S&T BANCORP INC 10-Q

stba-20220630 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______________________________________ FORM 10-Q ______________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 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) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $2.50 par value STBA The NASDAQ Stock Market LLC Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date. Common Stock, $2.50 Par Value - 39,146,291 shares as of July 29, 2022 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES INDEX S&T BANCORP, INC. AND SUBSIDIARIES Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 2 Condensed Consolidated Statements of Comprehensive Income (Loss) 3 Consolidated Statements of Changes in Shareholders' Equity 4 Condensed Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 32 Item 3. Quantitative and Qualitative Disclosures About Market Risk 49 Item 4. Controls and Procedures 50 PART II. OTHER INFORMATION Item 1. Legal Proceedings 50 Item 1A. Risk Factors 51 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 51 Item 3. Defaults Upon Senior Securities 51 Item 4. Mine Safety Disclosures 51 Item 5. Other Information 51 Item 6. Exhibits 52 Signatures 53 1 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, 2022 December 31, 2021 (in thousands, except share and per share data) (Unaudited) (Audited) ASSETS Cash and due from banks, including interest-bearing deposits of $ 263,504 and $ 857,192 at June 30, 2022 and December 31, 2021 $ 344,694 $ 922,215 Securities, at fair value 1,068,576 910,793 Loans held for sale 1,311 1,522 Portfolio loans, net of unearned income 7,040,894 6,999,990 Allowance for credit losses ( 98,095 ) ( 98,576 ) Portfolio loans, net 6,942,799 6,901,414 Bank owned life insurance 84,536 83,685 Premises and equipment, net 50,913 52,632 Federal Home Loan Bank and other restricted stock, at cost 7,949 9,519 Goodwill 373,424 373,424 Other intangible assets, net 6,120 6,895 Other assets 223,492 226,430 Total Assets $ 9,103,814 $ 9,488,529 LIABILITIES Deposits: Noninterest-bearing demand $ 2,736,849 $ 2,748,586 Interest-bearing demand 880,432 979,133 Money market 1,888,506 2,070,579 Savings 1,125,344 1,110,155 Certificates of deposit 981,116 1,088,071 Total Deposits 7,612,247 7,996,524 Securities sold under repurchase agreements 39,259 84,491 Long-term borrowings 21,988 22,430 Junior subordinated debt securities 54,423 54,393 Other liabilities 197,539 124,237 Total Liabilities 7,925,456 8,282,075 SHAREHOLDERS’ EQUITY Common stock ($ 2.50 par value) Authorized— 50,000,000 shares Issued— 41,449,444 shares at June 30, 2022 and December 31, 2021 Outstanding— 39,148,999 shares at June 30, 2022 and 39,351,194 shares at December 31, 2021 103,623 103,623 Additional paid-in capital 404,841 403,095 Retained earnings 809,644 773,659 Accumulated other comprehensive loss ( 67,171 ) ( 7,090 ) Treasury stock — 2,300,445 shares at June 30, 2022 and 2,098,250 shares at December 31, 2021, at cost ( 72,579 ) ( 66,833 ) Total Shareholders’ Equity 1,178,358 1,206,454 Total Liabilities and Shareholders’ Equity $ 9,103,814 $ 9,488,529 See Notes to Consolidated Financial Statements 2 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands, except per share data) 2022 2021 2022 2021 INTEREST AND DIVIDEND INCOME Loans, including fees $ 71,018 $ 66,942 $ 135,611 $ 137,174 Investment Securities: Taxable 5,995 3,793 10,931 7,356 Tax-exempt 484 690 966 1,503 Dividends 102 152 200 325 Total Interest and Dividend Income 77,599 71,577 147,708 146,358 INTEREST EXPENSE Deposits 1,790 2,652 3,643 6,133 Borrowings and junior subordinated debt securities 615 621 1,138 1,263 Total Interest Expense 2,405 3,273 4,781 7,396 NET INTEREST INCOME 75,194 68,304 142,927 138,962 Provision for credit losses 3,204 2,561 2,692 5,699 Net Interest Income After Provision for Credit Losses 71,990 65,743 140,235 133,263 NONINTEREST INCOME Net gain on sale of securities — 29 — 29 Debit and credit card 4,756 4,744 9,819 8,906 Service charges on deposit accounts 4,181 3,642 8,155 7,116 Wealth management 3,247 3,167 6,489 6,111 Mortgage banking 466 1,734 1,481 6,044 Other ( 20 ) 2,108 1,912 4,541 Total Noninterest Income 12,630 15,424 27,856 32,747 NONINTEREST EXPENSE Salaries and employee benefits 24,811 24,515 48,523 47,842 Data processing and information technology 4,104 3,787 8,539 8,012 Occupancy 3,634 3,434 7,516 7,261 Furniture, equipment and software 2,939 2,402 5,716 5,042 Other taxes 1,682 1,832 3,219 3,268 Professional services and legal 2,380 1,637 4,329 3,168 Marketing 1,524 996 2,885 2,318 FDIC insurance 882 924 1,819 1,970 Other 6,468 6,302 13,292 12,614 Total Noninterest Expense 48,424 45,829 95,838 91,495 Income Before Taxes 36,196 35,338 72,253 74,515 Income tax expense 7,338 6,971 14,252 14,247 Net Income $ 28,858 $ 28,367 $ 58,001 $ 60,268 Earnings per share—basic $ 0.74 $ 0.73 $ 1.48 $ 1.54 Earnings per share—diluted $ 0.74 $ 0.72 $ 1.48 $ 1.54 Dividends declared per share $ 0.30 $ 0.28 $ 0.59 $ 0.56 Comprehensive Income (Loss) $ 8,730 $ 30,911 $ ( 2,080 ) $ 54,902 See Notes to Consolidated Financial Statements 3 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Three months ended June 30, 2021 (dollars in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income Treasury Stock Total Balance at March 31, 2021 $ 103,623 $ 401,353 $ 731,718 $ 1,061 $ ( 69,477 ) $ 1,168,278 Net income for the three months ended June 30, 2021 — — 28,367 — — 28,367 Other comprehensive income, net of tax — — — 2,544 — 2,544 Cash dividends declared ($ 0.28 per share) — — ( 10,989 ) — — ( 10,989 ) Treasury stock issued for restricted stock awards ( 98,519 shares) — — ( 3,139 ) — 3,139 — Forfeitures of restricted stock awards ( 21,157 shares) — — 515 — ( 682 ) ( 167 ) Recognition of restricted stock compensation expense — 700 — — — 700 Balance at June 30, 2021 $ 103,623 $ 402,053 $ 746,472 $ 3,605 $ ( 67,020 ) $ 1,188,733 See Notes to Consolidated Financial Statements Three months ended June 30, 2022 (dollars in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at March 31, 2022 $ 103,623 $ 403,841 $ 791,345 $ ( 47,043 ) $ ( 66,816 ) $ 1,184,950 Net income for the three months ended June 30, 2022 — — 28,858 — — 28,858 Other comprehensive loss, net of tax — — — ( 20,128 ) — ( 20,128 ) Cash dividends declared ($ 0.30 per share) — — ( 11,791 ) — — ( 11,791 ) Forfeitures of restricted stock awards ( 51,469 shares) — — 1,232 — ( 1,610 ) ( 378 ) Repurchase of S&T Stock ( 151,220 shares) — — — — ( 4,153 ) ( 4,153 ) Recognition of restricted stock compensation expense — 1,000 — — — 1,000 Balance at June 30, 2022 $ 103,623 $ 404,841 $ 809,644 $ ( 67,171 ) $ ( 72,579 ) $ 1,178,358 See Notes to Consolidated Financial Statements 4 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) Six months ended June 30, 2021 (dollars in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Balance at January 1, 2021 $ 103,623 $ 400,668 $ 710,061 $ 8,971 $ ( 68,612 ) $ 1,154,711 Net income for the six months ended June 30, 2021 — — 60,268 — — 60,268 Other comprehensive loss, net of tax — — — ( 5,366 ) — ( 5,366 ) Cash dividends declared ($ 0.56 per share) — — ( 21,963 ) — — ( 21,963 ) Treasury stock issued for restricted stock awards ( 99,711 shares) — — ( 3,177 ) — 3,177 — Forfeitures of restricted stock awards ( 51,999 shares) — — 1,283 — ( 1,585 ) ( 302 ) Recognition of restricted stock compensation expense — 1,385 — — — 1,385 Balance at June 30, 2021 $ 103,623 $ 402,053 $ 746,472 $ 3,605 $ ( 67,020 ) $ 1,188,733 See Notes to Consolidated Financial Statements Six months ended June 30, 2022 (dollars in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at January 1, 2022 $ 103,623 $ 403,095 $ 773,659 $ ( 7,090 ) $ ( 66,833 ) $ 1,206,454 Net income for the six months ended June 30, 2022 — — 58,001 — — 58,001 Other comprehensive loss, net of tax — — — ( 60,081 ) — ( 60,081 ) Cash dividends declared ($ 0.59 per share) — — ( 23,175 ) — — ( 23,175 ) Treasury stock issued for restricted stock awards ( 4,250 shares) — — ( 135 ) — 135 — Forfeitures of restricted stock awards ( 55,225 shares) — — 1,294 — ( 1,728 ) ( 434 ) Repurchase of S&T Stock ( 151,220 shares) — — — — ( 4,153 ) ( 4,153 ) Recognition of restricted stock compensation expense — 1,746 — — — 1,746 Balance at June 30, 2022 $ 103,623 $ 404,841 $ 809,644 $ ( 67,171 ) $ ( 72,579 ) $ 1,178,358 See Notes to Consolidated Financial Statements 5 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended June 30, (dollars in thousands) 2022 2021 OPERATING ACTIVITIES Net Cash Provided by Operating Activities $ 153,301 $ 128,043 INVESTING ACTIVITIES Purchases of securities ( 311,969 ) ( 153,587 ) Proceeds from maturities, prepayments and calls of securities 79,759 72,951 Proceeds from sales of securities — 1,917 Proceeds from redemption of Federal Home Loan Bank stock 11,465 13,137 Purchases of Federal Home Loan Bank stock ( 9,895 ) ( 10,213 ) Net (increase) decrease in loans ( 45,440 ) 201,545 Proceeds from sale of portfolio loans 4,326 3,438 Purchases of premises and equipment ( 1,556 ) ( 1,926 ) Proceeds from the sale of premises and equipment 131 74 Net Cash (Used in) Provided by Investing Activities ( 273,179 ) 127,336 FINANCING ACTIVITIES Net (decrease) increase in core deposits ( 277,322 ) 712,568 Net decrease in certificates of deposit ( 106,915 ) ( 117,782 ) Net (decrease) increase in securities sold under repurchase agreements ( 45,232 ) 3,424 Net decrease in short-term borrowings — ( 75,000 ) Repayments on long-term borrowings ( 442 ) ( 712 ) Repurchase of shares for taxes on restricted stock ( 434 ) ( 302 ) Cash dividends paid to common shareholders ( 23,145 ) ( 21,963 ) Repurchase of common stock ( 4,153 ) — Net Cash (Used in) Provided by Financing Activities ( 457,643 ) 500,233 Net (decrease) increase in cash and cash equivalents ( 577,521 ) 755,612 Cash and cash equivalents at beginning of period 922,215 229,666 Cash and Cash Equivalents at End of Period $ 344,694 $ 985,278 Supplemental Disclosures Loans transferred to held for sale $ — $ 2,798 Cash paid for interest $ 5,028 $ 9,114 Cash paid for income taxes, net of refunds $ 12,225 $ 12,097 Transfers of loans to other real estate owned $ 18 $ 90 See Notes to Consolidated Financial Statements 6 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION Principles of Consolidation The interim Consolidated Financial Statements include the accounts of S&T Bancorp, Inc., or S&T, and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Investments of 20 percent to 50 percent of the outstanding common stock of investees are accounted for using the equity method of accounting. Basis of Presentation The accompanying unaudited interim Consolidated Financial Statements of S&T have been prepared in accordance with generally accepted accounting principles, or GAAP, in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission, or SEC, on February 28, 2022 (2021 Form 10-K). In the opinion of management, the accompanying interim financial information reflects all adjustments, consisting of normal recurring adjustments, necessary to present fairly our financial position and the results of operations for each of the interim periods presented. Results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period. Reclassification A mounts in prior period financial statements and footnotes are reclassified whenever necessary to conform to the current period presentation. Reclassifications had no effect on our results of operations or financial condition. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Accounting Policy for Derivative Instruments and Hedging Activities During the six months ended June 30, 2022, we entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing variable rate assets. We have updated our accounting policy for derivative instruments and hedging activities to include hedge accounting. All derivatives are evaluated at inception to determine whether it is a hedging or non-hedging activity. The accounting for changes in the fair value of derivatives depends on whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. As long as the cash flow hedge continues to qualify for hedge accounting, the entire change in the fair value of the hedging instrument is recorded in Accumulated Other Comprehensive Income (Loss), or AOCI, and recognized in earnings as the hedged transaction affects earnings. Refer to our 2021 Form 10-K for a discussion of our complete Accounting Policy for Derivative Instruments and Hedging Activities. 7 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 1. BASIS OF PRESENTATION - continued Recently Adopted Accounting Standards Updates, or ASU or Updated Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this ASU provide optional guidance for a limited period of time to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. The optional guidance generally allows for the modified contract to be accounted for as a continuation of the existing contract and does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in this ASU are effective as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Addendum (Topic 848) which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. We adopted ASU 2020-04 and ASU 2021-01 on January 1, 2022. We are utilizing the LIBOR transition relief as contract modifications are made during the course of the reference rate reform transition period. ASU 2020-04 and ASU 2021-01 did not have a material impact on our consolidated financial statements. Accounting Standards Issued But Not Yet Adopted Financial Instruments Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures In March 2022, the FASB issued ASU 2022-02, Financial Instruments Credit Losses (Topic 326): Troubled Debt Restructuring and Vintage Disclosures. The guidance eliminates the “once a TDR, always a TDR” requirement for loan disclosures and requires disclosures about the performance of modified loans to borrowers experiencing financial difficulty in the 12 months following the modification. The amendments eliminate the recognition and measurement guidance related to TDRs for creditors that have adopted ASC 326 Financial Instruments - Credit Losses. We adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020. Once applying ASC 326, the required accounting and disclosures for a loan modified in a TDR no longer provide decision-useful information. ASC 326 requires the recognition of lifetime expected credit losses when a loan is originated or acquired, so the effect of credit losses that occur in loans modified in TDRs is already included in the allowance for credit losses. ASU 2022-02 requires a creditor to apply the loan refinancing and restructuring guidance in ASC 310-205 (consistent with the accounting for other loan modifications) to determine whether a modification results in a new loan or a continuation of an existing loan. It also requires enhanced disclosures for modifications in the form of interest rate reductions, principal forgiveness, other-than-insignificant payment delays, or term extensions (or combinations thereof) of loans made to borrowers experiencing financial difficulty. Disclosures are required regardless of whether a modification of a loan to a borrower experiencing financial difficulty results in a new loan. The objective of the disclosures is to provide information about the type and magnitude of modifications and the degree of their success in mitigating potential credit losses. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early adoption is permitted, however, we have not elected to do so. We are currently evaluating the impact of this ASU which will require new disclosures, but we do not expect it to have a material impact on our consolidated financial statements. 8 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 2. EARNINGS PER SHARE Diluted earnings per share is calculated using both the two-class and the treasury stock methods with the more dilutive method used to determine diluted earnings per share. The two-class method was used to determine earnings per share for the three and six months ended June 30, 2022 and 2021. The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented: Three months ended June 30, Six months ended June 30, (in thousands, except share and per share data) 2022 2021 2022 2021 Numerator for Earnings per Share—Basic and Diluted: Net income $ 28,858 $ 28,367 $ 58,001 $ 60,268 Less: Income allocated to participating shares 74 141 185 283 Net Income Allocated to Shareholders $ 28,784 $ 28,226 $ 57,816 $ 59,985 Denominator for Earnings per Share - Basic and Diluted: Weighted Average Shares Outstanding—Basic 39,083,429 39,048,971 39,077,305 39,039,007 Add: Average participating shares outstanding 16,202 — 18,411 — Denominator for Two-Class Method—Diluted 39,099,631 39,048,971 39,095,716 39,039,007 Earnings per share—basic $ 0.74 $ 0.73 $ 1.48 $ 1.54 Earnings per share—diluted $ 0.74 $ 0.72 $ 1.48 $ 1.54 Restricted stock considered anti-dilutive excluded from potentially dilutive shares 1,500 25 94 424 NOTE 3. FAIR VALUE MEASUREMENTS We use fair value measurements when recording and disclosing certain financial assets and liabilities. Debt securities, equity securities and derivative financial instruments are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale, individually assessed loans, other real estate owned, or OREO, and other repossessed assets, mortgage servicing rights, or MSRs, and certain other assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches, including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an asset or liability, which are developed based on market data that we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances. The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets. Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data. Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. 9 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 3. FAIR VALUE MEASUREMENTS - continued There have been no changes in our valuation methodologies during the three and six months ended June 30, 2022. Refer to Note 1 of the Notes to Consolidated Financial Statements in our 2021 Form 10-K for more information on the valuation methodologies that we use for financial instruments recorded at fair value on a recurring or nonrecurring basis. Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at the dates presented: June 30, 2022 (dollars in thousands) Level 1 Level 2 Level 3 Total ASSETS Available-for-sale debt securities: U.S. Treasury securities $ 136,282 $ — $ — $ 136,282 Obligations of U.S. government corporations and agencies — 52,815 — 52,815 Collateralized mortgage obligations of U.S. government corporations and agencies — 427,635 — 427,635 Residential mortgage-backed securities of U.S. government corporations and agencies — 46,416 — 46,416 Commercial mortgage-backed securities of U.S. government corporations and agencies — 333,994 — 333,994 Corporate obligations — 500 — 500 Obligations of states and political subdivisions — 69,850 — 69,850 Total Available-for-sale Debt Securities 136,282 931,210 — 1,067,492 Marketable equity securities 1,015 69 — 1,084 Total Securities 137,297 931,279 — 1,068,576 Securities held in a deferred compensation plan 7,678 — — 7,678 Derivative financial assets: Interest rate swaps - commercial loans — 51,097 — 51,097 Interest rate lock commitments — — 56 56 Interest rate swaps - cash flow hedge — 368 — 368 Total Assets $ 144,975 $ 982,744 $ 56 $ 1,127,775 LIABILITIES Derivative financial liabilities: Interest rate swaps - commercial loans $ — $ 51,193 $ — $ 51,193 Forward sale contracts - mortgage loans — — 2 2 Interest rate swaps - cash flow hedge — 5,946 — 5,946 Total Liabilities $ — $ 57,139 $ 2 $ 57,141 10 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 3. FAIR VALUE MEASUREMENTS - continued December 31, 2021 (dollars in thousands) Level 1 Level 2 Level 3 Total ASSETS Available-for-sale debt securities: U.S. Treasury securities $ 95,327 $ — $ — $ 95,327 Obligations of U.S. government corporations and agencies — 70,348 — 70,348 Collateralized mortgage obligations of U.S. government corporations and agencies — 270,294 — 270,294 Residential mortgage-backed securities of U.S. government corporations and agencies — 56,793 — 56,793 Commercial mortgage-backed securities of U.S. government corporations and agencies — 341,300 — 341,300 Corporate obligations — 500 — 500 Obligations of states and political subdivisions — 75,089 — 75,089 Total Available-for-sale Debt Securities 95,327 814,324 — 909,651 Marketable equity securities 1,061 81 — 1,142 Total Securities 96,388 814,405 — 910,793 Securities held in a deferred compensation plan 10,230 — — 10,230 Derivative financial assets: Interest rate swaps - commercial loans — 33,528 — 33,528 Interest rate lock commitments — — 401 401 Forward sale contracts - mortgage loans — — 4 4 Interest rate swaps - cash flow hedge — — — — Total Assets $ 106,618 $ 847,933 $ 405 $ 954,956 LIABILITIES Derivative financial liabilities: Interest rate swaps - commercial loans $ — $ 33,631 $ — $ 33,631 Total Liabilities $ — $ 33,631 $ — $ 33,631 Assets Recorded at Fair Value on a Nonrecurring Basis We may be required to measure certain assets and liabilities at fair value on a nonrecurring basis. Nonrecurring assets are recorded at the lower of cost or fair value in our consolidated financial statements. There were no liabilities measured at fair value on a nonrecurring basis at either June 30, 2022 or December 31, 2021. Level 3 assets measured at fair value on a nonrecurring basis and the significant unobservable inputs used in the fair value measurements as of June 30, 2022 and December 31, 2021 were as follows: June 30, 2022 Valuation Technique Significant Unobservable Inputs Range Weighted Average (1) (dollars in thousands) Loans individually evaluated $ 6 Collateral method Appraisal adjustment 10 % 10.00 % Total Assets $ 6 (1) Weighted averages for loans individually evaluated were weighted by loan amounts. December 31, 2021 Valuation Technique Significant Unobservable Inputs Range Weighted Average (1) (2) (dollars in thousands) Loans individually evaluated $ 7,268 Collateral method Appraisal adjustment 0 % - 20 % 4.48 % Other real estate owned 1,011 Collateral method Appraisal adjustment 2.53 % 2.53 % Total Assets $ 8,279 (1) Weighted averages for loans individually evaluated were weighted by loan amounts. (2 ) Weighted averages for other real estate owned were weighted by OREO balances. 11 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 3. FAIR VALUE MEASUREMENTS - continued The following tables present the carrying values and fair values of our financial instruments at the dates presented: Carrying Value (1) Fair Value Measurements at June 30, 2022 (dollars in thousands) Total Level 1 Level 2 Level 3 ASSETS Cash and due from banks, including interest-bearing deposits $ 344,694 $ 344,694 $ 344,694 $ — $ — Securities 1,068,576 1,068,576 137,297 931,279 — Loans held for sale 1,311 1,326 — — 1,326 Portfolio loans, net 6,942,799 6,784,189 — — 6,784,189 Securities held in a deferred compensation plan 7,678 7,678 7,678 — — Mortgage servicing rights 7,575 9,996 — — 9,996 Interest rate swaps - commercial loans 51,097 51,097 — 51,097 — Interest rate swaps - cash flow hedge 368 368 — 368 — Interest rate lock commitments 56 56 — — 56 LIABILITIES Deposits $ 7,612,247 $ 7,591,465 $ 6,631,131 $ 960,334 $ — Collateral payable 52,709 52,709 52,709 — — Securities sold under repurchase agreements 39,259 39,259 39,259 — — Short-term borrowings — — — — — Long-term borrowings 21,988 21,634 4,196 17,438 — Junior subordinated debt securities 54,423 54,423 54,423 — — Interest rate swaps - commercial loans 51,193 51,193 — 51,193 — Interest rate swaps - cash flow hedge 5,946 5,946 — 5,946 — Forward sale contracts - mortgage loans 2 2 — — 2 (1) As reported in the Consolidated Balance Sheets Carrying Value (1) Fair Value Measurements at December 31, 2021 (dollars in thousands) Total Level 1 Level 2 Level 3 ASSETS Cash and due from banks, including interest-bearing deposits $ 922,215 $ 922,215 $ 922,215 $ — $ — Securities 910,793 910,793 96,388 814,405 — Loans held for sale 1,522 1,522 — — 1,522 Portfolio loans, net 6,901,414 6,815,468 — — 6,815,468 Collateral receivable 37,363 37,363 37,363 — — Securities held in a deferred compensation plan 10,230 10,230 10,230 — — Mortgage servicing rights 7,677 7,677 — — 7,677 Interest rate swaps 33,528 33,528 — 33,528 — Interest rate lock commitments 401 401 — — 401 Forward sale contracts 4 4 — — 4 LIABILITIES Deposits $ 7,996,524 $ 7,992,942 $ 6,908,453 $ 1,084,489 $ — Securities sold under repurchase agreements 84,491 84,491 84,491 — — Short-term borrowings — — — — — Long-term borrowings 22,430 22,678 4,300 18,378 — Junior subordinated debt securities 54,393 54,393 54,393 — — Interest rate swaps - commercial loans 33,631 33,631 — 33,631 — (1) As reported in the Consolidated Balance Sheets 12 Table of Contents 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) June 30, 2022 December 31, 2021 Available-for-sale debt securities $ 1,067,492 $ 909,651 Marketable equity securities 1,084 1,142 Total Securities $ 1,068,576 $ 910,793 Available-for-Sale Debt Securities The following tables present the amortized cost and fair value of available-for-sale debt securities as of the dates presented: June 30, 2022 December 31, 2021 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasury securities $ 145,820 $ 155 $ ( 9,693 ) $ 136,282 $ 95,954 $ 115 $ ( 742 ) $ 95,327 Obligations of U.S. government corporations and agencies 53,542 7 ( 734 ) 52,815 68,599 1,749 — 70,348 Collateralized mortgage obligations of U.S. government corporations and agencies 456,889 312 ( 29,566 ) 427,635 270,696 2,408 ( 2,810 ) 270,294 Residential mortgage-backed securities of U.S. government corporations and agencies 52,289 19 ( 5,892 ) 46,416 57,029 392 ( 628 ) 56,793 Commercial mortgage-backed securities of U.S. government corporations and agencies 350,432 263 ( 16,701 ) 333,994 336,918 5,969 ( 1,587 ) 341,300 Corporate obligations 500 — — 500 500 — — 500 Obligations of states and political subdivisions 69,874 455 ( 479 ) 69,850 70,539 4,550 — 75,089 Total Available-for-Sale Debt Securities (1) $ 1,129,346 $ 1,211 $ ( 63,065 ) $ 1,067,492 $ 900,235 $ 15,183 $ ( 5,767 ) $ 909,651 (1) Excludes interest receivable of $ 3.7 million at June 30, 2022 and $ 3.3 million at December 31, 2021. Interest receivable is included in other assets in the Consolidated Balance Sheets. 13 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 4. SECURITIES – continued T he following tables present the fair value and the age of gross unrealized losses on available-for-sale debt securities by investment category as of the dates presented: June 30, 2022 Less Than 12 Months 12 Months or More Total (dollars in thousands) Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses U.S. Treasury securities 12 $ 116,707 $ ( 9,693 ) — $ — $ — 12 $ 116,707 $ ( 9,693 ) Obligations of U.S. government corporations and agencies 7 47,817 ( 734 ) — — — 7 47,817 ( 734 ) Collateralized mortgage obligations of U.S. government corporations and agencies 48 352,393 ( 24,035 ) 4 34,282 ( 5,531 ) 52 386,675 ( 29,566 ) Residential mortgage-backed securities of U.S. government corporations and agencies 12 9,479 ( 527 ) 2 36,366 ( 5,365 ) 14 45,845 ( 5,892 ) Commercial mortgage-backed securities of U.S. government corporations and agencies 36 323,896 ( 16,701 ) — — — 36 323,896 ( 16,701 ) Corporate obligations 1 500 — — — — 1 500 — Obligations of states and political subdivisions 2 20,198 ( 479 ) — — — 2 20,198 ( 479 ) Total 118 $ 870,990 $ ( 52,169 ) 6 $ 70,648 $ ( 10,896 ) 124 $ 941,638 $ ( 63,065 ) December 31, 2021 Less Than 12 Months 12 Months or More Total (dollars in thousands) Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses Number of Securities Fair Value Unrealized Losses U.S. Treasury securities 8 $ 85,221 $ ( 742 ) — $ — $ — 8 $ 85,221 $ ( 742 ) Obligations of U.S. government corporations and agencies — — — — — — — — — Collateralized mortgage obligations of U.S. government corporations and agencies 12 141,204 ( 2,436 ) 1 8,933 ( 374 ) 13 150,137 ( 2,810 ) Residential mortgage-backed securities of U.S. government corporations and agencies 3 46,042 ( 628 ) — — — 3 46,042 ( 628 ) Commercial mortgage-backed securities of U.S. government corporations and agencies 7 100,032 ( 1,587 ) — — — 7 100,032 ( 1,587 ) Corporate obligations — — — — — — — — — Obligations of states and political subdivisions — — — — — — — — — Total 30 $ 372,499 $ ( 5,393 ) 1 $ 8,933 $ ( 374 ) 31 $ 381,432 $ ( 5,767 ) We evaluate securities with unrealized losses quarterly to determine if the decline in fair value has resulted from credit losses or other factors. There were 124 debt securities in an unrealized loss position at June 30, 2022 and 31 debt securities in an unrealized loss position at December 31, 2021. We do not intend to sell and it is more likely than not that we will not be required to sell the securities in an unrealized loss position before recovery of their amortized cost. The unrealized losses on the debt securities were attributable to changes in interest rates and not related to the credit quality of the issuers. All debt securities were determined to be investment grade and paying principal and interest according to the contractual terms of the security. 14 Table of Contents 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 available-for-sale debt securities included in accumulated other comprehensive income (loss), for the periods presented: June 30, 2022 December 31, 2021 (dollars in thousands) Gross Unrealized Gains Gross Unrealized Losses Net Unrealized Losses Gross Unrealized Gains Gross Unrealized Losses Net Unrealized Gains Total unrealized gains (losses) on available-for-sale debt securities $ 1,211 $ ( 63,065 ) $ ( 61,854 ) $ 15,183 $ ( 5,767 ) $ 9,416 Income tax (expense) benefit ( 259 ) 13,474 13,215 ( 3,215 ) 1,221 ( 1,994 ) Net Unrealized Gains (Losses), Net of Tax Included in Accumulated Other Comprehensive Income (Loss) $ 952 $ ( 49,591 ) $ ( 48,639 ) $ 11,968 $ ( 4,546 ) $ 7,422 The amortized cost and fair value of available-for-sale debt securities at June 30, 2022 by contractual maturity are included in the table below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. June 30, 2022 (dollars in thousands) Amortized Cost Fair Value Obligations of the U.S. Treasury, U.S. government corporations and agencies, and obligations of states and political subdivisions Due in one year or less $ 35,648 $ 35,760 Due after one year through five years 117,273 113,923 Due after five years through ten years 104,696 97,991 Due after ten years 11,619 11,273 Available-for-Sale Debt Securities With Fixed Maturities 269,236 258,947 Debt Securities without a single maturity date Collateralized mortgage obligations of U.S. government corporations and agencies 456,889 427,635 Residential mortgage-backed securities of U.S. government corporations and agencies 52,289 46,416 Commercial mortgage-backed securities of U.S. government corporations and agencies 350,432 333,994 Corporate obligations 500 500 Total Available-for-Sale Debt Securities $ 1,129,346 $ 1,067,492 Debt securities are pledged in order to meet various regulatory and legal requirements. Restricted pledged securities had a carrying value of $ 19.4 million at June 30, 2022 and $ 23.9 million at December 31, 2021. Unrestricted pledged securities had a carrying value of $ 321.2 million at June 30, 2022 and $ 443.0 million at December 31, 2021. Marketable Equity Securities The following table presents realized and unrealized net gains and losses for our marketable equity securities for the periods presented: Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 Marketable Equity Securities Net market gains (losses) recognized $ ( 53 ) $ 28 $ ( 58 ) $ 143 Less: Net gains recognized for equity securities sold — 3 — 29 Unrealized Gains (Losses) on Equity Securities Still Held $ ( 53 ) $ 25 $ ( 58 ) $ 114 Total unrealized gains and losses on marketable equity securities recognized during the current period are included in other noninterest income on the Condensed Consolidated Statements of Comprehensive Income (Loss). 15 Table of Contents 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 $ 8.5 million at June 30, 2022 and $ 14.1 million at December 31, 2021 and net of a discount related to purchase accounting fair value adjustments of $ 5.3 million at June 30, 2022 and $ 6.7 million at December 31, 2021. The following table summarizes the composition of originated and acquired loans as of the dates presented: (dollars in thousands) June 30, 2022 December 31, 2021 Commercial Commercial real estate $ 3,191,670 $ 3,236,653 Commercial and industrial 1,695,031 1,728,969 Commercial construction 410,425 440,962 Total Commercial Loans 5,297,126 5,406,584 Consumer Consumer real estate 1,623,830 1,485,478 Other consumer 119,938 107,928 Total Consumer Loans 1,743,768 1,593,406 Total Portfolio Loans 7,040,894 6,999,990 Loans held for sale 1,311 1,522 Total Loans (1) $ 7,042,205 $ 7,001,512 (1) Excludes interest receivable of $ 19.9 million at June 30, 2022 compared to $ 18.7 million at December 31, 2021. Interest receivable is included in other assets in the Consolidated Balance Sheets. Commercial and industrial loans, or C&I, included $ 11.7 million of loans originated under the Paycheck Protection Program, or PPP, at June 30, 2022 compared to $ 88.3 million at December 31, 2021. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law. The CARES Act included the PPP, a program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks. PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted expenses in accordance with the requirements of the PPP. The loans are 100 percent guaranteed by the Small Business Administration, or SBA. Our business banking segment was $ 1.2 billion at June 30, 2022 compared to $ 1.1 billion at December 31, 2021. Business banking consists of commercial purpose loans made to small businesses that are standard, non-complex products evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards that meet small business market customers’ needs. Business banking consisted of $ 565.7 million of commercial real estate loans, $ 217.9 million of C&I loans of which $ 11.7 million are PPP loans, $ 15.1 million of commercial construction loans and $ 364.6 million of loans secured by consumer real estate at June 30, 2022. At December 31, 2021 business banking consisted of $ 546.1 million of commercial real estate loans, $ 215.4 million of C&I loans of which $ 39.7 million are PPP loans, $ 16.2 million of commercial construction loans and $ 357.9 million of loans secured by consumer real estate. We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in these segments to determine if additional ACL is needed. Total commercial loans represented 75.2 percent of total portfolio loans at June 30, 2022 compared to 77.2 percent at December 31, 2021. Within our commercial portfolio, the CRE and commercial construction portfolios combined comprised $ 3.6 billion, or 68.0 percent, of total commercial loans and 51.2 percent of total portfolio loans at June 30, 2022 and $ 3.7 billion, or 68.0 percent, of total commercial loans and 52.5 percent of total portfolio loans at December 31, 2021. We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in this geography, resulting in a concentration. We believe our knowledge and familiarity with customers and conditions locally outweighs this geographic concentration risk. The conditions of the local and regional economies are monitored closely through publicly available data and information supplied by our customers. We also use subscription services for additional geographic and industry specific information. Our CRE and commercial construction portfolios have exposure outside of this geography of 6.4 percent of the combined portfolios and 3.3 percent of total portfolio loans at June 30, 2022. This compares to 5.7 percent of the combined portfolios and 3.0 percent of total portfolio loans at December 31, 2021. 16 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 5. LOANS AND LOANS HELD FOR SALE - continued We evaluate all substandard commercial, consumer and residential mortgage loans that have experienced a forbearance or change in terms to modify their existing loan to determine if they should be designated as troubled debt restructurings, or TDRs. TDRs can be returned to accruing status if the ultimate collectability of all contractual amounts due, according to the restructured agreement, is not in doubt and there is a period of a minimum of six months of satisfactory payment performance by the borrower either immediately before or after the restructuring. The following tables summarize TDRs as of the dates presented: June 30, 2022 December 31, 2021 (dollars in thousands) Accruing TDRs Nonaccruing TDRs Total TDRs Accruing TDRs Nonaccruing TDRs Total TDRs Commercial real estate $ — $ 16 $ 16 $ — $ 1,697 $ 1,697 Commercial and industrial 690 — 690 748 14,889 15,637 Commercial construction 1,694 480 2,174 2,190 2,087 4,277 Business banking 680 1,325 2,005 858 1,696 2,554 Consumer real estate 6,269 2,189 8,458 6,122 1,405 7,527 Other consumer 5 — 5 3 — 3 Total $ 9,338 $ 4,010 $ 13,348 $ 9,921 $ 21,774 $ 31,695 During the three months ended June 30, 2022, there were no TDRs that returned to accruing status compared to four TDRs totaling $ 0.5 million during the three months ended June 30, 2021. During the six months ended June 30, 2022, there were no TDRs that returned to accruing status compared to five TDRs totaling $ 0.5 million during the six months ended June 30, 2021. The following tables present the TDRs by portfolio segment and type of concession for the periods presented: Three Months Ended June 30, 2022 Number of Contracts Type of Modification Total Post-Modification Outstanding Recorded Investment (2) Total Pre-Modification Outstanding Recorded Investment (2) (dollars in thousands) Bankruptcy (1) Other Extend Maturity Modify Rate Modify Payments Commercial real estate — $ — $ — $ — $ — $ — $ — $ — Commercial industrial — — — — — — — — Commercial construction — — — — — — — — Business banking — — — — — — — — Consumer real estate 8 286 — 139 — — 425 429 Other consumer 1 2 — — — — 2 3 Total 9 $ 288 $ — $ 139 $ — $ — $ 427 $ 432 (1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. 17 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 5. LOANS AND LOANS HELD FOR SALE - continued Three Months Ended June 30, 2021 Number of Contracts Type of Modification Total Post-Modification Outstanding Recorded Investment (2) Total Pre-Modification Outstanding Recorded Investment (2) (dollars in thousands) Bankruptcy (1) Other Extend Maturity Modify Rate Modify Payments Commercial real estate — $ — $ — $ — $ — $ — $ — $ — Commercial industrial — — — — — — — — Commercial construction — — — — — — — — Business banking 4 — — 1,130 — — 1,130 1,130 Consumer real estate 4 247 — — — — 247 254 Other consumer — — — — — — — — Total 8 $ 247 $ — $ 1,130 $ — $ — $ 1,377 $ 1,384 (1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. Six Months Ended June 30, 2022 Number of Contracts Type of Modification Total Post-Modification Outstanding Recorded Investment (2) Total Pre-Modification Outstanding Recorded Investment (2) (dollars in thousands) Bankruptcy (1) Other Extend Maturity Modify Rate Modify Payments Commercial real estate — $ — $ — $ — $ — $ — $ — $ — Commercial industrial — — — — — — — — Commercial construction — — — — — — — — Business banking — — — — — — — — Consumer real estate 15 1,043 — 884 — — 1,927 2,357 Other consumer 1 3 — — — — 3 3 Total 16 $ 1,046 $ — $ 884 $ — $ — $ 1,930 $ 2,360 (1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. Six Months Ended June 30, 2021 Number of Contracts Type of Modification Total Post-Modification Outstanding Recorded Investment (2) Total Pre-Modification Outstanding Recorded Investment (2) (dollars in thousands) Bankruptcy (1) Other Extend Maturity Modify Rate Modify Payments Commercial real estate — $ — $ — $ — $ — $ — $ — $ — Commercial industrial 2 — — 796 5,433 — 6,229 6,304 Commercial construction — — — — — — — — Business banking 5 — 80 1,130 — — 1,210 1,210 Consumer real estate 13 573 — — — 147 720 739 Other consumer 1 — — — — — — 1 Total 21 $ 573 $ 80 $ 1,926 $ 5,433 $ 147 $ 8,159 $ 8,254 (1) Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed. (2) Excludes loans that were fully paid off or fully charged-off by period end. The pre-modification balance represents the balance outstanding prior to modification. The post-modification balance represents the outstanding balance at period end. As of June 30, 2022, we had 13 commitments to lend an additional $ 0.3 million on TDRs compared to 14 commitments to lend an additional $ 0.7 million as of June 30, 2021. Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place that were restructured within the last 12 months prior to defaulting. There were no TDRs that defaulted during the three months ended June 30,2022 and one TDR for $ 0.1 million that defaulted during the six months ended June 30, 2022 and no TDRs that defaulted during the three and six months ended June 30, 2021. 18 Table of Contents 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) June 30, 2022 December 31, 2021 Nonperforming Assets Nonaccrual loans $ 27,765 $ 44,517 Nonaccrual TDRs 4,010 21,774 Total Nonaccrual Loans 31,775 66,291 OREO 7,046 13,313 Total Nonperforming Assets $ 38,821 $ 79,604 NOTE 6. ALLOWANCE FOR CREDIT LOSSES We maintain an ACL at a level determined to be adequate to absorb estimated expected credit losses within the loan portfolio over the contractual life of an instrument that considers our historical loss experience, current conditions and forecasts of future economic conditions as of the balance sheet date. We develop and document a systematic ACL methodology based on the following portfolio segments: 1) Commercial Real Estate, or CRE, 2) Commercial and Industrial, or C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. The following are key risks within each portfolio segment: CRE —Loans secured by commercial purpose real estate, including both owner-occupied properties and investment properties for various purposes such as hotels, retail, multifamily and health care. Operations of the individual projects and global cash flows of the debtors are the primary sources of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type and the business prospects of the lessee, if the project is not owner-occupied. C&I —Loans made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. Cash flow from the operations of the company is the primary source of repayment for these loans. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the industry of the company. Collateral for these types of loans often does not have sufficient value in a distressed or liquidation scenario to satisfy the outstanding debt. Commercial Construction —Loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction/development period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Business Banking —Commercial purpose loans made to small businesses that are standard, non-complex products evaluated through a streamlined credit approval process that has been designed to maximize efficiency while maintaining high credit quality standards that meet small business market customers’ needs. The business banking portfolio is monitored by utilizing a standard and closely managed process focusing on behavioral and performance criteria. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the collateral type and business. Consumer Real Estate —Loans secured by first and second liens such as home equity loans, home equity lines of credit and 1-4 family residential mortgages, including purchase money mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt. Other Consumer —Loans made to individuals that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans and unsecured loans and lines of credit. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values. 19 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued Management monitors various credit quality indicators for the commercial, business banking and consumer loan portfolios, including changes in risk ratings, nonperforming status and delinquency on a monthly basis. We monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed on an ongoing basis according to our internal policies. Loans within the pass rating generally have a lower risk of loss than loans risk rated as special mention or substandard. Our risk ratings are consistent with regulatory guidance and are as follows: Pass —The loan is currently performing and is of high quality. Special Mention —A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects or in the strength of our credit position at some future date. Substandard —A substandard loan is not adequately protected by the net worth and/or paying capacity of the borrower or by the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Doubtful —Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. 20 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the dates presented: June 30, 2022 Risk Rating (dollars in thousands) 2022 2021 2020 2019 2018 2017 and Prior Revolving Revolving-Term Total Commercial Real Estate Pass $ 179,496 $ 359,214 $ 296,299 $ 432,058 $ 284,614 $ 804,236 $ 22,509 $ — $ 2,378,426 Special mention — — — 8,569 7,391 116,973 — — 132,933 Substandard — 3,240 1,331 13,771 15,984 80,309 — — 114,635 Doubtful — — — — — 10 — — 10 Total Commercial Real Estate 179,496 362,454 297,630 454,398 307,989 1,001,528 22,509 — 2,626,004 Commercial and Industrial Pass 100,561 340,453 101,459 81,813 70,673 145,354 589,993 — 1,430,306 Special mention — 42 — 3,898 2,185 215 7,721 — 14,061 Substandard — — — 14,057 1,286 2,120 17,756 — 35,219 Doubtful — — — — — — — — — Total Commercial and Industrial 100,561 340,495 101,459 99,768 74,144 147,689 615,470 — 1,479,586 Commercial Construction Pass 56,592 153,742 63,832 58,690 4,656 3,222 26,591 — 367,325 Special mention — — — 19,077 — 4,389 — — 23,466 Substandard — — 2,142 480 4 1,918 — — 4,544 Doubtful — — — — — — — — — Total Commercial Construction 56,592 153,742 65,974 78,247 4,660 9,529 26,591 — 395,335 Business Banking Pass 142,538 248,994 96,053 121,959 91,817 311,935 108,301 538 1,122,135 Special mention — 92 250 2,904 2,972 5,144 179 110 11,651 Substandard — — 2,836 2,194 3,097 18,131 152 594 27,004 Doubtful — — — — — — — — — Total Business Banking 142,538 249,086 99,139 127,057 97,886 335,210 108,632 1,242 1,160,790 Consumer Real Estate Pass 146,031 148,128 96,856 78,335 32,192 207,827 510,231 21,874 1,241,474 Special mention — — — — — 910 — — 910 Substandard 39 80 138 285 1,364 11,077 942 2,943 16,868 Doubtful — — — — — — — — — Total Consumer Real Estate 146,070 148,208 96,994 78,620 33,556 219,814 511,173 24,817 1,259,252 Other Consumer Pass 12,242 13,787 7,201 4,948 1,898 1,051 77,282 1,489 119,898 Special mention — — — — — — — — — Substandard — 12 4 — 2 1 — 10 29 Doubtful — — — — — — — — — Total Other Consumer 12,242 13,799 7,205 4,948 1,900 1,052 77,282 1,499 119,927 Pass 637,460 1,264,318 661,700 777,803 485,850 1,473,625 1,334,907 23,901 6,659,564 Special mention — 134 250 34,448 12,548 127,631 7,900 110 183,021 Substandard 39 3,332 6,451 30,787 21,737 113,556 18,850 3,547 198,299 Doubtful — — — — — 10 — — 10 Total Loan Balance $ 637,499 $ 1,267,784 $ 668,401 $ 843,038 $ 520,135 $ 1,714,822 $ 1,361,657 $ 27,558 $ 7,040,894 21 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued December 31, 2021 Risk Rating (dollars in thousands) 2021 2020 2019 2018 2017 2016 and Prior Revolving Revolving-Term Total Commercial Real Estate Pass $ 385,347 $ 316,003 $ 412,191 $ 314,303 $ 213,019 $ 698,992 $ 35,448 $ — $ 2,375,303 Special mention — — 37,786 6,401 40,445 75,938 — — 160,570 Substandard — 1,356 18,743 14,039 12,555 106,461 1,500 — 154,654 Doubtful — — — — — — — — — Total Commercial Real Estate 385,347 317,359 468,720 334,743 266,019 881,391 36,948 — 2,690,528 Commercial and Industrial Pass 437,483 126,371 115,359 83,030 37,176 132,182 536,554 — 1,468,155 Special mention 46 — 3,060 2,546 72 832 8,887 — 15,443 Substandard — — 14,221 1,336 4,174 3,456 4,961 — 28,148 Doubtful — — 1,777 — — — — — 1,777 Total Commercial and Industrial 437,529 126,371 134,417 86,912 41,422 136,470 550,402 — 1,513,523 Commercial Construction Pass 142,321 108,405 111,512 16,838 989 3,539 30,036 — 413,640 Special mention — — — — — 4,458 — — 4,458 Substandard — 2,157 2,020 — — 2,480 — — 6,657 Doubtful — — — — — — — — — Total Commercial Construction 142,321 110,562 113,532 16,838 989 10,477 30,036 — 424,755 Business Banking Pass 257,264 107,791 141,411 110,586 79,187 293,215 107,093 443 1,096,990 Special mention 104 151 1,986 1,365 1,057 5,929 160 111 10,863 Substandard 41 106 1,579 3,277 1,645 19,591 977 625 27,841 Doubtful — — — — — — — — — Total Business Banking 257,409 108,048 144,976 115,228 81,889 318,735 108,230 1,179 1,135,693 Consumer Real Estate Pass 137,465 100,995 91,981 48,531 39,029 231,861 442,530 23,391 1,115,783 Special mention — — — — — 937 — — 937 Substandard — — 184 1,625 1,355 5,664 876 1,161 10,865 Doubtful — — — — — — — — — Total Consumer Real Estate 137,465 100,995 92,165 50,156 40,384 238,462 443,406 24,552 1,127,585 Other Consumer Pass 19,976 9,396 7,120 2,878 613 2,037 57,702 1,130 100,852 Special mention — — — — — — — — — Substandard 83 52 141 215 408 4,407 201 1,547 7,054 Doubtful — — — — — — — — — Total Other Consumer 20,059 9,448 7,261 3,093 1,021 6,444 57,903 2,677 107,906 Pass 1,379,856 768,961 879,574 576,166 370,013 1,361,826 1,209,363 24,964 6,570,723 Special Mention 150 151 42,832 10,312 41,574 88,094 9,047 111 192,271 Substandard 124 3,671 36,888 20,492 20,137 142,059 8,515 3,333 235,219 Doubtful — — 1,777 — — — — — 1,777 Total Loan Balance $ 1,380,130 $ 772,783 $ 961,071 $ 606,970 $ 431,724 $ 1,591,979 $ 1,226,925 $ 28,408 $ 6,999,990 22 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued We monitor the delinquent status of the commercial and consumer portfolios on a monthly basis. Loans are considered nonperforming and placed on nonaccrual when interest and principal are 90 days or more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans. The following tables present loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the dates presented: June 30, 2022 (dollars in thousands) 2022 2021 2020 2019 2018 2017 and Prior Revolving Revolving-Term Total Commercial Real Estate Performing $ 179,496 $ 362,454 $ 297,630 $ 451,998 $ 307,380 $ 989,515 $ 22,509 $ — $ 2,610,982 Nonperforming — — — 2,400 609 12,013 — — 15,022 Total Commercial Real Estate 179,496 362,454 297,630 454,398 307,989 1,001,528 22,509 — 2,626,004 Commercial and Industrial Performing 100,561 340,495 101,459 99,768 74,087 147,634 615,240 — 1,479,244 Nonperforming — — — — 57 55 230 — 342 Total Commercial and Industrial 100,561 340,495 101,459 99,768 74,144 147,689 615,470 — 1,479,586 Commercial Construction Performing 56,592 153,742 65,974 77,767 4,660 9,145 26,591 — 394,471 Nonperforming — — — 480 — 384 — — 864 Total Commercial Construction 56,592 153,742 65,974 78,247 4,660 9,529 26,591 — 395,335 Business Banking Performing 142,538 249,086 99,139 126,702 96,028 329,746 108,530 1,114 1,152,883 Nonperforming — — — 355 1,858 5,464 102 128 7,907 Total Business Banking 142,538 249,086 99,139 127,057 97,886 335,210 108,632 1,242 1,160,790 Consumer Real Estate Performing 146,070 148,208 96,073 78,369 33,317 214,842 511,065 23,924 1,251,868 Nonperforming — — 921 251 239 4,972 108 893 7,384 Total Consumer Real Estate 146,070 148,208 96,994 78,620 33,556 219,814 511,173 24,817 1,259,252 Other Consumer Performing 12,242 13,799 7,080 4,948 1,900 921 77,282 1,499 119,671 Nonperforming — — 125 — — 131 — — 256 Total Other Consumer 12,242 13,799 7,205 4,948 1,900 1,052 77,282 1,499 119,927 Performing 637,499 1,267,784 667,355 839,552 517,372 1,691,803 1,361,217 26,537 7,009,119 Nonperforming — — 1,046 3,486 2,763 23,019 440 1,021 31,775 Total Loan Balance $ 637,499 $ 1,267,784 $ 668,401 $ 843,038 $ 520,135 $ 1,714,822 $ 1,361,657 $ 27,558 $ 7,040,894 23 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued December 31, 2021 (dollars in thousands) 2021 2020 2019 2018 2017 2016 and Prior Revolving Revolving-Term Total Commercial Real Estate Performing $ 385,347 $ 317,359 $ 461,613 $ 332,482 $ 259,723 $ 865,567 $ 36,948 $ — $ 2,659,039 Nonperforming — 7,107 2,261 6,296 15,824 — — 31,488 Total Commercial Real Estate 385,347 317,359 468,720 334,743 266,019 881,391 36,948 — 2,690,528 Commercial and Industrial Performing 437,529 126,371 123,944 86,852 38,540 136,427 548,622 — 1,498,285 Nonperforming — — 10,473 60 2,882 43 1,780 — 15,239 Total Commercial and Industrial 437,529 126,371 134,417 86,912 41,422 136,470 550,402 — 1,513,523 Commercial Construction Performing 142,321 110,562 111,445 16,838 989 10,093 30,036 — 422,284 Nonperforming — — 2,087 — — 384 — — 2,471 Total Commercial Construction 142,321 110,562 113,532 16,838 989 10,477 30,036 — 424,755 Business Banking Performing 257,368 107,984 144,689 113,820 81,195 311,673 108,202 1,122 1,126,052 Nonperforming 41 64 287 1,408 694 7,062 28 57 9,641 Total Business Banking 257,409 108,048 144,976 115,228 81,889 318,735 108,230 1,179 1,135,693 Consumer Real Estate Performing 137,465 100,253 91,689 49,853 39,657 234,297 443,238 23,839 1,120,291 Nonperforming — 742 476 303 727 4,165 168 713 7,294 Total Consumer Real Estate 137,465 100,995 92,165 50,156 40,384 238,462 443,406 24,552 1,127,585 Other Consumer Performing 20,059 9,290 7,261 3,093 1,021 6,444 57,903 2,677 107,748 Nonperforming — 158 — — — — — — 158 Total Other Consumer 20,059 9,448 7,261 3,093 1,021 6,444 57,903 2,677 107,906 Performing 1,380,089 771,819 940,641 602,938 421,125 1,564,501 1,224,949 27,638 6,933,699 Nonperforming 41 964 20,430 4,032 10,599 27,478 1,976 770 66,291 Total Loan Balance $ 1,380,130 $ 772,783 $ 961,071 $ 606,970 $ 431,724 $ 1,591,979 $ 1,226,925 $ 28,408 $ 6,999,990 The following tables present the age analysis of past due loans segregated by class of loans as of the dates presented: June 30, 2022 (dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Non - performing Total Past Due Loans Total Loans Commercial real estate $ 2,610,642 $ — $ 340 $ 15,022 $ 15,362 $ 2,626,004 Commercial and industrial 1,478,546 698 — 342 1,040 1,479,586 Commercial construction 394,471 — — 864 864 395,335 Business banking 1,150,781 674 1,428 7,907 10,009 1,160,790 Consumer real estate 1,250,221 1,050 597 7,384 9,031 1,259,252 Other consumer 119,370 225 76 256 557 119,927 Total $ 7,004,031 $ 2,647 $ 2,441 $ 31,775 $ 36,863 $ 7,040,894 24 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued December 31, 2021 (dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Non - performing Total Past Due Loans Total Loans Commercial real estate $ 2,659,040 $ — $ — $ 31,488 $ 31,488 $ 2,690,528 Commercial and industrial 1,497,755 529 — 15,239 15,768 1,513,523 Commercial construction 421,834 450 — 2,471 2,921 424,755 Business banking 1,124,748 813 491 9,641 10,945 1,135,693 Consumer real estate 1,117,074 1,087 2,130 7,294 10,511 1,127,585 Other consumer 107,492 206 50 158 414 107,906 Total (1) $ 6,927,943 $ 3,085 $ 2,671 $ 66,291 $ 72,047 $ 6,999,990 (1) We had eight loans that were modified totaling $ 28.8 million under the CARES Act at December 31, 2021. These customers were not considered past due as a result of their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. Due to the modification program, this delinquency table may not accurately reflect the credit risk associated with these loans. The following tables present loans on nonaccrual status by class of loan for the year-to-date periods presented: June 30, 2022 (dollars in thousands) Beginning of Period Nonaccrual End of Period Nonaccrual Nonaccrual With No Related Allowance Interest Income Recognized on Nonaccrual (1) Commercial real estate $ 31,488 $ 15,022 $ 11,974 $ 557 Commercial and industrial 15,239 342 — 84 Commercial construction 2,471 864 480 — Business banking 9,641 7,907 1,326 136 Consumer real estate 7,294 7,384 — 132 Other consumer 158 256 — — Total $ 66,291 $ 31,775 $ 13,780 $ 909 (1) Represents only cash payments received and applied to interest on nonaccrual loans for the six months ended June 30, 2022. December 31, 2021 (dollars in thousands) Beginning of Period Nonaccrual End of Period Nonaccrual Nonaccrual With No Related Allowance Interest Income Recognized on Nonaccrual (1) Commercial real estate $ 101,070 $ 31,488 $ 28,046 $ 158 Commercial and industrial 16,985 15,239 5,707 74 Commercial construction 384 2,471 2,020 ( 28 ) Business banking 17,122 9,641 1,696 427 Consumer real estate 11,117 7,294 — 496 Other consumer 96 158 — 1 Total $ 146,774 $ 66,291 $ 37,469 $ 1,128 (1) Represents only cash payments received and applied to interest on nonaccrual loans for the twelve months ended December 31, 2021. 25 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued The following tables present collateral-dependent loans by class of loans as of the dates presented: June 30, 2022 Type of Collateral (dollars in thousands) Real Estate Business Assets Investment/Cash Other Commercial real estate $ 11,974 $ — $ 16 $ — Commercial and industrial — 690 — — Commercial construction 1,695 — 480 — Business banking 795 1,210 — — Consumer real estate 598 — — — Total $ 15,062 $ 1,900 $ 496 $ — December 31, 2021 Type of Collateral (dollars in thousands) Real Estate Business Assets Investment/Cash Other Commercial real estate $ 28,046 $ — $ — $ — Commercial and industrial 259 4,905 — 10,473 Commercial construction 4,210 — — — Business banking 910 1,636 — — Consumer real estate 1,031 — — — Total $ 34,456 $ 6,541 $ — $ 10,473 The following tables present activity in the ACL for the periods presented: Three Months Ended June 30, 2022 (dollars in thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Business Banking Consumer Real Estate Other Consumer Total Loans Allowance for credit losses on loans: Balance at beginning of period $ 48,903 $ 22,237 $ 5,329 $ 11,497 $ 9,118 $ 2,831 $ 99,915 Provision for credit losses on loans (1) ( 3,678 ) 948 1,254 1,668 582 418 1,192 Charge-offs ( 199 ) ( 5,797 ) — ( 1,141 ) ( 60 ) ( 481 ) ( 7,678 ) Recoveries 288 4,138 — 133 33 74 4,666 Net Recoveries/(Charge-offs) 89 ( 1,659 ) — ( 1,008 ) ( 27 ) ( 407 ) ( 3,012 ) Balance at End of Period $ 45,314 $ 21,526 $ 6,583 $ 12,157 $ 9,673 $ 2,842 $ 98,095 (1) Excludes the provision for credits losses for unfunded commitments. Three Months Ended June 30, 2021 (dollars in thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Business Banking Consumer Real Estate Other Consumer Total Loans Allowance for credit losses on loans: Balance at beginning of period $ 66,842 $ 14,663 $ 6,329 $ 15,680 $ 8,981 $ 2,606 $ 115,101 Provision for credit losses on loans (1) 2,937 225 ( 426 ) ( 560 ) ( 410 ) 243 2,008 Charge-offs ( 7,558 ) ( 473 ) — ( 410 ) ( 76 ) ( 221 ) ( 8,737 ) Recoveries 965 11 2 47 152 88 1,264 Net (Charge-offs)/Recoveries ( 6,594 ) ( 462 ) 2 ( 363 ) 76 ( 132 ) ( 7,473 ) Balance at End of Period $ 63,186 $ 14,426 $ 5,905 $ 14,756 $ 8,647 $ 2,717 $ 109,636 (1) Excludes the provision for credit losses for unfunded commitments. 26 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 6. ALLOWANCE FOR CREDIT LOSSES – continued Six Months Ended June 30, 2022 (dollars in thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Business Banking Consumer Real Estate Other Consumer Total Loans Allowance for credit losses on loans: Balance at beginning of period $ 50,700 $ 19,727 $ 5,355 $ 11,338 $ 8,733 $ 2,723 $ 98,576 Provision for credit losses on loans (1) ( 5,475 ) 768 1,227 2,207 1,010 758 495 Charge-offs ( 199 ) ( 5,798 ) — ( 1,746 ) ( 138 ) ( 780 ) ( 8,661 ) Recoveries 288 6,829 1 358 68 141 7,685 Net (Charge-offs)/Recoveries 89 1,031 1 ( 1,388 ) ( 70 ) ( 639 ) ( 976 ) Balance at End of Period $ 45,314 $ 21,526 $ 6,583 $ 12,157 $ 9,673 $ 2,842 $ 98,095 (1) Excludes the provision for credits losses for unfunded commitments. Six Months Ended June 30, 2021 (dollars in thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Business Banking (1) Consumer Real Estate Other Consumer Total Loans Allowance for credit losses on loans: Balance at beginning of period $ 65,656 $ 16,100 $ 7,239 $ 15,917 $ 10,014 $ 2,686 $ 117,612 Provision for credit losses on loans (1) 4,933 2,953 ( 1,337 ) ( 46 ) ( 1,254 ) 61 5,308 Charge-offs ( 8,369 ) ( 4,774 ) — ( 1,327 ) ( 347 ) ( 453 ) ( 15,270 ) Recoveries 965 148 3 213 234 423 1,985 Net (Charge-offs)/Recoveries ( 7,403 ) ( 4,627 ) 3 ( 1,115 ) ( 113 ) ( 30 ) ( 13,285 ) Balance at End of Period $ 63,186 $ 14,426 $ 5,905 $ 14,756 $ 8,647 $ 2,717 $ 109,636 (1) Excludes the provision for credits losses for unfunded commitments. The C&I portfolio included $ 11.7 million of loans originated under the PPP program at June 30, 2022 compared to $ 336.1 million for the same period in 2021. The PPP loans are 100 percent guaranteed by the SBA, therefore, we have not assigned any A CL. NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Derivatives Designated as Hedging Instruments Cash Flow Hedges of Interest Rate Risk As part of our interest rate risk management strategy, we use interest rate swaps to add stability to interest income and to manage exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for making variable rate payments over the life of the agreements without exchange of the underlying notional amount. For designated derivatives that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are received on variable rate assets. During the next twelve months, we estimate that an additional $ 2.3 million will be reclassified as a decrease to interest income. 27 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued Derivatives Not Designated as Hedging Instruments Interest Rate Contracts with Customers Interest rate swaps with customers are contracts in which a series of cash flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate loan with us receiving a variable rate. These agreements could have floors or caps on the contracted interest rates. Interest rate swaps with customers are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings and included in other noninterest income in the Condensed Consolidated Statements of Comprehensive Income (Loss). Interest Rate Lock Commitments and Forward Sale Contracts In the normal course of business, we sell originated mortgage loans into the secondary mortgage loan market. We also offer interest rate lock commitments to potential borrowers. The commitments are generally for a period of 60 days and guarantee a specified interest rate for a loan if underwriting standards are met, but the commitment does not obligate the potential borrower to close on the loan. Accordingly, some commitments expire prior to becoming loans. We may encounter pricing risks if interest rates increase significantly before the loan can be closed and sold. We may utilize forward sale contracts in order to mitigate this pricing risk. Whenever a customer desires these products, a mortgage originator quotes a secondary market rate guaranteed for that day by the investor. The rate lock is executed between the mortgagee and us and in turn a forward sale contract may be executed between us and the investor. Both the rate lock commitment and the corresponding forward sale contract for each customer are considered derivatives but are not accounted for using hedge accounting. As such, changes in estimated fair value of the derivatives during the commitment period are recorded in current earnings and included in mortgage banking in the Condensed Consolidated Statements of Comprehensive Income (Loss). The following table indicates the amounts representing the value of derivative assets and derivative liabilities for the dates presented: Derivative Assets (Included in Other Assets) Derivative Liabilities (Included in Other Liabilities) June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021 (dollars in thousands) Notional Amount Fair Value Notional Amount Fair Value Notional Amount Fair Value Notional Amount Fair Value Derivatives Designated as Hedging Instruments Interest rate swap contracts - cash flow hedge (1) $ 50,000 $ 368 $ — $ 250,000 $ 5,946 $ — Total Derivatives Designated as Hedging Instruments $ 368 $ — $ 5,946 $ — Derivatives Not Designated as Hedging Instruments Interest rate swap contracts - commercial loans $ 1,039,932 $ 51,097 $ 1,017,178 $ 33,528 $ 1,039,932 $ 51,193 $ 1,017,178 $ 33,361 Interest rate lock commitments - mortgage loans 2,062 56 12,148 401 — — — — Forward sales contracts - mortgage loans — — 8,436 4 645 2 — — Total Derivatives Not Designated as Hedging Instruments $ 51,153 $ 33,933 $ 51,195 $ 33,361 Total Derivatives $ 51,521 $ 33,933 $ 57,141 $ 33,631 (1) Derivative assets and derivative liabilities include interest receivable of $ 0.6 million and $ 0.2 million as of June 30,2022. 28 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES – continued The following table indicates the gross amounts of interest rate swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at the dates presented: Derivatives (included in Other Assets) Derivatives (included in Other Liabilities) (dollars in thousands) June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021 Gross amounts recognized $ 52,493 $ 37,289 $ 58,192 $ 37,392 Gross amounts offset ( 1,028 ) ( 3,761 ) ( 1,053 ) ( 3,761 ) Net amounts presented in the Consolidated Balance Sheets 51,465 33,528 57,139 33,631 Cash collateral received/pledged (1) ( 43,543 ) — — ( 33,631 ) Net Amount $ 7,922 $ 33,528 $ 57,139 $ — (1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above. The following table presents the effect of the cash flow hedges on OCI and on the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three month periods presented: Amount of Gain or (Loss) Recognized in Other Comprehensive Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Income (dollars in thousands) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Derivatives in Cash Flow Hedging Relationships: Interest rate swap contracts - cash flow hedge $ ( 3,271 ) $ — $ 786 $ — Total $ ( 3,271 ) $ — $ 786 $ — The following table presents the effect of the cash flow hedges on OCI and on the Condensed Consolidated Statements of Comprehensive Income (Loss) for the six month periods presented: Amount of Gain or (Loss) Recognized in Other Comprehensive Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Income (dollars in thousands) June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 Derivatives in Cash Flow Hedging Relationships: Interest rate swap contracts - cash flow hedge $ ( 5,872 ) $ — $ 922 $ — Total $ ( 5,872 ) $ — $ 922 $ — The following table indicates the gain or loss recognized in income on derivatives not designated as hedging instruments for the periods presented: Three months ended June 30, Six months ended June 30, (dollars in thousands) 2022 2021 2022 2021 Derivatives not Designated as Hedging Instruments Interest rate swap contracts—commercial loans $ ( 61 ) $ 5 $ 7 $ 315 Interest rate lock commitments—mortgage loans ( 129 ) ( 883 ) ( 346 ) ( 2,642 ) Forward sale contracts—mortgage loans ( 194 ) 194 ( 5 ) 1,173 Total Derivatives (Loss) Gain $ ( 384 ) $ ( 684 ) $ ( 344 ) $ ( 1,154 ) 29 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 8. COMMITMENTS AND CONTINGENCIES Commitments In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. Our exposure to credit loss, in the event the customer does not satisfy the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 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) June 30, 2022 December 31, 2021 Commitments to extend credit $ 2,600,322 $ 2,583,957 Standby letters of credit 80,665 87,335 Total $ 2,680,987 $ 2,671,292 Allowance for Credit Losses on Unfunded Loan Commitments We maintain an allowance for credit losses on unfunded commercial and consumer lending commitments and letters of credit to provide for the risk of loss inherent in these arrangements. The allowance is computed using a methodology similar to that used to determine the allowance for credit losses for loans, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on our Condensed Consolidated Statements of Comprehensive Income (Loss). The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The following table presents activity in the allowance for credit losses on unfunded loan commitments as of the dates presented: Three months ended June 30, Six months ended June 30, (dollars in thousands) 2022 2021 2022 2021 Balance at beginning of period $ 5,375 $ 4,303 $ 5,189 $ 4,467 Provision for credit losses 2,012 555 2,198 391 Total $ 7,387 $ 4,858 $ 7,387 $ 4,858 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. 