UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~WASHINGTON, DC~~Washington, D.C. 20549

______________________________________

FORM 10-Q

______________________________________

(Mark One)



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

For the quarterly period ended March 31, ~~2019~~2020



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

For the transition period from to

Commission file number 0-12508

______________________________________

S&T BANCORP ~~INC.~~INC

(Exact name of registrant as specified in its charter)

______________________________________



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

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

~~800-325-2265~~800-325-2265

(Registrant’s telephone number, including area code)

Not Applicable

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

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



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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically 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 x☒ No ¨☐

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



Large accelerated filer	x☒	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 x☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

Common Stock, $2.50 Par Value - ~~34,329,717~~39,242,510 shares as of ~~April 30, 2019~~May 8, 2020

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

INDEX

S&T BANCORP, INC. AND SUBSIDIARIES



		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

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

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

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

	Consolidated Statements of Cash Flows - Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3943

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56

~~Item 4.~~	~~Controls and Procedures~~	57

~~PART II. OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	58

~~Item 1A.~~	~~Risk Factors~~	58

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	58

~~Item 3.~~	~~Defaults Upon Senior Securities~~	58

~~Item 4.~~	~~Mine Safety Disclosures~~	58

~~Item 5.~~	~~Other Information~~	58

~~Item 6.~~	~~Exhibits~~	59

Item 4.	~~Signatures~~Controls and Procedures	60

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	61

Item 1A.	Risk Factors	61

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

Item 3.	Defaults Upon Senior Securities	62

Item 4.	Mine Safety Disclosures	62

Item 5.	Other Information	62

Item 6.	Exhibits	62

	Signatures	63

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2019				December 31, 2018				March 31, 2020				December 31, 2019
(dollars in thousands, except per share data)	(Unaudited)				(Audited)				(Unaudited)				(Audited)
ASSETS
Cash and due from banks, including interest-bearing deposits of $61,327 and $82,740 at March 31, 2019 and December 31, 2018		$	116,820			$	155,489
Cash and due from banks, including interest-bearing deposits of $113,505 and $124,491 at March 31, 2020 and December 31, 2019										$	187,684			$	197,823
Securities, at fair value		680,420				684,872				799,532				784,283
Loans held for sale		2,706				2,371				7,309				5,256
Portfolio loans, net of unearned income		5,935,452				5,946,648				7,246,745				7,137,152
Allowance for loan losses		(61,409		)		(60,996		)
Allowance for credit losses on loans										(96,850		)		(62,224		)
Portfolio loans, net		5,874,043				5,885,652				7,149,895				7,074,928
Bank owned life insurance		74,401				73,900				80,978				80,473
Premises and equipment, net		42,199				41,730				56,659				56,940
Federal Home Loan Bank and other restricted stock, at cost		19,959				29,435				28,253				22,977
Goodwill		287,446				287,446				374,270				371,621
Other intangible assets, net		2,418				2,601				10,287				10,919
Other assets		128,850				88,725				310,629				159,429
Total Assets		$	7,229,262			$	7,252,221			$	9,005,496			$	8,764,649
LIABILITIES
Deposits:
Noninterest-bearing demand		$	1,423,436			$	1,421,156			$	1,702,960			$	1,698,082
Interest-bearing demand		541,053				573,693				962,937				962,331
Money market		1,700,964				1,482,065				1,967,692				1,949,811
Savings		767,175				784,970				836,237				830,919
Certificates of deposit		1,400,773				1,412,038				1,588,053				1,595,433
Total Deposits		5,833,401				5,673,922				7,057,879				7,036,576
Securities sold under repurchase agreements		23,427				18,383				69,644				19,888
Short-term borrowings		235,000				470,000				410,240				281,319
Long-term borrowings		70,418				70,314				50,180				50,868
Junior subordinated debt securities		45,619				45,619				64,038				64,277
Other liabilities		78,241				38,222				177,264				119,723
Total Liabilities		6,286,106				6,316,460				7,829,245				7,572,651
SHAREHOLDERS’ EQUITY
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—36,130,480 shares at March 31, 2019 and at December 31, 2018 Outstanding— 34,330,136 shares at March 31, 2019 and 34,683,874 shares at December 31, 2018		90,326				90,326
Common stock ($2.50 par value) Authorized—50,000,000 shares Issued—41,449,444 shares at March 31, 2020 and December 31, 2019 Outstanding— 39,125,425 shares at March 31, 2020 and 39,560,304 shares at December 31, 2019										103,623				103,623
Additional paid-in capital		210,949				210,345				400,387				399,944
Retained earnings		716,078				701,819				740,726				761,083
Accumulated other comprehensive loss		(16,931		)		(23,107		)		5,672				(11,670		)
Treasury stock (1,800,344 shares at March 31, 2019 and 1,446,606 shares at December 31, 2018, at cost)		(57,266		)		(43,622		)
Treasury stock (2,324,019 shares at March 31, 2020 and 1,889,140 shares at December 31, 2019, at cost)										(74,157		)		(60,982		)
Total Shareholders’ Equity		943,156				935,761				1,176,251				1,191,998
Total Liabilities and Shareholders’ Equity		$	7,229,262			$	7,252,221			$	9,005,496			$	8,764,649

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,						Three Months Ended March 31,
(dollars in thousands, except per share data)	2019			2018			2020				2019
INTEREST AND DIVIDEND INCOME
Loans, including fees		$	73,392		$	63,055		$	82,051			$	73,392
Investment Securities:
Taxable		3,790			3,429			4,215				3,790
Tax-exempt		844			874			870				844
Dividends		564			671			453				564
Total Interest and Dividend Income		78,590			68,029			87,589				78,590
INTEREST EXPENSE
Deposits		14,981			7,846			15,338				14,981
Borrowings and junior subordinated debt securities		3,253			3,251			2,215				3,253
Total Interest Expense		18,234			11,097			17,553				18,234
NET INTEREST INCOME		60,356			56,932			70,036				60,356
Provision for loan losses		5,649			2,472
Net Interest Income After Provision for Loan Losses		54,707			54,460
Provision for credit losses								20,050				5,684
Net Interest Income After Provision for Credit Losses								49,986				54,672
NONINTEREST INCOME
Net gain on sale of securities								—				—
Service charges on deposit accounts		3,153			3,241			3,558				3,153
Debit and credit card		2,974			3,037			3,482				2,974
Commercial loan swap income								2,484				581
Wealth management		2,048			2,682			2,362				2,048
Mortgage banking		494			602			1,236				494
Gain on sale of a majority interest of insurance business		—			1,873
Other		2,693			2,357			(719		)		2,112
Total Noninterest Income		11,362			13,792			12,403				11,362
NONINTEREST EXPENSE
Salaries and employee benefits		20,910			18,815			21,335				20,910
Data processing and information technology		3,233			2,325			3,868				3,233
Net occupancy		3,036			2,873			3,765				3,036
Furniture, equipment and software		2,230			1,957			2,519				2,230
Merger related expenses								2,342				—
Other taxes		1,185			1,848			1,600				1,185
Marketing								1,111				1,141
Professional services and legal		1,184			1,051			1,048				1,184
Marketing		1,141			702
FDIC insurance		516			1,108			770				516
Other		5,484			5,403			8,033				5,449
Total Noninterest Expense		38,919			36,082			46,391				38,884
Income Before Taxes		27,150			32,170			15,998				27,150
Provision for income taxes		4,222			6,007			2,767				4,222
Net Income		$	22,928		$	26,163		$	13,231			$	22,928
Earnings per share—basic		$	0.67		$	0.75		$	0.34			$	0.67
Earnings per share—diluted		$	0.66		$	0.75		$	0.34			$	0.66
Dividends declared per share		$	0.27		$	0.22		$	0.28			$	0.27
Comprehensive Income		$	29,104		$	14,637		$	30,573			$	29,104

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

(dollars in thousands, except share and per share data)
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive (Loss)/Income

Treasury
Stock
Total
Balance at January 1, 2018 $ 90,326
$ 216,106
$ 628,107
$ (18,427 ) $ (32,081 ) $ 884,031
Net income for the three months ended March 31, 2018 —
—
26,163
—
—
26,163
Other comprehensive income (loss), net of tax —
—
—
(6,973 ) —
(6,973 )
Reclassification of tax effects from the Tax Act⁽¹⁾
—
—
3,691
(3,691 ) —
—
Reclassification of net unrealized gains on equity securities⁽²⁾
—
—
862
(862 ) —
—
Cash dividends declared ($0.22 per share) —
—
(7,669 ) —
—
(7,669 )
Treasury stock issued for restricted awards (66,165 shares, net of 37,592 forfeitures) —
—
(1,229 ) —
572
(657 )
Recognition of restricted stock compensation expense —
512
—
—
—
512
Balance at March 31, 2018 $ 90,326
$ 216,618
$ 649,925
$ (29,953 ) $ (31,509 ) $ 895,407

Balance at January 1, 2019 $ 90,326
$ 210,345
$ 701,819
$ (23,107 ) $ (43,622 ) $ 935,761
Net Income for the three months ended March 31, 2019 —
—
22,928
—
—
22,928
Other comprehensive income (loss), net of tax —
—
—
6,176
—
6,176
Impact of new lease standard 167
167
Cash dividends declared ($0.27 per share) —
—
(9,317 ) —
—
(9,317 )
Forfeitures of restricted stock awards (39,834 shares) —
—
481
—
(1,357 ) (876 )
Repurchase of S&T Stock (313,904 shares) —
—
—
—
(12,287 ) (12,287 )
Recognition of restricted stock compensation expense —
604
—
—
—
604
Balance at March 31, 2019 $ 90,326
$ 210,949
$ 716,078
$ (16,931 ) $ (57,266 ) $ 943,156



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

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

See Notes to Consolidated Financial Statements

⁽¹⁾~~Reclassification due to the adoption of ASU No. 2018-02, $(3,924) relates to funded status of pension and $233 relates to net unrealized gains on available-for-sale securities.~~

⁽²⁾~~Reclassification due to the adoption of ASU No. 2016-01.~~

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,							Three Months Ended March 31,
(dollars in thousands)		2019			2018				2020			2019
OPERATING ACTIVITIES
Net income		$	22,928		$	26,163			$	13,231		$	22,928
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		5,649			2,472
Net increase (decrease) in unfunded loan commitments		35			(71		)
Provision for credit losses									20,050			5,649
Provision for unfunded loan commitments									—			35
Net depreciation, amortization and accretion		1,420			1,017				1,171			1,420
Net amortization of discounts and premiums on securities		776			796				1,154			776
Stock-based compensation expense		604			512				443			604
Gain on the sale of mortgage loans, net									(536		)	(293		)
Mortgage loans originated for sale		(14,506		)	(16,827		)		(37,332		)	(14,506		)
Proceeds from the sale of mortgage loans		14,464			18,326				35,358			14,464
Gain on the sale of mortgage loans, net		(293		)	(296		)
Gain on the sale of majority interest of insurance business		—			(1,873		)
Net (increase) decrease in interest receivable		(1,963		)	336
Net decrease in interest payable		(789		)	(720		)
Net (increase) decrease in other assets		(3,466		)	4,120
Net increase in other liabilities		5,600			3,836
Net Cash Provided by Operating Activities		30,459			37,791
Net change in:
Interest receivable									26			(1,963		)
Interest payable									(242		)	(789		)
Other assets									(149,186		)	(3,466		)
Other liabilities									55,902			5,600
Net Cash (Used in) Provided by Operating Activities									(59,961		)	30,459
INVESTING ACTIVITIES
Purchases of securities		(9,437		)	(27,565		)		(30,292		)	(9,437		)
Proceeds from maturities, prepayments and calls of securities		20,193			22,104				33,869			20,193
Net proceeds from sales (purchases) of Federal Home Loan Bank stock		9,477			(499		)
Net decrease in loans		4,760			27,717
Net (purchases of) proceeds from sales of Federal Home Loan Bank stock									(5,277		)	9,477
Net (increase) decrease in loans									(122,507		)	4,760
Proceeds from sale of loans not originated for resale		465			2,060				—			465
Purchases of premises and equipment		(1,757		)	(309		)		(1,429		)	(1,757		)
Proceeds from the sale of premises and equipment		—			109
Proceeds from the sale of majority interest of insurance business		—			4,540
Net Cash Provided by Investing Activities		23,701			28,157
Net Cash (Used in) Provided by Investing Activities									(125,636		)	23,701
FINANCING ACTIVITIES
Net increase in core deposits		170,744			14,793				28,684			170,744
Net decrease in certificates of deposit		(11,241		)	(55,557		)		(7,042		)	(11,241		)
Net increase (decrease) in securities sold under repurchase agreements		5,044			(5,544		)
Net decrease in short-term borrowings		(235,000		)	(15,000		)
Proceeds (repayments), net on long-term borrowings		104			(617		)
Net increase in securities sold under repurchase agreements									49,756			5,044
Net increase (decrease) in short-term borrowings									128,921			(235,000		)
Proceeds from long-term borrowings									—			104
Repayments on long-term borrowings									(688		)	—
Treasury shares issued-net		(876		)	(657		)		(563		)	(876		)
Cash dividends paid to common shareholders		(9,317		)	(7,669		)		(11,051		)	(9,317		)
Repurchase of common stock		(12,287		)	—				(12,559		)	(12,287		)
Net Cash Used in Financing Activities		(92,829		)	(70,251		)
Net Cash Provided by (Used in) Financing Activities									175,458			(92,829		)
Net decrease in cash and cash equivalents		(38,669		)	(4,303		)		(10,139		)	(38,669		)
Cash and cash equivalents at beginning of period		155,489			117,152				197,823			155,489
Cash and Cash Equivalents at End of Period		$	116,820		$	112,849			$	187,684		$	116,820
Supplemental Disclosures
Loans transferred to held for sale		$	—		$	2,060
Leased right-of-use assets and lease liabilities added to the balance sheet		$	35,686		$	—
Leased right-of-use operating assets and lease liabilities added to the balance sheet									$	91		$	35,686
Interest paid		$	19,023		$	11,817			$	17,795		$	19,023
Income taxes paid, net of refunds		$	1,432		$	108			$	210		$	1,432
Transfer net assets to investment in insurance company partnership		$	—		$	1,917
Transfers of loans to other real estate owned		$	80		$	2,599			$	110		$	80

See Notes to Consolidated Financial Statements

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

Principles of Consolidation

The interim Consolidated Financial Statements include the accounts of S&T Bancorp, Inc., or S&T, and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Investments of 20 percent to 50 percent of the outstanding common stock of investees are accounted for using the equity method of accounting.

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements of S&T have been prepared in accordance with generally accepted accounting principles, or GAAP, in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission, or SEC, on ~~February 21, 2019.~~March 2, 2020. In the opinion of management, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.

On ~~January 1, 2018,~~June 5, 2019 we ~~sold a 70 percent majority interest in~~entered into an agreement to acquire DNB Financial Corporation, or DNB, and the ~~assets of our wholly-owned subsidiary S&T Evergreen Insurance, LLC. We transferred our remaining~~transaction was completed on November 30, ~~percent ownership interest in~~2019. Refer to Note 2, Business Combinations for further details on the net assets of S&T Evergreen Insurance, LLC to a new entity for a 30 percent ownership interest in a new insurance entity (see Note 15: Sale of a Majority Interest of Insurance Business). We use the equity method of accounting to recognize our partial ownership interest in the new entity.merger.

Reclassification

Amounts in prior period financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no effect on our results of operations or financial condition.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.

Recently Adopted Accounting Standards Updates, or ASU or Update

~~Leases - Section A-Amendments to the FASB~~Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting ~~Standards Codification, Section B-Conforming Amendments Related to Leases and Section C-Background Information and Basis~~ for ~~Conclusions~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board, or FASB, ~~established ASC Topic 842, by issuing~~issued ASU No. ~~2016-02,~~2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU apply to an entity that is a customer in a hosting arrangement that is a service contract. These amendments relate to accounting for implementation costs (e.g., implementation, setup and other upfront costs). These amendments require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which ~~requires lessees~~costs to ~~recognize leases on~~capitalize and which costs to expense. These amendments require the ~~balance sheet~~entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This ASU is effective for annual and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use, or ROU, model that requires a lessee to recognize ROU assets and lease liabilities on the balance sheet. Leases will be classified as finance or operating leases, with classification affecting the pattern and classification of expense recognition in the statement of operations.interim periods beginning after December 15, 2019. We adopted ~~the new standard~~this ASU on January 1, ~~2019 (see Note 7: Right-of-Use Assets and Lease Liabilities).~~2020. The amendments in this ASU did not materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

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

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement - Changes to the Disclosure Requirements for Fair Value Measurement. The ~~new standard provides a number of optional practical expedients~~amendments in transition. We have elected the "package of practical expedients," which permit us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We elected the "use-of-hindsight" practical expedient which allowsthis ASU remove certain disclosures from Topic 820, modify disclosures and/or require additional disclosures. The amendments in this Update required us to ~~use hindsight~~change our Fair Value disclosures beginning with the disclosures included in ~~judgments that~~this Form 10-Q for the period ended March 31, 2020. We adopted this ASU on January 1, 2020. The amendments in this ASU did not materially impact ~~the lease term. We have also elected an accounting policy not~~our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income. Refer to ~~restate comparative periods upon adoption.~~Note 4. Fair Value Measurements.

The most significant effects of adopting the new standard relate to the recognition of ROU assets and lease liabilities on our balance sheet for our real estate leases and providing significant new disclosures about our leasing activities.

Upon adoption, we recognized additional finance lease liabilities of approximately $1.2 million and operating lease liabilities, net of deferred rent, of approximately $33.7 million based on the present value of the remaining minimum rental

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

payments under current leasing standards for existing leases. We also recognized corresponding finance ROU assets of $1.2 million and operating ROU assets of approximately $33.4 million. The adoption had no material impact on the Consolidated Statements of Comprehensive Income.

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

~~Leases - Land Easement Practical Expedient for Transition to Topic 842~~

In January 2018, the FASB issued ASU No. 2018-01, Leases - Land Easement Practical Expedient for Transition to Topic 842. The amendments in this ASU permit an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that existed or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. We have one land easement lease that we previously accounted for under Topic 840; as such, this lease has been recognized as an operating lease under Topic 842. We adopted the amendments in this ASU in conjunction with the adoption of the new lease standard, ASU 2016-02.

~~Accounting Standards Issued But Not Yet Adopted~~

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

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU apply to an entity that is a customer in a hosting arrangement that is a service contract. These amendments relate to accounting for implementation costs (~~e.g~~., implementation, setup and other upfront costs.) These amendments require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which costs to capitalize and which costs to expense. These amendments require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This ASU is effective for annual and interim periods beginning after December 15, 2019. Early adoption of the amendments is permitted, including adoption in any interim period. We are evaluating the amendments in this ASU; however, we do not anticipate that these amendments will materially impact our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

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

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

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

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

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment (Topic 350). The main objective of this ASU is to simplify the current requirements for testing goodwill for impairment by eliminating step two from the goodwill impairment test. The amendments are expected to reduce the complexity and costs associated with performing the goodwill impairment test, which could result in recording impairment charges ~~sooner than under the current guidance.~~sooner. This Update is effective for any interim and annual impairment tests in reporting periods in fiscal years beginning after December 15, 2019. ~~Early adoption is permitted for interim or annual goodwill impairment tests performed~~We adopted the amendments of this ASU on ~~testing dates after~~ January 1, ~~2017.~~2020. The amendments in this ASU isdid not ~~expected to~~ have any impact on our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.

Financial Instruments - Credit Losses

~~In June 2016, the FASB issued~~On January 1, 2020, we adopted ASU ~~No.~~ 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments of this Update replaceInstruments, which replaces the incurred loss ~~impairment~~ methodology ~~in current GAAP with a methodology that reflects expected~~for determining our provision for credit losses, and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses, ~~modeling have been universally~~or ACL, with an expected loss methodology that is referred to as the Current Expected Credit Loss, or CECL, ~~or current~~model. The measurement of expected credit ~~loss, model. This Update~~losses under the CECL methodology is ~~effective~~applicable to financial assets measured at amortized cost, including our loans and off-balance sheet credit exposures. In addition, ASU 2016-13 made changes to the accounting for ~~interim~~available-for-sale debt securities. Credit losses related to available-for-sale debt securities (regardless of whether the impairment is considered to be other-than-temporary) will be measured in a manner similar to the present, except that such losses will be recorded as allowances rather than as reductions in the amortized cost of the related securities.

