75,000)
Long-term borrowings	Long-term borrowings		49,076			50,868			(1,792)		Long-term borrowings		22,969			23,681			(712)
Junior subordinated debt securities	Junior subordinated debt securities		64,068			64,277			(209)		Junior subordinated debt securities		64,112			64,083			29
Total Borrowings	Total Borrowings		$	238,850		$	416,352		$	(177,502)	Total Borrowings		$	155,668		$	227,927		$	(72,259)

Borrowings are an additional source of funding for us. Total borrowings decreased ~~$177.5~~$72.3 million, or ~~42.6~~31.7 percent, compared to December 31, ~~2019~~2020 due to increased customer deposits. Total short-term borrowings decreased ~~$198.3~~$75.0 million, ~~or 70.5 percent,~~ compared to December 31, ~~2019. Securities sold under repurchase agreements increased $22.8 million to $42.7 million at September 30, 2020 compared to December 31, 2019 due to demand from our REPO customers.~~2020.

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Information pertaining to short-term borrowings is summarized in the tables below for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and for the twelve months ended December 31, ~~2019.~~2020.


		Securities Sold Under Repurchase Agreements							Securities Sold Under Repurchase Agreements
(dollars in thousands)	(dollars in thousands)	September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020
Balance at the period end	Balance at the period end	$	42,706		$	19,888		Balance at the period end	$	68,587		$	65,163
Average balance during the period	Average balance during the period	$	60,045		$	16,863		Average balance during the period	$	66,254		$	57,673
Average interest rate during the period	Average interest rate during the period	0.30		%	0.65		%	Average interest rate during the period	0.13		%	0.29		%
Maximum month-end balance during the period	Maximum month-end balance during the period	$	92,159		$	23,427		Maximum month-end balance during the period	$	68,863		$	92,159
Average interest rate at the period end	Average interest rate at the period end	0.25		%	0.74		%	Average interest rate at the period end	0.10		%	0.25		%

		Short-Term Borrowings							Short-Term Borrowings
(dollars in thousands)	(dollars in thousands)	September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020
Balance at the period end	Balance at the period end	$	83,000		$	281,319		Balance at the period end	$	—		$	75,000
Average balance during the period	Average balance during the period	$	182,623		$	255,264		Average balance during the period	$	12,707		$	155,753
Average interest rate during the period	Average interest rate during the period	1.02		%	2.51		%	Average interest rate during the period	0.19		%	0.92		%
Maximum month-end balance during the period	Maximum month-end balance during the period	$	410,240		$	425,000		Maximum month-end balance during the period	$	25,000		$	410,240
Average interest rate at the period end	Average interest rate at the period end	0.36		%	1.84		%	Average interest rate at the period end	- %			0.19		%

Information pertaining to long-term borrowings is summarized in the tables below for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and for the twelve months ended December 31, ~~2019.~~2020.


		Long-Term Borrowings							Long-Term Borrowings
(dollars in thousands)	(dollars in thousands)	September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020
Balance at the period end	Balance at the period end	$	49,076		$	50,868		Balance at the period end	$	22,969		$	23,681
Average balance during the period	Average balance during the period	$	50,292		$	66,392		Average balance during the period	$	23,291		$	47,953
Average interest rate during the period	Average interest rate during the period	2.52		%	2.76		%	Average interest rate during the period	2.01		%	2.50		%
Maximum month-end balance during the period	Maximum month-end balance during the period	$	50,635		$	70,418		Maximum month-end balance during the period	$	23,549		$	50,635
Average interest rate at the period end	Average interest rate at the period end	2.47		%	2.61		%	Average interest rate at the period end	1.98		%	2.03		%

		Junior Subordinated Debt Securities							Junior Subordinated Debt Securities
(dollars in thousands)	(dollars in thousands)	September 30, 2020			December 31, 2019			(dollars in thousands)	June 30, 2021			December 31, 2020
Balance at the period end	Balance at the period end	$	64,068		$	64,277		Balance at the period end	$	64,112		$	64,083
Average balance during the period	Average balance during the period	$	64,099		$	47,934		Average balance during the period	$	64,095		$	64,092
Average interest rate during the period	Average interest rate during the period	3.72		%	4.82		%	Average interest rate during the period	3.07		%	3.57		%
Maximum month-end balance during the period	Maximum month-end balance during the period	$	64,648		$	64,277		Maximum month-end balance during the period	$	64,112		$	64,848
Average interest rate at the period end	Average interest rate at the period end	3.03		%	4.42		%	Average interest rate at the period end	2.92		%	3.01		%

