What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-28 · 436 added, 427 removed, 748 unchanged (54% of the section changed)

21 unchanged sentences

unanticipated changes in our liquidity position;

unanticipated changes in regulatory and governmental policies impacting interest rates and financial markets;

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;

6 unchanged sentences

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;

our ability to attract and retain talented executives and employees;

general economic or business conditions, including the strength of regional economic conditions in our market area;

macroeconomic conditions including inflation and economic uncertainty;

environmental, social and governance practices and disclosures, including climate change, hiring practices, the diversity of the work force, and racial and social justice issues;

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;

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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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

S&T BANCORP, INC.

AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

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We currently view the determination of the ACL and goodwill and other intangible assets to be critical accounting policies.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 for critical accounting policies and estimates for the prior year.

We did not significantly change the manner in which we applied our critical accounting policies or developed related assumptions or estimates during 2022.

2 unchanged sentences

In January 2020, we adopted ASC 326, which replaced the former incurred loss methodology with an expected credit loss methodology that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset.

The allowance for credit losses, or ACL, is a valuation reserve established and maintained by charges against operating income.

The ACL is a valuation reserve established and maintained by charges against operating income.

It is an estimate of expected credit losses, measured over the contractual life of a loan, that considers historical loss experience, current conditions and forecasts of future economic conditions.

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Among other balance sheet and income statement changes, our severely adverse scenario would have resulted in an increase to the ACL of approximately 90 percent.

This stressed scenario includes both the quantitative and qualitative components of the model.

This severely adverse scenario shows how sensitive the ACL can be to key qualitative and quantitative assumptions underlying the overall ACL calculation.

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Business combinations also typically result in goodwill which is subject to ongoing periodic impairment tests based on the fair values of the reporting units to which the acquired goodwill relates.

The carrying value of goodwill is tested annually for impairment each October 1st or more frequently if events and

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

circumstances indicate that it may be impaired.

We test for impairment by comparing the fair value of our Community Banking reporting unit with its carrying amount.

An impairment charge would be recognized if the the carrying amount exceeds the reporting unit's fair value.

S&T BANCORP, INC.

AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The carrying value of goodwill is tested annually for impairment each October 1st or more frequently if events and circumstances indicate that it may be impaired.

We test for impairment by comparing the fair value of the reporting unit with its carrying amount.

An impairment charge would be recognized if the carrying amount exceeds the reporting unit's fair value.

Determining the fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions.

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Based upon our qualitative assessment performed for our annual impairment analysis as of October 1, 2022, we concluded that goodwill is not impaired.

The financial services industry and securities markets can be adversely affected by declining values.

If economic conditions result in a prolonged period of economic weakness in the future, our business may be adversely affected.

In the event that we determine that our goodwill is impaired, recognition of an impairment charge could have a significant adverse impact on our financial position or results of operations in the period in which the impairment occurs.

Recent Accounting Pronouncements and Developments

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We believe these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance and our business and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry.

Although we believe that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative 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.

See discussion of net interest income on an FTE basis (non-GAAP) and the efficiency ratio (non-GAAP) and related reconciliations to GAAP discussed below.

Executive Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of $9.5 billion at December 31, 2021.

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.

Our mission is to become the financial services provider of choice within the markets that we serve which will enable us to be a high performing regional community bank.

We strive to do this by delivering exceptional service and value.

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 both 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, investing in organization talent and performance and promoting strategic clarity and effective communications.

Organic loan 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.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Results of Operations

Year Ended December 31, 2021

COVID-19 Pandemic Update

S&T continues to monitor the impact of the COVID-19 pandemic and has taken steps to mitigate the potential risks and impact on S&T and to promote the health and safety of our employees, and the customers and communities that we serve.

We have taken preventive health measures for our employees through rigorous sanitation, social distancing, wearing masks, remote work where feasible and providing access to financial wellness programs.

We have taken extensive safety measures for our customers in our branches and are encouraging our customers to use online and mobile banking solutions.

We have also extended our solution center hours to allow for customer consultation without entering a branch.

Our Business Continuity teams were activated and have guided our response efforts.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law.

It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.

The CARES Act included the Paycheck Protection Program, or PPP, a $349 billion program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks.

The PPP and Health Care Enhancement Act, or PPP/HCEA, was signed into law on April 24, 2020.

The PPP/HCEA authorized an additional $310 billion of funding under the CARES Act for PPP loans among other provisions.

On July 4, 2020, legislation was passed to extend the application period for the PPP through August 8, 2020.These loans are intended to cover eight weeks of payroll and other permitted expenses to help those businesses remain viable.

The PPP ended on May 31, 2021.

We originated $771.5 million of PPP loans during 2020 and 2021.

PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted expenses in accordance with the requirements of the PPP.

These loans carry a fixed rate of 1.00 percent and a term of two years, or five years for loans approved by the SBA, on or after June 5, 2020.

Payments are deferred for at least six months of the loan.

The loans are 100 percent guaranteed by the SBA.

The extent to which the COVID-19 pandemic may adversely impact our business depends on future developments, which remain highly uncertain and unpredictable.

The pandemic has had, and we expect that it will continue to have, negative impacts on S&T’s commercial and consumer loan customers and the economy as a whole.

The severity and length of the pandemic’s impact on S&T and the U.S.

and global economies continue to be unknown.

Our financial performance continues to be negatively impacted in many ways due to the pandemic.

We are closely monitoring our asset quality with a focus on the loan portfolios that have been significantly impacted by the pandemic, including hotel, healthcare and C&I portfolios.

We have increased our ACL to be responsive to this additional risk within our loan portfolio.

We did experience improvement in our asset quality during 2021, but remain cautious given the current environment.

The hotel portfolio improved in the second half of 2021 with $34.0 million of loans being returned to performing status due to improved operating performance.

Our balance sheet is asset sensitive resulting in our net interest income and net interest margin, or NIM, being negatively impacted in this low interest rate environment.

Loan demand was challenging in the first half of 2021, but we saw growth trends improving late in the second quarter and for the third and fourth quarter of 2021.

Net interest income was favorably impacted by PPP loans which contributed to net interest income $17.3 million for 2021 and $11.4 million for 2020.

In order to assist our customers through this difficult period, we have provided the following assistance, which may have an adverse impact on our results in the short term, but which we believe will provide better outcomes in the long term for our customers and for S&T.

• We provided needs-based payment deferrals and modifications to interest only periods to commercial loans during 2020 and 2021 totaling $995.7 million.

Only $28.8 million remain on deferral at December 31, 2021.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

• We provided loan payment deferrals, with no negative credit bureau reporting, to mortgage and consumer loans during 2020 and 2021 totaling $81.6 million.

No loans remain on deferral at December 31, 2021.

None of these were designated troubled debt restructurings, or TDRs, for accounting purposes.

Earnings Summary

Net income increased $89.3 million to $110.3 million, or $2.81 per diluted share, in 2021 compared to $21.0 million, or $0.53 per diluted share in 2020.

This net increase was primarily due to a lower provision for credit losses related to improving economic conditions, as well the offsetting impact of the 2020 customer fraud that reduced net income by $46.3 million, or $1.19 per diluted share.We experienced a pre-tax loss of $58.7 million related to a customer fraud resulting from a check kiting scheme during 2020.

The fraud was perpetrated by a single business customer and the customer has plead guilty in a criminal investigation.

We continue to pursue all available sources of recovery to mitigate the loss.

Return on average assets, or ROA, was 1.18 percent and return on average equity, or ROE, was 9.30 percent for 2021 compared to ROA of 0.23 percent and ROE of 1.80 percent for 2020.

Net interest income decreased $3.3 million to $276.1 million compared to 2020.

The decrease in interest income was primarily due to lower average loan balances and the low rate interest environment compared to 2020.

Average loan balances decreased $325.8 million compared to 2020.

Net interest income was favorably impacted by PPP loans which contributed $17.3 million compared to $11.4 million in 2020.

Average interest-bearing deposits decreased $126.2 million compared to 2020.

The net interest margin, or NIM, on an FTE basis (non-GAAP) decreased 16 basis points compared to 2020.

The decrease is primarily due to higher average cash balances and the low interest rate environment.

PPP loans positively impacted the NIM on an FTE basis (non-GAAP) by 8 basis points compared to the negative impact of 3 basis points in 2020.

NIM is reconciled to net interest income adjusted to an FTE basis (non-GAAP) below in the "Net Interest Income" section of this MD&A.

The provision for credit losses was $16.2 million for 2021 compared to $131.4 million in 2020.

Excluding a customer fraud loss of $58.7 million, the provision for credit losses was $72.7 million for 2020.

The significant decrease in the provision for credit losses during 2021 was mainly due to the customer fraud in 2020 and an improved outlook for the economy and our loan portfolio.

Net loan charge-offs were $34.5 million, or 0.49 percent of average loans, in 2021 compared to $103.4 million, or 1.40 percent of average loans, during 2020.

Excluding the customer fraud, net loan charge-offs were $44.7 million, or 0.61 percent of average loans in 2020.

Noninterest income increased $4.9 million to $64.6 million compared to $59.7 million in 2020.

Wealth management income increased $2.9 million due to customer growth and improved market conditions.

