S&T BANCORP INC 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements Consolidated Balance Sheets 57 Consolidated Statements of Net Income 58 Consolidated Statements of Comprehensive Income 59 Consolidated Statements of Changes in Shareholders’ Equity 60 Consolidated Statements of Cash Flows 61 Notes to Consolidated Financial Statements 63 Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (PCAOB ID: 42 ) 111 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 113 56 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ( in thousands, except share and per share data) 2022 2021 ASSETS Cash and due from banks, including interest-bearing deposits of $ 138,149 and $ 857,192 at December 31, 2022 and December 31, 2021 $ 210,009 $ 922,215 Securities, at fair value 1,002,778 910,793 Loans held for sale 16 1,522 Portfolio loans, net of unearned income 7,183,969 6,999,990 Allowance for credit losses ( 101,340 ) ( 98,576 ) Portfolio loans, net 7,082,629 6,901,414 Bank owned life insurance 85,185 83,685 Premises and equipment, net 49,285 52,632 Federal Home Loan Bank and other restricted stock, at cost 23,035 9,519 Goodwill 373,424 373,424 Other intangible assets, net 5,378 6,895 Other assets 278,828 226,430 Total Assets $ 9,110,567 $ 9,488,529 LIABILITIES Deposits: Noninterest-bearing demand $ 2,588,692 $ 2,748,586 Interest-bearing demand 846,653 979,133 Money market 1,731,521 2,070,579 Savings 1,118,511 1,110,155 Certificates of deposit 934,593 1,088,071 Total Deposits 7,219,970 7,996,524 Short-term borrowings 370,000 84,491 Long-term borrowings 14,741 22,430 Junior subordinated debt securities 54,453 54,393 Other liabilities 266,744 124,237 Total Liabilities 7,925,908 8,282,075 SHAREHOLDERS’ EQUITY Common stock ($ 2.50 par value) Authorized— 50,000,000 shares Issued— 41,449,444 shares at December 31, 2022 and December 31, 2021 Outstanding— 38,999,733 shares at December 31, 2022 and 39,351,194 shares at December 31, 2021 103,623 103,623 Additional paid-in capital 406,283 403,095 Retained earnings 863,948 773,659 Accumulated other comprehensive loss ( 112,125 ) ( 7,090 ) Treasury stock — 2,449,711 shares at December 31, 2022 and 2,098,250 shares at December 31, 2021, at cost ( 77,070 ) ( 66,833 ) Total Shareholders’ Equity 1,184,659 1,206,454 Total Liabilities and Shareholders’ Equity $ 9,110,567 $ 9,488,529 See Notes to Consolidated Financial Statements 57 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF NET INCOME Years ended December 31, (dollars in thousands, except per share data) 2022 2021 2020 INTEREST AND DIVIDEND INCOME Loans, including fees $ 314,866 $ 270,460 $ 300,960 Investment securities: Taxable 23,743 15,706 14,918 Tax-exempt 1,579 2,593 3,497 Dividends 563 503 1,089 Total Interest and Dividend Income 340,751 289,262 320,464 INTEREST EXPENSE Deposits 19,907 10,757 35,986 Borrowings, junior subordinated debt securities and other 5,061 2,393 5,090 Total Interest Expense 24,968 13,150 41,076 NET INTEREST INCOME 315,783 276,112 279,388 Provision for credit losses 8,366 16,215 131,424 Net Interest Income After Provision for Credit Losses 307,417 259,897 147,964 NONINTEREST INCOME Net gain on sale of securities 198 29 142 Debit and credit card 19,008 17,952 15,093 Service charges on deposit accounts 16,829 15,040 13,597 Wealth management 12,717 12,889 9,957 Mortgage banking 2,215 9,734 10,923 Other 7,292 9,052 10,034 Total Noninterest Income 58,259 64,696 59,746 NONINTEREST EXPENSE Salaries and employee benefits 103,221 100,214 90,115 Data processing and information technology 16,918 16,681 15,499 Occupancy 14,812 14,544 14,529 Furniture, equipment and software 11,606 10,684 11,050 Professional services and legal 8,318 6,368 6,394 Other taxes 6,620 6,644 6,622 Marketing 5,600 4,553 5,996 FDIC insurance 2,854 4,224 5,089 Merger related expenses — — 2,342 Other 26,797 25,013 29,035 Total Noninterest Expense 196,746 188,925 186,671 Income Before Taxes 168,930 135,668 21,039 Income tax expense (benefit) 33,410 25,325 ( 1 ) Net Income $ 135,520 $ 110,343 $ 21,040 Earnings per common share—basic $ 3.47 $ 2.81 $ 0.54 Earnings per common share—diluted $ 3.46 $ 2.81 $ 0.53 Dividends declared per common share $ 1.20 $ 1.13 $ 1.12 See Notes to Consolidated Financial Statements 58 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31, (dollars in thousands) 2022 2021 2020 Net Income $ 135,520 $ 110,343 $ 21,040 Available-for-Sale Debt Securities Net change in unrealized gains (losses) on available-for-sale debt securities ( 111,539 ) ( 23,972 ) 22,683 Tax effect 23,805 5,115 ( 4,827 ) Net available-for-sale securities gains reclassified into earnings (1) ( 198 ) — — Tax effect 42 — — Net effect on other comprehensive income $ ( 87,890 ) $ ( 18,857 ) $ 17,856 Interest Rate Swaps Net change in fair value of interest rate swaps ( 21,459 ) — — Tax effect 4,581 — — Net interest rate swap losses reclassified into earnings (2) 91 — — Tax effect ( 19 ) — — Net effect on other comprehensive income $ ( 16,806 ) $ — $ — Employee Benefit Plans Adjustment to funded status of employee benefit plans ( 2,526 ) 363 792 Tax effect 608 ( 78 ) ( 171 ) Net employee benefit plan (gains) losses reclassified into earnings (3) 2,080 3,198 2,757 Tax effect ( 501 ) ( 687 ) ( 593 ) Net effect on other comprehensive income $ ( 339 ) $ 2,796 $ 2,785 Other Comprehensive Income (Loss) $ ( 105,035 ) $ ( 16,061 ) $ 20,641 Comprehensive Income $ 30,485 $ 94,282 $ 41,681 (1) Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been recorded in net gain on sale of securities in the Consolidated Statements of Net Income. (2) Reclassification adjustments have been recorded in interest income in the Consolidated Statements of Net Income. (3) Reclassification adjustments are comprised of realized actuarial gains or losses and settlement charges. These gains or losses and settlement charges have been recorded in salaries and employee benefits in the Consolidated Statements of Net Income. See Notes to Consolidated Financial Statements 59 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (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 December 31, 2019 $ 103,623 $ 399,944 $ 761,083 $ ( 11,670 ) $ ( 60,982 ) $ 1,191,998 Net income for 2020 — — 21,040 — — 21,040 Other comprehensive income, net of tax — — — 20,641 — 20,641 Impact of adoption of CECL — — ( 22,590 ) — ( 22,590 ) Cash dividends declared ($ 1.12 ) — — ( 43,949 ) — — ( 43,949 ) Treasury stock issued for restricted stock awards ( 230,703 shares) — — ( 7,361 ) — 7,361 — Forfeitures of restricted stock awards ( 81,570 shares) — — 1,838 — ( 2,432 ) ( 594 ) Repurchase of S&T Stock ( 411,430 shares) — — — — ( 12,559 ) ( 12,559 ) Recognition of restricted stock compensation expense — 724 — — — 724 Balance at December 31, 2020 $ 103,623 $ 400,668 $ 710,061 $ 8,971 $ ( 68,612 ) $ 1,154,711 Net income for 2021 — — 110,343 — — 110,343 Other comprehensive loss, net of tax — — — ( 16,061 ) — ( 16,061 ) Cash dividends declared ($ 1.13 per share) — — ( 44,336 ) — — ( 44,336 ) Treasury stock issued for restricted stock awards ( 130,670 shares) — — ( 4,163 ) — 4,163 — Forfeitures of restricted stock awards ( 77,483 shares) — — 1,754 — ( 2,384 ) ( 630 ) Recognition of restricted stock compensation expense — 2,427 — — — 2,427 Balance at December 31, 2021 $ 103,623 $ 403,095 $ 773,659 $ ( 7,090 ) $ ( 66,833 ) $ 1,206,454 Net income for 2022 — — 135,520 — — 135,520 Other comprehensive loss, net of tax — — — ( 105,035 ) — ( 105,035 ) Cash dividends declared ($ 1.20 per share) — — ( 47,023 ) — — ( 47,023 ) Treasury stock issued for restricted stock awards ( 4,250 shares) — — ( 135 ) — 135 — Forfeitures of restricted stock awards ( 87,208 shares) — — 1,927 — ( 2,735 ) ( 808 ) Repurchase of S&T Stock ( 268,503 shares) — — — — ( 7,637 ) ( 7,637 ) Recognition of restricted stock compensation expense — 3,188 — — — 3,188 Balance at December 31, 2022 $ 103,623 $ 406,283 $ 863,948 $ ( 112,125 ) $ ( 77,070 ) $ 1,184,659 See Notes to Consolidated Financial Statements 60 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, (dollars in thousands) 2022 2021 2020 OPERATING ACTIVITIES Net Income $ 135,520 $ 110,343 $ 21,040 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 8,366 16,215 131,424 Depreciation and amortization 9,027 11,480 12,066 Net amortization of discounts and premiums 6,062 5,482 4,205 Stock-based compensation expense 3,188 2,427 724 Securities (gains) losses ( 198 ) ( 29 ) ( 142 ) Deferred income taxes ( 2,932 ) 2,383 ( 4,402 ) Loss (gain) on sale of fixed assets 61 30 ( 23 ) Gain on sale and fair value adjustments of other real estate owned, net ( 3,119 ) 420 108 Gain on the sale of loans, net ( 1,229 ) ( 8,856 ) ( 8,998 ) Pension contribution — — ( 115 ) Net change in: Mortgage loans originated for sale ( 35,848 ) ( 286,257 ) ( 361,704 ) Proceeds from sale of mortgage loans 38,583 311,479 357,613 Net (increase) decrease in interest receivable ( 10,033 ) 3,561 ( 2,560 ) Net increase (decrease) in interest payable 2,901 ( 2,087 ) ( 3,178 ) Net (increase) decrease in other assets ( 24,628 ) 83,830 ( 144,898 ) Net increase (decrease) in other liabilities 114,713 ( 35,569 ) 50,392 Net Cash Provided by Operating Activities 240,434 214,852 51,552 INVESTING ACTIVITIES Purchases of securities ( 401,054 ) ( 313,617 ) ( 178,389 ) Proceeds from maturities, prepayments and calls of securities 160,830 144,905 205,606 Proceeds from sales of securities 30,490 1,917 1,349 Purchases of Federal Home Loan Bank stock ( 48,272 ) ( 22,515 ) ( 33,755 ) Proceeds from redemption of Federal Home Loan Bank stock 34,757 26,026 43,702 Net (increase) decrease in loans ( 192,403 ) 173,401 ( 194,768 ) Proceeds from the sale of portfolio loans 8,024 5,107 547 Purchases of premises and equipment ( 3,863 ) ( 3,611 ) ( 5,416 ) Proceeds from the sale of premises and equipment 161 14 23 Proceeds from sale of other real estate owned 12,529 1,259 1,899 Proceeds from settlement of bank owned life insurance 214 353 — Net Cash Provided by (Used in) Investing Activities ( 398,587 ) 13,239 ( 159,202 ) FINANCING ACTIVITIES Net (decrease) increase in core deposits ( 623,076 ) 875,378 591,932 Net (decrease) in certificates of deposit ( 153,400 ) ( 299,292 ) ( 207,106 ) Net (decrease) increase in securities sold under repurchase agreements ( 84,491 ) 19,328 45,275 Net increase (decrease) in short-term borrowings 370,000 ( 75,000 ) ( 206,319 ) Repayments of long-term borrowings ( 7,689 ) ( 11,001 ) ( 27,187 ) Repurchase of shares for taxes on restricted stock ( 808 ) ( 630 ) ( 594 ) Repurchase of S&T stock ( 7,637 ) — ( 12,559 ) Cash dividends paid to common shareholders ( 46,952 ) ( 44,325 ) ( 43,949 ) Net Cash Provided by Financing Activities ( 554,053 ) 464,458 139,493 Net (decrease) increase in cash and cash equivalents ( 712,206 ) 692,549 31,843 Cash and cash equivalents at beginning of year 922,215 229,666 197,823 Cash and Cash Equivalents at End of Year $ 210,009 $ 922,215 $ 229,666 61 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, (dollars in thousands) 2022 2021 2020 Supplemental Disclosures Cash paid for interest $ 22,068 $ 15,236 $ 44,353 Cash paid for income taxes, net of refunds $ 31,175 $ 24,213 $ 6,231 Loans transferred to held for sale $ — $ 4,467 $ 640 Leased right-of-use operating assets and lease liabilities added to Balance Sheet $ — $ 2,987 $ 91 Transfers to other real estate owned and other repossessed assets $ 23 $ 12,392 $ 631 See Notes to Consolidated Financial Statements 62 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations S&T Bancorp, Inc., or S&T, was incorporated on March 17, 1983 under the laws of the Commonwealth of Pennsylvania as a bank holding company and has five active direct wholly owned subsidiaries, S&T Bank, 9th Street Holdings, Inc., STBA Capital Trust I, DNB Capital Trust I and DNB Capital Trust II, and owns a 50 percent interest in Commonwealth Trust Credit Life Insurance Company, or CTCLIC. We are presently engaged in non-banking activities through the following six entities: 9th Street Holdings, Inc.; S&T Bancholdings, Inc.; CTCLIC; S&T Insurance Group, LLC; Stewart Capital Advisors, LLC; DN Acquisition Company, Inc. Our investment holding companies are 9th Street Holdings, Inc. and S&T Bancholdings, Inc. CTCLIC, which is a joint venture with another financial institution, acts as a reinsurer of credit life, accident and health insurance policies sold by S&T Bank and the other institution. S&T Insurance Group, LLC, through its subsidiaries, offers a variety of insurance products. Stewart Capital Advisors, LLC is a registered investment advisor that manages private investment accounts for individuals and institutions. DN Acquisition Company, Inc. was acquired with the DNB merger