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

Liquidity and Capital Resources

L~~iquidity~~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" 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 Federal Home Loan Bank, or FHLB, of Pittsburgh, federal funds lines with other financial institutions, the brokered deposit market and borrowing availability through the Federal Reserve Borrower-In-Custody program.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate, and high. At ~~September~~June 30, ~~2020,~~2021, we had ~~$670.1 million~~$1.4 billion in highly liquid assets, which consisted of ~~$235.8~~$897.5 million in interest-bearing deposits with banks, ~~$417.6~~$459.3 million in unpledged securities and ~~$16.7~~$7.6 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of ~~7.3~~14.4 percent at ~~September~~June 30, ~~2020.~~2021. Also, at ~~September~~June 30, ~~2020,~~2021, we had a remaining borrowing availability of $2.5 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:~~presented:


(dollars in thousands)	(dollars in thousands)	Adequately Capitalized		Well- Capitalized		September 30, 2020				December 31, 2019				(dollars in thousands)	Adequately Capitalized		Well- Capitalized		June 30, 2021				December 31, 2020
						Amount		Ratio		Amount		Ratio							Amount		Ratio		Amount		Ratio
S&T Bancorp, Inc.	S&T Bancorp, Inc.													S&T Bancorp, Inc.
Tier 1 leverage	Tier 1 leverage	4.00	%	5.00	%	$	813,100	9.11	%	$	854,146	10.29	%	Tier 1 leverage	4.00	%	5.00	%	$	863,498	9.52	%	$	825,515	9.43 %
Common equity tier 1 to risk-weighted assets	Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	784,100		11.05	%	825,146		11.43	%	Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	834,498		11.98	%	796,515		11.33 %
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	813,100		11.46	%	854,146		11.84	%	Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	863,498		12.40	%	825,515		11.74 %
Total capital to risk-weighted assets	Total capital to risk-weighted assets	8.00	%	10.00	%	934,577		13.18	%	954,094		13.22	%	Total capital to risk-weighted assets	8.00	%	10.00	%	975,029		14.00	%	944,686		13.44 %
S&T Bank	S&T Bank													S&T Bank
Tier 1 leverage	Tier 1 leverage	4.00	%	5.00	%	$	798,948	8.97	%	$	832,113	10.04	%	Tier 1 leverage	4.00	%	5.00	%	$	845,521	9.33	%	$	810,636	9.27 %
Common equity tier 1 to risk-weighted assets	Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	798,948		11.29	%	832,113		11.56	%	Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	845,521		12.16	%	810,636		11.55 %
Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	798,948		11.29	%	832,113		11.56	%	Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	845,521		12.16	%	810,636		11.55 %
Total capital to risk-weighted assets	Total capital to risk-weighted assets	8.00	%	10.00	%	912,429		12.89	%	922,310		12.81	%	Total capital to risk-weighted assets	8.00	%	10.00	%	951,203		13.67	%	922,007		13.14 %

On March 27, 2020, the regulators issued interim final rule, or IFR, “Regulatory Capital Rule: Revised Transition of the Current Expected Credit Losses Methodology for Allowances” in response to the disrupted economic activity ~~from~~due to the ~~spread of COVID-19.~~COVID-19 pandemic. The IFR provides financial institutions that ~~adopt~~adopted CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided by the initial two-year delay (“~~five year~~five-year transition”). We adopted CECL effective January 1, 2020 and elected to implement the ~~five year~~five-year transition.

We have filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, with the SEC, which allows for the issuance of a variety of securities including debt and capital securities, preferred and common stock and warrants. We may use the proceeds from the sale of securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of ~~September~~June 30, ~~2020,~~2021, 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

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

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

are taking a prudent approach to capital ~~management and have established access to the Federal Reserve’s PPP Lending Facility.~~management.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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~~1-12 and ~~13 - 24~~13-24 month periods of pretax net interest income and EVE.


