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EX-32 - EXHIBIT 32 - S&T BANCORP INCexhibit32q22017.htm
EX-31.2 - EXHIBIT 31.2 - S&T BANCORP INCexhibit312q22017.htm
EX-31.1 - EXHIBIT 31.1 - S&T BANCORP INCexhibit311q22017.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 June 30, 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 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
¨ (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 - 34,979,557 shares as of July 31, 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)



 
June 30, 2017
 
December 31, 2016
(dollars in thousands, except per share data)
(Unaudited)
 
(Audited)
ASSETS
 
 
 
Cash and due from banks, including interest-bearing deposits of $66,764 and $87,201 at June 30, 2017 and December 31, 2016
$
125,863

 
$
139,486

Securities available-for-sale, at fair value
689,388

 
693,487

Loans held for sale
23,120

 
3,793

Portfolio loans, net of unearned income
5,757,819

 
5,611,419

Allowance for loan losses
(55,351
)
 
(52,775
)
Portfolio loans, net
5,702,468

 
5,558,644

Bank owned life insurance
72,449

 
72,081

Premises and equipment, net
45,019

 
44,999

Federal Home Loan Bank and other restricted stock, at cost
33,417

 
31,817

Goodwill
291,670

 
291,670

Other intangible assets, net
4,191

 
4,910

Other assets
98,581

 
102,166

Total Assets
$
7,086,166

 
$
6,943,053

LIABILITIES
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
1,335,768

 
$
1,263,833

Interest-bearing demand
636,904

 
638,300

Money market
950,619

 
936,461

Savings
1,010,348

 
1,050,131

Certificates of deposit
1,476,223

 
1,383,652

Total Deposits
5,409,862

 
5,272,377

Securities sold under repurchase agreements
46,489

 
50,832

Short-term borrowings
645,000

 
660,000

Long-term borrowings
13,518

 
14,713

Junior subordinated debt securities
45,619

 
45,619

Other liabilities
54,616

 
57,556

Total Liabilities
6,215,104

 
6,101,097

SHAREHOLDERS’ EQUITY
 
 
 
Common stock ($2.50 par value)
Authorized—50,000,000 shares
Issued—36,130,480 shares at June 30, 2017 and December 31, 2016
Outstanding— 34,980,280 shares at June 30, 2017 and 34,913,023 shares at December 31, 2016
90,326

 
90,326

Additional paid-in capital
214,941

 
213,098

Retained earnings
610,504

 
585,891

Accumulated other comprehensive (loss) income
(12,858
)
 
(13,784
)
Treasury stock (1,150,200 shares at June 30, 2017 and 1,217,457 shares at December 31, 2016, at cost)
(31,851
)
 
(33,575
)
Total Shareholders’ Equity
871,062

 
841,956

Total Liabilities and Shareholders’ Equity
$
7,086,166

 
$
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 June 30,
 
Six Months Ended June 30,
(dollars in thousands, except per share data)
2017
 
2016
 
2017
 
2016
INTEREST INCOME
 
 
 
 
 
 
 
Loans, including fees
$
60,558

 
$
52,019

 
$
117,458

 
$
103,177

Investment Securities:
 
 
 
 
 
 
 
Taxable
2,947

 
2,580

 
5,796

 
5,134

Tax-exempt
928

 
915

 
1,848

 
1,857

Dividends
481

 
336

 
963

 
702

Total Interest Income
64,914

 
55,850

 
126,065

 
110,870

INTEREST EXPENSE
 
 
 
 
 
 
 
Deposits
5,976

 
5,029

 
11,355

 
9,284

Borrowings and junior subordinated debt securities
2,368

 
1,113

 
4,261

 
2,240

Total Interest Expense
8,344

 
6,142

 
15,616

 
11,524

NET INTEREST INCOME
56,570

 
49,708

 
110,449

 
99,346

Provision for loan losses
4,869

 
4,848

 
10,052

 
9,863

Net Interest Income After Provision for Loan Losses
51,701

 
44,860

 
100,397

 
89,483

NONINTEREST INCOME
 
 
 
 
 
 
 
Securities gains (losses), net
3,617

 

 
3,987

 