Debit and credit card fees increased $2.9 million and service charges on deposit accounts increased $1.4 million due to increased customer activity.

These were offset by lower commercial loan swap income of $3.6 million and mortgage banking income of $1.2 million.

Noninterest expense increased $2.2 million to $188.8 million compared to $186.6 million in 2020.

Salaries and employee benefits increased $10.1 million primarily due to higher incentives.

Data processing and information technology increased $1.2 million due to new products and services in 2021.

These higher expenses were offset by decreases in other noninterest expense of $4.1 million, merger related expenses of $2.3 million and marketing of $1.4 million.

The efficiency ratio (non-GAAP) for 2021 was 55.05 percent compared to 53.86 percent for 2020.

The efficiency ratio is noninterest expense divided by noninterest income plus net interest income, on an FTE basis, which ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

Although we believe 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.

The interest income on interest-earning assets, net interest income and net interest margin are presented on an FTE basis (non-GAAP).

The FTE basis (non-GAAP) 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.

S&T BANCORP, INC.

AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table reconciles interest and dividend income per the Consolidated Statements of Net Income to interest income, net interest income and net interest margin on an FTE basis (non-GAAP) for the periods presented:

Years Ended December 31,

(dollars in thousands) 2022 2021 2020

Total interest and dividend income per Consolidated Statements of Net Income $ 340,751 $ 289,262 $ 320,464

Adjustment to FTE basis 2,052 2,316 3,202

Interest Income on an FTE Basis (Non-GAAP) 342,803 291,578 323,666

Total interest and dividend income per Consolidated Statements of Net Income 340,751 289,262 320,464

Total interest expense 24,968 13,150 41,076

Net Interest Income per Consolidated Statements of Net Income $ 315,783 $ 276,112 $ 279,388

Adjustment to FTE basis 2,052 2,316 3,202

Net Interest Income on an FTE Basis (Non-GAAP) 317,835 278,428 282,590

Net interest margin 3.74 % 3.19 % 3.34 %

Adjustment to FTE basis 0.02 0.03 0.04

Net Interest Margin on an FTE Basis (Non-GAAP) 3.76 % 3.22 % 3.38 %

The efficiency ratio is noninterest expense divided by noninterest income plus net interest income, on an FTE basis (non-GAAP), which ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

Below is a reconciliation of the non-GAAP efficiency ratio.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

2021 2020 2019

Years ended December 31,

(dollars in thousands) 2022 2021 2020

Efficiency Ratio (Non-GAAP)

Noninterest expense

$188,839 $186,644 $167,116

Noninterest expense per Consolidated Statements of Net Income $196,746 $188,925 $186,671

merger related expenses

— (2,342) (11,350)

Noninterest expense excluding nonrecurring items $196,746 $188,925 $184,329

$188,839 $184,302 $155,766

Net interest income per Consolidated Statements of Net Income

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317,835 278,428 282,590

Noninterest income

Noninterest income per Consolidated Statements of Net Income

58,259 64,696 59,746

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52.34 % 55.06 % 53.87 %

The provision for income taxes increased to $25.3 million in 2021 compared to nearly zero for 2020.

The increase in our income tax provision was primarily due to a $114.6 million increase in pretax income in 2021 compared to 2020 when pretax income was impacted by significantly higher provision for credit losses.

The effective tax rate increased to 18.7 percent in 2021 compared to a nominal negative annual effective tax rate in 2020.

S&T BANCORP, INC.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Return on average tangible shareholders' equity (non-GAAP) 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 Consolidated Statements of Net Income to net income before amortization and intangibles and average shareholder's equity to average tangible shareholders' equity for the periods presented:

Years Ended December 31,

(dollars in thousands) 2022 2021 2020

Net income $ 135,520 $ 110,343 $ 21,040

amortization of intangibles, net of tax 1,199 1,400 2,001

Net income before amortization of intangibles $ 136,719 $ 111,743 $ 23,041

Average shareholders' equity $ 1,181,788 $ 1,186,161 $ 1,169,489

average goodwill and other intangible assets, net of deferred tax liability (378,303) (379,612) (380,846)

Average tangible shareholders' equity $ 803,485 $ 806,549 $ 788,643

Return on Average Tangible Shareholders' Equity (Non-GAAP) 17.02 % 13.85 % 2.92 %

Executive Overview

We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of $9.1 billion at December 31, 2022.

We operate in Pennsylvania and Ohio.

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.

In 2022, we celebrated a great milestone, our 120-year anniversary.

We finished 2022 with two consecutive quarters of record net income and earnings per share and record full year net income and earnings per share.

We are focused on living our purpose of building a better future together through people-forward banking.

Our future at S&T is a world where everything we do daily reflects our purpose and is guided by our values.

