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EX-32 - EXHIBIT 32 - S&T BANCORP INCexhibit32q12017.htm
EX-31.2 - EXHIBIT 31.2 - S&T BANCORP INCexhibit312q12017.htm
EX-31.1 - EXHIBIT 31.1 - S&T BANCORP INCexhibit311q12017.htm
                                            
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            To                
Commission file number 0-12508
______________________________________ 
S&T BANCORP, INC.
(Exact name of registrant as specified in its charter)
______________________________________ 
Pennsylvania
 
25-1434426
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
800 Philadelphia Street, Indiana, PA
 
15701
(Address of principal executive offices)
 
(zip code)
800-325-2265
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 definition 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
¨ (Do not check if a smaller reporting company)
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 - 34,980,556 shares as of April 30, 2017



S&T BANCORP, INC. AND SUBSIDIARIES

INDEX
S&T BANCORP, INC. AND SUBSIDIARIES
 
 
 
Page No.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


S&T BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)



 
March 31, 2017
 
December 31, 2016
(dollars in thousands, except per share data)
(Unaudited)
 
(Audited)
ASSETS
 
 
 
Cash and due from banks, including interest-bearing deposits of $47,469 and $87,201 at March 31, 2017 and December 31, 2016
$
104,705

 
$
139,486

Securities available-for-sale, at fair value
713,198

 
693,487

Loans held for sale
14,355

 
3,793

Portfolio loans, net of unearned income
5,746,826

 
5,611,419

Allowance for loan losses
(55,816
)
 
(52,775
)
Portfolio loans, net
5,691,010

 
5,558,644

Bank owned life insurance
72,574

 
72,081

Premises and equipment, net
45,322

 
44,999

Federal Home Loan Bank and other restricted stock, at cost
29,739

 
31,817

Goodwill
291,670

 
291,670

Other intangible assets, net
4,552

 
4,910

Other assets
97,973

 
102,166

Total Assets
$
7,065,098

 
$
6,943,053

LIABILITIES
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
1,300,707

 
$
1,263,833

Interest-bearing demand
631,652

 
638,300

Money market
985,723

 
936,461

Savings
1,032,864

 
1,050,131

Certificates of deposit
1,484,379

 
1,383,652

Total Deposits
5,435,325

 
5,272,377

Securities sold under repurchase agreements
46,987

 
50,832

Short-term borrowings
610,000

 
660,000

Long-term borrowings
14,118

 
14,713

Junior subordinated debt securities
45,619

 
45,619

Other liabilities
57,869

 
57,556

Total Liabilities
6,209,918

 
6,101,097

SHAREHOLDERS’ EQUITY
 
 
 
Common stock ($2.50 par value)
Authorized—50,000,000 shares
Issued—36,130,480 shares at March 31, 2017 and December 31, 2016
Outstanding— 34,980,556 shares at March 31, 2017 and 34,913,023 shares at December 31, 2016
90,326

 
90,326

Additional paid-in capital
214,100

 
213,098

Retained earnings
595,105

 
585,891

Accumulated other comprehensive (loss) income
(12,596
)
 
(13,784
)
Treasury stock (1,149,924 shares at March 31, 2017 and 1,217,457 shares at December 31, 2016, at cost)
(31,755
)
 
(33,575
)
Total Shareholders’ Equity
855,180

 
841,956

Total Liabilities and Shareholders’ Equity
$
7,065,098

 
$
6,943,053

See Notes to Consolidated Financial Statements

2


S&T BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
Three Months Ended March 31,
(dollars in thousands, except per share data)
2017
 
2016
INTEREST INCOME
 
 
 
Loans, including fees
$
56,900

 
$
51,158

Investment Securities:
 
 
 
Taxable
2,848

 
2,553

Tax-exempt
920

 
942

Dividends
482

 
366

Total Interest Income
61,150

 
55,019

INTEREST EXPENSE
 
 
 
Deposits
5,379

 
4,254

Borrowings and junior subordinated debt securities
1,893

 
1,128

Total Interest Expense
7,272

 
5,382

NET INTEREST INCOME
53,878

 
49,637

Provision for loan losses
5,183

 
5,014

Net Interest Income After Provision for Loan Losses
48,695

 
44,623

NONINTEREST INCOME
 
 
 
Securities gains (losses), net
370

 

Service charges on deposit accounts
3,014

 
2,999

Debit and credit card fees
2,843

 
2,786

Wealth management fees
2,403

 
2,752

Insurance fees
1,464

 
1,774

Mortgage banking
733

 
529

Gain on sale of credit card portfolio

 
2,066

Other
2,169

 
2,911

Total Noninterest Income
12,996

 
15,817

NONINTEREST EXPENSE
 
 
 
Salaries and employee benefits
20,541

 
20,902

Net occupancy
2,815

 
2,950

Data processing
2,251

 
2,111

Furniture and equipment
2,047

 
1,929

FDIC insurance
1,123

 
940

Professional services and legal
1,043

 
947

Other taxes
976

 
1,100

Marketing
754

 
901

Other
5,258

 
6,636

Total Noninterest Expense
36,808

 
38,416

Income Before Taxes
24,883

 
22,024

Provision for income taxes
6,695

 
5,931

Net Income
$
18,188

 
$
16,093

Earnings per share—basic

$0.52

 