30 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – continued NOTE 9. OTHER COMPREHENSIVE INCOME (LOSS) The following table presents the change in components of other comprehensive income (loss) for the periods presented, net of tax effects. Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 (dollars in thousands) Pre-Tax Amount Tax Benefit (Expense) Net of Tax Amount Pre-Tax Amount Tax Benefit (Expense) Net of Tax Amount Change in net unrealized gains (losses) on available-for-sale debt securities $ ( 23,009 ) $ 4,872 $ ( 18,137 ) $ 324 $ ( 69 ) $ 255 Change in interest rate swap ( 3,271 ) 696 ( 2,575 ) — — — Adjustment to funded status of employee benefit plans (1) 766 ( 182 ) 584 2,910 ( 621 ) 2,289 Other Comprehensive Income (Loss) $ ( 25,514 ) $ 5,386 $ ( 20,128 ) $ 3,234 $ ( 690 ) $ 2,544 (1) Pension settlement accounting was recognized during the period ended June 30, 2021 resulting in a charge of $ 0.2 million for the three months ended June 30, 2021 immediately recognizing a portion of unrecognized actuarial loss and a remeasurement of our pension obligation. Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (dollars in thousands) Pre-Tax Amount Tax Benefit (Expense) Net of Tax Amount Pre-Tax Amount Tax Benefit (Expense) Net of Tax Amount Change in net unrealized losses on available-for-sale debt securities $ ( 71,270 ) $ 15,204 $ ( 56,066 ) $ ( 9,388 ) $ 2,003 $ ( 7,385 ) Change in interest rate swap ( 5,872 ) 1,253 ( 4,619 ) — — — Adjustment to funded status of employee benefit plans (1) 754 ( 150 ) 604 2,567 ( 548 ) 2,019 Other Comprehensive Loss $ ( 76,388 ) $ 16,307 $ ( 60,081 ) $ ( 6,821 ) $ 1,455 $ ( 5,366 ) (1) Pension settlement accounting was recognized during the period ended June 30, 2021 resulting in a charge of $ 0.9 million for the six months ended June 30, 2021 immediately recognizing a portion of unrecognized actuarial loss and a remeasurement of our pension obligation. NOTE 10. SHARE REPURCHASE PLAN On March 21, 2022, our Board of Directors authorized an extension of its $ 50 million share repurchase plan, which was set to expire March 31, 2022. This authorization extended the expiration date of the repurchase plan through March 31, 2023. The plan permits S&T to repurchase shares up to the previously authorized $ 50 million in aggregate value of S&T's common stock through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of common stock, legal and contractual requirements, applicable securities laws and S&T's financial performance. The repurchase plan does not obligate us to repurchase any particular number of shares. At June 30, 2022 there was $ 33.3 million of capacity remaining under the plan. We expect to fund any repurchases from cash on hand and internally generated funds. Any share repurchases will not begin until permissible under applicable laws. During the three and six months ended June 30, 2022, we repurchased 151,220 common shares under this plan at a total cost of $ 4.2 million, or an average of $ 27.46 per share. During the three and six months ended June 30, 2021 we had no repurchases. 31 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, represents an overview of our consolidated results of operations and financial condition and highlights material changes in our financial condition and results of operations for the three and six months ended June 30, 2022 and 2021. Our MD&A should be read in conjunction with our Consolidated Financial Statements and Notes. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future periods. Important Note Regarding Forward-Looking Statements This quarterly report on Form 10-Q contains or incorporates statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to our financial condition, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position, and other matters regarding or affecting S&T and its future business and operations. Forward looking statements are typically identified by words or phrases such as “will likely result,” “expect,” “anticipate,” “estimate,” “forecast,” “project,” “intend,,” “believe,” “assume,” “strategy,” “trend,” “plan,” “outlook,” “outcome,” “continue,” “remain,” “potential,” “opportunity,” “comfortable,” “current,” “position,” “maintain,” “sustain,” “seek,” “achieve” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for credit losses, or ACL; cyber security concerns; rapid technological developments and changes; operational risks or risk management failures by us or critical third parties, including fraud risk; our ability to manage our reputational risks; sensitivity to the interest rate environment including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; the transition from LIBOR as a reference rate; regulatory supervision and oversight, including changes in regulatory capital requirements and our ability to address those requirements; unanticipated changes in our liquidity position; changes in accounting policies, practices, or guidance; legislation affecting the financial services industry as a whole, and S&T, in particular; climate change and related legislative and regulatory initiatives; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on significant customer relationships; an interruption or cessation of an important service by a third-party provider; our ability to attract and retain talented executives and employees, particularly in light of the strong competition in the marketplace; our ability to successfully manage our CEO transition; general economic or business conditions, including the strength of regional economic conditions in our market area; macroeconomic conditions including inflation and economic uncertainty; the duration and severity of the coronavirus, or COVID-19 pandemic, both in our principal area of operations and nationally, including the ultimate impact of the pandemic on the economy generally and on our operations; our participation in the Paycheck Protection Program; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge to net income; the stability of our core deposit base and access to contingency funding; re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses. Many of these factors, as well as other factors, are described elsewhere in this report, and in our 2021 Form 10-K, including Part II, Item 1A, Risk Factors and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made. 32 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Estimates We view critical accounting policies to be those which are highly dependent on subjective or complex estimates, assumptions and judgments and where changes in those estimates and assumptions could have a significant impact on the Consolidated Financial Statements. Further, we view critical accounting estimates as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Our critical accounting policies and estimates as of June 30, 2022 remained unchanged from the disclosures presented in our 2021 Form 10-K under Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Overview We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of $9.1 billion at June 30, 2022. We operate in five markets including Western Pennsylvania, Eastern Pennsylvania, Northeast Ohio, Central Ohio and Upstate New York. We provide a full range of financial services with retail and commercial banking products, cash management services, trust and brokerage services. Our common stock trades on the NASDAQ Global Select Market under the symbol “STBA”. We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. We incur expenses for the cost of deposits and other funding sources, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense. On August 23, 2021, Christopher McComish joined S&T as our new chief executive officer. He brings over 34 years of proven banking leadership with a track record of growth and transformation of commercial, consumer and wealth businesses. Additionally, we have elevated proven internal leaders and attracted external talent from larger banking institutions to position us for future growth. Our priorities for 2022 and beyond include pursuing high impact growth initiatives, ensuring rigorous credit risk and enterprise governance practices, advancing strategic infrastructure and platform investments, including enhancing our digital platform, investing in organization talent and performance and promoting strategic clarity and effective communications. Organic growth continues to be our top priority within our current footprint and through market expansion. Our growth strategy includes a collaborative model that combines expertise from all areas of our business and focuses on satisfying each customer’s individual financial objectives. We also actively evaluate acquisition opportunities that align with our strategic objectives as another source of growth. Earnings Summary The following table presents a summary of key profitability metrics for the periods presented: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Net Income $ 28,858 $ 28,367 $ 58,001 $ 60,268 Earnings Per Share - Diluted $ 0.74 $ 0.72 $ 1.48 $ 1.54 Return on average assets 1.25 % 1.21 % 1.25 % 1.31 % Return on average shareholders' equity 9.83 % 9.65 % 9.85 % 10.39 % Return on average tangible shareholders' equity (non-GAAP) 14.63 % 14.41 % 14.62 % 15.57 % Net income increased $0.5 million for the three months ended June 30, 2022 compared to the same period in 2021 primarily due to an increase in net interest income of $6.9 million offset by a decrease in noninterest income of $2.8 million and an increase in noninterest expense of $2.6 million. Net income decreased $2.3 million for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to a decrease in noninterest income of $4.9 million and an increase in noninterest expense of $4.3 million offset by an increase in net interest income of $4.0 million and a decrease in our provision for credit losses of $3.0 million. Net interest income increased $6.9 million and $4.0 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 40 and 4 basis points for the three and six months ended June 30, 2022 compared to the same periods in 2021. The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2022. 33 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The provision for credit losses increased $0.6 million and decreased $3.0 million to $3.2 million and $2.7 million for the three and six months ended June 30, 2022 compared to $2.6 million and $5.7 million for the same periods in 2021.The increase in the provision for credit losses for the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to an increase of $1.4 million in our provision for unfunded commitments related to higher construction commitments and expected loss rates in our construction portfolio. The decrease in the provision for credit losses for the six months ended June 30, 2022 compared to the same period in 2021 was due primarily to two large C&I loan recoveries totaling $6.6 million which were received during the six months ended June 30, 2022, and reductions in our quantitative reserve due primarily to significant improvement in our hotel portfolio. Noninterest income decreased $2.8 million to $12.6 million for the three months ended June 30, 2022 and decreased $4.9 million to $27.9 million for the six months ended June 30, 2022 compared to the same periods in 2021. Mortgage banking decreased $1.3 million for the three months ended June 30, 2022 and decreased $4.6 million for the six months ended June 30, 2022. Higher interest rates have resulted in a lower volume of mortgage loans sold in the secondary market during 2022 compared to the prior year. Other noninterest income decreased $2.1 million for the three months ended June 30, 2022 and $2.6 million for the six months ended June 30, 2022 primarily due to the decline in the fair value of the assets in a nonqualified benefit plan which has a corresponding offset in salaries and benefits resulting in no impact to net income. Noninterest expense increased $2.6 million to $48.4 million for the three months ended June 30, 2022 and increased $4.3 million to $95.8 million for the six months ended June 30, 2022 compared to the same periods in 2021. Professional services and legal increased by $0.7 million for the three months ended June 30, 2022 and $1.2 million for the six months ended June 30, 2022 due to increased consulting engagements compared to the same periods in 2021. Furniture, equipment and software increased $0.5 million for the three months ended June 30, 2022 and increased $0.7 million for the six month ended June 30, 2022 due to new software implementation costs. Salaries and employee benefits increased $0.3 million for the three months ended June 30, 2022 and increased $0.7 million for the six months ended June 30, 2022 due to base rate and incentive increases partially offset by lower pension expense and a decline in the fair value of the liability in a nonqualified benefit plan. The provision for income taxes increased $0.3 million to $7.3 million for the three months ended June 30, 2022 and increased $0.1 million to $14.3 million for the six months ended June 30, 2022 compared to $7.0 million and $14.2 million for the same periods in 2021. Our effective tax rate was 20.3 percent and 19.7 percent for the three months and six months ended June 30, 2022 compared to 19.7 percent and 19.1 percent for the three and six months ended June 30, 2021. The increases in our effective tax rates for the three and six month periods ended June 30, 2022 were primarily due to a $0.5 million decrease in low income housing tax credits compared to the same periods in 2021. Explanation of Use of Non-GAAP Financial Measures In addition to the results of operations presented in accordance with generally accepted accounting principles, or GAAP, in the United States, management uses, and this quarterly report references, net interest income and net interest margin, each on a fully taxable equivalent, or FTE, basis. Management also uses return on average tangible shareholders' equity, or ROTE to evaluate and measure performance. These metrics are non-GAAP financial measures. Management believes these performance metrics provide information useful to investors in understanding our underlying business, operational performance and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Although management believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered alternatives to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. We believe the presentation of net interest income and net interest margin on an FTE basis ensures the comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income (GAAP) per the Condensed Consolidated Statements of Comprehensive Income (Loss) is reconciled to net interest income adjusted on an FTE basis and net interest margin adjusted on an FTE basis in the "Results of Operations - Three and Six Months Ended June 30, 2022 Compared to Three and Six Months Ended June 30, 2021 - Net Interest Income" section of this MD&A. 34 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Average tangible shareholders' equity is a key profitability metric used by management to measure financial performance. The following table provides a reconciliation of return on average tangible shareholders' equity (non-GAAP) by reconciling net income (GAAP) per the Condensed Consolidated Statements of Comprehensive Income (Loss) to net income before amortization and intangibles and average shareholder's equity to average tangible shareholders' equity for the periods presented: Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 Net income (annualized) $ 115,750 $ 113,778 $ 116,964 $ 121,535 Plus: amortization of intangibles (annualized), net of tax 1,197 1,395 1,236 1,429 Net income before amortization of intangibles (annualized) $ 116,947 $ 115,173 $ 118,200 $ 122,964 Average shareholders' equity $ 1,177,550 $ 1,179,002 $ 1,187,069 $ 1,169,620 Less: average goodwill and other intangible assets, net of deferred tax liability (378,453) (379,784) (378,606) (379,963) Average tangible shareholders' equity $ 799,097 $ 799,218 $ 808,463 $ 789,657 Return on average tangible shareholders' equity (non-GAAP) 14.63 % 14.41 % 14.62 % 15.57 % 35 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three and Six Months Ended June 30, 2022 Compared to Three and Six Months Ended June 30, 2021 Net Interest Income Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or ALCO, in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what we believe is an acceptable level of net interest income. The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt loans and securities and the dividend-received deduction for equity securities using the federal statutory tax rate of 21 percent for each period. We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income. The following table reconciles interest income per the Condensed Consolidated Statements of Comprehensive Income (Loss) to net interest income and net interest margin on an FTE basis for the periods presented: Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 2022 2021 Total interest and dividend income $ 77,599 $ 71,577 $ 147,708 $ 146,358 Total interest expense 2,405 3,273 4,781 7,396 Net Interest Income per Condensed Consolidated Statements of Comprehensive Income (Loss) 75,194 68,304 142,927 138,962 Adjustment to FTE basis 506 585 999 1,249 Net Interest Income on an FTE Basis (Non-GAAP) $ 75,700 $ 68,889 $ 143,926 $ 140,211 Net interest margin 3.53 % 3.13 % 3.33 % 3.28 % Adjustment to FTE basis 0.03 % 0.03 % 0.02 % 0.03 % Net Interest Margin on an FTE Basis (Non-GAAP) 3.56 % 3.16 % 3.35 % 3.31 % Income amounts are annualized for rate calculations. 