S&T BANCORP INC - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)


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

For the quarterly period ended September 30, 2022


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

For the transition period from to

Commission file number 0-12508

______________________________________

S&T BANCORP INC.

(Exact name of registrant as specified in its charter)

______________________________________

Pennsylvania

25-1434426

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

800 Philadelphia Street

Indiana

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 - 39,003,545 shares as of October 31, 2022

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	2

	Condensed Consolidated Statements of Comprehensive Income (Loss)	3

	Consolidated Statements of Changes in Shareholders' Equity	4

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	49

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	49

Item 1A.	Risk Factors	49

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

	Signatures	52

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S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2022			December 31, 2021
(in thousands, except share and per share data)	(Unaudited)			(Audited)
ASSETS
Cash and due from banks, including interest-bearing deposits of $61,186 and $857,192 at September 30, 2022 and December 31, 2021		$	134,903		$	922,215
Securities, at fair value		997,428			910,793
Loans held for sale		1,039			1,522
Portfolio loans, net of unearned income		7,096,916			6,999,990
Allowance for credit losses		(99,694)			(98,576)
Portfolio loans, net		6,997,222			6,901,414
Bank owned life insurance		84,778			83,685
Premises and equipment, net		49,802			52,632
Federal Home Loan Bank and other restricted stock, at cost		10,900			9,519
Goodwill		373,424			373,424
Other intangible assets, net		5,743			6,895
Other assets		280,730			226,430
Total Assets		$	8,935,969		$	9,488,529
LIABILITIES
Deposits:
Noninterest-bearing demand		$	2,663,176		$	2,748,586
Interest-bearing demand		847,825			979,133
Money market		1,818,642			2,070,579
Savings		1,128,169			1,110,155
Certificates of deposit		952,785			1,088,071

Total Deposits		7,410,597			7,996,524
Securities sold under repurchase agreements		—			84,491
Short-term borrowings		35,000			—
Long-term borrowings		14,853			22,430
Junior subordinated debt securities		54,438			54,393

Other liabilities		267,900			124,237
Total Liabilities		7,782,788			8,282,075
SHAREHOLDERS’ EQUITY
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—41,449,444 shares at September 30, 2022 and December 31, 2021 Outstanding—39,012,773 shares at September 30, 2022 and 39,351,194 shares at December 31, 2021		103,623			103,623
Additional paid-in capital		405,506			403,095
Retained earnings		835,684			773,659
Accumulated other comprehensive loss		(114,967)			(7,090)
Treasury stock — 2,436,671 shares at September 30, 2022 and 2,098,250 shares at December 31, 2021, at cost		(76,665)			(66,833)
Total Shareholders’ Equity		1,153,181			1,206,454
Total Liabilities and Shareholders’ Equity		$	8,935,969		$	9,488,529

See Notes to Consolidated Financial Statements

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S&T BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands, except per share data)	2022			2021			2022			2021
INTEREST AND DIVIDEND INCOME
Loans, including fees		$	83,035		$	66,914		$	218,646		$	204,088
Investment Securities:
Taxable		6,305			4,176			17,236			11,532
Tax-exempt		380			595			1,346			2,098
Dividends		115			84			315			409
Total Interest and Dividend Income		89,835			71,769			237,543			218,127
INTEREST EXPENSE
Deposits		5,197			2,439			8,840			8,572
Borrowings and junior subordinated debt securities		840			619			1,978			1,881
Total Interest Expense		6,037			3,058			10,818			10,453
NET INTEREST INCOME		83,798			68,711			226,725			207,674
Provision for credit losses		2,498			3,388			5,190			9,087
Net Interest Income After Provision for Credit Losses		81,300			65,323			221,535			198,587
NONINTEREST INCOME
Net gain on sale of securities		198			—			198			29
Debit and credit card		4,768			4,579			14,587			13,486
Service charges on deposit accounts		4,333			3,923			12,488			11,039
Wealth management		3,212			3,464			9,701			9,576
Mortgage banking		425			2,162			1,906			8,206

Other		1,824			1,718			3,736			6,257
Total Noninterest Income		14,760			15,846			42,616			48,593
NONINTEREST EXPENSE
Salaries and employee benefits		26,700			25,228			75,223			73,070
Data processing and information technology		4,220			4,001			12,759			12,012
Occupancy		3,490			3,660			11,006			10,921
Furniture, equipment and software		2,915			2,745			8,631			7,787
Professional services and legal		1,851			1,550			6,180			4,718
Other taxes		1,559			1,830			4,778			5,098
Marketing		1,367			890			4,252			3,208
FDIC insurance		598			1,210			2,417			3,180

Other		6,933			6,127			20,225			18,742
Total Noninterest Expense		49,633			47,241			145,471			138,736
Income Before Taxes		46,427			33,928			118,680			108,444
Income tax expense		9,178			6,330			23,430			20,578
Net Income		$	37,249		$	27,598		$	95,250		$	87,866
Earnings per share—basic		$	0.95		$	0.71		$	2.43		$	2.25
Earnings per share—diluted		$	0.95		$	0.70		$	2.43		$	2.24
Dividends declared per share		$	0.30		$	0.28		$	0.89		$	0.84
Comprehensive (Loss) Income		$	(10,547)		$	22,964		$	(12,627)		$	77,866

See Notes to Consolidated Financial Statements

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S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)


	Three months ended September 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 June 30, 2021		$	103,623		$	402,053		$	746,472		$	3,605		$	(67,020)		$	1,188,733
Net income for the three months ended September 30, 2021		—			—			27,598			—			—			27,598
Other comprehensive loss, net of tax		—			—			—			(4,634)			—			(4,634)

Cash dividends declared ($0.28 per share)		—			—			(10,991)			—			—			(10,991)
Treasury stock issued for restricted stock awards (25,459 shares)		—			—			(811)			—			811			—
Forfeitures of restricted stock awards (3,331 shares)		—			—			106			—			(106)			—


Recognition of restricted stock compensation expense		—			975			—			—			—			975
Balance at September 30, 2021		$	103,623		$	403,028		$	762,374		$	(1,029)		$	(66,315)		$	1,201,681
See Notes to Consolidated Financial Statements

	Three months ended September 30, 2022
(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at June 30, 2022		$	103,623		$	404,841		$	809,644		$	(67,171)		$	(72,579)		$	1,178,358
Net income for the three months ended September 30, 2022		—			—			37,249			—			—			37,249
Other comprehensive loss, net of tax		—			—			—			(47,796)			—			(47,796)

Cash dividends declared ($0.30 per share)		—			—			(11,747)			—			—			(11,747)

Forfeitures of restricted stock awards (18,943 shares)		—			—			538			—			(602)			(64)

Repurchase of S&T stock (117,283 shares)		—			—			—			—			(3,484)			(3,484)
Recognition of restricted stock compensation expense		—			665			—			—			—			665
Balance at September 30, 2022		$	103,623		$	405,506		$	835,684		$	(114,967)		$	(76,665)		$	1,153,181
See Notes to Consolidated Financial Statements

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S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)


	Nine months ended September 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 nine months ended September 30, 2021		—			—			87,866			—			—			87,866
Other comprehensive loss, net of tax		—			—			—			(10,000)			—			(10,000)
Cash dividends declared ($0.84 per share)		—			—			(32,954)			—			—			(32,954)
Treasury stock issued for restricted stock awards (125,170 shares)		—			—			(3,988)			—			3,988			—
Forfeitures of restricted stock awards (55,330 shares)		—			—			1,389			—			(1,691)			(302)


Recognition of restricted stock compensation expense		—			2,360			—			—			—			2,360
Balance at September 30, 2021		$	103,623		$	403,028		$	762,374		$	(1,029)		$	(66,315)		$	1,201,681
See Notes to Consolidated Financial Statements

	Nine months ended September 30, 2022
(dollars in thousands, except share and per share data)	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance at January 1, 2022		$	103,623		$	403,095		$	773,659		$	(7,090)		$	(66,833)		$	1,206,454
Net income for the nine months ended September 30, 2022		—			—			95,250			—			—			95,250
Other comprehensive loss, net of tax		—			—			—			(107,877)			—			(107,877)

Cash dividends declared ($0.89 per share)		—			—			(34,922)			—			—			(34,922)
Treasury stock issued for restricted stock awards (4,250 shares)		—			—			(135)			—			135			—
Forfeitures of restricted stock awards (74,168 shares)		—			—			1,832			—			(2,330)			(498)

Repurchase of S&T Stock (268,503 shares)		—			—			—			—			(7,637)			(7,637)
Recognition of restricted stock compensation expense		—			2,411			—			—			—			2,411
Balance at September 30, 2022		$	103,623		$	405,506		$	835,684		$	(114,967)		$	(76,665)		$	1,153,181

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,
(dollars in thousands)		2022		2021
OPERATING ACTIVITIES























Net Cash Provided by Operating Activities		$	205,236	$	171,740
INVESTING ACTIVITIES
Purchases of securities		(353,088)		(226,971)
Proceeds from maturities, prepayments and calls of securities		117,377		109,499
Proceeds from sales of securities		30,490		1,917
Proceeds from redemption of Federal Home Loan Bank stock		18,186		19,694
Purchases of Federal Home Loan Bank stock		(19,567)		(16,557)
Net (increase) decrease in loans		(101,919)		220,854
Proceeds from sale of portfolio loans		4,326		3,438

Purchases of premises and equipment		(2,877)		(2,110)
Proceeds from the sale of premises and equipment		251		14
Proceeds from life insurance settlement		214		353


Net Cash (Used in) Provided by Investing Activities		(306,607)		110,131
FINANCING ACTIVITIES
Net (decrease) increase in core deposits		(450,642)		710,776
Net (decrease) in certificates of deposit		(135,227)		(186,115)
Net (decrease) increase in securities sold under repurchase agreements		(84,491)		7,423
Net increase (decrease) in short-term borrowings		35,000		(75,000)

Repayments on long-term borrowings		(7,577)		(988)

Repurchase of shares for taxes on restricted stock		(498)		(302)

Cash dividends paid to common shareholders		(34,869)		(32,954)
Repurchase of common stock		(7,637)		—


Net Cash (Used in) Provided by Financing Activities		(685,941)		422,840
Net (decrease) increase in cash and cash equivalents		(787,312)		704,711
Cash and cash equivalents at beginning of period		922,215		229,666
Cash and Cash Equivalents at End of Period		$	134,903	$	934,377

Supplemental Disclosures
Loans transferred to held for sale		$	—	$	4,467



Cash paid for interest		$	10,152	$	12,200
Cash paid for income taxes, net of refunds		$	19,725	$	19,183


Transfers of loans to other real estate owned		$	23	$	12,392

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, 2021, filed with the Securities and Exchange Commission, or SEC, on February 28, 2022 (2021 Form 10-K). 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.

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.

Accounting Policy for Derivative Instruments and Hedging Activities

During the nine months ended September 30, 2022, we entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing variable rate assets. We have updated our accounting policy for derivative instruments and hedging activities to include hedge accounting.

All derivatives are evaluated at inception to determine whether it is a hedging or non-hedging activity. The accounting for changes in the fair value of derivatives depends on whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. As long as the cash flow hedge continues to qualify for hedge accounting, the entire change in the fair value of the hedging instrument is recorded in Accumulated Other Comprehensive Income (Loss), or AOCI, and recognized in earnings as the hedged transaction affects earnings.

We have entered into agreements with counterparty financial institutions, which include master netting agreements that provide for the net settlement of all contracts with a single counterparty in the event of default. We elect, however, to account for all derivatives with counterparty institutions on a gross basis.

Refer to our 2021 Form 10-K for a discussion of our complete Accounting Policy for Derivative Instruments and Hedging Activities.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recently Adopted Accounting Standards Updates, or ASU or Updated

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. 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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Addendum (Topic 848) which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We adopted ASU 2020-04 and ASU 2021-01 on January 1, 2022. We are utilizing the LIBOR transition relief as contract modifications are made during the course of the reference rate reform transition period. ASU 2020-04 and ASU 2021-01 did not have a material impact on our consolidated financial statements.

Accounting Standards Issued But Not Yet Adopted

Financial Instruments Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the FASB issued ASU 2022-02, Financial Instruments Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures. The guidance eliminates the “once a TDR, always a TDR” requirement for loan disclosures and requires disclosures about the performance of modified loans to borrowers experiencing financial difficulty in the 12 months following the modification.

The amendments eliminate the recognition and measurement guidance related to TDRs for creditors that have adopted ASC 326 Financial Instruments - Credit Losses. We adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020. Once applying ASC 326, the required accounting and disclosures for a loan modified in a TDR no longer provide decision-useful information. ASC 326 requires the recognition of lifetime expected credit losses when a loan is originated or acquired, so the effect of credit losses that occur in loans modified in TDRs is already included in the allowance for credit losses.