$0.46

Earnings per share—diluted

$0.52

 

$0.46

Dividends declared per share

$0.20

 

$0.19

Comprehensive Income
$
19,376

 
$
24,434

See Notes to Consolidated Financial Statements

3


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, 2016
$
90,326

 
$
210,545

 
$
544,228

 
$
(16,457
)
 
$
(36,405
)
 
$
792,237

Net income for three months ended March 31, 2016

 

 
16,093

 

 

 
16,093

Other comprehensive income (loss), net of tax

 

 

 
8,341

 

 
8,341

Cash dividends declared ($0.19 per share)

 

 
(6,601
)
 

 

 
(6,601
)
Treasury stock issued for restricted awards (90,836 shares, net of 0 forfeitures)

 

 
(2,491
)
 

 
2,491

 

Recognition of restricted stock compensation expense

 
731

 

 

 

 
731

Balance at March 31, 2016
$
90,326

 
$
211,276

 
$
551,229

 
$
(8,116
)
 
$
(33,914
)
 
$
810,801

 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
$
90,326

 
$
213,098

 
$
585,891

 
$
(13,784
)
 
$
(33,575
)
 
$
841,956

Net income for three months ended March 31, 2017

 

 
18,188

 

 

 
18,188

Other comprehensive income (loss), net of tax

 

 

 
1,188

 

 
1,188

Cash dividends declared ($0.20 per share)

 

 
(6,960
)
 

 

 
(6,960
)
Treasury stock issued for restricted awards (74,903 shares, net of 7,370 forfeitures)

 

 
(2,014
)
 

 
1,820

 
(194
)
Recognition of restricted stock compensation expense

 
1,002

 

 

 

 
1,002

Balance at March 31, 2017
$
90,326

 
$
214,100

 
$
595,105

 
$
(12,596
)
 
$
(31,755
)
 
$
855,180

See Notes to Consolidated Financial Statements


4


S&T BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 
Three Months Ended March 31,
(dollars in thousands)
2017
 
2016
OPERATING ACTIVITIES
 
 
 
Net income
$
18,188

 
$
16,093

Adjustments to reconcile net income to net cash provided by operating activities:

 

Provision for loan losses
5,183

 
5,014

Provision for unfunded loan commitments
(458
)
 
125

Depreciation, amortization and accretion
369

 
906

Net amortization of discounts and premiums on securities
1,030

 
915

Restricted stock compensation expense
1,002

 
731

Securities gains
(370
)
 

Mortgage loans originated for sale
(15,694
)
 
(18,478
)
Proceeds from the sale of mortgage loans
16,575

 
19,014

Gain on the sale of mortgage loans, net
(193
)
 
(231
)
Gain on the sale of credit card portfolio

 
(2,066
)
Pension plan curtailment gain

 
(1,017
)
Net increase in interest receivable
(62
)
 
(2,768
)
Net (decrease) increase in interest payable
(435
)
 
875

Net decrease (increase) in other assets
3,404

 
(714
)
Net increase in other liabilities
1,768

 
7,267

Net Cash Provided by Operating Activities
30,307

 
25,666

INVESTING ACTIVITIES
 
 
 
Purchases of securities available-for-sale
(36,604
)
 
(25,168
)
Proceeds from maturities, prepayments and calls of securities available-for-sale
16,942

 
17,028

Proceeds from sales of securities available-for-sale
582

 

Net proceeds from (purchases of) Federal Home Loan Bank stock
2,078

 
(305
)
Net increase in loans
(151,438
)
 
(151,841
)
Proceeds from sale of loans not originated for resale
2,657

 

Purchases of premises and equipment
(745
)
 
(468
)
Proceeds from the sale of premises and equipment
16

 
3

Proceeds from the sale of credit card portfolio

 
25,019

Net Cash Used in Investing Activities
(166,512
)
 
(135,732
)
FINANCING ACTIVITIES
 
 
 
Net increase in deposits
62,219

 
13,688

Net increase in certificates of deposit
100,799

 
128,885

Net decrease in securities sold under repurchase agreements
(3,845
)
 
(2,061
)
Net decrease in short-term borrowings
(50,000
)
 
(1,000
)
Repayments of long-term borrowings
(595
)
 
(575
)
Treasury shares issued-net
(194
)
 

Cash dividends paid to common shareholders
(6,960
)
 
(6,601
)
Net Cash Provided by Financing Activities
101,424

 
132,336

Net (decrease) increase in cash and cash equivalents
(34,781
)
 
22,270

Cash and cash equivalents at beginning of period
139,486

 
99,399

Cash and Cash Equivalents at End of Period
$
104,705

 
$
121,669

Supplemental Disclosures
 
 
 