and was incorporated for the purpose of acquiring and holding Other Real Estate Owned, or OREO, acquired through foreclosure or deed in-lieu-of foreclosure, as well as Bank-occupied real estate. Accounting Policies Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as disclosures of contingent assets and liabilities as of the dates of the balance sheets and revenues and expenses for the periods then ended. Actual results could differ from those estimates. Our significant accounting policies are described below. Principles of Consolidation The consolidated financial statements include the accounts of 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. Reclassification Amounts in prior years' financial statements and footnotes are reclassified whenever necessary to conform to the current year’s presentation. Reclassifications had no effect on our results of operations or financial condition. Business Combinations We account for business combinations using the acquisition method of accounting. All identifiable assets acquired, liabilities assumed and any non-controlling interest in the acquiree are recognized and measured as of the acquisition date at fair value. We record goodwill for the excess of the purchase price over the fair value of net assets acquired. Results of operations of the acquired entities are included in the Consolidated Statement of Net Income from the date of acquisition. Acquired loans are recorded at fair value on the date of acquisition with no carryover of the related allowance for credit losses, or ACL. Determining the fair value of acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. In estimating the fair value of our acquired loans, we considered a number of factors including loss rates, internal risk rating, delinquency status, loan type, loan term, prepayment rates, recovery periods and the current interest rate environment. The premium or discount estimated through the loan fair value calculation is recognized into interest income on a level yield basis over the remaining life of the loans. Acquired loans, including those acquired in a business combination, are evaluated to determine if they have experienced more-than-insignificant deterioration in credit quality since origination. When the condition exists, these loans are referred to as purchased credit deteriorated, or PCD. An allowance is recognized for a PCD loan by adding it to the purchase price or fair value in a business combination. There is no provision for credit losses, or PCL, recognized upon acquisition of a PCD loan since the initial allowance is established through the purchase accounting. After initial recognition, the accounting for a PCD loan follows the credit loss model that applies to that type of asset. Purchased financial loans that do not have a more-than-significant deterioration in credit quality since origination are accounted for in a manner consistent with originated loans. An ACL is recorded with a corresponding charge to PCL. Subsequent to the acquisition date, the methods utilized to estimate the required ACL for these loans is similar to the method used for originated loans. 63 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value Measurements We use fair value measurements when recording and disclosing certain financial assets and liabilities. Available-for-sale debt securities, equity securities, trading securities held in a deferred compensation plan 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, 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 we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances. The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets. Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data. Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our policy is to recognize transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred. The following are descriptions of the valuation methodologies that we use for financial instruments recorded at fair value on either a recurring or nonrecurring basis. Recurring Basis Available-for-Sale Debt Securities We obtain fair values for debt securities from a third-party pricing service which utilizes several sources for valuing fixed-income securities. We validate prices received from our pricing service through comparison to a secondary pricing service and broker quotes. We review the methodologies of the pricing services which provide us with a sufficient understanding of the valuation models, assumptions, inputs and pricing to reasonably measure the fair value of our debt securities. The fair value of U.S. treasury securities are based on quoted market prices in active markets and are classified as Level 1. The market valuation sources for other debt securities include observable inputs rather than significant unobservable inputs and are classified as Level 2. The service provider utilizes pricing models that vary by asset class and include available trade, bid and other market information. Equity Securities Marketable equity securities with quoted prices in active markets for identical assets are classified as Level 1. Marketable equity securities in markets that are not active are classified as Level 2. Securities Held in a Deferred Compensation Plan Securities Held in a Deferred Compensation Plan are reported at fair value with the gains and losses included in other noninterest income in our Consolidated Statements of Net Income. These assets are held in a deferred compensation plan and are invested in readily quoted mutual funds. Accordingly, these assets are classified as Level 1. Deferred compensation plan assets are reported in other assets in the Consolidated Balance Sheets. 64 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivative Financial Instruments We use derivative instruments, including interest rate swaps that qualify as cash flow hedges, interest rate swaps for commercial loans with our customers, interest rate lock commitments and forward commitments related to the sale of mortgage loans in the secondary market. We calculate the fair value for derivatives using accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. Each valuation considers the contractual terms of the derivative, including the period to maturity, and uses observable market-based inputs, such as interest rate curves and implied volatilities. We incorporate credit valuation adjustments into the valuation models to appropriately reflect both our own nonperformance risk and the respective counterparties’ nonperformance risk in calculating fair value measurements. We consider the impact of master netting agreements and collateral postings with our counterparties to determine the credit valuation adjustment. Interest rate swaps are classified as Level 2. Interest rate lock commitments and forward commitments related to mortgage loans are classified as Level 3 due to significant unobservable inputs. Nonrecurring Basis Loans Held for Sale Loans held for sale consist of 1-4 family residential loans originated for sale in the secondary market and, from time to time, certain loans transferred from the loan portfolio to loans held for sale, all of which are carried at the lower of cost or fair value. The fair value of 1-4 family residential loans, when marked to fair value, is based on the principal or most advantageous market currently offered for similar loans using observable market data. Loans held for sale marked to fair value are classified as Level 2 if the fair value is determined using a sales or market approach and Level 3 if the fair value is determined using an income approach. Loans Individually Evaluated Loans that are individually evaluated to determine whether a specific allocation of ACL is needed are reported at the lower of amortized cost or fair value. Fair value is determined using either the loan’s observable market price or the fair value of the collateral less estimated selling costs when the loan is collateral dependent and we expect to liquidate the collateral. However, if repayment is expected to come from the operation of the collateral, rather than liquidation, then we do not consider estimated selling costs in determining the fair value of the collateral. Collateral values are generally based upon appraisals by approved, independent state certified appraisers. Appraisals may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or our knowledge of the borrower and the borrower’s business. If the fair value of loans individually evaluated is determined based on an independent market based appraisal less estimated costs to sell, it is classified as Level 2. If the fair value of loans individually evaluated is determined using an internal valuation, it is classified as Level 3. OREO and Other Repossessed Assets OREO and other repossessed assets obtained in partial or total satisfaction of a loan are recorded at the lower of recorded investment in the loan or fair value less cost to sell. Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition date or fair value less cost to sell. Accordingly, it may be necessary to record nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Appraisals on OREO may be discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. If the fair value for OREO is determined based on an independent market-based appraisal less estimated costs to sell or an executed sales agreement, it is classified as Level 2. If the fair value for OREO is determined using an internal valuation, it is classified as Level 3. Mortgage Servicing Rights MSRs are reported using the amortization method and are evaluated for impairment quarterly by comparing the carrying value to the fair value of the MSRs. The fair value of MSRs is determined by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. MSRs are considered impaired if the carrying value exceeds fair value. The valuation model includes significant unobservable inputs; therefore, MSRs are classified as Level 3 when marked to fair value. 65 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Financial Instruments Fair value accounting guidance requires disclosure of the fair value of all of an entity’s assets and liabilities that are considered financial instruments. The majority of our assets and liabilities are considered financial instruments. Many of these instruments lack an available trading market as characterized by a willing buyer and willing seller engaged in an exchange transaction. Also, it is our general practice and intent to hold our financial instruments to maturity and to not engage in trading or sales activities with respect to such financial instruments. For fair value disclosure purposes, we substantially utilize the fair value measurement criteria as required and explained above. In cases where quoted fair values are not available, we use present value methods to determine the fair value of our financial instruments. Cash and Cash Equivalents The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks, including interest-bearing deposits approximate fair value. Loans Our methodology to fair value loans includes an exit price notion. The fair value of variable rate loans that may reprice frequently at short-term market rates is based on carrying values adjusted for liquidity and credit risk. The fair value of variable rate loans that reprice at intervals of one year or longer, such as adjustable rate mortgage products, is estimated using discounted cash flow analyses that utilize interest rates currently being offered for similar loans and adjusted for liquidity and credit risk. The fair value of fixed rate loans is estimated using a discounted cash flow analysis that utilizes interest rates currently being offered for similar loans adjusted for liquidity and credit risk. The valuation models include significant unobservable inputs; therefore, loans are classified as Level 3. The carrying amount of interest receivable approximates fair value. Federal Home Loan Bank, or FHLB, and Other Restricted Stock It is not practical to determine the fair value of our FHLB and other restricted stock due to the restrictions placed on the transferability of these stocks; it is presented at carrying value. Collateral Receivable Collateral receivable is cash that is made available to counterparties as collateral for our interest rate swaps. The carrying amount included in other assets on our Consolidated Balance Sheets approximates fair value. Deposits The fair values disclosed for deposits without defined maturities (e.g., noninterest and interest-bearing demand, money market and savings accounts) are by definition equal to the amounts payable on demand. Deposits without defined maturities are classified as Level 1. The carrying amounts for variable rate, fixed-term time deposits approximate their fair values. Estimated fair values for fixed rate and other time deposits are based on discounted cash flow analysis using interest rates currently offered for time deposits with similar terms. Fixed rate and other time deposits are classified as Level 2. The carrying amount of accrued interest approximates fair value. Short-Term Borrowings The carrying amounts of securities sold under repurchase agreements, or REPOs, and other short-term borrowings approximate their fair values. Fair values are based on observable inputs in a secondary market; therefore, these are classified as Level 2. Long-Term Borrowings The fair values disclosed for fixed rate long-term borrowings are determined by discounting their contractual cash flows using current interest rates for long-term borrowings of similar remaining maturities. The carrying amounts of variable rate long-term borrowings approximate their fair values. Fair values are based on observable inputs in a secondary market; therefore, these are classified as Level 2. 