ASU 2022-02 requires a creditor to apply the loan refinancing and restructuring guidance in ASC 310-205 (consistent with the accounting for other loan modifications) to determine whether a modification results in a new loan or a continuation of an existing loan. It also requires enhanced disclosures for modifications in the form of interest rate reductions, principal forgiveness, other-than-insignificant payment delays or term extensions (or combinations thereof) of loans made to borrowers experiencing financial difficulty. Disclosures are required regardless of whether a modification of a loan to a borrower experiencing financial difficulty results in a new loan. The objective of the disclosures is to provide information about the type and magnitude of modifications and the degree of their success in mitigating potential credit losses.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, however, we have not elected to do so. We are currently in the process of developing new reporting and processes in order adhere to the new disclosure requirements. We anticipate using a modified retrospective transition approach, which would result in a cumulative effect adjustment being record to retained earnings related to the elimination of TDRs. While we are currently evaluating the impact of this ASU, we do not expect it to have a material impact on our consolidated financial statements.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. EARNINGS PER SHARE

Diluted earnings per share is calculated using both the two-class and the treasury stock methods with the more dilutive method used to determine diluted earnings per share. The two-class method was used to determine earnings per share for the three and nine months ended September 30, 2022 and 2021. The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented:


	Three months ended September 30,						Nine months ended September 30,
(in thousands, except share and per share data)	2022			2021			2022			2021
Numerator for Earnings per Share—Basic and Diluted:
Net income		$	37,249		$	27,598		$	95,250		$	87,866
Less: Income allocated to participating shares		98			125			223			408
Net Income Allocated to Shareholders		$	37,151		$	27,473		$	95,027		$	87,458
Denominator for Earnings per Share - Basic and Diluted:
Weighted Average Shares Outstanding—Basic		38,937,771			39,060,616			39,030,325			39,044,412
Add: Average participating shares outstanding		37,374			1,464			18,826			458
Denominator for Two-Class Method—Diluted		38,975,145			39,062,080			39,049,151			39,044,870

Earnings per share—basic		$	0.95		$	0.71		$	2.43		$	2.25
Earnings per share—diluted		$	0.95		$	0.70		$	2.43		$	2.24


Restricted stock considered anti-dilutive excluded from potentially dilutive shares		655			163			1,027			615

NOTE 3. FAIR VALUE MEASUREMENTS

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

Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data that we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.

The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.

Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.

Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

There have been no changes in our valuation methodologies during the three and nine months ended September 30, 2022. Refer to Note 1 of the Notes to Consolidated Financial Statements in our 2021 Form 10-K for more information on the valuation methodologies that we use for financial instruments recorded at fair value on a recurring or nonrecurring basis.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 the dates presented:


	September 30, 2022
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	120,825	$	—	$	—	$	120,825
Obligations of U.S. government corporations and agencies	—		51,784		—		51,784
Collateralized mortgage obligations of U.S. government corporations and agencies	—		419,719		—		419,719
Residential mortgage-backed securities of U.S. government corporations and agencies	—		41,984		—		41,984
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		323,469		—		323,469
Corporate obligations	—		500		—		500
Obligations of states and political subdivisions	—		38,122		—		38,122
Total Available-for-sale Debt Securities	120,825		875,578		—		996,403
Marketable equity securities	963		62		—		1,025
Total Securities	121,788		875,640		—		997,428
Securities held in a deferred compensation plan	7,354		—		—		7,354
Derivative financial assets:
Interest rate swaps - commercial loans	—		88,888		—		88,888

Forward sale contracts - mortgage loans	—		—		8		8

Total Assets	$	129,142	$	964,528	$	8	$	1,093,678
LIABILITIES
Derivative financial liabilities:
Interest rate swaps - commercial loans	$	—	$	88,920	$	—	$	88,920

Interest rate lock commitments	—		—		3		3
Interest rate swaps - cash flow hedge	—		22,724		—		22,724
Total Liabilities	$	—	$	111,644	$	3	$	111,647


	December 31, 2021
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	95,327	$	—	$	—	$	95,327
Obligations of U.S. government corporations and agencies	—		70,348		—		70,348
Collateralized mortgage obligations of U.S. government corporations and agencies	—		270,294		—		270,294
Residential mortgage-backed securities of U.S. government corporations and agencies	—		56,793		—		56,793
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		341,300		—		341,300
Corporate obligations	—		500		—		500
Obligations of states and political subdivisions	—		75,089		—		75,089
Total Available-for-sale Debt Securities	95,327		814,324		—		909,651
Marketable equity securities	1,061		81		—		1,142
Total Securities	96,388		814,405		—		910,793
Securities held in a deferred compensation plan	10,230		—		—		10,230
Derivative financial assets:
Interest rate swaps - commercial loans	—		33,528		—		33,528
Interest rate lock commitments	—		—		401		401
Forward sale contracts - mortgage loans	—		—		4		4


Total Assets	$	106,618	$	847,933	$	405	$	954,956
LIABILITIES
Derivative financial liabilities:
Interest rate swaps - commercial loans	$	—	$	33,631	$	—	$	33,631



Total Liabilities	$	—	$	33,631	$	—	$	33,631

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 consolidated financial statements. There were no liabilities measured at fair value on a nonrecurring basis at either September 30, 2022 or December 31, 2021.

There were no Level 3 assets measured at fair value on a nonrecurring basis as of September 30, 2022. Level 3 assets measured at fair value on a nonrecurring basis and the significant unobservable inputs used in the fair value measurements as of December 31, 2021 were as follows:


	December 31, 2021		Valuation Technique	Significant Unobservable Inputs	Range			Weighted Average (1) (2)
(dollars in thousands)
Loans individually evaluated	$	7,268	Collateral method	Appraisal adjustment	0%	-	20%	4.48%
Other real estate owned	1,011		Collateral method	Appraisal adjustment	2.53%			2.53%



Total Assets	$	8,279
(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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the carrying values and fair values of our financial instruments at the dates presented:


	Carrying Value(1)		Fair Value Measurements at September 30, 2022
(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	134,903	$	134,903	$	134,903	$	—	$	—
Securities	997,428		997,428		121,788		875,640		—
Loans held for sale	1,039		1,039		—		—		1,039
Portfolio loans, net	6,997,222		6,729,260		—		—		6,729,260
Collateral receivable	5,529		5,529		5,529		—		—
Securities held in a deferred compensation plan	7,354		7,354		7,354		—		—
Mortgage servicing rights	7,374		7,374		—		—		7,374
Interest rate swaps - commercial loans	88,888		88,888		—		88,888		—


Forward sale contracts	8		8		—		—		8
LIABILITIES
Deposits	$	7,410,597	$	7,382,732	$	6,457,813	$	924,919	$	—
Collateral payable	69,183		69,183		69,183		—		—

Short-term borrowings	35,000		35,000		35,000		—		—
Long-term borrowings	14,853		14,257		4,156		10,101		—
Junior subordinated debt securities	54,438		54,438		54,438		—		—
Interest rate swaps - commercial loans	88,920		88,920		—		88,920		—
Interest rate swaps - cash flow hedge	22,724		22,724		—		22,724		—
Interest rate lock commitments	3		3		—		—		3

(1) As reported in the Consolidated Balance Sheets


	Carrying Value(1)		Fair Value Measurements at December 31, 2021
(dollars in thousands)			Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	922,215	$	922,215	$	922,215	$	—	$	—
Securities	910,793		910,793		96,388		814,405		—
Loans held for sale	1,522		1,522		—		—		1,522
Portfolio loans, net	6,901,414		6,815,468		—		—		6,815,468
Collateral receivable	37,363		37,363		37,363		—		—
Securities held in a deferred compensation plan	10,230		10,230		10,230		—		—
Mortgage servicing rights	7,677		7,677		—		—		7,677
Interest rate swaps	33,528		33,528		—		33,528		—
Interest rate lock commitments	401		401		—		—		401
Forward sale contracts	4		4		—		—		4
LIABILITIES
Deposits	$	7,996,524	$	7,992,942	$	6,908,453	$	1,084,489	$	—

Securities sold under repurchase agreements	84,491		84,491		84,491		—		—
Short-term borrowings	—		—		—		—		—
Long-term borrowings	22,430		22,678		4,300		18,378		—
Junior subordinated debt securities	54,393		54,393		54,393		—		—
Interest rate swaps - commercial loans	33,631		33,631		—		33,631		—

(1) As reported in the Consolidated Balance Sheets

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. SECURITIES

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


(dollars in thousands)	September 30, 2022			December 31, 2021
Available-for-sale debt securities		$	996,403		$	909,651
Marketable equity securities		1,025			1,142
Total Securities		$	997,428		$	910,793

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, 2022												December 31, 2021
(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		$	135,554		$	—		$	(14,729)		$	120,825		$	95,954		$	115		$	(742)		$	95,327
Obligations of U.S. government corporations and agencies		53,515			—			(1,731)			51,784			68,599			1,749			—			70,348
Collateralized mortgage obligations of U.S. government corporations and agencies		470,935			—			(51,216)			419,719			270,696			2,408			(2,810)			270,294
Residential mortgage-backed securities of U.S. government corporations and agencies		50,625			3			(8,644)			41,984			57,029			392			(628)			56,793
Commercial mortgage-backed securities of U.S. government corporations and agencies		350,550			—			(27,081)			323,469			336,918			5,969			(1,587)			341,300
Corporate obligations		500			—			—			500			500			—			—			500
Obligations of states and political subdivisions		39,320			14			(1,212)			38,122			70,539			4,550			—			75,089
Total Available-for-Sale Debt Securities (1)		$	1,100,999		$	17		$	(104,613)		$	996,403		$	900,235		$	15,183		$	(5,767)		$	909,651

(1) Excludes interest receivable of $3.4 million at September 30, 2022 and $3.3 million at December 31, 2021. Interest receivable is included in other assets in the Consolidated Balance Sheets.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022
	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
U.S. Treasury securities	9	$	83,694	$	(8,943)	4	$	37,130	$	(5,786)	13	$	120,824	$	(14,729)
Obligations of U.S. government corporations and agencies	7	46,784		(1,731)		—	—		—		7	46,784		(1,731)
Collateralized mortgage obligations of U.S. government corporations and agencies	52	353,504		(35,910)		7	66,215		(15,306)		59	419,719		(51,216)
Residential mortgage-backed securities of U.S. government corporations and agencies	26	7,459		(686)		3	34,337		(7,958)		29	41,796		(8,644)
Commercial mortgage-backed securities of U.S. government corporations and agencies	30	237,751		(12,757)		7	85,718		(14,324)		37	323,469		(27,081)
Corporate obligations	1	500		—		—	—		—		1	500		—
Obligations of states and political subdivisions	5	33,009		(1,212)		—	—		—		5	33,009		(1,212)


Total	130	$	762,701	$	(61,239)	21	$	223,400	$	(43,374)	151	$	986,101	$	(104,613)


	December 31, 2021
	Less Than 12 Months					12 Months or More					Total
(dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
U.S. Treasury securities	8	$	85,221	$	(742)	—	$	—	$	—	8	$	85,221	$	(742)
Obligations of U.S. government corporations and agencies	—	—		—		—	—		—		—	—		—
Collateralized mortgage obligations of U.S. government corporations and agencies	12	141,204		(2,436)		1	8,933		(374)		13	150,137		(2,810)
Residential mortgage-backed securities of U.S. government corporations and agencies	3	46,042		(628)		—	—		—		3	46,042		(628)
Commercial mortgage-backed securities of U.S. government corporations and agencies	7	100,032		(1,587)		—	—		—		7	100,032		(1,587)
Corporate obligations	—	—		—		—	—		—		—	—		—
Obligations of states and political subdivisions	—	—		—		—	—		—		—	—		—


Total	30	$	372,499	$	(5,393)	1	$	8,933	$	(374)	31	$	381,432	$	(5,767)

We evaluate securities with unrealized losses quarterly to determine if the decline in fair value has resulted from credit losses or other factors. There were 151 debt securities in an unrealized loss position at September 30, 2022 and 31 debt securities in an unrealized loss position at December 31, 2021. We do not intend to sell and it is more likely than not that we will not be required to sell the securities in an unrealized loss position before recovery of their amortized cost. The unrealized losses on the debt securities were attributable to changes in interest rates and not related to the credit quality of the issuers. All debt securities were determined to be investment grade and paying principal and interest according to the contractual terms of the security.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2022						December 31, 2021
(dollars in thousands)	Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Losses		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gains
Total unrealized gains (losses) on available-for-sale debt securities	$	17	$	(104,613)	$	(104,596)	$	15,183	$	(5,767)	$	9,416
Income tax (expense) benefit	(4)		22,340		22,336		(3,215)		1,221		(1,994)
Net Unrealized Gains (Losses), Net of Tax Included in Accumulated Other Comprehensive Income (Loss)	$	13	$	(82,273)	$	(82,260)	$	11,968	$	(4,546)	$	7,422

The amortized cost and fair value of available-for-sale debt securities at September 30, 2022 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, 2022
(dollars in thousands)	Amortized Cost		Fair Value
Obligations of the U.S. Treasury, U.S. government corporations and agencies, and obligations of states and political subdivisions
Due in one year or less	$	18,402	$	18,381
Due after one year through five years	128,117		118,811
Due after five years through ten years	70,299		62,733
Due after ten years	11,571		10,806
Available-for-Sale Debt Securities With Fixed Maturities	228,389		210,731
Debt Securities without a single maturity date
Collateralized mortgage obligations of U.S. government corporations and agencies	470,935		419,719
Residential mortgage-backed securities of U.S. government corporations and agencies	50,625		41,984
Commercial mortgage-backed securities of U.S. government corporations and agencies	350,550		323,469
Corporate obligations	500		500


Total Available-for-Sale Debt Securities	$	1,100,999	$	996,403

Debt securities are pledged in order to meet various regulatory and legal requirements. Restricted pledged securities had a carrying value of $17.9 million at September 30, 2022 and $23.9 million at December 31, 2021. Unrestricted pledged securities had a carrying value of $272.3 million at September 30, 2022 and $443.0 million at December 31, 2021.