Loans transferred from portfolio to held for sale
$
250

 
$

Interest paid
$
7,706

 
$
4,508

Income taxes paid, net of refunds
$
172

 
$
1,794

Transfers of loans to other real estate owned
$
397

 
$
49

See Notes to Consolidated Financial Statements

5


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 audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission, or SEC, on February 24, 2017. In the opinion of management, the accompanying interim financial information reflects all adjustments, including 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.
We previously reported in our annual report on Form 10-K, three reportable operating segments: Community Banking, Insurance and Wealth Management. We have reevaluated our segment reporting as of January 1, 2017 and have determined that Insurance and Wealth Management activities are not material to our consolidated financial results, therefore, we are no longer reporting segment information.
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
Stock Compensation - Improvements to Employee Share-Based Payment Accounting
On March 31, 2016 Financial Accounting Standards Board, or FASB, issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to improve the accounting for share-based payment transactions as part of the FASB's simplification initiative. The ASU changes seven aspects of the accounting for share-based payment award transactions, including; 1. accounting for income taxes; 2. classification of excess tax benefits on the statement of cash flows; 3. forfeitures; 4. minimum statutory tax withholding requirements; 5. classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes; 6. practical expedient - expected term (nonpublic only); and 7. intrinsic value (nonpublic only). This ASU is effective for fiscal years beginning after December 15, 2016 and interim periods within those years for public business entities. The adoption of this ASU had no material impact on our results of operations or financial position.
Equity Method and Joint Ventures - Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates the requirement for an investor to retroactively apply the equity method when its increase in ownership interest (or degree of influence) in an investee triggers equity method accounting. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2016. The amendments will be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The adoption of this ASU had no impact on our results of operations or financial position.

6


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued


Recently Issued Accounting Standards Updates not yet Adopted
Receivables - Nonrefundable Fees and Other Costs - Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU affect all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date. This ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which continues to be amortized to maturity. This Update is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period. We are evaluating the provisions of this ASU; however, we do not anticipate that this ASU will materially impact our results of operations and financial position.
Compensation - Retirement Benefits - Improving the Presentation of Net Periodic Pension Costs and Net Periodic Post Retirement Benefit Costs
In March 2017, the FASB issued ASU No. 2017-07, Compensation Retirement Benefits - Improving the Presentation of Net Periodic Pension Costs and Net Periodic Post retirement Benefit Costs (Topic 715). The main objective of this ASU is to provide financial statement users with clearer and disaggregated information related to the components of net periodic benefit cost and improve transparency of the presentation of net periodic benefit cost in the financial statements. This Update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.
Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets - Clarifying the Scope of Assets Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets
In February 2017, the FASB issued ASU No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20). The main objective in this ASU is intended to provide greater detail on what types of transactions should be accounted for, as partial sales of nonfinancial assets. The scope of this ASU, as originally issued in ASU No. 2014-09 (described below), is intended to reduce the complexity of current GAAP requirements by clarifying which accounting guidance applies to various types of contracts that transfer assets or ownership interest to another entity. This Update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017 and at the same time that ASU No. 2014-09 is effective. Early adoption is permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.
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 in this ASU is intended to simplify the current requirements for testing goodwill for impairment by eliminating step two from the goodwill impairment test. The amendments are expected to reduce the complexity and costs associated with performing the goodwill impairment test, which could result in recording impairment charges sooner than under the current guidance. This Update is effective for any interim and annual impairment tests in reporting periods in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.
Business Combinations - Clarifying the Definition of a Business

7


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations - Clarifying the Definition of a Business (Topic 805). The main objective in this ASU is to help financial statement preparers evaluate whether a set of transferred assets and activities (either acquired or disposed of) is a business under Topic 805, Business Combinations. Clarifying the Definition of a Business that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The revised definition will result in fewer acquisitions being accounted for as business combinations than under today’s guidance. The definition of a business is significant because it affects the accounting for acquisitions, the identification of reporting units, consolidation evaluations and the accounting for dispositions. This Update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is permitted for transactions not yet reflected in financial statements that have been issued or made available for issuance. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.
Income Taxes - Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. The main objective of this ASU is to require companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. This represents a change from existing guidance, which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. The new guidance will require companies to defer the income tax effects only of intercompany transfers of inventory. This Update is effective for annual periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period. If an entity chooses to early adopt the amendments in the ASU, it must do so in the first interim period of its annual financial statements. That is, an entity cannot adopt the amendments in the ASU in a later interim period and apply them as if they were in effect as of the beginning of the year. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments. The main objective of this ASU is to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in this Update provide guidance on the following eight specific cash flow issues: debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of bank-owned life insurance (BOLI) policies, distributions received from equity method investments, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This Update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments are adopted in the same period. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The amendments of this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The collective changes to the recognition and measurement accounting standards for financial instruments and their anticipated impact on the allowance for credit losses modeling have been universally referred to as the CECL, or current expected credit loss, model. This Update is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are evaluating the provisions of this ASU to determine the potential impact on our results of operations and financial position.
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue pronouncement creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. The pronouncement provides a five-step model for a company to recognize revenue when it transfers control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in