66 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Junior Subordinated Debt Securities The interest rate on the variable rate junior subordinated debt securities is reset quarterly; therefore, the carrying values approximate their fair values. Fair values are based on observable inputs in a secondary market; therefore, these are classified as Level 2. Collateral Payable Collateral payable is cash that is received from counterparties as collateral for our interest rate swaps. The carrying amount included in other liabilities on our Consolidated Balance Sheets approximates fair value. Cash and Cash Equivalents We consider cash and due from banks, interest-bearing deposits with banks and federal funds sold as cash and cash equivalents. Securities We determine the appropriate classification of securities at the time of purchase. Debt securities are classified as available-for-sale with the intent to hold for an indefinite period of time, but may be sold in response to changes in interest rates, prepayment risk, liquidity needs or other factors. A determination will be made on whether a decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors. Any impairment that is not credit related is recognized in OCI, net of applicable taxes. Credit-related impairment is recognized as an ACL on the balance sheet with a corresponding adjustment to provision for credit losses in the Consolidated Statements of Net Income. Both the allowance and the adjustment to net income can be reversed if conditions change. Our policy for credit impairment within the debt securities portfolio is based upon a number of factors, including but not limited to, the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations, the likelihood of the security’s ability to recover any decline in its estimated fair value and whether management intends to sell the security or if it is more likely than not that management will be required to sell the investment security prior to the security’s recovery of any decline in its estimated fair value. Realized gains and losses on the sale of these securities are determined using the specific-identification method and are recorded within noninterest income in the Consolidated Statements of Net Income. Bond premiums are amortized to the call date, if any, and bond discounts are accreted to the maturity date, both on a level yield basis. Equity securities are measured at fair value with net unrealized gains and losses recognized in other noninterest income in the Consolidated Statements of Net Income. Loans Held for Sale Loans held for sale consist of 1-4 family residential loans originated for sale in the secondary market and, from time to time, certain loans transferred from the loan portfolio to loans held for sale, all of which are carried at the lower of cost or fair value. If a loan is transferred from the loan portfolio to the held for sale category, any write-down in the carrying amount of the loan at the date of transfer is recorded as a charge-off against the ACL. Subsequent declines in fair value are recognized as a charge to other noninterest income. When a loan is placed in the held for sale category, we stop amortizing the related deferred fees and costs. The remaining unamortized fees and costs are recognized as part of the cost basis of the loan at the time it is sold. Gains and losses on sales of mortgage loans held for sale are included in mortgage banking in noninterest income in the Consolidated Statements of Net Income. Loans Loans are reported at the principal amount outstanding net of unearned income. Unearned income consists of net deferred loan fees and costs and a discount or premium related to purchase accounting fair value adjustments. We defer certain nonrefundable loan origination and commitment fees. Accretion of discounts and amortization of premiums on loans are included in interest income in the Consolidated Statements of Net Income. Loan origination fees and direct loan origination costs are deferred and amortized as an adjustment of loan yield over the lives of the loans without consideration of anticipated prepayments. If a loan is paid off, the remaining unaccreted or unamortized net origination fees and costs are immediately recognized into income or expense. Interest is accrued and interest income is recognized on loans as earned. Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments. Other multi-payment obligations with payments scheduled other than monthly are reported past due when one scheduled payment is due and unpaid for 30 days 67 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS or more. Generally, consumer loans are charged off against the ACL upon the loan reaching 90 days past due. Commercial loans are charged off as management becomes aware of facts and circumstances that raise doubt as to the collectability of all or a portion of the principal and when we believe a confirmed loss exists. Nonaccrual Loans We stop accruing interest on a loan when the borrower’s payment is 90 days past due. Loans are also placed on nonaccrual status when we have doubt about the borrower’s ability to comply with contractual repayment terms, even if payment is not past due. When the interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. As a general rule, a nonaccrual loan may be restored to accrual status when its principal and interest is paid current and the bank expects repayment of the remaining contractual principal and interest, or when the loan otherwise becomes well secured and in the process of collection. Troubled Debt Restructurings Troubled debt restructurings, or TDRs, are loans where we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. We strive to identify borrowers with financial difficulty early and work with them to come to a mutual resolution to modify the terms of their loan before the loan reaches nonaccrual status. These modified terms generally include extensions of maturity dates at a stated interest rate lower than the current market rate for new debt with similar risk characteristics, reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered insignificant. Additionally, we classify loans where the debt obligation has been discharged through a Chapter 7 Bankruptcy and not reaffirmed as TDRs. We individually evaluate all substandard commercial loans that have experienced a forbearance or change in terms agreement, and all substandard consumer and residential mortgage loans that entered into an agreement to modify their existing loan, to determine if they should be designated as 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. Allowance for Credit Losses The allowance for credit losses, ACL, is a valuation reserve established and maintained by charges against operating income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers our historical loss experience, current conditions and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share similar risk characteristics with other loans. The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. The ACL model is comprised of six distinct portfolio segments: 1) Commercial Construction, 2) Commercial Real Estate, or CRE, 3) Commercial and Industrial, or C&I, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. Each segment has a distinct set of risk characteristics monitored by management. We further evaluate the ACL at a disaggregated level which includes type of collateral and our internal risk rating system for the commercial segments and type of collateral, lien position, and FICO score, for the consumer segments. Historical credit loss experience is the basis for the estimation of expected credit losses. Our quantitative model uses historic data back to the second quarter of 2009. We apply historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Our reasonable and supportable forecast is for a period of two years and is based on the unemployment forecast and management judgment. For periods beyond our two year reasonable and supportable forecast, we revert to historical loss rates utilizing a straight-line method over a one year reversion period. The qualitative adjustments for current conditions are based upon changes in lending policies and practices, experience and ability of lending staff, quality of the bank’s loan review system, value of underlying collateral, the existence of and changes in concentrations, other external factors and segment specific risks. These modified 68 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve. The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore, should be individually assessed. We evaluate all commercial loans greater than $ 1.0 million that meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonaccrual loans when repayment is expected to be provided substantially through the operation or sale of the collateral, 3) any commercial TDR, or any loan reasonably expected to become a TDR whether on accrual or nonaccrual status and 4) when it is determined by management that a loan does not share similar risk characteristics with other loans. Specific reserves are established based on the following three acceptable methods for measuring the ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance. Our ACL Committee meets quarterly to verify the overall appropriateness of the ACL. Additionally, on an annual basis, the ACL Committee meets to validate our ACL methodology. This validation includes reviewing the loan segmentation, critical model assumptions, forecast and the qualitative framework. As a result of this ongoing monitoring process, we may make changes to our ACL to be responsive to the economic environment. Bank Owned Life Insurance We have purchased life insurance policies on certain executive officers and employees. We receive the cash surrender value of each policy upon its termination or benefits are payable to us upon the death of the insured. Changes in net cash surrender value are recognized in noninterest income in the Consolidated Statements of Net Income. Premises and Equipment Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred, while improvements that extend an asset’s useful life are capitalized and depreciated over the estimated remaining life of the asset. Depreciation expense is computed by the straight-line method for financial reporting purposes and accelerated methods for income tax purposes over the estimated useful lives of the particular assets. Depreciation expense is included in occupancy on the Consolidated Statements of Net Income. Management reviews long-lived assets using events and circumstances to determine if and when an asset is evaluated for recoverability. The estimated useful lives for the various asset categories are as follows: 1) Land and Land Improvements Non-depreciating assets 2) Buildings 25 years 3) Furniture and Fixtures 5 years 4) Computer Equipment and Software 5 years or term of license 5) Other Equipment 5 years 6) Vehicles 5 years 7) Leasehold Improvements Lesser of estimated useful life of the asset (generally 15 years unless established otherwise) or the remaining term of the lease, including renewal options in the lease that are reasonably assured of exercise Right-of-Use Assets and Lease Liabilities We determine if a contract is or contains a lease at inception. Leases are classified as either finance or operating leases. We recognize leases on our Consolidated Balance Sheets as right-of-use, or ROU, assets and related lease liabilities. Finance ROU assets are included in premises and equipment and related finance lease liabilities are included in long-term borrowings. Operating lease ROU assets are included in other assets and related operating lease liabilities are included in other liabilities. Our lease liability is calculated as the present value of the lease payments over the lease term discounted using our estimated incremental borrowing rate with similar terms at commencement date. Lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term for operating leases. Interest and amortization expenses are recognized for finance leases over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the lease term in occupancy on our Consolidated Statements 69 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of Net Income. Lease and amortization expenses are included in occupancy expense and interest on finance lease liabilities is included in borrowings interest expense in our Consolidated Statements of Net Income. Restricted Investment in Bank Stock FHLB stock is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value. We hold FHLB stock because we are a member of the FHLB of Pittsburgh. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon on the member's asset value, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB. Members do not purchase stock in the FHLB for the same reasons that traditional equity investors acquire stock in an investor-owned enterprise. Rather, members purchase stock to obtain access to the low-cost products and services offered by the FHLB. Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. Both cash and stock dividends are reported as income in taxable investment securities in the Consolidated Statements of Net Income. FHLB stock is evaluated for impairment when events and circumstance indicate that impairment could exist. Goodwill and Other Intangible Assets As a result of acquisitions, we have recorded goodwill and identifiable intangible assets in our Consolidated Balance Sheets. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. We have one reporting unit. 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. A qualitative assessment is performed to determine whether it is more likely than not that the reporting unit's fair value is less than it's carrying value. We perform a quantitative impairment test only if we conclude that it is more likely than not that a reporting unit's fair value is less than the carrying amount. Determining the fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions. The fair value of the reporting unit is determined by using both a discounted cash flow model and a market based model. The discounted cash flow model has many assumptions including future earnings projections, a long-term growth rate and discount rate. The market based model calculates fair value based on observed price multiples for similar companies. The fair values of each method are then weighted based on relevance and reliability in the current economic environment. We determine the amount of identifiable intangible assets based upon independent core deposit and insurance contract valuations at the time of acquisition. Intangible assets with finite useful lives, consisting primarily of core deposit and customer list intangibles, are amortized using straight-line or accelerated methods over their estimated weighted average useful lives, ranging from 10 to 20 years. Intangible assets with finite useful lives are evaluated for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. No such events or changes in circumstances occurred during the years ended December 31, 2022 and 2021. Variable Interest Entities Variable interest entities, or VIEs, are legal entities that generally either do not have equity investors with voting rights or that have equity investors that do not provide sufficient financial resources for the entity to support its activities. When an enterprise has both the power to direct the economic activities of the VIE and the obligation to absorb losses of the VIE or the right to receive benefits of the VIE, the entity has a controlling financial interest in the VIE. A VIE often holds financial assets, including loans, receivables or other property. The company with a controlling financial interest, the primary beneficiary, is required to consolidate the VIE into its Consolidated Balance Sheets. S&T has three wholly-owned trust subsidiaries, STBA Capital Trust I, DNB Capital Trust I and DNB Capital Trust II, or the Trusts, for which it does not absorb a majority of expected losses or receive a majority of the expected residual returns. The DNB Capital Trust I and DNB Capital Trust II were acquired with the DNB merger. At inception, these Trusts issued floating rate trust preferred securities to the Trustees and used the proceeds from the sale to invest in junior subordinated debt securities issued by us. The Trusts pay dividends on the trust preferred securities at the same rate as the interest we pay on the junior subordinated debt held by the Trusts. The Trusts are VIEs with the third-party investors as their primary beneficiaries, and accordingly, the Trusts and their net assets are not included in our consolidated financial statements. However, the junior subordinated debt securities issued by S&T are included in our Consolidated Balance Sheets. 70 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Qualified Affordable Housing We have made investments directly in Low Income Housing Tax Credit, or LIHTC, partnerships formed with third parties. As a limited partner in these operating partnerships, we receive tax credits and tax deductions for losses incurred by the underlying properties. These investments are amortized over a maximum of 10 years, which represents the period over which the tax credits will be utilized. Our investments in Low Income Housing Partnerships, or LIHPs, represent unconsolidated variable interest entities, or VIEs, and the assets and liabilities of the partnerships are not recorded on our balance sheet. We have determined that we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact the economic performance of the partnership and have both the obligation to absorb expected losses and the right to receive benefits. We use the cost method to account for these partnerships. These investments are recorded in other assets in our Consolidated Balance Sheets. Amortization expense is included in other noninterest expense in the Consolidated Statements of Net Income. OREO and Other Repossessed Assets OREO and other repossessed assets are included in other assets in the Consolidated Balance Sheets and are comprised of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of a foreclosure. At the time of foreclosure or acceptance of a deed in lieu of foreclosure, these properties are recorded at the lower of the recorded investment in the loan or fair value less cost to sell. Loan losses arising from the acquisition of any such property initially are charged against the ACL. Subsequently, these assets are carried at the lower of carrying value or current fair value less cost to sell. Gains or losses realized upon disposition of these assets are recorded in other noninterest income or expense in the Consolidated Statements of Net Income depending on whether the net position is a gain or loss. Mortgage Servicing Rights Mortgage servicing rights, or MSRs, are recognized as separate assets when a mortgage loan is sold. MSRs represents the estimated fair value of future net cash flows expected to be realized for performing the servicing activities. The fair value of the MSRs is estimated by calculating the present value of estimated future net servicing cash flows, considering expected mortgage loan prepayment rates, discount rates, servicing costs and other economic factors, which are determined based on current market conditions. The expected rate of mortgage loan prepayments is the most significant factor driving the value of MSRs. Increases in mortgage loan prepayments reduce estimated future net servicing cash flows because the life of the underlying loan is reduced. MSRs are reported in other assets in the Consolidated Balance Sheets and are amortized into mortgage banking in noninterest income in the Consolidated Statements of Net Income in proportion to, and over the period of, the estimated future net servicing income of the underlying mortgage loans. MSRs are regularly evaluated for impairment based on the estimated fair value of those rights. MSRs are stratified by certain risk characteristics, primarily loan term and note rate. If temporary impairment exists within a risk stratification tranche, a valuation allowance is established through a charge to income equal to the amount by which the carrying value exceeds the estimated fair value. If it is later determined that all or a portion of the temporary impairment no longer exists for a particular tranche, the valuation allowance is reduced. Derivative Financial Instruments Derivatives are recognized as either assets or liabilities on the balance sheet at fair value. 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. Pursuant to our agreements with various financial institutions, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Derivatives contain an element of credit risk, the possibility that we will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by our Asset and Liability Committee, or ALCO, and derivatives with customers may only be executed with customers within credit exposure limits approved in accordance with our credit policy. We have entered into agreements with counterparty financial institutions, which include master netting agreements that provide for the net settlement of all contracts with a single counterparty in the event of default. We elect, however, to account for all derivatives with counterparty institutions on a gross basis. 71 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest Rate Swaps Designated as Hedging Instruments 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. 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 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 recognized in OCI, net of applicable taxes, and reclassified into interest income as interest payments are received. Interest Rate Contracts with Customers Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer, while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate loan, while we continue to receive a variable amount of interest on the loan. These agreements could have floors or caps on the contracted interest rates. Interest rate swaps with customers and the corresponding offsetting interest rate swap with a financial institution are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings and included in other noninterest income in the Consolidated Statements of Net Income. Interest Rate Lock Commitments and Forward Sale Contracts In the normal course of business, we sell originated mortgage loans into the secondary mortgage loan market. We also offer interest rate lock commitments to potential borrowers. The commitments are generally for a period of 60 days and guarantee a specified interest rate for a loan if underwriting standards are met, but the commitment does not obligate the potential borrower to close on the loan. Accordingly, some commitments expire prior to becoming loans. We may encounter pricing risks if interest rates increase significantly before the loan can be closed and sold. We may utilize forward sale contracts in order to mitigate this pricing risk. Whenever a customer desires these products, a mortgage originator quotes a secondary market rate guaranteed for that day by the investor. The rate lock is executed between the mortgagee and us and in turn a forward sale contract may be executed between us and the investor. Both the rate lock commitment and the corresponding forward sale contract for each customer are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives during the commitment period are recorded in current earnings and included in mortgage banking in the Consolidated Statements of Net Income. Treasury Stock The repurchase of our common stock is recorded at cost. At the time of reissuance, the treasury stock account is reduced using the average cost method. Gains and losses on the reissuance of common stock are recorded in additional paid-in capital, to the extent additional paid-in capital from previous treasury share transactions exists. Any deficiency is charged to retained earnings. Revenue Recognition - Contracts with Customers We earn revenue from contracts with our customers when we have completed our performance obligations and recognize that revenue when services are provided to our customers. Our contracts with customers are primarily in the form of account agreements. Generally, our services are transferred at a point in time in response to transactions initiated and controlled by our customers under service agreements with an expected duration of one year or less. Our customers have the right to terminate their service agreements at any time. We do not defer incremental direct costs to obtain contracts with customers that would be amortized in one year or less. These costs are primarily salaries and employee benefits recognized as expense in the period incurred. 