Our strategic priorities for 2023 and beyond will be focused on our deposit franchise, core profitability, asset quality and talent and engagement.

Results of Operations

Year Ended December 31, 2022

Earnings Summary

Years ended December 31,

(dollars in thousands) 2022 2021 2020

Net income $ 135,520 $ 110,343 $ 21,040

Earnings per share - diluted $ 3.46 $ 2.81 $ 0.53

Return on average assets 1.48 % 1.18 % 0.23 %

Return on average shareholders' equity 11.47 % 9.30 % 1.80 %

Return on average tangible shareholders' equity (non-GAAP) 17.02 % 13.85 % 2.92 %

We earned record net income of $135.5 million, an increase of $25.2 million or 22.8 percent, compared to net income of $110.3 million in 2021.

Earnings per diluted share increased 23.1 percent to $3.46 in 2022 compared to $2.81 in 2021.The increase in net income was primarily due to higher net interest income related to rising interest rates and a lower provision for credit losses related to improving economic conditions.

Net income in 2020 was impacted by a pre-tax loss of $58.7 million related to a customer fraud resulting from a check kiting scheme.

The fraud was perpetrated by a single business customer and the customer has plead guilty in a criminal investigation.

We continue to pursue all available sources of recovery to mitigate the loss.

Return on average assets increased 30 basis points to 1.48 percent for 2022 compared to 1.18 percent for 2021.

Return on average shareholders' equity increased 217 basis points to 11.47 percent for 2022 compared to 9.30 percent for 2021.

Net interest income increased $39.7 million, or 14.4 percent, to $315.8 million compared to $276.1 million in 2021.

Interest and dividend income increased $51.5 million and interest expense increased $11.8 million compared to 2021.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

interest margin, or NIM, on an FTE basis (non-GAAP) increased 54 basis points to 3.76 percent compared to 3.22 percent 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.

NIM is reconciled to net interest margin adjusted to an FTE basis (non-GAAP) above in the "Explanation of Use of Non-GAAP Financial Measures" section of this MD&A.

The provision for credit losses decreased $7.8 million to $8.4 million for 2022 compared to $16.2 million for 2021.

The decrease in the provision for credit losses during 2022 was mainly due to a reduction in net charge-offs in 2022.

Net loan charge-offs were $2.6 million, or 0.04 percent of average loans, in 2022 compared to $34.5 million, or 0.49 percent of average loans, in 2021.

Noninterest income decreased $6.4 million to $58.3 million compared to $64.7 million in 2021.

Mortgage banking decreased $7.5 million due to a decline in loan sale activity caused by rising interest rates and a shift to holding originated mortgage loans.

Other noninterest income decreased $1.8 million primarily related to a $3.1 million decline in the fair value of assets in a nonqualified benefit plan partially offset by a net gain on the sale of OREO.

Service charges on deposit accounts and debit and credit card fees increased $2.8 million due to increased customer activity.

Noninterest expense increased $7.8 million to $196.7 million compared to $188.9 million in 2021.

Salaries and employee benefits increased $3.0 million primarily due to base rate increases and higher incentives.

Professional and legal increased $2.0 million due to increased consulting engagements compared to 2021.

Marketing increased $1.0 million due to increased marketing efforts.

Other noninterest expense increased $1.8 million in 2022 primarily due to a lease impairment and increased travel and entertainment expenses.

These higher expenses were offset by decreases in FDIC insurance of $1.4 million in 2022 compared to 2021.

The efficiency ratio (non-GAAP) for 2022 improved to 52.34 percent compared to 55.06 percent for 2021.

A reconciliation of the efficiency ratio (non-GAAP) is provided above in the "Explanation of Use of Non-GAAP Financial Measures" section of this MD&A.

The provision for income taxes increased $8.1 million to $33.4 million in 2022 compared to $25.3 million in 2021.

The increase in our income tax provision was primarily due to a $33.3 million increase in pretax income in 2022 compared to 2021.

The effective tax rate increased 1.1 percent to 19.8 percent in 2022 compared to 18.7 percent in 2021.

The increase in the effective tax rate was primarily due to significantly higher income before taxes in 2022 compared to 2021.

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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 and the dividend-received deduction for equity securities.

We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.

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

Years Ended December 31,

(dollars in thousands) 2021 2020 2019

Total interest income $ 289,262 $ 320,464 $ 320,484

Total interest expense 13,150 41,076 73,693

Net interest income per Consolidated Statements of Net Income 276,112 279,388 246,791

Adjustment to FTE basis 2,316 3,202 3,757

Net Interest Income (FTE) (non-GAAP) $ 278,428 $ 282,590 $ 250,548

Net interest margin 3.19 % 3.34 % 3.58 %

Adjustment to FTE basis 0.03 0.04 0.06

Net Interest Margin (FTE) (non-GAAP) 3.22 % 3.38 % 3.64 %

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

As part of our interest rate risk management strategy, we use interest rate swaps to add stability to net interest income by managing our exposure to interest rate movements.