Debit and credit card
3,042

 
2,869

 
5,885

 
5,655

Service charges on deposit accounts
2,997

 
3,065

 
6,012

 
6,064

Wealth management
2,428

 
2,630

 
4,831

 
5,382

Insurance
1,461

 
1,205

 
2,924

 
2,979

Mortgage banking
675

 
578

 
1,408

 
1,107

Gain on sale of credit card portfolio

 

 

 
2,066

Other
2,045

 
2,101

 
4,214

 
5,012

Total Noninterest Income
16,265

 
12,448

 
29,261

 
28,265

NONINTEREST EXPENSE
 
 
 
 
 
 
 
Salaries and employee benefits
19,903

 
17,626

 
40,444

 
38,528

Net occupancy
2,751

 
2,688

 
5,566

 
5,638

Data processing
2,135

 
2,518

 
4,386

 
4,630

Furniture and equipment
1,810

 
1,719

 
3,857

 
3,648

FDIC insurance
1,185

 
994

 
2,308

 
1,934

Other taxes
1,083

 
896

 
2,060

 
1,995

Professional services and legal
958

 
988

 
2,001

 
1,728

Marketing
948

 
1,075

 
1,702

 
1,976

Other
5,824

 
6,249

 
11,082

 
13,092

Total Noninterest Expense
36,597

 
34,753

 
73,406

 
73,169

Income Before Taxes
31,369

 
22,555

 
56,252

 
44,579

Provision for income taxes
8,604

 
5,496

 
15,299

 
11,427

Net Income
$
22,765

 
$
17,059

 
$
40,953

 
$
33,152

Earnings per share—basic
$
0.66

 
$
0.49

 
$
1.18

 
$
0.96

Earnings per share—diluted
$
0.65

 
$
0.49

 
$
1.17

 
$
0.95

Dividends declared per share
$
0.20

 
$
0.19

 
$
0.40

 
$
0.38

Comprehensive Income
$
22,503

 
$
20,427

 
$
41,879

 
$
44,861

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 six months ended June 30, 2016

 

 
33,152

 

 

 
33,152

Other comprehensive income (loss), net of tax

 

 

 
11,709

 

 
11,709

Cash dividends declared ($0.38 per share)

 

 
(13,211
)
 

 

 
(13,211
)
Treasury stock issued for restricted awards (110,643 shares, net of 4,659 forfeitures)

 

 
(3,037
)
 

 
2,921

 
(116
)
Recognition of restricted stock compensation expense

 
1,279

 

 

 

 
1,279

Balance at June 30, 2016
$
90,326

 
$
211,824

 
$
561,132

 
$
(4,748
)
 
$
(33,484
)
 
$
825,050

 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
$
90,326

 
$
213,098

 
$
585,891

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

Net income for six months ended June 30, 2017

 

 
40,953

 

 

 
40,953

Other comprehensive income (loss), net of tax

 

 

 
926

 

 
926

Cash dividends declared ($0.40 per share)

 

 
(13,927
)
 

 

 
(13,927
)
Treasury stock issued for restricted awards (89,351 shares, net of 22,094 forfeitures)

 

 
(2,413
)
 

 
1,724

 
(689
)
Recognition of restricted stock compensation expense

 
1,843

 

 

 

 
1,843

Balance at June 30, 2017
$
90,326

 
$
214,941

 
$
610,504

 
$
(12,858
)
 
$
(31,851
)
 
$
871,062

See Notes to Consolidated Financial Statements


4


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

 
Six Months Ended June 30,
(dollars in thousands)
2017
 
2016
OPERATING ACTIVITIES
 
 
 
Net income
$
40,953

 
$
33,152

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

 

Provision for loan losses
10,052

 
9,863

Provision for unfunded loan commitments
(334
)
 
131

Depreciation, amortization and accretion
850

 
1,878

Net amortization of discounts and premiums on securities
2,030

 
1,861

Stock-based compensation expense
1,843

 
1,279

Securities gains
(3,987
)
 

Mortgage loans originated for sale
(38,899
)
 
(45,831
)
Proceeds from the sale of mortgage loans
38,041

 
46,555

Gain on the sale of mortgage loans, net
(719
)
 
