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EX-10.2 - EXHIBIT 10.2 - S&T BANCORP INCseveranceagreementspocit.htm
EX-10.1 - EXHIBIT 10.1 - S&T BANCORP INCemploymentagreementsposi.htm
EX-32 - EXHIBIT 32 - S&T BANCORP INCexhibit32q12018.htm
EX-31.2 - EXHIBIT 31.2 - S&T BANCORP INCexhibit312q12018.htm
EX-31.1 - EXHIBIT 31.1 - S&T BANCORP INCexhibit311q12018.htm
UNITED STATES                
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, 2018
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 - 35,000,681 shares as of May 3, 2018



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, 2018
 
December 31, 2017
(dollars in thousands, except per share data)
(Unaudited)
 
(Audited)
ASSETS
 
 
 
Cash and due from banks, including interest-bearing deposits of $67,831 and $61,965 at March 31, 2018 and December 31, 2017
$
112,849

 
$
117,152

Securities, at fair value
687,650

 
698,291

Loans held for sale
3,283

 
4,485

Portfolio loans, net of unearned income
5,730,613

 
5,761,449

Allowance for loan losses
(59,046
)
 
(56,390
)
Portfolio loans, net
5,671,567

 
5,705,059

Bank owned life insurance
72,629

 
72,150

Premises and equipment, net
41,635

 
42,702

Federal Home Loan Bank and other restricted stock, at cost
29,769

 
29,270

Goodwill
287,446

 
291,670

Other intangible assets, net
3,126

 
3,677

Other assets
95,375

 
95,799

Total Assets
$
7,005,329

 
$
7,060,255

LIABILITIES
 
 
 
Deposits:
 
 
 
Noninterest-bearing demand
$
1,368,350

 
$
1,387,712

Interest-bearing demand
560,711

 
603,141

Money market
1,239,400

 
1,146,156

Savings
876,459

 
893,119

Certificates of deposit
1,342,174

 
1,397,763

Total Deposits
5,387,094

 
5,427,891

Securities sold under repurchase agreements
44,617

 
50,161

Short-term borrowings
525,000

 
540,000

Long-term borrowings
46,684

 
47,301

Junior subordinated debt securities
45,619

 
45,619

Other liabilities
60,908

 
65,252

Total Liabilities
6,109,922

 
6,176,224

SHAREHOLDERS’ EQUITY
 
 
 
Common stock ($2.50 par value)
Authorized—50,000,000 shares
Issued—36,130,480 shares at March 31, 2018 and December 31, 2017
Outstanding— 35,000,502 shares at March 31, 2018 and 34,971,929 shares at December 31, 2017
90,326

 
90,326

Additional paid-in capital
216,618

 
216,106

Retained earnings
649,925

 
628,107

Accumulated other comprehensive (loss) income
(29,953
)
 
(18,427
)
Treasury stock (1,129,978 shares at March 31, 2018 and 1,158,551 shares at December 31, 2017, at cost)
(31,509
)
 
(32,081
)
Total Shareholders’ Equity
895,407

 
884,031

Total Liabilities and Shareholders’ Equity
$
7,005,329

 
$
7,060,255

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)
2018
 
2017
INTEREST INCOME
 
 
 
Loans, including fees
$
63,055

 
$
56,900

Investment Securities:
 
 
 
Taxable
3,429

 
2,848

Tax-exempt
874

 
920

Dividends
671

 
482

Total Interest Income
68,029

 
61,150

INTEREST EXPENSE
 
 
 
Deposits
7,846

 
5,379

Borrowings and junior subordinated debt securities
3,251

 
1,893

Total Interest Expense
11,097

 
7,272

NET INTEREST INCOME
56,932

 
53,878

Provision for loan losses
2,472

 
5,183

Net Interest Income After Provision for Loan Losses
54,460

 
48,695

NONINTEREST INCOME
 
 
 
Net gain (loss) on sale of securities

 
370

Service charges on deposit accounts
3,241

 
3,014

Debit and credit card
3,037

 
2,843

Wealth management
2,682

 
2,403

Gain on sale of a majority interest of insurance business
1,873

 

Mortgage banking
602

 
733

Insurance
169

 
1,457

Other
2,188

 
2,176

Total Noninterest Income
13,792

 
12,996

NONINTEREST EXPENSE
 
 
 
Salaries and employee benefits
18,815

 
20,541

Net occupancy
2,873

 
2,815

Data processing
2,325

 
2,223

Furniture, equipment and software
1,957

 
2,047

Other taxes
1,848

 
976

FDIC insurance
1,108

 
1,123

Professional services and legal
1,051

 
1,068

Marketing
702

 
754

Other
5,403

 
5,261

Total Noninterest Expense
36,082

 
36,808

Income Before Taxes
32,170

 
24,883

Provision for income taxes
6,007

 
6,695

Net Income
$
26,163

 
$
18,188

Earnings per share—basic
$
0.75

 
$
0.52

Earnings per share—diluted
$
0.75

 
$
0.52

Dividends declared per share
$
0.22

 
$
0.20

Comprehensive Income
$
14,637

 
$
19,376

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, 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

 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
$
90,326

 
$
216,106

 
$
628,107

 
$
(18,427
)
 
$
(32,081
)
 
$
884,031

Net income for three months ended March 31, 2018

 

 
26,163

 

 

 
26,163

Other comprehensive income (loss), net of tax

 

 

 
(6,973
)
 

 
(6,973
)
Reclassification of tax effects from the Tax Act(1)

 

 
3,691

 
(3,691
)
 

 

Reclassification of net unrealized gains on equity securities(2)

 

 
862

 
(862
)
 

 

Cash dividends declared ($0.22 per share)

 

 
(7,669
)
 

 

 
(7,669
)
Treasury stock issued for restricted awards (66,165 shares, net of 37,592 forfeitures)

 

 
(1,229
)
 

 
572

 
(657
)
Recognition of restricted stock compensation expense

 
512

 

 

 

 
512

Balance at March 31, 2018
$
90,326

 
$
216,618

 
$
649,925

 
$
(29,953
)
 
$
(31,509
)
 
$
895,407

See Notes to Consolidated Financial Statements
(1)Reclassification due to the adoption of ASU No. 2018-02 - $(3,924) relates to funded status of pension and $233 relates to net unrealized gains on available-for-sale securities.
(2)Reclassification due to the adoption of ASU No. 2016-01



4


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

 
Three Months Ended March 31,
(dollars in thousands)
2018
 
2017
OPERATING ACTIVITIES
 
 
 
Net income
$
26,163

 
$
18,188

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

 

Provision for loan losses
2,472

 
5,183

Recovery for unfunded loan commitments
(71
)
 
(458
)
Net depreciation, amortization and accretion
1,017

 
369

Net amortization of discounts and premiums on securities
796

 
1,030

Stock-based compensation expense
512

 
1,002

Securities gains, net

 
(370
)
Mortgage loans originated for sale
(16,827
)
 
(15,694
)
Proceeds from the sale of mortgage loans
18,326

 
16,575

Gain on the sale of mortgage loans, net
(296
)
 
(193
)
Gain on the sale of majority interest of insurance business
(1,873
)
 

Net decrease (increase) in interest receivable
336

 
(62
)
Net decrease in interest payable
(720
)
 
(435
)
Net decrease in other assets
4,120

 
3,404

Net increase in other liabilities
3,836

 
1,768

Net Cash Provided by Operating Activities
37,791

 
30,307

INVESTING ACTIVITIES
 
 
 
Purchases of securities
(27,565
)
 
(36,604
)
Proceeds from maturities, prepayments and calls of securities
22,104

 
16,942

Proceeds from sales of securities

 
582

Net (purchases) sales of Federal Home Loan Bank stock
(499
)
 
2,078

Net decrease (increase) in loans
27,717

 
(151,438
)
Proceeds from sale of loans not originated for resale
2,060

 
2,657

Purchases of premises and equipment
(309
)
 
(745
)
Proceeds from the sale of premises and equipment
109

 
16

Proceeds from the sale of majority interest of insurance business
4,540

 

Net Cash Provided by (Used in) Investing Activities
28,157

 
(166,512
)
FINANCING ACTIVITIES
 
 
 
Net increase in core deposits
14,793

 
62,219

Net (decrease) increase in certificates of deposit
(55,557
)
 
100,799

Net decrease in securities sold under repurchase agreements
(5,544
)
 
(3,845
)
Net increase in short-term borrowings
(15,000
)
 
(50,000
)
Repayments of long-term borrowings
(617
)
 
(595
)
Treasury shares issued-net
(657
)
 
(194
)
Cash dividends paid to common shareholders
(7,669
)
 
(6,960
)
Net Cash (Used in) Provided by Financing Activities
(70,251
)
 
101,424

Net decrease in cash and cash equivalents
(4,303
)
 
(34,781
)
Cash and cash equivalents at beginning of period
117,152

 
139,486

Cash and Cash Equivalents at End of Period
$
112,849

 
$
104,705

Supplemental Disclosures
 
 
 
Loans transferred to held for sale
$
2,060

 
$

Loans transferred to portfolio from held for sale
$

 
$
250

Interest paid
$
11,817

 
$
7,706

Income taxes paid, net of refunds
$
108

 
$
172

Transfer net assets to investment in insurance company partnership
$
1,917

 
$

Transfers to other real estate owned and other repossessed assets
$
2,599

 
$
397

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, 2017, filed with the Securities and Exchange Commission, or SEC, on March 1, 2018. In the opinion of management, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period.
On January 1, 2018, we sold a 70 percent majority interest in the assets of our wholly-owned subsidiary S&T Evergreen Insurance, LLC. We transferred our remaining ownership interest in the net assets of S&T Evergreen Insurance, LLC for a 30 percent ownership interest in a new partnership entity. We will use the equity-method of accounting to recognize our partial ownership interest in the new entity.
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
Income Taxes - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
In March 2018, the FASB issued ASU No. 2018-05 Income Taxes - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments in this ASU add various SEC paragraphs pursuant to the issuance of the SEC Staff Accounting Bulletin to the Accounting Standards Codification Subtopic 740-10. We adopted the amendments in this ASU in conjunction with ASU 2018-02 Reclassification of Certain Tax Effects from AOCI. This ASU had no impact to our Balance Sheets or Statements of Comprehensive Income.
Investments - Debt Securities and Regulated Operations - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273
In March 2018, the FASB issued ASU No. 2018-04 Investments - Debt Securities and Regulated Operations - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release No. 33-9273. The amendments in this ASU add various SEC paragraphs pursuant to the issuance of the SEC Staff Accounting Bulletin to the Accounting Standards Codification Subtopics 320 and 980. We adopted the amendments in this ASU in conjunction with ASU 2016-01 as it relates to equity securities.

6


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

NOTE 1. BASIS OF PRESENTATION - continued

Income Statement -- Reporting Comprehensive Income - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act, or Tax Act. The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users and will require certain disclosures about the stranded tax effects. This Update is effective for all entities for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not been issued or made available for issuance. We have elected to reclassify all tax effects related to the Tax Act from accumulated other comprehensive income, or AOCI, to retained earnings as of January 1, 2018. As such, we have early adopted this Update and reclassified $3.7 million for the release of stranded income tax effects relating to unrealized gains and losses on our securities portfolio and our pension plan from AOCI, to retained earnings as of March 31, 2018. The adoption of this ASU had no impact on our Statements of Comprehensive Income. Our policy for releasing income tax effects from AOCI is to release them as investments are sold or mature and liabilities are extinguished.
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 adoption of this ASU had no impact on our Consolidated Balance Sheets or Consolidated Statements of Comprehensive Income.
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 of 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, 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 was 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 was effective. Early adoption was permitted, but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The adoption of this ASU was applied to the partial sale of our insurance subsidiary. As such, the subsidiary is no longer included in our consolidated financial statements and we recognized a $1.9 million gain on the transaction.
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 of 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 existing 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 was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption was permitted for transactions not yet reflected in financial statements that have been issued or made available for issuance. The adoption of this ASU had no impact on our Balance Sheets or Statements of Comprehensive Income.

7


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

NOTE 1. BASIS OF PRESENTATION - continued

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. The adoption of this ASU had no impact on our Balance Sheets or Statements of Comprehensive Income.
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 was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption was permitted, provided that all of the amendments are adopted in the same period. The adoption of this ASU had no material impact to the presentation of activities in our Statements of Cash Flows.
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 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, was effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. Early adoption was permitted as of the original effective date for interim and annual reporting periods in fiscal years beginning after December 15, 2016. As of January 1, 2018, we adopted ASU 2014-09 Revenue from Contracts with Customers — Topic 606 and all subsequent ASUs that modified Topic 606. The ASU requires that we identify the contract with a customer, identity the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when we satisfy a performance obligation. We generally satisfy our performance obligations on our contracts with customers as services are

8


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

NOTE 1. BASIS OF PRESENTATION - continued

rendered and the transaction prices are typically fixed; charged whether on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.
Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. The implementation guidance had no material impact on the measurement or timing of revenue recognition.
Our primary sources of revenue are derived from interest and dividends earned on loans, investment securities and other financial instruments that are not within the scope of Topic 606. We have evaluated the nature of our contracts with customers and related revenue streams, including services charges on deposit accounts, debit and credit cards and wealth management and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Comprehensive Income was not necessary. We have also completed our evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue. The adoption of this ASU had no material impact on our Balance Sheets or Statements of Comprehensive 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 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 was effective for annual and interim periods in fiscal years beginning after December 15, 2017. We adopted ASU No. 2016-01 January 1, 2018 and have concluded that the provisions of this ASU did not materially impact our Balance Sheets or Statements of Comprehensive Income. The new guidance resulted in a change in the fair value measurement of our loan portfolio as of March 31, 2018 using an exit price notion (see Note 3: Fair Value Measurements). The new guidance also resulted in a cumulative-effect adjustment of $0.9 million from AOCI, to retained earnings at January 1, 2018 for net unrealized gains on our marketable equities portfolio. As a result of the new guidance we recognized $0.1 million of net unrealized gains in our Statements of Comprehensive Income during the three months ended March 31, 2018 on our marketable equity securities portfolio.
Recently Issued Accounting Standards
Leases - Land Easement Practical Expedient for Transition to Topic 842
In January 2018, the FASB issued ASU No. 2018-01 Leases - Land Easement Practical Expedient for Transition to Topic 842. The amendments in this ASU permit an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements, that exist or expired before the entity's adoption of Topic 842 and that were not previously accounted for as leases under Topic 840. We are evaluating the amendments in this ASU; however, we do not anticipate that these amendments will materially impact to our Balance Sheets or Statements of Comprehensive Income.