During 2022, we entered into interest rate swaps with a total notional amount of $500.0 million with original maturities ranging from three to five years.

Our strategy is to reduce our exposure to variability in expected future cash flows related to interest payments on commercial loans that are currently indexed to the 1-month LIBOR rate.

Interest rates have increased substantially in 2022 resulting in a loss on the cash flow hedges of $16.8 million which is reported in Other Comprehensive Income (Loss), or OCI, net of applicable taxes.

Average Balance Sheet and Net Interest Income Analysis

The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the years ended December 31:

S&T BANCORP, INC.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

2022 2021 2020

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7,037,470 316,395 4.50 % 7,084,649 272,073 3.84 % 7,410,462 303,211 4.09 %

Federal Home Loan Bank and other restricted stock 10,363 397 3.83 % 18,234 929 5.10 % 21,833 1,642 7.52 %

Total other earning assets 12,694 577 4.54 % 10,363 397 3.83 % 18,234 929 5.10 %

Total Interest-earning Assets 8,445,958 342,804 4.06 % 8,649,372 291,578 3.37 % 8,372,894 323,666 3.87 %

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Total borrowings 149,359 4,501 3.01 % 160,913 2,392 1.49 % 325,471 5,090 1.56 %

Total other costing liabilities 15,163 560 3.69 % — — — % — — — %

Total Interest-bearing Liabilities 5,107,492 24,968 0.49 % 5,453,979 13,150 0.24 % 5,744,770 41,076 0.72 %

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

S&T BANCORP, INC.

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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:

21 unchanged sentences

(904) 45,226 44,322 (12,942) (18,197) (31,139)

Federal Home Loan Bank and other restricted stock (401) (131) (533) (271) (442) (713)

Total other earning assets 89 90 179 (401) (131) (533)

Change in Interest Earned on Interest-earning Assets $ 2,757 $ 48,469 $ 51,226 $ (10,100) $ (21,989) $ (32,089)

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Total borrowings (267) 2,376 2,109 (2,052) (645) (2,697)

Total other costing liabilities $ 560 $ — $ 560 $ — $ — $ —

Change in Interest Paid on Interest-bearing Liabilities $ (1,173) $ 12,991 $ 11,818 $ (5,520) $ (22,406) $ (27,926)

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

Net interest income on an FTE basis (non-GAAP) decreased $4.2 million compared to 2020.

The decline was primarily due to lower average loan balances compared to 2020.

Net interest income was favorably impacted by PPP loans which contributed $17.3 million compared to $11.4 million in 2020.

The net interest margin, or NIM, on an FTE basis (non-GAAP) decreased 16 basis points compared to 2020.

The decrease is primarily due to higher average cash balances and the low interest rate environment.

PPP loans positively impacted the net interest margin on an FTE basis (non-GAAP) by 8 basis points compared to the negative impact of 3 basis points in 2020.

Interest income on an FTE basis (non-GAAP) decreased $32.1 million compared to 2020.

The decrease in interest income was primarily due to lower average loan balances compared to 2020 and the continued low interest rate environment.

Average loan balances decreased $325.8 million compared to 2020.

Net interest income on an FTE basis (non-GAAP) increased $39.4 million, or 14.2 percent, compared to 2021.

The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 54 basis points to 3.76 percent compared to 3.22 percent 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.

NIM on an FTE basis (non-GAAP) was also positively impacted by lower average cash balances.

Average interest-bearing deposits with banks decreased $343.7 million compared to 2021.

Interest income on an FTE basis (non-GAAP) increased $51.2 million compared to 2021.

The increase in interest income was primarily due to higher interest rates partially offset by lower Paycheck Protection Program, or PPP, income.

Average PPP loans decreased $301.7 million compared to 2021.

The average rate earned on loans decreased 25 basis points primarily due to lower short-term interest rates.

Average interest-bearing deposits with banks increased $542.2 million compared to 2020 due to PPP loan forgiveness, lower loan balances and a significant increase in average deposits as a result of customer PPP loans and stimulus payments along with customers' liquidity preferences.

Overall, the FTE rate on interest-earning assets (non-GAAP) decreased 50 basis points compared to 2020.

Interest expense decreased $27.9 million compared to 2020.

The decrease was primarily due to lower short-term interest

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Average interest-bearing deposits decreased $126.2 million compared to 2020.

The average rate paid on interest-bearing deposits decreased 46 basis points compared to 2020 primarily due to lower short-term interest rates.