8


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 1. BASIS OF PRESENTATION - continued

exchange for those goods or services. The five steps are: 1. identify the contract with the customer; 2. identify the separate performance obligations in the contract; 3. determine the transaction price; 4. allocate the transaction price to the separate performance obligations; and 5. recognize revenue when each performance obligation is satisfied. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This ASU defers the effective date of ASU No. 2014-09 for all entities by one year.
In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net), as an amendment to ASU No. 2014-09 to improve Topic 606, Revenue from Contracts with Customers by reducing: 1. The potential for diversity in practice arising from inconsistent and application of the principal versus agent guidance, and 2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.
In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, as an amendment to ASU No. 2014-09 to improve Topic 606, Revenue from Contracts with Customers, by reducing: 1. The potential for diversity in practice at initial application, and 2. The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.
In May 2016, the FASB issued ASU No. 2016-12, Narrow-scope Improvements and Practical Expedients. The amendments in this ASU do not change the core principles of Topic 606, Revenue from Contracts with Customers. These amendments affect only the narrow aspects of Topic 606: 1. Collectibility Criterion, 2. Presentation of Sales Taxes and Other Similar Taxes Collected from Customers, 3. Noncash Consideration, 4. Contract Modifications at Transition, and 5. Completed Contracts at Transition.
ASU 2014-09, including transition requirements for all amendments, is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption is permitted as of the original effective date for interim and annual reporting periods in fiscal years beginning after December 15, 2016. Our revenue is comprised of net interest income, which is excluded from the scope of ASU 2014-09, and non-interest income. We are in process of evaluating the impact to non-interest income; however, any changes are not expected to have a significant impact to our results of operations and financial position.
Leases - Section A-Amendments to the FASB Accounting Standards Codification, Section B-Conforming Amendments Related to Leases and Section C-Background Information and Basis for Conclusions
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a right-to-use asset and a lease obligation for all leases on the balance sheet. Lessor accounting remains substantially similar to current GAAP. ASU 2016-02 supersedes Topic 840, Leases. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. ASU 2016-02 mandates a modified retrospective transition method for all entities. Early adoption of this ASU is permitted. We anticipate that this ASU will impact our financial statements as it relates to the recognition of right-to-use assets and lease obligations on our Consolidated Balance Sheet. However, we do not expect that this ASU will have a material impact on our Consolidated Statement of Net Income.
Accounting for Financial Instruments - Overall: Classification and Measurement
In January 2016, the FASB issued ASU No. 2016-01, Accounting for Financial Instruments - Overall: Classification and Measurement (Subtopic 825-10). The amendments in this ASU No. 2016-01 address the following: 1. require equity investments to be measured at fair value with changes in fair value recognized in net income; 2. simplify the impairment assessment of equity investments without readily-determinable fair values by requiring a qualitative assessment to identify impairment; 3. eliminate the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; 4. require entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 5. require separate presentation in other comprehensive income for the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; 6. require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and 7. clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. This ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2017. We are evaluating the provisions of this ASU; however, we do not anticipate that this ASU will materially impact our results of operations and financial position.



9


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 2. EARNINGS PER SHARE

The following table reconciles the numerators and denominators of basic and diluted earnings per share for the periods presented:
 
Three Months Ended March 31,
(in thousands, except shares and per share data)
2017
 
2016
Numerator for Earnings per Share—Basic:

 

Net income
$
18,188

 
$
16,093

Less: Income allocated to participating shares
60

 
41

Net Income Allocated to Shareholders
$
18,128

 
$
16,052

 
 
 
 
Numerator for Earnings per Share—Diluted:

 

Net income
$
18,188

 
$
16,093

Net Income Available to Shareholders
$
18,188

 
$
16,093

 
 
 
 
Denominators for Earnings per Share:

 

Weighted Average Shares Outstanding—Basic
34,690,250

 
34,661,016

Add: Potentially dilutive shares
222,011

 
78,498

Denominator for Treasury Stock Method—Diluted
34,912,261

 
34,739,514

 
 
 
 
Weighted Average Shares Outstanding—Basic
34,690,250

 
34,661,016

Add: Average participating shares outstanding
115,395

 
88,265

Denominator for Two-Class Method—Diluted
34,805,645

 
34,749,281

 
 
 
 
Earnings per share—basic
$
0.52

 
$
0.46

Earnings per share—diluted
$
0.52

 
$
0.46

Warrants considered anti-dilutive excluded from potentially dilutive shares - exercise price $31.53 per share, expires January 2019
447,103

 
517,012

Restricted stock considered anti-dilutive excluded from potentially dilutive shares
79,544

 
81,840


10


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENT

We use fair value measurements when recording and disclosing certain financial assets and liabilities. Securities available-for-sale, trading assets and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, impaired loans, other real estate owned, or OREO, and other repossessed assets, mortgage servicing rights, or MSRs, and certain other assets.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which is 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
Securities Available-for-Sale
Securities available-for-sale include both debt and equity securities. We obtain fair values for debt securities from a third-party pricing service which utilizes several sources for valuing fixed-income securities. We validate prices received from our pricing service through comparison to a secondary pricing service and broker quotes. We review the methodologies of the pricing service which provides 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 evaluation 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 and vast descriptive terms and conditions databases, as well as extensive quality control programs.
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.
Trading Assets
We use quoted market prices to determine the fair value of our trading assets. Our trading assets are held in a Rabbi Trust under a deferred compensation plan and are invested in readily quoted mutual funds. Accordingly, these assets are classified as Level 1. Rabbi Trust assets are reported in other assets in the Consolidated Balance Sheets.