36 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Average Balance Sheet and Net Interest Income Analysis (FTE) The following tables provide information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented: Three Months Ended June 30, 2022 Three Months Ended June 30, 2021 (dollars in thousands) Average Balance Interest Rate Average Balance Interest Rate ASSETS Interest-bearing deposits with banks $ 528,413 $ 1,029 0.78 % $ 785,465 $ 175 0.09 % Securities, at fair value (1)(2) 1,024,106 5,601 2.19 % 826,861 4,529 2.19 % Loans held for sale 1,406 14 3.95 % 4,353 33 3.01 % Commercial real estate 3,197,406 32,978 4.14 % 3,251,894 29,930 3.69 % Commercial and industrial 1,685,728 18,119 4.31 % 1,890,538 18,363 3.90 % Commercial construction 404,856 3,812 3.78 % 462,928 3,854 3.34 % Total Commercial Loans 5,287,990 54,909 4.16 % 5,605,359 52,147 3.73 % Residential mortgage 939,756 9,337 3.98 % 863,254 8,996 4.17 % Home equity 594,529 5,282 3.56 % 535,933 4,682 3.50 % Installment and other consumer 119,041 1,590 5.36 % 84,259 1,271 6.05 % Consumer construction 31,204 261 3.36 % 13,264 211 6.39 % Total Consumer Loans 1,684,530 16,470 3.92 % 1,496,710 15,160 4.06 % Total Portfolio Loans 6,972,520 71,379 4.11 % 7,102,069 67,307 3.80 % Total Loans (1)(3) 6,973,926 71,393 4.11 % 7,106,422 67,339 3.80 % Federal Home Loan Bank and other restricted stock 8,939 82 3.69 % 10,529 119 4.51 % Total Interest-earning Assets 8,535,384 78,105 3.67 % 8,729,277 72,162 3.31 % Noninterest-earning assets 690,207 704,635 Total Assets $ 9,225,591 $ 9,433,911 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand $ 979,514 $ 176 0.07 % $ 998,134 $ 230 0.09 % Money market 1,930,852 709 0.15 % 2,037,976 894 0.18 % Savings 1,118,346 128 0.05 % 1,044,899 70 0.03 % Certificates of deposit 1,001,775 778 0.31 % 1,291,194 1,458 0.45 % Total Interest-bearing Deposits 5,030,487 1,790 0.14 % 5,372,203 2,652 0.20 % Securities sold under repurchase agreements 50,037 13 0.10 % 67,838 17 0.10 % Long-term borrowings 22,072 111 2.01 % 23,113 116 2.01 % Junior subordinated debt securities 54,413 492 3.62 % 64,103 488 3.06 % Total Borrowings 126,522 615 1.95 % 155,054 621 1.61 % Total Interest-bearing Liabilities 5,157,009 2,405 0.19 % 5,527,256 3,273 0.24 % Noninterest-bearing liabilities 2,891,032 2,727,653 Shareholders' equity 1,177,550 1,179,002 Total Liabilities and Shareholders' Equity $ 9,225,591 $ 9,433,911 Net Interest Income (1)(2) $ 75,700 $ 68,889 Net Interest Margin (1)(2) 3.56 % 3.16 % (1) Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent. (2) Taxable investment income is adjusted for the dividend-received deduction for equity securities. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. 37 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six Months Ended June 30, 2022 Six Months Ended June 30, 2021 (dollars in thousands) Average Balance Interest Rate Average Balance Interest Rate ASSETS Interest-bearing deposits with banks $ 641,648 $ 1,332 0.42 % $ 545,177 $ 240 0.09 % Securities, at fair value (1)(2) 1,013,219 10,866 2.14 % 804,613 9,095 2.26 % Loans held for sale 1,475 27 3.72 % 5,351 78 2.90 % Commercial real estate 3,227,156 62,323 3.89 % 3,252,763 60,066 3.72 % Commercial and industrial 1,699,222 34,946 4.15 % 1,923,813 39,180 4.10 % Commercial construction 407,048 7,141 3.54 % 474,037 7,887 3.36 % Total Commercial Loans 5,333,426 104,410 3.95 % 5,650,613 107,134 3.82 % Residential mortgage 918,132 18,299 4.00 % 880,246 18,412 4.20 % Home equity 582,721 10,105 3.50 % 534,329 9,473 3.58 % Installment and other consumer 114,531 3,065 5.40 % 82,095 2,518 6.19 % Consumer construction 26,544 443 3.36 % 14,578 399 5.52 % Total Consumer Loans 1,641,928 31,911 3.91 % 1,511,249 30,803 4.10 % Total Portfolio Loans 6,975,354 136,321 3.94 % 7,161,862 137,936 3.88 % Total Loans (1)(3) 6,976,829 136,348 3.94 % 7,167,213 138,014 3.88 % Federal Home Loan Bank and other restricted stock 9,108 161 3.54 % 10,884 257 4.73 % Total Interest-earning Assets 8,640,804 148,708 3.47 % 8,527,887 147,607 3.49 % Noninterest-earning assets 699,097 730,117 Total Assets $ 9,339,901 $ 9,258,003 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand $ 983,057 $ 361 0.07 % $ 947,295 $ 452 0.10 % Money market 1,993,009 1,455 0.15 % 2,003,569 1,837 0.18 % Savings 1,113,723 206 0.04 % 1,020,201 221 0.04 % Certificates of deposit 1,035,793 1,621 0.32 % 1,317,751 3,623 0.55 % Total Interest-bearing Deposits 5,125,582 3,644 0.14 % 5,288,816 6,133 0.23 % Securities sold under repurchase agreements 65,826 33 0.10 % 66,254 42 0.13 % Short-term borrowings — — — % 12,707 12 0.19 % Long-term borrowings 22,190 218 1.98 % 23,291 232 2.01 % Junior subordinated debt securities 54,406 887 3.29 % 64,095 977 3.07 % Total Borrowings 142,422 1,138 1.61 % 166,348 1,262 1.53 % Total Interest-bearing Liabilities 5,268,004 4,781 0.18 % 5,455,164 7,396 0.27 % Noninterest-bearing liabilities 2,884,828 2,633,219 Shareholders' equity 1,187,069 1,169,620 Total Liabilities and Shareholders' Equity $ 9,339,901 $ 9,258,003 Net Interest Income (1)(2) $ 143,926 $ 140,211 Net Interest Margin (1)(2) 3.35 % 3.31 % (1) Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent. (2) Taxable investment income is adjusted for the dividend-received deduction for equity securities. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. Net interest income on an FTE basis (non-GAAP) increased $6.8 million and $3.7 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 40 and 4 basis points for the three and six months ended June 30, 2022 compared to the same periods in 2021. The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2022. Interest income on an FTE basis (non-GAAP) increased $5.9 million and $1.1 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. The increases in interest income on an FTE basis (non-GAAP) were primarily due to higher interest rates partially offset by lower Paycheck Protection Program, or PPP, income. Average PPP loans decreased $431.4 million and $413.0 million compared to the three and six months ended June 30, 2021. Average loan balances, excluding PPP loans, increased $298.9 million and $222.6 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. The yield on average loans increased 31 basis points and 6 basis points for the three and 38 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS six months ended June 30, 2022 compared to the same periods in 2021 due to increased interest rates. Average securities increased $197.2 million and $208.6 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. Securities increased due to interest-bearing deposits with banks being redeployed to higher yielding assets. Average interest-bearing deposits with banks decreased $257.1 million and increased $96.5 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. Overall, the FTE rate on interest-earning assets (non-GAAP) increased 36 basis points and decreased 2 basis points for the three and six months ended June 30, 2022 compared to the same period in 2021. Interest expense decreased $0.9 million and $2.6 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. The decreases in interest expense were primarily due to lower average rates paid on interest-bearing deposits compared to the same periods in 2021. Average interest-bearing deposits decreased $341.7 million and $163.2 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. The decreases were concentrated in higher-balance, rate sensitive accounts. Additionally, we discontinued a money market product during the first quarter of 2022 that was indexed to the Federal Funds rate which caused declines in money market balances. The average rate paid on interest-bearing deposits decreased 6 and 9 basis points for the three and six months ended June 30, 2022 compared to the same periods in 2021 primarily due to decreased balances in rate sensitive accounts and the maturities of higher costing certificates of deposit. Average demand deposits increased $137.4 million and $254.2 million for the three and six months ended June 30, 2022 compared to the same periods in 2021. We experienced demand deposit growth throughout 2021 due to customer PPP loans and stimulus payments along with customers' liquidity preferences. Average total borrowings decreased $28.5 million and $23.9 million for the three and six months ended June 30, 2022 compared to the same periods in 2021 due to the payoff of a subordinated debt and lower customer repo balances. Overall, the cost of interest-bearing liabilities decreased 5 and 9 basis points for the three and six months ended June 30, 2022 compared to the same periods in 2021. 39 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates: Three Months Ended June 31, 2022 Compared to June 31, 2021 Six Months Ended June 31, 2022 Compared to June 31, 2021 (dollars in thousands) Volume (4) Rate (4) Total Volume (4) Rate (4) Total Interest earned on: Interest-bearing deposits with banks $ (57) $ 912 $ 855 $ 42 $ 1,050 $ 1,093 Securities, at fair value (1)(2) 1,080 (9) 1,071 2,358 (588) 1,770 Loans held for sale (22) 3 (19) (56) 6 (50) Commercial real estate (502) 3,549 3,048 (473) 2,729 2,256 Commercial and industrial (1,989) 1,746 (244) (4,574) 340 (4,234) Commercial construction (483) 441 (42) (1,115) 368 (746) Total Commercial Loans (2,974) 5,736 2,762 (6,161) 3,437 (2,724) Residential mortgage 797 (456) 341 792 (905) (113) Home equity 512 88 600 858 (227) 631 Installment and other consumer 525 (205) 319 995 (448) 547 Consumer construction 286 (236) 50 328 (285) 43 Total Consumer Loans 2,120 (810) 1,310 2,973 (1,865) 1,108 Total Portfolio Loans (855) 4,927 4,072 (3,188) 1,573 (1,616) Total Loans (1)(3) (877) 4,930 4,053 (3,245) 1,579 (1,666) Federal Home Loan Bank and other restricted stock (18) (18) (36) (42) (54) (96) Change in Interest Earned on Interest-earning Assets $ 129 $ 5,815 $ 5,943 $ (886) $ 1,987 $ 1,101 Interest paid on: Interest-bearing demand $ (4) $ (50) $ (54) $ 17 $ (108) $ (90) Money market (47) (138) (185) (10) (373) (382) Savings 5 54 58 20 (36) (15) Certificates of deposit (327) (354) (680) (775) (1,226) (2,001) Total Interest-bearing Deposits (373) (488) (861) (747) (1,742) (2,490) Securities sold under repurchase agreements (4) — (4) — (8) (9) Short-term borrowings — — — (12) — (12) Long-term borrowings (5) — (5) (11) (3) (14) Junior subordinated debt securities (74) 77 3 (148) 58 (90) Total Borrowings (84) 77 (6) (171) 46 (125) Change in Interest Paid on Interest-bearing Liabilities (457) (411) $ (868) (918) (1,696) (2,614) Change in Net Interest Income $ 585 $ 6,226 $ 6,811 $ 32 $ 3,683 $ 3,715 (1) Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent. (2) Taxable investment income is adjusted for the dividend-received deduction for equity securities. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. (4) Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis. Provision for Credit Losses The provision for credit losses, which includes a provision for losses on loans and on unfunded commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected credit losses in the portfolio at the balance sheet date. The provision for credit losses increased $0.6 million and decreased $3.0 million to $3.2 million and $2.7 million for the three and six months ended June 30, 2022 compared to $2.6 million and $5.7 million for the same periods in 2021. The provision for credit losses included $2.0 million and $2.2 million for the reserve for unfunded commitments for the three and six months ended June 30, 2022 compared to $0.6 million and $0.4 million for the same periods in 2021. The increase in the provision for credit losses of $0.6 million for the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to an increase of $1.4 million in our provision for unfunded commitments related to higher construction commitments and expected loss rates in our construction portfolio. The decrease in the provision for credit losses of $3.0 million for the six months ended June 30, 2022 compared to the same period in 2021 was due primarily to two large C&I loan recoveries totaling $6.6 million which were received during the six months ended June 30, 2022, and reductions in our quantitative reserve due primarily to significant improvement in our hotel portfolio. 40 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three and six months ended June 30, 2022, we had net loan charge-offs of $3.0 million and $1.0 million compared to $7.5 million and $13.3 million for the same periods in 2021. The most significant charge-off for the three and six months ended June 30, 2022 was a C&I relationship that was resolved through a note sale resulting in a $5.5 million charge-off during the second quarter of 2022. Refer to the "Allowance for Credit Losses" section of this MD&A for further details. Noninterest Income Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Net gain on sale of securities $ — $ 29 $ (29) NM $ — $ 29 $ (29) NM Debit and credit card 4,756 4,744 12 0.3 % 9,819 8,906 913 10.3 % Service charges on deposit accounts 4,181 3,642 539 14.8 % 8,155 7,116 1,039 14.6 % Wealth management 3,247 3,167 80 2.5 % 6,489 6,111 378 6.2 % Mortgage banking 466 1,734 (1,268) (73.1) % 1,481 6,044 (4,563) (75.5) % Other (20) 2,108 (2,128) (100.9) % 1,912 4,541 (2,629) (57.9) % Total Noninterest Income $ 12,630 $ 15,424 $ (2,794) (18.1) % $ 27,856 $ 32,747 $ (4,891) (14.9) % NM - not meaningful Noninterest income decreased $2.8 million to $12.6 million for the three months ended June 30, 2022 and decreased $4.9 million to $27.9 million for the six months ended June 30, 2022 compared to the same periods in 2021. Mortgage banking decreased $1.3 million for the three months ended June 30, 2022 and decreased $4.6 million for the six months ended June 30, 2022. Higher interest rates have resulted in a lower volume of mortgage loans sold in the secondary market during 2022 compared to the prior year. Other noninterest income decreased $2.1 million for the three months ended June 30, 2022 and $2.6 million for the six months ended June 30, 2022 primarily due to the decline in the fair value of the assets in a nonqualified benefit plan which has a corresponding offset in salaries and benefits resulting in no impact to net income. Service charges on deposit accounts and debit and credit card fees increased for the three and six months ended June 30, 2022 due to an improving economic environment which drove higher customer activity. Noninterest Expense Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Salaries and employee benefits $ 24,811 $ 24,515 $ 296 1.2 % $ 48,523 $ 47,842 $ 681 1.4 % Data processing and information technology 4,104 3,787 317 8.4 % 8,539 8,012 527 6.6 % Occupancy 3,634 3,434 200 5.8 % 7,516 7,261 255 3.5 % Furniture, equipment and software 2,939 2,402 537 22.3 % 5,716 5,042 674 13.4 % Other taxes 1,682 1,832 (150) (8.2) % 3,219 3,268 (49) (1.5) % Professional services and legal 2,380 1,637 743 45.4 % 4,329 3,168 1,161 36.6 % Marketing 1,524 996 528 53.0 % 2,885 2,318 567 24.5 % FDIC insurance 882 924 (42) (4.5) % 1,819 1,970 (151) (7.7) % Other 6,468 6,302 166 2.6 % 13,292 12,614 678 5.4 % Total Noninterest Expense $ 48,424 $ 45,829 $ 2,595 5.7 % $ 95,838 $ 91,495 $ 4,343 4.7 % Noninterest expense increased $2.6 million to $48.4 million for the three months ended June 30, 2022 and increased $4.3 million to $95.8 million for the six months ended June 30, 2022 compared to the same periods in 2021. Professional services and legal increased by $0.7 million for the three months ended June 30, 2022 and $1.2 million for the six months ended June 30, 2022 due to increased consulting engagements compared to the same periods in 2021. Furniture, equipment and software increased $0.5 million for the three months ended June 30, 2022 and increased $0.7 million for the six month ended June 30, 2022 