The interest-bearing deposit decreases are favorably offset by a $521.8 million increase in demand deposits.

We experienced demand deposit growth due to customer PPP loans and stimulus payments along with customers' liquidity preferences.

Brokered deposits decreased $216.0 million and borrowings decreased $164.6 million compared to 2020 due to maturities and a reduced need for wholesale funding.

Overall, the cost of interest-bearing liabilities decreased 48 basis points compared to 2020.

Average loan balances, excluding PPP loans, increased $254.5 million compared to 2021.

The average yield on loans increased 66 basis points compared to 2021 due to higher interest rates.

Average securities increased $185.2 million compared to 2021 due to interest-bearing deposits with banks being redeployed to higher yielding assets.

Average interest-bearing deposits with banks decreased $343.7 million compared to 2021 due to decreased deposit balances and increased securities.

Overall, the FTE rate (non-GAAP) on interest-earning assets increased 69 basis points compared to 2021.

S&T BANCORP, INC.

AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest expense increased $11.8 million compared to 2021.

The increase in interest expense was primarily due to higher interest rates.

Average interest-bearing deposits decreased $350.1 million compared to 2021 due to the competitive market driven by rising interest rates.

The average rate paid on interest-bearing deposits increased 20 basis points due to increased interest rates.

Average demand deposits increased $111.1 million compared to 2021;

however, overall deposit balances were down year-over-year.

Average borrowings decreased $11.6 million compared to 2021 primarily due to the discontinuation of the customer repurchase agreement product and the payoff of a subordinated debt.

Short-term borrowings increased $33.7 million and the average rate paid increased 396 basis points.

Overall, the cost of interest-bearing liabilities increased 25 basis points compared to 2021.

Provision for Credit Losses

The provision for credit losses, which includes a provision for losses on loans and on unfunded loan commitments, is a charge to earnings to maintain the ACL at a level consistent with management's assessment of expected losses in the loan portfolio at the balance sheet date.

The provision for credit losses includes a provision for losses on loans and on unfunded loan commitments.

The provision for credit losses fluctuates based on changes in loan balances, risk ratings, net loan charge-offs and our CECL assumptions.

The provision for credit losses decreased $7.8 million to $8.4 million for 2022 compared to $16.2 million for 2021.

Excluding the customer fraud loss of $58.7 million, the provision for credit losses was $72.7 million for 2020.

The significant decrease in the provision for credit losses during 2021 was mainly due to the customer fraud in 2020 and an improved outlook for the economy and our loan portfolio.

Our total qualitative reserve decreased $7.3 million compared to 2020.

The decrease was primarily due to improved economic conditions offset by additional segment allocations for our healthcare and C&I portfolios along with the increased uncertainty at year-end related to the COVID-19 Omicron variant.

Specific reserves on loans individually assessed decreased $11.7 million to $1.8 million at December 31, 2021 compared to $13.5 million in 2020.

The decrease in specific reserves was the result of approximately $7.8 million of loan charge-offs and the release of $5.7 million of specific reserves due to improved operating performance within our hotel portfolio.

Offsetting this decrease in specific reserve was the addition of a $1.8 million specific reserve related to a $21.7 million C&I relationship that also had a $10.3 million charge-off in 2021 based on an estimated enterprise value of the company.

Net loan charge-offs were $34.5 million, or 0.49 percent of average loans, in 2021 compared to $103.4 million, or 1.40 percent of average loans, during 2020.

Excluding the customer fraud, net loan charge-offs were $44.7 million, or 0.61 percent of average loans in 2020.

The decrease in net loan charge-offs in 2021 was primarily due to improving economic conditions.

The provision for credit losses included $3.0 million for the reserve for unfunded commitments for 2022 compared to $0.7 million for 2021.

The decrease in the provision for credit losses was primarily due to significantly lower net charge-offs in 2022 compared to 2021.

Net loan charge-offs were $2.6 million in 2022 compared to $34.5 million in 2021.

Contributing to the decrease in the provision for credit losses was a $1.7 million reduction in specific reserves on loans individually assessed due to the resolution of a C&I relationship through a note sale which resulted in a $5.5 million charge-off during the second quarter of 2022.

Offsetting the decrease in provision for credit losses during 2022 was a $2.3 million increase in the provision for unfunded loan commitments primarily due to an increase in loss rates and unused commitments in the construction portfolio.

Refer to the Credit Quality section of this MD&A for further details.