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

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

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

In connection with our adoption ~~is permitted~~of ASU 2016-13, we made changes to our loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Refer to Note 7 Allowance for ~~fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.~~ ~~We have created a CECL Committee to govern the implementation~~Credit Losses for further discussion of these ~~amendments consisting~~portfolio segments. Our new segmentation breaks out business banking loans from our other loan segments: Commercial Real Estate, or CRE, Commercial and Industrial, or C&I , Commercial Construction, Consumer Real Estate and Other Consumer. Business banking loans are commercial loans made to small businesses that are standard, non-complex products and evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

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



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

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

Allowance for Credit ~~Administration, Finance, Risk Management~~Losses Policy

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

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

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

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

Accounting Standards Issued But Not Yet Adopted

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

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

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

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2. BUSINESS COMBINATIONS

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

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

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

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

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



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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2. BUSINESS COMBINATIONS – continued

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

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

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2.3. EARNINGS PER SHARE

Diluted earnings per share is calculated using both the two-class and the treasury stock methods with the more dilutive method used to determine diluted earnings per share. ~~For the three months ended March 31, 2019, the treasury stock method is more dilutive and was used to determine diluted earnings per share.~~ The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented.



	Three Months Ended March 31,
(in thousands, except share and per share data)	2020			2019
Numerator for Earnings per Share—Basic:
Net income		$	13,231		$	22,928
Less: Income allocated to participating shares		29			62
Net Income Allocated to Shareholders		$	13,202		$	22,866

Numerator for Earnings per Share—Diluted:
Net income		$	13,231		$	22,928
Net Income Available to Shareholders		$	13,231		$	22,928

Denominators for Earnings per Share:
Weighted Average Shares Outstanding—Basic		39,271,540			34,414,555
Add: Potentially dilutive shares		108,116			128,256
Denominator for Treasury Stock Method—Diluted		39,379,656			34,542,811

Weighted Average Shares Outstanding—Basic		39,271,540			34,414,555
Add: Average participating shares outstanding		54,398			92,659
Denominator for Two-Class Method—Diluted		39,325,938			34,507,214

Earnings per share—basic		$	0.34		$	0.67
Earnings per share—diluted		$	0.34		$	0.66
Restricted stock considered anti-dilutive excluded from potentially dilutive shares		41			68,314

Three Months Ended March 31,
(in thousands, except share and per share data) 2019 2018
Numerator for Earnings per Share—Basic:
Net income $ 22,928
$ 26,163
Less: Income allocated to participating shares 62
80
Net Income Allocated to Shareholders $ 22,866
$ 26,083

Numerator for Earnings per Share—Diluted:
Net income $ 22,928
$ 26,163
Net Income Available to Shareholders $ 22,928
$ 26,163

Denominators for Earnings per Share:
Weighted Average Shares Outstanding—Basic 34,414,555
34,756,726
Add: Potentially dilutive shares 128,256
242,439
Denominator for Treasury Stock Method—Diluted 34,542,811
34,999,165

Weighted Average Shares Outstanding—Basic 34,414,555
34,756,726
Add: Average participating shares outstanding 92,659
106,722
Denominator for Two-Class Method—Diluted 34,507,214
34,863,448

Earnings per share—basic $ 0.67
$ 0.75
Earnings per share—diluted $ 0.66
$ 0.75
Warrants considered anti-dilutive excluded from potentially dilutive shares - exercise price $31.53 per share, expires January 2019 ⁽¹⁾
—
400,722
Restricted stock considered anti-dilutive excluded from potentially dilutive shares 68,314
90,298

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

912

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our policy is to recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.

The following are descriptions of the valuation methodologies that we use for financial instruments recorded at fair value on either a recurring or nonrecurring basis.

Recurring Basis

Available-for-Sale Debt Securities ~~Available-for-Sale~~

We obtain fair values for debt securities from a third-party pricing service which utilizes several sources for valuing fixed-income securities. We validate prices received from our pricing service through comparison to a secondary pricing service and broker quotes. We review the methodologies of the pricing services which provide us with a sufficient understanding of the valuation models, assumptions, inputs and pricing to reasonably measure the fair value of our debt securities. The market valuation sources for debt securities include observable inputs rather than significant unobservable inputs and are classified as Level 2. The service provider utilizes pricing models that vary by asset class and include available trade, bid and other market information. Generally, the methodologies include broker quotes, proprietary models, vast descriptive terms and conditions databases, and extensive quality control programs.

Equity Securities

Marketable equity securities that have an active, quotable market are classified as Level 1. Marketable equity securities that are quotable, but are thinly traded or inactive, are classified as Level 2. Marketable equity securities that are not readily traded and do not have a quotable market are classified as Level 3.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. FAIR VALUE MEASUREMENTS –- continued

Deferred Compensation Plan Assets

We use quoted market prices to determine the fair value of our equity security assets. These securities are reported at fair value with the gains and losses included in noninterest income in our Consolidated Statements of Comprehensive Income. These assets are held in a deferred compensation plan and are invested in readily quoted mutual funds. Accordingly, these assets are classified as Level 1. Deferred compensation plan assets are reported in other assets in the Consolidated Balance Sheets.

Derivative Financial Instruments

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

Nonrecurring Basis

Loans Held for Sale

Loans held for sale consist of 1-4 family residential loans originated for sale in the secondary market and, from time to time, certain loans are transferred from the loan portfolio to loans held for sale, all of which are carried at the lower of cost or fair value. The fair value of 1-4 family residential loans is based on the principal or most advantageous market currently offered for similar loans using observable market data. The fair value of the loans transferred from the loan portfolio is based on the amounts offered for these loans in currently pending sales transactions. Loans held for sale carried at fair value are classified as Level 3.

~~Impaired~~ Loans Held for Investment

~~Impaired loans~~Loans that are ~~carried~~individually evaluated to determine whether a specific allocation of ACL is needed are reported at ~~the lower of carrying value or~~ fair value. Fair value is determined asusing the ~~recorded investment balance less any specific reserve. We establish specific reserves based on the~~ following ~~three impairment~~ methods: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral less estimated selling costs when the loan is collateral dependent and we expect to liquidate the collateral. However, if repayment is expected to come from the operation of the collateral, rather than liquidation, then we do not consider estimated selling costs in determining the fair value of the collateral. Collateral values are generally based upon appraisals by approved, independent state certified appraisers. Appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or our knowledge of the borrower and the borrower’s business. ~~Impaired loans~~Loans carried at fair value are classified as Level 3.

OREO and Other Repossessed Assets

OREO and other repossessed assets obtained in partial or total satisfaction of a loan are recorded at the lower of recorded investment in the loan or fair value less cost to sell. Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition date or fair value less cost to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. ~~Like impaired loans, appraisals~~Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets carried at fair value are classified as Level 3.

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NOTE 3.4. FAIR VALUE MEASUREMENTS –- continued

Mortgage Servicing Rights

The fair value of MSRs is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. ~~The~~Since the valuation model includes significant unobservable ~~inputs; therefore,~~inputs as listed above, MSRs are classified as Level 3. MSRs are reported in other assets in the Consolidated Balance Sheets and are amortized into ~~noninterest~~mortgage banking income in the Consolidated Statements of Comprehensive Income.

Other Assets

We measure certain other assets at fair value on a nonrecurring basis. Fair value is based on the application of lower of cost or fair value accounting, or write-downs of individual assets. Valuation methodologies used to measure fair value are consistent with overall principles of fair value accounting and consistent with those described above.

Financial Instruments

In addition to financial instruments recorded at fair value in our financial statements, fair value accounting guidance requires disclosure of the fair value of all of an entity’s assets and liabilities that are considered financial instruments. The majority of our assets and liabilities are considered financial instruments. Many of these instruments lack an available trading market as characterized by a willing buyer and a willing seller engaged in an exchange transaction. Also, it is our general practice and intent to hold our financial instruments to maturity and to not engage in trading or sales activities with respect to such financial instruments. For fair value disclosure purposes, we substantially utilize the fair value measurement criteria as required and explained above. In cases where quoted fair values are not available, we use present value methods to determine the fair value of our financial instruments.

Cash and Cash Equivalents

The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks, including interest-bearing deposits, approximate fair value.

Loans

With the adoption of ASU No. 2016-01, Accounting for Financial Instruments - Overall: Classification and Measurement, on January 1, 2018, we refined our methodology to estimate the fair value of our loan portfolio to use the exit price notion as required by the standard. The guidance was applied on a prospective basis resulting in prior periods no longer being comparable.

The fair value of variable rate loans that may reprice frequently at short-term market rates is based on carrying values adjusted for liquidity and credit risk. The fair value of variable rate loans that reprice at intervals of one year or longer, such as adjustable rate mortgage products, is estimated using discounted cash flow analyses that utilize interest rates currently being offered for similar loans and adjusted for liquidity and credit risk. The fair value of fixed rate loans is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans adjusted for liquidity and credit risk.

Bank Owned Life Insurance

Fair value approximates net cash surrender value of bank owned life insurance, or BOLI.

Federal Home Loan Bank, or FHLB, and Other Restricted Stock

It is not practical to determine the fair value of our FHLB and other restricted stock due to the restrictions placed on the transferability of these stocks; it is presented at carrying value.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

Deposits

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS - continued

Short-Term Borrowings

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

Long-Term Borrowings

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

Junior Subordinated Debt Securities

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

Loan Commitments and Standby Letters of Credit

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

Other

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. FAIR VALUE MEASUREMENTS –- continued

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. There were no0 transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.



	March 31, 2020
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	—	$	10,372	$	—	$	10,372
Obligations of U.S. government corporations and agencies	—		137,982		—		137,982
Collateralized mortgage obligations of U.S. government corporations and agencies	—		189,472		—		189,472
Residential mortgage-backed securities of U.S. government corporations and agencies	—		21,193		—		21,193
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		284,679		—		284,679
Corporate Bonds	—		7,551		—		7,551
Obligations of states and political subdivisions	—		144,717		—		144,717
Total Available-for-sale Debt Securities	—		795,966		—		795,966
Marketable equity securities	3,504		62		—		3,566
Total Securities	3,504		796,028		—		799,532
Securities held in a deferred compensation plan	4,782		—		—		4,782
Derivative financial assets:
Interest rate swaps	—		88,135		—		88,135
Interest rate lock commitments	—		2,927		—		2,927
Total Assets	$	8,286	$	887,090	$	—	$	895,376
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	87,989	$	—	$	87,989
Forward sale contracts	—		1,292		—		1,292
Total Liabilities	$	—	$	89,281	$	—	$	89,281

March 31, 2019
(dollars in thousands) Level 1 Level 2 Level 3 Total
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities $ —
$ 9,837
$ —
$ 9,837
Obligations of U.S. government corporations and agencies —
129,369
—
129,369
Collateralized mortgage obligations of U.S. government corporations and agencies —
154,159
—
154,159
Residential mortgage-backed securities of U.S. government corporations and agencies —
22,514
—
22,514
Commercial mortgage-backed securities of U.S. government corporations and agencies —
237,554
—
237,554
Obligations of states and political subdivisions —
122,489
—
122,489
Total Debt Securities Available-for-Sale —
675,922
—
675,922
Marketable equity securities —
4,498
—
4,498
Total Securities —
680,420
—
680,420
Securities held in a deferred compensation plan 5,343
—
—
5,343
Derivative financial assets:
Interest rate swaps —
10,645
—
10,645
Interest rate lock commitments —
339
—
339
Forward sale contracts - mortgage loans —
88
—
88
Total Assets $ 5,343
$ 691,492
$ —
$ 696,835
LIABILITIES
Derivative financial liabilities:
Interest rate swaps $ —
$ 10,602
$ —
$ 10,602
Total Liabilities $ —
$ 10,602
$ —
$ 10,602

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. FAIR VALUE MEASUREMENTS –- continued



	December 31, 2019
(dollars in thousands)	Level 1		Level 2		Level 3		Total
ASSETS
Available-for-sale debt securities:
U.S. Treasury securities	$	—	$	10,040	$	—	$	10,040
Obligations of U.S. government corporations and agencies	—		157,697		—		157,697
Collateralized mortgage obligations of U.S. government corporations and agencies	—		189,348		—		189,348
Residential mortgage-backed securities of U.S. government corporations and agencies	—		22,418		—		22,418
Commercial mortgage-backed securities of U.S. government corporations and agencies	—		275,870		—		275,870
Corporate Bonds	—		7,627		—		7,627
Obligations of states and political subdivisions	—		116,133		—		116,133
Total Available-for-Sale Debt Securities	—		779,133		—		779,133
Marketable equity securities	5,078		72		—		5,150
Total Securities	5,078		779,205		—		784,283
Securities held in a deferred compensation plan	5,987		—		—		5,987
Derivative financial assets:
Interest rate swaps	—		25,647		—		25,647
Interest rate lock commitments	—		321		—		321
Forward sale contracts	—		1		—		1
Total Assets	$	11,065	$	805,174	$	—	$	816,239
LIABILITIES
Derivative financial liabilities:
Interest rate swaps	$	—	$	25,615	$	—	$	25,615
Total Liabilities	$	—	$	25,615	$	—	$	25,615

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

Assets Recorded at Fair Value on a Nonrecurring Basis

We may be required to measure certain assets and liabilities at fair value on a nonrecurring basis. Nonrecurring assets are recorded at the lower of cost or fair value in our financial statements. There were no0 liabilities measured at fair value on a nonrecurring basis at either March 31, ~~2019~~2020 or December 31, ~~2018.~~2019.

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


	March 31, 2019								December 31, 2018								March 31, 2020		Valuation Technique(s)		Significant Unobservable Inputs	Range
(dollars in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS⁽¹⁾
Loans held for sale	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Impaired loans	—		—		30,601		30,601		—		—		21,441		21,441
Loans held for investment																	$	20,926	Collateral Method	Third party appraisal	Costs to sell	0% - 17%
																			Discounted cash flow method	Discount rate	Contractual loan rate	3.25%
Other real estate owned	—		—		2,613		2,613		—		—		2,826		2,826		3,045		Collateral method	Third party appraisal	Costs to sell	7%
Mortgage servicing rights	—		—		1,089		1,089		—		—		1,197		1,197		3,929		Discounted cash flow method	Third party service provider	Discount rate	9.39% - 12.54%
																					Constant prepayment rates	7.46% - 12.74%
Total Assets	$	—	$	—	$	34,303	$	34,303	$	—	$	—	$	25,464	$	25,464	$	27,900
⁽¹⁾This table presents only the nonrecurring items that are recorded at fair value in our financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3.4. FAIR VALUE MEASUREMENTS –- continued

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



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

Carrying
Value⁽¹⁾
Fair Value Measurements at March 31, 2019
(dollars in thousands) Total Level 1 Level 2 Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits $ 116,820
$ 116,820
$ 116,820
$ —
$ —
Securities 680,420
680,420
—
680,420
—
Loans held for sale 2,706
2,706
—
—
2,706
Portfolio loans, net 5,874,043
5,729,524
—
—
5,729,524
Bank owned life insurance 74,401
74,401
—
74,401
—
FHLB and other restricted stock 19,959
19,959
—
—
19,959
Securities held in a deferred compensation plan 5,343
5,343
5,343
—
—
Mortgage servicing rights 4,313
4,728
—
—
4,728
Interest rate swaps 10,645
10,645
—
10,645
—
Interest rate lock commitments 339
339
—
339
—
Forward sale contracts - mortgage loans 88
88
—
88
—
LIABILITIES

Deposits $ 5,833,401
$ 5,825,873
$ 4,432,629
$ 1,393,244
$ —
Securities sold under repurchase agreements 23,427
23,427
23,427
—
—
Short-term borrowings 235,000
235,000
235,000
—
—
Long-term borrowings 70,418
70,801
39,335
31,467
—
Junior subordinated debt securities 45,619
45,619
45,619
—
—
Interest rate swaps 10,602
10,602
—
10,602
—
⁽¹⁾ As reported in the Consolidated Balance Sheets

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. FAIR VALUE MEASUREMENTS - continued

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



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



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

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. SECURITIES

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



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

(dollars in thousands) March 31, 2019 December 31, 2018
Debt securities available-for-sale $ 675,922
$ 680,056
Marketable equity securities 4,498
4,816
Total Securities $ 680,420
$ 684,872

Available-for-Sale Debt Securities ~~Available-for-Sale~~

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



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

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

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. SECURITIES – continued

March 31, 2019 December 31, 2018
(dollars in thousands)
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

U.S. Treasury securities $ 9,961
$ —
$ (124 ) $ 9,837
$ 9,958
$ —
$ (222 ) $ 9,736
Obligations of U.S. government corporations and agencies 129,263
373
(267 ) 129,369
129,267
68
(1,074 ) 128,261
Collateralized mortgage obligations of U.S. government corporations and agencies 153,717
1,608
(1,166 ) 154,159
149,849
795
(1,985 ) 148,659
Residential mortgage-backed securities of U.S. government corporations and agencies 22,481
229
(196 ) 22,514
24,564
203
(417 ) 24,350
Commercial mortgage-backed securities of U.S. government corporations and agencies 239,196
272
(1,914 ) 237,554
251,660
—
(4,876 ) 246,784
Obligations of states and political subdivisions 119,020
3,480
(11 ) 122,489
119,872
2,448
(54 ) 122,266
Total Debt Securities Available-for-Sale $ 673,638
$ 5,962
$ (3,678 ) $ 675,922
$ 685,170
$ 3,514
$ (8,628 ) $ 680,056

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



	March 31, 2020
	Less Than 12 Months						12 Months or More					Total
(dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
U.S. Treasury securities	—	$	—	$	—		—	$	—	$	—	—	$	—	$	—
Obligations of U.S. government corporations and agencies	—	—		—			—	—		—		—	—		—
Collateralized mortgage obligations of U.S. government corporations and agencies	—	—		—			—	—		—		—	—		—
Residential mortgage-backed securities of U.S. government corporations and agencies	—	—		—			—	—		—		—	—		—
Commercial mortgage-backed securities of U.S. government corporations and agencies	—	—		—			—	—		—		—	—		—
Corporate bonds	2	2,989		(11		)	—	—		—		2	2,989		(11		)
Obligations of states and political subdivisions	—	—		—			—	—		—		—	—		—
Total	2	$	2,989	$	(11	)	—	$	—	$	—	2	$	2,989	$	(11	)

March 31, 2019
Less Than 12 Months 12 Months or More Total
(dollars in thousands) Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
Number of Securities Fair Value
Unrealized
Losses
U.S. Treasury securities — $ —
$ —
1 $ 9,837
$ (124 ) 1 $ 9,837
$ (124 )
Obligations of U.S. government corporations and agencies — —
—
8 65,828
(267 ) 8 65,828
(267 )
Collateralized mortgage obligations of U.S. government corporations and agencies 1 2,367
(5 ) 14 72,936
(1,161 ) 15 75,303
(1,166 )
Residential mortgage-backed securities of U.S. government corporations and agencies — —
—
5 11,297
(196 ) 5 11,297
(196 )
Commercial mortgage-backed securities of U.S. government corporations and agencies — —
—
24 215,320
(1,914 ) 24 215,320
(1,914 )
Obligations of states and political subdivisions — —
—
1 5,225
(11 ) 1 5,225
(11 )
Total Temporarily Impaired Debt Securities 1 $ 2,367
$ (5 ) 53 $ 380,443
$ (3,673 ) 54 $ 382,810
$ (3,678 )



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

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

~~NOTE 4. SECURITIES – continued~~

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

We ~~do not believe any individual~~evaluate quarterly securities with unrealized ~~loss as of March 31, 2019 represents an~~losses to determine if the decline in fair value has resulted from credit losses or other ~~than temporary impairment, or OTTI. At March 31, 2019 there~~factors. There were 542 debt securities in an unrealized loss position at March 31, 2020 and ~~at December 31, 2018, there were 65~~27 debt securities in an unrealized loss ~~position.~~position at December 31, 2019. We do not intend to sell and it is more likely than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost. The unrealized losses on debt securities were ~~primarily~~ attributable to changes in interest rates and not related to the credit quality of these issuers. All debt securities were determined to be investment grade and paying principal and interest according to the contractual terms of the security. We ~~do not intend~~concluded that the allowance for credit losses for debt securities was immaterial at March 31, 2020. Prior to ~~sell and it is more likely~~the adoption of ASU 2016-13 there was 0 other than ~~not that we will not be required to sell any of~~temporary impairment, or OTTI, recorded during the ~~securities in an unrealized loss position before recovery of their amortized cost.~~three months ended March 31, 2019.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4.5. SECURITIES – continued

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


	March 31, 2019									December 31, 2018									March 31, 2020									December 31, 2019
(dollars in thousands)	Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized (Losses)/Gains			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/(Losses)			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/(Losses)			Gross Unrealized Gains			Gross Unrealized Losses			Net Unrealized Gains/(Losses)
Total unrealized gains/(losses) on debt securities available-for-sale	$	5,962		$	(3,678	)	$	2,284		$	3,514		$	(8,628	)	$	(5,114	)
Total unrealized gains/(losses) on available-for-sale debt securities																			$	32,281		$	(11	)	$	32,270		$	11,659		$	(953	)	$	10,706
Income tax (expense) benefit	(1,271		)	784			(487		)	(746		)	1,832			1,086			(6,873		)	2			(6,871		)	(2,486		)	203			(2,283		)
Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)	$	4,691		$	(2,894	)	$	1,797		$	2,768		$	(6,796	)	$	(4,028	)	$	25,408		$	(9	)	$	25,399		$	9,173		$	(750	)	$	8,423

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



	March 31, 2020
(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	$	84,687	$	85,259
Due after one year through five years	100,877		106,112
Due after five years through ten years	65,732		68,913
Due after ten years	31,144		32,786
Available-for-Sale Debt Securities With Maturities	282,440		293,070
Collateralized mortgage obligations of U.S. government corporations and agencies	180,682		189,473
Residential mortgage-backed securities of U.S. government corporations and agencies	20,391		21,193
Commercial mortgage-backed securities of U.S. government corporations and agencies	272,651		284,679
Corporate Securities	7,532		7,551
Total Available-for-Sale Debt Securities	$	763,696	$	795,966

March 31, 2019
(dollars in thousands)
Amortized
Cost

Fair Value
Obligations of the U.S. Treasury, U.S. government corporations and agencies, and obligations of states and political subdivisions

Due in one year or less $ 30,673
$ 30,661
Due after one year through five years 137,885
138,709
Due after five years through ten years 66,445
68,060
Due after ten years 23,241
24,265
Debt Securities Available-for-Sale With Maturities 258,244
261,695
Collateralized mortgage obligations of U.S. government corporations and agencies 153,717
154,159
Residential mortgage-backed securities of U.S. government corporations and agencies 22,481
22,514
Commercial mortgage-backed securities of U.S. government corporations and agencies 239,196
237,554
Total Debt Securities Available-for-Sale $ 673,638
$ 675,922

Debt securities with carrying values of ~~$214.1~~$298.4 million at March 31, ~~2019~~2020 and ~~$236.0~~$286.0 million at December 31, ~~2018~~2019 were pledged for various regulatory and legal requirements.