(679
)
Gain on the sale of credit card portfolio

 
(2,066
)
Pension plan curtailment gain

 
(1,017
)
Net increase in interest receivable
(666
)
 
(3,485
)
Net increase in interest payable
246

 
1,126

Net decrease (increase) in other assets
4,484

 
(2,900
)
Net (decrease) increase in other liabilities
(1,775
)
 
4,127

Net Cash Provided by Operating Activities
52,119

 
43,994

INVESTING ACTIVITIES
 
 
 
Purchases of securities available-for-sale
(36,604
)
 
(45,431
)
Proceeds from maturities, prepayments and calls of securities available-for-sale
35,256

 
34,723

Proceeds from sales of securities available-for-sale
7,751

 

Net proceeds from (purchases of) Federal Home Loan Bank stock
1,600

 
(4,723
)
Net increase in loans
(176,768
)
 
(369,089
)
Proceeds from sale of loans not originated for resale
3,581

 
2,427

Purchases of premises and equipment
(3,018
)
 
(1,360
)
Proceeds from the sale of premises and equipment
273

 
3

Proceeds from the sale of credit card portfolio

 
25,019

Net Cash Used in Investing Activities
(167,929
)
 
(358,431
)
FINANCING ACTIVITIES
 
 
 
Net increase in deposits
44,914

 
105,970

Net increase in certificates of deposit
92,427

 
138,148

Net decrease in securities sold under repurchase agreements
(4,343
)
 
(13,607
)
Net (decrease) increase in short-term borrowings
(15,000
)
 
194,000

Repayments of long-term borrowings
(1,195
)
 
(101,155
)
Treasury shares issued-net
(689
)
 
(116
)
Cash dividends paid to common shareholders
(13,927
)
 
(13,211
)
Net Cash Provided by Financing Activities
102,187

 
310,029

Net decrease in cash and cash equivalents
(13,623
)
 
(4,408
)
Cash and cash equivalents at beginning of period
139,486

 
99,399

Cash and Cash Equivalents at End of Period
$
125,863

 
$
94,991

Supplemental Disclosures
 
 
 
Loans transferred to (from) held for sale
$
17,750

 
$
(1,540
)
Interest paid
$
15,369

 
$
10,398

Income taxes paid, net of refunds
$
13,399

 
$
13,474

Transfers of loans to other real estate owned
$
1,407

 
$
231

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 the 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, 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.
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 or Update
Stock Compensation - Improvements to Employee Share-Based Payment Accounting
On March 31, 2016 the 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

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. We have early adopted the provisions of this ASU and it had no impact on our results of operations or financial position.
Recently Issued Accounting Standards Updates not yet Adopted
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. Effective March 31, 2016, our qualified and nonqualified defined benefit plans were amended to freeze benefit accruals for all persons entitled to benefits under the plan; as such, the provisions of this ASU will have no 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; however, we do not anticipate that this ASU will materially impact 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; however, we do not anticipate that this ASU will materially impact our results of operations and financial position.

7


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

NOTE 1. BASIS OF PRESENTATION - continued

Business Combinations - Clarifying the Definition of a Business
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 by changing the definition of 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; however, we do not anticipate that this ASU will materially impact 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; however, we do not anticipate that this ASU will materially impact 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; however, we do not anticipate that this ASU will materially impact 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

8


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

NOTE 1. BASIS OF PRESENTATION - continued

control of goods or services to customers at an amount that reflects the consideration to which it expects to be entitled in 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 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 continuing our overall assessment of revenue streams and reviewing contracts potentially affected by the ASU including trust and asset management fees, deposit related fees, interchange fees and other revenue streams associated with contracts with third parties to determine the potential impact to our results of operations, financial position and disclosures. However, we do not expect that this ASU will materially impact 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. 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.
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. 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 in 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 June 30,
 
Six Months Ended June 30,
(in thousands, except shares and per share data)
2017
 
2016
 
2017
 
2016
Numerator for Earnings per Share—Basic:

 

 

 

Net income
$
22,765

 
$
17,059

 
$
40,953

 
$
33,152

Less: Income allocated to participating shares
81

 
60

 
141

 
101

Net Income Allocated to Shareholders
$
22,684

 
$
16,999

 
$
40,812

 
$
33,051

 
 