72 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Service charges on deposit accounts - We recognize monthly service charges for both commercial and personal banking customers based on account fee schedules. Our performance obligation is generally satisfied and the related revenue recognized at a point in time or over time when the services are provided. Other fees are earned based on specific transactions or customer activity within the customers' deposit accounts. These are earned at the time the transaction or customer activity occurs. Debit and credit card services - Interchange fees are earned whenever debit and credit cards are processed through third-party card payment networks. ATM fees are based on transactions by our customers' and other customers' use of our ATMs or other ATMs. Debit and credit card revenue is recognized at a point in time when the transaction is settled. Our performance obligation to our customers is generally satisfied and the related revenue is recognized at a point in time when the service is provided. Third-party service contracts include annual volume and marketing incentives which are recognized over a period of twelve months when we meet thresholds as stated in the service contract. Wealth management services - Wealth management services are primarily comprised of fees earned from the management and administration of trusts, assets under administration and other financial advisory services. Generally, wealth management fees are earned over a period of time between monthly and annually, per the related fee schedules. Our performance obligations with our customers are generally satisfied when we provide the services as stated in the customers' agreements. The fees are based on a fixed amount or a scale based on the level of services provided or amount of assets under management. Other fee revenue - Other fee revenue includes a variety of other traditional banking services such as, electronic banking fees, letters of credit origination fees, wire transfer fees, money orders, treasury checks, check sale fees and transfer fees. Our performance obligations are generally satisfied at a point in time and fee revenue is recognized when the services are provided or the transaction is settled. Wealth Management Fees Assets held in a fiduciary capacity by our subsidiary bank, S&T Bank, are not our assets and are therefore not included in our consolidated financial statements. Wealth management fee income is reported in the Consolidated Statements of Net Income on an accrual basis. Stock-Based Compensation Stock-based compensation includes restricted stock awards and restricted stock units, which are measured using the fair value at the time of issuance. The grant date fair value is recognized over the period during which the recipient is required to provide service in exchange for the award. Compensation expense for time-based restricted stock is recognized ratably over the period of service based on fair value on the grant date. Compensation expense for performance-based restricted stock is recognized ratably over the remaining vesting period if the likelihood of meeting the performance measure is probable, based on the fair value on the grant date. We estimate expected forfeitures when stock-based awards are granted and record compensation expense only for awards that are expected to vest. Pensions The expense for S&T Bank’s qualified and nonqualified defined benefit pension plans is actuarially determined using the projected unit credit actuarial cost method. It requires us to make economic assumptions regarding future interest rates and asset returns and various demographic assumptions. We estimate the discount rate used to measure benefit obligations by applying the projected cash flow for future benefit payments to a yield curve of high-quality corporate bonds available in the marketplace and by employing a model that matches bonds to our pension cash flows. The expected return on plan assets is an estimate of the long-term rate of return on plan assets, which is determined based on the current asset mix and estimates of return by asset class. We recognize in the Consolidated Balance Sheets an asset for the plan’s overfunded status or a liability for the plan’s underfunded status. Gains or losses related to changes in benefit obligations or plan assets resulting from experience different from that assumed are recognized as OCI in the period in which they occur. To the extent that such gains or losses exceed 10 percent of the greater of the projected benefit obligation or plan assets, they are recognized as a component of pension costs over the future service periods of actively employed plan participants. The funding policy for the qualified plan is to contribute an amount each year that is at least equal to the minimum required contribution, but not more than the maximum amount permissible for taxable plan sponsors. Our nonqualified plans are unfunded. On January 25, 2016, the Board of Directors approved an amendment to freeze benefit accruals under the qualified and nonqualified defined benefit pension plans effective March 31, 2016. As a result, no additional benefits are earned by participants in those plans based on service or pay after March 31, 2016. The plan was previously closed to new participants effective December 31, 2007. 73 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Marketing Costs We expense all marketing-related costs, including advertising costs, as incurred. Income Taxes We estimate income tax expense based on amounts expected to be owed to the tax jurisdictions where we conduct business. On a quarterly basis, management assesses the reasonableness of our effective tax rate based upon our current estimate of the amount and components of net income, tax credits and the applicable statutory tax rates expected for the full year. We classify interest and penalties as an element of tax expense. Deferred income tax assets and liabilities are determined using the asset and liability method and are reported in other assets or other liabilities, as appropriate, in the Consolidated Balance Sheets. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax basis of assets and liabilities and recognizes enacted changes in tax rate and laws. When deferred tax assets are recognized, they are subject to a valuation allowance based on management’s judgment as to whether realization is more likely than not. Accrued taxes represent the net estimated amount due to taxing jurisdictions and are reported in other assets or other liabilities, as appropriate, in the Consolidated Balance Sheets. We evaluate and assess the relative risks and appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other information and maintain tax accruals consistent with the evaluation of these relative risks and merits. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to statutory, judicial and regulatory guidance. These changes, when they occur, can affect deferred taxes, accrued taxes, and the current period’s income tax expense and can be significant to our operating results. Tax positions are recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50 percent likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Earnings Per Share Basic earnings per share, or EPS, is calculated using the two-class method to determine income allocated to common shareholders. Unvested share-based payment awards that contain nonforfeitable rights to dividends are considered participating securities under the two-class method. Income allocated to common shareholders is then divided by the weighted average number of common shares outstanding during the period. Potentially dilutive securities are excluded from the basic EPS calculation. Diluted EPS is calculated under the more dilutive of either the treasury stock method or the two-class method. Under the treasury stock method, the weighted average number of common shares outstanding is increased by the potentially dilutive common shares. For the two-class method, diluted EPS is calculated for each class of shareholders using the weighted average number of shares attributed to each class. Potentially dilutive common shares are related to restricted stock. 74 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. In December 2022, the FASB issued ASU No 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this ASU defer the sunset date for applying the reference rate reform relief by two years to December 31, 2024. We adopted ASU 2020-04 and ASU 2021-01 on January 1, 2022 and ASU 2022-06 upon issuance. 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, ASU 2021-01 and ASU 2022-06 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. ASU 2022-02 eliminates 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. 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 ACL. 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 have developed new reporting and processes in order to adhere to the new disclosure requirements. We adopted this ASU, as of January 1, 2023, using a modified retrospective transition approach, which resulted in a cumulative effect adjustment being recorded to retained earnings related to the elimination of TDRs. It did not have a material impact on our consolidated financial statements. 75 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. EARNINGS PER SHARE Earnings per share is calculated using both the two-class and the treasury stock methods with the more dilutive method used to determine reported basic and diluted earnings per share. The two-class method was more dilutive in 2022, 2021 and 2020 and therefore was used to determine earnings per share. The following table reconciles the numerators and denominators of basic and diluted earnings per share calculations for the periods presented: Years ended December 31, (dollars in thousands, except share and per share data) 2022 2021 2020 Numerator for Earnings per Share—Basic and Diluted: Net income $ 135,520 $ 110,343 $ 21,040 Less: Income allocated to participating shares 381 492 68 Net Income Allocated to Shareholders $ 135,139 $ 109,851 $ 20,972 Denominator for Earnings per Share—Basic and Diluted: Weighted Average Shares Outstanding—Basic 38,988,174 39,050,241 39,070,439 Add: Average participating shares outstanding 42,760 2,720 2,780 Denominator for Two-Class Method—Diluted: 39,030,934 39,052,961 39,073,219 Earnings per share—basic $ 3.47 $ 2.81 $ 0.54 Earnings per share—diluted $ 3.46 $ 2.81 $ 0.53 Restricted stock considered anti-dilutive excluded from potentially dilutive shares 12,654 793 1,242 NOTE 3. FAIR VALUE MEASUREMENTS The following tables present our assets and liabilities that are measured at fair value on a recurring basis by fair value hierarchy level at December 31, 2022 and 2021. December 31, 2022 (dollars in thousands) Level 1 Level 2 Level 3 Total ASSETS Available-for-sale debt securities: U.S. Treasury securities $ 131,695 $ — $ — $ 131,695 Obligations of U.S. government corporations and agencies — 41,811 — 41,811 Collateralized mortgage obligations of U.S. government corporations and agencies — 428,407 — 428,407 Residential mortgage-backed securities of U.S. government corporations and agencies — 41,587 — 41,587 Commercial mortgage-backed securities of U.S. government corporations and agencies — 327,313 — 327,313 Corporate obligations — 500 — 500 Obligations of states and political subdivisions — 30,471 — 30,471 Total Available-for-Sale Debt Securities 131,695 870,089 — 1,001,784 Marketable equity securities 952 42 — 994 Total Securities 132,647 870,131 — 1,002,778 Trading securities held in a deferred compensation plan 8,087 — — 8,087 Derivative financial assets: Interest rate swaps - commercial loans — 83,449 — 83,449 Interest rate lock commitments — — 5 5 Forward sale contracts - mortgage loans — — 2 2 Total Assets $ 140,734 $ 953,580 $ 7 $ 1,094,321 LIABILITIES Derivative financial liabilities: Interest rate swaps - commercial loans $ — $ 83,449 $ — $ 83,449 Interest rate swaps - cash flow hedge — 21,368 — 21,368 Total Liabilities $ — $ 104,817 $ — $ 104,817 76 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 Trading 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 