Marketable Equity Securities

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



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

Three Months Ended
March 31,
(dollars in thousands) 2019
2018
Marketable Equity Securities
Net market (losses)/gains recognized $ (318 ) $ 52
Less: Net gains recognized for equity securities sold —
—
Unrealized (Losses)/Gains on Equity Securities Still Held $ (318 ) $ 52

~~Prior to January 1, 2018, net~~Total unrealized gains and losses, net of tax, on marketable equity securities were included in AOCI for the periods presented. Net unrealized gains and losses, net of tax, on marketable equity securities of $0.9 million were reclassified from AOCI to retained earnings at January 1, 2018. As of January 1, 2018, gains and losses on marketable equity securities recognized during the current period are included in other noninterest income on the Consolidated Statements of Comprehensive Income.

1923

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of ~~$4.7 million and $5.3~~$5.0 million at March 31, 2020 and $4.6 million at December 31, 2019 and net of a discount related to purchase accounting fair value adjustments of $10.9 million and $12.3 million at March 31, 2020 and December 31, ~~2018.~~

2019. The following table ~~indicates the composition of~~presents loans as of the dates presented:



(dollars in thousands)	March 31, 2020		December 31, 2019
Commercial
Commercial real estate	$	3,442,495	$	3,416,518
Commercial and industrial	1,781,402		1,720,833
Commercial construction	396,518		375,445
Total Commercial Loans	5,620,415		5,512,796
Consumer
Residential mortgage	988,816		998,585
Home Equity	544,405		538,348
Installment and other consumer	79,887		79,033
Consumer construction	13,222		8,390
Total Consumer Loans	1,626,330		1,624,356
Total Portfolio Loans	7,246,745		7,137,152
Loans held for sale	7,309		5,256
Total Loans⁽¹⁾	$	7,254,054	$	7,142,408

(dollars in thousands) March 31, 2019 December 31, 2018
Commercial
Commercial real estate $ 2,901,625
$ 2,921,832
Commercial and industrial 1,513,007
1,493,416
Commercial construction 245,658
257,197
Total Commercial Loans 4,660,290
4,672,445
Consumer
Residential mortgage 729,914
726,679
Home equity 463,566
471,562
Installment and other consumer 70,960
67,546
Consumer construction 10,722
8,416
Total Consumer Loans 1,275,162
1,274,203
Total Portfolio Loans 5,935,452
5,946,648
Loans held for sale 2,706
2,371
Total Loans $ 5,938,158
$ 5,949,019
⁽¹⁾Excludes interest receivable of $22.1 million at both March 31, 2020 and December 31, 2019. Interest receivable is included in other assets in the consolidated balance sheets.

We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations.When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments.Total commercial loans represented 7977.6 percent of total portfolio loans at ~~both~~ March 31, ~~2019~~2020 and 77.2 percent at December 31, ~~2018.~~2019. Within our commercial portfolio, the ~~Commercial Real Estate, or~~ CRE and Commercial Construction portfolios combined comprised ~~$3.1~~$3.8 billion or 6868.3 percent of total commercial loans at March 31, ~~2019~~2020 and ~~$3.2~~$3.8 billion or 6868.8 percent of total commercial loans at December 31, ~~2018~~2019 and 5353.0 percent of total portfolio loans at ~~both~~ March 31, ~~2019~~2020 and 53.1 percent at December 31, ~~2018.~~2019. Further segmentation of the CRE and ~~Commercial Construction~~commercial construction portfolios by collateral type reveals no0 concentration in excess of ~~13.2~~13.6 percent of both total CRE and ~~Commercial Construction~~commercial construction loans at March 31, ~~2019~~2020 and ~~14.0~~11 percent at December 31, ~~2018.~~2019.

We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia ~~New York~~ and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this geography, resulting in a concentration. We believe our knowledge and familiarity with customers and conditions locally outweighs this geographic concentration risk. The conditions of the local and regional economies are monitored closely through publicly available data and information supplied by our customers. We also use subscription services for additional geographic and industry specific information. Our CRE and ~~Commercial Construction~~commercial construction portfolios have exposure outside of this geography of ~~5.7~~5.4 percent of the combined portfolios and ~~3.0~~2.8 percent of total portfolio loans at March 31, ~~2019.~~2020. This compares to 5.4 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, ~~2018.~~2019.

We individually evaluate all substandard and nonaccrual commercial loans that have experienced a forbearance or change in terms agreement, and all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan, to determine if they should be designated as troubled debt restructurings, or TDRs.

All TDRs ~~are considered to be impaired loans and~~ will be reported as ~~impaired loans~~such for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. ~~Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status.~~ TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

2024

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE - continued

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



	March 31, 2020
(dollars in thousands)	Performing TDRs		Nonperforming TDRs		Total TDRs
Commercial real estate	$	30	$	28,973	$	29,003
Commercial and industrial	4,566		4,665		9,231
Commercial construction	3,316		—		3,316
Business banking	1,524		352		1,876
Consumer real estate	5,749		2,064		7,813
Other consumer	4		—		4
Total⁽¹⁾	$	15,189	$	36,055	$	51,243

March 31, 2019 December 31, 2018
(dollars in thousands)
Performing
TDRs

Nonperforming
TDRs

Total
TDRs

Performing
TDRs

Nonperforming
TDRs

Total
TDRs
Commercial real estate $ 2,019
$ 1,074
$ 3,093
$ 2,054
$ 1,139
$ 3,193
Commercial and industrial 13,447
3,463
16,910
7,026
6,646
13,672
Commercial construction 1,913
406
2,319
1,912
406
2,318
Residential mortgage 2,025
1,520
3,545
2,214
1,543
3,757
Home equity 3,590
1,406
4,996
3,568
1,349
4,917
Installment and other consumer 8
4
12
12
5
17
Total $ 23,002
$ 7,873
$ 30,875
$ 16,786
$ 11,088
$ 27,874
⁽¹⁾Refer to Note 1, Basis of Presentation for details of reclassification of our portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.



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

The significant increase in nonperforming TDRs at March 31, 2020 compared to December 31, 2019 primarily related to a $20.9 million CRE relationship that became a performing TDR in the third quarter of 2019 and then moved to nonperforming in the first quarter of 2020 when the borrower experienced financial deterioration that led to cash flow issues. The relationship was individually assessed at March 31, 2020 resulting in no ACL due to the borrower being current on their payments under the modified terms and the relationship is fully collateralized.

There were 0 TDRs that returned to accruing status during the three months ended March 31, 2020. There were 3 TDRs totaling $1.7 million that returned to accruing status during the three months ended March 31, ~~2019 and no TDRs that returned to accruing status during the three months ended March 31, 2018.~~2019.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE - continued

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



	Three Months Ended March 31, 2020
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
Totals by Loan Segment
Commercial Real Estate
Principal deferral and maturity date extension	1	$	2,210	$	2,210	$	—
Total Commercial Real Estate	1	2,210		2,210		—
Commercial and Industrial
Principal deferral and maturity date extension	5	3,780		3,780		—
Total Commercial and Industrial	5	3,780		3,780		—
Commercial Construction		—
Maturity date extension	1	1,891		1,891		—
Total Commercial Construction	1	1,891		1,891		—
Consumer Real Estate
Consumer bankruptcy⁽²⁾	6	388		388		—
Maturity date extension and reduction in payment	1	27		27		—
Total Consumer Real Estate	7	415		415		—
Totals by Concession Type
Principal deferral and maturity date extension	6	5,991		5,991		—
Maturity date extension	1	1,891		1,891		—
Consumer bankruptcy⁽²⁾	6	388		388		—
Maturity date extension and payment reduction	1	27		27		—
Total⁽³⁾	14	$	8,297	$	8,297	$	—
⁽¹⁾ Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. ⁽²⁾ Consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. ⁽³⁾Refer to Note 1, Basis of Presentation for details of reclassification of our portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 6. LOANS AND LOANS HELD FOR SALE - continued

Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(dollars in thousands) Number of
Loans
Pre-Modification
Outstanding
Recorded
Investment⁽¹⁾

Post-Modification
Outstanding
Recorded
Investment⁽¹⁾
Total Difference
in Recorded
Investment Number of
Loans
Pre-Modification
Outstanding
Recorded
Investment⁽¹⁾

Post-Modification
Outstanding
Recorded
Investment⁽¹⁾
Total Difference
in Recorded
Investment
Totals by Loan Segment
Commercial and Industrial
Maturity date extension —
$ —
$ —
$ —
2
$ 768
$ 708
$ (60 )
Maturity date extension and interest rate reduction 1
5,201
5,201
—
—
—
—
—
Principal deferral —
—
—
—
6
5,355
5,333
(22 )
Total Commercial and Industrial 1
5,201
5,201
—
8
6,123
6,041
(82 )
Commercial Construction .
Chapter 7 bankruptcy⁽²⁾
—
—
—
—
2
158
157
(1 )
Total Commercial Construction —
—
—
—
2
158
157
(1 )
Residential Mortgage
Chapter 7 bankruptcy⁽²⁾
1
49
49
—
—
—
—
—
Total Residential Mortgage 1
49
49
—
—
—
—
—
Home equity
Chapter 7 bankruptcy⁽²⁾
7
191
168
(23 ) 9
578
555
(23 )
Interest rate reduction 1
81
81
—
—
—
—
—
Total Home Equity 8
272
249
(23 ) 9
578
555
(23 )
Installment and Other Consumer
Chapter 7 bankruptcy⁽²⁾
—
—
—
—
2
17
17
—
Total Installment and Other Consumer —
$ —
$ —
$ —
2
$ 17
$ 17
$ —
Totals by Concession Type
Maturity date extension —
$ —
$ —
$ —
2

$ 768

$ 708
$ (60 )
Maturity date extension and interest rate reduction 1

5,201

5,201
—
—

—

—
—
Principal deferral —

—

—
—
6

5,355

5,333
(22 )
Chapter 7 bankruptcy(2) 8
240
217
(23 ) 13

753

729
(24 )
Interest rate reduction 1
81
81
—
—
—
—
—
Total 10
$ 5,522
$ 5,499
$ (23 ) 21
$ 6,876
$ 6,770
$ (106 )
⁽¹⁾ Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end.
⁽²⁾ Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.



	Three Months Ended March 31, 2019
(dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment⁽¹⁾		Post-Modification Outstanding Recorded Investment⁽¹⁾		Total Difference in Recorded Investment
Totals by Loan Segment
Commercial and Industrial
Maturity date extension and interest rate reduction	1	$	5,201	$	5,201	$	—
Principal deferral and maturity date extension	—	—		—		—
Total Commercial and Industrial	1	5,201		5,201		—
Residential Mortgage
Consumer bankruptcy⁽²⁾	1	49		49		—
Total Residential Mortgage	1	49		49		—
Home Equity
Consumer bankruptcy⁽²⁾	7	191		168		(23		)
Interest rate reduction	1	81		81		—
Maturity date extension and reduction in payment	—	—		—		—
Total Home Equity	8	272		249		(23		)
Totals by Concession Type
Maturity date extension and interest rate reduction	1	5,201		5,201		—
Consumer bankruptcy⁽²⁾	8	240		217		(23		)
Interest rate reduction	1	81		81		—
Total	10	$	5,522	$	5,499	$	(23	)
⁽¹⁾ Excludes loans that were fully paid-off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. ⁽²⁾ Consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.

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

As of March 31, ~~2019,~~2020, we had 1420 commitments to lend an additional ~~$13.0~~$2.3 million on TDRs. Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. There were no11 TDRs that defaulted during the three months ended March 31, 2020 totaling $21.1 million and 0 TDRs that defaulted during the three months ended March 31, 2019 ~~and 2018~~ that were restructured within the last 12 months prior to defaulting. The large increase in defaulted TDRs is related to one CRE customer with 5 notes totaling $20.9 million discussed above.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5.6. LOANS AND LOANS HELD FOR SALE - continued

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



	Nonperforming Assets
(dollars in thousands)	March 31, 2020			December 31, 2019
Nonperforming Assets
Nonaccrual loans		$	37,744		$	45,145
Nonaccrual TDRs		36,055			8,912
Total Nonaccrual Loans		73,799			54,057
OREO		3,389			3,525
Total Nonperforming Assets		$	77,188		$	57,582

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

Nonperforming Assets
(dollars in thousands) March 31, 2019 December 31, 2018
Nonperforming Assets
Nonaccrual loans $ 40,077
$ 34,985
Nonaccrual TDRs 7,873
11,088
Total Nonaccrual Loans 47,950
46,073
OREO 2,828
3,092
Total Nonperforming Assets $ 50,778
$ 49,165

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

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

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

The following are key risks within each portfolio segment:

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

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

Commercial Construction—Loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

Business Banking—Commercial loans made to small businesses that are standard, non-complex products evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards that meet small business market customers’ needs. The business banking portfolio is monitored by utilizing a standard and closely managed process focusing on behavioral and performance criteria. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type and business.

Consumer Real Estate—Loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

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

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

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

The ALL methodology for groups of loans collectively evaluated for impairment is comprised of both a quantitative and qualitative analysis. A key assumption in the quantitative component of the reserve is the loss emergence period, or LEP. The LEP is an estimate of the average amount of time from the point at which a loss is incurred on a loan to the point at which the loss is confirmed. Another key assumption is the look-back period which represents the historical data period utilized to calculate loss rates.

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

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

March 31, 2019
(dollars in thousands) Current

30-59 Days
Past Due

60-89 Days
Past Due

Non - performing

Total Past
Due Loans

Total Loans
Commercial real estate $ 2,868,403
$ 1,876
$ 2,237
$ 29,109
$ 33,222
$ 2,901,625
Commercial and industrial 1,504,824
785
588
6,810
8,183
1,513,007
Commercial construction 244,432
—
—
1,226
1,226
245,658
Residential mortgage 719,422
3,695
167
6,630
10,492
729,914
Home equity 457,452
1,714
254
4,146
6,114
463,566
Installment and other consumer 70,645
227
59
29
315
70,960
Consumer construction 10,500
222
—
—
222
10,722
Loans held for sale 2,706
—
—
—
—
2,706
Total $ 5,878,384
$ 8,519
$ 3,305
$ 47,950
$ 59,774
$ 5,938,158

December 31, 2018
(dollars in thousands) Current

30-59 Days
Past Due

60-89 Days
Past Due

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

We ~~continually~~ monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans within the pass rating generally have a lower risk of loss than loans risk rated as special mention or substandard.

Our risk ratings are consistent with regulatory guidance and are as follows:

Pass—The loan is currently performing and is of high quality.

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued

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

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.

~~Table~~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 ~~Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

currently known facts, conditions, and values, highly questionable and improbable.

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

March 31, 2019
(dollars in thousands)
Commercial
Real Estate
% of
Total

Commercial
and Industrial
% of
Total

Commercial
Construction
% of
Total
Total
% of
Total
Pass $ 2,745,156
94.6 % $ 1,427,120
94.3 % $ 234,717
95.5 % $ 4,406,993
94.6 %
Special mention 56,829
2.0 % 23,945
1.6 % 7,263
3.0 % 88,037
1.9 %
Substandard 99,640
3.4 % 61,942
4.1 % 3,678
1.5 % 165,260
3.5 %
Total $ 2,901,625
100.0 % $ 1,513,007
100.0 % $ 245,658
100.0 % $ 4,660,290
100.0 %

December 31, 2018
(dollars in thousands)
Commercial
Real Estate
% of
Total

Commercial
and Industrial
% of
Total

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

~~Substandard loans decreased $15.9 million to $165.3 million at~~ March 31, ~~2019 compared to $181.2 million at December 31, 2018 mainly due to loan pay-offs and upgrades of risk ratings.~~2020:



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

Commercial Real Estate
Pass	$	169,367	$	483,699	$	452,024	$	359,553	$	416,420	$	882,326	$	59,032	—		$	2,822,421
Special Mention	—		3,236		187		11,591		10,005		26,575		850		—		52,444
Substandard	—		—		1,462		—		25,285		50,348		3,008		21		80,124
Total Commercial Real Estate	169,367		486,935		453,673		371,144		451,710		959,249		62,890		21		2,954,989

Commercial and Industrial
Pass	75,969		240,261		165,631		103,537		73,798		282,138		486,045		—		1,427,379
Special Mention	—		6,239		3,525		947		1,883		9,437		31,890		—		53,921
Substandard	—		5,666		2,301		3,785		1,621		12,232		17,316		—		42,921
Total Commercial and Industrial	75,969		252,166		171,457		108,269		77,302		303,807		535,251		—		1,524,221

Commercial Construction
Pass	23,004		179,956		117,527		17,122		18,986		11,586		11,992		—		380,173
Special Mention	—		—		—		—		—		5,117		91		—		5,208
Substandard	—		—		—		1,041		—		3,780		—		—		4,821
Total Commercial Construction	23,004		179,956		117,527		18,163		18,986		20,483		12,083		—		390,202

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

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

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

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

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

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

March 31, 2019
(dollars in thousands)
Residential
Mortgage
% of
Total

Home
Equity
% of
Total

Installment
and Other
Consumer
% of
Total

Consumer
Construction
% of
Total
Total
% of
Total
Performing $ 723,284
99.1 % $ 459,420
99.1 % $ 70,931
100.0 % $ 10,722
100.0 % $ 1,264,357
99.2 %
Nonperforming 6,630
0.9 % 4,146
0.9 % 29
— % —
— % 10,805
0.8 %
Total $ 729,914
100.0 % $ 463,566
100.0 % $ 70,960
100.0 % $ 10,722
100.0 % $ 1,275,162
100.0 %

December 31, 2018
(dollars in thousands)
Residential
Mortgage
% of
Total

Home
Equity
% of
Total

Installment
and Other
Consumer
% of
Total

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

We individually evaluate all substandard and nonaccrual commercial loans greater than $0.5 million for impairment. Loans are considered to be impaired when based upon current information and events it is probable that we will be unable to collect all principal and interest payments due according to the original contractual terms of the loan agreement. A TDR will be reported as an impaired loan for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is expected that the remaining principal and interest will be fully collected according to the restructured agreement. For each TDR or other impaired loan, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate.