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)	2022		2021		2022		2021
Marketable Equity Securities
Net market gains (losses) recognized	$	(60)	$	31	$	(117)	$	175
Less: Net gains recognized for equity securities sold	—		—		—		29
Unrealized Gains (Losses) on Equity Securities Still Held	$	(60)	$	31	$	(117)	$	146

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income. Unearned income consists of net deferred loan fees and costs of $7.9 million at September 30, 2022 and $14.1 million at December 31, 2021 and a discount related to purchase accounting fair value adjustments of $5.0 million at September 30, 2022 and $6.7 million at December 31, 2021. The following table summarizes the composition of originated and acquired loans as of the dates presented:


(dollars in thousands)	September 30, 2022		December 31, 2021
Commercial
Commercial real estate	$	3,134,841	$	3,236,653
Commercial and industrial	1,714,714		1,728,969
Commercial construction	390,093		440,962
Total Commercial Loans	5,239,648		5,406,584
Consumer
Consumer real estate	1,730,639		1,485,478
Other consumer	126,629		107,928
Total Consumer Loans	1,857,268		1,593,406
Total Portfolio Loans	7,096,916		6,999,990
Loans held for sale	1,039		1,522
Total Loans (1)	$	7,097,955	$	7,001,512

(1) Excludes interest receivable of $23.2 million at September 30, 2022 compared to $18.7 million at December 31, 2021. Interest receivable is included in other assets in the Consolidated Balance Sheets.

Commercial and industrial loans, or C&I, included $4.7 million of loans originated under the Paycheck Protection Program, or PPP, at September 30, 2022 compared to $88.3 million at December 31, 2021. 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.

Our business banking segment was $1.2 billion at September 30, 2022 compared to $1.1 billion at December 31, 2021. Business banking consists of 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. Business banking consisted of $572.3 million of commercial real estate loans, $213.8 million of C&I loans of which $1.0 million are PPP loans, $14.8 million of commercial construction loans and $377.7 million of loans secured by consumer real estate at September 30, 2022. At December 31, 2021 business banking consisted of $546.1 million of commercial real estate loans, $215.4 million of C&I loans of which $39.7 million are PPP loans, $16.2 million of commercial construction loans and $357.9 million of loans secured by consumer real estate.

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 to determine if additional ACL is needed. Total commercial loans represented 73.8 percent of total portfolio loans at September 30, 2022 compared to 77.2 percent at December 31, 2021. Within our commercial portfolio, the CRE and commercial construction portfolios combined comprised $3.5 billion, or 67.3 percent, of total commercial loans and 49.7 percent of total portfolio loans at September 30, 2022 and $3.7 billion, or 68.0 percent, of total commercial loans and 52.5 percent of total portfolio loans at December 31, 2021.

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 6.3 percent of the combined portfolios and 3.1 percent of total portfolio loans at September 30, 2022. This compares to 5.7 percent of the combined portfolios and 3.0 percent of total portfolio loans at December 31, 2021.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We evaluate all substandard commercial and consumer loans that have experienced a forbearance or modification of existing terms to determine if they should be designated as troubled debt restructurings, or TDRs.

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 TDRs as of the dates presented:


	September 30, 2022						December 31, 2021
(dollars in thousands)	Accruing TDRs		Nonaccruing TDRs		Total TDRs		Accruing TDRs		Nonaccruing TDRs		Total TDRs
Commercial real estate	$	—	$	480	$	480	$	—	$	1,697	$	1,697
Commercial and industrial	658		—		658		748		14,889		15,637
Commercial construction	1,674		—		1,674		2,190		2,087		4,277
Business banking	607		1,092		1,699		858		1,696		2,554
Consumer real estate	5,981		2,279		8,260		6,122		1,405		7,527
Other consumer	5		9		14		3		—		3
Total	$	8,925	$	3,860	$	12,785	$	9,921	$	21,774	$	31,695

There were two TDRs totaling $0.2 million that returned to accruing status during the three and nine months ended September 30, 2022, compared to one TDR totaling $0.1 million and six TDRs totaling $0.5 million that returned to accruing status during the same periods in 2021.

The following tables present the TDRs by portfolio segment and type of concession for the periods presented:


	Three Months Ended September 30, 2022
	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)		Other		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial industrial	—	—		—		—		—		—		—		—
Commercial construction	—	—		—		—		—		—		—		—
Business banking	—	—		—		—		—		—		—		—
Consumer real estate	6	172		—		—		—		—		172		173
Other consumer	1	9		—		—		—		—		9		12
Total	7	$	181	$	—	$	—	$	—	$	—	$	181	$	185
(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, 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)		Other		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial industrial	2	—		—		341		—		—		341		342
Commercial construction	—	—		—		—		—		—		—		—
Business banking	—	—		—		—		—		—		—		—
Consumer real estate	9	317		—		31		—		—		348		356
Other consumer	—	—		—		—		—		—		—		—
Total	11	$	317	$	—	$	372	$	—	$	—	$	689	$	698
(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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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Nine Months Ended September 30, 2022
	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)		Other		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial industrial	—	—		—		—		—		—		—		—
Commercial construction	—	—		—		—		—		—		—		—
Business banking	—	—		—		—		—		—		—		—
Consumer real estate	21	1,204		—		862		—		—		2,066		2,530
Other consumer	2	11		—		—		—		—		11		15
Total	23	$	1,215	$	—	$	862	$	—	$	—	$	2,077	$	2,545
(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.


	Nine Months Ended September 30, 2021
	Number of Contracts	Type of Modification										Total Post-Modification Outstanding Recorded Investment(2,3)		Total Pre-Modification Outstanding Recorded Investment(2,3)
(dollars in thousands)		Bankruptcy(1)		Other		Extend Maturity		Modify Rate		Modify Payments
Commercial real estate	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial industrial	2	—		—		772		—		5,196		5,968		6,304
Commercial construction	—	—		—		—		—		—		—		—
Business banking	7	—		80		1,420		—		—		1,500		1,551
Consumer real estate	20	866		—		31		—		147		1,045		1,064
Other consumer	—	—		—		—		—		—		—		—
Total	29	$	866	$	80	$	2,223	$	—	$	5,343	$	8,513	$	8,919
(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. (3) Excludes 42 loans totaling $58.9 million that were modified under the CARES Act.

As of September 30, 2022, we had 16 commitments to lend an additional $0.4 million on TDRs compared to 12 commitments to lend an additional $0.3 million as of September 30, 2021. Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place that were restructured within the last 12 months prior to defaulting. There was one TDR that defaulted, totaling $0.1 million, during the three months ended September 30, 2022 and two TDRs that defaulted totaling $0.2 million during the nine months ended September 30, 2022. There were no TDRs that defaulted during the three and nine months ended September 30, 2021.

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


	Nonperforming Assets
(dollars in thousands)	September 30, 2022			December 31, 2021
Nonperforming Assets
Nonaccrual loans		$	18,917		$	44,517
Nonaccrual TDRs		3,860			21,774
Total Nonaccrual Loans		22,777			66,291
OREO		6,022			13,313
Total Nonperforming Assets		$	28,799		$	79,604

NOTE 6. ALLOWANCE FOR CREDIT LOSSES

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the dates presented:


	September 30, 2022
	Risk Rating
(dollars in thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Pass	$	228,599	$	363,347	$	278,153	$	432,862	$	238,351	$	760,947	$	21,051	$	—	$	2,323,310
Special mention	—		—		—		9,407		20,189		118,852		—		—		148,448
Substandard	—		3,226		1,319		12,652		14,937		58,690		—		—		90,824
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial Real Estate	228,599		366,573		279,472		454,921		273,477		938,489		21,051		—		2,562,582

Commercial and Industrial
Pass	185,389		293,593		97,811		72,039		66,958		137,693		574,820		—		1,428,303
Special mention	—		14,849		—		4,213		2,091		7,193		13,466		—		41,812
Substandard	—		—		—		13,018		1,219		1,979		15,548		—		31,764
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial and Industrial	185,389		308,442		97,811		89,270		70,268		146,865		603,834		—		1,501,879

Commercial Construction
Pass	83,458		171,331		43,840		32,949		4,331		3,150		28,758		—		367,817
Special mention	—		—		—		5,565		—		—		—		—		5,565
Substandard	—		—		—		—		—		1,897		—		—		1,897
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial Construction	83,458		171,331		43,840		38,514		4,331		5,047		28,758		—		375,279

Business Banking
Pass	213,494		240,694		91,018		116,429		86,469		287,074		107,849		679		1,143,706
Special mention	—		85		189		851		3,076		4,796		121		95		9,213
Substandard	—		—		3,082		2,114		2,983		15,760		171		574		24,684
Doubtful	—		—		—		—		—		—		—		—		—
Total Business Banking	213,494		240,779		94,289		119,394		92,528		307,630		108,141		1,348		1,177,603

Consumer Real Estate
Pass	224,054		150,932		93,003		76,097		31,556		198,505		541,548		21,267		1,336,962
Special mention	—		—		—		—		—		895		—		—		895
Substandard	38		89		137		292		1,220		9,797		636		2,899		15,108
Doubtful	—		—		—		—		—		—		—		—		—
Total Consumer Real Estate	224,092		151,021		93,140		76,389		32,776		209,197		542,184		24,166		1,352,965

Other Consumer
Pass	17,127		12,046		6,385		4,028		1,399		848		83,463		1,278		126,574
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		4		30		—		—		—		—		34
Doubtful	—		—		—		—		—		—		—		—		—
Total Other Consumer	17,127		12,046		6,389		4,058		1,399		848		83,463		1,278		126,608

Pass	952,121		1,231,943		610,210		734,404		429,064		1,388,217		1,357,489		23,224		6,726,672
Special mention	—		14,934		189		20,036		25,356		131,736		13,587		95		205,933
Substandard	38		3,315		4,542		28,106		20,359		88,123		16,355		3,473		164,311
Doubtful	—		—		—		—		—		—		—		—		—
Total Loan Balance	$	952,159	$	1,250,192	$	614,941	$	782,546	$	474,779	$	1,608,076	$	1,387,431	$	26,792	$	7,096,916

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2021
	Risk Rating
(dollars in thousands)	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Pass	$	385,347	$	316,003	$	412,191	$	314,303	$	213,019	$	698,992	$	35,448	$	—	$	2,375,303
Special mention	—		—		37,786		6,401		40,445		75,938		—		—		160,570
Substandard	—		1,356		18,743		14,039		12,555		106,461		1,500		—		154,654
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial Real Estate	385,347		317,359		468,720		334,743		266,019		881,391		36,948		—		2,690,528

Commercial and Industrial
Pass	437,483		126,371		115,359		83,030		37,176		132,182		536,554		—		1,468,155
Special mention	46		—		3,060		2,546		72		832		8,887		—		15,443
Substandard	—		—		14,221		1,336		4,174		3,456		4,961		—		28,148
Doubtful	—		—		1,777		—		—		—		—		—		1,777
Total Commercial and Industrial	437,529		126,371		134,417		86,912		41,422		136,470		550,402		—		1,513,523

Commercial Construction
Pass	142,321		108,405		111,512		16,838		989		3,539		30,036		—		413,640
Special mention	—		—		—		—		—		4,458		—		—		4,458
Substandard	—		2,157		2,020		—		—		2,480		—		—		6,657
Doubtful	—		—		—		—		—		—		—		—		—
Total Commercial Construction	142,321		110,562		113,532		16,838		989		10,477		30,036		—		424,755

Business Banking
Pass	257,264		107,791		141,411		110,586		79,187		293,215		107,093		443		1,096,990
Special mention	104		151		1,986		1,365		1,057		5,929		160		111		10,863
Substandard	41		106		1,579		3,277		1,645		19,591		977		625		27,841
Doubtful	—		—		—		—		—		—		—		—		—
Total Business Banking	257,409		108,048		144,976		115,228		81,889		318,735		108,230		1,179		1,135,693

Consumer Real Estate
Pass	137,465		100,995		91,981		48,531		39,029		231,861		442,530		23,391		1,115,783
Special mention	—		—		—		—		—		937		—		—		937
Substandard	—		—		184		1,625		1,355		5,664		876		1,161		10,865
Doubtful	—		—		—		—		—		—		—		—		—
Total Consumer Real Estate	137,465		100,995		92,165		50,156		40,384		238,462		443,406		24,552		1,127,585

Other Consumer
Pass	19,976		9,396		7,120		2,878		613		2,037		57,702		1,130		100,852
Special mention	—		—		—		—		—		—		—		—		—
Substandard	83		52		141		215		408		4,407		201		1,547		7,054
Doubtful	—		—		—		—		—		—		—		—		—
Total Other Consumer	20,059		9,448		7,261		3,093		1,021		6,444		57,903		2,677		107,906


Pass	1,379,856		768,961		879,574		576,166		370,013		1,361,826		1,209,363		24,964		6,570,723
Special Mention	150		151		42,832		10,312		41,574		88,094		9,047		111		192,271
Substandard	124		3,671		36,888		20,492		20,137		142,059		8,515		3,333		235,219
Doubtful	—		—		1,777		—		—		—		—		—		1,777
Total Loan Balance	$	1,380,130	$	772,783	$	961,071	$	606,970	$	431,724	$	1,591,979	$	1,226,925	$	28,408	$	6,999,990

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We monitor the delinquent status of the commercial and consumer portfolios on a monthly basis. Loans are considered nonperforming and placed on nonaccrual when interest and principal are 90 days or more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans.