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 financial statements. There were no liabilities measured at fair value on a nonrecurring basis at either December 31, 2022 or December 31, 2021. For Level 3 assets measured at fair value on a nonrecurring basis at December 31, 2022 and 2021, the significant unobservable inputs used in the fair value measurements were as follows: December 31, 2022 Valuation Technique Significant Unobservable Inputs Range Weighted Average (dollars in thousands) Other real estate owned $ 3,060 Collateral method Discount rate 13.00 % 13.00 % December 31, 2021 Valuation Technique Significant Unobservable Inputs Range Weighted Average (dollars in thousands) Other real estate owned $ 1,011 Collateral method Appraisal adjustment - cost to sell 2.53 % 2.53 % 77 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The carrying values and fair values of our financial instruments at December 31, 2022 and 2021 are presented in the following tables: Fair Value Measurements at December 31, 2022 (dollars in thousands) Carrying Value (1) Total Level 1 Level 2 Level 3 ASSETS Cash and due from banks, including interest-bearing deposits $ 210,009 $ 210,009 $ 210,009 $ — $ — Securities 1,002,778 1,002,778 132,647 870,131 — Loans held for sale 16 16 — 16 — Portfolio loans, net 7,082,629 6,815,167 — — 6,815,167 Collateral receivable 6,307 6,307 6,307 — — Securities held in a deferred compensation plan 8,087 8,087 8,087 — — Mortgage servicing rights 7,147 9,994 — — 9,994 Interest rate swaps - commercial loans 83,449 83,449 — 83,449 — Interest rate lock commitments 5 5 — — 5 Forward sale contracts 2 2 — — 2 LIABILITIES Deposits $ 7,219,970 $ 7,194,225 $ 6,285,377 $ 908,848 — Collateral payable 65,065 65,065 65,065 — — Short-term borrowings 370,000 370,000 — 370,000 — Long-term borrowings 14,741 14,174 — 14,174 — Junior subordinated debt securities 54,453 54,453 — 54,453 — Interest rate swaps - commercial loans 83,449 83,449 — 83,449 — Interest rate swaps - cash flow hedge 21,368 21,368 — 21,368 — (1) As reported in the Consolidated Balance Sheets Fair Value Measurements at December 31, 2021 (dollars in thousands) Carrying Value (1) 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 - commercial loans 33,528 33,528 — 33,528 — Interest rate lock commitments 401 401 — — 401 Forward sale contracts - mortgage loans 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 — — Long-term borrowings 22,430 22,678 — 22,678 — 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 NOTE 4. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS The Board of Governors of the Federal Reserve System, or the Federal Reserve, imposes certain reserve requirements on all depository institutions. These reserves are maintained in the form of vault cash or as an interest-bearing balance with the Federal Reserve. There were no required reserves for 2022 and 2021. The Federal Reserve reduced the reserve requirement ratio to zero percent effective March 26, 2020. 78 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5. DIVIDEND AND LOAN RESTRICTIONS S&T is a legal entity separate and distinct from its banking and other subsidiaries. A substantial portion of our revenues consist of dividend payments we receive from S&T Bank. S&T Bank, in turn, is subject to state laws and regulations that limit the amount of dividends it can pay to us. In addition, both S&T and S&T Bank are subject to various general regulatory policies relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The Federal Reserve has indicated that banking organizations should generally pay dividends only if (i) the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends and (ii) the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. Federal law prohibits us from borrowing from S&T Bank unless such loans are collateralized by specific obligations. Further, such loans are limited to 10 percent of S&T Bank’s capital stock and surplus. NOTE 6. SECURITIES The following table presents the fair values of our securities portfolio at the dates presented: December 31, (dollars in thousands) 2022 2021 Available-for-sale debt securities $ 1,001,784 $ 909,651 Marketable equity securities 994 1,142 Total Securities $ 1,002,778 $ 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 December 31, 2022 and December 31, 2021: December 31, 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 $ 145,416 $ — $ ( 13,721 ) $ 131,695 $ 95,954 $ 115 $ ( 742 ) $ 95,327 Obligations of U.S. government corporations and agencies 43,479 — ( 1,668 ) 41,811 68,599 1,749 — 70,348 Collateralized mortgage obligations of U.S. government corporations and agencies 482,039 203 ( 53,835 ) 428,407 270,696 2,408 ( 2,810 ) 270,294 Residential mortgage-backed securities of U.S. government corporations and agencies 49,418 3 ( 7,834 ) 41,587 57,029 392 ( 628 ) 56,793 Commercial mortgage-backed securities of U.S. government corporations and agencies 352,465 — ( 25,152 ) 327,313 336,918 5,969 ( 1,587 ) 341,300 Corporate Obligations 500 — — 500 500 — — 500 Obligations of states and political subdivisions 30,788 55 ( 372 ) 30,471 70,539 4,550 — 75,089 Total Available-for-Sale Debt Securities (1) $ 1,104,105 $ 261 $ ( 102,582 ) $ 1,001,784 $ 900,235 $ 15,183 $ ( 5,767 ) $ 909,651 (1) Excludes interest receivable of $ 3.7 million at December 31, 2022 and $ 3.3 million at December 31, 2021. Interest receivable is included in other assets in the Consolidated Balance Sheets. The following table shows the composition of gross and net realized gains and losses for the periods presented: Years ended December 31, (dollars in thousands) 2022 2021 2020 Gross realized gains $ 198 $ 29 $ 219 Gross realized losses — — ( 77 ) Net Realized Gains $ 198 $ 29 $ 142 79 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The 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: December 31, 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 6 $ 57,057 $ ( 3,363 ) 8 $ 74,638 $ ( 10,358 ) 14 $ 131,695 $ ( 13,721 ) Obligations of U.S. government corporations and agencies 6 41,811 ( 1,668 ) — — — 6 41,811 ( 1,668 ) Collateralized mortgage obligations of U.S. government corporations and agencies 47 296,509 ( 28,153 ) 13 112,902 ( 25,682 ) 60 409,411 ( 53,835 ) Residential mortgage-backed securities of U.S. government corporations and agencies 25 7,143 ( 589 ) 3 34,223 ( 7,245 ) 28 41,366 ( 7,834 ) Commercial mortgage-backed securities of U.S. government corporations and agencies 30 241,009 ( 11,975 ) 7 86,304 ( 13,177 ) 37 327,313 ( 25,152 ) Corporate Obligations — — — — — — — — — Obligations of states and political subdivisions 2 20,127 ( 372 ) — — — 2 20,127 ( 372 ) Total 116 $ 663,656 $ ( 46,120 ) 31 $ 308,067 $ ( 56,462 ) 147 $ 971,723 $ ( 102,582 ) 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. We do not believe any individual unrealized loss as of December 31, 2022 represents a credit impairment. There were 147 debt securities in an unrealized loss position at December 31, 2022 and 31 debt securities in an unrealized loss position at December 31, 2021. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of the issuers. All debt securities are determined to be investment grade and paying principal and interest according to the contractual terms of the security. We do not intend to sell and it is more likely 80 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost. The following table presents net unrealized gains and losses, net of tax, on available-for-sale debt securities included in accumulated OCI, for the periods presented: December 31, 2022 December 31, 2021 (dollars in thousands) Gross Unrealized Gains Gross Unrealized Losses Net Unrealized Gains (Losses) Gross Unrealized Gains Gross Unrealized Losses Net Unrealized Gains (Losses) Total unrealized gains/(losses) on available-for-sale debt securities $ 261 $ ( 102,582 ) $ ( 102,321 ) $ 15,183 $ ( 5,767 ) $ 9,416 Income tax (expense) benefit ( 56 ) 21,915 21,859 ( 3,215 ) 1,221 ( 1,994 ) Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated Other Comprehensive Income/(Loss) $ 205 $ ( 80,667 ) $ ( 80,462 ) $ 11,968 $ ( 4,546 ) $ 7,422 The amortized cost and fair value of available-for-sale debt securities at December 31, 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. December 31, 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 $ 9,984 $ 9,767 Due after one year through five years 149,091 138,134 Due after five years through ten years 49,085 44,838 Due after ten years 11,523 11,238 Available-for-Sale Debt Securities With Fixed Maturities 219,683 203,977 Collateralized mortgage obligations of U.S. government corporations and agencies 482,039 428,407 Residential mortgage-backed securities of U.S. government corporations and agencies 49,418 41,587 Commercial mortgage-backed securities of U.S. government corporations and agencies 352,465 327,313 Corporate Obligations 500 500 Total Available-for-Sale Debt Securities $ 1,104,105 $ 1,001,784 Debt securities are pledged in order to meet various regulatory and legal requirements. Restricted pledged securities had a carrying value of $ 17.9 million at December 31, 2022 and $ 23.9 million at December 31, 2021. Unrestricted pledged securities had a carrying value of $ 251.5 million at December 31, 2022 and $ 443.0 million at December 31, 2021. Any changes to restricted pledged securities require approval of the pledge beneficiary. Approval is not required for unrestricted pledged securities. NOTE 7. LOANS AND LOANS HELD FOR SALE Loans are presented net of unearned income. Unearned income consists of net deferred loan fees and costs of $ 7.5 million at December 31, 2022 and $ 14.1 million at December 31, 2021 and a discount related to purchase accounting fair value adjustments of $ 4.7 million at December 31, 2022 and $ 6.7 million at December 31, 2021. 81 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the composition of originated and acquired loans as of the dates presented: (dollars in thousands) December 31, 2022 December 31, 2021 Commercial real estate $ 2,538,839 $ 2,690,528 Commercial and industrial 1,510,392 1,513,523 Commercial construction 381,963 424,755 Business banking 1,205,944 1,135,693 Consumer real estate 1,421,953 1,127,585 Other consumer 124,878 107,906 Total Portfolio loans $ 7,183,969 $ 6,999,990 Loans held for sale 16 1,522 Total Loans (1) $ 7,183,985 $ 7,001,512 (1) Excludes interest receivable of $ 28.3 million at December 31, 2022 and $ 18.7 million at December 31, 2021. Interest receivable is included in other assets in the Consolidated Balance Sheets. C&I, included $ 4.0 million of loans originated under the Paycheck Protection Program, or PPP, at December 31, 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. 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 SBA pays us a processing fee ranging from 1 percent to 5 percent based on the size of the loan. Interest is accrued as earned and loan origination fees and direct costs are deferred and accreted or amortized into interest income over the life of the loan using the level yield method. When a PPP loan is paid off or forgiven by the SBA, the remaining unaccreted or unamortized net origination fees or costs will be immediately recognized into income. Business banking consists of commercial 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. 82 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes our TDRs as of the dates presented: December 31, 2022 December 31, 2021 (dollars in thousands) Accruing TDRs Nonaccruing TDRs Total TDRs Accruing TDRs Nonaccruing TDRs Total TDRs Commercial real estate $ — $ — $ — $ — $ 1,697 $ 1,697 Commercial and industrial 626 — 626 748 14,889 15,637 Commercial construction 1,655 — 1,655 2,190 2,087 4,277 Business banking 438 1,087 1,525 858 1,696 2,554 Consumer real estate 6,168 1,798 7,966 6,122 1,405 7,527 Other consumer 4 9 13 3 — 3 Total $ 8,891 $ 2,894 $ 11,785 $ 9,921 $ 21,774 $ 31,695 There was one $ 0.2 million TDR returned to accruing status during 2022 compared to no TDRs returned to accruing status during 2021. The following tables present the TDRs by portfolio segment and by type of concession for the years ended: December 31, 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 2 — 154 — — — 154 203 Consumer real estate 23 1,436 — 610 — — 2,046 2,558 Other consumer 2 11 — — — — 11 15 Total 27 $ 1,447 $ 154 $ 610 $ — $ — $ 2,211 $ 2,776 (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. December 31, 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 1 $ — $ — $ — $ — $ 1,300 $ 1,300 $ 1,824 Commercial industrial 3 — — 2,039 — 9,182 11,221 21,297 Commercial construction 1 — — 2,087 — — 2,087 5,279 Business banking 9 8 — 558 — 1,155 1,721 1,792 Consumer real estate 26 1,099 — — — 147 1,246 1,280 Other consumer — — — — — — — — Total 40 $ 1,107 $ — $ 4,684 $ — $ 11,784 $ 17,575 $ 31,472 (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. 