due to new software implementation costs. Marketing costs increased $0.5 million for the three months ended June 30, 2022 and increased $0.6 million for the six months ended June 30, 2022 due to increased marketing efforts and additional campaigns. Data processing and information technology costs increased by $0.3 million for the three months ended June 30, 2022 and increased $0.5 million for the six months ended June 30, 2022 due to increased information technology outsourcing costs. Salaries and employee benefits increased $0.3 million for the three months ended June 30, 2022 and increased $0.7 million for the six months ended June 30, 2022 due to base rate and incentive increases partially offset by lower pension expense and a decline in fair value of the liability in a nonqualified benefit plan. The decrease in pension expense 41 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS related to retirees electing lump-sum distributions causing settlement accounting in the same period in 2021. Other noninterest expenses increased $0.2 million and $0.7 million for the three and six months ended June 30, 2022 due to increased travel and employee expenses and increased expenses in amortization related to our qualified affordable housing projects. Provision for Income Taxes The provision for income taxes increased $0.3 million to $7.3 million for the three months ended June 30, 2022 and increased $0.1 million to $14.3 million for the six months ended June 30, 2022 compared to $7.0 million and $14.2 million for the same periods in 2021. Our effective tax rate was 20.3 percent and 19.7 percent for the three months and six months ended June 30, 2022 compared to 19.7 percent and 19.1 percent for the three and six months ended June 30, 2021. The increases in our effective tax rates for the three and six month periods ended June 30, 2022 were primarily due to a $0.5 million decrease in low income housing tax credits compared to the same periods in 2021. Financial Condition as of June 30, 2022 Total assets decreased $384.7 million to $9.1 billion at June 30, 2022 compared to $9.5 billion at December 31, 2021. Cash and due from banks decreased $577.5 million to $344.7 million at June 30, 2022 compared to $922.2 million at December 31, 2021 primarily due to a decrease in deposits of $384.3 million. Total portfolio loans increased $40.9 million to remain relatively stable at $7.0 billion at June 30, 2022 compared to December 31, 2021. The commercial loan portfolio decreased $109.5 million compared to December 31, 2021. C&I loans decreased $33.9 million which mainly related to a decline in PPP loans of $76.6 million since December 31, 2021. The consumer loan portfolio increased $150.4 million with increases in consumer real estate of $138.4 million and other consumer of $12.0 million. Excluding the PPP loans, portfolio loans increased $117.5 million compared to December 31, 2021. Securities increased $157.8 million to $1.1 billion at June 30, 2022 from $910.8 million at December 31, 2021 . The increase in securities is primarily due to interest-bearing deposits with banks being redeployed to higher yielding assets. The bond portfolio had a net unrealized loss of $61.9 million at June 30, 2022 compared to a net unrealized gain of $9.4 million at December 31, 2021 due to higher interest rates. Our deposits decreased $384.3 million to $7.6 billion at June 30, 2022 compared to $8.0 billion at December 31, 2021. Noninterest-bearing demand deposits were stable at $2.7 billion at June 30, 2022 compared to December 31, 2021. Interest-bearing demand deposits decreased $98.7 million and money market decreased $182.1 million which was concentrated in higher balance, rate sensitive accounts. Certificates of deposits decreased $107.0 million due to maturities compared to December 31, 2021. Total borrowings decreased $45.6 million to $115.7 million at June 30, 2022 compared to $161.3 million at December 31, 2021. The decrease in borrowings is primarily related to a decline in securities sold under repurchase agreements of $45.2 million compared to December 31, 2021.We no longer offer repurchase agreements as a product for our customers and the remaining balance is in process of being transferred to other deposit products. Total shareholders’ equity decreased by $28.1 million to remain relatively stable at $1.2 billion at June 30, 2022 compared to December 31, 2021. The decrease was primarily due to other comprehensive losses of $60.1 million, dividends of $23.2 million and common stock repurchases of $4.2 million offset by net income of $58.0 million. The $60.1 million in other comprehensive losses was primarily due to net unrealized losses of $61.9 million on our available-for-sale bond portfolio due to interest rate increases from December 31, 2021 to June 30, 2022. 42 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Securities Activity (dollars in thousands) June 30, 2022 December 31, 2021 $ Change U.S. Treasury securities $ 136,282 $ 95,327 $ 40,955 Obligations of U.S. government corporations and agencies 52,815 70,348 (17,533) Collateralized mortgage obligations of U.S. government corporations and agencies 427,635 270,294 157,341 Residential mortgage-backed securities of U.S. government corporations and agencies 46,416 56,793 (10,377) Commercial mortgage-backed securities of U.S. government corporations and agencies 333,994 341,300 (7,306) Corporate obligations 500 500 — Obligations of states and political subdivisions 69,850 75,089 (5,239) Available-for-Sale Debt Securities 1,067,492 909,651 157,841 Marketable equity securities 1,084 1,142 (58) Total Securities $ 1,068,576 $ 910,793 $ 157,783 We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security purchases are subject to an investment policy approved annually by our Board of Directors and administered through ALCO and our treasury function. Securities increased $157.8 million to $1.1 billion at June 30, 2022 from $910.8 million at December 31, 2021. The increase in securities was primarily due to investing interest-bearing deposits with banks into higher yielding assets. At June 30, 2022, our bond portfolio was in a net unrealized loss position of $61.9 million compared to a net unrealized gain position of $9.4 million at December 31, 2021. At June 30, 2022, total gross unrealized gains in the bond portfolio were $1.2 million offset by gross unrealized losses of $63.1 million compared to December 31, 2021, when total gross unrealized gains were $15.2 million offset by gross unrealized losses of $5.8 million. The decrease in the net unrealized gain position was primarily due to an increase in interest rates from December 31, 2021 to June 30, 2022. Loan Composition June 30, 2022 December 31, 2021 (dollars in thousands) Amount % of Loans Amount % of Loans $ Change % Change Commercial Commercial real estate $ 3,191,670 45.3 % $ 3,236,653 46.2 % $ (44,983) (1.4) % Commercial and industrial 1,695,031 24.1 % 1,728,969 24.7 % (33,938) (2.0) % Commercial construction 410,425 5.8 % 440,962 6.3 % (30,537) (6.9) % Total Commercial Loans 5,297,126 75.2 % 5,406,584 77.2 % (109,458) (2.0) % Consumer Consumer real estate 1,623,830 23.1 % 1,485,478 21.2 % 138,352 9.3 % Other consumer 119,938 1.7 % 107,928 1.5 % 12,010 11.1 % Total Consumer Loans 1,743,768 24.8 % 1,593,406 22.8 % 150,362 9.4 % Total Portfolio Loans 7,040,894 100.0 % 6,999,990 100.0 % 40,904 0.6 % Loans held for sale 1,311 1,522 (211) (13.9) % Total Loans $ 7,042,205 $ 7,001,512 $ 40,693 0.6 % The loan portfolio represents the most significant source of interest income for us. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower’s industry or the overall economic climate can significantly impact the borrower’s ability to pay. Total portfolio loans increased $40.9 million to remain relatively stable at $7.0 billion at June 30, 2022 compared to December 31, 2021. P ortfolio loans excluding PPP loans increased $117.5 million compared to December 31, 2021 . As of June 30, 2022, 74 percent of our total loans are variable rate loans and 26 percent are fixed rate loans. Commercial loans, including CRE, C&I and commercial construction, comprised 75.2 percent of total portfolio loans at June 30, 2022 and 77.2 percent at December 31, 2021. The commercial loan portfolio decreased $109.5 million at June 30, 2022 compared to December 31, 2021. C&I loans decreased $33.9 million at June 30, 2022 which mainly related to a PPP loan decline of $76.6 million since December 31, 2021. We had $11.7 million of PPP loans included in C&I at June 30, 2022 compared to $88.3 million at December 31, 2021. The decrease in PPP loans was due to loan forgiveness. PPP loans are forgivable, in whole or in part, if the proceeds are used 43 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for payroll and other permitted expenses in accordance with the requirements of the PPP. These loans carry a fixed rate of 1 percent and a term of two years, or five years for loans approved by the SBA on or after June 5, 2020. Payments are deferred for the first six months of the loan. The loans are 100 percent guaranteed by the SBA. The SBA pays us a processing fee ranging from 1 percent to 5 percent based on the size of the loan. Consumer loans represent 24.8 percent of our total portfolio loans at June 30, 2022 and 22.8 percent at December 31, 2021. The consumer loan portfolio increased $150.4 million at June 30, 2022 with increases in consumer real estate of $138.4 million and other consumer of $12.0 million compared to December 31, 2021. Portfolio consumer real estate loans increased in 2022 due to a shift from mortgage loans sold to loans held in the portfolio due to increased jumbo loans and the pricing of loans in the secondary market. Allowance for Credit Losses We maintain an ACL at a level determined to be adequate to absorb estimated expected credit losses within the loan portfolio over the contractual life of an instrument that considers our historical loss experience, current conditions and forecasts of future economic conditions as of the balance sheet date. We develop and document a systematic ACL methodology based on the following portfolio segments: 1) Commercial Real Estate, or CRE, 2) Commercial and Industrial, or C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. Refer to Part 1. Financial Information, Note 6. Allowance for Credit Losses for details on our portfolio segments. The following table presents activity in the ACL for the periods presented: Six Months Ended June 30, 2022 (dollars in thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Business Banking Consumer Real Estate Other Consumer Total Loans Allowance for credit losses on loans: Balance at beginning of period $ 50,700 $ 19,727 $ 5,355 $ 11,338 $ 8,733 $ 2,723 $ 98,576 Provision for credit losses on loans (1) (5,475) 768 1,227 2,207 1,010 758 495 Charge-offs (199) (5,798) — (1,746) (138) (780) (8,661) Recoveries 288 6,829 1 358 68 141 7,685 Net Recoveries/(Charge-offs) 89 1,031 1 (1,388) (70) (639) (976) Balance at End of Period $ 45,314 $ 21,526 $ 6,583 $ 12,157 $ 9,673 $ 2,842 $ 98,095 (1) Excludes the provision for credit losses for unfunded commitments. The following table presents key ACL ratios for the periods presented: June 30, 2022 December 31, 2021 Ratio of net charge-offs to average loans outstanding (1) 0.01 % 0.49 % Allowance for credit losses as a percentage of total portfolio loans 1.39 % 1.41 % Allowance for credit losses as a percentage of total portfolio loans - excluding PPP loans 1.40 % 1.43 % Allowance for credit losses to nonperforming loans 309 % 149 % (1) Year-to-date net charge-offs annualized The ACL was $98.1 million, or 1.39 percent of total portfolio loans, at June 30, 2022 compared to $98.6 million, or 1.41 percent of total portfolio loans, at December 31, 2021. The quantitative reserve decreased $5.4 million primarily due to significant improvement in our hotel portfolio. Specific reserves on loans individually assessed decreased $1.8 million due to the resolution of a C&I relationship through a note sale which resulted in a $5.5 million charge-off during the three months ended June 30, 2022. The qualitative reserve increased $6.7 million primarily due to additional segment allocations made in our healthcare portfolio and an increase in our economic forecast related to concerns with rising inflation and macroeconomic conditions. Net loan charge-offs were $1.0 million, or 0.01 percent of average loans, for the six months ended June 30, 2022. The most significant charge-off was the above mentioned C&I relationship for $5.5 million. Offsetting loan charge-offs were $6.6 million of loan recoveries related to two C&I relationships during the six months ended June 30, 2022. Substandard loans decreased $36.9 million to $198.3 million at June 30, 2022 compared to $235.2 million at December 31, 2021. The decrease in substandard loans was due to $42.7 million of loan upgrades in our hotel portfolio and $30.5 million of 44 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS loan payoffs. The decrease in substandard loans was partially offset by the addition of a $28.5 million C&I relationship, which was downgraded to substandard due to financial deterioration that led to cash flow shortfalls during the second quarter of 2022. Special mention loans decreased $9.3 million to $183.0 million at June 30, 2022 compared to $192.3 million at December 31, 2021. The decrease in special mention loans was primarily due to loan upgrades in our hotel portfolio. Troubled debt restructurings, or TDRs, decreased $18.4 million to $13.3 million at June 30, 2022 compared to $31.7 million at December 31, 2021. The decrease in TDRs was primarily due to the payoff of two C&I relationships totaling $14.1 million and a CRE relationship totaling $5.7 million. Total TDRs of $13.3 million included $9.3 million, or 70.0 percent, that were accruing and $4.0 million, or 30.0 percent, that were nonaccruing at June 30, 2022. Our allowance for credit losses on unfunded commercial lending commitments and letters of credit provide for the risk of expected loss in these arrangements. The allowance is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on our Condensed Consolidated Statements of Comprehensive Income (Loss). The allowance for unfunded loan commitments increased $2.2 million to $7.4 million at June 30, 2022 compared to $5.2 million at December 31, 2021. This change was primarily related to higher construction commitments and expected loss rates in our construction portfolio. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. Nonperforming assets consist of nonaccrual loans, nonaccrual TDRs and OREO. The following table summarizes nonperforming assets for the dates presented: (dollars in thousands) June 30, 2022 December 31, 2021 $ Change Nonperforming Loans (Excluding TDRs) Commercial real estate $ 15,006 $ 29,791 $ (14,785) Commercial and industrial 342 350 (8) Commercial construction 384 384 — Business banking 6,582 7,945 (1,363) Consumer real estate 5,195 5,889 (694) Other Consumer 256 158 98 Total Nonperforming Loans (Excluding TDRs) 27,765 44,517 (16,752) Nonperforming Troubled Debt Restructurings Commercial real estate 16 1,697 (1,681) Commercial and industrial — 14,889 (14,889) Commercial construction 480 2,087 (1,607) Business banking 1,325 1,696 (371) Consumer real estate 2,189 1,405 784 Other Consumer — — — Total Nonperforming Troubled Debt Restructurings 4,010 21,774 (17,764) Total Nonperforming Loans 31,775 66,291 (34,516) OREO 7,046 13,313 (6,267) Total Nonperforming Assets $ 38,821 $ 79,604 $ (40,783) Asset Quality Ratios: Nonperforming loans as a percent of total portfolio loans 0.45 % 0.95 % Nonperforming assets as a percent of total portfolio loans plus OREO 0.55 % 1.13 % Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past the contractual due date. Nonperforming loans decreased $34.5 million, or 52.0 percent, to $31.8 million at June 30, 2022 compared to $66.3 million at December 31, 2021. The significant decrease in nonperforming loans primarily related to the payoff of two C&I relationships totaling $14.1 million and a CRE relationship totaling $5.7 million. Additionally, four hotel loans were returned to performing status totaling $6.7 million during the six months ended June 30, 2022. The decrease in OREO related to the sale of a property for $6.3 million during the first quarter of 2022. 