 
 
 
 
 
 
Numerator for Earnings per Share—Diluted:

 

 

 

Net income
$
22,765

 
$
17,059

 
$
40,953

 
$
33,152

Net Income Available to Shareholders
$
22,765

 
$
17,059

 
$
40,953

 
$
33,152

 
 
 
 
 
 
 
 
Denominators for Earnings per Share:

 

 

 

Weighted Average Shares Outstanding—Basic
34,724,925

 
34,674,712

 
34,707,683

 
34,666,773

Add: Potentially dilutive shares
181,571

 
89,853

 
199,693

 
80,890

Denominator for Treasury Stock Method—Diluted
34,906,496

 
34,764,565

 
34,907,376

 
34,747,663

 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding—Basic
34,724,925

 
34,674,712

 
34,707,683

 
34,666,773

Add: Average participating shares outstanding
123,729

 
122,160

 
119,585

 
105,794

Denominator for Two-Class Method—Diluted
34,848,654

 
34,796,872

 
34,827,268

 
34,772,567

 
 
 
 
 
 
 
 
Earnings per share—basic
$
0.66

 
$
0.49

 
$
1.18

 
$
0.96

Earnings per share—diluted
$
0.65

 
$
0.49

 
$
1.17

 
$
0.95

Warrants considered anti-dilutive excluded from potentially dilutive shares - exercise price $31.53 per share, expires January 2019
466,554

 
517,012

 
456,749

 
517,012

Restricted stock considered anti-dilutive excluded from potentially dilutive shares
126,332

 
144,998

 
105,187

 
117,796


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; restricted stock 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 June 30, 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.
 
June 30, 2017
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS
 
 
 
 
 
 
 
Securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
24,886

 
$

 
$
24,886

Obligations of U.S. government corporations and agencies

 
211,434

 

 
211,434

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

 
120,203

 

 
120,203

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

 
34,611

 

 
34,611

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

 
162,413

 

 
162,413

Obligations of states and political subdivisions

 
131,106

 

 
131,106

Marketable equity securities

 
4,735

 

 
4,735

Total securities available-for-sale

 
689,388

 

 
689,388

Trading securities held in a Rabbi Trust
4,790

 

 

 
4,790

Total securities
4,790

 
689,388

 

 
694,178

Derivative financial assets:
 
 
 
 
 
 
 
Interest rate swap contracts - commercial loans

 
5,442

 

 
5,442

Interest rate lock commitments - mortgage loans

 
456

 

 
456

Forward sale contracts - mortgage loans

 
14

 

 
14

Total Assets
$
4,790

 
$
695,300

 
$

 
$
700,090

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

 
$
5,423

 
$

 
$
5,423

Total Liabilities
$

 
$
5,423

 
$

 
$
5,423


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 June 30, 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:
 
June 30, 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

 

 
22,551

 
22,551

 

 

 
10,329

 
10,329

Other real estate owned

 

 
391

 
391

 

 

 
396

 
396

Mortgage servicing rights

 

 
508

 
508

 

 

 
538

 
538

Total Assets
$

 
$

 
$
23,450

 
$
23,450

 
$

 
$

 
$
13,065

 
$
13,065

(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 June 30, 2017 and December 31, 2016 are presented in the following tables:
 
Carrying
Value(1) 
 
Fair Value Measurements at June 30, 2017
(dollars in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
 
 
Cash and due from banks, including interest-bearing deposits
$
125,863

 
$
125,863

 
$
125,863

 
$

 
$

Securities available-for-sale
689,388

 
689,388

 

 
689,388

 

Loans held for sale
23,120

 
23,258

 

 

 
23,258

Portfolio loans, net
5,757,819

 
5,695,791

 

 

 
5,695,791

Bank owned life insurance
72,449

 
72,449

 

 
72,449

 

FHLB and other restricted stock
33,417

 
33,417

 

 

 
33,417

Trading securities held in a Rabbi Trust
4,790

 
4,790

 
4,790

 

 

Mortgage servicing rights
3,839

 
4,195

 

 

 
4,195

Interest rate swap contracts - commercial loans
5,442

 
5,442

 

 
5,442

 