The following tables present loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the dates presented:


	September 30, 2022
(dollars in thousands)	2022		2021		2020		2019		2018		2017 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Performing	$	228,599	$	366,573	$	279,472	$	454,441	$	273,477	$	931,136	$	21,051	$	—	$	2,554,749
Nonperforming	—		—		—		480		—		7,353		—		—		7,833
Total Commercial Real Estate	228,599		366,573		279,472		454,921		273,477		938,489		21,051		—		2,562,582

Commercial and Industrial
Performing	185,389		308,442		97,811		89,270		70,214		146,814		603,604		—		1,501,544
Nonperforming	—		—		—		—		54		51		230		—		335
Total Commercial and Industrial	185,389		308,442		97,811		89,270		70,268		146,865		603,834		—		1,501,879

Commercial Construction
Performing	83,458		171,331		43,840		38,514		4,331		4,663		28,758		—		374,895
Nonperforming	—		—		—		—		—		384		—		—		384
Total Commercial Construction	83,458		171,331		43,840		38,514		4,331		5,047		28,758		—		375,279

Business Banking
Performing	213,494		240,779		94,289		119,050		90,907		303,348		108,039		1,252		1,171,158
Nonperforming	—		—		—		344		1,621		4,282		102		96		6,445
Total Business Banking	213,494		240,779		94,289		119,394		92,528		307,630		108,141		1,348		1,177,603

Consumer Real Estate
Performing	224,092		150,885		92,672		75,953		32,401		204,232		542,005		23,352		1,345,592
Nonperforming	—		136		468		436		375		4,965		179		814		7,373
Total Consumer Real Estate	224,092		151,021		93,140		76,389		32,776		209,197		542,184		24,166		1,352,965

Other Consumer
Performing	17,127		12,046		6,116		4,058		1,399		717		83,463		1,275		126,201
Nonperforming	—		—		273		—		—		131		—		3		407
Total Other Consumer	17,127		12,046		6,389		4,058		1,399		848		83,463		1,278		126,608

Performing	952,159		1,250,056		614,200		781,286		472,729		1,590,910		1,386,920		25,879		7,074,139
Nonperforming	—		136		741		1,260		2,050		17,166		511		913		22,777
Total Loan Balance	$	952,159	$	1,250,192	$	614,941	$	782,546	$	474,779	$	1,608,076	$	1,387,431	$	26,792	$	7,096,916

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2021
(dollars in thousands)	2021		2020		2019		2018		2017		2016 and Prior		Revolving		Revolving-Term		Total

Commercial Real Estate
Performing	$	385,347	$	317,359	$	461,613	$	332,482	$	259,723	$	865,567	$	36,948	$	—	$	2,659,039
Nonperforming	—				7,107		2,261		6,296		15,824		—		—		31,488
Total Commercial Real Estate	385,347		317,359		468,720		334,743		266,019		881,391		36,948		—		2,690,528

Commercial and Industrial
Performing	437,529		126,371		123,944		86,852		38,540		136,427		548,622		—		1,498,285
Nonperforming	—		—		10,473		60		2,882		43		1,780		—		15,239
Total Commercial and Industrial	437,529		126,371		134,417		86,912		41,422		136,470		550,402		—		1,513,523

Commercial Construction
Performing	142,321		110,562		111,445		16,838		989		10,093		30,036		—		422,284
Nonperforming	—		—		2,087		—		—		384		—		—		2,471
Total Commercial Construction	142,321		110,562		113,532		16,838		989		10,477		30,036		—		424,755

Business Banking
Performing	257,368		107,984		144,689		113,820		81,195		311,673		108,202		1,122		1,126,052
Nonperforming	41		64		287		1,408		694		7,062		28		57		9,641
Total Business Banking	257,409		108,048		144,976		115,228		81,889		318,735		108,230		1,179		1,135,693

Consumer Real Estate
Performing	137,465		100,253		91,689		49,853		39,657		234,297		443,238		23,839		1,120,291
Nonperforming	—		742		476		303		727		4,165		168		713		7,294
Total Consumer Real Estate	137,465		100,995		92,165		50,156		40,384		238,462		443,406		24,552		1,127,585

Other Consumer
Performing	20,059		9,290		7,261		3,093		1,021		6,444		57,903		2,677		107,748
Nonperforming	—		158		—		—		—		—		—		—		158
Total Other Consumer	20,059		9,448		7,261		3,093		1,021		6,444		57,903		2,677		107,906

Performing	1,380,089		771,819		940,641		602,938		421,125		1,564,501		1,224,949		27,638		6,933,699
Nonperforming	41		964		20,430		4,032		10,599		27,478		1,976		770		66,291
Total Loan Balance	$	1,380,130	$	772,783	$	961,071	$	606,970	$	431,724	$	1,591,979	$	1,226,925	$	28,408	$	6,999,990

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


	September 30, 2022
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	2,554,749	$	—	$	—	$	7,833	$	7,833	$	2,562,582
Commercial and industrial	1,501,512		29		3		335		367		1,501,879
Commercial construction	374,895		—		—		384		384		375,279
Business banking	1,168,727		574		1,857		6,445		8,876		1,177,603
Consumer real estate	1,341,890		2,188		1,514		7,373		11,075		1,352,965
Other consumer	126,027		119		55		407		581		126,608
Total	$	7,067,800	$	2,910	$	3,429	$	22,777	$	29,116	$	7,096,916

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2021
(dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		Non - performing		Total Past Due Loans		Total Loans
Commercial real estate	$	2,659,040	$	—	$	—	$	31,488	$	31,488	$	2,690,528
Commercial and industrial	1,497,755		529		—		15,239		15,768		1,513,523
Commercial construction	421,834		450		—		2,471		2,921		424,755
Business banking	1,124,748		813		491		9,641		10,945		1,135,693
Consumer real estate	1,117,074		1,087		2,130		7,294		10,511		1,127,585
Other consumer	107,492		206		50		158		414		107,906
Total(1)	$	6,927,943	$	3,085	$	2,671	$	66,291	$	72,047	$	6,999,990
(1) We had eight loans that were modified totaling $28.8 million under the CARES Act at December 31, 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, this delinquency table may not accurately reflect the credit risk associated with these loans.

The following tables present loans on nonaccrual status by class of loan for the year-to-date periods presented:


	September 30, 2022
(dollars in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Interest Income Recognized on Nonaccrual(1)
Commercial real estate	$	31,488	$	7,833	$	6,317	$	625
Commercial and industrial	15,239		335		—		86
Commercial construction	2,471		384		—		—
Business banking	9,641		6,445		1,092		242
Consumer real estate	7,294		7,373		—		178
Other consumer	158		407		—		1
Total	$	66,291	$	22,777	$	7,409	$	1,132

(1) Represents only cash payments received and applied to interest on nonaccrual loans for the nine months ended September 30, 2022.


	December 31, 2021
(dollars in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Interest Income Recognized on Nonaccrual(1)
Commercial real estate	$	101,070	$	31,488	$	28,046	$	158
Commercial and industrial	16,985		15,239		5,707		74
Commercial construction	384		2,471		2,020		(28)
Business banking	17,122		9,641		1,696		427
Consumer real estate	11,117		7,294		—		496
Other consumer	96		158		—		1
Total	$	146,774	$	66,291	$	37,469	$	1,128

(1) Represents only cash payments received and applied to interest on nonaccrual loans for the twelve months ended December 31, 2021.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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


	September 30, 2022
	Type of Collateral
(dollars in thousands)	Real Estate		Business Assets		Investment/Cash		Other
Commercial real estate	$	5,837	$	—	$	480	$	—
Commercial and industrial	—		658		—		—
Commercial construction	1,674		—		—		—
Business banking	524		1,175		—		—
Consumer real estate	576		—		—		—

Total	$	8,611	$	1,833	$	480	$	—


	December 31, 2021
	Type of Collateral
(dollars in thousands)	Real Estate		Business Assets		Investment/Cash		Other
Commercial real estate	$	28,046	$	—	$	—	$	—
Commercial and industrial	259		4,905		—		10,473
Commercial construction	4,210		—		—		—
Business banking	910		1,636		—		—
Consumer real estate	1,031		—		—		—

Total	$	34,456	$	6,541	$	—	$	10,473

The following tables present activity in the ACL for the periods presented:


	Three Months Ended September 30, 2022
(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	$	45,314	$	21,526	$	6,583	$	12,157	$	9,673	$	2,842	$	98,095
Provision for credit losses on loans(1)	(2,997)		3,806		(1,159)		950		1,075		634		2,309
Charge-offs	(628)		—		—		(178)		(161)		(272)		(1,239)
Recoveries	145		6		—		242		39		97		529
Net (Charge-offs)/ Recoveries	(483)		6		—		64		(122)		(175)		(710)
Balance at End of Period	$	41,834	$	25,338	$	5,424	$	13,171	$	10,626	$	3,301	$	99,694
(1) Excludes the provision for credits losses for unfunded commitments.


	Three Months Ended September 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	$	63,186	$	14,426	$	5,905	$	14,756	$	8,647	$	2,717	$	109,637

Provision for credit losses on loans(1)	(7,856)		11,599		1,391		(2,689)		(80)		(63)		2,302
Charge-offs	(3,661)		(2)		(56)		(167)		(76)		(245)		(4,207)
Recoveries	1		216		2		241		33		123		616
Net (Charge-offs)/Recoveries	(3,660)		214		(54)		74		(43)		(122)		(3,591)
Balance at End of Period	$	51,670	$	26,239	$	7,242	$	12,141	$	8,524	$	2,532	$	108,348

(1) Excludes the provision for credit losses for unfunded commitments.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	Nine Months Ended September 30, 2022
(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	$	50,700	$	19,727	$	5,355	$	11,338	$	8,733	$	2,723	$	98,576
Provision for credit losses on loans(1)	(8,471)		4,573		68		3,158		2,083		1,393		2,804
Charge-offs	(827)		(5,797)		—		(1,924)		(299)		(1,052)		(9,899)
Recoveries	432		6,835		1		599		109		237		8,213
Net (Charge-offs)/Recoveries	(395)		1,038		1		(1,325)		(190)		(815)		(1,686)
Balance at End of Period	$	41,834	$	25,338	$	5,424	$	13,171	$	10,626	$	3,301	$	99,694
(1) Excludes the provision for credits losses for unfunded commitments.


	Nine Months Ended September 30, 2021
(dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Business Banking(1)		Consumer Real Estate		Other Consumer		Total Loans
Allowance for credit losses on loans:
Balance at beginning of period	$	65,656	$	16,100	$	7,239	$	15,917	$	10,014	$	2,686	$	117,612
Provision for credit losses on loans(1)	(2,922)		14,552		54		(2,736)		(1,335)		(1)		7,612
Charge-offs	(12,030)		(4,777)		(56)		(1,494)		(422)		(698)		(19,477)
Recoveries	966		364		5		454		267		545		2,601
Net (Charge-offs)/Recoveries	(11,064)		(4,413)		(51)		(1,040)		(155)		(153)		(16,876)
Balance at End of Period	$	51,670	$	26,239	$	7,242	$	12,141	$	8,524	$	2,532	$	108,348
(1) Excludes the provision for credits losses for unfunded commitments.

The C&I portfolio included $4.7 million of loans originated under the PPP program at September 30, 2022 compared to $181.0 million at September 30, 2021. The PPP loans do not have an ACL since the loans are 100 percent guaranteed by the SBA.

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivatives Designated as Hedging Instruments

Cash Flow Hedges of Interest Rate Risk

As part of our interest rate risk management strategy, we use interest rate swaps to add stability to interest income and to manage exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for making variable rate payments over the life of the agreements without exchange of the underlying notional amount.

For designated derivatives that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are received on variable rate assets. During the next twelve months, we estimate that an additional $8.4 million will be reclassified as a decrease to interest income.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivatives Not Designated as Hedging Instruments

Interest Rate Contracts with Customers

Interest rate swaps with customers are contracts in which a series of cash 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.

Interest rate swaps with customers and the corresponding offsetting interest rate swap with a financial institution 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 (Loss).

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 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 (Loss).