9


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

NOTE 1. BASIS OF PRESENTATION - continued

Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment (Topic 350). The main objective 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 Balance Sheets or Statements of Comprehensive Income.
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 have created a CECL Committee to govern the implementation of these amendments consisting of key stakeholders from Credit Administration, Finance, Risk Management and Audit. We have engaged a third-party to assist us in developing our CECL methodology. We continue to evaluate the provisions of this ASU to determine the potential impact on our Balance Sheets and Statements of Comprehensive Income.
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 Sheets. We have numerous lease agreements for our branch and loan production offices, which are currently accounted for as operating leases. We expect the new guidance will require these lease agreements to be included on our Balance Sheets as right-to-use assets with a corresponding lease liability. We expect that these changes to our Balance Sheets will impact our regulatory capital ratios. We have compiled a preliminary inventory of our leases and continue to evaluate the standard. We anticipate that this ASU will impact total assets and total liabilities presented on our Balance Sheets; however, we do not believe that it will materially impact our Statements of Comprehensive Income.

10


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 share and per share data)
2018
 
2017
Numerator for Earnings per Share—Basic:

 

Net income
$
26,163

 
$
18,188

Less: Income allocated to participating shares
80

 
60

Net Income Allocated to Shareholders
$
26,083

 
$
18,128

 
 
 
 
Numerator for Earnings per Share—Diluted:

 

Net income
$
26,163

 
$
18,188

Net Income Available to Shareholders
$
26,163

 
$
18,188

 
 
 
 
Denominators for Earnings per Share:

 

Weighted Average Shares Outstanding—Basic
34,756,726

 
34,690,250

Add: Potentially dilutive shares
242,439

 
222,011

Denominator for Treasury Stock Method—Diluted
34,999,165

 
34,912,261

 
 
 
 
Weighted Average Shares Outstanding—Basic
34,756,726

 
34,690,250

Add: Average participating shares outstanding
106,722

 
115,395

Denominator for Two-Class Method—Diluted
34,863,448

 
34,805,645

 
 
 
 
Earnings per share—basic
$
0.75

 
$
0.52

Earnings per share—diluted
$
0.75

 
$
0.52

Warrants considered anti-dilutive excluded from potentially dilutive shares - exercise price $31.53 per share, expires January 2019
400,722

 
447,103

Restricted stock considered anti-dilutive excluded from potentially dilutive shares
90,298

 
79,544


11


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

NOTE 3. FAIR VALUE MEASUREMENTS

We use fair value measurements when recording and disclosing certain financial assets and liabilities. Debt securities, equity securities, 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 are developed based on market data that we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.
The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.
Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.
Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our policy is to recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.
The following are descriptions of the valuation methodologies that we use for financial instruments recorded at fair value on either a recurring or nonrecurring basis.
Recurring Basis
Debt Securities Available-for-Sale
We obtain fair values for debt securities from a third-party pricing service which utilizes several sources for valuing fixed-income securities. We validate prices received from our pricing service through comparison to a secondary pricing service and broker quotes. We review the methodologies of the pricing 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, and extensive quality control programs.

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

12


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.

13


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 and intent to hold our financial instruments to maturity and to not engage in trading or sales activities with respect to such financial instruments. For fair value disclosure purposes, we substantially utilize the fair value measurement criteria as required and explained above. In cases where quoted fair values are not available, we use present value methods to determine the fair value of our financial instruments.
Cash and Cash Equivalents
The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks, including interest-bearing deposits, approximate fair value.
Loans
With the adoption of ASU 2016-01 on January 1, 2018, we refined our methodology to estimate the fair value of our loan portfolio to use the exit price notion as required by the standard. The guidance was applied on a prospective basis resulting in prior-periods no longer being comparable.
The fair value of variable rate loans that may reprice frequently at short-term market rates is based on carrying values adjusted for liquidity and credit risk. The fair value of variable rate loans that reprice at intervals of one year or longer, such as adjustable rate mortgage products, is estimated using discounted cash flow analyses that utilize interest rates currently being offered for similar loans and adjusted for liquidity and credit risk. The fair value of fixed rate loans is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans adjusted for liquidity and credit risk.
Bank Owned Life Insurance
Fair value approximates net cash surrender value of bank owned life insurance, or BOLI.
Federal Home Loan Bank, or FHLB, and Other Restricted Stock
It is not practical to determine the fair value of our FHLB and other restricted stock due to the restrictions placed on the transferability of these stocks; it is presented at carrying value.
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.

14


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

NOTE 3. FAIR VALUE MEASUREMENTS – continued

Long-Term Borrowings
The fair values disclosed for fixed rate long-term borrowings are determined by discounting their contractual cash flows using current interest rates for long-term borrowings of similar remaining maturities. The carrying amounts of variable rate long-term borrowings approximate their fair values.
Junior Subordinated Debt Securities
The interest rate on the variable rate junior subordinated debt securities is reset quarterly; therefore, the carrying values approximate their fair values.
Loan Commitments and Standby Letters of Credit
Off-balance sheet financial instruments consist of commitments to extend credit and letters of credit. Except for interest rate lock commitments, estimates of the fair value of these off-balance sheet items are not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
Other
Estimates of fair value are not made for items that are not defined as financial instruments, including such items as our core deposit intangibles and the value of our trust operations.
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, 2018 and December 31, 2017. 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, 2018
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS
 
 
 
 
 
 
 
Debt securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
14,661

 
$

 
$
14,661

Obligations of U.S. government corporations and agencies

 
160,589

 

 
160,589

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

 
102,582

 

 
102,582

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

 
30,683

 

 
30,683

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

 
248,798

 

 
248,798

Obligations of states and political subdivisions

 
125,141

 

 
125,141

Total Debt Securities Available-for-Sale

 
682,454

 

 
682,454

Marketable equity securities(1)

 
5,196

 

 
5,196

Total Securities

 
687,650

 

 
687,650

Trading securities held in a Rabbi Trust
5,048

 

 

 
5,048

Derivative financial assets:
 
 
 
 
 
 
 
Interest rate swaps

 
4,669

 

 
4,669

Interest rate lock commitments

 
271

 

 
271

Total Assets
$
5,048

 
$
692,590

 
$

 
$
697,638

LIABILITIES
 
 
 
 
 
 
 
Derivative financial liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
4,765

 
$

 
$
4,765

Forward sale contracts

 
24

 

 
24

Total Liabilities
$

 
$
4,789

 
$

 
$
4,789

(1)ASU 2016-01 was adopted January 1, 2018, resulting in separate classification of our marketable equity securities previously included in available-for-sale securities.


15


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

NOTE 3. FAIR VALUE MEASUREMENTS – continued

 
December 31, 2017
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS
 
 
 
 
 
 
 
Debt securities available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$

 
$
19,789

 
$

 
$
19,789

Obligations of U.S. government corporations and agencies

 
162,193

 

 
162,193

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

 
108,688

 

 
108,688

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

 
32,854

 

 
32,854

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

 
242,221

 

 
242,221

Obligations of states and political subdivisions

 
127,402

 

 
127,402

Marketable equity securities

 
5,144

 

 
5,144

Total Debt Securities Available-for-Sale

 
698,291

 

 
698,291

Total Securities

 
698,291

 

 
698,291

Trading securities held in a Rabbi Trust
5,080

 

 

 
5,080

Derivative financial assets:
 
 
 
 
 
 
 
Interest rate swaps

 
3,074

 

 
3,074

Interest rate lock commitments

 
226

 

 
226

Total Assets
$
5,080

 
$
701,591

 
$

 
$
706,671

LIABILITIES
 
 
 
 
 
 
 
Derivative financial liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$

 
$
3,055

 
$

 
$
3,055

Forward sale contracts

 
5

 

 
5

Total Liabilities
$

 
$
3,060

 
$

 
$
3,060


We classify financial instruments as Level 3 when valuation models are used because significant inputs are not observable in the market.     
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, 2018 or December 31, 2017.
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, 2018
 
December 31, 2017
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS(1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held for sale
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

Impaired loans

 

 
6,551

 
6,551

 

 

 
6,759

 
6,759

Other real estate owned

 

 
2,880

 
2,880

 

 

 
444

 
444

Mortgage servicing rights

 

 
106

 
106

 

 

 
178

 
178

Total Assets
$

 
$

 
$
9,537

 
$
9,537

 
$

 
$

 
$
7,381

 
$
7,381

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

16


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, 2018 and December 31, 2017 are presented in the following tables:
 
Carrying
Value(1) 
 
Fair Value Measurements at March 31, 2018
(dollars in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
 
 
Cash and due from banks, including interest-bearing deposits
$
112,849

 
$
112,849

 
$
112,849

 
$

 
$

Securities
687,650

 
687,650

 

 
687,650

 

Loans held for sale
3,283

 
3,377

 

 

 
3,377

Portfolio loans, net
5,671,567

 
5,530,443

 

 

 
5,530,443

Bank owned life insurance
72,629

 
72,629

 

 
72,629

 

FHLB and other restricted stock
29,769

 
29,769

 

 

 
29,769

Trading securities held in a Rabbi Trust
5,048

 
5,048

 
5,048

 

 

Mortgage servicing rights
4,182

 
5,023

 

 

 
5,023

Interest rate swaps
4,669

 
4,669

 

 
4,669

 

Interest rate lock commitments
271

 
271

 

 
271

 

LIABILITIES
 
 

 
 
 
 
 
 
Deposits
$
5,387,094

 
$
5,372,506

 
$

 
$

 
$
5,372,506

Securities sold under repurchase agreements
44,617

 
44,617

 

 

 
44,617

Short-term borrowings
525,000

 
525,000

 

 

 
525,000

Long-term borrowings
46,684

 
46,892

 

 

 
46,892

Junior subordinated debt securities
45,619

 
45,619

 

 

 
45,619

Interest rate swaps
4,765

 
4,765

 

 
4,765

 

Interest rate lock commitments
24

 
24

 

 
24

 

(1) As reported in the Consolidated Balance Sheets
 
 
 
 
 
 
 
 
 
 
Carrying
Value(1)
 
Fair Value Measurements at December 31, 2017
(dollars in thousands)
 
Total
 
Level 1
 
Level 2
 
Level 3
ASSETS
 
 
 
 
 
 
 
 
 
Cash and due from banks, including interest-bearing deposits
$
117,152

 
$
117,152

 
$
117,152

 
$

 
$

Securities
698,291

 
698,291

 

 
698,291

 

Loans held for sale
4,485

 
4,583

 

 

 
4,583

Portfolio loans, net
5,705,059

 
5,690,292

 

 

 
5,690,292

Bank owned life insurance
72,150

 
72,150

 

 
72,150

 

FHLB and other restricted stock
29,270

 
29,270

 

 

 
29,270

Trading securities held in a Rabbi Trust
5,080

 
5,080

 
5,080

 

 

Mortgage servicing rights
4,133

 
4,571

 

 

 
4,571

Interest rate swaps
3,074

 
3,074

 

 
3,074

 

Interest rate lock commitments
226

 
226

 

 
226

 

LIABILITIES
 
 
 
 
 
 
 
 
 
Deposits
$
5,427,891

 
$
5,426,928

 
$

 
$

 
$
5,426,928

Securities sold under repurchase agreements
50,161

 
50,161

 

 

 
50,161

Short-term borrowings
540,000

 
540,000

 

 

 
540,000

Long-term borrowings
47,301

 
47,618

 

 

 
47,618

Junior subordinated debt securities
45,619

 
45,619

 

 

 
45,619

Interest rate swaps
3,055

 
3,055

 

 
3,055

 

Interest rate lock commitments
5

 
5

 

 
5

 

(1) As reported in the Consolidated Balance Sheets 
 
 
 
 
 
 
 
 
 

17


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

The following table presents the fair values of our securities portfolio at the dates presented:
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Debt securities available for sale
682,454

 
693,147

Marketable equity securities
5,196

 
5,144

Total Securities
687,650

 
698,291

Debt Securities Available for Sale
The following tables present the amortized cost and fair value of debt securities available for sale as of March 31, 2018 and debt and equity securities available for sale as of December 31, 2017:
 
March 31, 2018
 
December 31, 2017
(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
$
14,951

 
$

 
$
(290
)
 
$
14,661

 
$
19,943

 
$

 
$
(154
)
 
$
19,789

Obligations of U.S. government corporations and agencies
161,844

 
62

 
(1,317
)
 
160,589

 
162,045

 
341

 
(193
)
 
162,193

Collateralized mortgage obligations of U.S. government corporations and agencies
105,063

 
2

 
(2,483
)
 
102,582

 
109,916

 
93

 
(1,321
)
 
108,688

Residential mortgage-backed securities of U.S. government corporations and agencies
30,700

 
443

 
(460
)
 
30,683

 
32,388

 
679

 
(213
)
 
32,854

Commercial mortgage-backed securities of U.S. government corporations and agencies (1)
255,043

 

 
(6,245
)
 
248,798

 
244,018

 
247

 
(2,044
)
 
242,221

Obligations of states and political subdivisions
122,650

 
2,563

 
(72
)
 
125,141

 
123,159

 
4,285

 
(42
)
 
127,402

Total Debt Securities Available-for-Sale
690,251

 
3,070

 
(10,867
)
 
682,454

 
691,469

 
5,645

 
(3,967
)
 
693,147

Total equity securities (2)

 

 

 

 
3,815

 
1,330

 
(1
)
 
5,144

Total Securities
$
690,251

 
$
3,070

 
$
(10,867
)
 
$
682,454

 
$
695,284

 
$
6,975

 
$
(3,968
)
 
$
698,291

(1) Includes a $5.9 million security purchase that was pending settlement as of December 31, 2017.
(2) ASU 2016-01 was adopted January 1, 2018, resulting in separate classification of our marketable equity securities previously included in available-for-sale securities.