11


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

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 widely 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 transferred from the loan portfolio to loans held for sale, all of which are carried at the lower of cost or fair value. The fair value of 1-4 family residential loans is based on the principal or most advantageous market currently offered for similar loans using observable market data. The fair value of the loans transferred from the loan portfolio is based on the amounts offered for these loans in currently pending sales transactions. Loans held for sale carried at fair value are classified as Level 3.
Impaired Loans
Impaired loans are carried at the lower of carrying value or fair value. Fair value is determined as the recorded investment balance less any specific reserve. We establish specific reserves based on the following three impairment methods: 1. the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2. the loan’s observable market price; or 3. the fair value of the collateral less estimated selling costs when the loan is collateral dependent and we expect to liquidate the collateral. However, if repayment is expected to come from the operation of the collateral, rather than liquidation, then we do not consider estimated selling costs in determining the fair value of the collateral. Collateral values are generally based upon appraisals by approved, independent state certified appraisers. Appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or our knowledge of the borrower and the borrower’s business. Impaired loans carried at fair value are classified as Level 3.
OREO and Other Repossessed Assets
OREO and other repossessed assets obtained in partial or total satisfaction of a loan are recorded at the lower of recorded investment in the loan or fair value less cost to sell. Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition date or fair value less cost to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Like impaired loans, appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets carried at fair value are classified as Level 3.
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 valuation model includes significant unobservable inputs; therefore, MSRs are classified as Level 3. MSRs are reported in other assets in the Consolidated Balance Sheets and are amortized into noninterest income in the Consolidated Statements of Comprehensive Income.

12


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

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 willing seller engaged in an exchange transaction. Also, it is our general practice to not engage in trading or sales activities with respect to such financial instruments. For fair value disclosure purposes, we substantially utilize the fair value measurement criteria as required and explained above. In cases where quoted fair values are not available, we use present value methods to determine the fair value of our financial instruments.
Cash and Cash Equivalents
The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks, including interest-bearing deposits, approximate fair value.
Loans
The fair value of variable rate performing loans that may reprice frequently at short-term market rates is based on carrying values adjusted for credit risk. The fair value of variable rate performing 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 credit risk. The fair value of fixed rate performing loans is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans and adjusted for credit risk. The fair value of nonperforming loans is the carrying value less any specific reserve on the loan if it is impaired. The carrying amount of accrued interest approximates fair value.
Bank Owned Life Insurance
Fair value approximates net cash surrender value of bank owned life insurance.
Federal Home Loan Bank, or FHLB, and Other Restricted Stock
It is not practical to determine the fair value of our FHLB and other restricted stock due to the restrictions placed on the transferability of these stocks; it is presented at carrying value.
Deposits
The fair values disclosed for deposits without defined maturities (e.g., noninterest and interest-bearing demand, money market and savings accounts) are by definition equal to the amounts payable on demand. The carrying amounts for variable rate, fixed-term time deposits approximate their fair values. Estimated fair values for fixed rate and other time deposits are based on discounted cash flow analysis using interest rates currently offered for time deposits with similar terms. The carrying amount of accrued interest approximates fair value.
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.

13


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

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.
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, 2017 and December 31, 2016. There were no transfers between Level 1 and Level 2 for items measured at fair value on a recurring basis during the periods presented.
 
March 31, 2017
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
24,837

 
$

 
$
24,837

Obligations of U.S. government corporations and agencies

 
221,708

 

 
221,708

Collateralized mortgage obligations of U.S. government corporations and agencies

 
125,155

 

 
125,155

Residential mortgage-backed securities of U.S. government corporations and agencies

 
35,824

 

 
35,824

Commercial mortgage-backed securities of U.S. government corporations and agencies

 
161,977

 

 
161,977

Obligations of states and political subdivisions

 
132,297

 

 
132,297

Marketable equity securities

 
11,400

 

 
11,400

Total securities available-for-sale

 
713,198

 

 
713,198

Trading securities held in a Rabbi Trust
4,674

 

 

 
4,674

Total securities
4,674

 
713,198

 

 
717,872

Derivative financial assets:
 
 
 
 
 
 
 
Interest rate swap contracts - commercial loans

 
5,379

 

 
5,379

Interest rate lock commitments - mortgage loans

 
469

 

 
469

Total Assets
$
4,674

 
$
719,046

 
$

 
$
723,720

LIABILITIES
 
 
 
 
 
 
 
Derivative financial liabilities:
 
 
 
 
 
 
 
Interest rate swap contracts - commercial loans
$

 
$
5,352

 
$

 
$
5,352

Forward sale contracts - mortgage loans

 
63

 

 
63

Total Liabilities
$

 
$
5,415

 
$

 
$
5,415


14


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

 
December 31, 2016
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
24,811

 
$

 
$
24,811

Obligations of U.S. government corporations and agencies

 
232,179

 

 
232,179

Collateralized mortgage obligations of U.S. government corporations and agencies

 
129,777

 

 
129,777

Residential mortgage-backed securities of U.S. government corporations and agencies

 
37,358

 

 
37,358

Commercial mortgage-backed securities of U.S. government corporations and agencies

 
125,604

 

 
125,604

Obligations of states and political subdivisions

 
132,509

 

 
132,509

Marketable equity securities

 
11,249

 

 
11,249

Total securities available-for-sale

 
693,487

 

 
693,487

Trading securities held in a Rabbi Trust
4,410

 

 

 
4,410

Total securities
4,410

 
693,487

 