The following table indicates the amounts representing the value of derivative assets and derivative liabilities for the dates presented:


	Derivative Assets (Included in Other Assets)								Derivative Liabilities (Included in Other Liabilities)
	September 30, 2022				December 31, 2021				September 30, 2022				December 31, 2021
(dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives Designated as Hedging Instruments
Interest rate swap contracts - cash flow hedge	$	—	$	—	$	—	$	—	$	500,000	$	22,724	$	—	$	—
Total Derivatives Designated as Hedging Instruments	$	—	$	—	$	—	$	—	$	500,000	$	22,724	$	—	$	—

Derivatives Not Designated as Hedging Instruments
Interest rate swap contracts - commercial loans	$	996,542	$	88,888	$	1,017,178	$	33,528	$	996,542	$	88,920	$	1,017,178	$	33,361
Interest rate lock commitments - mortgage loans	—		—		12,148		401		216		3		—		—
Forward sales contracts - mortgage loans	325		8		8,436		4		—		—		—		—
Total Derivatives Not Designated as Hedging Instruments	$	996,867	$	88,896	$	1,037,762	$	33,933	$	996,758	$	88,923	$	1,017,178	$	33,361

Total Derivatives	$	996,867	$	88,896	$	1,037,762	$	33,933	$	1,496,758	$	111,647	$	1,017,178	$	33,631

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table indicates the gross amounts of interest rate swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented:


	Derivatives (included in Other Assets)				Derivatives (included in Other Liabilities)
(dollars in thousands)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Gross amounts recognized	$	88,918	$	37,289	$	111,644	$	37,392
Gross amounts offset	(30)		(3,761)		—		(3,761)
Net amounts presented in the Consolidated Balance Sheets	88,888		33,528		111,644		33,631
Netting adjustments (1)	(16,048)		—		(16,048)		—
Cash collateral (2)	(69,183)		—		(5,529)		(33,631)
Net Amount	$	3,657	$	33,528	$	90,067	$	—
(1) Netting adjustments represents the amounts recorded to convert derivatives assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance..
(2) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above.

The following table presents the effect of the cash flow hedges on OCI and on the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three month periods presented:


	Amount of Loss Recognized in Other Comprehensive Income						Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Income
(dollars in thousands)	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Derivatives in Cash Flow Hedging Relationships:
Interest rate swap contracts - cash flow hedge		$	(13,256)		$	—		$	222		$	—

Total		$	(13,256)		$	—		$	222		$	—

The following table presents the effect of the cash flow hedges on OCI and on the Condensed Consolidated Statements of Comprehensive Income (Loss) for the nine month periods presented:


	Amount of Loss Recognized in Other Comprehensive Income						Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Income
(dollars in thousands)	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
Derivatives in Cash Flow Hedging Relationships:
Interest rate swap contracts - cash flow hedge		$	(17,875)		$	—		$	947		$	—

Total		$	(17,875)		$	—		$	947		$	—

The following table indicates the gain or loss recognized in income on derivatives not designated as hedging instruments for the periods presented:


	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans		$	64		$	22		$	71		$	337
Interest rate lock commitments—mortgage loans		(58)			192			(404)			712
Forward sale contracts—mortgage loans		9			(325)			4			(2,314)
Total Derivatives Gain (Loss)		$	15		$	(111)		$	(329)		$	(1,265)

The gain or loss recognized on commercial loan swap contracts is included in other income and the gain or loss on mortgage loan interest rate lock commitments and forward sales contracts is included in mortgage banking on the Condensed Consolidated Statements of Comprehensive Income (Loss).

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 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 consolidated 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.

The following table sets forth our commitments and letters of credit as of the dates presented:


(dollars in thousands)	September 30, 2022			December 31, 2021
Commitments to extend credit		$	2,689,993		$	2,583,957
Standby letters of credit		70,402			87,335
Total		$	2,760,395		$	2,671,292

Allowance for Credit Losses on Unfunded Loan Commitments

We maintain an allowance for credit losses on unfunded commercial and consumer 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 (Loss). 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 for the periods presented:


	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Balance at beginning of period		$	7,387		$	4,858		$	5,189		$	4,467


Provision for credit losses		189			1,085			2,387			1,476
Total		$	7,576		$	5,943		$	7,576		$	5,943

Litigation

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

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. OTHER COMPREHENSIVE LOSS

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


	Three Months Ended September 30, 2022									Three Months Ended September 30, 2021
(dollars in thousands)	Pre-Tax Amount			Tax Benefit			Net of Tax Amount			Pre-Tax Amount			Tax Benefit			Net of Tax Amount
Change in net unrealized losses on available-for-sale debt securities		$	(42,741)		$	9,121		$	(33,620)		$	(5,676)		$	1,211		$	(4,465)
Change in interest rate swap		(16,852)			3,596			(13,256)			—			—			—
Adjustment to funded status of employee benefit plans (1)		(1,170)			250			(920)			(215)			46			(169)
Other Comprehensive Loss		$	(60,763)		$	12,967		$	(47,796)		$	(5,891)		$	1,257		$	(4,634)

	Nine Months Ended September 30, 2022									Nine Months Ended September 30, 2021
(dollars in thousands)	Pre-Tax Amount			Tax Benefit			Net of Tax Amount			Pre-Tax Amount			Tax Benefit (Expense)			Net of Tax Amount
Change in net unrealized losses on available-for-sale debt securities		$	(114,011)		$	24,325		$	(89,686)		$	(15,065)		$	3,215		$	(11,850)
Change in interest rate swap		(22,724)			4,849			(17,875)			—			—			—
Adjustment to funded status of employee benefit plans (1)		(416)			100			(316)			2,351			(501)			1,850
Other Comprehensive Loss		$	(137,151)		$	29,274		$	(107,877)		$	(12,714)		$	2,714		$	(10,000)

NOTE 10. SHARE REPURCHASE PLAN

On March 21, 2022, our Board of Directors authorized an extension of its $50 million share repurchase plan, which was set to expire March 31, 2022. This authorization extended the expiration date of the repurchase plan through March 31, 2023. The plan permits S&T to repurchase shares up to the previously authorized $50 million in aggregate value of S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of common stock, legal and contractual requirements, applicable securities laws and S&T's financial performance. The repurchase plan does not obligate us to repurchase any particular number of shares. We expect to fund any repurchases from cash on hand and internally generated funds. Any share repurchases will not begin until permissible under applicable laws.

The following table presents repurchase activity for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands, except share and per share data)	2022			2021			2022			2021
Value of shares authorized to repurchase		$	50,000		$	50,000		$	50,000		$	50,000
Remaining plan capacity at the beginning of the period		$	33,289		$	37,442		$	37,442		$	37,442
Total shares repurchased		117,283			—			268,503			—
Average share price for the period		$	29.71		$	—		$	28.44		$	—
Total cost of repurchases		$	3,484		$	—		$	7,637		$	—
Remaining plan capacity at the end of the period		$	29,805		$	37,442		$	29,805		$	37,442

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S&T BANCORP, INC. AND SUBSIDIARIES

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations for the three and nine months ended September 30, 2022 and 2021. 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,” “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, or ACL; 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; unanticipated changes in our liquidity position; changes in accounting policies, practices, or guidance; legislation affecting the financial services industry as a whole, and S&T, in particular; climate change and related legislative and regulatory initiatives; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on significant customer relationships; an interruption or cessation of an important service by a third-party provider; our ability to attract and retain talented executives and employees, particularly in light of the strong competition in the marketplace; our ability to successfully manage our CEO transition; general economic or business conditions, including the strength of regional economic conditions in our market area; macroeconomic conditions including inflation and economic uncertainty; the duration and severity of the coronavirus, or 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 elsewhere in this report, and in our 2021 Form 10-K, including Part II, 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

We view critical accounting policies to be those which are highly dependent on subjective or complex estimates, assumptions and judgments and where changes in those estimates and assumptions could have a significant impact on the Consolidated Financial Statements. Further, we view critical accounting estimates as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our critical accounting policies and estimates as of September 30, 2022 remained unchanged from the disclosures presented in our 2021 Form 10-K under Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of $8.9 billion at September 30, 2022. We operate in Pennsylvania, Ohio and 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.

On August 23, 2021, Christopher McComish joined S&T as our new chief executive officer. He brings over 34 years of proven banking leadership with a track record of growth and transformation of commercial, consumer and wealth businesses. Additionally, we have elevated proven internal leaders and attracted external talent from larger banking institutions to position us for future growth. Our priorities for 2022 and beyond include pursuing high impact growth initiatives, ensuring rigorous credit risk and enterprise governance practices, advancing strategic infrastructure and platform investments, including enhancing our digital platform, investing in organization talent and performance and promoting stakeholder engagement.

Earnings Summary

The following table presents a summary of key profitability metrics for the periods presented:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
Net income		$	37,249			$	27,598			$	95,250			$	87,866
Earnings per share - diluted		$	0.95			$	0.70			$	2.43			$	2.24
Return on average assets		1.64		%		1.15		%		1.38		%		1.26		%
Return on average shareholders' equity		12.47		%		9.13		%		10.73		%		9.96		%
Return on average tangible shareholders' equity (non-GAAP)		18.46		%		13.53		%		15.91		%		14.87		%

Net income increased $9.7 million for the three months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase in net interest income of $15.1 million partially offset by an increase in noninterest expense and income tax expense of $2.4 million and $2.8 million. Net income increased $7.4 million for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to an increase in net interest income of $19.1 million offset by an increase of $6.7 million in noninterest expense and a decrease of $6.0 million in noninterest income.

Net interest income increased $15.1 million and $19.1 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. Interest and dividend income increased $18.1 million and $19.4 million for the three and nine months ended September 30, 2022. Interest expense increased $3.0 million and $0.4 million for the three and nine months ended September 30, 2022. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 90 and 33 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2022.

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The provision for credit losses decreased $0.9 million and $3.9 million to $2.5 million and $5.2 million for the three and nine months ended September 30, 2022 compared to $3.4 million and $9.1 million for the same periods in 2021. The decrease in the provision for credit losses was due to a reduction in net charge-offs, lower specific reserves and a decrease in the quantitative reserve mainly due to improvement in our hotel portfolio.

The provision for income taxes increased $2.8 million to $9.2 million for the three months ended September 30, 2022 and increased $2.9 million to $23.4 million for the nine months ended September 30, 2022 compared to $6.3 million and $20.6 million for the same periods in 2021. Our effective tax rate was 19.8 percent and 19.7 percent for the three and nine months ended September 30, 2022 compared to 18.7 percent and 19.0 percent for the three and nine months ended September 30, 2021. The increases in our effective tax rates for the three and nine month periods ended September 30, 2022 were primarily due to increases in pretax income compared to the same periods in 2021.

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, interest income, net interest income and net interest margin, each on a fully taxable equivalent, or FTE, basis. Management also uses return on average tangible shareholders' equity, or ROTE, to evaluate and measure performance. These metrics are non-GAAP financial measures. Management believes these performance metrics 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 interest income, 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 (Loss) is reconciled to interest income adjusted on an FTE basis and net interest margin adjusted on an FTE basis in the "Results of Operations - Three and Nine Months Ended September 30, 2022 Compared to Three and Nine Months Ended September 30, 2021 - Net Interest Income" section of this MD&A.

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Return on average tangible shareholders' equity is a key profitability metric used by management to measure financial performance. The following table provides a reconciliation of return on average tangible shareholders' equity (non-GAAP) by reconciling net income (GAAP) per the Condensed Consolidated Statements of Comprehensive Income (Loss) to net income before amortization and intangibles and average shareholder's equity to average tangible shareholders' equity for the periods presented:


	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2022				2021				2022				2021
Net income (annualized)		$	147,781			$	109,492			$	127,350			$	117,477
Plus: amortization of intangibles (annualized), net of tax		1,181				1,369				1,217				1,409
Net income before amortization of intangibles (annualized)		$	148,962			$	110,861			$	128,567			$	118,886

Average shareholders' equity		$	1,185,162			$	1,198,641			$	1,186,427			$	1,179,403
Less: average goodwill and other intangible assets, net of deferred tax liability		(378,154)				(379,443)				(378,454)				(379,788)
Average tangible shareholders' equity		$	807,008			$	819,198			$	807,973			$	799,615
Return on average tangible shareholders' equity (non-GAAP)		18.46		%		13.53		%		15.91		%		14.87		%

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RESULTS OF OPERATIONS

Three and Nine Months Ended September 30, 2022 Compared to

Three and Nine Months Ended September 30, 2021

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 and the dividend-received deduction for equity securities using the federal statutory tax rate of 21 percent for each period. We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.