2530

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

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

The following table ~~summarizes~~presents loan balances by year of origination and performing and nonperforming status for our portfolio segments as of March 31, 2020:



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

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

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

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

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

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

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

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

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



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

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

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued



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

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

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



	As or for the Three Months Ended March 31, 2020
(dollars in thousands)	Beginning of Period Nonaccrual		End of Period Nonaccrual		Nonaccrual With No Related Allowance		Past Due 90+ Days Still Accruing		Interest Income Recognized on Nonaccrual
Commercial real estate		$25,356	$	46,533		$39,454	$	700		$684
Commercial and industrial	10,911		4,505		4,054		2,615		64
Commercial construction	737		571		285		933		—
Business banking	9,863		11,316		2,363		768		58
Consumer real estate	6,063		10,616		398		83		47
Other consumer	1,127		258		—		195		28
Total		$54,057		$73,799		$46,554	$	5,294		$881

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



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

Table of Contents

S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 7. ALLOWANCE FOR CREDIT LOSSES – continued

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



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

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

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

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

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



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

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



	December 31, 2019
(dollars in thousands)	Residential Mortgage		% of Total		Home Equity		% of Total		Installment and Other Consumer		% of Total		Consumer Construction		% of Total		Total		% of Total
Performing	$	991,066	99.2	%	$	535,709	99.5	%	$	78,993	99.9	%	$	8,390	100.0	%	$	1,614,158	99.4	%
Nonperforming	7,519		0.8	%	2,639		0.5	%	40		0.1	%	—		—	%	10,198		0.6	%
Total	$	998,585	100.0	%	$	538,348	100.0	%	$	79,033	100.0	%	$	8,390	100.0	%	$	1,624,356	100.0	%

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

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

Unpaid
Principal
Balance

Related
Allowance

Recorded
Investment

Unpaid
Principal
Balance

Related
Allowance
With a related allowance recorded:
Commercial real estate $ 12,965
$ 12,965
$ 2,046
$ 7,733
$ 7,733
$ 1,295
Commercial and industrial 976
984
873
884
893
360
Commercial construction 489
490
87
489
489
87
Consumer real estate 14
14
9
15
14
10
Other consumer 8
8
8
11
12
11
Total with a Related Allowance Recorded 14,452
14,461
3,023
9,132
9,141
1,763
Without a related allowance recorded:
Commercial real estate 15,068
17,895
—
3,636
4,046
—
Commercial and industrial 15,934
22,551
—
12,788
14,452
—
Commercial construction 2,319
3,828
—
15,286
19,198
—
Consumer real estate 8,527
9,507
—
8,659
9,635
—
Other consumer 4
10
—
5
18
—
Total without a Related Allowance Recorded 41,852
53,792
—
40,374
47,349
—
Total:
Commercial real estate 28,033
30,860
2,046
11,369
11,779
1,295
Commercial and industrial 16,910
23,535
873
13,672
15,345
360
Commercial construction 2,808
4,318
87
15,775
19,687
87
Consumer real estate 8,541
9,521
9
8,674
9,649
10
Other consumer 12
18
8
16
30
11
Total $ 56,304
$ 68,252
$ 3,023
$ 49,506
$ 56,490
$ 1,763

2633

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

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

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



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

Three Months Ended
March 31, 2019 March 31, 2018
(dollars in thousands)
Average
Recorded
Investment

Interest
Income
Recognized

Average
Recorded
Investment

Interest
Income
Recognized
With a related allowance recorded:
Commercial real estate $ 12,983
$ 400
$ —
$ —
Commercial and industrial 980
35
586
11
Commercial construction 489
—
—
—
Consumer real estate 14
1
—
—
Other consumer 10
1
42
1
Total with a Related Allowance Recorded 14,476
437
628
12
Without a related allowance recorded:
Commercial real estate 15,107
144
3,817
43
Commercial and industrial 12,780
209
6,688
110
Commercial construction 2,319
140
3,446
36
Consumer real estate 8,846
417
10,816
138
Other consumer 4
—
12
—
Total without a Related Allowance Recorded 39,056
910
24,779
327
Total:
Commercial real estate 28,090
544
3,817
43
Commercial and industrial 13,760
244
7,274
121
Commercial construction 2,808
140
3,446
36
Consumer real estate 8,860
418
10,816
138
Other consumer 14
1
54
1
Total $ 53,532
$ 1,347
$ 25,407
$ 339

2734

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

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

The following table presents average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2019:



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

The following table details activity in the allowance for loan losses for the three months ended March 31, 2019:



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

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



	December 31, 2019
	Allowance for Loan Losses						Portfolio Loans
(dollars in thousands)	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Total
Commercial real estate	$	2,023	$	28,554	$	30,577	$	47,920	$	3,368,598	$	3,416,518
Commercial and industrial	55		15,626		15,681		17,606		1,703,227		1,720,833
Commercial construction	113		7,787		7,900		1,914		373,531		375,445
Consumer real estate	—		6,337		6,337		7,884		1,537,439		1,545,323
Other consumer	9		1,720		1,729		13		79,020		79,033
Total	$	2,200	$	60,024	$	62,224	$	75,337	$	7,061,815	$	7,137,152

Three Months Ended March 31, 2019
(dollars in thousands)
Commercial
Real Estate

Commercial and
Industrial

Commercial
Construction

Consumer
Real Estate

Other
Consumer

Total
Loans
Balance at beginning of period $ 33,707
$ 11,596
$ 7,983
$ 6,187
$ 1,523
$ 60,996
Charge-offs (1 ) (5,477 ) —
(162 ) (383 ) (6,023 )
Recoveries 122
417
—
148
100
787
Net Recoveries/(Charge-offs) 121
(5,060 ) —
(14 ) (283 ) (5,236 )
Provision for loan losses 1,075
5,460
(1,226 ) 5
335
5,649
Balance at End of Period $ 34,903
$ 11,996
$ 6,757
$ 6,178
$ 1,575
$ 61,409

Three Months Ended March 31, 2018
(dollars in thousands)
Commercial
Real Estate

Commercial and
Industrial

Commercial
Construction

Consumer
Real Estate

Other
Consumer

Total
Loans
Balance at beginning of period $ 27,235
$ 8,966
$ 13,167
$ 5,479
$ 1,543
$ 56,390
Charge-offs —
(829 ) —
(161 ) (460 ) (1,450 )
Recoveries 49
117
1,129
238
101
1,634
Net Recoveries/(Charge-offs) 49
(712 ) 1,129
77
(359 ) 184
Provision for loan losses 3,679
2,218
(3,575 ) (138 ) 288
2,472
Balance at End of Period $ 30,963
$ 10,472
$ 10,721
$ 5,418
$ 1,472
$ 59,046

~~Net loan charge-offs were significantly impacted by two commercial and industrial borrowers that resulted in charge-offs of $5.1 million during the first quarter of 2019.~~

2835

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

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

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

March 31, 2019
Allowance for Loan Losses Portfolio Loans
(dollars in thousands)
Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment

Total

Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment

Total
Commercial real estate $ 2,046
$ 32,857
$ 34,903
$ 28,033
$ 2,873,592
$ 2,901,625
Commercial and industrial 873
11,123
11,996
16,910
1,496,097
1,513,007
Commercial construction 87
6,670
6,757
2,808
242,850
245,658
Consumer real estate 9
6,169
6,178
8,541
1,195,661
1,204,202
Other consumer 8
1,567
1,575
12
70,948
70,960
Total $ 3,023

$ 58,386

$ 61,409

$ 56,304

$ 5,879,148

$ 5,935,452

December 31, 2018
Allowance for Loan Losses Portfolio Loans
(dollars in thousands)
Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment

Total

Individually
Evaluated for
Impairment

Collectively
Evaluated for
Impairment

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

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

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

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

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

~~The following tables present our ROU assets, lease expense, weighted average term, discount rate and maturity analysis of lease liabilities for finance and operating leases at March 31, 2019:~~

(in thousands, except weighted-averages) March 31, 2019
Operating Lease Expense $ 1,031
Amortization of ROU Assets - Finance Leases 23
Interest on Lease Liabilities - Finance Leases 18
Total Lease Expense $ 1,072
Operating Leases
ROU Assets $ 35,686
Operating Cash Flows $ 302
Finance Leases
ROU Assets $ 1,213
Operating Cash Flows $ 18
Financing Cash Flows $ 11
Weighted Average Lease Term
Operating Leases 20.4
Finance Leases 15.5
Weighted Average Discount Rate
Operating Leases 5.98 %
Finance Leases 6.15 %

(dollars in thousands)
Maturity Analysis Finance
Operating Total
2019 $ 105
$ 2,796
$ 2,901
2020 125
3,615
�� 3,740
2021 126
3,599
3,725
2022 128
3,682
3,810
2023 129
3,697
3,826
Thereafter 1,375
59,336
60,711
Total $ 1,988
$ 76,725
$ 78,713
Less: Present value discount (753 ) (36,500 ) (37,253 )
Lease Liabilities $ 1,235
$ 40,225
$ 41,460

~~Table of Contents~~

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Swaps

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

Pursuant to our agreements with various financial institutions, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.

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

Interest Rate Lock Commitments and Forward Sale Contracts

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 8. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued

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



	Derivatives (included in Other Assets)						Derivatives (included in Other Liabilities)
(dollars in thousands)	March 31, 2020			December 31, 2019			March 31, 2020			December 31, 2019
Derivatives not Designated as Hedging Instruments:
Interest Rate Swap Contracts - Commercial Loans
Fair value		$	88,135		$	25,647		$	87,989		$	25,615
Notional amount		918,481			740,762			918,481			740,762
Collateral posted		—			—			86,720			26,127
Interest Rate Lock Commitments - Mortgage Loans
Fair value		2,927			321			—			—
Notional amount		86,674			9,829			—			—
Forward Sale Contracts - Mortgage Loans
Fair value		—			1			1,292			—
Notional amount		$	—		$	12,750		$	91,750		$	—

Derivatives
(included in Other Assets)

Derivatives
(included in Other Liabilities)
(dollars in thousands) March 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018
Derivatives not Designated as Hedging Instruments:
Interest Rate Swap Contracts - Commercial Loans
Fair value $ 10,645
$ 5,504
$ 10,602
$ 5,340
Notional amount 367,258
325,750
367,258
325,750
Collateral received/posted —
160
10,053
—
Interest Rate Lock Commitments - Mortgage Loans

Fair value 339
251
—
—
Notional amount 10,554
6,054
—
—
Forward Sale Contracts - Mortgage Loans

Fair value 88
55
—
—
Notional amount $ 9,375
$ 6,000
$ —
$ —

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and we are permitted to offset the asset position and the liability position resulting in a net presentation.

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


	Derivatives (included in Other Assets)								Derivatives (included in Other Liabilities)								Derivatives (included in Other Assets)								Derivatives (included in Other Liabilities)
(dollars in thousands)	March 31, 2019				December 31, 2018				March 31, 2019				December 31, 2018				March 31, 2020				December 31, 2019				March 31, 2020				December 31, 2019
Derivatives not Designated as Hedging Instruments:
Gross amounts recognized		$	12,236			$	8,733			$	12,193			$	8,569			$	90,723			$	26,146			$	90,577			$	26,114
Gross amounts offset		(1,591		)		(3,229		)		(1,591		)		(3,229		)		(2,588		)		(499		)		(2,588		)		(499		)
Net Amounts Presented in the Consolidated Balance Sheets		10,645				5,504				10,602				5,340				88,135				25,647				87,989				25,615
Gross amounts not offset⁽¹⁾		—				(160		)		(10,053		)		—				—				—				(86,720		)		(26,127		)
Net Amount		$	10,645			$	5,344			$	549			$	5,340			$	88,135			$	25,647			$	1,269			$	(512	)

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

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



	Three Months Ended March 31,
(dollars in thousands)	2020				2019
Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans		$	114			$	(122	)
Interest rate lock commitments—mortgage loans		2,606				88
Forward sale contracts—mortgage loans		(1,293		)		33
Total Derivatives Gain/(Loss)		$	1,427			$	(1	)

Three Months Ended March 31,
(dollars in thousands) 2019 2018
Derivatives not Designated as Hedging Instruments

Interest rate swap contracts—commercial loans $ (122 ) $ 145
Interest rate lock commitments—mortgage loans 88
25
Forward sale contracts—mortgage loans 33
60
Total Derivatives (Loss)/Gain $ (1 ) $ 230

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 9. BORROWINGS

Short-term borrowings are for terms under or equal to one year and are comprised of securities sold under repurchase agreements, or REPOs and FHLB advances. All REPOs are overnight short-term investments and are not insured by the Federal Deposit Insurance Corporation, or FDIC. Securities pledged as collateral under these REPO financing arrangements cannot be sold or repledged by the secured party and, therefore, the REPOs are accounted for as secured borrowings. Mortgage-backed securities with amortized cost of ~~$28.4~~$66.4 million and carrying value of ~~$28.2~~$70.0 million at March 31, ~~2019~~2020 and amortized cost of ~~$24.2~~$22.7 million and carrying value of ~~$23.9~~$23.0 million at December 31, ~~2018,~~2019, were pledged as collateral for these secured transactions. The pledged securities are held in safekeeping at the Federal Reserve. Due to the overnight short-term nature of REPOs, potential risk due to a decline in the value of the pledged collateral is low. Collateral pledging requirements with REPOs are monitored daily. FHLB advances are for various terms and are secured by a blanket lien on residential mortgages and other real estate secured loans.

Long-term borrowings are for original terms greater than one year and are comprised of FHLB advances, ~~two capital~~finance leases and junior subordinated debt securities. Long-term FHLB advances are secured by the same loans as short-term FHLB advances. We had total long-term borrowings outstanding of ~~$6.1~~$45.6 million at a fixed rate and ~~$63.1~~$67.1 million at a variable rate at March 31, ~~2019,~~2020, excluding our ~~capital~~finance leases.

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



	March 31, 2020						December 31, 2019
(dollars in thousands)	Balance			Weighted Average Rate			Balance			Weighted Average Rate
Short-term Borrowings
Securities sold under repurchase agreements		$	69,644		0.25	%		$	19,888		0.74	%
Short-term borrowings		410,240			0.44	%		281,319			1.84	%
Total Short-term Borrowings		479,884			0.41	%		301,207			1.76	%
Long-term Borrowings
Long-term borrowings		50,180			2.59	%		50,868			2.60	%
Junior subordinated debt securities		64,038			3.63	%		64,277			3.59	%
Total Long-term Borrowings		114,218			3.17	%		115,145			3.15	%
Total Borrowings		$	594,102		0.94	%		$	416,352		2.14	%

March 31, 2019 December 31, 2018
(dollars in thousands) Balance Weighted
Average Rate Balance Weighted
Average Rate
Short-term Borrowings
Securities sold under repurchase agreements $ 23,427
0.55 % $ 18,383
0.46 %
Short-term borrowings 235,000
2.71 % 470,000
2.65 %
Total Short-term Borrowings 258,427
2.51 % 488,383
2.57 %
Long-term Borrowings
Long-term borrowings 70,418
2.78 % 70,314
2.84 %
Junior subordinated debt securities 45,619
5.07 % 45,619
5.25 %
Total Long-term Borrowings 116,037
3.68 % 115,933
3.79 %
Total Borrowings $ 374,464
2.87 % $ 604,316
2.80 %

We had total borrowings at the FHLB of Pittsburgh of ~~$304.2~~$458.9 million at March 31, ~~2019~~2020 and ~~$540.3~~$532.9 million at December 31, ~~2018.~~2019. The ~~$304.2~~$458.9 million at March 31, ~~2019~~2020 consisted of ~~$235.0~~$410.2 million in short-term borrowings and ~~$69.2~~$50.2 million in long-term borrowings. Our maximum borrowing capacity with the FHLB of Pittsburgh was ~~$2.6~~$3.1 billion at March 31, ~~2019.~~2020. We utilized ~~$466.0~~$698.1 million of our borrowing capacity at March 31, ~~2019~~2020 consisting of ~~$304.2~~$458.9 million for borrowings and ~~$161.8~~$239.2 million for letters of credit to collateralize public funds. Our remaining borrowing availability at March 31, ~~2019~~2020 is ~~$2.1~~$2.4 billion.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 10. COMMITMENTS AND CONTINGENCIES

Commitments

In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event the customer does not satisfy the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.

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



(dollars in thousands)	March 31, 2020			December 31, 2019
Commitments to extend credit		$	1,967,190		$	1,910,805
Standby letters of credit		85,021			80,040
Total		$	2,052,211		$	1,990,845

(dollars in thousands) March 31, 2019 December 31, 2018
Commitments to extend credit $ 1,463,108
$ 1,464,892
Standby letters of credit 74,572
77,134
Total $ 1,537,680
$ 1,542,026
Allowance for Credit Losses on Unfunded Loan Commitments

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

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



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

Litigation

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 11. REVENUE FROM CONTRACTS WITH CUSTOMERS

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

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

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

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

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

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

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



(dollars in thousands)		Three Months Ended March 31,
Revenue Streams	Point of Revenue Recognition	2020		2019
Service charges on deposit accounts	Over a period of time	$	484	$	457
	At a point in time	3,074		2,696
		$	3,558	$	3,153

Debit and credit card	Over a period of time	$	194	$	185
	At a point in time	3,287		2,789
		$	3,482	$	2,974

Wealth management	Over a period of time	$	345	$	413
	At a point in time	2,018		1,635
		$	2,362	$	2,048

Other fee revenue	At a point in time	$	919	$	919

(dollars in thousands) Three Months Ended March 31,
Revenue Streams Point of Revenue Recognition 2019
2018
Service charges on deposit accounts Over a period of time $ 457
$ 533
At a point in time 2,696
2,708
$ 3,153
$ 3,241

Debit and credit card Over a period time $ 185
$ 188
At a point in time 2,789
2,849
$ 2,974
$ 3,037

Wealth management Over a period of time $ 1,635
$ 1,879
At a point in time 413
803
$ 2,048
$ 2,682

Other fee revenue At a point in time $ 919
$ 921

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 12. OTHER COMPREHENSIVE INCOME/(LOSS)

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

Three Months Ended March 31, 2019 Three Months Ended March 31, 2018
(dollars in thousands)
Pre-Tax
Amount

Tax
(Expense)
Benefit

Net of Tax
Amount

Pre-Tax
Amount
Tax Benefit (Expense)
Net of Tax
Amount

Change in net unrealized gains/(losses) on debt securities available-for-sale
$ 7,398
$ (1,578 ) $ 5,820
$ (9,474 ) $ 2,012
$ (7,462 )
Reclassification adjustment for net (gains)/losses on debt securities available-for-sale included in net income —
—
—
—
—
—
Adjustment to funded status of employee benefit plans 453
(97 ) 356
621
(132 ) 489
Other Comprehensive Income/(Loss) $ 7,851
$ (1,675 ) $ 6,176
$ (8,853 ) $ 1,880
$ (6,973 )



	Three Months Ended March 31, 2020										Three Months Ended March 31, 2019
(dollars in thousands)	Pre-Tax Amount			Tax (Expense) Benefit				Net of Tax Amount			Pre-Tax Amount			Tax (Expense) Benefit				Net of Tax Amount
Change in net unrealized gains/(losses) on available-for-sale debt securities ⁽¹⁾		$	21,568		$	(4,592	)		$	16,976		$	7,398		$	(1,578	)		$	5,820
Adjustment to funded status of employee benefit plans		465			(99		)		366			453			(97		)		356
Other Comprehensive Income/(Loss)		$	22,033		$	(4,691	)		$	17,342		$	7,851		$	(1,675	)		$	6,176
⁽¹⁾ Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the Consolidated Statements of Comprehensive Income as follows: the pre-tax amount is included in net gain on sale of securities, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income. There were no reclassification adjustments for the three months ended March 31, 2020 or 2019.

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

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued~~

NOTE 13. EMPLOYEE BENEFITS

Our qualified and nonqualified defined benefit plans were amended to freeze benefit accruals for all persons entitled to benefits under the plans in 2016. We will continue recording pension expense related to these plans, primarily representing interest costs on the accumulated benefit obligation and amortization of actuarial losses accumulated in the plans, as well as income from expected investment returns on pension assets. Since the plans have been frozen, no0 service costs are included in net periodic pension expense.

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

The investment policy for ~~the Plan now~~S&T's defined benefit plan is 85 percent to 95 percent fixed income and 5 percent to 15 percent equity and ~~cash, which is a shift from 50 percent to 70 percent in equities and 30 percent to 50 percent fixed income and cash in 2018.~~cash. The expected long-term rate of return on plan assets is ~~4.80~~3.50 percent compared to ~~7.50~~4.80 percent in prior periods.