2 unchanged sentences

(dollars in thousands) 2022 2021 $ Change % Change

Securities gains, net $ 198 $ 29 $ 169 582.8 %

Debit and credit card 19,008 17,952 1,056 5.9 %

2 unchanged sentences

Mortgage banking 2,215 9,734 (7,519) (77.2) %

Commercial loan swap income 1,146 4,740 (3,594) (75.8) %

Securities gains, net $ 29 $ 142 $ (113) (79.6) %

Other 7,292 9,052 (1,760) (19.4) %

Total Noninterest Income $ 58,259 $ 64,696 $ (6,437) (9.9) %

Noninterest income increased $4.9 million, or 8.2 percent, in 2021 compared to 2020.

Wealth management fees increased $2.9 million compared to the prior year.

Brokerage fees increased $1.6 million primarily due to the addition of six new financial advisors added during 2021.

Trust income increased $1.3 million mainly due to new customer growth resulting in higher assets under management and improved market conditions.

Debit and credit card fees increased $2.9 million due to increased debit and credit card usage.

Other noninterest income increased $2.6 million due to a $1.4 million change in the credit valuation adjustment for our commercial loan swaps for risk associated with our hotel loan portfolio, a $0.8 million change in the equity securities portfolio and a $0.5 million change in the valuation of a deferred compensation plan, which has a corresponding offset in salaries and benefit expense resulting in no impact to net income.

Service charges on deposit accounts increased $1.4 million due to the improving economic environment which drove higher customer activity.

Commercial loan swap income decreased $3.6 million due to the lower customer activity related to the pandemic and interest rate environment.

Mortgage banking decreased $1.2 million due to changes in the valuation of the mortgage interest rate locks offset by an improved mortgage servicing rights valuation compared to 2020.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Noninterest income decreased $6.4 million to $58.3 million compared to $64.7 million in 2021.

Mortgage banking decreased $7.5 million due to a decline in loan sale activity caused by rising interest rates and a shift to holding originated mortgage loans.

Other noninterest income decreased $1.8 million primarily related to a $3.1 million decline in the fair value of assets in a nonqualified benefit plan, which has a corresponding offset in salaries and benefits resulting in no impact to net income, partially offset by a net gain on the sale of OREO.

Service charges on deposit accounts increased $1.8 million and debit and credit card fees increased $1.1 million due to increased customer activity.

S&T BANCORP, INC.

AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Noninterest Expense

5 unchanged sentences

Furniture, equipment and software 11,606 10,684 922 8.6 %

Other taxes 6,644 6,622 22 0.3 %

Professional services and legal 8,318 6,368 1,950 30.6 %

Marketing 4,553 5,996 (1,443) (24.1) %

Other taxes 6,620 6,644 (24) (0.4) %

FDIC insurance 2,854 4,224 (1,370) (32.4) %

Merger-related expenses — 2,342 (2,342) NM

Marketing 5,600 4,553 1,047 23.0 %

Other 26,797 25,013 1,784 7.1 %

Total Other Noninterest Expense $ 196,746 $ 188,925 $ 7,821 4.1 %

NM - percentage not meaningful

Noninterest expense increased $2.2 million, or 1.2 percent, to $188.8 million in 2021 compared to 2020.

Total merger-related expense decreased $2.3 million compared to 2020 due to no merger during 2021.

Salaries and employee benefits increased $10.1 million during 2021 primarily due to higher incentive, restricted stock, commissions and pension expense due to an increase in retirees electing lump-sum distributions.

Data processing and information technology increased $1.2 million due to new products and services in 2021.

Offsetting these increases, other noninterest expense decreased $4.1 million due to lower loan related expenses and lower amortization of both our qualified affordable housing projects and core deposit intangible assets.

Marketing expense decreased $1.4 million due to the pandemic and a reduction in promotions.

FDIC insurance decreased $0.9 million due to the improvement of the financial ratios used to determine the assessment.

The provision for income taxes increased to $25.3 million in 2021 compared to nearly zero for 2020.

The increase in our income tax provision was primarily due to a $114.6 million increase in income before taxes in 2021 compared to 2020 when income before taxes was impacted by a customer fraud of $58.7 million.

The effective tax rate, which is total tax expense as a percentage of income before taxes, increased to 18.7 percent in 2021 compared to a nominal negative annual effective tax rate in 2020.

Noninterest expense increased $7.8 million to $196.7 million compared to $188.9 million in 2021.

Salaries and employee benefits increased $3.0 million during 2022 primarily due to base rate increases and higher incentives offset by a change in the fair value of assets in a nonqualified benefit plan.

Professional services and legal increased $2.0 million due to higher consulting expense compared to 2021.

Marketing expense increased $1.0 million due to increased marketing efforts and timing of various promotions.

Other noninterest expense increased $1.8 million primarily due to a lease impairment and increased travel and entertainment expenses.

FDIC insurance expense decreased $1.4 million due to a lower assessment base and improvements in the components used to determine the assessment.