		September 30, 2020								December 31, 2019											June 30, 2021									December 31, 2020
		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 Interest Rate (basis points)																				Change in Interest Rate (basis points)	% Change in Pretax Net Interest Income				% Change in Pretax Net Interest Income				% Change in EVE		% Change in Pretax Net Interest Income		% Change in Pretax Net Interest Income		% Change in EVE
400	400	16.7	%	26.8	%			31.1	%			9.6	%			14.4	%					(1.8)	%	400	29.3	%	36.5	%				15.8 %		28.5 %
300	300	12.4		20.1		31.2				7.2				10.8				2.8		300	21.8				27.3		26.8			11.7		21.3		29.0
200	200	8.3		13.6		27.3				5.0				7.6				5.5		200	14.4				18.5		23.9			7.7		14.3		25.6
100	100	4.9		7.7		18.9				2.7				4.2				5.1		100	6.4				8.8		14.4			4.4		8.0		17.7
(100)		(2.5)	%	(5.1)	%	(30.1)	%			(4.3)	%			(6.4)	%			(10.8)	%
-100																				-100	(3.8)				(7.5)		(28.1)			(2.8)		(5.7)		(28.2)

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

Our rate shock analyses show an improvement in the percentage change in pretax net interest income in the ~~1-12 month and 13-24 month~~ rates up scenarios and a decline in the rates down scenarios when comparing ~~September~~June 30, ~~2020~~2021 to December 31, ~~2019.~~2020. We have become more asset sensitive due to our increased balances at the Federal Reserve. Our EVE analyses show ~~an improvement~~a decline in the percentage change in EVE in the rates up scenarios and ~~a decline~~an improvement in the rates down scenario when comparing ~~September~~June 30, ~~2020~~2021 to December 31, ~~2019.~~2020. The EVE decline is due to the ~~low interest rate environment which negatively impacts~~impact of a steepened yield curve on the value of ~~our~~ non-maturity deposits.

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

In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations. Sensitivity analyses are performed to help us identify which model

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

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Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of S&T’s Interim Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of ~~September~~June 30, ~~2020.~~2021. 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~~June 30, ~~2020,~~2021, 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.

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, ~~2019,~~2020, as filed with the SEC on March ~~2, 2020~~1, 2021 other than the risks described below.

~~The duration~~Risks Related to Our Business Strategy

Our future performance will depend, in part, on the successful transition of our new CEO.

On October 2, 2020, we announced that Todd D. Brice will retire as Chief Executive Officer of S&T and ~~severity~~S&T Bank, and as a member of the ~~COVID-19 pandemic,~~Boards of Directors of S&T and S&T Bank, effective March 31, 2021. On July 12, 2021 we announced that Christopher J. McComish will be appointed Chief Executive Officer (CEO) of S&T and S&T Bank, effective August 23, 2021 (the “Effective Date”) and will also be appointed to the Boards of Directors of S&T and S&T Bank on the Effective Date. From and following the Effective Date, David G. Antolik, who has served as Interim Chief Executive Officer since April 2021, will continue as President of S&T and S&T Bank and as a member of the Boards of Directors of S&T and S&T Bank. Our future performance will depend, in part, on the successful transition of our ~~principal area of operations, nationally~~new CEO. This transition may be disruptive to our business, and ~~globally, has impacted~~if we are unable to execute an orderly transition and ~~could adversely impact S&T’s business,~~successfully integrate our new CEO into our management team, our revenue, results of operations, and financial ~~condition. While it is difficult to predict~~condition may be adversely affected. Further, if our new CEO formulates different or changed views, the ~~further impact~~future strategy and plans of S&T may differ materially from those of the ~~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~~past.

•~~The low interest rate environment will continue to negatively impact our net interest income and net interest margin.~~

•~~Credit losses may be higher and our provision for credit losses may continue to 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.~~

•~~Continued negative impact on the hospitality industry and our hotel portfolio, which could result in additional 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.

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

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

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•~~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 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 calculates the ACL in accordance with 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 reported amount~~. S&T’s ability to assess expected credit losses may be impaired if the models and approaches we use become less predictive of future behaviors. In particular, the reliance on supportable economic forecasts in light of the COVID-19 pandemic has had and is expected to have an impact on the estimates of our ACL. These forecasts have deteriorated since January 1, 2020 and continued adverse economic forecasts and economic uncertainty could negatively affect our ACL.

Fraudulent activity associated with our products and services could adversely affect our results of operations, financial condition and stock price, negatively impact our brand and reputation, and result in regulatory intervention or sanctions.