The following table reconciles interest and dividend income and net interest income per the Condensed Consolidated Statements of Comprehensive Income (Loss) to interest income, net interest income and net interest margin on an FTE basis for the periods presented:


	Three Months Ended September 30,								Nine Months Ended September 30,
(dollars in thousands)	2022				2021				2022				2021
Total interest and dividend income per Condensed Consolidated Statements of Comprehensive Income (Loss)		$	89,835			$	71,769			$	237,543			$	218,127
Adjustment to FTE basis		521				557				1,520				1,806
Interest Income on an FTE Basis (Non-GAAP)		$	90,356			$	72,326			$	239,063			$	219,933

Total interest and dividend income		$	89,835			$	71,769			$	237,543			$	218,127
Total interest expense		6,037				3,058				10,818				10,453
Net Interest Income per Condensed Consolidated Statements of Comprehensive Income (Loss)		83,798				68,711				226,725				207,674
Adjustment to FTE basis		521				557				1,520				1,806
Net Interest Income on an FTE Basis (Non-GAAP)		$	84,319			$	69,268			$	228,245			$	209,480

Net interest margin		4.02		%		3.11		%		3.56		%		3.22		%
Adjustment to FTE basis		0.02		%		0.03		%		0.02		%		0.03		%
Net Interest Margin on an FTE Basis (Non-GAAP)		4.04		%		3.14		%		3.58		%		3.25		%

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, 2022							Three Months Ended September 30, 2021
(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate
ASSETS
Interest-bearing deposits with banks	$	158,700		$	813	2.05	%	$	914,370		$	374	0.16	%
Securities, at fair value(1)(2)	1,051,534			5,994		2.28	%	836,019			4,577		2.19	%
Loans held for sale	1,032			14		5.36	%	3,656			31		3.35	%
Commercial real estate	3,159,543			36,865		4.63	%	3,239,867			30,091		3.68	%
Commercial and industrial	1,704,271			21,896		5.10	%	1,744,684			18,329		4.17	%
Commercial construction	405,460			5,163		5.05	%	490,940			3,964		3.20	%
Total Commercial Loans	5,269,274			63,924		4.81	%	5,475,491			52,384		3.80	%
Residential mortgage	1,005,139			10,376		4.12	%	875,684			8,792		4.00	%
Home equity	629,827			6,891		4.34	%	547,984			4,612		3.34	%
Installment and other consumer	123,010			1,890		6.10	%	92,615			1,366		5.85	%
Consumer construction	40,975			358		3.47	%	13,626			126		3.66	%
Total Consumer Loans	1,798,951			19,515		4.31	%	1,529,909			14,896		3.87	%
Total Portfolio Loans	7,068,225			83,439		4.69	%	7,005,400			67,279		3.81	%
Total Loans(1)(3)	7,069,257			83,453		4.69	%	7,009,056			67,310		3.81	%
Federal Home Loan Bank and other restricted stock	8,398			96		4.55	%	9,981			65		2.62	%
Total Interest-earning Assets	8,287,889			90,356		4.33	%	8,769,425			72,326		3.28	%
Noninterest-earning assets	721,480							724,759
Total Assets	$	9,009,369						$	9,494,184
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	872,302		$	165	0.07	%	$	962,139		$	184	0.08	%
Money market	1,861,389			3,258		0.69	%	2,062,958			911		0.18	%
Savings	1,131,575			290		0.10	%	1,059,904			70		0.03	%
Certificates of deposit	962,898			1,484		0.61	%	1,240,345			1,274		0.41	%
Total Interest-bearing Deposits	4,828,164			5,197		0.43	%	5,325,346			2,439		0.18	%
Securities sold under repurchase agreements	12,668			3		0.10	%	71,054			18		0.10	%
Short-term borrowings	10,379			83		3.16	%	—			—		—	%
Long-term borrowings	17,278			98		2.25	%	22,841			114		1.99	%
Junior subordinated debt securities	54,428			656		4.78	%	64,118			487		3.01	%
Total Borrowings	94,753			840		3.52	%	158,012			619		1.56	%
Total Interest-bearing Liabilities	4,922,917			6,037		0.49	%	5,483,358			3,058		0.22	%
Noninterest-bearing liabilities	2,901,290							2,812,185
Shareholders' equity	1,185,162							1,198,641
Total Liabilities and Shareholders' Equity	$	9,009,369						$	9,494,184
Net Interest Income (1)(2)				$	84,319						$	69,268
Net Interest Margin (1)(2)						4.04	%						3.14	%

(1) Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

(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, 2022							Nine Months Ended September 30, 2021
(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate
ASSETS
Interest-bearing deposits with banks	$	478,896		$	2,146	0.60	%	$	669,593		$	613	0.12	%
Securities, at fair value(1)(2)	1,026,131			16,860		2.19	%	815,197			13,672		2.24	%
Loans held for sale	1,326			42		4.15	%	4,780			108		3.02	%
Commercial real estate	3,204,371			99,187		4.14	%	3,248,417			90,158		3.71	%
Commercial and industrial	1,700,923			56,843		4.47	%	1,863,447			57,509		4.13	%
Commercial construction	406,513			12,304		4.05	%	479,733			11,851		3.30	%
Total Commercial Loans	5,311,807			168,334		4.24	%	5,591,597			159,518		3.81	%
Residential mortgage	947,454			28,674		4.04	%	878,709			27,204		4.13	%
Home equity	598,595			16,995		3.80	%	538,931			14,085		3.49	%
Installment and other consumer	117,388			4,955		5.64	%	85,640			3,884		6.06	%
Consumer construction	31,407			801		3.41	%	14,257			525		4.92	%
Total Consumer Loans	1,694,844			51,425		4.05	%	1,517,538			45,698		4.02	%
Total Portfolio Loans	7,006,651			219,759		4.19	%	7,109,135			205,216		3.86	%
Total Loans(1)(3)	7,007,977			219,801		4.19	%	7,113,915			205,324		3.86	%
Federal Home Loan Bank and other restricted stock	8,869			256		3.86	%	10,579			323		4.07	%
Total Interest-earning Assets	8,521,873			239,063		3.75	%	8,609,284			219,933		3.41	%
Noninterest-earning assets	706,640							728,314
Total Assets	$	9,228,513						$	9,337,598
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	945,733		$	526	0.07	%	$	952,297		$	636	0.09	%
Money market	1,948,653			4,714		0.32	%	2,023,583			2,748		0.18	%
Savings	1,119,739			496		0.06	%	1,033,581			291		0.04	%
Certificates of deposit	1,011,228			3,105		0.41	%	1,291,666			4,896		0.51	%
Total Interest-bearing Deposits	5,025,353			8,841		0.24	%	5,301,126			8,572		0.22	%
Securities sold under repurchase agreements	47,912			36		0.10	%	67,872			60		0.12	%
Short-term borrowings	3,498			83		3.16	%	8,425			12		0.19	%
Long-term borrowings	20,535			316		2.06	%	23,139			346		2.00	%
Junior subordinated debt securities	54,413			1,542		3.79	%	64,103			1,463		3.05	%
Total Borrowings	126,358			1,977		2.09	%	163,539			1,882		1.54	%
Total Interest-bearing Liabilities	5,151,711			10,818		0.28	%	5,464,665			10,453		0.26	%
Noninterest-bearing liabilities	2,890,375							2,693,530
Shareholders' equity	1,186,427							1,179,403
Total Liabilities and Shareholders' Equity	$	9,228,513						$	9,337,598
Net Interest Income (1)(2)				$	228,245						$	209,480
Net Interest Margin (1)(2)						3.58	%						3.25	%

(1) Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

(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 $15.1 million and $18.8 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 90 and 33 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2022. NIM on an FTE basis (non-GAAP) was also positively impacted by lower average cash balances. Average interest-bearing deposits with banks decreased $755.7 million and $190.7 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021.

Interest income on an FTE basis (non-GAAP) increased $18.0 million and $19.1 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The increases in interest income on an FTE basis (non-GAAP) were primarily due to higher interest rates partially offset by lower Paycheck Protection Program, or PPP, income.

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

Average PPP loans decreased $256.3 million and $360.2 million compared to the three and nine months ended September 30, 2021. Average loan balances, excluding PPP loans, increased $316.5 million and $254.3 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The average yield on loans increased 88 basis points and 33 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021 due to increased interest rates. Average securities increased $215.5 million and $210.9 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. Securities increased due to interest-bearing deposits with banks being redeployed to higher yielding assets. Average interest-bearing deposits with banks decreased $755.7 million and $190.7 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021 due to decreased deposit balances and increased loans and securities. Overall, the FTE rate (non-GAAP) on interest-earning assets increased 105 and 34 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021.

Interest expense increased $3.0 million and $0.4 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The increases in interest expense were primarily due to higher interest rates. Average interest-bearing deposits decreased $497.2 million and $275.8 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. The decreases were due to the competitive market driven by rising interest rates. The average rate paid on interest-bearing deposits increased 25 and 2 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021 due to increased interest rates. Average demand deposits increased $38.4 million and $181.5 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021. We experienced demand deposit growth throughout 2021 due to customer PPP loans and stimulus payments along with customers' liquidity preferences. Average borrowings decreased $63.3 million and $37.2 million for the three and nine months ended September 30, 2022 compared to the same periods in 2021 primarily due to the discontinuation of the customer repurchase agreement product and the payoff of a subordinated debt. Overall, the cost of interest-bearing liabilities increased 27 and 2 basis points for the three and nine months ended September 30, 2022 compared to the same periods in 2021.

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

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


	Three Months Ended September 30, 2022 Compared to September 30, 2021						Nine Months Ended September 30, 2022 Compared to September 30, 2021
(dollars in thousands)	Volume (4)		Rate (4)		Total		Volume (4)		Rate (4)		Total
Interest earned on:
Interest-bearing deposits with banks	$	(309)	$	749	$	440	$	(175)	$	1,707	$	1,532
Securities, at fair value(1)(2)	1,180		237		1,417		3,538		(350)		3,188
Loans held for sale	(22)		5		(17)		(78)		11		(67)
Commercial real estate	(746)		7,519		6,773		(1,222)		10,252		9,030
Commercial and industrial	(425)		3,993		3,568		(5,016)		4,350		(666)
Commercial construction	(690)		1,889		1,199		(1,809)		2,262		453
Total Commercial Loans	(1,861)		13,401		11,540		(8,047)		16,863		8,816
Residential mortgage	1,300		283		1,583		2,128		(658)		1,470
Home equity	689		1,590		2,279		1,559		1,351		2,910
Installment and other consumer	448		76		524		1,440		(369)		1,071
Consumer construction	252		(19)		233		631		(356)		276
Total Consumer Loans	2,689		1,930		4,619		5,759		(32)		5,727
Total Portfolio Loans	828		15,331		16,159		(2,288)		16,832		14,543
Total Loans (1)(3)	806		15,336		16,142		(2,366)		16,843		14,476
Federal Home Loan Bank and other restricted stock	(10)		41		31		(52)		(14)		(66)
Change in Interest Earned on Interest-earning Assets	$	1,667	$	16,363	$	18,030	$	945	$	18,186	$	19,131
Interest paid on:
Interest-bearing demand	$	(17)	$	(2)	$	(19)	$	(4)	$	(106)	$	(110)
Money market	(89)		2,437		2,348		(102)		2,068		1,966
Savings	5		215		220		24		180		205
Certificates of deposit	(285)		495		210		(1,063)		(729)		(1,792)
Total Interest-bearing Deposits	(386)		3,145		2,759		(1,145)		1,414		269
Securities sold under repurchase agreements	(15)		—		(15)		(18)		(6)		(24)
Short-term borrowings	83		—		83		(7)		78		71
Long-term borrowings	(28)		12		(16)		(39)		9		(30)
Junior subordinated debt securities	(74)		242		168		(221)		300		79
Total Borrowings	(34)		254		220		(285)		381		96
Change in Interest Paid on Interest-bearing Liabilities	(420)		3,399		2,979		(1,430)		1,795		365
Change in Net Interest Income	$	2,087	$	12,964	$	15,051	$	2,374	$	16,391	$	18,766

(1) Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

(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 commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected credit losses in the portfolio at the balance sheet date. The provision for credit losses decreased $0.9 million and $3.9 million to $2.5 million and $5.2 million for the three and nine months ended September 30, 2022 compared to $3.4 million and $9.1 million for the same periods in 2021. The provision for credit losses included $0.2 million and $2.4 million for the reserve for unfunded commitments for the three and nine months ended September 30, 2022 compared to $1.1 million and $1.5 million for the same periods in 2021.

The decrease in the provision for credit losses for the three and nine months ended September 30, 2022 compared to the same periods in 2021 was due to a reduction in net charge-offs, lower specific reserves and a decrease in the quantitative reserve mainly due to improvement in our hotel portfolio.

For the three and nine months ended September 30, 2022, we had net loan charge-offs of $0.7 million and $1.7 million compared to $3.6 million and $16.9 million for the same periods in 2021. During the nine months ended September 30, 2022, we had two C&I loan recoveries totaling $6.6 million. The most significant charge-offs during the nine months ended September 30, 2021 were two CRE relationships totaling $9.2 million and a C&I relationship totaling $3.9 million.

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Refer to the "Allowance for Credit Losses" section of this MD&A for further details.

Noninterest Income


	Three Months Ended September 30,												Nine Months Ended September 30,
(dollars in thousands)	2022			2021			$ Change			% Change			2022			2021			$ Change			% Change
Net gain on sale of securities		$	198		$	—		$	198		NM			$	198		$	29		$	169		NM
Debit and credit card		4,768			4,579			189			4.1	%		14,587			13,486			1,101			8.2	%
Service charges on deposit accounts		4,333			3,923			410			10.5	%		12,488			11,039			1,449			13.1	%
Wealth management		3,212			3,464			(252)			(7.3)	%		9,701			9,576			125			1.3	%
Mortgage banking		425			2,162			(1,737)			(80.3)	%		1,906			8,206			(6,300)			(76.8)	%

Other		1,824			1,718			106			6.2	%		3,736			6,257			(2,521)			(40.3)	%
Total Noninterest Income		$	14,760		$	15,846		$	(1,086)		(6.9)	%		$	42,616		$	48,593		$	(5,977)		(12.3)	%
NM - not meaningful

Noninterest income decreased $1.1 million to $14.8 million for the three months ended September 30, 2022 and decreased $6.0 million to $42.6 million for the nine months ended September 30, 2022 compared to the same periods in 2021. Mortgage banking decreased $1.7 million for the three months ended September 30, 2022 and decreased $6.3 million for the nine months ended September 30, 2022. Higher interest rates have resulted in a lower volume of mortgage loans sold in the secondary market during 2022 compared to the prior year. Other noninterest income decreased $2.5 million for the nine months ended September 30, 2022 primarily due to the decline in the fair value of the assets in a nonqualified benefit plan which has a corresponding offset in salaries and benefits resulting in no impact to net income. Service charges on deposit accounts and debit and credit card fees increased for the three and nine months ended September 30, 2022 due to higher customer activity.