18


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

NOTE 4. SECURITIES – continued

The following tables present the fair value and the age of gross unrealized losses on debt securities available for sale by investment category as of the dates presented:
 
March 31, 2018
 
Less Than 12 Months
 
12 Months or More
 
Total
(dollars in thousands)
Number of Securities
 
Fair Value

 
Unrealized
Losses

 
Number of Securities
 
Fair Value

 
Unrealized
Losses

 
Number of Securities
 
Fair Value

 
Unrealized
Losses

U.S. Treasury securities
2
 
$
14,661

 
$
(290
)
 
 
$

 
$

 
2
 
$
14,661

 
$
(290
)
Obligations of U.S. government corporations and agencies
16
 
130,823

 
(1,274
)
 
1
 
10,000

 
(43
)
 
17
 
140,823

 
(1,317
)
Collateralized mortgage obligations of U.S. government corporations and agencies
8
 
55,695

 
(800
)
 
7
 
43,184

 
(1,683
)
 
15
 
98,879

 
(2,483
)
Residential mortgage-backed securities of U.S. government corporations and agencies
3
 
4,861

 
(106
)
 
2
 
7,976

 
(354
)
 
5
 
12,837

 
(460
)
Commercial mortgage-backed securities of U.S. government corporations and agencies
22
 
201,051

 
(4,170
)
 
5
 
47,747

 
(2,075
)
 
27
 
248,798

 
(6,245
)
Obligations of states and political subdivisions
5
 
23,700

 
(72
)
 
 

 

 
5
 
23,700

 
(72
)
Total Temporarily Impaired Debt Securities
56
 
$
430,791

 
$
(6,712
)
 
15
 
$
108,907

 
$
(4,155
)
 
71
 
$
539,698

 
$
(10,867
)

 
December 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
3
 
$
19,789

 
$
(154
)
 
 
$

 
$

 
3
 
$
19,789

 
$
(154
)
Obligations of U.S. government corporations and agencies
9
 
63,635

 
(144
)
 
1
 
10,017

 
(49
)
 
10
 
73,652

 
(193
)
Collateralized mortgage obligations of U.S. government corporations and agencies
7
 
47,465

 
(248
)
 
7
 
45,809

 
(1,073
)
 
14
 
93,274

 
(1,321
)
Residential mortgage-backed securities of U.S. government corporations and agencies
1
 
2,333

 
(10
)
 
2
 
8,638

 
(203
)
 
3
 
10,971

 
(213
)
Commercial mortgage-backed securities of U.S. government corporations and agencies
14
 
128,300

 
(775
)
 
5
 
48,746

 
(1,269
)
 
19
 
177,046

 
(2,044
)
Obligations of states and political subdivisions
2
 
10,330

 
(42
)
 
 

 

 
2
 
10,330

 
(42
)
Total Temporarily Impaired Debt Securities
36
 
$
271,852

 
$
(1,373
)
 
15
 
$
113,210

 
$
(2,594
)
 
51
 
$
385,062

 
$
(3,967
)
We do not believe any individual unrealized loss as of March 31, 2018 represents an other than temporary impairment, or OTTI. At March 31, 2018 there were 71 debt securities and at December 31, 2017 there were 51 debt securities in an unrealized loss position. 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 more likely than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost.

19


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

NOTE 4. SECURITIES – continued

The following table presents net unrealized gains and losses, net of tax, on debt securities available-for-sale included in accumulated other comprehensive income/(loss), for the periods presented:
 
March 31, 2018
 
December 31, 2017
(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 debt securities available-for-sale
$
3,070

 
$
(10,867
)
 
$
(7,797
)
 
$
5,645

 
$
(3,967
)
 
$
1,678

Income tax (expense)benefit
(652
)
 
2,308

 
1,656

 
(1,982
)
 
1,393

 
(589
)
Net Unrealized Gains/(losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss)
$
2,418

 
$
(8,559
)
 
$
(6,141
)
 
$
3,663

 
$
(2,574
)
 
$
1,089

The amortized cost and fair value of debt securities available-for-sale at March 31, 2018 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, 2018
(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
$
43,472

 
$
43,372

Due after one year through five years
148,616

 
148,787

Due after five years through ten years
78,565

 
78,767

Due after ten years
28,792

 
29,465

 
299,445

 
300,391

Collateralized mortgage obligations of U.S. government corporations and agencies
105,063

 
102,582

Residential mortgage-backed securities of U.S. government corporations and agencies
30,700

 
30,683

Commercial mortgage-backed securities of U.S. government corporations and agencies
255,043

 
248,798

Total Debt Securities Available-for-Sale
$
690,251

 
$
682,454

At March 31, 2018 and December 31, 2017, debt securities with carrying values of $221 million and $249 million were pledged for various regulatory and legal requirements.
Marketable Equity Securities
The following table presents realized and unrealized net gains and losses for our marketable equity securities for the periods presented:
 
Three months ended March 31,
(dollars in thousands)
2018

 
2017

Marketable Equity Securities
 
 
 
Net gains/losses recognized during the period
$
52

 
$
733

Less: Net gains/losses recognized for equity securities sold during the period

 
370

Unrealized Gains/Losses Recognized on Equity Securities Still Held
$
52

 
$
363

Prior to January 1, 2018, net unrealized gains and losses, net of tax, on marketable equity securities were included in AOCI for the periods presented. Net unrealized gains and losses, net of tax on marketable equity securities of $0.9 million were reclassified from AOCI to retained earnings at January 1, 2018.


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 $5.1 million and $5.2 million at March 31, 2018 and December 31, 2017.
The following table indicates the composition of loans as of the dates presented:
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Commercial

 

Commercial real estate
$
2,760,891

 
$
2,685,994

Commercial and industrial
1,406,950

 
1,433,266

Commercial construction
324,141

 
384,334

Total Commercial Loans
4,491,982

 
4,503,594

Consumer

 

Residential mortgage
692,385

 
698,774

Home equity
474,850

 
487,326

Installment and other consumer
66,890

 
67,204

Consumer construction
4,506

 
4,551

Total Consumer Loans
1,238,631

 
1,257,855

Total Portfolio Loans
5,730,613

 
5,761,449

Loans held for sale
3,283

 
4,485

Total Loans
$
5,733,896

 
$
5,765,934


We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments. Total commercial loans represented 78 percent of total portfolio loans at both March 31, 2018 and December 31, 2017. Within our commercial portfolio, the CRE and Commercial Construction portfolios combined comprised $3.1 billion or 69 percent of total commercial loans and 54 percent of total portfolio loans at March 31, 2018 and comprised of $3.1 billion or 68 percent of total commercial loans and 53 percent of total portfolio loans at December 31, 2017. Further segmentation of the CRE and Commercial Construction portfolios by collateral type reveals no concentration in excess of 13 percent of both total CRE and Commercial Construction loans at March 31, 2018 and 14 percent at December 31, 2017.
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 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 and information supplied by our customers. Our CRE and Commercial Construction portfolios have out-of-market exposure of 5.0 percent of their combined portfolios and 2.7 percent of total portfolio loans at March 31, 2018. This compares to 5.2 percent of their combined portfolios and 2.8 percent of total portfolio loans at December 31, 2017.
We individually evaluate all substandard commercial loans that have experienced a forbearance or change in terms agreement, and all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan, to determine if they should be designated as troubled debt restructurings, or TDRs.
All TDRs are considered to be impaired loans and will be reported as impaired loans for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is fully expected that the remaining principal and interest will be collected according to the restructured agreement. Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.

21


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

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued

The following table summarizes restructured loans as of the dates presented:
 
March 31, 2018
 
December 31, 2017
(dollars in thousands)
Performing
TDRs
 
Nonperforming
TDRs
 
Total
TDRs
 
Performing
TDRs
 
Nonperforming
TDRs
 
Total
TDRs
Commercial real estate
$
2,298

 
$
944

 
$
3,242

 
$
2,579

 
$
967

 
$
3,546

Commercial and industrial
9,403

 
3,036

 
12,439

 
3,946

 
3,197

 
7,143

Commercial construction
2,400

 
414

 
2,814

 
2,420

 
2,413

 
4,833

Residential mortgage
2,178

 
2,640

 
4,818

 
2,039

 
3,585

 
5,624

Home equity
3,713

 
1,520

 
5,233

 
3,885

 
979

 
4,864

Installment and other consumer
43

 
6

 
49

 
32

 
9

 
41

Total
$
20,035

 
$
8,560

 
$
28,595

 
$
14,901

 
$
11,150

 
$
26,051

There were no TDRs returned to accruing status during the three months ended March 31, 2018 and March 31, 2017.
The following tables present the restructured loans by loan segment and by type of concession for the three months ended March 31, 2018 and 2017:
 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017
(dollars in thousands)
Number of
Loans
 
Pre-Modification
Outstanding
Recorded
Investment
(1)
 
Post-Modification
Outstanding
Recorded
Investment
(1)
 
Total  Difference
in Recorded
Investment
 
Number of
Loans
 
Pre-Modification
Outstanding
Recorded
Investment
(1)
 
Post-Modification
Outstanding
Recorded
Investment
(1)
 
Total  Difference
in Recorded
Investment
Totals by Loan Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Maturity date extension
2

 
$
768

 
$
708

 
$
(60
)
 

 
$

 
$

 
$

Principal deferral
6

 
5,355

 
5,333

 
(22
)
 

 

 

 

Total Commercial and Industrial
8

 
6,123

 
6,041

 
(82
)
 

 

 

 

Commercial Construction
 
 
.
 
 
 
 
 
 
 
 
 
 
 

Chapter 7 bankruptcy(2)
2

 
158

 
157

 
(1
)
 

 

 

 

Total Commercial Construction
2

 
158

 
157

 
(1
)
 

 

 

 

Home equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Chapter 7 bankruptcy(2)
9

 
578

 
555

 
(23
)
 
6

 
269

 
266

 
(3
)
Maturity date extension and interest rate reduction

 

 

 

 
1

 
173

 
172

 
(1
)
Total Home Equity
9

 
578

 
555

 
(23
)
 
7

 
442

 
438

 
(4
)
Installment and other consumer
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Chapter 7 bankruptcy(2)
2

 
17

 
17

 

 

 

 

 

Total Installment and Other Consumer
2

 
17

 
17

 

 

 

 

 

Totals by Concession Type
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Chapter 7 bankruptcy(2)
13


$
753


$
729

 
$
(24
)
 
6


$
269


$
266

 
$
(3
)
Maturity date extension
2

 
768

 
708

 
(60
)
 

 

 

 

Maturity date extension and interest rate reduction

 

 

 

 
1

 
173

 
172

 
(1
)
Principal deferral
6

 
5,355

 
5,333

 
(22
)
 

 

 

 

Total
21

 
$
6,876

 
$
6,770

 
$
(106
)
 
7

 
$
442

 
$
438

 
$
(4
)
(1) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end.
(2) Chapter 7 bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.

As of March 31, 2018, we had no commitments to lend additional funds on TDRs. Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place. There were no TDRs that defaulted during the three months ended March 31, 2018 and 2017 that were restructured within the last 12 months prior to defaulting.

22


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

NOTE 5. LOANS AND LOANS HELD FOR SALE - continued

The following table is a summary of nonperforming assets as of the dates presented:
 
Nonperforming Assets
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Nonperforming Assets

 

Nonaccrual loans
$
12,775

 
$
12,788

Nonaccrual TDRs
8,560

 
11,150

Total Nonaccrual Loans
21,335

 
23,938

OREO
2,920

 
469

Total Nonperforming Assets
$
24,255

 
$
24,407


NOTE 6. ALLOWANCE FOR LOAN LOSSES
We maintain an allowance for loan losses, or ALL, at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date. We develop and document a systematic ALL methodology based on the following portfolio segments: 1) CRE, 2) C&I, 3) Commercial Construction, 4) Consumer Real Estate and 5) Other Consumer.
The following are key risks within each portfolio segment:
CRE—Loans secured by commercial purpose real estate, including both owner-occupied properties and investment properties for various purposes such as hotels, strip malls and apartments. Operations of the individual projects and global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type and the business prospects of the lessee, if the project is not owner-occupied.
C&I—Loans made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the company is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the company. Collateral for these types of loans often do not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.
Commercial Construction—Loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.
Consumer Real Estate—Loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.
Other Consumer—Loans made to individuals that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans, unsecured loans and lines and credit cards. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.
We further assess risk within each portfolio segment by pooling loans with similar risk characteristics. For the commercial loan classes, the most important indicator of risk is the internally assigned risk rating, including pass, special mention and substandard. Consumer loans are pooled by type of collateral, lien position and loan to value, or LTV, for Consumer Real Estate loans. Historical loss rates are applied to these loan pools to determine the reserve for loans collectively evaluated for impairment.

23


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

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The ALL methodology for groups of loans collectively evaluated for impairment is comprised of both a quantitative and qualitative analysis. A key assumption in the quantitative component of the reserve is the loss emergence period, or LEP. The LEP is an estimate of the average amount of time from the point at which a loss is incurred on a loan to the point at which the loss is confirmed. Another key assumption is the look-back period, or LBP, which represents the historical data period utilized to calculate loss rates.
Management monitors various credit quality indicators for both the commercial and consumer loan portfolios, including delinquency, nonperforming status and changes in risk ratings on a monthly basis.
The following tables present the age analysis of past due loans segregated by class of loans as of the dates presented:
 
March 31, 2018
(dollars in thousands)
Current

 
30-59 Days
Past Due

 
60-89 Days
Past Due

 
Non - performing

 
Total Past
Due Loans

 
Total Loans

Commercial real estate
$
2,755,336

 
$
1,162

 
$
441

 
$
3,952

 
$
5,555

 
$
2,760,891

Commercial and industrial
1,401,154

 
1,059

 
120

 
4,617

 
5,796

 
1,406,950

Commercial construction
321,900

 
368

 

 
1,873

 
2,241

 
324,141

Residential mortgage
682,092

 
3,125

 
453

 
6,715

 
10,293

 
692,385

Home equity
468,762

 
1,603

 
376

 
4,109

 
6,088

 
474,850

Installment and other consumer
66,551

 
189

 
81

 
69

 
339

 
66,890

Consumer construction
4,506

 

 

 

 

 
4,506

Loans held for sale
3,283

 

 

 

 

 
3,283

Total
$
5,703,584

 
$
7,506

 
$
1,471

 
$
21,335

 
$
30,312

 
$
5,733,896

 
December 31, 2017
(dollars in thousands)
Current

 
30-59 Days
Past Due

 
60-89 Days
Past Due

 
Non - performing

 
Total Past
Due Loans

 
Total Loans

Commercial real estate
$
2,681,395

 
$
997

 
$
134

 
$
3,468

 
$
4,599

 
$
2,685,994

Commercial and industrial
1,426,754

 
420

 
446

 
5,646

 
6,512

 
1,433,266

Commercial construction
377,968

 
2,473

 
20

 
3,873

 
6,366

 
384,334

Residential mortgage
687,195

 
2,975

 
1,439

 
7,165

 
11,579

 
698,774

Home equity
480,956

 
2,065

 
590

 
3,715

 
6,370

 
487,326

Installment and other consumer
66,770

 
193

 
170

 
71

 
434

 
67,204

Consumer construction
4,551

 

 

 

 

 
4,551

Loans held for sale
4,485

 

 

 

 

 
4,485

Total
$
5,730,074

 
$
9,123

 
$
2,799

 
$
23,938

 
$
35,860

 
$
5,765,934

We continually monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans within the pass rating generally have a lower risk of loss than loans risk rated as special mention or substandard.
Our risk ratings are consistent with regulatory guidance and are as follows:
Pass—The loan is currently performing and is of high quality.
Special Mention—A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in the strength of our credit position at some future date. Economic and market conditions, beyond the borrower’s control, may in the future necessitate this classification.
Substandard—A substandard loan is not adequately protected by the net worth and/or paying capacity of the borrower or by the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