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

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



	Three Months Ended March 31,
(dollars in thousands)	2020				2019
Components of Net Periodic Pension Cost
Interest cost on projected benefit obligation		$	891			$	989
Expected return on plan assets		(972		)		(1,180		)
Net amortization		384				394
Net Periodic Pension Expense		$	303			$	203

Three Months Ended March 31,
(dollars in thousands) 2019 2018
Components of Net Periodic Pension Cost

Interest cost on projected benefit obligation $ 989
$ 967
Expected return on plan assets (1,180 ) (1,567 )
Net amortization 394
544
Net Periodic Pension Expense $ 203
$ (56 )

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

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S&T BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 14. QUALIFIED AFFORDABLE HOUSING ~~PROJECTS~~

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

As part of our responsibilities under the Community Reinvestment Act ~~requirements.~~and due to their favorable federal income tax benefits, we invest in Low Income Housing projects. As a limited partner in these operating partnerships, we receive tax credits and tax deductions for losses incurred by the underlying properties. We use the cost method to account for these partnerships.

Our total investment in qualified affordable housing projects was ~~$5.6~~$6.4 million at March 31, ~~2019~~2020 and ~~$6.3~~$4.8 million at December 31, ~~2018.~~2019. Amortization expense, included in other noninterest expense in the Consolidated Statements of Comprehensive Income, was $0.6 million for the three months ended March 31, 2020 and $0.7 million for the three months ended March 31, 2019. The amortization expense was offset by tax credits of $0.6 million for the three months ended March 31, 2020 and $0.7 million for the three months ended March 31, 2019 ~~and March 31, 2018. The amortization expense was offset by tax credits of $0.7 million for the three months ended March 31, 2019 and $0.8 million for the three months ended March 31, 2018~~ as a reduction to our federal tax provision.

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

On ~~November 9, 2017,~~September 11, 2019, we entered into an asset purchase agreement to sell a 70 percent ownership interest in the assets of our subsidiary, S&T Evergreen Insurance, LLC. The partial sale was accounted for as the sale of a business. At the date of the sale, January 1, 2018, we ceased to have a controlling financial interest, deconsolidated the subsidiary and recognized a gain of $1.9 million. We transferred our remaining 30 percent share of net assets from S&T Evergreen Insurance, LLC to a new ~~entity~~qualified affordable housing project and committed to an investment of $10.2 million. As of March 31, 2020, we have invested $3.6 million in this new project. NaN amortization expense or tax credits will be recognized for ~~a 30 percent partnership interest~~this new project until complete, which we expect to be later in a new insurance entity. We use the equity method of accounting to recognize changes in the value of our investment in the new insurance entity for our proportional share of income and losses of the new insurance entity.2020.

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

On ~~March 19, 2018,~~September 16, 2019, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which is effective through ~~August~~March 31, ~~2019,~~2021, permits usS&T to repurchase from time to time up to $50 million in aggregate value of shares of ~~our~~S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at ~~our~~the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of ~~the~~ common stock, legal and contractual requirements, applicable securities laws and ~~our~~S&T's financial performance. The repurchase plan does not obligate us to repurchase any particular number of shares. We expect to fund any repurchases from

cash on hand and internally generated funds. ~~For~~During the three months ended March 31, ~~2019,~~2020, we repurchased ~~313,904~~411,430 common shares ~~under this plan~~ at a total cost of ~~$12.3~~$12.6 million, or an average of ~~$39.14~~$30.52 per share. ~~Up to an additional $25.5 million~~Repurchase activity was suspended in March as the impact of ~~our common stock may be repurchased under this plan through August 31, 2019.~~the COVID-19 pandemic spread.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 16. SUBSEQUENT EVENTS

Paycheck Protection Program

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

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations at and for the three month periods ended March 31, ~~2019~~2020 and ~~2018.~~2019. Our MD&A should be read in conjunction with our Consolidated Financial Statements and Notes. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.

Important Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains or incorporates statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to our financial condition, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting S&T and its future business and operations. ~~Forward looking~~Forward-looking statements are typically identified by words or phrases such as “will likely result”, “expect”, “anticipate”, “estimate”, “forecast”, “project”, “intend”, “ believe”, “assume”, “strategy”, “trend”, “plan”, “outlook”, “outcome”, “continue”, “remain”, “potential”, “opportunity”, “believe”, “comfortable”, “current”, “position”, “maintain”, “sustain”, “seek”, “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for credit losses; cyber-security concerns; rapid technological developments and changes; sensitivity to the interest rate environment including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; regulatory supervision and ~~oversight;~~oversight, including changes in regulatory capital requirements and our ability to address those requirements; changes in accounting policies, practices, or guidance, for example, our adoption of CECL; legislation affecting the financial services industry as a whole, and S&T, in particular; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions,including DNB, cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated;

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containing costs and expenses; reliance on significant customer relationships; an interruption or cessation of an important service by a third-party provider; general economic or business ~~conditions;~~conditions, including the strength of regional economic conditions in our market area; the duration and severity of the coronavirus (“COVID-19”) pandemic, both in our principal area of operations and nationally, including the ultimate impact of the pandemic on the economy generally and on our operations; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge to net income; the stability of our core deposit base and access to contingency funding; re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses.

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

Critical Accounting Policies and Estimates

Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, ~~2019~~2020 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 under Part II, Item ~~7-“Management’s~~7 - “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.”~~Operations” except for we have updated our allowance for credit losses policy in response to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Allowance for Credit Losses

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

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

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

Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of ~~$7.2~~$9.0 billion at March 31, ~~2019.~~2020. We operate in five markets including Western Pennsylvania, ~~Central~~Eastern Pennsylvania, Northeast Ohio, Central Ohio, and Upstate New York.

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

We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. We incur expenses for the cost of deposits and other funding sources, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.

Our mission is to become the financial services provider of choice within the markets that we serve which will enable us to continue to be a high performing regional community bank. We strive to do this by delivering exceptional service and value, one customer at a time. Our strategic plan follows a disciplined approach focused on organic growth, which includes both growth within our current footprint and through market expansion. We employ a geographic ~~market based strategy~~market-based growth platform in order to drive organic growth. Each of our five markets is led by a Market President who is responsible for developing strategic initiatives specific to each market. We acknowledge that each of our five markets are in different stages of development and that our market based strategy will allow us to customize our approach to each market given its developmental stage and unique characteristics.

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

We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. We incur expenses for the cost of deposits and other funding sources, provision for loan losses and other operating costs such as salaries and employee benefits, data processing and information technology, occupancy and tax expense.

Our mission is to become the financial services provider of choice within the markets that we serve. We strive to do this by delivering exceptional service and value. Our strategic plan focuses on organic growth, which includes both growth within our current footprint and growth through market expansion. We also actively evaluate acquisition opportunities that align with our strategic objectives as another source of growth. Our strategic plan includes a collaborative model that combines expertise from all areas of our business and focuses on satisfying each customer’s individual financial objectives. We continuously work to maintain and improve the efficiency of our different lines of business.

We merged with DNB Financial Corporation (DNB) on November 30, 2019. The merger expanded S&T’s footprint in Eastern Pennsylvania gaining a new presence in the counties of Chester, Delaware and Philadelphia. The merger was valued at $201.0 million, or $37.72 per share, and added approximately $899.3 million of portfolio loans and $990.6 million of deposits at December 31, 2019.

Our focus continues to be on organic loan and deposit growth and implementing opportunities to increase fee income while closely monitoring our operating expenses and asset quality. We are focused on executing our strategy to successfully build our brand and grow our business in all of our markets. We

COVID-19 Update

S&T is monitoring and will continue to monitor the impact of the novel coronavirus (“COVID-19”) pandemic and has

taken and will continue to take steps to mitigate the potential risks and impact on S&T and to promote the health and safety of

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

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

have ~~benefited from recent increases~~been implemented. Our Business Continuity teams were activated and have guided our efforts to respond to the

rapidly developing situation. Furthermore, as described in ~~short-term interest rates and from the Tax Cuts and Jobs Act (Tax Act) which lowered the federal corporate tax rate from 35 percent~~Note 16 of Notes to ~~21 percent effective January 1, 2018.~~

~~On November 9, 2017,~~Consolidated Financial Statements, we ~~entered into an asset purchase agreement to sell a 70 percent ownership interest~~are participating in the ~~assets of our subsidiary, S&T Evergreen Insurance, LLC. At~~PPP, designed to aid small and medium sized businesses to address the ~~date~~impact of the sale, January 1, 2018, we ceased to have a controlling financial interest, deconsolidated the subsidiary and recognized a gain of $1.9 million. We transferred our remaining 30 percent share of net assets from S&T Evergreen Insurance, LLC to a new entity for a 30 percent partnership interest in a new insurance entity.

~~Earnings Summary~~

Net income decreased $3.2 million, or 12.4 percent, for the three months ended March 31, 2019 compared to the same period in 2018. Net income for the three months ended March 31, 2019 was $22.9 million, or $0.66 diluted earnings per share, as compared to $26.2 million, or $0.75 diluted earnings per share, for the same period in 2018.COVID-19 pandemic.

The ~~decrease in net income for the three month period ended March 31, 2019 of $3.2 million was primarily due~~extent to an increase in the provision for loan losses of $3.2 million, a decrease of $2.4 million in noninterest income and an increase in noninterest expense of $2.8 million offset by an increase in net interest income of $3.4 million and a decrease of $1.8 million in the provision for income taxes.which COVID-19 may adversely impact our business depends on future developments, which are highly

Net interest income increased $3.4 million to $60.4 million for the three months ended March 31, 2019 compared to net interest income of $56.9 million for the same period in 2018. Average interest-earning assets increased $172.4 million for the three months ended March 31, 2019 compared to the same period in 2018. Average interest-bearing liabilities increased $41.9 million for the three months ended March 31, 2019 compared to the same period in 2018. Net interest margin, on a fully taxable-equivalent, or FTE, basis (non-GAAP), increased 12 basis points for the three months ended March 31, 2019 to 3.71 percent compared to 3.59 percent for the same period in 2018. The increases in short-term interest rates over the past year positively impacted both net interest income and net interest margin. Net interest margin is reconciled to net interest income adjusted to an FTE basis in the "Results of Operations - Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018 - Net Interest Income" section of this MD&A.

The provision for loan losses increased $3.2 million to $5.7 million for the three months ended March 31, 2019 compared to $2.5 million for the same period in 2018. The increase in the provision for loan losses was mainly due to higher net charge-offs and impaired loans compared to the three months ended March 31, 2018. For the three months ended March 31, 2019, we had net charges-offs of $5.2 million compared to net recoveries of $0.2 million for the same period in 2018. Annualized net loan charge-offs to average loans was 0.36 percent for the three months ended March 31, 2019 compared to a negative 0.01 percent for the same period in 2018. Impaired loans increased $26.4 million to $56.3 million at March 31, 2019 compared to $29.9 million at March 31, 2018. Nonperforming loans increased $26.6 million to $48.0 million at March 31, 2019 compared to $21.4 million at March 31, 2018.

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

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

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

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

customers.

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

consumer customers.

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

Earnings Summary

Net income decreased ~~$2.4~~$9.7 million, or 42.3 percent, to ~~$11.4~~$13.2 million, or $0.34 per diluted share, for the three months ended March 31, 2020 compared to $22.9 million, or $0.66 per diluted share, in 2019. The decrease in net income was primarily due to the potential impact of COVID-19 on our expected credit losses which contributed to an increased provision for credit losses of $14.4 million, an increase in other noninterest expenses of $7.5 million, which included $2.3 million, or $0.05 per diluted share, of merger related expenses. These increases were offset by an increase of $9.7 million in net interest income which was primarily a result of the merger.

Net interest income increased $9.7 million, or 16.0 percent, to $70.0 million compared to $60.3 million for the three months ended March 31, ~~2019~~2019. The increase was primarily due to higher average interest-earning assets of $1.4 billion. The majority of the increase came from higher average loans of $1.2 billion from organic loan growth combined with $900 million of loans from the DNB Merger. Average interest-bearing liabilities increased $1.0 billion, primarily from increases in average interest-bearing deposits from the DNB merger. Net interest margin, on a fully taxable-equivalent, or FTE, basis (non-GAAP), declined 18 basis points to 3.53 percent compared to $13.8 million for the same period in 2018. The decrease was primarily related to a $1.9 million gain on the sale of a majority interest in S&T Evergreen Insurance, LLC in the first quarter of 2018. Also decreasing3.71 percent from the year ago period due to the declining interest rate environment. Net interest margin is reconciled to net interest income adjusted to an FTE basis below in the "Net Interest Income" section of this MD&A.

The provision for credit losses, which includes a provision for losses on unfunded commitments, increased $14.4 million to $20.1 million for the three months ended March 31, 2020 compared to $5.7 million in the same period of 2019. The significant increase in the provision for credit losses was ~~wealth management fees of $0.6 million~~mainly due to a ~~decline in financial services activity and declines in the stock market. Offsetting these decreases was a $0.3~~$16.3 million increase in ~~other~~our ACL in response to the COVID-19 pandemic. Net loan charge-offs increased $6.0 million to $11.2 million, or 0.63 percent of average loans, for the three months ended March 31, 2020 compared to $5.2 million, or 0.36 percent of average loans, in the same period in 2019.

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

Noninterest expense increased ~~$2.8~~$7.5 million to $46.4 million in three months ended March 31, 2020 compared to $38.9 million in the same period in 2019. Total noninterest expense includes the impact of the DNB merger in the three months ended March 31, 2020 since the merger closed on November 30, 2019. We incurred $2.3 million of merger related expenses in the three months ended March 31, 2020 and higher operating expenses after the merger with DNB. Other noninterest expense increased $2.6 million mainly due to $1.1 million increase related to historic tax credits and $0.5 million of additional amortization related to the DNB merger.

The provision for income taxes decreased $1.5 million to $2.7 million for the three months ended March 31, ~~2019~~2020 compared to ~~$36.1~~$4.2 million ~~for~~in the same period in ~~2018. Salaries and employee benefits expenses increased $2.1 million for the three months ended March 31,~~ 2019 compared to the same period in 2018 due to higher incentives, deferred compensation and medical expense. Data processing and information technology, or IT, increased $0.9 million due to the annual increase with our third-party data processor and the recent outsourcing arrangement for certain components of the IT function. Also increasing for the quarter was marketing expenses of $0.4 million primarily related to the timing of promotions. Offsetting these increases was a $0.7 million decrease in other taxes related to a state sales tax assessment in the three months ended March 31, 2018 and a decline in FDIC insurance expense for the three months ended March 31, 2019 of $0.6 million due to improvements in the components used to determine the assessment.

~~The provision for income taxes decreased $1.8 million for the three months ended March 31, 2019 compared to the same period in 2018~~ as a result of the decrease in pretax income of ~~$5.0 million and due to non-recurring discrete items of $0.9 million, primarily related to the sale of a majority interest of our insurance business in the first quarter of 2018.~~$11.2 million. Our effective tax rate ~~decreased~~increased to ~~15.6~~17.3 percent for the three months ended March 31, ~~2019~~2020 compared to ~~18.7~~15.6 percent for the same period in 2019. The increase in the ~~prior year.~~effective tax rate is primarily due to a $1.7 million decrease in benefits from tax credits in the first quarter of 2020 compared to the same period of 2019.

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Explanation of Use of Non-GAAP Financial Measures

In addition to the results of operations presented in accordance with generally accepted accounting principles, or GAAP, in the United States, management uses, and this quarterly report references, net interest income and net interest margin on a fully taxable equivalent, or FTE, basis, which are non-GAAP financial measures. Management believes net interest income and net interest margin on an FTE basis provide information useful to investors in understanding our underlying business, operational performance and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Although management believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered alternatives to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies.

We believe the presentation of net interest income and net interest margin on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income (GAAP) per the Consolidated Statements of Comprehensive Income is reconciled to net interest income adjusted on an FTE basis and net interest margin adjusted on an FTE basis in the "Results of Operations - Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019 - Net Interest Income" section of this MD&A.

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

RESULTS OF OPERATIONS

Three Months Ended March 31, ~~2019~~2020 Compared to

Three Months Ended March 31, ~~2018~~2019

Net Interest Income

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

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

The following table reconciles interest income per the Consolidated Statements of Comprehensive Income to net interest income and rates on an FTE basis for the periods presented:


	Three Months Ended March 31,								Three Months Ended March 31,
(dollars in thousands)	2019				2018				2020				2019
Total interest income		$	78,590			$	68,029			$	87,589			$	78,590
Total interest expense		18,234				11,097				17,553				18,234
Net Interest Income per Consolidated Statements of Comprehensive Income		60,356				56,932				70,036				60,356
Adjustment to FTE basis		961				940				849				961
Net Interest Income on an FTE Basis (Non-GAAP)		$	61,317			$	57,872			$	70,885			$	61,317
Net interest margin		3.65		%		3.53		%		3.48		%		3.65		%
Adjustment to FTE basis		0.06		%		0.06		%		0.05		%		0.06		%
Net Interest Margin on an FTE Basis (Non-GAAP)		3.71		%		3.59		%		3.53		%		3.71		%

Income amounts are annualized for rate calculations.

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Average Balance Sheet and Net Interest Income Analysis (FTE)

The following tables provide information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented:


	Three Months Ended March 31, 2019							Three Months Ended March 31, 2018							Three Months Ended March 31, 2020							Three Months Ended March 31, 2019
(dollars in thousands)	Average Balance		Interest			Rate		Average Balance		Interest			Rate		Average Balance		Interest			Rate		Average Balance		Interest			Rate
ASSETS
Interest-bearing deposits with banks	$	53,588		$	352	2.63	%	$	56,008		$	230	1.65	%	$	99,646		$	355	1.42	%	$	53,588		$	352	2.63	%
Securities, at fair value⁽²⁾⁽³⁾	680,517			4,558		2.68	%	686,912			4,353		2.53	%	786,858			4,995		2.54	%	680,517			4,558		2.68	%
Loans held for sale	894			9		4.07	%	1,949			28		5.65	%	1,867			18		3.76	%	894			9		4.07	%
Commercial real estate	2,905,272			35,964		5.02	%	2,690,990			30,307		4.57	%	3,408,684			40,093		4.73	%	2,905,272			35,964		5.02	%
Commercial and industrial	1,508,658			19,333		5.20	%	1,431,588			15,560		4.41	%	1,751,678			19,738		4.53	%	1,508,658			19,333		5.20	%
Commercial construction	249,997			3,312		5.37	%	375,129			4,176		4.51	%	386,363			4,495		4.68	%	249,997			3,312		5.37	%
Total Commercial Loans	4,663,927			58,609		5.10	%	4,497,707			50,043		4.51	%	5,546,725			64,326		4.66	%	4,663,927			58,609		5.10	%
Residential mortgage	722,554			7,869		4.38	%	694,303			7,241		4.19	%	990,866			10,328		4.18	%	722,554			7,869		4.38	%
Home equity	467,739			6,269		5.44	%	481,053			5,299		4.47	%	540,193			6,501		4.84	%	467,739			6,269		5.44	%
Installment and other consumer	69,099			1,222		7.17	%	66,861			1,103		6.69	%	79,680			1,388		7.01	%	69,099			1,222		7.17	%
Consumer construction	9,466			144		6.19	%	3,810			44		4.69	%	10,508			120		4.61	%	9,466			144		6.19	%
Total Consumer Loans	1,268,858			15,504		4.93	%	1,246,027			13,687		4.43	%	1,621,247			18,337		4.54	%	1,268,858			15,504		4.93	%
Total Portfolio Loans	5,932,785			74,113		5.06	%	5,743,734			63,730		4.50	%	7,167,972			82,663		4.64	%	5,932,785			74,113		5.06	%
Total Loans⁽¹⁾⁽²⁾	5,933,679			74,122		5.06	%	5,745,683			63,758		4.50	%	7,169,839			82,681		4.64	%	5,933,679			74,122		5.06	%
Federal Home Loan Bank and other restricted stock	24,471			519		8.49	%	31,216			628		8.05	%	23,601			407		6.90	%	24,471			519		8.90	%
Total Interest-earning Assets	6,692,255			79,551		4.81	%	6,519,819			68,969		4.28	%	8,079,944			88,438		4.40	%	6,692,255			79,551		4.81	%
Noninterest-earning assets	518,500							488,808							687,382							518,500
Total Assets	$	7,210,755						$	7,008,627						$	8,767,326						$	7,210,755
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand	$	545,695		$	553	0.41	%	$	575,377		$	368	0.26	%	$	942,030		$	1,382	0.59	%	$	54,695		$	553	0.41	%
Money market	1,568,417			7,292		1.89	%	1,194,053			3,232		1.10	%	1,993,764			6,318		1.27	%	1,568,417			7,292		1.89	%
Savings	770,587			472		0.25	%	874,318			437		0.20	%	830,985			477		0.23	%	770,587			472		0.25	%
Certificates of deposit	1,434,511			6,664		1.88	%	1,355,617			3,808		1.14	%	1,601,324			7,161		1.80	%	1,434,511			6,664		1.88	%
Total Interest-bearing Deposits	4,319,210			14,981		1.41	%	3,999,365			7,845		0.80	%	5,368,103			15,338		1.15	%	4,319,210			14,981		1.41	%
Securities sold under repurchase agreements	23,170			29		0.52	%	47,774			46		0.39	%	30,790			42		0.56	%	23,170			29		0.52	%
Short-term borrowings	319,389			2,145		2.72	%	596,014			2,508		1.71	%	286,365			1,145		1.61	%	319,389			2,145		2.72	%
Long-term borrowings	70,196			493		2.84	%	46,938			232		1.99	%	51,845			325		2.52	%	70,196			493		2.84	%
Junior subordinated debt securities	45,619			586		5.21	%	45,619			466		4.14	%	64,195			703		4.40	%	45,619			586		5.21	%
Total Borrowings	458,374			3,253		2.88	%	736,345			3,252		1.79	%	433,195			2,215		2.06	%	458,374			3,253		2.88	%
Total Interest-bearing Liabilities	4,777,584			18,234		1.55	%	4,735,710			11,097		0.95	%	5,801,298			17,553		1.22	%	4,777,584			18,234		1.55	%
Noninterest-bearing liabilities:
Noninterest-bearing liabilities	1,488,057							1,383,109							1,776,453							1,448,057
Shareholders’ equity	945,114							889,808							1,189,575							945,114
Total Liabilities and Shareholders’ Equity	$	7,210,755						$	7,008,627						$	8,767,326						$	7,210,755
Net Interest Income ⁽²⁾⁽³⁾				$	61,317						$	57,872						$	70,885						$	61,317
Net Interest Margin ⁽²⁾⁽³⁾						3.71	%						3.59	%						3.53	%						3.71	%

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

⁽²⁾ Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent for ~~2019~~2020 and ~~2018.~~2019.