 
697,897

Derivative financial assets:
 
 
 
 
 
 
 
Interest rate swap contracts - commercial loans

 
6,960

 

 
6,960

Interest rate lock commitments - mortgage loans

 
236

 

 
236

Total Assets
$
4,410

 
$
700,683

 
$

 
$
705,093

LIABILITIES
 
 
 
 
 
 
 
Derivative financial liabilities:
 
 
 
 
 
 
 
Interest rate swap contracts - commercial loans
$

 
$
6,958

 
$

 
$
6,958

Forward sale contracts - mortgage loans

 
27

 

 
27

Total Liabilities
$

 
$
6,985

 
$

 
$
6,985

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 no liabilities measured at fair value on a nonrecurring basis at either March 31, 2017 or December 31, 2016. The following table presents our assets that are measured at fair value on a nonrecurring basis by the fair value hierarchy level as of the dates presented:
 
March 31, 2017
 
December 31, 2016
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
$

 
$

 
$

 
$

 
$

 
$

 
$
1,802

 
$
1,802

Impaired loans

 

 
16,921

 
16,921

 

 

 
10,329

 
10,329

Other real estate owned

 

 
607

 
607

 

 

 
396

 
396

Mortgage servicing rights

 

 
4,256

 
4,256

 

 

 
4,098

 
4,098

Total Assets
$

 
$

 
$
21,784

 
$
21,784

 
$

 
$

 
$
16,625

 
$
16,625

(1)This table presents only the nonrecurring items that are recorded at fair value in our financial statements.

15


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 3. FAIR VALUE MEASUREMENTS – continued

The carrying values and fair values of our financial instruments at March 31, 2017 and December 31, 2016 are presented in the following tables:
 
Carrying
Value(1) 
 
Fair Value Measurements at March 31, 2017
(dollars in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
 
 
Cash and due from banks, including interest-bearing deposits
$
104,705

 
$
104,705

 
$
104,705

 
$

 
$

Securities available-for-sale
713,198

 
713,198

 

 
713,198

 

Loans held for sale
14,355

 
14,355

 

 

 
14,355

Portfolio loans, net
5,691,010

 
5,684,049

 

 

 
5,684,049

Bank owned life insurance
72,574

 
72,574

 

 
72,574

 

FHLB and other restricted stock
29,739

 
29,739

 

 

 
29,739

Trading securities held in a Rabbi Trust
4,674

 
4,674

 
4,674

 

 

Mortgage servicing rights
3,784

 
4,256

 

 

 
4,256

Interest rate swap contracts - commercial loans
5,379

 
5,379

 

 
5,379

 

Interest rate lock commitments - mortgage loans
469

 
469

 

 
469

 

LIABILITIES
 
 

 
 
 
 
 
 
Deposits
$
5,435,325

 
$
5,439,713

 
$

 
$

 
$
5,439,713

Securities sold under repurchase agreements
46,987

 
46,987

 

 

 
46,987

Short-term borrowings
610,000

 
610,000

 

 

 
610,000

Long-term borrowings
14,118

 
14,603

 

 

 
14,603

Junior subordinated debt securities
45,619

 
45,619

 

 

 
45,619

Interest rate swap contracts - commercial loans
5,352

 
5,352

 

 
5,352

 

Forward sale contracts - mortgage loans
63

 
63

 

 
63

 

(1) As reported in the Consolidated Balance Sheets
 
 
 
 
 
 
 
 
 
 
Carrying
Value(1)
 
Fair Value Measurements at December 31, 2016
(dollars in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
 
 
Cash and due from banks, including interest-bearing deposits
$
139,486

 
$
139,486

 
$
139,486

 
$

 
$

Securities available-for-sale
693,487

 
693,487

 

 
693,487

 

Loans held for sale
3,793

 
3,815

 

 

 
3,815

Portfolio loans, net
5,558,644

 
5,551,266

 

 

 
5,551,266

Bank owned life insurance
72,081

 
72,081

 

 
72,081

 

FHLB and other restricted stock
31,817

 
31,817

 

 

 
31,817

Trading securities held in a Rabbi Trust
4,410

 
4,410

 
4,410

 

 

Mortgage servicing rights
3,744

 
4,098

 

 

 
4,098

Interest rate swap contracts - commercial loans
6,960

 
6,960

 

 
6,960

 

Interest rate lock commitments - mortgage loans
236

 
236

 

 
236

 

LIABILITIES
 
 
 
 
 
 
 
 
 
Deposits
$
5,272,377

 
$
5,276,499

 
$

 
$

 
$
5,276,499

Securities sold under repurchase agreements
50,832

 
50,832

 

 

 
50,832

Short-term borrowings
660,000

 
660,000

 

 

 
660,000

Long-term borrowings
14,713

 
15,267

 

 

 
15,267

Junior subordinated debt securities
45,619

 
45,619

 

 

 
45,619

Interest rate swap contracts - commercial loans
6,958

 
6,958

 

 
6,958

 

Forward sale contracts - mortgage loans
27

 
27

 

 
27

 

(1) As reported in the Consolidated Balance Sheets 
 
 
 
 
 
 
 
 
 

16


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
NOTE 4. SECURITIES AVAILABLE-FOR-SALE