45 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Deposits (dollars in thousands) June 30, 2022 December 31, 2021 $ Change Noninterest-bearing demand $ 2,736,849 $ 2,748,586 $ (11,737) Interest-bearing demand 880,432 979,133 (98,701) Money market 1,888,506 2,070,579 (182,073) Savings 1,125,344 1,110,155 15,189 Certificates of deposit 981,116 1,088,071 (106,955) Total Deposits $ 7,612,247 $ 7,996,524 $ (384,277) Deposits are our primary source of funds. Our deposit base increased substantially through the Pandemic related to PPP and stimulus programs but we have experienced a decrease in deposits during 2022. Total deposits decreased $384.3 million, or 4.8%, compared to December 31, 2021. Our noninterest-bearing demand deposits remain stable from December 31, 2021. Interest-bearing demand deposits decreased $98.7 million and money market decreased $182.1 million which was concentrated in higher balance, rate sensitive accounts. Additionally, we discontinued a money market product during the first quarter of 2022 that was indexed to the Federal Funds rate which resulted in declines in money markets. Certificates of deposits decreased $107.0 million due to maturities compared to December 31, 2021. Borrowings (dollars in thousands) June 30, 2022 December 31, 2021 $ Change Securities sold under repurchase agreements $ 39,259 $ 84,491 $ (45,232) Long-term borrowings 21,988 22,430 (442) Junior subordinated debt securities 54,423 54,393 30 Total Borrowings $ 115,670 $ 161,314 $ (45,644) Borrowings are an additional source of funding for us. Total borrowings decreased $45.6 million compared to December 31, 2021 related to a decrease in securities sold under repurchase agreements. We no longer offer repurchase agreements as a product for our customers and the remaining balance of $39.3 million is in process of being transferred to other deposit products. 46 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information pertaining to short-term borrowings is summarized in the table below for the six months ended June 30, 2022 and for the twelve months ended December 31, 2021. Securities Sold Under Repurchase Agreements (dollars in thousands) June 30, 2022 December 31, 2021 Balance at the period end $ 39,259 $ 84,491 Average balance during the period $ 65,826 $ 69,964 Average interest rate during the period 0.10 % 0.11 % Maximum month-end balance during the period $ 89,366 $ 84,491 Average interest rate at the period end 0.10 % 0.10 % Information pertaining to long-term borrowings is summarized in the tables below for the six months ended June 30, 2022 and for the twelve months ended December 31, 2021. Long-Term Borrowings (dollars in thousands) June 30, 2022 December 31, 2021 Balance at the period end $ 21,988 $ 22,430 Average balance during the period $ 22,190 $ 22,995 Average interest rate during the period 1.98 % 1.99 % Maximum month-end balance during the period $ 22,344 $ 23,549 Average interest rate at the period end 2.03 % 1.94 % Junior Subordinated Debt Securities (dollars in thousands) June 30, 2022 December 31, 2021 Balance at the period end $ 54,423 $ 54,393 Average balance during the period $ 54,406 $ 61,653 Average interest rate during the period 3.29 % 2.99 % Maximum month-end balance during the period $ 54,423 $ 64,128 Average interest rate at the period end 4.17 % 2.69 % Liquidity and Capital Resources Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. Our primary future cash needs are centered on the ability to (i) satisfy the financial needs of depositors who may want to withdraw funds or of borrowers needing to access funds to meet their credit needs and (ii) to meet our future cash commitments under contractual obligations with third parties. In order to manage liquidity risk, our Board of Directors has delegated authority to ALCO for the formulation, implementation and oversight of liquidity risk management for S&T. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position. Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Refer to the "Financial Condition as of June 30, 2022 - Deposits" section of this MD&A, for additional discussion on deposits. Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our normal funding program when either a structure or cost efficiency has been identified. Additional funding sources accessible to S&T include borrowing availability at the Federal Home Loan Bank, or FHLB, of Pittsburgh, federal funds lines with other financial institutions, the brokered deposit market and borrowing availability through the Federal Reserve Borrower-In-Custody program. We have contractual obligations representing required future payments on certificates of deposit, securities sold under repurchase agreements, junior subordinated debt securities, operating and capital leases and purchase obligations. See the Liquidity and Capital Resources portion of our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K for more information on these future cash outflows. 47 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 June 30, 2022, S&T Bank had $991.2 million in highly liquid assets which consisted of $263.0 million in interest-bearing deposits with banks, $726.9 million in unpledged securities and $1.3 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of 10.9 percent at June 30, 2022. Highly liquid assets have declined by $309.8 million when comparing June 30, 2022 to December 31, 2021. The majority of the decrease in liquid assets is attributed to decreases in cash balances which are primarily a result of decreased deposits. At June 30, 2022, we had remaining borrowing availability of $2.8 billion with the FHLB of Pittsburgh. For more information regarding our outstanding borrowings refer to the "Financial Condition as of June 30, 2022 - Borrowings" section of this MD&A for more details. We continue to maintain a strong capital position with our leverage ratio at 10.25 percent at June 30, 2022 compared to 9.74 percent at December 31, 2021, both in excess of the regulatory guideline of 5.00 percent. We continue to be well-capitalized with a risk-based Common Equity Tier 1 ratio of 12.34 percent at June 30, 2022 compared to 12.03 percent at December 31, 2021, both in excess of the regulatory guideline of 6.50 percent to be well-capitalized. The following table summarizes capital amounts and ratios for S&T and S&T Bank for the dates presented : (dollars in thousands) Adequately Capitalized Well- Capitalized June 30, 2022 December 31, 2021 Amount Ratio Amount Ratio S&T Bancorp, Inc. Tier 1 leverage 4.00 % 5.00 % $ 915,985 10.25 % $ 889,785 9.74 % Common equity tier 1 to risk-weighted assets 4.50 % 6.50 % 886,985 12.34 % 860,785 12.03 % Tier 1 capital to risk-weighted assets 6.00 % 8.00 % 915,985 12.74 % 889,785 12.43 % Total capital to risk-weighted assets 8.00 % 10.00 % 1,023,119 14.23 % 987,420 13.79 % S&T Bank Tier 1 leverage 4.00 % 5.00 % $ 890,488 9.97 % $ 864,127 9.46 % Common equity tier 1 to risk-weighted assets 4.50 % 6.50 % 890,488 12.39 % 864,127 12.09 % Tier 1 capital to risk-weighted assets 6.00 % 8.00 % 890,488 12.39 % 864,127 12.09 % Total capital to risk-weighted assets 8.00 % 10.00 % 997,622 13.89 % 961,762 13.45 % On March 27, 2020, the regulators issued interim final rule, or IFR, “Regulatory Capital Rule: Revised Transition of the Current Expected Credit Losses Methodology for Allowances” in response to the disrupted economic activity due to the COVID-19 pandemic. The IFR provides financial institutions that adopted CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided by the initial two-year delay (“five-year transition”). We adopted CECL effective January 1, 2020 and elected to implement the five-year transition. We have filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, with the SEC, which allows for the issuance of a variety of securities including debt and capital securities, preferred and common stock and warrants. We may use the proceeds from the sale of securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of June 30, 2022, we had not issued any securities pursuant to this shelf registration statement. S&T is monitoring and will continue to monitor the impact of the pandemic and has taken and will continue to take steps to mitigate the potential risks and impact on our liquidity and capital resources. Due to the economic uncertainty, we are taking a prudent approach to capital management. 48 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices or equity prices can adversely affect a financial institution’s earnings or capital. For most financial institutions, including S&T, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes also affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO. The ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, analyses and by performing stress tests and simulations to mitigate earnings and market value fluctuations due to changes in interest rates. Rate shock analyses results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality. S&T policy guidelines limit the change in pretax net interest income over 12 and 24 month horizons using rate shocks in increments of +/- 100 basis points. Policy guidelines define the percentage change in pretax net interest income by graduated risk tolerance levels of minimal, moderate and high. We have temporarily suspended the analyses on downward rate shocks of 200 basis points or more because they do 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. 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. June 30, 2022 December 31, 2021 1 - 12 Months 13 - 24 Months % Change in EVE 1 - 12 Months 13 - 24 Months % Change in EVE Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income 400 30.1 36.4 (4.0) 30.4 40.3 18.4 300 22.6 27.5 1.1 22.5 30.0 19.9 200 15.2 18.5 4.0 14.9 20.2 18.4 100 7.6 9.4 3.9 7.0 9.9 11.9 -100 (9.2) (11.8) (10.5) (4.6) (8.4) (26.3) 49 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The results from the rate shock analyses on net interest income are consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means more assets than liabilities will reprice during the measured time frames. The implications of an asset sensitive balance sheet will differ depending upon the change in market interest rates. For example, with an asset sensitive balance sheet in a declining interest rate environment, more assets than liabilities will decrease in rate. This situation could result in a decrease in net interest income and operating income. Conversely, with an asset sensitive balance sheet in a rising interest rate environment, more assets than liabilities will increase in rate. This situation could result in an increase in net interest income and operating income. Our rate shock analyses show less improvement in the percentage change in pretax net interest income in the rates up scenarios and a larger decline in the rates down scenario when comparing June 30, 2022 to December 31, 2021. We benefit less in the increasing rate scenarios because we have less excess cash. We have a larger decline in the decreasing rate scenario because the higher rate environment has increased our asset yields while our liability costs have remain unchanged to date. A decline in interest rates would result in less interest income with limited interest expense reduction. Our EVE analyses show a decline in the percentage change in EVE in the rates up scenarios and an improvement in the rates down scenario when comparing June 30, 2022 to December 31, 2021. The EVE changes are due to the impact of interest rates on the value of nonmaturity deposits. In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations. Sensitivity analyses are performed to help us identify which model assumptions cause the greatest impact on pretax net interest income. Sensitivity analyses may include changing prepayment behavior of loans and securities with optionality and the impact of interest rate changes on non-maturity deposit products. Simulation analyses may include the potential impact of rate changes other than the policy guidelines, yield curve shape changes, significant balance mix changes and various growth scenarios. Item 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of S&T’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of June 30, 2022. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to S&T’s management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective in all material respects, as of the end of the period covered by this report. Changes in Internal Control over Financial Reporting During the quarter ended June 30, 2022, there were no changes made to S&T’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, S&T’s internal control over financial reporting. PART II OTHER INFORMATION Item 1. Legal Proceedings None 50 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 1A. Risk Factors There have been no material changes to the risk factors that we have previously disclosed in Part I, Item 1A – “Risk Factors” in our 2021 Form 10-K for the year ended December 31, 2021, as filed with the SEC on February 28, 2022 other than the risks described below. Russia’s invasion of Ukraine has created significant economic and financial disruptions and uncertainties, which could adversely affect our business, financial condition and results of operations In late February 2022, Russia launched a large-scale military attack on Ukraine. In response to the military action by Russia, government actions, including broad-ranging economic sanctions against Russia, have been taken by the United States, the United Kingdom, the European Union and other countries. The U.S. and global markets are experiencing volatility and disruption following the start of this military conflict and imposition of sanctions, impacting the financial and commodities markets. The continued impact on financial markets, including the level and volatility of interest rates, could impact our earnings. Furthermore, continued increases in commodity prices contributing to higher inflation could negatively impact our customers and our earnings. Russian military actions and the resulting sanctions could further adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. In addition, Russia may take retaliatory actions and other counter measures including cyberattacks against the U.S., its government, infrastructure and businesses, including S&T. Although the extent and duration of the military action or future escalation of such hostilities, the extent and impact of existing and future sanctions, market disruptions and volatility and the result of any diplomatic negotiations remains uncertain, these consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of our common stock to be adversely affected. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Purchases of Equity Securities The following table is a summary of our purchases of common stock during the second quarter of 2022: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plan (1) Approximate dollar value of shares that may yet be purchased under the plan $37,441,683 04/01/2022 - 04/30/2022 — $— — 37,441,683 05/01/2022 - 05/31/2022 — — — 37,441,683 06/01/2022 - 06/30/2022 151,220 27.4611 151,220 33,289,015 Total 151,220 $27.4611 151,220 $33,289,015 (1) On March 21, 2022, our Board of Directors authorized an extension of the $50 million share repurchase plan, which was set to expire March 31, 2022. This authorization extended the expiration date of the repurchase plan through March 31, 2023. The plan permits S&T to repurchase from time to time up to the previously authorized $50 million in aggregate value of shares of S&T's common stock, with $33.3 million of capacity remaining at June 30, 2022, through a combination of open market and privately negotiated repurchases. The specific timing, price and quantity of repurchases will be at the discretion of S&T and will depend on a variety of factors, including general market conditions, the trading price of common stock, legal and contractual requirements, applicable securities laws and S&T's financial performance. The repurchase plan does not obligate us to repurchase any particular number of shares. We expect to fund repurchases from cash on hand and internally generated funds. Share repurchases will not occur unless permissible under applicable laws. Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosures Not Applicable Item 5. Other Information None 51 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 6. Exhibits 2.1 Agreement and Plan of Merger, dated June 5, 2019, by and between DNB Financial Corporation and S&T Bancorp, Inc. Filed as Exhibit 2.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on June 5, 2019, and incorporated herein by reference. 10.1 Severance Agreement dated June 7, 2022 by and between George Basara and S&T Bancorp, Inc. Filed as Exhibit 10.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on June 10, 2022, and incorporated herein by reference.* 10.2 Form of Restricted Stock Unit Award Agreement - LTIP.* Filed herewith. 10.3 Form of Restricted Stock Unit Award Agreement - Non-LTIP.* Filed herewith. 10.4 Form of Restricted Stock Unit Award Agreement - Directors.* Filed herewith. 31.1 Rule 13a-14(a) Certification of the Chief Executive Officer. 31.2 Rule 13a-14(a) Certification of the Chief Financial Officer. 32 Rule 13a-14(b) Certification of the Chief Executive Officer and Chief Financial Officer. 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibits 101) * Management Contract or Compensatory Plan or Arrangement 52 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. S&T Bancorp, Inc. (Registrant) August 3, 2022 /s/ Mark Kochvar Mark Kochvar Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Signatory) 53