The provision for income taxes increased to $33.4 million in 2022 compared to $25.3 million for 2021.

The increase in our income tax provision was primarily due to a $33.3 million increase in income before taxes in 2022 compared to 2021.

The effective tax rate, which is total tax expense as a percentage of income before taxes, increased to 19.8 percent in 2022 compared to 18.7 percent in 2021.

The increase in the effective tax rate was primarily due to significantly higher income before taxes in 2022 compared to 2021.

Historically, we have generated an annual effective tax rate that is less than the statutory rate of 21 percent due to benefits resulting from tax-exempt interest, excludable dividend income, tax-exempt income on Bank Owned Life Insurance, or BOLI, and tax benefits associated with Low Income Housing Tax Credits, or LIHTC.

We have generated an annual effective tax rate that is less than the statutory rate of 21 percent due to benefits resulting from tax-exempt interest, excludable dividend income, tax-exempt income on Bank Owned Life Insurance, or BOLI, and tax benefits associated with Low Income Housing Tax Credits, or LIHTC.

Results of Operations

Year Ended December 31, 2021

COVID-19 Pandemic Update

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law.

It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic.

The CARES Act included the Paycheck Protection Program, or PPP, a $349 billion program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks.

The PPP and Health Care Enhancement Act, or PPP/HCEA, was signed into law on April 24, 2020.

The PPP/HCEA authorized an additional $310 billion of funding under the CARES Act for PPP loans among other provisions.

The PPP ended on May 31, 2021.

We originated $771.5 million of PPP loans during 2020 and 2021.

PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted expenses in accordance with the requirements of the PPP.

These loans carry a fixed rate of 1.00 percent and a term of two years, or five years for loans approved by the SBA, on or after June 5, 2020.

Payments are deferred for at least six months of the loan.

The loans are 100 percent guaranteed by the SBA.

We increased our ACL in 2021 to be responsive to the additional risk related to the COVID-19 pandemic.

We did experience improvement in our asset quality during 2021, but remain cautious given the current environment.

The hotel portfolio improved in the second half of 2021 with $34.0 million of loans being returned to performing status due to improved operating performance.

Our balance sheet is asset sensitive resulting in our net interest income and net interest margin, or NIM, being negatively impacted in this low interest rate environment.

Loan demand was challenging in the first half of 2021, but we saw growth trends improving late in the second quarter and for the third and fourth quarter of 2021.

Net interest income was favorably impacted by PPP loans which contributed to net interest income $17.3 million for 2021 and $11.4 million for 2020.

S&T BANCORP, INC.

AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

• We provided needs-based payment deferrals and modifications to interest only periods to commercial loans during 2020 and 2021 totaling $995.7 million.

Only $28.8 million remain on deferral at December 31, 2021.

• We provided loan payment deferrals, with no negative credit bureau reporting, to mortgage and consumer loans during 2020 and 2021 totaling $81.6 million.

No loans remain on deferral at December 31, 2021.

None of these were designated troubled debt restructurings, or TDRs, for accounting purposes.

Earnings Summary

Net income decreased $77.2 million, or 78.6 percent, to $21.0 million, or $0.53 per diluted share, in 2020 compared to $98.2 million, or $2.82 per diluted share in 2019.

Net income in 2020 was significantly impacted by a $46.3 million after-tax, or $1.19 per diluted share, fraud loss.

The 2019 results included $11.4 million, or $0.27 per diluted share, of merger related expenses.

The DNB Merger results have been included in our financial statements since the consummation of the DNB Merger on November 30, 2019.

Net interest income increased $32.6 million, or 13.2 percent, to $279.4 million compared to $246.8 million in 2019 primarily due to the merger with DNB in late 2019.

Average interest-earnings assets increased $1.5 billion, or 21.6 percent, to $8.4 billion compared to 2019.

Average interest-bearing liabilities increased $862.2 million, or 17.7 percent, to $5.7 billion compared to 2019 with increases in average interest-bearing deposits of $923.1 million offset by decreases in borrowings of $61.0 million.

Net interest margin, on a fully taxable-equivalent, or FTE, basis (non-GAAP), decreased 26 basis points to 3.38 percent for 2020 compared to 3.64 percent for 2019.

Net interest margin is reconciled to net interest income adjusted to an FTE basis above in the "Results of Operations - Year Ended December 31, 2021 -Net Interest Income" section of this MD&A.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Net income increased $89.3 million to $110.3 million, or $2.81 per diluted share, in 2021 compared to $21.0 million, or $0.53 per diluted share in 2020.

We experienced a pre-tax loss of $58.7 million related to a customer fraud resulting from a check kiting scheme during 2020.