The following table presents the amortized cost and fair value of available-for-sale securities as of the dates presented:
 
March 31, 2017
 
December 31, 2016
(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
$
24,904

 
$
24

 
$
(91
)
 
$
24,837

 
$
24,891

 
$
47

 
$
(127
)
 
$
24,811

Obligations of U.S. government corporations and agencies
220,721

 
1,408

 
(421
)
 
221,708

 
230,989

 
1,573

 
(383
)
 
232,179

Collateralized mortgage obligations of U.S. government corporations and agencies
125,466

 
462

 
(773
)
 
125,155

 
130,046

 
465

 
(734
)
 
129,777

Residential mortgage-backed securities of U.S. government corporations and agencies
35,132

 
928

 
(236
)
 
35,824

 
36,606

 
984

 
(232
)
 
37,358

Commercial mortgage-backed securities of U.S. government corporations and agencies
163,396

 
308

 
(1,727
)
 
161,977

 
127,311

 
243

 
(1,950
)
 
125,604

Obligations of states and political subdivisions
127,638

 
4,659

 

 
132,297

 
128,783

 
3,772

 
(46
)
 
132,509

Debt Securities
697,257

 
7,789

 
(3,248
)
 
701,798

 
678,626

 
7,084

 
(3,472
)
 
682,238

Marketable equity securities
7,367

 
4,035

 
(2
)
 
11,400

 
7,579

 
3,670

 

 
11,249

Total
$
704,624

 
$
11,824

 
$
(3,250
)
 
$
713,198

 
$
686,205

 
$
10,754

 
$
(3,472
)
 
$
693,487



17


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES AVAILABLE-FOR-SALE – continued

The following tables present the fair value and the age of gross unrealized losses by investment category as of the dates presented:
 
March 31, 2017
 
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
 
$
9,849

 
$
(91
)
 
 
$

 
$

 
1
 
$
9,849

 
$
(91
)
Obligations of U.S. government corporations and agencies
7
 
62,308

 
(421
)
 
 

 

 
7
 
62,308

 
(421
)
Collateralized mortgage obligations of U.S. government corporations and agencies
9
 
74,604

 
(773
)
 
 

 

 
9
 
74,604

 
(773
)
Residential mortgage-backed securities of U.S. government corporations and agencies
2
 
9,692

 
(236
)
 
 

 

 
2
 
9,692

 
(236
)
Commercial mortgage-backed securities of U.S. government corporations and agencies
12
 
113,000

 
(1,727
)
 
 

 

 
12
 
113,000

 
(1,727
)
Obligations of states and political subdivisions
 

 

 
 

 

 
 

 

Debt Securities
31
 
269,453

 
(3,248
)
 
 

 

 
31
 
269,453

 
(3,248
)
Marketable equity securities
1
 
69

 
(2
)
 
 

 

 
1
 
69

 
(2
)
Total Temporarily Impaired Securities
32
 
$
269,522

 
$
(3,250
)
 
 
$

 
$

 
32
 
$
269,522

 
$
(3,250
)


18


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES AVAILABLE-FOR-SALE – continued

 
December 31, 2016
 
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
 
$
9,811

 
$
(127
)
 
 
$

 
$

 
1
 
$
9,811

 
$
(127
)
Obligations of U.S. government corporations and agencies
7
 
62,483

 
(383
)
 
 

 

 
7
 
62,483

 
(383
)
Collateralized mortgage obligations of U.S. government corporations and agencies
10
 
83,031

 
(734
)
 
 

 

 
10
 
83,031

 
(734
)
Residential mortgage-backed securities of U.S. government corporations and agencies
2
 
10,022

 
(232
)
 
 

 

 
2
 
10,022

 
(232
)
Commercial mortgage-backed securities of U.S. government corporations and agencies
10
 
96,576

 
(1,950
)
 
 

 

 
10
 
96,576

 
(1,950
)
Obligations of states and political subdivisions
1
 
5,577

 
(46
)
 
 

 

 
1
 
5,577

 
(46
)
Debt Securities
31
 
267,500

 
(3,472
)
 
 

 

 
31
 
267,500

 
(3,472
)
Marketable equity securities
 

 

 
 

 

 
 

 

Total Temporarily Impaired Securities
31
 
$
267,500

 
$
(3,472
)
 
 
$

 
$

 
31
 
$
267,500

 
$
(3,472
)
We do not believe any individual unrealized loss as of March 31, 2017 represents an other than temporary impairment, or OTTI. As of March 31, 2017 and December 31, 2016, 31 debt securities were in an unrealized loss position. There was one marketable equity security at March 31, 2017 with an unrealized loss and no marketable equity securities at December 31, 2016 with unrealized losses. The unrealized losses on debt securities was primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities are determined to be investment grade and are paying principal and interest according to the contractual terms of the security. We do not intend to sell and it is not more likely than not that we will be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.
The following table displays net unrealized gains and losses, net of tax, on securities available for sale included in accumulated other comprehensive (loss)/income, for the periods presented:
 
March 31, 2017
 
December 31, 2016
(dollars in thousands)
Gross Unrealized Gains

 
Gross Unrealized Losses

 
Net Unrealized Gains/ (Losses)

 
Gross Unrealized Gains

 
Gross Unrealized Losses

 
Net Unrealized Gains/ (Losses)