24


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

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The following tables present the recorded investment in commercial loan classes by internally assigned risk ratings as of the dates presented:
 
March 31, 2018
(dollars in thousands)
Commercial
Real Estate
% of
Total
 
Commercial
and Industrial
% of
Total
 
Commercial
Construction
% of
Total
 
Total
% of
Total
Pass
$
2,625,232

95.1
%
 
$
1,294,478

92.0
%
 
$
303,985

93.8
%
 
$
4,223,695

94.0
%
Special mention
68,204

2.5
%
 
65,557

4.7
%
 
14,919

4.6
%
 
148,680

3.3
%
Substandard
67,455

2.4
%
 
46,915

3.3
%
 
5,237

1.6
%
 
119,607

2.7
%
Total
$
2,760,891

100.0
%
 
$
1,406,950

100.0
%
 
$
324,141

100.0
%
 
$
4,491,982

100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
(dollars in thousands)
Commercial
Real Estate
% of
Total
 
Commercial
and Industrial
% of
Total
 
Commercial
Construction
% of
Total
 
Total
% of
Total
Pass
$
2,588,847

96.4
%
 
$
1,345,810

93.9
%
 
$
368,105

95.8
%
 
$
4,302,762

95.5
%
Special mention
66,436

2.5
%
 
54,320

3.8
%
 
9,345

2.4
%
 
130,101

2.9
%
Substandard
30,711

1.1
%
 
33,136

2.3
%
 
6,884

1.8
%
 
70,731

1.6
%
Total
$
2,685,994

100.0
%
 
$
1,433,266

100.0
%
 
$
384,334

100.0
%
 
$
4,503,594

100.0
%
We monitor the delinquent status of the consumer portfolio on a monthly basis. Loans are considered nonperforming when interest and principal are 90 days or more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans.
The following tables present the recorded investment in consumer loan classes by performing and nonperforming status as of the dates presented:
 
March 31, 2018
(dollars in thousands)
Residential
Mortgage
% of
Total
 
Home
Equity
% of
Total
 
Installment
and other
consumer
% of
Total
 
Consumer
Construction
% of
Total
 
Total
% of
Total
Performing
$
685,670

99.0
%
 
$
470,741

99.1
%
 
$
66,821

99.9
%
 
$
4,506

100.0
%
 
$
1,227,738

99.1
%
Nonperforming
6,715

1.0
%
 
4,109

0.9
%
 
69

0.1
%
 

%
 
10,893

0.9
%
Total
$
692,385

100.0
%
 
$
474,850

100.0
%
 
$
66,890

100.0
%
 
$
4,506

100.0
%
 
$
1,238,631

100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
(dollars in thousands)
Residential
Mortgage
% of
Total
 
Home
Equity
% of
Total
 
Installment
and other
consumer
% of
Total
 
Consumer
Construction
% of
Total
 
Total
% of
Total
Performing
$
691,609

99.0
%
 
$
483,611

99.2
%
 
$
67,133

99.9
%
 
$
4,551

100.0
%
 
$
1,246,904

99.1
%
Nonperforming
7,165

1.0
%
 
3,715

0.8
%
 
71

0.1
%
 

%
 
10,951

0.9
%
Total
$
698,774

100.0
%
 
$
487,326

100.0
%
 
$
67,204

100.0
%
 
$
4,551

100.0
%
 
$
1,257,855

100.0
%
We individually evaluate all substandard and nonaccrual commercial loans greater than $0.5 million for impairment. Loans are considered to be impaired when based upon current information and events it is probable that we will be unable to collect all principal and interest payments due according to the original contractual terms of the loan agreement. All TDRs will be reported as an impaired loan for the remaining life of the loan, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and it is expected that the remaining principal and interest will be fully collected according to the restructured agreement. For all TDRs, regardless of size, all other impaired loans, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate.

25


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

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The following tables summarize investments in loans considered to be impaired and related information on those impaired loans as of the dates presented:
 
March 31, 2018
 
December 31, 2017
(dollars in thousands)
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
With a related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
$

 
$

 
$

 
$

 
$

 
$

Commercial and industrial
656

 
671

 
537

 
1,735

 
1,787

 
29

Commercial construction

 

 

 

 

 

Consumer real estate

 

 

 
21

 
21

 
21

Other consumer
39

 
39

 
39

 
27

 
27

 
27

Total with a Related Allowance Recorded
695

 
710

 
576

 
1,783

 
1,835

 
77

Without a related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
3,774

 
4,034

 

 
3,546

 
3,811

 

Commercial and industrial
11,917

 
13,972

 

 
5,549

 
7,980

 

Commercial construction
3,444

 
4,954

 

 
5,464

 
8,132

 

Consumer real estate
10,052

 
10,987

 

 
10,467

 
11,357

 

Other consumer
10

 
17

 

 
14

 
22

 

Total without a Related Allowance Recorded
29,197

 
33,964

 

 
25,040

 
31,302

 

Total:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
3,774

 
4,034

 

 
3,546

 
3,811

 

Commercial and industrial
12,573

 
14,643

 
537

 
7,284

 
9,767

 
29

Commercial construction
3,444

 
4,954

 

 
5,464

 
8,132

 

Consumer real estate
10,052

 
10,987

 

 
10,488

 
11,378

 
21

Other consumer
49

 
56

 
39

 
41

 
49

 
27

Total
$
29,892

 
$
34,674

 
$
576

 
$
26,823

 
$
33,137

 
$
77



26


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

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The following table summarizes average recorded investment in and interest income recognized on loans considered to be impaired for the periods presented:
 
Three Months Ended
 
March 31, 2018
 
March 31, 2017
(dollars in thousands)
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
With a related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
$

 
$

 
$

 
$

Commercial and industrial
586

 
11

 
10,008

 
72

Commercial construction

 

 

 

Consumer real estate

 

 
26

 

Other consumer
42

 
1

 
1

 

Total with a Related Allowance Recorded
628

 
12

 
10,035

 
72

Without a related allowance recorded:
 
 
 
 
 
 
 
Commercial real estate
3,817

 
43

 
8,581

 
33

Commercial and industrial
6,688

 
110

 
11,410

 
43

Commercial construction
3,446

 
36

 
6,239

 
37

Consumer real estate
10,816

 
138

 
11,692

 
129

Other consumer
12

 

 
22

 

Total without a Related Allowance Recorded
24,779

 
327

 
37,944

 
242

Total:
 
 
 
 
 
 
 
Commercial real estate
3,817

 
43

 
8,581

 
33

Commercial and industrial
7,274

 
121

 
21,418

 
115

Commercial construction
3,446

 
36

 
6,239

 
37

Consumer real estate
10,816

 
138

 
11,718

 
129

Other consumer
54

 
1

 
23

 

Total
$
25,407

 
$
339

 
$
47,979

 
$
314

 
 
 
 
 
 
 
 


27


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

NOTE 6. ALLOWANCE FOR LOAN LOSSES – continued

The following tables detail activity in the ALL for the periods presented:
 
Three Months Ended March 31, 2018
(dollars in thousands)
Commercial
Real Estate
 
Commercial and
Industrial
 
Commercial
Construction
 
Consumer
Real Estate
 
Other
Consumer
 
Total
Loans
Balance at beginning of period
$
27,235

 
$
8,966

 
$
13,167

 
$
5,479

 
$
1,543

 
$
56,390

Charge-offs

 
(829
)
 

 
(161
)
 
(460
)
 
(1,450
)
Recoveries
49

 
117

 
1,129

 
238

 
101

 
1,634

Net (Charge-offs)/ Recoveries
49

 
(712
)
 
1,129

 
77

 
(359
)
 
184

Provision for loan losses
3,679

 
2,218

 
(3,575
)
 
(138
)
 
288

 
2,472

Balance at End of Period
$
30,963

 
$
10,472

 
$
10,721

 
$
5,418

 
$
1,472

 
$
59,046

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2017
(dollars in thousands)
Commercial
Real Estate
 
Commercial and
Industrial
 
Commercial
Construction
 
Consumer
Real Estate
 
Other
Consumer
 
Total
Loans
Balance at beginning of period
$
19,976

 
$
10,810

 
$
13,999

 
$
6,095

 
$
1,895

 
$
52,775

Charge-offs
(390
)
 
(715
)
 
(644
)
 
(759
)
 
(434
)
 
(2,942
)
Recoveries
78

 
187

 
256

 
103

 
176

 
800

Net (Charge-offs)/ Recoveries
(312
)
 
(528
)
 
(388
)
 
(656
)
 
(258
)
 
(2,142
)
Provision for loan losses
906

 
2,962

 
491

 
517

 
307

 
5,183

Balance at End of Period
$
20,570

 
$
13,244

 
$
14,102

 
$
5,956

 
$
1,944

 
$
55,816

The following tables present the ALL and recorded investments in loans by category as of the periods presented:
 
March 31, 2018
 
Allowance for Loan Losses
 
Portfolio Loans
(dollars in thousands)
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

 
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

Commercial real estate
$

 
$
30,963

 
$
30,963

 
$
3,774

 
$
2,757,117

 
$
2,760,891

Commercial and industrial
537

 
9,935

 
10,472

 
12,573

 
1,394,377

 
1,406,950

Commercial construction

 
10,721

 
10,721

 
3,444

 
320,697

 
324,141

Consumer real estate

 
5,418

 
5,418

 
10,052

 
1,161,689

 
1,171,741

Other consumer
39

 
1,433

 
1,472

 
49

 
66,841

 
66,890

Total
$
576

 
$
58,470

 
$
59,046

 
$
29,892

 
$
5,700,721

 
$
5,730,613

 
 
December 31, 2017
 
Allowance for Loan Losses
 
Portfolio Loans
(dollars in thousands)
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

 
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

Commercial real estate
$

 
$
27,235

 
$
27,235

 
$
3,546

 
$
2,682,448

 
$
2,685,994

Commercial and industrial
29

 
8,937

 
8,966

 
7,284

 
1,425,982

 
1,433,266

Commercial construction

 
13,167

 
13,167

 
5,464

 
378,870

 
384,334

Consumer real estate
21

 
5,458

 
5,479

 
10,488

 
1,180,163

 
1,190,651

Other consumer
27

 
1,516

 
1,543

 
41

 
67,163

 
67,204

Total
$
77

 
$
56,313

 
$
56,390

 
$
26,823

 
$
5,734,626

 
$
5,761,449

 


28


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

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Interest Rate Swaps
In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the balance sheet at fair value. Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate loan with us receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.
Pursuant to our agreements with various financial institutions, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.
Derivatives contain an element of credit risk, the possibility that we will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by our Asset and Liability Committee, or ALCO, and derivatives with customers may only be executed with customers within credit exposure limits approved by our Senior Loan Committee. Interest rate swaps are considered derivatives, but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings and included in other noninterest income in the Consolidated Statements of Comprehensive Income.
Interest Rate Lock Commitments and Forward Sale Contracts
In the normal course of business, we sell originated mortgage loans into the secondary mortgage loan market. We also offer interest rate lock commitments to potential borrowers. The commitments are generally for a period of 60 days and guarantee a specified interest rate for a loan if underwriting standards are met, but the commitment does not obligate the potential borrower to close on the loan. Accordingly, some commitments expire prior to becoming loans. We may encounter pricing risks if interest rates increase significantly before the loan can be closed and sold. We may utilize forward sale contracts in order to mitigate this pricing risk. Whenever a customer desires these products, a mortgage originator quotes a secondary market rate guaranteed for that day by the investor. The rate lock is executed between the mortgagee and us and in turn a forward sale contract may be executed between us and the investor. Both the rate lock commitment and the corresponding forward sale contract for each customer are considered derivatives, but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives during the commitment period are recorded in current earnings and included in mortgage banking in the Consolidated Statements of Comprehensive Income.
The following tables indicate the amounts representing the value of derivative assets and derivative liabilities as of the dates presented:
 
Derivatives
(included in Other Assets)
 
Derivatives
(included in Other Liabilities)
(dollars in thousands)
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
Derivatives not Designated as Hedging Instruments:

 

 

 

Interest Rate Swap Contracts- Commercial Loans

 

 

 

Fair value
$
4,669

 
$
3,074

 
$
4,765

 
$
3,055

Notional amount
253,580

 
263,841

 
253,580

 
263,841

Net collateral received/posted
2,011

 

 

 
1,448

Interest Rate Lock Commitments- Mortgage Loans

 

 

 

Fair value
271

 
226

 

 

Notional amount
9,710

 
6,860

 

 

Forward Sale Contracts- Mortgage Loans

 

 

 

Fair value

 

 
24

 
5

Notional amount
$

 
$

 
$
9,165

 
$
6,580


29


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

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued

Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.
The following tables indicate the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets as of the dates presented:
 
Derivatives
(included in Other Assets)
 
Derivatives
(included in Other Liabilities)
(dollars in thousands)
March 31, 2018
 
December 31, 2017
 
March 31, 2018
 
December 31, 2017
Derivatives not Designated as Hedging Instruments:

 

 

 

Gross amounts recognized
$
5,818

 
$
4,974

 
$
5,914

 
$
4,955

Gross amounts offset
(1,149
)
 
(1,900
)
 
(1,149
)
 
(1,900
)
Net Amounts Presented in the Consolidated Balance Sheets
4,669

 
3,074

 
4,765

 
3,055

Gross amounts not offset(1)
(2,011
)
 

 

 
(1,448
)
Net Amount
$
2,658

 
$
3,074

 
$
4,765

 
$
1,607

(1) Amounts represent received/posted collateral.
The following tables indicate the gain or loss recognized in income on derivatives for the periods presented:
 
Three Months Ended March 31,
(dollars in thousands)
2018
 
2017
Derivatives not Designated as Hedging Instruments

 

Interest rate swap contracts—commercial loans
$
115

 
$
24

Interest rate lock commitments—mortgage loans
45

 
233

Forward sale contracts—mortgage loans
(19
)
 
(36
)
Total Derivatives (Loss)/Gain
$
141

 
$
221



30


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



NOTE 8. BORROWINGS
Short-term borrowings are for terms under or equal to one year and are comprised of securities sold under repurchase agreements, or REPOs, and Federal Home Loan Bank, or FHLB, advances. All REPOs are overnight short-term investments and are not insured by the Federal Deposit Insurance Corporation. Securities pledged as collateral under these REPO financing arrangements cannot be sold or repledged by the secured party and therefore, the REPOs are accounted for as a secured borrowing. Mortgage-backed securities with a total carrying value of $49.2 million at March 31, 2018 and $56.8 million at December 31, 2017 were pledged as collateral for these secured transactions. The pledged securities are held in safekeeping at the Federal Reserve. Due to the overnight short-term nature of REPOs, potential risk due to a decline in the value of the pledged collateral is low. Collateral pledging requirements with REPOs are monitored daily. FHLB advances are for various terms and are secured by a blanket lien on residential mortgages and other real estate secured loans.
Long-term borrowings are for original terms greater than one year and are comprised of FHLB advances, a capital lease and junior subordinated debt securities. Long-term FHLB advances are secured by the same loans as short-term FHLB advances. We had total long-term borrowings outstanding of $8.5 million at a fixed rate and $38.1 million at a variable rate at March 31, 2018, excluding our capital lease.
Information pertaining to borrowings is summarized in the table below as of the dates presented:
 
March 31, 2018
 
December 31, 2017
(dollars in thousands)
Balance
Weighted
Average Rate
 
Balance
Weighted
Average Rate
Short-term Borrowings


 


Securities sold under repurchase agreements
$
44,617

0.42
%
 
$
50,161

0.39
%
Short-term borrowings
525,000

1.86
%
 
540,000

1.47
%
Total Short-term Borrowings
569,617

1.75
%
 
590,161

1.38
%
Long-term Borrowings
 
 
 


Long-term borrowings
46,684

2.09
%
 
47,301

1.88
%
Junior subordinated debt securities
45,619

4.58
%
 
45,619

3.78
%
Total Long-term Borrowings
92,303

3.32
%
 
92,920

2.81
%
Total Borrowings
$
661,920

1.97
%
 
$
683,081

1.57
%
We had total borrowings at March 31, 2018 and December 31, 2017 at the FHLB of Pittsburgh of $572 million and $587 million. The $572 million at March 31, 2018 consisted of $525 million in short-term borrowings and $46.7 million in long-term borrowings. Our maximum borrowing capacity with the FHLB of Pittsburgh was $2.5 billion at March 31, 2018. We utilized $709 million of our borrowing capacity at March 31, 2018 consisting of $572 million for borrowings and $137 million for letters of credit to collateralize public funds. Our remaining borrowing availability at March 31, 2018 is $1.8 billion.