As a financial institution we are exposed to operational risk in the form of fraudulent activity that may be committed by customers, other third parties, or employees, targeting us and our customers. The risk of fraud continues to increase for the financial services industry. In our Form 8-K filed May 26, 2020, we disclosed that we discovered customer fraud resulting from a check kiting scheme by a business customer of S&T. We recognized a pre-tax loss of $58.7 million during the second quarter of 2020 related to this customer fraud. As a result of our internal review of the fraud, we have made process and monitoring enhancements that are substantially implemented. While we believe we have operational risk controls in place to prevent or detect future instances of fraud or to mitigate the impact of any fraud, we cannot provide assurance that we can prevent or detect fraud or that we will not experience future fraud losses or incur costs or other damage related to such fraud, at levels that adversely affect our results of operation, financial condition, or stock price. Furthermore, fraudulent activity could negatively impact our brand and reputation, which could also adversely affect our results of operation, financial condition, or stock price. Fraudulent activity could also lead to regulatory intervention or regulatory sanctions.

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~~second quarter of ~~2020:~~2021:


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
				$37,441,683
~~07/~~04/01/~~2020~~2021 - ~~07/31/2020~~04/30/2021	—	$—	—	37,441,683

~~08/~~05/01/~~2020~~2021 - ~~08/~~05/31/~~2020~~2021	—	—	—	37,441,683

~~09/~~06/01/~~2020~~2021 - ~~09/~~06/30/~~2020~~2021	—	—	—	37,441,683
Total	—	$—	—	$37,441,683

(1)On ~~September 16, 2019,~~March 15, 2021, our Board of Directors authorized aan extension of the $50 million share repurchase ~~plan.~~plan, which was set to expire March 31, 2021. This authorization extended the expiration date of the repurchase ~~authorization, which is effective~~plan through March 31, ~~2021,~~2022. The plan permits S&T to repurchase from time to time up to the previously authorized $50 million in aggregate value of shares of S&T's common stock, with $37.4 million of capacity remaining at June 30, 2021, 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

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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. ~~Repurchase activity was suspended in March 2020 as the impact of the COVID-19 pandemic spread.~~Share repurchases will not occur unless permissible under applicable laws.

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Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

On November 2, 2020, we entered into a Confidentiality, Trade Secrets, Non-Solicitation and Severance Agreement with Ernest J. Draganza (the “Severance Agreement”). Under the Severance Agreement, if Mr. Draganza’s employment is terminated without Cause (as defined in the Severance Agreement) he will be entitled to one year of pay at his last base salary paid in accordance with S&T’s regular payroll practices over twelve (12) months commencing on the first regular payroll date following termination of employment and will also be eligible to receive paid COBRA benefits for twelve (12) months (collectively referred to as “Severance”). The Severance Agreement provides that in the event of a termination with Cause, the restrictive covenants discussed below will remain in full force and effect without him being entitled to Severance. Furthermore, if he resigns his employment, he will not be entitled to any Severance.

Additionally, under the Severance Agreement, Mr. Draganza has agreed to the following restrictive covenants: (i) during the period of employment and continuing thereafter indefinitely, maintain the confidentiality of S&T’s confidential information; (ii) following the termination of employment and continuing for a period of one (1) year refrain from doing any business with and/or soliciting any customer(s) of S&T; and (iii) during the period of employment and continuing for a period of one (1) year not to directly or indirectly hire, solicit, employ, or knowingly permit any enterprise or business where he owns or becomes employed to employ any person who was employed by S&T at any time during the two (2) year period preceding his termination of employment with S&T, or in any manner facilitate the leaving of any person from his or her employment with S&T.

~~On August 4, 2020, we entered into a severance and general release agreement with David P. Ruddock in connection with his previously announced resignation.~~Under the terms of the agreement, Mr. Ruddock will receive (a) a total gross payment of three hundred thirty-five thousand, four hundred and fifty dollars ($335,450.00), paid in three installments: (i) the first payment of one half of this total to be made within thirty days after the seven (7) day revocation period provided to Mr. Ruddock if the agreement expires without a revocation (in the gross amount of $167,725.00), and (ii) the remaining two payments, each for one quarter of the total - one in December 2020 and the final payment to be made on August 2, 2021 (each in the gross amount of $83,862.50), (b) payment of his COBRA health insurance coverage for twelve (12) months or until he obtains coverage from a new employer, (c) an additional amount of thirty-two thousand dollars ($32,000.00) within thirty days after the revocation period expires without a revocation, and (d) ownership of the S&T automobile and cell phone with Mr. Ruddock assuming operations, maintenance, insurance and all other cost and responsibilities regarding them.