Total unrealized gains/(losses) on securities available-for-sale
$
11,824

 
$
(3,250
)
 
$
8,574

 
$
10,754

 
$
(3,472
)
 
$
7,282

Income tax expense/(benefit)
(4,152
)
 
1,141

 
(3,011
)
 
(3,776
)
 
1,219

 
(2,557
)
Net unrealized gains/(losses), net of tax included in accumulated other comprehensive income/(loss)
$
7,672

 
$
(2,109
)
 
$
5,563

 
$
6,978

 
$
(2,253
)
 
$
4,725


19


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 4. SECURITIES AVAILABLE-FOR-SALE – continued

The amortized cost and fair value of securities available-for-sale at March 31, 2017 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, 2017
(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
$
57,066

 
$
57,302

Due after one year through five years
196,739

 
198,760

Due after five years through ten years
54,282

 
54,913

Due after ten years
65,176

 
67,867

 
373,263

 
378,842

Collateralized mortgage obligations of U.S. government corporations and agencies
125,466

 
125,155

Residential mortgage-backed securities of U.S. government corporations and agencies
35,132

 
35,824

Commercial mortgage-backed securities of U.S. government corporations and agencies
163,396

 
161,977

Debt Securities
697,257

 
701,798

Marketable equity securities
7,367

 
11,400

Total
$
704,624

 
$
713,198

At March 31, 2017 and December 31, 2016, securities with carrying values of $289 million and $342 million were pledged for various regulatory and legal requirements.


20


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE

Loans are presented net of unearned income of $5.6 million and $5.2 million at March 31, 2017 and December 31, 2016 and net of a discount related to purchase accounting fair value adjustments of $6.0 million and $7.1 million at March 31, 2017 and December 31, 2016. The following table indicates the composition of loans as of the dates presented:
(dollars in thousands)
March 31, 2017
 
December 31, 2016
Commercial

 

Commercial real estate
$
2,614,724

 
$
2,498,476

Commercial and industrial
1,422,297

 
1,401,035

Commercial construction
455,211

 
455,884

Total Commercial Loans
4,492,232

 
4,355,395

Consumer

 

Residential mortgage
700,610

 
701,982

Home equity
479,402

 
482,284

Installment and other consumer
70,219

 
65,852

Consumer construction
4,363

 
5,906

Total Consumer Loans
1,254,594

 
1,256,024

Total Portfolio Loans
5,746,826

 
5,611,419

Loans held for sale
14,355

 
3,793

Total Loans
$
5,761,181

 
$
5,615,212

As of March 31, 2017, our acquired loans from the 2015 Integrity Bancshares, Inc. merger, or the Merger, were $488 million including $251 million of CRE, $118 million of C&I, $29.2 million of commercial construction, $68.5 million of residential mortgage and $21.3 million of home equity, installment and other consumer construction. These acquired loans decreased from acquired loans at December 31, 2016 of $543 million, including $273 million of CRE, $141 million of C&I, $33.0 million of commercial construction, $74.0 million of residential mortgage, $22.0 million of home equity, installment and other consumer construction.
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 monitor this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. Total commercial loans represented 78 percent of total portfolio loans at March 31, 2017 and December 31, 2016. Within our commercial portfolio, the CRE and Commercial Construction portfolios combined comprised $3.1 billion or 68 percent of total commercial loans and 53 percent of total portfolio loans at March 31, 2017 and comprised of $3.0 billion or 68 percent of total commercial loans and 53 percent of total portfolio loans at December 31, 2016. Further segmentation of the CRE and Commercial Construction portfolios by collateral type reveals no concentration in excess of seven percent of total loans at March 31, 2017 and December 31, 2016.
Our market area includes Pennsylvania and the contiguous states of Ohio, West Virginia, New York and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this market area, resulting in a regional geographic 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 as well as information supplied by our customers. Our CRE and Commercial Construction portfolios have out-of-market exposure of 5.2 percent of the combined portfolio and 2.8 percent of total loans at March 31, 2017 and 5.2 percent of the combined portfolio and 2.7 percent of total loans at December 31, 2016.
The increase in loans held for sale of $10.6 million related to two participation loans for $11.3 million that were sold subsequent to March 31, 2017.
We individually evaluate all substandard commercial loans that have experienced a forbearance or change in terms agreement, as well as 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 TDRs. All TDRs are considered to be impaired loans and will be reported as impaired loans for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according

21


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued

to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.
The following table summarizes the restructured loans as of the dates presented:
 
March 31, 2017
 
December 31, 2016
(dollars in thousands)
Performing
TDRs
 
Nonperforming
TDRs
 
Total
TDRs
 
Performing
TDRs
 
Nonperforming
TDRs
 
Total
TDRs
Commercial real estate
$
2,715

 
$
625

 
$
3,340

 
$
2,994

 
$
646

 
$
3,640

Commercial and industrial
1,361

 
3,942

 
5,303

 
1,387

 
4,493

 
5,880

Commercial construction
2,959

 
427

 
3,386

 
2,966

 
430

 
3,396

Residential mortgage
2,242

 
4,321

 
6,563

 
2,375

 
5,068

 
7,443

Home equity
3,793

 
1,003

 
4,796