31


S&T BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued
NOTE 9. COMMITMENTS AND CONTINGENCIES


Commitments
In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event the customer does not satisfy the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Our allowance for unfunded commitments totaled $2.1 million at March 31, 2018 and $2.2 million at December 31, 2017. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The allowance for unfunded commitments is determined using a similar methodology as our ALL methodology. The reserve is calculated by applying historical loss rates and qualitative adjustments to our unfunded commitments.
Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
The following table sets forth our commitments and letters of credit as of the dates presented:
(dollars in thousands)
March 31, 2018

 
December 31, 2017

Commitments to extend credit
$
1,454,312

 
$
1,420,428

Standby letters of credit
78,985

 
80,918

Total
$
1,533,297

 
$
1,501,346

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

NOTE 10. OTHER COMPREHENSIVE INCOME
The following tables present the change in components of other comprehensive income (loss) for the periods presented, net of tax effects.
 
Three Months Ended March 31, 2018
 
Three months ended March 31, 2017
(dollars in thousands)
Pre-Tax
Amount

 
Tax
(Expense)
Benefit

 
Net of Tax
Amount

 
Pre-Tax
Amount

 
Tax
(Expense)
Benefit

 
Net of Tax
Amount

Change in net unrealized gains/(losses) on debt securities available-for-sale (2)
$
(9,474
)
 
$
2,012

 
$
(7,462
)
 
$
1,662

 
$
(584
)
 
$
1,078

Reclassification adjustment for net (gains)/losses on debt securities available-for-sale included in net income (1)

 

 

 
(370
)
 
130

 
(240
)
Adjustment to funded status of employee benefit plans
621

 
(132
)
 
489

 
539

 
(189
)
 
350

Other Comprehensive Income/(Loss)
$
(8,853
)
 
$
1,880

 
$
(6,973
)
 
$
1,831

 
$
(643
)
 
$
1,188

(1) Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the Consolidated Statements of Comprehensive Income as follows; the pre-tax amount is included in securities gains/losses-net, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net income.
(2) Due to the adoption of ASU 2016-01, net unrealized gains on marketable equity securities were reclassified from Accumulated Other Comprehensive Income to Retained Earnings during the three months ended March 31, 2018. The prior period data was not restated; as such, the change in unrealized gains on marketable securities is combined with the change in net unrealized gains on debit securities for the period ended March 31, 2017.

32

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

NOTE 11. EMPLOYEE BENEFITS

Our qualified and nonqualified defined benefit plans were amended to freeze benefit accruals for all persons entitled to benefits under the plan in 2016. We will continue recording pension expense related to these plans, primarily representing interest costs on the accumulated benefit obligation and amortization of actuarial losses accumulated in the plan, as well as income from expected investment returns on pension assets. The expected long-term rate of return on plan assets is 7.50 percent.
The following table summarizes the components of net periodic pension cost for the periods presented:
 
Three Months Ended March 31,
(dollars in thousands)
2018
 
2017
Components of Net Periodic Pension Cost

 

Service cost—benefits earned during the period
$

 
$

Interest cost on projected benefit obligation
967

 
1,025

Expected return on plan assets
(1,567
)
 
(1,582
)
Amortization of prior service credit
544

 
474

Recognized net actuarial loss

 

Net Periodic Pension Expense
$
(56
)
 
$
(83
)

NOTE 12. QUALIFIED AFFORDABLE HOUSING PROJECTS
We invest in affordable housing projects primarily to satisfy our Community Reinvestment Act requirements. As a limited partner in these operating partnerships, we receive tax credits and tax deductions for losses incurred by the underlying properties. We use the cost method to account for these partnerships. Our total investment in qualified affordable housing projects was $8.0 million at March 31, 2018 and $8.7 million at December 31, 2017. Amortization expense, included in other noninterest expense in the Consolidated Statements of Comprehensive Income, was $0.7 million for the three months ended March 31, 2018 and $0.8 million for the three months ended March 31, 2017. The amortization expense was offset by tax credits of $0.8 million for the three months ended March 31, 2018 and $0.9 million for the three months ended March 31, 2017, a reduction to our federal tax provision.

NOTE 13. SALE OF A MAJORITY INTEREST OF INSURANCE BUSINESS
On November 9, 2017, we entered into an asset purchase agreement to sell a 70 percent ownership interest in the assets of our subsidiary, S&T Evergreen Insurance, LLC. The partial sale was accounted for as the sale of a business. At the date of the sale, January 1, 2018, we ceased to have a controlling financial interest, deconsolidated the subsidiary and recognized a gain of $1.9 million. We transferred our 30 percent share of net assets from S&T Evergreen Insurance, LLC to the new entity for a 30 percent partnership interest in a new insurance entity. We will use the equity-method of accounting to recognize changes in the value of our investment in the new insurance entity for our proportional share of income and losses of the new insurance entity.

NOTE 14. SHARE REPURCHASE PLAN
On March 19, 2018, our Board of Directors authorized a $50 million share repurchase plan. This repurchase authorization, which is effective through August 31, 2019, permits us to repurchase from time to time up to $50 million in aggregate value of shares of our common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at our discretion and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and our financial performance. The repurchase plan does not obligate us to repurchase any particular number of shares. We expect to fund any repurchases from cash on hand and internally generated funds.


33


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations at and for the three month periods ended March 31, 2018 and 2017. Our MD&A should be read in conjunction with our Consolidated Financial Statements and notes. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods.
Important Note Regarding Forward-Looking Statements
This quarterly report on Form 10-Q contains or incorporates statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to our financial condition, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting S&T and its future business and operations. Forward looking statements are typically identified by words or phrases such as “will likely result”, “expect”, “anticipate”, “estimate”, “forecast”, “project”, “intend”, “ believe”, “assume”, “strategy”, “trend”, “plan”, “outlook”, “outcome”, “continue”, “remain”, “potential”, “opportunity”, “believe”, “comfortable”, “current”, “position”, “maintain”, “sustain”, “seek”, “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses; cyber-security concerns; rapid technological developments and changes; sensitivity to the interest rate environment including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; regulatory supervision and oversight; legislation affecting the financial services industry as a whole, and S&T, in particular; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on significant customer relationships; general economic or business conditions; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge to net income; re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses. Many of these factors, as well as other factors, are described in our Annual Report on Form 10-K for the year ended December 31, 2017, including Part I, Item 1A, Risk Factors and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.
Critical Accounting Policies and Estimates
Our critical accounting policies involving significant judgments and assumptions used in the preparation of the Consolidated Financial Statements as of March 31, 2018 have remained unchanged from the disclosures presented in our Annual Report on Form 10-K for the year ended December 31, 2017 under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Overview
We are a bank holding company headquartered in Indiana, Pennsylvania with assets of $7.0 billion at March 31, 2018.  We operate bank branches in Pennsylvania and Ohio and loan production offices in Pennsylvania, Ohio and New York. We provide

34


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

a full range of financial services with retail and commercial banking products, cash management services and trust and brokerage services. Our common stock trades on the NASDAQ Global Select Market under the symbol “STBA.”
We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. We incur expenses for the cost of deposits and other funding sources, provision for loan losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.
Our mission is to become the financial services provider of choice within the markets that we serve. We strive to do this by delivering exceptional service and value, one customer at a time. Our strategic plan focuses on organic growth, which includes both growth within our current footprint and growth through market expansion. We also actively evaluate acquisition opportunities as another source of growth. Our strategic plan includes a collaborative model that combines expertise from all areas of our business and focuses on satisfying each customer’s individual financial objectives.
Our focus continues to be on organic loan and deposit growth and implementing opportunities to increase fee income while closely managing our operating expenses and asset quality. We are focused on executing our strategy to successfully build our brand and grow our business in all of our markets. We have benefited from recent increases in short-term interest rates and expect to benefit from any future increases. Our performance has also benefited from the Tax Cuts and Jobs Act (Tax Act) which lowered the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.

Earnings Summary
Net income increased $8.0 million, or 43.8 percent, for the three months ended March 31, 2018 compared to the same period in 2017. Net income for the three months ended March 31, 2018 was $26.2 million, or $0.75 diluted earnings per share, as compared to net income of $18.2 million, or $0.52 diluted earnings per share, for the same period in 2017. The increase in net income was due to increases in net interest income of $3.1 million and noninterest income of $0.8 million and decreases in provision for loan losses of $2.7 million, noninterest expense of $0.7 million and income taxes of $0.7 million.
Net interest income increased $3.1 million, or 5.7 percent, to $57.0 million for the three months ended March 31, 2018 compared to $53.9 million for the same period in 2017. The increases in short-term interest rates over the past year positively impacted both net interest income and net interest margin. Average interest-earning assets increased $74.1 million and average interest-bearing liabilities decreased $61.6 million, for the three months ended 2018 compared to the same period in 2017. The increase in average interest-earning assets primarily related to organic growth with average loans increasing $96.1 million for the first three months of the 2018. This growth was in our commercial loan portfolio. The decrease in average interest-bearing liabilities was mainly due to declines in both interest-bearing deposits and borrowings. Average interest-bearing deposits decreased $17.3 million and average borrowings decreased $44.3 million for the three months ended 2018 compared to the same period in 2017. Net interest margin, on a fully taxable-equivalent, or FTE, basis (non-GAAP), increased nine basis points to 3.59 percent in the three months ended 2018 compared to 3.50 percent for the same period in 2017.
The provision for loan losses decreased $2.7 million to $2.5 million for the three months ended March 31, 2018 compared to $5.2 million for the same period in 2017. For the three months ended March 31, 2018, we had net recoveries of $0.2 million compared to $2.1 million of charge-offs for the same period in 2017. Annualized net loan charge-offs to average loans was negative 0.01 percent for the first quarter 2018 compared to 0.15 percent for the same period in 2017. Specific reserves on impaired loans decreased $3.0 million to $0.6 million at March 31, 2018 compared to $3.6 million at March 31, 2017. Nonperforming loans decreased $24.7 million to $21.3 million compared to $46.0 million for the same periods in 2017.
Noninterest income increased $0.8 million to $13.8 million for the three months ended March 31, 2018 compared to $13.0 million for the same period in 2017. The increase in noninterest income was primarily due to a $1.9 million gain on the sale of a majority interest of our insurance business offset by $1.3 million decrease in insurance fees related to that sale.
Noninterest expense decreased $0.7 million to $36.1 million for the three months ended March 31, 2018 compared to $36.8 million for the same period in 2017. The decrease in noninterest expense was primarily due to a $1.7 million decrease in salaries and employee benefits expense offset by a $0.9 million increase in other taxes. The decrease in salaries and employee benefits is due to lower restricted stock, incentive and commission costs and fewer employees due to the sale of a branch in the fourth quarter of 2017 and the sale of our insurance business in the first quarter of 2018. The increase in other taxes primarily related to a state sales tax assessment.
The provision for income taxes decreased $0.7 million to $6.0 million for the three months ended March 31, 2018 compared to the same period in 2017. The decrease was primarily due to the Tax Act which lowered the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. As a result our effective tax rate declined to 18.7 percent for the three months ended March 31, 2018 compared to 26.9 percent for the same period in 2017. Included in the effective tax rate for the three months ended 2018 were non-recurring discrete tax expense items of $0.9 million, primarily related to the sale of a majority interest of our insurance business.

35


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Explanation of Use of Non-GAAP Financial Measures
In addition to the results of operations presented in accordance with generally accepted accounting principles, or GAAP, in the United States, management uses, and this quarterly report references, net interest income on a fully taxable equivalent, or FTE, basis, which is a non-GAAP financial measure. Management believes this measure provides information useful to investors in understanding our underlying business, operational performance and performance trends as it facilitates comparisons with the performance of other companies in the financial services industry. Although management believes that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor is it necessarily comparable with non-GAAP measures which may be presented by other companies.
We believe the presentation of net interest income on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income per the Consolidated Statements of Comprehensive Income is reconciled to net interest income adjusted to an FTE basis in the Net Interest Income section of the "Results of Operations - Three Months Ended March 31, 2018 Compared to Three Months Ended March 31, 2017."