None

~~Table of Contents~~

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

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.
3.1	Amended and Restated Articles of Incorporation of S&T Bancorp, Inc.	Filed herewith
10.1	~~Severance and General Release Agreement, dated August 4, 2020, by and between David P. Ruddock and~~ S&T Bancorp, Inc., S&T Bank and any of their subsidiaries or affiliated business* 2021 Incentive Plan.* Filed as Exhibit 10.1 to S&T Bancorp, Inc. ~~Quarterly~~Current Report on ~~form 10-Q~~Form 8-K filed on ~~August 6, 2020,~~May 20, 2021, and incorporated herein by reference.
10.2	~~Confidentiality, Trade Secrets, Non-Solicitation~~Severance and ~~Severance~~General Release Agreement, ~~dated November 2, 2020,~~ by and between Ernest J. Draganza and S&T Bancorp, Inc.,* Filed as Exhibit 10.1 to S&T ~~Bank~~Bancorp, Inc. Current Report on Form 8-K filed on June 3, 2021, and their subsidiaries and affiliated companies.*incorporated herein by reference.	~~Filed herewith~~
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.	Filed herewith
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer.	Filed herewith
32	Rule 13a-14(b) Certification of the Chief Executive Officer and Chief Financial Officer.	Filed herewith
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101)

* Management Contract or Compensatory Plan or Arrangement

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

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)

~~November~~August 4, ~~2020~~2021			/s Mark Kochvar
			Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

7961


	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			0			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)


	November 30, 2019						September 30, 2020
	As Recorded by DNB		Fair Value Adjustments		As Recorded by S&T		Measurement Period Adjustments		As Recorded by S&T
Fair Value of Assets Acquired
Cash and cash equivalents	$	64,119	$	0	$	64,119	$	0	$	64,119
Securities and other investments	108,715		183		108,898		0		108,898
Loans	917,127		(8,143)		908,984		(2,377)		906,607
Allowance for credit losses	(6,487)		6,487		0		0		0
Goodwill	15,525		(15,525)		—		—		—
Premises and equipment	6,782		8,090		14,872		0		14,872
Accrued interest receivable	4,138		0		4,138		0		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		(108)		20,497
Total Assets Acquired	1,137,088		(16,753)		1,120,335		(2,174)		1,118,161
Fair Value of Liabilities Assumed
Deposits	966,263		1,002		967,265		0		967,265
Borrowings	37,617		(276)		37,341		(257)		37,084
Accrued interest payable and other liabilities	11,157		(3,184)		7,973		(122)		7,851
Total Liabilities Assumed	1,015,037		(2,458)		1,012,579		(379)		1,012,200
Total Net Assets Acquired	$	122,051	$	(14,295)	$	107,756	$	(1,795)	$	105,961
Core Deposit Intangible Asset					$	7,288	$	0	$	7,288
Wealth Management Intangible Asset					1,772		0		1,772
Total Fair Value of Net Assets Acquired and Identified					$	116,816	$	(1,795)	$	115,021
Consideration Paid
Cash					$	360	$	—	$	360
Common stock					200,631		—		200,631
Fair Value of Total Consideration					$	200,991	$	—	$	200,991
Goodwill					$	84,175	$	1,795	$	85,970


	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	%	0		0	%	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	%


	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	0		0		0
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		0
Other consumer	13		20		9
Total	$	75,337	$	86,771	$	2,200


	Three months ended				Nine months ended
	September 30, 2019				September 30, 2019
(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	$	0	$	14,348	$	0
Commercial and industrial	0		0		0		0
Commercial construction	490		0		490		0
Consumer real estate	0		0		0		0
Other consumer	11		0		13		1
Total with a Related Allowance Recorded	14,756		0		14,851		1
Without a related allowance recorded:
Commercial real estate	39,179		231		39,788		712
Commercial and industrial	8,008		116		6,644		308
Commercial construction	2,318		34		2,318		117
Consumer real estate	8,830		97		8,993		297
Other consumer	3		0		4		0
Total without a Related Allowance Recorded	58,338		478		57,747		1,434
Total:
Commercial real estate	53,434		231		54,136		712
Commercial and industrial	8,008		116		6,644		308
Commercial construction	2,808		34		2,808		117
Consumer real estate	8,830		97		8,993		297
Other consumer	14		0		17		1
Total	$	73,094	$	478	$	72,598	$	1,435


	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	0		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