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

Net interest income on an FTE basis (non-GAAP) increased $3.4 million, or 6.0 percent, for the three months ended March 31, 2019 compared to the same period in 2018. The net interest margin on an FTE basis (non-GAAP) increased 12 basis compared to the same period in 2018. These increases were primarily due to higher short-term interest rates.

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Net interest income on an FTE basis (non-GAAP) increased $9.6 million, or 15.6 percent, for the three months ended March 31, 2020 compared to the same period in 2019. The net interest margin on an FTE basis (non-GAAP) decreased 18 basis points for the three months ended March 31, 2020 compared to the same period in 2019.

Interest income on an FTE basis (non-GAAP) increased ~~$10.6~~$8.9 million, or ~~15.3~~11.2 percent, for the three months ended March 31, ~~2019~~2020 compared to the same period in ~~2018.~~2019. The increase was primarily due to ~~an increase~~increases in average interest-earning assets of ~~$172.4 million~~$1.4 billion for the three months ended March 31, 2020 offset by lower short-term interest rates compared to the same period in 2019. Average loan balances increased $1.2 billion compared to the same period in 2019 due to the DNB merger and ~~higher~~organic loan growth. The average rate earned on loans decreased 42 basis points compared to the same period in 2019 primarily due to lower short-term interest rates. Average ~~interest-bearing deposits with banks, which is primarily cash at the Federal Reserve, was down slightly and the average rates earned increased 98 basis points due to higher short-term rates. Average~~ investment securities ~~decreased $6.4~~increased $106.3 million and the average rate earned ~~increased 15~~decreased 14 basis points ~~due~~compared to ~~higher rates. Average loan balances increased $188.0 million due to organic loan growth, primarily in~~ the commercial loan portfolio. The average rate earned on loans increased 56 basis points primarily due to higher short-term interest rates. The average rate earned on the Federal Home Loan Bank (FHLB) and other restricted stock improved due to an increase in the FHLB’s quarterly dividend ratesame period in 2019. Overall, the FTE rate on interest-earning assets (non-GAAP) decreased 41 basis points for the three months ended March 31, 2020 compared to the same period in 2019.

Interest expense decreased $0.7 million for the three months ended March 31, 2020 compared to the same period in 2019. The decrease was primarily due to lower short-term interest rates compared to the same period in 2019. Average interest-bearing deposits increased 53$1.0 billion compared to the same period in 2019 due to the DNB merger and organic deposit growth. The average rate paid decreased 26 basis points compared to the same period in ~~2018.~~

~~Interest expense increased $7.1 million compared to the same period in 2018. The increase was~~2019 primarily due to ~~higher~~lower short-term interest rates. Average interest-bearing deposits increased $319.8 million compared to the same period in the prior year. Average money market and certificates of deposit balances increased $374.4 million and $78.9 million and the average rates paid increased 79 basis points and 74 basis points due to higher short-term interest rates and promotional pricing. These increases are partially attributable to a shift in deposit mix, as average interest-bearing demand and savings balances declined $29.7 million and $103.7 million. The growth in average interest-bearing deposits is complemented by increased average noninterest-bearing demand balances of $92.1 million. Average total borrowings decreased ~~$278.0 million due to increased deposits. Short-term borrowings decreased $276.6~~$25.2 million and the average rate paid increased 101 basis points due to higher short-term interest rates. Long-term borrowings increased $23.3 million and the average rate paid increased 85 basis points due to the addition of a long-term fixed rate borrowing in December 2018. Overall, the cost of interest-bearing liabilities increased 60decreased 82 basis points compared to the same period in ~~2018.~~2019. Overall, the cost of interest-bearing liabilities decreased 33 basis points for the three months ended March 31, 2020, compared to the same period in 2019.

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


	Three Months Ended March 31, 2019 Compared to March 31, 2018									Three Months Ended March 31, 2020 Compared to March 31, 2019
(dollars in thousands)	Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total			Volume ⁽⁴⁾			Rate ⁽⁴⁾			Total
Interest earned on:
Interest-bearing deposits with banks	$	(9	)	$	131		$	122		$	302		$	(299	)	$	3
Securities, at fair value⁽²⁾⁽³⁾	(40		)	245			205			712			(274		)	438
Loans held for sale	(15		)	(4		)	(19		)	10			(1		)	9
Commercial real estate	2,413			3,244			5,657			6,232			(2,103		)	4,129
Commercial and industrial	838			2,935			3,773			3,114			(2,709		)	405
Commercial construction	(1,393		)	529			(864		)	1,807			(623		)	1,184
Total Commercial Loans	1,858			6,708			8,566			11,153			(5,435		)	5,718
Residential mortgage	294			334			628			2,922			(463		)	2,459
Home equity	(147		)	1,117			970			971			(739		)	232
Installment and other consumer	37			82			119			187			(21		)	166
Consumer construction	65			35			100			16			(40		)	(24		)
Total Consumer Loans	249			1,567			1,817			4,096			(1,263		)	2,833
Total Portfolio Loans	2,107			8,275			10,383			15,249			(6,698		)	8,551
Total Loans⁽¹⁾⁽²⁾	2,092			8,271			10,364			15,259			(6,699		)	8,560
Federal Home Loan Bank and other restricted stock	(136		)	27			(109		)	(18		)	(94		)	(112		)
Change in Interest Earned on Interest-earning Assets	$	1,907		$	8,674		$	10,582		16,255			(7,366		)	8,889
Interest paid on:
Interest-bearing demand		($19	)		$204			$185			$401			$428			$829
Money market	1,014			3,046			4,060			1,977			(2,951		)	(974		)
Savings	(52		)	87			35			37			(33		)	4
Certificates of deposit	222			2,634			2,856			775			(278		)	497
Total Interest-bearing Deposits	1,165			5,970			7,136			3,190			(2,834		)	356
Securities sold under repurchase agreements	(24		)	7			(17		)	10			4			14
Short-term borrowings	(1,164		)	801			(363		)	(222		)	(779		)	(1,001		)
Long-term borrowings	115			146			261			(129		)	(39		)	(168		)
Junior subordinated debt securities	—			120			120			239			(121		)	118
Total Borrowings	(1,073		)	1,074			1			(102		)	(935		)	(1,037		)
Change in Interest Paid on Interest-bearing Liabilities	92			7,044			7,137			3,088			(3,769		)	(681		)
Change in Net Interest Income	$	1,815		$	1,630		$	3,445		$	13,167		$	(3,597	)	$	9,570

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

⁽²⁾ Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent for ~~2019~~2020 and ~~2018.~~2019.

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

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

Provision for ~~Loan~~Credit Losses

The provision for ~~loan~~credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the ~~adjustment to the allowance for loan losses, or ALL, after net loan charge-offs have been deducted to bring the ALL to~~ACL at a level ~~determined to be adequate to absorb probable~~consistent with management's assessment of expected losses ~~inherent~~ in the loan ~~portfolio.~~portfolio at the balance sheet date. At January 1, 2020, we increased the ACL by $27.3 million for the day one CECL adjustment. The provision for ~~loan~~credit losses increased ~~$3.2~~$14.4 million to ~~$5.7~~$20.1 million for the three months ended March 31, ~~2019~~2020 compared to ~~$2.5~~$5.7 million for the same period in ~~2018.~~

2019. The ~~increase in the~~ provision for ~~loan~~credit losses ~~was mainly due to higher net charge-offs. For the three months ended March 31, 2019, we had net charges-offs of $5.2 million compared to net recoveries of $0.2~~includes $1.6 million for the ~~same period in 2018. Annualized net loan charge-offs to average loans were 0.36 percent~~reserve for unfunded commitments for the three months ended March 31, ~~2019 compared~~2020.

The significant increase in the provision for credit losses during the three months ended March 31, 2020 was mainly due to ~~a negative 0.01 percent for~~ the ~~same period in 2018. Impaired loans increased $26.4~~COVID-19 pandemic. We added approximately $14.9 million to ~~$56.3~~the ACL in the first quarter of 2020 related to qualitative factors. This included $11.2 million ~~at March 31, 2019 compared~~for a revised economic forecast and the impact of that forecast on certain loan portfolios due to ~~$29.9~~the COVID-19 pandemic. Changes in current conditions resulted in an additional $3.7 million ~~at March 31, 2018. Nonperforming loans also increased $26.6 million to $48.0 million at March 31, 2019 compared to $21.4 million at March 31, 2018.~~increase in the ACL.

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Net loan charge-offs increased $6.0 million to $11.2 million, or 0.63 percent of average loans, for the first quarter of 2020 compared to $5.2 million, or 0.36 percent of average loans, for the same period in 2019. The ~~ALL at March~~most significant charge-off for the first quarter related to a $9.9 million C&I relationship that was charged off due to potential irregularities of the borrower that are still under review. We obtained information on the relationship subsequent to filing our Annual Report on Form 10-K for the year ended December 31, 2019, ~~was $61.4~~but before the end of the first quarter of 2020; therefore, we recorded a $9.9 million ~~compared~~specific reserve in the day one CECL adjustment. The updated information supported a loss existed at January 1, 2020. Nonperforming loans increased $25.8 million to ~~$59.0~~$73.8 million at March 31, ~~2018. The ALL as a percent of total portfolio loans was 1.03 percent~~2020 compared to $48.0 million at March 31, 2019. The significant increase in nonperforming loans primarily related to the addition of a $20.9 million CRE relationship and a $5.9 million C&I relationship, which was partially offset by the $9.9 million C&I relationship that was charged off during the quarter. The $20.9 million CRE relationship became a performing TDR in the third quarter of 2019 and then moved to nonperforming in the first quarter of 2020 when the borrower experienced financial deterioration that lead to cash flow issues. The relationship was individually assessed at March 31, ~~2018. Refer~~2020 resulting in no ACL due to ~~“Financial Condition - Allowance for Loan Losses” in~~the borrower being current on their payments under the modified terms and the relationship being fully collateralized as of March 31, 2020 or as of the filing date of this ~~MD&A for additional information.~~Form 10-Q.

Noninterest Income


	Three Months Ended March 31,													Three Months Ended March 31,
(dollars in thousands)	2019			2018			$ Change				% Change			2020				2019			$ Change				% Change
Net gain on sale of securities															$	—			$	—		$	—			—
Service charges on deposit accounts		$	3,153		$	3,241		$	(88	)		(2.7	)%		3,558				3,153			405				12.8	%
Debit and credit card		2,974			3,037			(63		)		(2.1	)		3,482				2,974			508				17.1	%
Commercial loan swap income															2,484				581			1,903				327.5	%
Wealth management		2,048			2,682			(634		)		(23.6	)		2,362				2,048			314				15.3	%
Mortgage banking		494			602			(108		)		(17.9	)		1,236				494			742				150.2	%
Gain on sale of a majority interest of insurance business		—			1,873			(1,873		)		(100.0	)
Other		2,693			2,357			336				14.3			(719		)		2,112			(2,831		)		(134.0	)%
Total Noninterest Income		$	11,362		$	13,792		$	(2,430	)		(17.6	)%		$	12,403			$	11,362		$	1,041			9.2	%

NM - not meaningful

Noninterest income ~~decreased $2.4~~increased $1.0 million to ~~$11.4~~$12.4 million for the three months ended March 31, ~~2019~~2020 compared to the same period in ~~2018. The decrease was primarily related to a $1.9 million gain on~~2019. Total noninterest income includes the ~~sale~~impact of ~~a majority interest in S&T Evergreen Insurance, LLC~~the DNB merger in the ~~first quarter of 2018. Also decreasing from the year ago period~~three months ended March 31, 2020 which closed on November 30, 2019. The increase was ~~wealth management fees of $0.6 million due to a decline in financial service revenue and market conditions. Offsetting these decreases was a $0.3 million increase in other income primarily~~also related to higher commercial loan swap ~~fees~~income of ~~$0.5~~$1.9 million due to an increase in customer demand for this ~~product.~~

~~Noninterest Expense~~

Three Months Ended March 31,
(dollars in thousands) 2019 2018 $ Change % Change
Salaries and employee benefits $ 20,910
$ 18,815
$ 2,095
11.1 %
Data processing and information technology 3,233
2,325
908
39.0
Net occupancy 3,036
2,873
163
5.7
Furniture, equipment and software 2,230
1,957
273
14.0
Other taxes 1,185
1,848
(663 ) (35.9 )
Professional services and legal 1,184
1,051
133
12.6
Marketing 1,141
702
439
62.6
FDIC insurance 516
1,108
(592 ) (53.4 )
Other 5,484
5,403
81
1.5
Total Noninterest Expense $ 38,919
$ 36,082
$ 2,837
7.9 %

~~Noninterest expense~~product in the current interest rate environment. Mortgage banking fees increased $2.8 million to $38.9 million for the three months ended March 31, 2019 compared to the same period in 2018. Salaries and employee benefits expense increased $2.1 million due to higher incentive costs, deferred compensation and medical expense. The increase of $0.9 million in data processing and information technology was mainly due to the annual increase with our third-party data processor and the recent outsourcing arrangement for certain components of our IT function. The increase in marketing expense of $0.4 million for the three months related to the timing of various promotions. These increases were partially offset by decreases in other taxes of $0.7 million due to an increase in the volume of loans originated for sale in the secondary market due to a ~~state sales tax assessment~~decline in mortgage rates from the comparable period. Debit and credit card fees also increased $0.5 million compared to 2019 due to increased debit card usage, the DNB merger and the timing of referral merchant revenue. Offsetting these increases was a $2.8 million decrease in other income primarily attributable to the decline in stock market performance during the first quarter of 2020 resulting in a change in the valuation related to ~~the three months ended March 31, 2018~~a deferred compensation plan of $1.8 million, which has a corresponding

offset in salaries and benefit expense resulting in no impact to net income and a decrease in ~~FDIC insurance expense~~the equity securities portfolio of ~~$0.6~~$1.3 million ~~due to improvements in the components used to determine the assessment for the three months ended March 31, 2019.~~

~~Provision for Income Taxes~~

~~The provision for income taxes decreased $1.8 million for the three months ended March 31, 2019~~ compared to the same period in 2018 as a result of the decrease in pretax income of $5.0 million and due to non-recurring discrete items of $0.9 million, primarily related to the sale of a majority interest of our insurance business in the first quarter of 2018. Our effectiveprior period.

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Noninterest Expense



	Three Months Ended March 31,
(dollars in thousands)	2020			2019			$ Change				% Change
Salaries and employee benefits⁽¹⁾		$	21,335		$	20,910		$	425			2.0	%
Data processing and information technology⁽¹⁾		3,868			3,233			635				19.6	%
Net occupancy⁽¹⁾		3,765			3,036			729				24.0	%
Furniture, equipment and software⁽¹⁾		2,519			2,230			289				13.0	%
Merger related expenses		2,342			—			2,342				NM
Other taxes		1,600			1,185			415				35.0	%
Marketing⁽¹⁾		1,111			1,141			(30		)		(2.6	)%
Professional services and legal⁽¹⁾		1,048			1,184			(136		)		(11.5	)%
FDIC insurance		770			516			254				49.2	%
Other⁽¹⁾		8,033			5,449			2,584				47.4	%
Total Noninterest Expense		$	46,391		$	38,884		$	7,507			19.3	%

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

NM - not meaningful

Noninterest expense increased $7.5 million, or 19.3 percent, to $46.4 million in 2020 compared to 2019. Total noninterest expense includes the impact of the DNB merger in the three months ended March 31, 2020 which closed on November 30, 2019. Total merger related expenses of $2.3 million incurred in the three months ended March 31, 2020 included $1.4 million of salaries and employee benefits, $0.4 million for data processing, $0.2 million for professional services and $0.3 million in various other expenses. Other noninterest expense increased $2.6 million mainly due to $1.1 million increase related to historic tax credits and $0.5 million additional amortization related to the DNB merger. Net occupancy expenses increased $0.7 million due to additional locations acquired as part of the DNB merger. Salaries and employee benefits increased $0.4 million primarily due to additional employees. Data processing and information technology increased $0.6 million due to the outsourcing agreement for certain components of our information technology function, the annual increase with our third-party data processor and the merger. Other taxes increased $0.4 million due to the merger and growth resulting in an increase in our shares tax.

Provision for Income Taxes

The provision for income taxes decreased $1.5 million to $2.7 million for the three months ended March 31, 2020 compared to $4.2 million in the same period in 2019 as a result of the decrease in pretax income of $11.2 million. Our effective tax rate ~~decreased~~increased to ~~15.6~~17.3 percent for the three months ended March 31, ~~2019~~2020 compared to ~~18.7~~15.6 percent for the same period in 2019. The increase in the ~~prior year.~~effective tax rate is primarily due to a $1.7 million decrease in tax benefits from tax credits compared to 2019.

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

Total assets ~~decreased $23.0~~increased $0.2 billion to $9.0 billion at March 31, 2020 compared $8.8 billion at December 31, 2019. Total portfolio loans increased $109.6 million to $7.2 billion at March 31, ~~2019~~2020 compared to ~~$7.3~~$7.1 billion at December 31, ~~2018. Total~~2019. The increase in portfolio loans ~~decreased $11.2 million with decreases~~ primarily related to growth in the commercial loan ~~portfolio. CRE loans decreased $20.2~~portfolio of $107.6 million ~~and Commercial Construction loans decreased $11.6~~with increases of $60.5 million ~~offset by an increase~~ in C&I, ~~loans of $19.6 million. The~~$26.0 million in CRE and $21.1 million in commercial ~~loan portfolio has been impacted by an increasingly competitive permanent financing market coupled with several customers selling their business.~~construction compared to December 31, 2019. Consumer loans increased ~~$1.0~~$2.0 million compared to December 31, 2019 with ~~minor~~ increases in all categories except ~~the home~~residential mortgages. Home equity ~~portfolio. Installment and other consumer loans~~ increased ~~$3.4 million, residential mortgages increased 3.2~~$6.1 million, consumer construction loans increased ~~$2.3~~$4.8 million, installment and other consumer increased $0.9 million offset by a decrease of ~~$7.9~~$9.8 million in ~~our home equity portfolio.~~ residential mortgages.