RESULTS OF OPERATIONS
Three Months Ended March 31, 2018 Compared to
Three Months Ended March 31, 2017
Net Interest Income
Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or ALCO, in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what we believe is an acceptable level of net interest income.
The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities using the federal statutory tax rate of 21 percent for the three months ended March 31, 2018 and the federal statutory tax rate of 35 percent for the three months ended March 31, 2017 and the dividend-received deduction for equity securities. We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.
The following table reconciles interest income per the Consolidated Statements of Comprehensive Income to net interest income and rates on an FTE basis for the periods presented:
 
Three months ended March 31,
(dollars in thousands)
2018
 
2017
Total interest income
$
68,029

 
$
61,150

Total interest expense
11,097

 
7,272

Net Interest Income per Consolidated Statements of Comprehensive Income
56,932

 
53,878

Adjustment to FTE basis
940

 
1,871

Net Interest Income on an FTE Basis (Non-GAAP)
$
57,872

 
$
55,749

Net interest margin
3.53
%
 
3.38
%
Adjustment to FTE basis
0.06
%
 
0.12
%
Net Interest Margin on an FTE Basis (Non-GAAP)
3.59
%
 
3.50
%
Income amounts are annualized for rate calculations.


36


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Average Balance Sheet and Net Interest Income Analysis (FTE)
The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented: 
 
Three months ended March 31, 2018

Three months ended March 31, 2017
(dollars in thousands)
Average Balance
Interest
Rate

Average Balance
Interest
Rate
ASSETS







Interest-bearing deposits with banks
$
56,008

$
230

1.65
%
 
$
66,173

$
140

0.85
%
Securities, at fair value(2)
686,912

4,353

2.53
%
 
697,327

4,260

2.44
%
Loans held for sale
1,949

28

5.65
%
 
2,211

25

4.44
%
Commercial real estate
2,690,990

30,307

4.57
%
 
2,524,859

26,462

4.25
%
Commercial and industrial
1,431,588

15,560

4.41
%
 
1,413,801

14,491

4.16
%
Commercial construction
375,129

4,176

4.51
%
 
454,886

4,155

3.70
%
Total Commercial Loans
4,497,707

50,043

4.51
%
 
4,393,546

45,108

4.16
%
Residential mortgage
694,303

7,241

4.19
%
 
699,849

7,060

4.05
%
Home equity
481,053

5,299

4.47
%
 
480,411

4,905

4.14
%
Installment and other consumer
66,861

1,103

6.69
%
 
68,164

1,091

6.49
%
Consumer construction
3,810

44

4.69
%
 
5,374

49

3.67
%
Total Consumer Loans
1,246,027

13,687

4.43
%
 
1,253,798

13,105

4.22
%
Total Portfolio Loans
5,743,734

63,730

4.50
%
 
5,647,344

58,213

4.18
%
Total Loans(1)(2)
5,745,683

63,758

4.50
%
 
5,649,555

58,238

4.18
%
Federal Home Loan Bank and other restricted stock
31,216

628

8.05
%

32,690

383

4.68
%
Total Interest-earning Assets
6,519,819

68,969

4.28
%
 
6,445,745

63,021

3.96
%
Noninterest-earning assets
488,808

 
 

511,125

 
 
Total Assets
$
7,008,627

 
 
 
$
6,956,870

 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY







Interest-bearing demand
$
575,377

$
368

0.26
%

$
633,232

$
275

0.18
%
Money market
1,194,053

3,232

1.10
%

938,014

1,406

0.61
%
Savings
874,318

437

0.20
%

1,041,647

536

0.21
%
Certificates of deposit
1,355,617

3,808

1.14
%

1,403,796

3,162

0.91
%
Total Interest-bearing Deposits
3,999,365

7,845

0.80
%

4,016,689

5,379

0.54
%
Securities sold under repurchase agreements
47,774

46

0.39
%

48,896

1

0.01
%
Short-term borrowings
596,014

2,508

1.71
%

671,784

1,399

0.84
%
Long-term borrowings
46,938

232

1.99
%

14,362

105

2.91
%
Junior subordinated debt securities
45,619

466

4.14
%

45,619

388

3.45
%
Total Borrowings
736,345

3,252

1.79
%
 
780,661

1,893

0.98
%
Total Interest-bearing Liabilities
4,735,710

11,097

0.95
%

4,797,350

7,272

0.61
%
Noninterest-bearing liabilities:
 
 
 

 
 
 
Noninterest-bearing liabilities
1,383,109

 
 

1,309,401

 
 
Shareholders’ equity
889,808

 
 

850,119

 
 
Total Liabilities and Shareholders’ Equity
$
7,008,627

 
 
 
$
6,956,870

 
 
Net Interest Income (2)(3)
 
$
57,872

 
 
 
$
55,749

 
Net Interest Margin (2) (3)
 
 
3.59
%

 
 
3.50
%
(1) Nonaccruing loans are included in the daily average loan amounts outstanding.
(2) Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent for 2018 and 35 percent for 2017
(3) Taxable investment income is adjusted for the dividend-received deduction for equity securities.


Net interest income on an FTE basis increased $2.1 million, or 3.8 percent, for the three months ended March 31, 2018 compared to the same period in 2017. The net interest margin on an FTE basis increased nine basis points to 3.59 percent for the three months ended March 31, 2018 compared to 3.50 percent for the same period in 2017. The increases were primarily

37


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

due to higher short-term rates, offset by the impact of the statutory federal corporate income tax rate decrease, which negatively impacts the March 31, 2018 net interest margin on an FTE basis by 6 basis points.
Interest income on a FTE basis increased $5.9 million, or 9.4 percent, for the three months ended March 31, 2018 compared to the same period in 2017. The increase is primarily due an increase in average interest-earning assets of $74.1 million and higher short-term interest rates. Average loan balances increased $96.1 million due to organic loan growth, primarily in the commercial loan portfolio. The average rate earned on loans increased 32 basis points primarily due to higher short-term interest rates. Average interest-bearing deposits with banks, which is primarily cash at the Federal Reserve, decreased $10.2 million and the average rate earned increased 80 basis points due to higher short-term interest rates. Average securities decreased $10.4 million with no significant change to the rate. The average rate earned on the Federal Home Loan Bank (FHLB) and other restricted stock improved due an increase in the quarterly dividend rate from the FHLB. Overall, the FTE rate on interest-earning assets increased 32 basis points compared to the same period in 2017.
Interest expense increased $3.8 million for the three months ended March 31, 2018 compared to the same period in 2017. The increase is primarily due to higher short-term interest rates. Average interest-bearing deposits decreased $17.3 million. Average money market balances increased $256 million and the average rate paid increased 49 basis points due to higher short-term interest rates. The money market balance increase is partially attributable to a shift in deposit mix, as average interest-bearing demand, savings, and certificates of deposit balances declined. The overall decline in average interest-bearing liabilities is favorably offset by increased average noninterest-bearing demand deposit balances of $73.7 million. Average total borrowings decreased $44.3 million due to the overall increase in average deposit balances. Short-term borrowings decreased $75.8 million and the average rate paid increased 87 basis points due to higher short-term interest rates. Long-term borrowings increased $32.6 million and the average rate paid decreased 92 basis points due to the addition of a longer term variable rate borrowing. Overall, the cost of interest-bearing liabilities increased 34 basis points compared to same period in 2017.






38


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
 
Three Months Ended March 31, 2018 compared to March 31, 2017
(dollars in thousands)
Volume (4)
Rate (4)
Total
Interest earned on:
 
 
 
Interest-bearing deposits with banks
$
(22
)
$
112

$
90

Securities, at fair value(2)(3)
(64
)
157

93

Loans held for sale
(3
)
6

3

Commercial real estate
1,741

2,104

3,845

Commercial and industrial
182

887

1,069

Commercial construction
(729
)
750

21

Total Commercial Loans
1,195

3,740

4,935

Residential mortgage
(56
)
237

181

Home equity
7

387

394

Installment and other consumer
(21
)
33

12

Consumer construction
(14
)
9

(5
)
Total Consumer Loans
(85
)
667

582

Total Portfolio Loans
1,110

4,407

5,517

Total Loans (1)(2)
1,107

4,413

5,520

Federal Home Loan Bank and other restricted stock
(17
)
262

245

Change in Interest Earned on Interest-earning Assets
$
1,005

$
4,943

$
5,948

Interest paid on:
 
 
 
Interest-bearing demand
$
(25
)
$
118

$
93

Money market
384

1,442

1,826

Savings
(86
)
(13
)
(99
)
Certificates of deposit
(109
)
755

646

Total Interest-bearing Deposits
164

2,302

2,466

Securities sold under repurchase agreements

45

45

Short-term borrowings
(158
)
1,267

1,109

Long-term borrowings
238

(111
)
127

Junior subordinated debt securities

78

78

Total Borrowings
80

1,279

1,359

Change in Interest Paid on Interest-bearing Liabilities
244

3,581

3,825

Change in Net Interest Income
$
761

$
1,362

$
2,123

(1) Nonaccruing loans are included in the daily average loan amounts outstanding.
(2) Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent for 2018 and 35 percent for 2017.
(3) Taxable investment income is adjusted for the dividend-received deduction for equity securities.
(4) Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.
Provision for Loan Losses
The provision for loan losses is the amount to be added to the allowance for loan losses, or ALL, after considering loan charge-offs and recoveries to bring the ALL to a level determined to be appropriate in management's judgment to absorb probable losses inherent in the loan portfolio. The provision for loan losses decreased $2.7 million to $2.5 million for the three months ended March 31, 2018 compared to $5.2 million for the same period in 2017. The lower provision for loan losses was mainly due to a decrease in loan charge-offs and lower specific reserves compared to the same period in the prior year. For the three months ended March 31, 2018, there was a net recovery of $0.2 million compared to net charge-offs of $2.1 million for the same period in 2017. The net recovery was due to a $1.0 million recovery of a commercial construction loan during the three months ended March 31, 2018. Annualized net loan charge-offs to average loans were a negative 0.01 percent compared to 0.15 percent for the three months ended March 31, 2017. Impaired loans decreased $16.9 million to $29.9 million and specific reserves on impaired loans decreased $3.0 million compared to the same period in the prior year.

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S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

The ALL at March 31, 2018 was $59.0 million compared to $55.8 million at March 31, 2017. The ALL as a percent of total portfolio loans was 1.03 percent at March 31, 2018 and 0.97 percent at March 31, 2017. Refer to “Financial Condition - Allowance for Loan Losses” in this MD&A for additional information.
Noninterest Income
 
Three Months Ended March 31,
(dollars in thousands)
2018

 
2017

 
$ Change

 
% Change

Net gain (loss) on sale of securities
$

 
$
370

 
$
(370
)
 
 %
Service charges on deposit accounts
3,241

 
3,014

 
227

 
7.5

Debit and credit card
3,037

 
2,843

 
194

 
6.8

Wealth management
2,682

 
2,403

 
279

 
11.6

Gain on sale of a majority interest of insurance business
1,873

 

 
1,873

 

Mortgage banking
602

 
733

 
(131
)
 
(17.9
)
Insurance
169

 
1,457

 
(1,288
)
 
(88.4
)
Other
2,188

 
2,176

 
12

 
0.6

Total Noninterest Income
$
13,792

 
$
12,996

 
$
796

 
6.1
 %
NM- Not meaningful
 
 
 
 
 
 
 

Noninterest income increased $0.8 million, or 6.1 percent, to $13.8 million for the three months ended March 31, 2018 compared to the same period in 2017. The increase in noninterest income primarily related to a $1.9 million gain on the sale of a majority interest in S&T Evergreen Insurance, LLC, which occurred in the first quarter of 2018. This increase was offset in part by a decrease of $1.3 in insurance fees related primarily to the sale. The $0.2 million increase in debit and credit card fees is related to increased debit card usage. Wealth management fees increased $0.3 million due to improvement in market conditions. Service charges on deposit accounts increased $0.2 million due to program changes. These increases were offset by decreases in securities gains of $0.4 million related to the sale of an equity security in the first quarter of 2017.
Noninterest Expense
 
Three Months Ended March 31,
(dollars in thousands)
2018
 
2017
 
$ Change
 
% Change
Salaries and employee benefits
$
18,815

 
$
20,541

 
$
(1,726
)
 
(8.4
)%
Net occupancy
2,873

 
2,815

 
58

 
2.1

Data processing
2,325

 
2,223

 
102

 
4.6

Furniture, equipment and software
1,957

 
2,047

 
(90
)
 
(4.4
)
Other taxes
1,848

 
976

 
872

 
89.3

FDIC insurance
1,108

 
1,123

 
(15
)
 
(1.3
)
Professional services and legal
1,051

 
1,068

 
(17
)
 
(1.6
)
Marketing
702

 
754

 
(52
)
 
(6.9
)
Other
5,403

 
5,261

 
142

 
2.7

Total Noninterest Expense
$
36,082

 
$
36,808

 
$
(726
)
 
(2.0
)%
NM - not meaningful

Noninterest expense decreased $0.7 million, or 2.0 percent, to $36.1 million for the three months ended March 31, 2018 compared to the same period in 2017. Salaries and employee benefits expense decreased $1.7 million due to lower restricted stock, incentive and commission costs and fewer employees due to the sale of a branch in the fourth quarter of 2017 and the sale of our insurance business in the first quarter 2018. This decrease was offset by an increase in other taxes of $0.8 million due to a state sales tax assessment.


40


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Provision for Income Taxes
The provision for income taxes decreased $0.7 million for the three months ended March 31, 2018 compared to the same period in 2017. The decrease was primarily due to the Tax Act which lowered the federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018. As a result, our effective tax rate declined to 18.7 percent for the three months ended March 31, 2018 compared to 26.9 percent in the same period of the prior year. Included in the effective tax rate for the three months ended 2018 were non-recurring discrete tax expense items of $0.9 million, primarily related to the sale of a majority interest of our insurance business.
Financial Condition
March 31, 2018
Total assets were relatively unchanged at $7.0 billion at March 31, 2018 compared to December 31, 2017. Total portfolio loans decreased slightly to $5.7 billion with decreases in all categories except the Commercial Real Estate, or CRE portfolio. Higher than usual historical pay-offs in commercial loans combined with lower seasonal demand resulted in this decrease of $30.8 million. Securities decreased $10.6 million to $688 million from $698 million at December 31, 2017 primarily due to normal investing activity.
Our deposits decreased slightly but remained at $5.4 billion at both March 31, 2018 and December 31, 2017. The decrease of $40.8 million is primarily due to the competition for customer funds which resulted in declines in all categories except money market accounts compared to December 31, 2017.
Total borrowings also decreased $21.2 million from December 31, 2017 due to reduced funding needs.
Total shareholders’ equity increased by $11.4 million at March 31, 2018 compared to December 31, 2017. The increase was primarily due to net income of $26.2 million offset partially by dividends of $7.7 million. The $7.0 million decrease in other comprehensive income was due to a $7.5 million decrease in unrealized losses on our available-for-sale investment securities and a $0.5 million change in the funded status of our employee benefit plans.
Securities Activity
(dollars in thousands)
March 31, 2018
 
December 31, 2017
 
$ Change
U.S. treasury securities
$
14,661

 
$
19,789

 
$
(5,128
)
Obligations of U.S. government corporations and agencies
160,589

 
162,193

 
(1,604
)
Collateralized mortgage obligations of U.S. government corporations and agencies
102,582

 
108,688

 
(6,106
)
Residential mortgage-backed securities of U.S. government corporations and agencies
30,683

 
32,854

 
(2,171
)
Commercial mortgage-backed securities of U.S. government corporations and agencies
248,798

 
242,221

 
6,577

Obligations of states and political subdivisions
125,141

 
127,402

 
(2,261
)
Debt Securities Available-for-Sale
682,454

 
693,147

 
(10,693
)
Marketable equity securities
5,196

 
5,144

 
52

Total Securities
$
687,650

 
$
698,291

 
$
(10,641
)
We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security purchases are subject to an investment policy approved annually by our Board of Directors and administered through ALCO and our treasury function. Securities decreased $10.6 million to $688 million from $698 million at December 31, 2017 primarily due to a decrease in market value of the bond portfolio.
At March 31, 2018 our bond portfolio was in a net unrealized loss position of $7.8 million compared to a net unrealized gain position of $1.7 million at December 31, 2017. At March 31, 2018 total gross unrealized gains in the bond portfolio were $3.1 million offset by $10.9 million of gross unrealized losses, compared to December 31, 2017, when total gross unrealized gains were $5.6 million offset by gross unrealized losses of $3.9 million. Management evaluates the securities portfolio for other than temporary impairment, or OTTI, on a quarterly basis. During the three months ended March 31, 2018 and 2017, we did not record any OTTI. The performance of the debt securities market could generate impairments in future periods requiring realized losses to be reported.