Noninterest Expense


	Three Months Ended September 30,												Nine Months Ended September 30,
(dollars in thousands)	2022			2021			$ Change			% Change			2022		2021			$ Change			% Change
Salaries and employee benefits		$	26,700		$	25,228		$	1,472		5.8	%	$	75,223		$	73,070		$	2,153		2.9	%
Data processing and information technology		4,220			4,001			219			5.5	%	12,759			12,012			747			6.2	%
Occupancy		3,490			3,660			(170)			(4.6)	%	11,006			10,921			85			0.8	%
Furniture, equipment and software		2,915			2,745			170			6.2	%	8,631			7,787			844			10.8	%
Professional services and legal		1,851			1,550			301			19.4	%	6,180			4,718			1,462			31.0	%
Other taxes		1,559			1,830			(271)			(14.8)	%	4,778			5,098			(320)			(6.3)	%
Marketing		1,367			890			477			53.6	%	4,252			3,208			1,044			32.5	%
FDIC insurance		598			1,210			(612)			(50.6)	%	2,417			3,180			(763)			(24.0)	%

Other		6,933			6,127			806			13.2	%	20,225			18,742			1,483			7.9	%
Total Noninterest Expense		$	49,633		$	47,241		$	2,392		5.1	%	$	145,471		$	138,736		$	6,735		4.9	%

Noninterest expense increased $2.4 million to $49.6 million for the three months ended September 30, 2022 and increased $6.7 million to $145.5 million for the nine months ended September 30, 2022 compared to the same periods in 2021. Salaries and employee benefits increased $1.5 million for the three months ended September 30, 2022 due to base rate increases and higher medical costs, and increased $2.2 million for the nine months ended September 30, 2022 due to base rate and incentive increases partially offset by lower pension expense and a decline in fair value of the liability in a nonqualified benefit plan. The decrease in pension expense related to retirees electing lump-sum distributions causing settlement accounting in the same period in 2021. Data processing and information technology costs increased by $0.2 million for the three months ended September 30, 2022, and increased $0.7 million for the nine months ended September 30, 2022 due to additional services provided through our third party processor and increased information technology outsourcing costs. Furniture, equipment and software increased $0.2 million for the three months ended September 30, 2022 and increased $0.8 million for the nine month ended September 30, 2022 due to new software implementation costs. Professional services and legal increased by $0.3 million for the three months ended September 30, 2022 and $1.5 million for the nine months ended September 30, 2022 due to increased consulting engagements compared to the same periods in 2021. Marketing costs increased $0.5 million for the three months ended September 30, 2022 and increased $1.0 million for the nine months ended September 30, 2022 due to increased marketing efforts and timing of various promotions. FDIC Insurance expense decreased $0.6 million and $0.8 million for the the three and nine month periods due to a lower assessment base and improvements in the components used to determine the assessment. Other noninterest expense increased $0.8 million for the three months ended September 30, 2022 mainly due to a

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lease impairment and increased $1.5 million for the nine months ended September 30, 2022 also due to the lease impairment, higher OREO expenses and increased amortization related to our qualified affordable housing projects.

Provision for Income Taxes

Financial Condition as of September 30, 2022

Total assets decreased $552.6 million to $8.9 billion at September 30, 2022 compared to $9.5 billion at December 31, 2021. Cash and due from banks decreased $787.3 million to $134.9 million at September 30, 2022 compared to $922.2 million at December 31, 2021 primarily due to a decrease in deposits of $585.9 million. Total portfolio loans increased $96.9 million to $7.1 billion at September 30, 2022 compared to $7.0 billion at December 31, 2021. The commercial loan portfolio decreased $166.9 million compared to December 31, 2021. C&I loans decreased $14.3 million which mainly related to a decline in PPP loans of $83.7 million since December 31, 2021. The consumer loan portfolio increased $263.9 million with increases in consumer real estate of $245.2 million and other consumer of $18.7 million compared to December 31, 2021. Excluding the PPP loans, portfolio loans increased $180.6 million compared to December 31, 2021.

Securities increased $86.6 million to $1.0 billion at September 30, 2022 from $910.8 million at December 31, 2021. The increase in securities is primarily due to interest-bearing deposits with banks being redeployed to higher yielding assets. The bond portfolio was in a net unrealized loss position of $104.6 million at September 30, 2022 compared to a net unrealized gain position of $9.4 million at December 31, 2021 due to higher interest rates.

Our deposits decreased $585.9 million to $7.4 billion at September 30, 2022 compared to $8.0 billion at December 31, 2021. Noninterest-bearing demand deposits decreased $85.4 million to $2.7 billion at September 30, 2022 compared to December 31, 2021. Interest-bearing demand deposits decreased $131.3 million and money market decreased $251.9 million. Certificates of deposits decreased $135.3 million due to maturities compared to December 31, 2021.The decline in deposit balances can be attributed to the competitive market given rising interest rates.

Total borrowings decreased $57.0 million to $104.3 million at September 30, 2022 compared to $161.3 million at December 31, 2021. The decrease in borrowings was primarily related to a decline in securities sold under repurchase agreements of $84.5 million offset by an increase in short-term borrowings of $35.0 million compared to December 31, 2021. We no longer offer repurchase agreements as a product for our customers.

Total shareholders’ equity decreased by $53.3 million to $1.2 billion at September 30, 2022 compared to December 31, 2021. The decrease was primarily due to other comprehensive losses of $107.9 million, dividends of $34.9 million and common stock repurchases of $7.6 million offset by net income of $95.3 million. The $107.9 million in other comprehensive losses was primarily due to net unrealized losses of $89.7 million on our available-for-sale bond portfolio due to interest rate increases, $17.9 million attributed to change in market value of interest rate swaps and $0.3 million due to change in market value of pension liability from December 31, 2021 to September 30, 2022.

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Securities Activity


(dollars in thousands)	September 30, 2022			December 31, 2021			$ Change
U.S. Treasury securities		$	120,825		$	95,327		$	25,498
Obligations of U.S. government corporations and agencies		51,784			70,348			(18,564)
Collateralized mortgage obligations of U.S. government corporations and agencies		419,719			270,294			149,425
Residential mortgage-backed securities of U.S. government corporations and agencies		41,984			56,793			(14,809)
Commercial mortgage-backed securities of U.S. government corporations and agencies		323,469			341,300			(17,831)
Corporate obligations		500			500			—
Obligations of states and political subdivisions		38,122			75,089			(36,967)
Available-for-Sale Debt Securities		996,403			909,651			86,752
Marketable equity securities		1,025			1,142			(117)
Total Securities		$	997,428		$	910,793		$	86,635

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 increased $86.6 million to $997.4 million at September 30, 2022 from $910.8 million at December 31, 2021. The increase in securities was primarily due to investing interest-bearing deposits with banks into higher yielding assets.

At September 30, 2022, our bond portfolio was in a net unrealized loss position of $104.6 million compared to a net unrealized gain position of $9.4 million at December 31, 2021. At September 30, 2022, our bond portfolio had gross unrealized losses of $104.6 million compared to December 31, 2021, when total gross unrealized gains were $15.2 million offset by gross unrealized losses of $5.8 million. The decrease in the net unrealized gain position was primarily due to an increase in interest rates from December 31, 2021 to September 30, 2022.

Loan Composition


	September 30, 2022				December 31, 2021
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans		$ Change		% Change
Commercial
Commercial real estate	$	3,134,841	44.2	%	$	3,236,653	46.2	%	$	(101,812)	(3.1)	%
Commercial and industrial	1,714,714		24.2	%	1,728,969		24.7	%	(14,255)		(0.8)	%
Commercial construction	390,093		5.5	%	440,962		6.3	%	(50,869)		(11.5)	%

Total Commercial Loans	5,239,648		73.8	%	5,406,584		77.2	%	(166,936)		(3.1)	%
Consumer
Consumer real estate	1,730,639		24.4	%	1,485,478		21.2	%	245,161		16.5	%
Other consumer	126,629		1.8	%	107,928		1.5	%	18,701		17.3	%
Total Consumer Loans	1,857,268		26.2	%	1,593,406		22.8	%	263,862		16.6	%
Total Portfolio Loans	7,096,916		100.0	%	6,999,990		100.0	%	96,926		1.4	%
Loans held for sale	1,039				1,522				(483)		(31.7)	%
Total Loans	$	7,097,955			$	7,001,512			$	96,443	1.4	%

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.

Total portfolio loans increased $96.9 million to $7.1 billion at September 30, 2022 compared to December 31, 2021. Portfolio loans excluding PPP loans increased $180.6 million compared to December 31, 2021. As of September 30, 2022, 73 percent of our total loans are variable rate loans and 27 percent are fixed rate loans.

Commercial loans, including CRE, C&I and commercial construction, comprised 73.8 percent of total portfolio loans at September 30, 2022 and 77.2 percent at December 31, 2021. The commercial loan portfolio decreased $166.9 million at September 30, 2022 compared to December 31, 2021. CRE loans decreased $101.8 million and construction decreased $50.9 million compared to December 31, 2021 due to elevated loan pay-offs and lower origination volume in the current macro environment. C&I loans decreased $14.3 million which mainly related to a PPP loan decline of $83.7 million offset by growth since December 31, 2021.

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We had $4.7 million of PPP loans included in C&I at September 30, 2022 compared to $88.3 million at December 31, 2021. The decrease in PPP loans was due to loan forgiveness. 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 percent and a term of two years, or five years for loans approved by the SBA on or after June 5, 2020. Payments were 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 26.2 percent of our total portfolio loans at September 30, 2022 and 22.8 percent at December 31, 2021. The consumer loan portfolio increased $263.9 million at September 30, 2022 with increases in consumer real estate of $245.2 million and other consumer of $18.7 million compared to December 31, 2021. Portfolio consumer real estate loans increased in 2022 due to a shift from mortgage loans sold to loans held in the portfolio due to increased jumbo loans and the pricing of loans in the secondary market compared to December 31, 2021.

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. Refer to Part 1. Financial Information, Note 6. Allowance for Credit Losses for details on our portfolio segments.

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


	Nine Months Ended September 30, 2022
(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	$	50,700	$	19,727	$	5,355	$	11,338	$	8,733	$	2,723	$	98,576
Provision for credit losses on loans(1)	(8,471)		4,573		68		3,158		2,083		1,393		2,804
Charge-offs	(827)		(5,797)		—		(1,924)		(299)		(1,052)		(9,899)
Recoveries	432		6,835		1		599		109		237		8,213
Net (Charge-offs)/ Recoveries	(395)		1,038		1		(1,325)		(190)		(815)		(1,686)
Balance at End of Period	$	41,834	$	25,338	$	5,424	$	13,171	$	10,626	$	3,301	$	99,694
(1) Excludes the provision for credit losses for unfunded commitments.

The following table presents key ACL ratios for the periods presented:


	September 30, 2022		December 31, 2021
Ratio of net charge-offs to average loans outstanding(1)	0.03	%	0.49	%
Allowance for credit losses as a percentage of total portfolio loans	1.40	%	1.41	%
Allowance for credit losses as a percentage of total portfolio loans - excluding PPP loans	1.41	%	1.43	%
Allowance for credit losses to nonperforming loans	438	%	149	%

(1) Year-to-date net charge-offs annualized

The ACL was $99.7 million, or 1.40 percent of total portfolio loans, at September 30, 2022 compared to $98.6 million, or 1.41 percent of total portfolio loans, at December 31, 2021. The quantitative reserve decreased $5.3 million primarily due to significant improvement in our hotel portfolio. Specific reserves on loans individually assessed decreased $1.8 million due to the resolution of a C&I relationship through a note sale which resulted in a $5.5 million charge-off during the nine months ended September 30, 2022. The qualitative reserve increased $8.2 million primarily due to an increase in the economic forecast component which related to concerns with inflation and macroeconomic conditions.

Net loan charge-offs were $1.7 million, or 0.03 percent of average loans, for the nine months ended September 30, 2022. The most significant charge-off was the above mentioned C&I relationship for $5.5 million. Offsetting loan charge-offs were $6.6 million of loan recoveries related to two C&I relationships during the nine months ended September 30, 2022.

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Substandard loans decreased $70.9 million to $164.3 million at September 30, 2022 compared to $235.2 million at December 31, 2021. The decrease in substandard loans was primarily due to loan upgrades in our hotel portfolio and loan payoffs. The decrease in substandard loans was partially offset by the addition of a $28.5 million C&I relationship, which was downgraded to substandard due to financial deterioration that led to cash flow shortfalls during the second quarter of 2022. Special mention loans increased $13.6 million to $205.9 million at September 30, 2022 compared to $192.3 million at December 31, 2021.