Securities ~~decreased $4.5~~increased $15.2 million to ~~$680.4~~$799.5 million at March 31, ~~2019~~2020 from ~~$684.9~~$784.3 million at December 31, ~~2018.~~2019. The ~~decrease~~increase in securities is primarily due to ~~pay downs on mortgage-backed securities offset by limited purchases and an increase~~increases in the unrealized ~~gain~~gains of $21.6 million during the three months ended March 31, ~~2019.~~2020 partially offset by pay downs on mortgage-backed securities. The bond portfolio had an unrealized gain of ~~$2.3~~$32.3 million at March 31, ~~2019~~2020 compared to ~~an unrealized loss of $5.1~~$10.7 million at December 31, ~~2018~~2019 due to a decrease in interest rates.

Our deposits increased ~~$159.5~~$21.3 million, ~~or 2.8 percent,~~ with total deposits of ~~$5.8~~$7.1 billion at March 31, ~~2019~~2020 compared to ~~$5.7~~$7.0 billion at December 31, ~~2018.~~2019. Customer deposits increased ~~$215.2~~$37.3 million ~~with growth in money~~from December 31, 2019. Money market ~~of $221.0~~deposits increased $17.9 million, ~~or 18.8 percent, in~~ certificates of deposit ~~of $38.6~~increased $8.5 million, savings increased $5.3 million, noninterest-bearing demand deposits increased $4.9 million, and ~~in noninterest-bearing demand accounts of $2.3 million which was offset by declines in~~ interest-bearing demand ~~accounts of $28.9 million and savings accounts of $17.8~~increased $0.7 million. ~~The significant increase in money market deposits is related to a competitively-priced indexed product and a promotional rate product offered in selected markets.~~ Total ~~financial~~brokered deposits decreased ~~$55.7~~$16.0 million ~~at March 31, 2019 compared to~~from December 31, ~~2018.~~ 2019. Brokered deposits are an additional source of funds utilized by ALCO as a way to diversify funding sources, as well as manage our funding costs and structure.

Total borrowings ~~decreased $229.9~~increased $177.8 million, or ~~38.0~~42.7 percent, compared to December 31, ~~2018 due~~2019 to ~~a decrease in funding needs.~~fund asset growth. Total short-term borrowings ~~decreased~~increased by ~~$230.0~~$128.9 million, or ~~47.1~~45.8 percent ~~and long-term borrowings~~compared to December 31, 2019. Securities sold under repurchase agreements increased ~~$0.1 million.~~$49.8 million to $69.6 million at March 31, 2020 compared to December 31, 2019 due to repositioning by our REPO customers,

Total shareholders’ equity ~~increased~~decreased by ~~$7.4~~$15.8 million ~~to $943.2 million~~and remains at $1.2 billion at March 31, ~~2019~~2020 compared to ~~$935.8 million~~$1.2 billion at December 31, ~~2018.~~2019. The ~~increase~~decrease was primarily due to the $22.6 million cumulative-effect adjustment related to the adoption of ASU 2016-13, share repurchases of $12.6 million and $11.1 million of dividends partially offset by net income of ~~$22.9 million offset partially by dividends of $9.3~~$13.2 million and ~~share repurchases of $12.3 million.~~$17.3 million increase in other comprehensive income. The ~~$6.2 million~~ increase in other comprehensive income was due to a ~~$5.8~~$17.0 million increase in unrealized gains on our available-for-sale investment securities, net of tax, and a ~~$0.4~~$0.3 million change in the funded status of our employee benefit plans.

Securities Activity


(dollars in thousands)	March 31, 2019			December 31, 2018			$ Change				March 31, 2020			December 31, 2019			$ Change
U.S. treasury securities		$	9,837		$	9,736		$	101			$	10,372		$	10,040		$	332
Obligations of U.S. government corporations and agencies		129,369			128,261			1,108				137,982			157,697			(19,715		)
Collateralized mortgage obligations of U.S. government corporations and agencies		154,159			148,659			5,500				189,472			189,348			124
Residential mortgage-backed securities of U.S. government corporations and agencies		22,514			24,350			(1,836		)		21,193			22,418			(1,225		)
Commercial mortgage-backed securities of U.S. government corporations and agencies		237,554			246,784			(9,230		)		284,679			275,870			8,809
Corporate obligations												7,551			7,627			(76		)
Obligations of states and political subdivisions		122,489			122,266			223				144,717			116,133			28,584
Debt Securities Available-for-Sale		675,922			680,056			(4,134		)
Available-for-Sale Debt Securities												795,966			779,133			16,833
Marketable equity securities		4,498			4,816			(318		)		3,566			5,150			(1,584		)
Total Securities		$	680,420		$	684,872		$	(4,452	)		$	799,532		$	784,283		$	15,249

We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income, and as a tool of ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security purchases are subject to an investment policy approved annually by our Board of Directors and administered through ALCO and our treasury function. Securities ~~decreased $4.5~~increased $15.2 million to ~~$680.4~~$799.5 million at March 31, ~~2019~~2020 from ~~$684.9~~$784.3 million at December 31, ~~2018.~~2019. The ~~decrease~~increase in securities is primarily due to ~~pay downs on mortgage-backed securities offset by limited purchases and~~ an increase in ~~the unrealized gain during the three months ended March~~market value compared to December 31, 2019.

At March 31, ~~2019~~2020 our bond portfolio was in a net unrealized gain position of ~~$2.3~~$32.3 million compared to a net unrealized ~~loss~~gain position of ~~$5.1~~$10.7 million at December 31, ~~2018.~~2019. At March 31, ~~2019~~2020 total gross unrealized gains in the bond portfolio were ~~$6.0~~$32.3 million ~~offset by $3.7 million of gross unrealized losses,~~ compared to December 31, ~~2018,~~2019, when total gross unrealized

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

gains were ~~$3.5~~$11.7 million offset by gross unrealized losses of ~~$8.6~~$1.0 million. Management evaluates the securities portfolio ~~for other than temporary impairment, or OTTI, on a quarterly basis.~~to determine if an ACL is needed each quarter. During the three months ended March 31, ~~2019 and 2018,~~2020 we did not record ~~any OTTI.~~an ACL related to the securities portfolio.

Loan Composition


	March 31, 2019				December 31, 2018				March 31, 2020				December 31, 2019
(dollars in thousands)	Amount		% of Loans		Amount		% of Loans		Amount		% of Loans		Amount		% of Loans
Commercial
Commercial real estate	$	2,901,625	48.88	%	$	2,921,832	49.13	%	$	3,442,495	47.50	%	$	3,416,518	47.87	%
Commercial and industrial	1,513,007		25.49	%	1,493,416		25.11	%	1,781,402		24.58		1,720,833		24.11
Construction	245,658		4.14	%	257,197		4.33	%	396,518		5.47		375,445		5.26
Total Commercial Loans	4,660,290		78.52	%	4,672,445		78.57	%	5,620,415		77.56	%	5,512,796		77.24	%
Consumer
Residential mortgage	729,914		12.30	%	726,679		12.22	%	988,816		13.64	%	998,585		13.99	%
Home equity	463,566		7.81		471,562		7.93		544,405		7.51		538,348		7.54
Installment and other consumer	70,960		1.20		67,546		1.14		79,887		1.10		79,033		1.10
Construction	10,722		0.18		8,416		0.14		13,222		0.18		8,390		0.12
Total Consumer Loans	1,275,162		21.48	%	1,274,203		21.43	%	1,626,329		22.44	%	1,624,356		22.76	%
Total Portfolio Loans	5,935,452		100.00	%	5,946,648		100.00	%	7,246,745		100.00	%	7,137,152		100.00	%
Loans Held for Sale	2,706				2,371
Loans held for sale									7,309				5,256
Total Loans	$	5,938,158			$	5,949,019			$	7,254,054			$	7,142,408

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

Commercial loans, including CRE, C&I and Commercial Construction, comprised 79 percent of total portfolio loans at both March 31, 2019 and December 31, 2018. Total portfolio loans decreased $11.2 million and remain at $5.9 billion at both March 31, 2019 and December 31, 2018. The decrease was primarily due to a decline of $12.2 million in our commercial loan portfolio. CRE loans decreased $20.2 million and Commercial Construction loans decreased $11.6 million offset by an increase of $19.6 million in the C&I portfolio compared to December 31, 2018. The decrease in construction loans was mainly due to projects completing and moving into CRE. Despite this movement into CRE, the CRE portfolio decreased due to loan payoffs from a competitive permanent financing market coupled with several customers selling their business.

Consumer loans represent 21 percent of our total portfolio loans at both March 31, 2019 and December 31, 2018. Consumer loans increased $1.0 million compared to December 31, 2018 with minor increases in all categories except the home equity portfolio. Installment and other increased $3.4 million, residential mortgages increased $3.2 million and consumer construction increased $2.3 million offset by a decrease of $7.9 million in home equity loans.

~~Allowance for Loan Losses~~

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

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

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Commercial loans, including CRE, C&I and commercial construction, comprised 77.6 percent of total portfolio loans at March 31, 2020 and 77.2 percent at December 31, 2019. Total portfolio loans increased $109.6 million to $7.2 billion at March 31, 2020 compared to $7.1 billion at December 31, 2019. The increase of $107.6 million in the commercial loans related to $60.5 million in C&I, $26.0 million in CRE and $21.1 million in commercial construction loans compared to December 31, 2019.

Consumer loans represent 22.4 percent of our total portfolio loans at March 31, 2020 and 22.8 percent at December 31, 2019. Consumer loans increased $2.0 million compared to December 31, 2019 with increases in all categories except residential mortgages. Home equity increased $6.1 million, consumer construction loans increased $4.8 million, installment and other consumer increased $0.9 million offset by a decrease of $9.8 million in residential mortgages.

Allowance for Credit Losses

We maintain an ACL at a level determined to be adequate to absorb estimated expected credit losses within the loan portfolio over the contractual life of a loan 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) Construction, 2) CRE, 3) C&I, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer.

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

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

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

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Commercial Construction ~~loans are~~—Loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

Business Banking—Commercial loans made to small businessesthat are standard, non-complex products evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards that meet small business market customers’ needs. The business banking portfolio is monitored by utilizing a standard and closely managed process focusing on behavioral and performance criteria. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type and business.

Consumer Real Estate ~~loans are~~—Loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing ~~markets~~market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

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

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



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



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

^* Annualized

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

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

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

March 31, 2019
December 31, 2018
Ratio of net charge-offs to average loans outstanding 0.36 % * 0.18 %
Allowance for loan losses as a percentage of total loans 1.03 % 1.03 %
Allowance for loan losses to nonperforming loans 128 % 144 %

^* ~~Annualized~~

~~The ALL was $61.4 million, or 1.03 percent of total portfolio loans, at March 31, 2019 compared to $61.0 million, or 1.03 percent of total portfolio loans at December 31, 2018. The minor net~~significant increase in the ~~ALL~~provision for credit losses of ~~$0.4~~$18.4 million was primarily due to a $1.3 million increase in the reserve for loans individually evaluated for impairment offset by a decrease of $0.8 million in the ALL for loans collectively evaluated for impairment compared to December 31, 2018. Impaired loans increased $6.8 million to $56.3 million compared to $49.5 million at December 31, 2018. The increase in impaired loans was due to the addition of a $5.3 million CRE loan that had a specific reserve of $0.4 million and a $5.2 million C&I loan at March 31, 2019. Commercial special mention, substandard and doubtful loans decreased $15.2 million to $253.3 million from $268.5 million at December 31, 2018. Substandard loans decreased $15.9 million and special mention increased $0.7 million. The decrease in substandard loans from December 31, 2018 was mainly due to pay-offs and loan rating upgrades.

~~During~~during the three months ended March 31, ~~2019, net~~2020 was mainly due to the COVID-19 pandemic. Net loan charge-offs ~~increased $5.4~~were $11.2 million, ~~to $5.2 million compared to net recoveries~~or 0.63 percent of ~~$0.2 million for the same period in 2018. This increase was a result of two C&I~~average loans, ~~that resulted in charge-offs of $5.1 million during the first quarter of 2019. The provision for loan loss increased $3.2 million to $5.7 million~~ for the three months ended March 31, 2020. The most significant charge-off for the first quarter related to a $9.9 million C&I relationship that was charged off due to potential irregularities of the borrower that are still under review. We obtained information on the relationship subsequent to filing our December 31, 2019 10-K, but before the end of the first quarter of 2020; therefore, we recorded a day one CECL adjustment through a $9.9 million specific reserve. The updated information supported a loss existed at January 1, 2020.

Commercial substandard loans increased $15.8 million to $168.5 million at March 31, 2020 compared to ~~$2.5~~$152.7 million at December 31, 2019 and special mention loans increased $20.8 million to $124.7 million at March 31, 2020 compared to $103.9 million at December 31, 2019 due to downgrades as a result of updated financial information.

Nonperforming loans increased $19.7 million to $73.8 million at March 31, 2020 compared to $54.1 million at

December 31, 2019. The significant increase in nonperforming loans primarily related to the addition of a $20.9 million CRE relationship and a $5.9 million C&I relationship, which was partially offset by the $9.9 million C&I relationship that was charged off during the quarter. The $20.9 million CRE relationship became a performing TDR in the third quarter of 2019 and then moved to nonperforming in the first quarter of 2020 when the borrower experienced financial deterioration that led to cash flow issues. The relationship was individually assessed at March 31, 2020 resulting in no ACL due to the borrower being current on their payments under the modified terms and the relationship is fully collateralized as of March 31, 2020.

The adoption of the CECL accounting standard as of January 1, 2020 and the uncertainty around the COVID-19 pandemic both contributed to the higher ACL of 1.34 percent of total portfolio loans as of March 31, 2020 compared to 0.87 percent at December 31, 2019.

TDRs increased $5.4 million to $51.3 million at March 31, 2020 compared to $45.9 million at December 31, 2019. Total TDRs of $51.3 million at March 31, 2020 included $15.2 million, or 29.6 percent, that were accruing and $36.1 million, or 70.4 percent, that were not accruing.

Our allowance for credit losses on unfunded commercial lending commitments and letters of credit provide for the ~~same period~~risk of expected loss in ~~2018.~~these arrangements. The ~~increase~~allowance is ~~mainly due~~computed using a methodology similar to ~~higher charge-offs~~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 consolidated statement of comprehensive income. The allowance for unfunded loan commitments was $6.1 million at March 31, 2020 compared to ~~a net recovery~~$3.1 million at December 31, 2019. The adoption of ASU 2016-13 resulted in an increase to our allowance for unfunded commitments of $1.4 million on January 1, 2020. We increased the ~~same period~~allowance for unfunded loan commitments $1.6 million during the three months ended March 31, 2020 mainly in ~~2018.~~response to COVID-19 pandemic. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

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We individually evaluate all substandard and nonaccrual commercial loans greater than $0.5 million for impairment. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Our methodology for evaluating whether a loan is impaired includes risk-rating credits on an individual basis and consideration of the borrower’s overall financial condition, payment history and available cash resources. In measuring impairment, we primarily utilize fair market value of the collateral; however, we also use discounted cash flow when warranted.

Troubled debt restructurings, or TDRs, whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise grant. We strive to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant. Additionally, we classify loans where the debt obligation has been discharged through a Chapter 7 bankruptcy and not reaffirmed by the borrower as TDRs.

An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before the modification. All TDRs are considered to be impaired loans and will be reported as impaired loans for their remaining lives, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and we fully expect that the remaining principal and interest will be collected according to the restructured agreement. For all TDRs, regardless of size, as well as all other impaired loans, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate. Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

As an example, consider a substandard Commercial Construction loan that is currently 90 days past due where the loan is restructured to extend the maturity date for a period longer than would be considered an insignificant period of time. The post-modification interest rate given to the borrower is considered to be lower than the current market rate for new debt with similar risk and all other terms remain the same according to the original loan agreement. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted due to the long extension, resulting in payment delay as well as the rate being lower than current market rate for new debt with similar risk. The loan will be reported as a nonaccrual TDR and an impaired loan. In addition, the loan could be charged down to the fair value of the collateral if a confirmed loss exists. If the loan subsequently performs, by means of making on-time principal and interest payments according to the newly restructured terms for a period of six months, and it is expected that all remaining principal and interest will be collected according to the terms of the restructured agreement, the loan will be returned to accrual status and reported as an accruing TDR. The loan will remain an impaired loan for the remaining life of the loan because the interest rate was not adjusted to be equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk.

TDRs increased $3.0 million to $30.9 million at March 31, 2019 compared to $27.9 million at December 31, 2018. The increase is primarily due to new TDRs totaling $5.5 million in 2019, which were offset by principal reductions and charge-offs. Total TDRs of $30.9 million at March 31, 2019 included $23.0 million, or 74.5 percent, that were accruing and $7.9 million, or 25.5 percent, that were nonaccruing.

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

•~~the status of a bankruptcy proceeding;~~

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

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

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

Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.

Our allowance for lending-related commitments is determined using a methodology similar to that used for the ALL. Amounts are added to the allowance for lending-related commitments by a charge to current earnings through noninterest expense. The reserve is calculated by applying historical loss rates to unfunded commitments and considering qualitative factors. The allowance for unfunded loan commitments was relatively unchanged at $2.2 million at both March 31, 2019 and December 31, 2018. 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)	March 31, 2019				December 31, 2018				$ Change				March 31, 2020				December 31, 2019				$ Change
Nonperforming Loans
Commercial real estate		$	28,035			$	10,913			$	17,122			$	21,267			$	22,427			$	(1,160	)
Commercial and industrial		3,346				2,314				1,032				4,348				13,287				(8,939		)
Commercial construction		820				13,787				(12,967		)		571				737				(166		)
Residential mortgage		5,110				5,585				(475		)		9,271				6,697				2,574
Home equity		2,740				2,349				391				2,029				1,961				68
Installment and other consumer		26				37				(11		)		258				36				222
Total Nonperforming Loans		40,077				34,985				5,092				37,744				45,145				(7,400		)
Nonperforming Troubled Debt Restructurings
Commercial real estate		1,074				1,139				(65		)		29,242				6,713				22,529
Commercial and industrial		3,463				6,646				(3,183		)		4,734				695				4,039
Commercial construction		406				406				—				—				—				—
Residential mortgage		1,520				1,543				(23		)		1,311				822				489
Home equity		1,406				1,349				57				768				678				90
Installment and other consumer		4				5				(1		)		—				4				(4		)
Total Nonperforming Troubled Debt Restructurings		7,873				11,088				(3,215		)		36,055				8,912				27,142
Total Nonperforming Loans		47,950				46,073				1,877				73,799				54,057				19,742
OREO		2,828				3,092				(264		)		3,389				3,525				(136		)
Total Nonperforming Assets		$	50,778			$	49,165			$	1,613			$	77,188			$	57,582			$	19,606

Asset Quality Ratios:
Nonperforming loans as a percent of total loans		0.81		%		0.77		%						1.02		%		0.76		%
Nonperforming assets as a percent of total loans plus OREO		0.85		%		0.83		%						1.06		%		0.81		%

Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.

Nonperforming loans increased ~~$1.9~~$19.7 million to ~~$48.0~~$73.8 million at March 31, ~~2019~~2020 compared to ~~$46.1~~$54.1 million at

December 31, ~~2018 primarily related~~2019 mainly due to the ~~above mentioned~~$20.9 million CRE ~~loan for $5.3 million offset by payoffs. Also impacting the decrease in Commercial Construction loans and the increase in CRE loans was a reclassification of one loan for $11.5 million.~~relationship discussed above.