41


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Loan Composition
 
March 31, 2018
 
December 31, 2017
(dollars in thousands)
Amount
% of Loans
 
Amount
% of Loans
Commercial
 
 
 
 
 
Commercial real estate
$
2,760,891

48.18
%
 
$
2,685,994

46.62
%
Commercial and industrial
1,406,950

24.55

 
1,433,266

24.88

Construction
324,141

5.66

 
384,334

6.67

Total Commercial Loans
4,491,982

78.39
%
 
4,503,594

78.17
%
Consumer
 
 
 
 
 
Residential mortgage
692,385

11.98
%
 
698,774

12.13
%
Home equity
474,850

8.29

 
487,326

8.46

Installment and other consumer
66,890

1.17

 
67,204

1.17

Construction
4,506

0.08

 
4,551

0.08

Total Consumer Loans
1,238,631

21.61
%
 
1,257,855

21.83
%
Total Portfolio Loans
5,730,613

100.00
%
 
5,761,449

100.00
%
Loans Held for Sale
3,283


 
4,485


Total Loans
$
5,733,896


 
$
5,765,934


Our loan portfolio represents our most significant source of interest income. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower's industry or the overall economic climate can significantly impact the borrower’s ability to pay.
Total portfolio loans decreased by $30.8 million to $5.7 billion at March 31, 2018 compared to $5.8 billion at December 31, 2017. We experienced a decline in all loan portfolios primarily due to higher than usual historical payoffs combined with lower seasonal demand.
Allowance for Loan Losses
We maintain an ALL at a level determined to be adequate to absorb estimated probable credit losses inherent within the loan portfolio as of the balance sheet date, and it is presented as a reserve against loans in the Consolidated Balance Sheets. Determination of an adequate ALL is inherently subjective and may be subject to significant changes from period to period. The methodology for determining the ALL has two main components: evaluation and impairment tests of individual loans and evaluation and impairment tests of certain groups of homogeneous loans with similar risk characteristics.
An inherent risk to the loan portfolio as a whole is the condition of the economy in our markets. In addition, each loan segment carries with it risks specific to the segment. We develop and document a systematic ALL methodology based on the following portfolio segments: 1. CRE, 2. C&I, 3. Commercial Construction, 4. Consumer Real Estate and 5. Other Consumer. The following is a discussion of the key risks by portfolio segment that management assesses in preparing the ALL.
CRE loans are secured by commercial purpose real estate, including both owner occupied properties and investment properties, for various purposes such as hotels, strip malls and apartments. Operations of the individual projects as well as global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type as well as the business prospects of the lessee, if the project is not owner occupied.
C&I loans are made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the company is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the company. Collateral for these types of loans often does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt.
Commercial Construction loans are made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

42


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Consumer Real Estate loans are secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing markets can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.
Other Consumer loans are made to individuals and may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.
The following tables summarize the ALL and recorded investments in loans by category for the dates presented:
 
March 31, 2018
 
Allowance for Loan Losses
 
Portfolio Loans
(dollars in thousands)
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

 
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

Commercial real estate
$

 
$
30,963

 
$
30,963

 
$
3,774

 
$
2,757,117

 
$
2,760,891

Commercial and industrial
537

 
9,935

 
10,472

 
12,573

 
1,394,377

 
1,406,950

Commercial construction

 
10,721

 
10,721

 
3,444

 
320,697

 
324,141

Consumer real estate

 
5,418

 
5,418

 
10,052

 
1,161,689

 
1,171,741

Other consumer
39

 
1,433

 
1,472

 
49

 
66,841

 
66,890

Total
$
576

 
$
58,470

 
$
59,046

 
$
29,892

 
$
5,700,721

 
$
5,730,613

 
 
December 31, 2017
 
Allowance for Loan Losses
 
Portfolio Loans
(dollars in thousands)
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

 
Individually
Evaluated for
Impairment

 
Collectively
Evaluated for
Impairment

 
Total

Commercial real estate
$

 
$
27,235

 
$
27,235

 
$
3,546

 
$
2,682,448

 
$
2,685,994

Commercial and industrial
29

 
8,937

 
8,966

 
7,284

 
1,425,982

 
1,433,266

Commercial construction

 
13,167

 
13,167

 
5,464

 
378,870

 
384,334

Consumer real estate
21

 
5,458

 
5,479

 
10,488

 
1,180,163

 
1,190,651

Other consumer
27

 
1,516

 
1,543

 
41

 
67,163

 
67,204

Total
$
77

 
$
56,313

 
$
56,390

 
$
26,823

 
$
5,734,626

 
$
5,761,449

 
 
March 31, 2018

 
December 31, 2017

Ratio of net charge-offs to average loans outstanding
(0.01
)%
0.18
%
Allowance for loan losses as a percentage of total loans
1.03
 %
 
0.98
%
Allowance for loan losses to nonperforming loans
277
 %

236
%
* Annualized

43


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

The ALL was $59.0 million, or 1.03 percent of total portfolio loans at March 31, 2018 compared to $56.4 million, or 0.98 percent of total portfolio loans at December 31, 2017. The increase in the ALL of $2.7 million was primarily due to a $2.2 million increase in the reserve for loans collectively evaluated for impairment and an increase of $0.5 million in specific reserves for loans individually evaluated for impairment at March 31, 2018 compared to December 31, 2017. Commercial special mention, substandard and doubtful loans increased $67.5 million to $268 million compared to $201 million at December 31, 2017, with an increase of $18.6 million in special mention and an increase of $48.9 million in substandard. Impaired loans increased $3.1 million, or 11.4 percent, from December 31, 2017 to $29.9 million at March 31, 2018. The increase was primarily due to two C&I impaired loans totaling $6.0 million offset by a $2.0 million commercial construction loan that paid off in the first quarter of 2018. We had net loan recoveries of $0.2 million for the three months ended March 31, 2018 comprised primarily of one commercial construction loan that paid off and resulted in a $1.0 million recovery.
We individually evaluate all substandard and nonaccrual commercial loans greater than $0.5 million for impairment. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Our methodology for evaluating whether a loan is impaired includes risk-rating credits on an individual basis and consideration of the borrower’s overall financial condition, payment history and available cash resources. In measuring impairment, we primarily utilize fair market value of the collateral; however, we also use discounted cash flow when warranted.
Troubled debt restructurings, or TDRs, whether on accrual or nonaccrual status, are also classified as impaired loans. TDRs are loans where we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise grant. We strive to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant. Additionally, we classify loans where the debt obligation has been discharged through a Chapter 7 Bankruptcy and not reaffirmed by the borrower as TDRs.
An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified terms is reasonably assured, and the borrower has demonstrated sustained historical repayment performance for a reasonable period before the modification. All TDRs are considered to be impaired loans and will be reported as impaired loans for their remaining lives, unless the restructuring agreement specifies an interest rate equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk and we fully expect that the remaining principal and interest will be collected according to the restructured agreement. For all TDRs, regardless of size, as well as all other impaired loans, we conduct further analysis to determine the probable loss and assign a specific reserve to the loan if deemed appropriate. Further, all impaired loans are reported as nonaccrual loans unless the loan is a TDR that has met the requirements to be returned to accruing status. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring.
As an example, consider a substandard commercial construction loan that is currently 90 days past due where the loan is restructured to extend the maturity date for a period longer than would be considered an insignificant period of time. The post-modification interest rate given to the borrower is considered to be lower than the current market rate for new debt with similar risk and all other terms remain the same according to the original loan agreement. This loan will be considered a TDR as the borrower is experiencing financial difficulty and a concession has been granted due to the long extension, resulting in payment delay as well as the rate being lower than current market rate for new debt with similar risk. The loan will be reported as a nonaccrual TDR and an impaired loan. In addition, the loan could be charged down to the fair value of the collateral if a confirmed loss exists. If the loan subsequently performs, by means of making on-time principal and interest payments according to the newly restructured terms for a period of six months, and it is expected that all remaining principal and interest will be collected according to the terms of the restructured agreement, the loan will be returned to accrual status and reported as an accruing TDR. The loan will remain an impaired loan for the remaining life of the loan because the interest rate was not adjusted to be equal to or greater than the rate that would be accepted at the time of the restructuring for a new loan with comparable risk.
TDRs increased $2.5 million to $28.6 million at March 31, 2018 compared to $26.1 million at December 31, 2017. The increase is primarily due to new TDRs totaling $6.8 million, which were offset by principal reductions and charge-offs. Total TDRs of $28.6 million at March 31, 2018 included $20.0 million, or 70.1 percent, that were accruing and $8.6 million, or 29.9 percent, that were nonaccrual.
Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss becomes probable, regardless of the delinquency status of the loan. We may elect to recognize a

44


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to:
The status of a bankruptcy proceeding
The value of collateral and probability of successful liquidation; and/or
The status of adverse proceedings or litigation that may result in collection
Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged-off and secured loans are charged-off to the estimated fair value of the collateral less the cost to sell.
Our allowance for lending-related commitments is determined using a methodology similar to that used for the ALL. Amounts are added to the allowance for lending-related commitments by a charge to current earnings through noninterest expense. The reserve is calculated by applying historical loss rates to unfunded commitments and considering qualitative factors. The allowance for unfunded loan commitments was $2.1 million at March 31, 2018 compared to $2.2 million at December 31, 2017. The decrease primarily related to a decline in the historic loss rate for C&I commitments and a decrease in the balance of total unfunded commitments. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.
Nonperforming assets consist of nonaccrual loans, nonaccrual TDRs and OREO. The following table summarizes nonperforming assets for the dates presented:
(dollars in thousands)
March 31, 2018

 
December 31, 2017

 
$ Change

Nonperforming Loans
 
 
 
 
 
Commercial real estate
$
3,008

 
$
2,501

 
$
507

Commercial and industrial
1,581

 
2,449

 
(868
)
Commercial construction
1,459

 
1,460

 
(1
)
Residential mortgage
4,075

 
3,580

 
495

Home equity
2,589

 
2,736

 
(147
)
Installment and other consumer
63

 
62

 
1

Consumer construction

 

 

Total Nonperforming Loans
12,775

 
12,788

 
(13
)
Nonperforming Troubled Debt Restructurings
 
 

 

Commercial real estate
944

 
967

 
(23
)
Commercial and industrial
3,036

 
3,197

 
(161
)
Commercial construction
414

 
2,413

 
(1,999
)
Residential mortgage
2,640

 
3,585

 
(945
)
Home equity
1,520

 
979

 
541

Installment and other consumer
6

 
9

 
(3
)
Total Nonperforming Troubled Debt Restructurings
8,560

 
11,150

 
(2,590
)
Total Nonperforming Loans
21,335

 
23,938

 
(2,603
)
OREO
2,920

 
469

 
2,451

Total Nonperforming Assets
$
24,255

 
$
24,407

 
$
(152
)
 
 
 
 
 
 
Asset Quality Ratios:
 
 
 
 
 
Nonperforming loans as a percent of total loans
0.37
%
 
0.42
%
 
 
Nonperforming assets as a percent of total loans plus OREO
0.42
%
 
0.42
%
 
 
Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.
Nonperforming assets, or NPAs, decreased $0.2 million to $24.2 million at March 31, 2018 compared to $24.4 million at December 31, 2017. The decrease was due to a $2.6 million decline in nonperforming loans offset by an increase of $2.4 million in other real estate owned, or OREO. The $2.6 million decrease in nonperforming loans was due to the payoff of a

45


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

commercial construction loan for $2.0 million and the increase in OREO related to two land lots that are no longer intended to be future branch locations.
During the three months ended March 31, 2018 there were net loan recoveries of $0.2 million compared to net charge-offs of $2.1 million for the same period in 2017. The provision for loan loss was $2.5 million compared to $5.2 million for the three months ended March 31, 2017. The allowance for loan losses, or ALLL, to total portfolio loans was 1.03 percent at March 31, 2018 compared to 0.98 percent at December 31, 2017. The increase in the ALLL is primarily due to an increase in special mention and substandard loans compared to December 31, 2017.
Deposits
(dollars in thousands)
March 31, 2018

 
December 31, 2017

 
$ Change

Customer Deposits
 
 
 
 
 
Noninterest-bearing demand
$
1,368,350

 
$
1,387,712

 
$
(19,362
)
Interest-bearing demand
555,319

 
599,986

 
(44,667
)
Money market
985,793

 
880,330

 
105,463

Savings
876,459

 
893,119

 
(16,660
)
Certificates of deposit
1,238,539

 
1,286,988

 
(48,449
)
Total Customer Deposits
5,024,460

 
5,048,135

 
(23,675
)
Brokered Deposits
 
 
 
 
 
Interest-bearing demand
5,392

 
3,155

 
2,237

Money market
253,607

 
265,826

 
(12,219
)
Certificates of deposit
103,635

 
110,775

 
(7,140
)
Total Brokered Deposits
362,634

 
379,756

 
(17,122
)
Total Deposits
$
5,387,094

 
$
5,427,891

 
$
(40,797
)

Deposits are our primary source of funds. We believe that our deposit base is stable and that we have the ability to attract new deposits. Total deposits at March 31, 2018 decreased $40.8 million from December 31, 2017. Total customer deposits decreased $23.7 million from December 31, 2017. Noninterest-bearing demand and interest-bearing demand balances decreased $19.4 million and $44.7 million, respectively. These decreases were a result of outflows due to normal repositioning by our customers combined with some seasonality in a number of sectors, including public funds. The money market increase of $105 million is related to a competitively-priced, indexed product that was a major factor behind the savings decrease of $16.7 million and the certificates of deposits decrease of $48.4 million. Total brokered deposits decreased $17.1 million from December 31, 2017. Brokered deposits are an additional source of funds utilized by the ALCO as a way to diversify funding sources, as well as manage our funding costs and structure.
Borrowings
(dollars in thousands)
March 31, 2018

 
December 31, 2017

 
$ Change

Securities sold under repurchase agreements
$
44,617

 
$
50,161

 
$
(5,544
)
Short-term borrowings
525,000

 
540,000

 
(15,000
)
Long-term borrowings
46,684

 
47,301

 
(617
)
Junior subordinated debt securities
45,619

 
45,619

 

Total Borrowings
$
661,920

 
$
683,081

 
$
(21,161
)
Borrowings are an additional source of funding for us. Total borrowings decreased $21.2 million from December 31, 2017 due to reduced funding needs.