Troubled debt restructurings, or TDRs, decreased $18.9 million to $12.8 million at September 30, 2022 compared to $31.7 million at December 31, 2021. The decrease in TDRs was primarily due to the payoff of two C&I relationships totaling $14.1 million. Total TDRs of $12.8 million included $8.9 million, or 69.5 percent, that were accruing and $3.9 million, or 30.5 percent, that were nonaccruing at September 30, 2022.

Our allowance for credit losses on unfunded commercial loan 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 (Loss). The allowance for unfunded loan commitments increased $2.4 million to $7.6 million at September 30, 2022 compared to $5.2 million at December 31, 2021. This change was primarily related to higher construction commitments and expected loss rates in our construction portfolio. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

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


(dollars in thousands)	September 30, 2022				December 31, 2021				$ Change
Nonperforming Loans (Excluding TDRs)
Commercial real estate		$	7,353			$	29,791			$	(22,438)
Commercial and industrial		335				350				(15)
Commercial construction		384				384				—
Business banking		5,353				7,945				(2,592)
Consumer real estate		5,094				5,889				(795)
Other Consumer		398				158				240
Total Nonperforming Loans (Excluding TDRs)		18,917				44,517				(25,600)
Nonperforming Troubled Debt Restructurings
Commercial real estate		480				1,697				(1,217)
Commercial and industrial		—				14,889				(14,889)
Commercial construction		—				2,087				(2,087)
Business banking		1,092				1,696				(604)
Consumer real estate		2,279				1,405				874
Other Consumer		9				—				9
Total Nonperforming Troubled Debt Restructurings		3,860				21,774				(17,914)
Total Nonperforming Loans		22,777				66,291				(43,514)
OREO		6,022				13,313				(7,291)
Total Nonperforming Assets		$	28,799			$	79,604			$	(50,805)
Asset Quality Ratios:
Nonperforming loans as a percent of total portfolio loans		0.32		%		0.95		%
Nonperforming assets as a percent of total portfolio loans plus OREO		0.41		%		1.13		%

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 the contractual due date. Nonperforming loans decreased $43.5 million, or 65.6 percent, to $22.8 million at September 30, 2022 compared to $66.3 million at December 31, 2021. The significant decrease in nonperforming loans primarily related to payoffs and loans in our hotel portfolio that were returned to performing status during the nine months ended September 30, 2022. The decrease in OREO related to the sale of two properties during the nine months ended September 30, 2022.

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Deposits


(dollars in thousands)	September 30, 2022			December 31, 2021			$ Change

Noninterest-bearing demand		$	2,663,176		$	2,748,586		$	(85,410)
Interest-bearing demand		847,825			979,133			(131,308)
Money market		1,818,642			2,070,579			(251,937)
Savings		1,128,169			1,110,155			18,014
Certificates of deposit		952,785			1,088,071			(135,286)







Total Deposits		$	7,410,597		$	7,996,524		$	(585,927)

Deposits are our primary source of funds. Our deposit base increased substantially through the pandemic related to PPP and stimulus programs, but we have experienced a decrease in deposits during 2022. Total deposits decreased $585.9 million, or 7.3%, compared to December 31, 2021. Noninterest-bearing demand deposits decreased $85.4 million, interest-bearing demand deposits decreased $131.3 million, money market decreased $251.9 million and certificates of deposits decreased $135.3 million compared to December 31, 2021. The decreases were primarily related to the competitive market in the rising interest rate environment.

Borrowings


(dollars in thousands)	September 30, 2022			December 31, 2021			$ Change
Securities sold under repurchase agreements		$	—		$	84,491		$	(84,491)
Short-term borrowings		35,000			—			35,000
Long-term borrowings		14,853			22,430			(7,577)
Junior subordinated debt securities		54,438			54,393			45
Total Borrowings		$	104,291		$	161,314		$	(57,023)

Borrowings are an additional source of funding for us. Total borrowings decreased $57.0 million compared to December 31, 2021 primarily due to the discontinuation of the customer repurchase agreement product and the repayment of a $7.6 million long-term borrowing which was offset by an increase of $35.0 million in short-term borrowings. Short-term borrowings increased $35.0 million compared to December 31, 2021 due to lower deposit levels.

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S&T BANCORP, INC. AND SUBSIDIARIES

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

Information pertaining to short-term borrowings is summarized in the table below for the nine months ended September 30, 2022 and for the twelve months ended December 31, 2021.


	Securities Sold Under Repurchase Agreements
(dollars in thousands)	September 30, 2022			December 31, 2021
Balance at the period end	$	—		$	84,491
Average balance during the period	$	47,912		$	69,964
Average interest rate during the period	0.10		%	0.11		%
Maximum month-end balance during the period	$	89,366		$	84,491
Average interest rate at the period end	—		%	0.10		%

	Short-Term Borrowings
(dollars in thousands)	September 30, 2022			December 31, 2021
Balance at the period end	$	35,000		$	—
Average balance during the period	$	3,498		$	6,301
Average interest rate during the period	3.16		%	0.19		%
Maximum month-end balance during the period	$	35,000		$	25,000
Average interest rate at the period end	3.11		%	—		%

Information pertaining to long-term borrowings is summarized in the tables below for the nine months ended September 30, 2022 and for the twelve months ended December 31, 2021.


	Long-Term Borrowings
(dollars in thousands)	September 30, 2022			December 31, 2021
Balance at the period end	$	14,853		$	22,430
Average balance during the period	$	20,535		$	22,995
Average interest rate during the period	2.06		%	1.99		%
Maximum month-end balance during the period	$	22,344		$	23,549
Average interest rate at the period end	2.30		%	1.94		%

	Junior Subordinated Debt Securities
(dollars in thousands)	September 30, 2022			December 31, 2021
Balance at the period end	$	54,438		$	54,393
Average balance during the period	$	54,413		$	61,653
Average interest rate during the period	3.79		%	2.99		%
Maximum month-end balance during the period	$	54,438		$	64,128
Average interest rate at the period end	5.74		%	2.69		%

Liquidity and Capital Resources

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. Our primary future cash needs are centered on the ability to (i) satisfy the financial needs of depositors who may want to withdraw funds or of borrowers needing to access funds to meet their credit needs and (ii) to meet our future cash commitments under contractual obligations with third parties. 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 as of September 30, 2022 - 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

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S&T BANCORP, INC. AND SUBSIDIARIES

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

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.

We have contractual obligations representing required future payments on certificates of deposit, securities sold under repurchase agreements, junior subordinated debt securities, operating and capital leases and purchase obligations. See the Liquidity and Capital Resources portion of our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K for more information on these future cash outflows.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. At September 30, 2022, S&T Bank had $767.9 million in highly liquid assets which consisted of $60.7 million in interest-bearing deposits with banks, $706.2 million in unpledged securities and $1.0 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of 8.6 percent at September 30, 2022. Highly liquid assets have declined by $533.1 million when comparing September 30, 2022 to December 31, 2021. The majority of the decrease in liquid assets is attributed to decreases in cash balances which are primarily a result of decreased deposits. At September 30, 2022, we had remaining borrowing availability of $2.7 billion with the FHLB of Pittsburgh. For more information regarding our outstanding borrowings refer to the "Financial Condition as of September 30, 2022 - Borrowings" section of this MD&A for more details.

We continue to maintain a strong capital position with our leverage ratio at 10.75 percent at September 30, 2022 compared to 9.74 percent at December 31, 2021, both in excess of the regulatory guideline of 5.00 percent. We continue to be well-capitalized with a risk-based Common Equity Tier 1 ratio of 12.53 percent at September 30, 2022 compared to 12.03 percent at December 31, 2021, both in excess of the regulatory guideline of 6.50 percent to be well-capitalized.

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


(dollars in thousands)	Adequately Capitalized		Well- Capitalized		September 30, 2022				December 31, 2021
					Amount		Ratio		Amount		Ratio
S&T Bancorp, Inc.
Tier 1 leverage	4.00	%	5.00	%	$	938,843	10.75	%	$	889,785	9.74	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	909,843		12.53	%	860,785		12.03	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	938,843		12.93	%	889,785		12.43	%
Total capital to risk-weighted assets	8.00	%	10.00	%	1,047,765		14.43	%	987,420		13.79	%
S&T Bank
Tier 1 leverage	4.00	%	5.00	%	$	915,006	10.48	%	$	864,127	9.46	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	915,006		12.61	%	864,127		12.09	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	915,006		12.61	%	864,127		12.09	%
Total capital to risk-weighted assets	8.00	%	10.00	%	1,023,928		14.11	%	961,762		13.45	%

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 due to the COVID-19 pandemic. The IFR provides financial institutions that 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 transition”). We adopted CECL effective January 1, 2020 and elected to implement the 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 30, 2022, we had not issued any securities pursuant to this shelf registration statement.

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S&T BANCORP, INC. AND SUBSIDIARIES

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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.

The table below reflects the rate shock analyses results for the 1-12 and 13-24 month periods of pretax net interest income and EVE.


	September 30, 2022			December 31, 2021
	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
400	19.8	24.9	(10.6)	30.4	40.3	18.4
300	14.9	18.8	(4.8)	22.5	30.0	19.9
200	10.0	12.7	(0.8)	14.9	20.2	18.4
100	5.2	6.6	1.1	7.0	9.9	11.9
-100	(8.0)	(10.4)	(9.1)	(4.6)	(8.4)	(26.3)
-200	(14.7)	(19.0)	(19.0)	—	—	—

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 less improvement in the percentage change in pretax net interest income in the rates up scenarios when comparing September 30, 2022 to December 31, 2021 primarily because we have less interest bearing deposits with banks. The percentage change in pretax net interest income in the rates down scenario shows a decline when comparing September 30, 2022 to December 31, 2021 because the higher rate environment has increased our asset yields more than our liability costs. A decline in interest rates would result in less interest income with limited interest expense reduction. Our EVE analyses show a decline in the percentage change in EVE in the rates up scenarios and an improvement in the rates down scenario when comparing September 30, 2022 to December 31, 2021 due to the impact of interest rates on the value of nonmaturity deposits.

In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations. Sensitivity analyses are performed to help us identify which model assumptions cause the greatest impact on pretax net interest income. Sensitivity analyses may include changing prepayment behavior of loans and securities with optionality and the impact of interest rate changes on non-maturity deposit products. Simulation analyses may include the potential impact of rate changes other than the policy guidelines, yield curve shape changes, significant balance mix changes and various growth scenarios.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of S&T’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of September 30, 2022. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to S&T’s management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective in all material respects, as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2022, 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 2021 Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022 other than the risks described below.

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S&T BANCORP, INC. AND SUBSIDIARIES

Russia’s invasion of Ukraine has created significant economic and financial disruptions and uncertainties, which could adversely affect our business, financial condition and results of operations

In late February 2022, Russia launched a large-scale military attack on Ukraine. In response to the military action by Russia, government actions, including broad-ranging economic sanctions against Russia, have been taken by the United States, the United Kingdom, the European Union and other countries. The U.S. and global markets are experiencing volatility and disruption following the start of this military conflict and imposition of sanctions, impacting the financial and commodities markets. The continued impact on financial markets, including the level and volatility of interest rates, could impact our earnings. Furthermore, continued increases in commodity prices contributing to higher inflation could negatively impact our customers and our earnings. Russian military actions and the resulting sanctions could further adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. In addition, Russia may take retaliatory actions and other counter measures including cyberattacks against the U.S., its government, infrastructure and businesses, including S&T. Although the extent and duration of the military action or future escalation of such hostilities, the extent and impact of existing and future sanctions, market disruptions and volatility and the result of any diplomatic negotiations remains uncertain, these consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of our common stock to be adversely affected.

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 quarter of 2022:


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
				$33,289,015
07/01/2022 - 07/31/2022	—	$—	—	33,289,015

08/01/2022 - 08/31/2022	—	—	—	33,289,015

09/01/2022 - 09/30/2022	117,283	29.71	117,283	29,804,537
Total	117,283	$29.71	117,283	$29,804,537

(1) On March 21, 2022, our Board of Directors authorized an extension of the $50 million share repurchase plan, which was set to expire March 31, 2022. This authorization extended the expiration date of the repurchase plan through March 31, 2023. 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 $29.8 million of capacity remaining at September 30, 2022, 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 repurchases from cash on hand and internally generated funds. Share repurchases will not occur unless permissible under applicable laws.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

None

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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			Bylaws of S&T Bancorp, Inc., as amended. Filed as Exhibit 3.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on July 28,2022, and incorporated herein by reference.
10.1			Severance and General Release Agreement, dated October 12, 2022, by and between Charles Carroll and S&T Bancorp, Inc., S&T Bank and any of their subsidiaries or affiliated businesses. Filed as Exhibit 10.1 to S&T Bancorp, Inc. Current Report on Form 8-K/A filed on October 17, 2022, and incorporated herein by reference.*
10.2			S&T Bancorp, Inc. Deferred Compensation Plan. Filed as Exhibit 10.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on October 21, 2022, and incorporated herein by reference.*
31.1			Rule 13a-14(a) Certification of the Chief Executive Officer.
31.2			Rule 13a-14(a) Certification of the Chief Financial Officer.
32			Rule 13a-14(b) Certification of the Chief Executive Officer and Chief Financial Officer.
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

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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 2, 2022			/s/ Mark Kochvar
			Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)