Deposits



(dollars in thousands)	March 31, 2020			December 31, 2019			$ Change
Customer Deposits
Noninterest-bearing demand		$	1,702,960		$	1,698,082		$	4,878
Interest-bearing demand		762,783			762,111			672
Money market		1,867,602			1,849,684			17,918
Savings		836,237			830,919			5,318
Certificates of deposit		1,543,790			1,535,305			8,485
Total Customer Deposits		6,713,371			6,676,101			37,271
Brokered Deposits
Interest-bearing demand		200,154			200,220			(66		)
Money market		100,090			100,127			(37		)
Certificates of deposit		44,263			60,128			(15,865		)
Total Brokered Deposits		344,507			360,475			(15,969		)
Total Deposits		$	7,057,879		$	7,036,576		$	21,303

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S&T BANCORP, INC. AND SUBSIDIARIES

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

~~Deposits~~

(dollars in thousands) March 31, 2019 December 31, 2018 $ Change
Customer Deposits
Noninterest-bearing demand $ 1,423,436
$ 1,421,156
$ 2,280
Interest-bearing demand 538,589
567,492
(28,903 )
Money market 1,399,245
1,178,211
221,034
Savings 767,175
784,970
(17,795 )
Certificates of deposit 1,300,291
1,261,704
38,587
Total Customer Deposits 5,428,736
5,213,533
215,203
Brokered Deposits
Interest-bearing demand 2,464
6,201
(3,737 )
Money market 301,719
303,854
(2,135 )
Certificates of deposit 100,482
150,334
(49,852 )
Total Brokered Deposits 403,666
460,389
(55,724 )
Total Deposits $ 5,832,502
$ 5,673,922
$ 159,479

Deposits are our primary source of funds. We believe that our deposit base is stable and that we have the ability to attract new deposits. Total deposits at March 31, ~~2019~~2020 increased ~~$159.5~~$21.3 million from December 31, ~~2018.~~2019. Total customer deposits increased ~~$215.2~~$37.3 million from December 31, ~~2018.~~2019. Money market deposits ~~primarily accounted for this change with an increase~~increased $17.9 million, certificates of ~~$221.0~~deposit increased $8.5 million, ~~certificate of deposits~~savings increased ~~$38.6~~$5.3 million, ~~and~~ noninterest-bearing demand deposits increased ~~$2.3 million. The significant increase in money market deposits is related to a competitively-priced indexed product~~$4.9 million, and ~~a promotional rate product offered in selected markets. These increases were offset by declines in~~ interest-bearing demand deposits of $28.9 million and a decrease of $17.8 million in savings deposits. These decreases were mainly a result of migration into the indexed money market product and outflows due to repositioning by our customers.increased $0.7 million. Total brokered deposits decreased ~~$55.7~~$16.0 million from December 31, ~~2018.~~2019. Brokered deposits are an additional source of funds utilized by ALCO as a way to diversify funding sources, as well as manage our funding costs and structure.

Borrowings


(dollars in thousands)	March 31, 2019			December 31, 2018			$ Change				March 31, 2020			December 31, 2019			$ Change
Securities sold under repurchase agreements		$	23,427		$	18,383		$	5,044			$	69,644		$	19,888		$	49,756
Short-term borrowings		235,000			470,000			(235,000		)		410,240			281,319			128,921
Long-term borrowings		70,418			70,314			104				50,180			50,868			(688		)
Junior subordinated debt securities		45,619			45,619			—				64,038			64,277			(239		)
Total Borrowings		$	374,464		$	604,316		$	(229,852	)		$	594,102		$	416,352		$	177,750

Borrowings are an additional source of funding for us. ~~Total~~At March 31, 2020 total borrowings ~~decreased $229.9~~increased $177.8 million, or ~~38.0~~42.7 percent, compared to December 31, ~~2018 due~~2019 to ~~a decrease in funding needs as a result of strong deposit~~fund asset growth. Total short-term borrowings ~~decreased~~increased by ~~$230.0~~$128.9 million, or ~~47.1~~45.8 percent, compared to December 31, ~~2018.~~2019. Securities sold under repurchase agreements increased $49.8 million to $69.6 million during the three month period compared to December 31, 2019 due to repositioning by our REPO customers.

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



	Securities Sold Under Repurchase Agreements
(dollars in thousands)	March 31, 2020			December 31, 2019
Balance at the period end	$	69,644		$	19,888
Average balance during the period	$	30,790		$	16,863
Average interest rate during the period	0.56		%	0.65		%
Maximum month-end balance during the period	$	69,644		$	23,427
Average interest rate at the period end	0.25		%	0.74		%

	Short-Term Borrowings
(dollars in thousands)	March 31, 2020			December 31, 2019
Balance at the period end	$	410,240		$	281,319
Average balance during the period	$	286,365		$	255,264
Average interest rate during the period	1.61		%	2.51		%
Maximum month-end balance during the period	$	410,240		$	425,000
Average interest rate at the period end	0.44		%	1.84		%

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



	Long-Term Borrowings
(dollars in thousands)	March 31, 2020			December 31, 2019
Balance at the period end	$	50,180		$	50,868
Average balance during the period	$	51,845		$	66,392
Average interest rate during the period	2.52		%	2.76		%
Maximum month-end balance during the period	$	50,635		$	70,418
Average interest rate at the period end	2.59		%	2.61		%

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

Table of Contents

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 tables below for the periods ended March 31, 2019 and December 31, 2018.~~

Securities Sold Under Repurchase Agreements
(dollars in thousands) March 31, 2019 December 31, 2018
Balance at the period end $ 23,427
$ 18,383
Average balance during the period 23,170
45,992
Average interest rate during the period 0.52 % 0.48 %
Maximum month-end balance during the period $ 23,427
$ 54,579
Average interest rate at the period end 0.55 % 0.46 %

Short-Term Borrowings
(dollars in thousands) March 31, 2019 December 31, 2018
Balance at the period end $ 235,000
$ 540,000
Average balance during the period 319,389
644,864
Average interest rate during the period 2.72 % 1.15 %
Maximum month-end balance during the period $ 425,000
$ 734,600
Average interest rate at the period end 2.71 % 1.47 %

~~Information pertaining to long-term borrowings is summarized in the tables below for the three month ended March 31, 2019 and December 31, 2018.~~

Long-Term Borrowings
(dollars in thousands) March 31, 2019 December 31, 2018
Balance at the period end $ 70,418
$ 70,314
Average balance during the period 70,196
47,986
Average interest rate during the period 2.84 % 2.35 %
Maximum month-end balance during the period $ 70,418
$ 70,314
Average interest rate at the period end 2.78 % 2.84 %

Junior Subordinated Debt Securities
(dollars in thousands) March 31, 2019 December 31, 2018
Balance at the period end $ 45,619
$ 45,619
Average balance during the period 45,619
45,619
Average interest rate during the period 5.21 % 3.65 %
Maximum month-end balance during the period $ 45,619
$ 45,619
Average interest rate at the period end 5.07 % 3.78 %

~~Table of Contents~~

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

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

Liquidity and Capital Resources

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or of borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk, our Board of Directors has delegated authority to ALCO for the formulation, implementation, and oversight of liquidity risk management for S&T. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests, and having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Refer to the "Financial ~~Condition- Deposits"~~Condition-Deposits" section of this MD&A, for additional discussion on deposits. Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to S&T include borrowing availability at the FHLB of Pittsburgh, federal funds lines with other financial institutions, the brokered deposit market, and borrowing availability through the Federal Reserve Borrower-In-Custody program.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate, and high. At March 31, ~~2019,~~2020, we had ~~$526~~$618.0 million in highly liquid assets, which consisted of ~~$61.1~~$113.2 million in interest-bearing deposits with banks, ~~$462~~$497.5 million in unpledged securities and ~~$2.7~~$7.3 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of ~~7.3~~6.9 percent at March 31, ~~2019.~~2020. Also, at March 31, ~~2019,~~2020, we had a remaining borrowing availability of ~~$2.1~~$2.4 billion with the FHLB of Pittsburgh. Refer to Note 9:, Borrowings in the Notes to Consolidated Financial Statements and the "Financial Condition- Borrowings" section of this MD&A for more details.

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


(dollars in thousands)	Adequately Capitalized		Well- Capitalized		March 31, 2019				December 31, 2018				Adequately Capitalized		Well- Capitalized		March 31, 2020				December 31, 2019
(dollars in thousands)	Adequately Capitalized		Well- Capitalized		Amount		Ratio		Amount		Ratio		Adequately Capitalized		Well- Capitalized		Amount		Ratio		Amount		Ratio
S&T Bancorp, Inc.
Tier 1 leverage	4.00	%	5.00	%	$	691,112	9.96	%	$	689,778	10.05	%	4.00	%	5.00	%	$	843,703	10.03	%	$	854,146	10.29	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	671,112		11.35	%	669,778		11.38	%	4.50	%	6.50	%	814,703		10.93	%	825,146		11.43	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	691,112		11.69	%	689,778		11.72	%	6.00	%	8.00	%	843,703		11.32	%	854,146		11.84	%
Total capital to risk-weighted assets	8.00	%	10.00	%	779,695		13.19	%	777,913		13.21	%	8.00	%	10.00	%	948,509		12.73	%	954,094		13.22	%
S&T Bank
Tier 1 leverage	4.00	%	5.00	%	$	659,336	9.52	%	$	659,304	9.63	%	4.00	%	5.00	%	$	821,488	9.79	%	$	832,113	10.04	%
Common equity tier 1 to risk-weighted assets	4.50	%	6.50	%	659,336		11.19	%	659,304		11.23	%	4.50	%	6.50	%	821,488		11.04	%	832,113		11.56	%
Tier 1 capital to risk-weighted assets	6.00	%	8.00	%	659,336		11.19	%	659,304		11.23	%	6.00	%	8.00	%	821,488		11.04	%	832,113		11.56	%
Total capital to risk-weighted assets	8.00	%	10.00	%	747,919		12.69	%	747,438		12.73	%	8.00	%	10.00	%	918,495		12.35	%	922,310		12.81	%

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

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

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Rate shock analyses results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. S&T policy guidelines limit the change in pretax net interest income over 12 and 24 month horizons using rate shocks in increments of +/- 100 basis points. Policy guidelines define the percentage change in pretax net interest income by graduated risk tolerance levels of minimal, moderate and high. ~~Throughout the extended low interest rate environment, we~~We have temporarily suspended the analyses on downward rate shocks of ~~300~~200 basis points or ~~more. We believed that the impact to net interest income when evaluating these scenarios did~~more because they do not provide meaningful insight into our interest rate risk position. After temporarily suspending the downward rate shocks of 200 basis points or more for EVE, we reinstated the -200 basis point rate shock in September 2018 because interest rates increased enough for the scenario to become meaningful.

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. ~~Similar to the rate shock analyses, the downward rate shocks of 300 basis points or more had been~~We have also temporarily suspended ~~due to the low interest rate environment. After temporarily suspending~~ the downward rate shocks of 200 basis points or more for ~~EVE, we reinstated the -200 basis point rate shock in September 2018.~~EVE.

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


	March 31, 2019							December 31, 2018								March 31, 2020									December 31, 2019
	1 - 12 Months		13 - 24 Months		% Change in EVE			1 - 12 Months			13 - 24 Months			% Change in EVE		1 - 12 Months			13 - 24 Months			% Change in EVE			1 - 12 Months			13 - 24 Months			% Change in EVE
Change in Interest Rate (basis points)	% Change in Pretax Net Interest Income		% Change in Pretax Net Interest Income				% Change in Pretax Net Interest Income			% Change in Pretax Net Interest Income			% Change in Pretax Net Interest Income	% Change in EVE				% Change in Pretax Net Interest Income				% Change in EVE		% Change in Pretax Net Interest Income			% Change in Pretax Net Interest Income				% Change in EVE
400	10.9	%	12.7	%	% Change in EVE	(5.7	)%		8.3	%		11.6	%		(10.0	)%	10.3	%		13.5	%		0.3	%		9.6	%		14.4	%		(1.8	)%
300	8.1		9.3		(0.7	)		6.1			8.5			(4.6	)	7.6			10.1			4.6			7.2			10.8			2.8
200	5.4		6.2		2.4			4.0			5.6			0.6		5.7			7.6			7.6			5.0			7.6			5.5
100	2.8		3.4		3.2			2.2			3.1			1.4		3.5			4.6			6.9			2.7			4.2			5.1
(100)	(4.5	)	(5.7	)	(9.5	)		(3.8	)		(5.4	)		(7.5	)	(8.4	)		(10.5	)		(18.5	)		(4.3	)		(6.4	)		(10.8	)
(200)	(9.1	)	(11.7	)	(21.0	)		NA			NA			NA		NM			NM			NM			—			—			—

~~Table of Contents~~

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

NM - not meaningful

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

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our rate shock analyses show an improvement in the percentage change in pretax net interest income in the 1-12 month rates up scenarios, a decline in the 13-24 month rates up scenarios, and a decline in the rates down scenarios in months 1 - 12 and 13 - 24 when comparing March 31, 2020 to December 31, ~~2018 to March 31,~~ 2019. ~~All rate shock analyses for both the 1 - 12 and 13 - 24 month periods continue to remain within minimal risk tolerance levels.~~ Our EVE analyses show an improvement in the percentage change in EVE in the rates up scenarios and a decline in the rates down scenario when comparing ~~December~~March 31, ~~2018~~2020 to ~~March~~December 31, 2019.

In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations. Sensitivity analyses are performed to help us identify which model assumptions cause the greatest impact on pretax net interest income. Sensitivity analyses may include changing prepayment behavior of loans and securities with optionality and the impact of interest rate changes on non-maturity deposit products. Simulation analyses may include the potential impact of rate changes other than the policy guidelines, yield curve shape changes, significant balance mix changes and various growth scenarios. For example, simulations indicate that an increase in rates, particularly if the yield curve steepens, will most likely result in an improvement in pretax net interest income. We realize that some of the benefit reflected in our scenarios may be offset by a change in the competitive environment and a change in product preference by our customers.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of S&T’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of March 31, ~~2019.~~2020. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to S&T’s management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

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

Changes in Internal Control over Financial Reporting

During the quarter ended March 31, ~~2019,~~2020, there were no changes made to S&T’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, S&T’s internal control over financial reporting.

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S&T BANCORP, INC. AND SUBSIDIARIES

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

There have been no material changes to the risk factors that we have previously disclosed in Part I, Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the SEC on ~~February 21,~~March 2, 2020 other than the risks described below related to COVID-19.

The duration and severity of the COVID-19 pandemic, in our principal area of operations, nationally and globally, could adversely impact S&T’s business, results of operations and financial condition. While it is difficult to predict the impact of the COVID-19 pandemic (or any other outbreak) on the economy and S&T, the future impacts may include, but are not limited to, the following:


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

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

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

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

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


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


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

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

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

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

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

S&T calculates the ACL, using to the CECL accounting standard adopted January 1, 2020. The CECL methodology reflects expected credit losses and requires consideration of a broad range of reasonable and supportable information to form credit loss estimates. The CECL accounting standard bases the measurement of expected credit losses on historical loss experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. S&T’s ability to assess expected credit losses may be impaired if the models and approaches we use become less predictive of future behaviors. In particular, the reliance on supportable economic forecasts in light of the COVID-19 pandemic has had and is expected to have an impact on the estimates of our ACL. These forecasts have deteriorated since January 1, 2020 and continued adverse economic forecasts and economic uncertainty could adversely affect our ACL.

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S&T BANCORP, INC. AND SUBSIDIARIES

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 first quarter of ~~2019:~~2020:

Period Total number of shares purchased
Average price paid per share

Total number of shares purchased as part of publicly announced plan⁽¹⁾

Approximate dollar value of shares that may yet be purchased under the plan
01/01/2019 - 01/31/2019 —

$—
—

$37,742,049

02/01/2019 - 02/28/2019 66,406
39.24
66,406
35,136,278

03/01/2019 - 03/31/2019 247,498
39.11
247,498
25,456,631
Total 313,904

$39.14
313,904

$25,456,631



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plan⁽¹⁾⁾	Approximate dollar value of shares that may yet be purchased under the plan
						$50,000,000
01/01/2020 - 01/31/2020	—	—		—	50,000,000

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

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

⁽¹⁾On ~~March 19, 2018,~~September 16, 2019, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which is effective through ~~August~~March 31, ~~2019,~~2021, permits usS&T to repurchase from time to time up to $50 million in aggregate value of shares of ~~our~~S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at ~~our~~the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of ~~the~~ common stock, legal and contractual requirements, applicable securities laws and ~~our~~S&T's financial performance. The repurchase plan does not obligate us to repurchase any particular number of shares. We expect to fund any repurchases from cash on hand and internally generated funds. AsRepurchase activity was suspended in March 2020 as the impact of March 31, 2019, there were 635,635 common shares repurchased under this plan at a total cost of $24.5 million, or an average of $38.61 per share. Up to an additional $25.5 million of our common stock may be repurchased under this plan through August 31, 2019.the COVID-19 pandemic spread.

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




~~3.1~~2.1	~~Amended~~Agreement and ~~Restated By-Laws~~Plan of Merger, dated June 5, 2019, by and between DNB Financial Corporation and S&T Bancorp, Inc. Filed as Exhibit ~~3.1~~2.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on ~~January 30,~~June 5, 2019, and incorporated herein by reference.

31.1	Rule 13a-14(a) Certification of the Chief Executive Officer.	Filed herewith

31.2	Rule 13a-14(a) Certification of the Chief Financial Officer.	Filed herewith

32	Rule 13a-14(b) Certification of the Chief Executive Officer and Chief Financial Officer.	Filed herewith
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
~~101~~101.SCH	~~The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 is~~ 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 eXtensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheet at March 31, 2019 and Audited Consolidated Balance Sheet at December 31, 2018, (ii) Unaudited Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2019 and 2018, (iii) Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three Months ended March 31, 2019 and 2018, (iv) Unaudited Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and 2018 and (v) Notes to Unaudited Consolidated Financial Statements.Exhibits 101))	~~Filed herewith~~

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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)

May ~~1, 2019~~8, 2020	/s/s Mark Kochvar
	Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory)

6063



	Carrying Value⁽¹⁾		Fair Value Measurements at March 31, 2019
(dollars in thousands)	Carrying Value⁽¹⁾		Total		Level 1		Level 2		Level 3
ASSETS
Cash and due from banks, including interest-bearing deposits	$	116,820	$	116,820	$	116,820	$	—	$	—
Securities	680,420		680,420		—		680,420		—
Loans held for sale	2,706		2,706		—		—		2,706
Portfolio loans, net	5,874,043		5,729,524		—		—		5,729,524
Bank owned life insurance	74,401		74,401		—		74,401		—
FHLB and other restricted stock	19,959		19,959		—		—		19,959
Securities held in a deferred compensation plan	5,343		5,343		5,343		—		—
Mortgage servicing rights	4,313		4,728		—		—		4,728
Interest rate swaps	10,645		10,645		—		10,645		—
Interest rate lock commitments	339		339		—		339		—
Forward sale contracts - mortgage loans	88		88		—		88		—
LIABILITIES
Deposits	$	5,833,401	$	5,825,873	$	4,432,629	$	1,393,244	$	—
Securities sold under repurchase agreements	23,427		23,427		23,427		—		—
Short-term borrowings	235,000		235,000		235,000		—		—
Long-term borrowings	70,418		70,801		39,335		31,467		—
Junior subordinated debt securities	45,619		45,619		45,619		—		—
Interest rate swaps	10,602		10,602		—		10,602		—
⁽¹⁾ As reported in the Consolidated Balance Sheets



	Three Months Ended
	March 31, 2019				March 31, 2018
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:
Commercial real estate	$	12,983	$	400	$	—	$	—
Commercial and industrial	980		35		586		11
Commercial construction	489		—		—		—
Consumer real estate	14		1		—		—
Other consumer	10		1		42		1
Total with a Related Allowance Recorded	14,476		437		628		12
Without a related allowance recorded:
Commercial real estate	15,107		144		3,817		43
Commercial and industrial	12,780		209		6,688		110
Commercial construction	2,319		140		3,446		36
Consumer real estate	8,846		417		10,816		138
Other consumer	4		—		12		—
Total without a Related Allowance Recorded	39,056		910		24,779		327
Total:
Commercial real estate	28,090		544		3,817		43
Commercial and industrial	13,760		244		7,274		121
Commercial construction	2,808		140		3,446		36
Consumer real estate	8,860		418		10,816		138
Other consumer	14		1		54		1
Total	$	53,532	$	1,347	$	25,407	$	339



(in thousands, except weighted-averages)	March 31, 2019
Operating Lease Expense		$	1,031
Amortization of ROU Assets - Finance Leases		23
Interest on Lease Liabilities - Finance Leases		18
Total Lease Expense		$	1,072
Operating Leases
ROU Assets		$	35,686
Operating Cash Flows		$	302
Finance Leases
ROU Assets		$	1,213
Operating Cash Flows		$	18
Financing Cash Flows		$	11
Weighted Average Lease Term
Operating Leases		20.4
Finance Leases		15.5
Weighted Average Discount Rate
Operating Leases		5.98		%
Finance Leases		6.15		%



(dollars in thousands)
Maturity Analysis	Finance			Operating					Total
2019	$	105			$	2,796			$	2,901
2020	125				3,615			��	3,740
2021	126				3,599				3,725
2022	128				3,682				3,810
2023	129				3,697				3,826
Thereafter	1,375				59,336				60,711
Total	$	1,988			$	76,725			$	78,713
Less: Present value discount	(753		)		(36,500		)		(37,253		)
Lease Liabilities	$	1,235			$	40,225			$	41,460