46


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Information pertaining to short-term borrowings is summarized in the tables below for the three and twelve months period ended March 31, 2018 and December 31, 2017.
 
Securities Sold Under Repurchase Agreements
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Balance at the period end
$
44,617

 
$
50,161

Average balance during the period
47,774

 
46,662

Average interest rate during the period
0.39
%
 
0.12
%
Maximum month-end balance during the period
$
49,867

 
$
53,609

Average interest rate at the period end
0.42
%
 
0.39
%
 
 
 
 
 
Short-Term Borrowings
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Balance at the period end
$
525,000

 
$
540,000

Average balance during the period
596,014

 
644,864

Average interest rate during the period
1.71
%
 
1.15
%
Maximum month-end balance during the period
$
665,000

 
$
734,600

Average interest rate at the period end
1.86
%
 
1.47
%
Information pertaining to long-term borrowings is summarized in the tables below for three and twelve month periods ended March 31, 2018 and December 31, 2017.
 
Long-Term Borrowings
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Balance at the period end
$
46,684

 
$
47,301

Average balance during the period
46,938

 
18,057

Average interest rate during the period
1.99
%
 
2.57
%
Maximum month-end balance during the period
$
47,096

 
$
47,505

Average interest rate at the period end
2.09
%
 
1.88
%
 
 
 
 
 
Junior Subordinated Debt Securities
(dollars in thousands)
March 31, 2018
 
December 31, 2017
Balance at the period end
$
45,619

 
$
45,619

Average balance during the period
45,619

 
45,619

Average interest rate during the period
4.14
%
 
3.65
%
Maximum month-end balance during the period
$
45,619

 
$
45,619

Average interest rate at the period end
4.58
%
 
3.78
%

47


S&T BANCORP, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Liquidity and Capital Resources
Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. This includes the ability to satisfy the financial needs of depositors who want to withdraw funds or of borrowers needing to access funds to meet their credit needs. In order to manage liquidity risk our Board of Directors has delegated authority to the ALCO for formulation, implementation, and oversight of liquidity risk management for S&T. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests, and by having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.
Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Refer to the Financial Condition - Deposits Section of this MD&A, for additional discussion on deposits. Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to S&T include borrowing availability at the FHLB of Pittsburgh, Federal Funds lines with other financial institutions, the brokered deposit market, and borrowing availability through the Federal Reserve Borrower-In-Custody program.
An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate, and high. At March 31, 2018, we had $531 million in highly liquid assets, which consisted of $65.7 million in interest-bearing deposits with banks, $462 million in unpledged securities and $3.3 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of 7.6 percent at March 31, 2018. Also, at March 31, 2018, we had a remaining borrowing availability of $1.8 billion with the FHLB of Pittsburgh. Refer to Note 8 Borrowings in the Notes to Consolidated Financial Statements and the Financial Condition - Borrowings section of this MD&A for more details.
The following table summarizes capital amounts and ratios for S&T and S&T Bank for the dates presented:
(dollars in thousands)
Adequately
Capitalized
Well-
Capitalized
 
March 31, 2018
 
December 31, 2017
 
Amount
Ratio
 
Amount
Ratio
S&T Bancorp, Inc.
 
 
 
 
 
 
 
 
Tier 1 leverage
4.00
%
5.00
%
 
$
655,939

9.72
%
 
$
628,876

9.17
%
Common equity tier 1 to risk-weighted assets
4.50
%
6.50
%
 
635,939

11.02
%
 
608,876

10.71
%
Tier 1 capital to risk-weighted assets
6.00
%
8.00
%
 
655,939

11.36
%
 
628,876

11.06
%
Total capital to risk-weighted assets
8.00
%
10.00
%
 
742,106

12.85
%
 
713,056

12.55
%
S&T Bank
 
 
 
 
 
 
 
 
Tier 1 leverage
4.00
%
5.00
%
 
$
610,305

9.07
%
 
$
582,929

8.52
%
Common equity tier 1 to risk-weighted assets
4.50
%
6.50
%
 
610,305

10.60
%
 
582,929

10.29
%
Tier 1 capital to risk-weighted assets
6.00
%
8.00
%
 
610,305

10.60
%
 
582,929

10.29
%
Total capital to risk-weighted assets
8.00
%
10.00
%
 
696,472

12.09
%
 
666,560

11.76
%
We have filed a shelf registration statement on Form S-3 under the Securities Act of 1933 as amended, with the SEC, which allows for the issuance of a variety of securities including debt and capital securities, preferred and common stock and warrants. We may use the proceeds from the sale of securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of March 31, 2018, we had not issued any securities pursuant to this shelf registration statement.


48


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices, or equity prices can adversely affect a financial institution’s earnings or capital. For most financial institutions, including S&T, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes also affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO. The ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, analyses and by performing stress tests and simulations in order to mitigate earnings and market value fluctuations due to changes in interest rates.
Rate shock analyses results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. S&T policy guidelines limit the change in pretax net interest income over 12 and 24 month horizons using rate shocks in increments of +/- 100 basis points. Policy guidelines define the percentage change in pretax net interest income by graduated risk tolerance levels of minimal, moderate and high. We have temporarily suspended the analyses on downward rate shocks of 200 basis points or more. Due to the low interest rate environment, we believe the impact to net interest income when evaluating these basis point rate shock scenarios does not provide meaningful insight into our interest rate risk position.
In order to monitor interest rate risk beyond the 24 month time horizon of rate shocks on pretax net interest income, we also perform EVE analyses. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. EVE change results are compared to a base case to determine the impact that market rate changes may have on our EVE. As with rate shock analyses on pretax net interest income, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and the behavior and value of non-maturity deposit products. S&T policy guidelines limit the change in EVE using rate shocks in increments of +/- 100 basis points. Policy guidelines define the percentage change in EVE by graduated risk tolerance levels of minimal, moderate and high. We have also temporarily suspended the downward rate shocks of 200 basis points or more for EVE due to the low interest rate environment.
The table below reflects the rate shock analyses results for the 1 - 12 and 13 - 24 month periods of pretax net interest income and EVE. All results are in the minimal risk tolerance level.
 
March 31, 2018
 
December 31, 2017
 
1 - 12 Months

 
13 - 24 Months

% Change            in EVE

 
1 - 12 Months

 
13 - 24 Months

% Change            in EVE

Change in Interest Rate (basis points)
% Change in       Pretax
Net Interest Income

 
% Change in       Pretax
Net Interest Income

 
% Change in       Pretax
Net Interest Income

 
% Change in       Pretax
Net Interest Income

 400
7.7
 %
 
12.0
 %
(11.6
)%
 
5.5
 %
 
12.4
 %
(9.2
)%
 300
5.7

 
8.9

(5.9
)
 
4.2

 
9.3

(3.6
)
 200
3.5

 
5.7

(1.7
)
 
2.4

 
5.9

0.3

 100
1.8

 
3.0

0.7

 
1.3

 
3.2

1.9

(100)
(3.6
)
 
(5.5
)
(6.7
)
 
(3.6
)
 
(6.5
)
(8.0
)
The results from the rate shock analyses on net interest income are consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means more assets than liabilities will reprice during the measured time frames. The implications of an asset sensitive balance sheet will differ depending upon the change in market interest rates. For example, with an asset sensitive balance sheet in a declining interest rate environment, more assets than liabilities will decrease in rate. This situation could result in a decrease in net interest income and operating income. Conversely, with an asset sensitive balance sheet in a rising interest rate environment, more assets than liabilities will increase in rate. This situation could result in an increase in net interest income and operating income.

49


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Our rate shock analyses show an improvement in the percentage change in pretax net interest income in the rates up scenarios in months 1 - 12 and no change in the rates down when comparing March 31, 2018 to December 31, 2017. The improvement is mainly a result of becoming more asset sensitive due to less rate sensitivity in our wholesale funding portfolio. In months 13 - 24 the percentage change in pretax net interest income increased in the rates down scenario and declined only slightly in all rates up scenarios when comparing March 31, 2018 and December 31, 2017. These changes are mostly due to model enhancements. All rate shock analyses for both the 1 - 12 and 13 - 24 month periods continue to remain within minimal risk tolerance levels.
Our EVE analyses show a decline in the percentage change in EVE in the rates up scenarios and an improvement in the rates down scenario when comparing March 31, 2018 to December 31, 2017. The changes are mainly a result of deposit valuation enhancements and the change in value of our core deposits.
In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations. Sensitivity analyses are performed to help us identify which model assumptions cause the greatest impact on pretax net interest income. Sensitivity analyses may include changing prepayment behavior of loans and securities with optionality and the impact of interest rate changes on non-maturity deposit products. Simulation analyses may include the potential impact of rate changes other than the policy guidelines , yield curve shape changes, significant balance mix changes and various growth scenarios. For example, simulations indicate that an increase in rates, particularly if the yield curve steepens, will most likely result in an improvement in pretax net interest income. We realize that some of the benefit reflected in our scenarios may be offset by a change in the competitive environment and a change in product preference by our customers.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of S&T’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of March 31, 2018. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to S&T’s management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were not effective as of March 31, 2018 due to a material weakness in S&T’s internal control over financial reporting as previously described in our Annual Report on Form 10-K for the period ended December 31, 2017.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness is due to a control deficiency that exists related to the inconsistent assessment of internally assigned risk ratings, which is one of several factors used to estimate the allowance for loan losses. In some instances where performing borrowers had experienced a deteriorating financial position or cash flows, our internal Loan Review Department relied upon credit risk mitigants, including guarantor support and/or more recent borrower financial performance when that information did not adequately support the loan risk rating.
Notwithstanding the material weakness discussed above, the company's management, including the CEO and CFO, has concluded that the company's financial statements included in this Form 10-Q present fairly, in all material respects, the company's financial position, results of operations and cash flows for the periods presented in accordance with U.S. generally accepted accounting principles.
Remediation Plan
Management is in the process of remediating this material weakness and has engaged an independent third-party to evaluate our policies, procedures and resources related to the assessment of risk ratings. We intend to provide additional training and improve our documentation to strengthen the support for the judgments applied to risk rating conclusions by our internal Loan Review Department.

50


S&T BANCORP, INC. AND SUBSIDIARIES

Changes in Internal Control Over Financial Reporting
There have been no other changes in S&T’s internal control over financial reporting that occurred during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, S&T’s internal control over financial reporting, other than as described above under "Remediation Plan".

51


S&T BANCORP, INC. AND SUBSIDIARIES

PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
There have been no material changes to the risk factors that we have previously disclosed in Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on March 1, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information in connection with purchases of our common stock made by, or, on behalf of us, during the first quarter of 2018.
Period
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Dollar Value that May Yet be Purchased under the Plan or Programs
January 1, 2018 to January 31, 2018
 
 
 
 
 
 
 
 
Open market repurchases
 

 
$

 

 
 
Other transactions(1)
 

 
$

 

 
 
 
 
 
 
 
 
 
 
 
February 1, 2018 to February 28, 2018
 
 
 
 
 
 
 
 
Open market repurchases
 

 
$

 

 
 
Other transactions(1)
 

 
$

 

 
 
 
 
 
 
 
 
 
 
 
March 1, 2018 to March 31, 2018
 
 
 
 
 
 
 
 
Open market repurchases
 

 
$

 

 
$
50,000,000

Other transactions(1)
 
15,474

 
$
42.41

 

 
 
Total
 
15.474

 
$
42.41

 

 
$
50,000,000

(1)During the three months ended March 31, 2018, pursuant to the terms of our restricted stock program, we purchased 15,474 shares at the then market value of the shares in connection with the vesting of restricted shares of employees under such program to satisfy certain tax withholding requirements through the delivery of shares to us instead of cash.
On March 19, 2018, the Board of Directors of S&T Bancorp, Inc. authorized a $50 million share repurchase plan. This purchase authorization, which is effective through August 31, 2019, permits S&T to repurchase from time to time up to $50 million in aggregate value of shares of S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of the common stock, legal and contractual requirements and S&T’s financial performance. The repurchase plan does not obligate S&T to repurchase any particular number of shares. S&T expects to fund any repurchases from cash on hand and internally generated funds. There were no open market repurchases during the three months ended March 31, 2018.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information

52


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

NOTE 14. REVENUE FROM CONTRACTS WITH CUSTOMERS

None
Item 6. Exhibits
Employment Agreement of Thomas John Sposito II
Filed herewith
 
 
 
Change in Control Severance Agreement for John Sposito II
Filed herewith
 
 
 
Rule 13a-14(a) Certification of the Chief Executive Officer.
Filed herewith
 
 
 
Rule 13a-14(a) Certification of the Chief Financial Officer.
Filed herewith
 
 
 
Rule 13a-14(b) Certification of the Chief Executive Officer and Chief Financial Officer.
Filed herewith
 
 
 
101
The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 is formatted in eXtensible Business Reporting Language (XBRL): (i) Unaudited Consolidated Balance Sheet at March 31, 2018 and Audited Consolidated Balance Sheet at December 31, 2017, (ii) Unaudited Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2018 and 2017, (iii) Unaudited Consolidated Statements of Changes in Shareholders’ Equity for the Three Months ended March 31, 2018 and 2017, (iv) Unaudited Consolidated Statements of Cash Flows for the Three Months ended March 31, 2018 and 2017 and (v) Notes to Unaudited Consolidated Financial Statements.
Filed herewith


53



S&T BANCORP, INC. AND SUBSIDIARIES

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
S&T Bancorp, Inc.
(Registrant)
 
 
May 3, 2018
/s/ Mark Kochvar
 
Mark Kochvar
Senior Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Duly Authorized Signatory)


54