Interest rate lock commitments - mortgage loans
456

 
456

 

 
456

 

Forward sale contracts - mortgage loans
14

 
14

 

 
14

 

LIABILITIES
 
 

 
 
 
 
 
 
Deposits
$
5,409,862

 
$
5,414,320

 
$

 
$

 
$
5,414,320

Securities sold under repurchase agreements
46,489

 
46,489

 

 

 
46,489

Short-term borrowings
645,000

 
645,000

 

 

 
645,000

Long-term borrowings
13,518

 
13,979

 

 

 
13,979

Junior subordinated debt securities
45,619

 
45,619

 

 

 
45,619

Interest rate swap contracts - commercial loans
5,423

 
5,423

 

 
5,423

 

(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 of unearned income
5,611,419

 
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:
 
June 30, 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
$
24,917

 
$
2

 
$
(33
)
 
$
24,886

 
$
24,891

 
$
47

 
$
(127
)
 
$
24,811

Obligations of U.S. government corporations and agencies
210,459

 
1,328

 
(353
)
 
211,434

 
230,989

 
1,573

 
(383
)
 
232,179

Collateralized mortgage obligations of U.S. government corporations and agencies
120,272

 
527

 
(596
)
 
120,203

 
130,046

 
465

 
(734
)
 
129,777

Residential mortgage-backed securities of U.S. government corporations and agencies
33,850

 
948

 
(187
)
 
34,611

 
36,606

 
984

 
(232
)
 
37,358

Commercial mortgage-backed securities of U.S. government corporations and agencies
162,981

 
646

 
(1,214
)
 
162,413

 
127,311

 
243

 
(1,950
)
 
125,604

Obligations of states and political subdivisions
125,464

 
5,642

 

 
131,106

 
128,783

 
3,772

 
(46
)
 
132,509

Debt Securities
677,943

 
9,093

 
(2,383
)
 
684,653

 
678,626

 
7,084

 
(3,472
)
 
682,238

Marketable equity securities
3,815

 
921

 
(1
)
 
4,735

 
7,579

 
3,670

 

 
11,249

Total
$
681,758

 
$
10,014

 
$
(2,384
)
 
$
689,388

 
$
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:
 
June 30, 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
3
 
$
19,881

 
$
(33
)
 
 
$

 
$

 
3
 
$
19,881

 
$
(33
)
Obligations of U.S. government corporations and agencies
8
 
72,242

 
(353
)
 
 

 

 
8
 
72,242

 
(353
)
Collateralized mortgage obligations of U.S. government corporations and agencies
8
 
65,731

 
(596
)
 
 

 

 
8
 
65,731

 
(596
)
Residential mortgage-backed securities of U.S. government corporations and agencies
2
 
9,374

 
(187
)
 
 

 

 
2
 
9,374

 
(187
)
Commercial mortgage-backed securities of U.S. government corporations and agencies
7
 
67,084

 
(1,214
)
 
 

 

 
7
 
67,084

 
(1,214
)
Obligations of states and political subdivisions
 

 

 
 

 

 
 

 

Debt Securities
28
 
234,312

 
(2,383
)
 
 

 

 
28
 
234,312

 
(2,383
)
Marketable equity securities
1
 
70

 
(1
)
 
 

 

 
1
 
70

 
(1
)
Total Temporarily Impaired Securities
29
 
$
234,382

 
$
(2,384
)
 
 
$

 
$

 
29
 
$
234,382

 
$
(2,384
)

 
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 June 30, 2017 represents an other than temporary impairment, or OTTI. At June 30, 2017 there were 28 debt securities in an unrealized loss position and at December 31, 2016 there were 31 debt securities in an unrealized loss position. There was one marketable equity security at June 30, 2017 with an unrealized loss and no marketable equity securities at December 31, 2016 with unrealized losses. The unrealized losses on debt securities were 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.

18


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

NOTE 4. SECURITIES AVAILABLE-FOR-SALE – continued

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:
 
June 30, 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
$
10,014

 
$
(2,384
)
 
$
7,630

 
$
10,754

 
$
(3,472
)
 
$
7,282

Income tax expense/(benefit)
(3,517
)
 
837

 
(2,680
)