83 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In response to the coronavirus, or COVID-19 pandemic, and its economic impact on our customers, we implemented a short-term modification program that complied with the CARES Act to provide temporary payment relief to those borrowers directly impacted by the COVID-19 pandemic who were not more than 30 days past due as of December 31, 2019. This program allowed for a deferral of payments for 90 days and up to a maximum of 180 days for our commercial customers. The customer remained responsible for deferred payments along with any additional interest accrued during the deferral period. For our consumer customers, interest did not accrue during the deferral period and the maturity date was extended by the length of the deferral period. Under the applicable guidance none of these loans were considered restructured. The program ended January 1, 2022 and we had no loans modified at December 31, 2022, compared to eight loans that were modified totaling $ 28.8 million at December 31, 2021. As of December 31, 2022, we had 16 commitments to lend an additional $ 0.4 million on TDRs compared to 12 commitments to lend an additional $ 2.6 million at December 31, 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 2022 or 2021. The following table is a summary of nonperforming assets as of the dates presented: December 31, (dollars in thousands) 2022 2021 Nonperforming Assets Nonaccrual loans $ 16,158 $ 44,517 Nonaccrual TDRs 2,894 21,774 Total Nonaccrual loans 19,052 66,291 OREO 3,065 13,313 Total Nonperforming Assets $ 22,117 $ 79,604 The following table presents a summary of the aggregate amount of loans to certain officers, directors of S&T or any affiliates of such persons as of the dates presented: December 31, (dollars in thousands) 2022 2021 Balance at beginning of year $ 6,157 $ 6,329 New loans 1,085 1,826 Repayments or no longer considered a related party ( 3,114 ) ( 1,998 ) Balance at end of year $ 4,128 $ 6,157 NOTE 8. 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) CRE, 2) 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. The primary sources of repayment for these loans are the operations of the individual projects and global cash flows of the debtors. 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. The primary source of repayment for these loans is cash flow from the operations of the company. 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. 84 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Commercial Construction —Loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the local economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer. Business Banking —Commercial 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. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the local housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt. Other Consumer —Loans made to individuals that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes auto loans, unsecured loans and lines. 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. Management monitors various credit quality indicators for the commercial, business banking and consumer loan portfolios, including changes in risk ratings, nonaccrual 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. 85 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the dates presented: December 31, 2022 Risk Rating (dollars in thousands) 2022 2021 2020 2019 2018 2017 and Prior Revolving Revolving-Term Total Commercial Real Estate Pass $ 292,732 $ 360,423 $ 267,743 $ 422,872 $ 227,006 $ 704,600 $ 21,666 — $ 2,297,042 Special Mention — — — 13,187 20,090 101,112 — — 134,389 Substandard — — 1,306 13,434 14,845 77,823 — — 107,408 Doubtful — — — — — — — — — Total Commercial Real Estate 292,732 360,423 269,049 449,493 261,941 883,535 21,666 — 2,538,839 Commercial and Industrial Pass 253,324 264,012 88,544 63,190 62,874 138,250 559,777 — 1,429,971 Special Mention — 25,436 — 5,103 1,885 7,132 19,280 — 58,836 Substandard 372 — — 5,705 1,152 1,891 12,465 — 21,585 Doubtful — — — — — — — — — Total Commercial and Industrial 253,696 289,448 88,544 73,998 65,911 147,273 591,522 — 1,510,392 Commercial Construction Pass 120,655 159,737 40,762 6,338 3,953 2,297 27,284 — 361,026 Special Mention — 10,954 — 8,104 — — — — 19,058 Substandard — — — — — 1,879 — — 1,879 Doubtful — — — — — — — — — Total Commercial Construction 120,655 170,691 40,762 14,442 3,953 4,176 27,284 — 381,963 Business Banking Pass 287,520 233,499 87,926 107,819 80,549 276,843 104,354 645 1,179,155 Special Mention — 157 146 — 2,790 3,945 793 95 7,926 Substandard 159 67 3,077 1,912 1,550 11,391 124 551 18,831 Doubtful — — — — — 32 — — 32 Total Business Banking 287,679 233,723 91,149 109,731 84,889 292,211 105,271 1,291 1,205,944 Consumer Real Estate Pass 296,900 148,790 91,477 74,155 30,658 191,228 552,994 21,547 1,407,749 Special Mention — — — — — 882 — — 882 Substandard 48 213 136 428 1,373 8,059 655 2,410 13,322 Doubtful — — — — — — — — — Total Consumer Real Estate 296,948 149,003 91,613 74,583 32,031 200,169 553,649 23,957 1,421,953 Other consumer Pass 20,046 10,819 5,427 3,242 1,013 724 82,125 1,404 124,800 Special Mention — — — — — — — — — Substandard 8 — — 28 21 — — 21 78 Doubtful — — — — — — — — — Total Other Consumer 20,054 10,819 5,427 3,270 1,034 724 82,125 1,425 124,878 Pass 1,271,177 1,177,280 581,879 677,616 406,053 1,313,942 1,348,200 23,596 6,799,743 Special Mention — 36,547 146 26,394 24,765 113,071 20,073 95 221,091 Substandard 587 280 4,519 21,507 18,941 101,043 13,244 2,982 163,103 Doubtful — — — — — 32 — — 32 Total Loan Balance $ 1,271,764 $ 1,214,107 $ 586,544 $ 725,517 $ 449,759 $ 1,528,088 $ 1,381,517 $ 26,673 $ 7,183,969 86 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 87 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We monitor the delinquent status of the commercial and consumer portfolios on a monthly basis. Loans are considered 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 nonaccrual loans. The following tables present loan balances by year of origination and accrual and nonaccrual status for our portfolio segments as of the dates presented: December 31, 2022 (dollars in thousands) 2022 2021 2020 2019 2018 2017 and Prior Revolving Revolving-Term Total Commercial Real Estate Accrual $ 292,732 $ 360,423 $ 269,049 $ 449,493 $ 261,941 $ 876,435 $ 21,666 $ — $ 2,531,739 Nonaccrual — — — — — 7,100 — — 7,100 Total Commercial Real Estate 292,732 360,423 269,049 449,493 261,941 883,535 21,666 — 2,538,839 Commercial and Industrial Accrual 253,696 289,448 88,544 73,998 65,858 147,273 591,292 — 1,510,109 Nonaccrual — — — — 53 — 230 — 283 Total Commercial and Industrial 253,696 289,448 88,544 73,998 65,911 147,273 591,522 — 1,510,392 Commercial Construction Accrual 120,655 170,691 40,762 14,442 3,953 3,792 27,284 — 381,579 Nonaccrual — — — — — 384 — — 384 Total Commercial Construction 120,655 170,691 40,762 14,442 3,953 4,176 27,284 — 381,963 Business Banking Accrual 287,679 233,656 91,149 109,479 83,689 289,435 105,172 1,195 1,201,454 Nonaccrual — 67 — 252 1,200 2,776 99 96 4,490 Total Business Banking 287,679 233,723 91,149 109,731 84,889 292,211 105,271 1,291 1,205,944 Consumer Real Estate Accrual 296,948 148,868 91,085 73,947 31,646 196,384 553,441 23,108 1,415,427 Nonaccrual — 135 528 636 385 3,785 208 849 6,526 Total Consumer Real Estate 296,948 149,003 91,613 74,583 32,031 200,169 553,649 23,957 1,421,953 Other Consumer Accrual 20,054 10,819 5,303 3,270 1,034 593 82,125 1,411 124,609 Nonaccrual — — 124 — — 131 — 14 269 Total Other Consumer 20,054 10,819 5,427 3,270 1,034 724 82,125 1,425 124,878 Accrual 1,271,764 1,213,905 585,892 724,629 448,121 1,513,912 1,380,980 25,714 7,164,917 Nonaccrual — 202 652 888 1,638 14,176 537 959 19,052 Total Loan Balance $ 1,271,764 $ 1,214,107 $ 586,544 $ 725,517 $ 449,759 $ 1,528,088 $ 1,381,517 $ 26,673 $ 7,183,969 88 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 (dollars in thousands) 2021 2020 2019 2018 2017 2016 and Prior Revolving Revolving-Term Total Commercial Real Estate Accrual $ 385,347 $ 317,359 $ 461,613 $ 332,482 $ 259,723 $ 865,567 $ 36,948 $ — $ 2,659,039 Nonaccrual — 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 Accrual 437,529 126,371 123,944 86,852 38,540 136,427 548,622 — 1,498,285 Nonaccrual — — 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 Accrual 142,321 110,562 111,445 16,838 989 10,093 30,036 — 422,284 Nonaccrual — — 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 Accrual 257,368 107,984 144,689 113,820 81,195 311,673 108,202 1,122 1,126,052 Nonaccrual 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 Accrual 137,465 100,253 91,689 49,853 39,657 234,297 443,238 23,839 1,120,291 Nonaccrual — 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 Accrual 20,059 9,290 7,261 3,093 1,021 6,444 57,903 2,677 107,748 Nonaccrual — 158 — — — — — — 158 Total Other Consumer 20,059 9,448 7,261 3,093 1,021 6,444 57,903 2,677 107,906 Accrual 1,380,089 771,819 940,641 602,938 421,125 1,564,501 1,224,949 27,638 6,933,699 Nonaccrual 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 89 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present the age analysis of past due loans segregated by class of loans as of the dates presented: December 31, 2022 (dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Nonaccrual Total Past Due Loans Total Loans Commercial real estate $ 2,523,315 $ 8,424 $ — $ 7,100 $ 15,524 $ 2,538,839 Commercial and industrial 1,505,805 4,304 — 283 4,587 1,510,392 Commercial construction 381,579 — — 384 384 381,963 Business banking 1,199,586 1,583 285 4,490 6,358 1,205,944 Consumer real estate 1,409,907 3,617 1,903 6,526 12,046 1,421,953 Other consumer 124,384 165 60 269 494 124,878 Total $ 7,144,576 $ 18,093 $ 2,248 $ 19,052 $ 39,393 $ 7,183,969 December 31, 2021 (1) (dollars in thousands) Current 30-59 Days Past Due 60-89 Days Past Due Nonaccrual 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 1,117,073 1,087 2,130 7,294 10,512 1,127,585 Other consumer 107,492 206 50 158 414 107,906 Total $ 6,927,943 $ 3,085 $ 2,672 $ 66,291 $ 72,048 $ 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 resumed where it left off upon entry into the program. 90 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present loans on nonaccrual status by class of loan: December 31, 2022 December 31, 2022 For the twelve months ended (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 $ 7,100 $ 5,649 $ 580 Commercial and industrial 15,239 283 — 148 Commercial construction 2,471 384 — 171 Business banking 9,641 4,490 933 228 Consumer real estate 7,294 6,526 — 257 Other consumer 158 269 — 1 Total $ 66,291 $ 19,052 $ 6,582 $ 1,385 (1) Represents only cash payments received and applied to interest on nonaccrual loans. December 31, 2021 December 31, 2021 For the twelve months ended (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. The following tables present collateral-dependent loans by class of loan: December 31, 2022 Type of Collateral (dollars in thousands) Real Estate Blanket Lien Other Commercial real estate $ 5,649 $ — $ — Commercial and industrial — 626 — Commercial construction 1,655 — — Business banking 260 1,112 154 Consumer real estate 561 — — Total $ 8,125 $ 1,738 $ 154 December 31, 2021 Type of Collateral (dollars in thousands) Real Estate Blanket Lien 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 91 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present activity in the ACL for the periods presented: Twelve Months Ended December 31, 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) ( 9,064 ) 4,797 908 3,644 3,536 1,538 5,359 Charge-offs ( 827 ) ( 5,797 ) — ( 3,314 ) ( 304 ) ( 1,375 ) ( 11,617 ) Recoveries 619 6,983 1 879 140 400 9,022 Net (Charge-offs)/Recoveries ( 208 ) 1,186 1 ( 2,435 ) ( 164 ) ( 975 ) ( 2,595 ) Balance at End of Period $ 41,428 $ 25,710 $ 6,264 $ 12,547 $ 12,105 $ 3,286 $ 101,340 (1) Excludes the provision for credit losses for unfunded commitments. Twelve Months Ended December 31, 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 $ 65,656 $ 16,100 $ 7,239 $ 15,917 $ 10,014 $ 2,686 $ 117,612 Provision for credit losses on loans (1) ( 2,569 ) 23,746 ( 1,842 ) ( 3,159 ) ( 1,020 ) 338 15,494 Charge-offs ( 13,444 ) ( 20,923 ) ( 56 ) ( 1,580 ) ( 569 ) ( 952 ) ( 37,524 ) Recoveries 1,057 804 14 160 308 651 2,994 Net (Charge-offs)/Recoveries ( 12,387 ) ( 20,119 ) ( 42 ) ( 1,420 ) ( 261 ) ( 301 ) ( 34,530 ) Balance at End of Period $ 50,700 $ 19,727 $ 5,355 $ 11,338 $ 8,733 $ 2,723 $ 98,576 (1) Excludes the provision for credit losses for unfunded commitments. The C&I portfolio included $ 4.0 million of loans originated under the PPP at December 31, 2022 compared to $ 88.3 million at December 31, 2021. The loans are 100 percent guaranteed by the SBA, therefore, we have not assigned any ACL to these loans at December 31, 2022. NOTE 9. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES We have 47 lease contracts, including 45 operating leases and two finance leases at December 31, 2022. These leases are for our branch, loan production and support services facilities. Included in the lease expense for premises are leases with one S&T director, which totaled approximately $ 0.2 million for each of the three years 2022, 2021 and 2020. No new lease agreements were entered into in 2022. The following table presents our lease expense for finance and operating leases for the years ended December 31: (dollars in thousands) 2022 2021 2020 Operating lease expense $ 5,169 $ 5,135 $ 5,711 Amortization of ROU assets - finance leases 179 224 224 Interest on lease liabilities - finance leases 65 74 84 Total Lease Expense $ 5,413 $ 5,433 $ 6,019 (1) Included in occupancy expense in our Consolidated Statements of Net Income. (2) Included in borrowings interest expense in our Consolidated Statements of Net Income. 92 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents our ROU assets, weighted average term and the discount rates for finance and operating leases as of December 31: (dollars in thousands) 2022 2021 Operating Leases ROU assets $ 43,089 $ 44,067 Operating cash flows $ 6,826 $ 6,570 Finance Leases ROU assets $ 876 $ 1,055 Operating cash flows $ 65 $ 74 Financing cash flows $ 160 $ 194 Weighted Average Lease Term - Years Operating leases 17.9 18.9 Finance leases 12.7 12.4 Weighted Average Discount Rate Operating leases 5.83 % 5.82 % Finance leases 6.01 % 5.91 % The following table presents the maturity analysis of lease liabilities for finance and operating leases as of December 31, 2022: (dollars in thousands) Maturity Analysis Finance Operating Total 2023 $ 129 $ 4,924 $ 5,053 2024 130 4,831 4,961 2025 132 4,891 5,023 2026 133 4,781 4,914 2027 134 4,539 4,673 Thereafter 877 59,960 60,837 Total 1,535 83,926 85,461 Less: Present value discount ( 496 ) ( 34,229 ) ( 34,725 ) Lease Liabilities $ 1,039 $ 49,697 $ 50,736 93 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. PREMISES AND EQUIPMENT The following table is a summary of premises and equipment as of the dates presented: December 31, (dollars in thousands) 2022 2021 Land $ 8,651 $ 8,651 Premises 61,904 62,313 Furniture and equipment 48,941 46,799 Leasehold improvements 12,083 12,205 131,579 129,968 Accumulated depreciation ( 82,294 ) ( 77,336 ) Total $ 49,285 $ 52,632 Depreciation expense related to premises and equipment was $ 6.4 million in 2022, $ 6.6 million in 2021 and $ 6.7 million in 2020. NOTE 11. GOODWILL AND OTHER INTANGIBLE ASSETS The following table presents goodwill as of the dates presented: December 31, (dollars in thousands) 2022 2021 Balance at beginning of year $ 373,424 $ 373,424 Additions — — Balance at End of Year $ 373,424 $ 373,424 Goodwill is reviewed for impairment annually or more frequently if it is determined that a triggering event has occurred. Based upon our qualitative assessment performed for our annual impairment analysis as of October 1, 2022, we concluded that goodwill was not impaired. No events or circumstances since the October 1, 2022 annual impairment test were noted that would indicate goodwill was impaired at December 31, 2022. The following table presents a summary of intangible assets as of the dates presented: December 31, (dollars in thousands) 2022 2021 Gross carrying amount at beginning of year $ 31,340 $ 31,340 Additions — — Accumulated amortization ( 25,962 ) ( 24,445 ) Balance at End of Year $ 5,378 $ 6,895 Intangible assets of $ 5.4 million at December 31, 2022 relate to core deposit and wealth management customer relationships resulting from acquisitions. We determined the amount of identifiable intangible assets for our core deposits based upon an independent valuation. Other intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. There were no triggering events in 2022 requiring an impairment analysis to be completed. Amortization expense on finite-lived intangible assets totaled $ 1.5 million, $ 1.8 million and $ 2.5 million for 2022, 2021 and 2020. 94 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following is a summary of the expected amortization expense for finite-lived intangible assets, assuming no new additions, for each of the five years following December 31, 2022 and thereafter: (dollars in thousands) Amount 2023 $ 1,319 2024 $ 1,151 2025 $ 820 2026 $ 671 2027 $ 562 Thereafter $ 855 Total $ 5,378 NOTE 12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES 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) December 31, 2022 December 31, 2021 December 31, 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 $ — $ — $ — $ — $ 500,000 $ 21,368 $ — $ — Total Derivatives Designated as Hedging Instruments $ — $ — $ — $ — $ 500,000 $ 21,368 $ — $ — Derivatives Not Designated as Hedging Instruments Interest rate swap contracts - commercial loans $ 976,707 $ 83,449 $ 1,017,178 $ 33,528 $ 976,707 $ 83,449 $ 1,017,178 $ 33,631 Interest rate lock commitments - mortgage loans 126 5 12,148 401 — — — — Forward sales contracts - mortgage loans 130 2 8,436 4 — — — — Total Derivatives Not Designated as Hedging Instruments $ 976,963 $ 83,456 $ 1,037,762 $ 33,933 $ 976,707 $ 83,449 $ 1,017,178 $ 33,631 Total Derivatives $ 976,963 $ 83,456 $ 1,037,762 $ 33,933 $ 1,476,707 $ 104,817 $ 1,017,178 $ 33,631 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) December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Gross amounts recognized $ 83,449 $ 33,528 $ 104,817 $ 33,631 Gross amounts offset — — — — Net amounts presented in the Consolidated Balance Sheets 83,449 33,528 104,817 33,631 Netting adjustments (1) ( 15,196 ) — ( 15,196 ) — Cash collateral (2) ( 65,065 ) — ( 6,307 ) ( 33,631 ) Net Amount $ 3,188 $ 33,528 $ 83,314 $ — (1) Netting adjustments represents the amounts recorded to convert derivatives assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. (2) 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. 95 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the effect of the cash flow hedges on OCI and on the Consolidated Statements of Comprehensive Income for the twelve month periods presented: Amount of Loss Recognized in Other Comprehensive Income (Loss) Amount of Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Interest Income (dollars in thousands) December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Derivatives in Cash Flow Hedging Relationships: Interest rate swap contracts - cash flow hedge $ ( 16,806 ) $ — $ ( 72 ) $ — Total $ ( 16,806 ) $ — $ ( 72 ) $ — Amounts reported in OCI related to derivatives that are designated as hedging instruments are reclassified to interest income as interest payments are received on variable rate assets. During the next twelve months, we estimate that an additional $ 11.0 million will be reclassified as a decrease to interest income. The following table indicates the gain or (loss) recognized in income on derivatives not designated as hedging instruments for the years ended December 31: (dollars in thousands) 2022 2021 2020 Derivatives not Designated as Hedging Instruments Interest rate swap contracts—commercial loans $ 103 $ 610 $ ( 746 ) Interest rate lock commitments—mortgage loans ( 396 ) ( 2,499 ) 1,715 Forward sale contracts—mortgage loans ( 2 ) 389 478 Total Derivatives (Loss) Gain $ ( 295 ) $ ( 1,500 ) $ 1,447 NOTE 13. MORTGAGE SERVICING RIGHTS For the years ended December 31, 2022, 2021 and 2020, the 1-4 family mortgage loans that were sold to Fannie Mae amounted to $ 28.6 million, $ 287.9 million and $ 345.1 million. At December 31, 2022, 2021 and 2020 our servicing portfolio totaled $ 772.9 million, $ 841.7 million and $ 718.2 million. The following table indicates MSRs and the net carrying values: (dollars in thousands) Servicing Rights Valuation Allowance Net Carrying Value Balance at December 31, 2020 $ 6,620 $ ( 1,631 ) $ 4,989 Additions 2,974 — 2,974 Amortization ( 1,707 ) — ( 1,707 ) Temporary recapture — 1,421 1,421 Balance at December 31, 2021 $ 7,887 $ ( 210 ) $ 7,677 Additions 358 — 358 Amortization ( 1,098 ) — ( 1,098 ) Temporary recapture — 210 210 Balance at December 31, 2022 $ 7,147 $ — $ 7,147 NOTE 14. QUALIFIED AFFORDABLE HOUSING As part of our responsibilities under the Community Reinvestment Act and due to their favorable federal income tax benefits, we invest in Low Income Housing partnerships, or LIHPs. As a limited partner in these operating partnerships, we receive tax credits and tax deductions for losses incurred by the underlying properties. Our maximum exposure to loss associated with these investments consists of the investments' fair value plus any unfunded commitments as well as the denial of the tax credits if the project is deemed non-compliant. We do not have any loss reserves recorded related to these investments because we believe the likelihood of any loss to be remote. Our total investment in qualified affordable housing projects was $ 23.6 million at December 31, 2022 and $ 12.6 million at December 31, 2021. Amortization expense, included in other noninterest expense in the Consolidated Statements of Net Income was $ 1.4 million, $ 1.2 million and $ 3.2 million for the twelve months ended December 31, 2022, 2021 and 2020. The amortization expense was offset by tax credits of $ 1.2 million, $ 2.0 million and $ 2.2 million for the twelve months ended 96 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2022, 2021 and 2020 as a reduction to our federal tax provision. In 2022, we entered into three new qualified affordable housing projects and committed to a total investment of $ 20.1 million for these new projects. As of December 31, 2022, $ 4.4 million of funds were invested into these new projects. No amortization expense or tax credits will be recognized for these new projects until complete. NOTE 15. DEPOSITS The following table presents the composition of deposits at December 31 and interest expense for the years ended December 31: 2022 2021 2020 (dollars in thousands) Balance Interest Expense Balance Interest Expense Balance Interest Expense Noninterest-bearing demand $ 2,588,692 $ — $ 2,748,586 $ — $ 2,261,994 $ — Interest-bearing demand 846,653 1,025 979,133 809 864,510 2,681 Money market 1,731,521 11,948 2,070,579 3,652 1,937,063 11,645 Savings 1,118,511 1,121 1,110,155 366 969,508 972 Certificates of deposit 934,593 5,813 1,088,071 5,930 1,387,463 20,688 Total $ 7,219,970 $ 19,907 $ 7,996,524 $ 10,757 $ 7,420,538 $ 35,986 The aggregate of all certificates of deposits over $250,000, including brokered CDs, were $ 219.2 million and $ 243.4 million at December 31, 2022 and 2021. The following table indicates the scheduled maturities of certificates of deposit at December 31, 2022: (dollars in thousands) Amount 2023 $ 733,285 2024 124,661 2025 36,682 2026 23,543 2027 15,168 Thereafter 1,254 Total $ 934,593 NOTE 16. SHORT-TERM BORROWINGS Short-term borrowings are for terms under or equal to one year and at December 31, 2022 are comprised of FHLB advances. FHLB advances are for various terms and are secured by a blanket lien on residential mortgages and other real estate secured loans. During 2022, we discontinued our REPO product. All REPOs were overnight short-term investments not insured by the Federal Deposit Insurance Corporation, or FDIC. During 2021, securities pledged as collateral under these REPO financing arrangements could not be sold or repledged by the secured party and, therefore, the REPOs were accounted for as secured borrowings. Mortgage-backed securities with amortized cost of $ 86.3 million and carrying value of $ 88.4 million at December 31, 2021 were pledged as collateral for these secured transactions. The pledged securities were held in safekeeping at the Federal Reserve. Due to the overnight short-term nature of REPOs, potential risk due to a decline in the value of the pledged collateral was low. Collateral pledging requirements with REPOs were monitored daily. The following table presents the composition of short-term borrowings, the weighted average interest rate as of December 31 and interest expense for the years ended December 31: 2022 2021 2020 (dollars in thousands) Balance Weighted Average Interest Rate Interest Expense Balance Weighted Average Interest Rate Interest Expense Balance Weighted Average Interest Rate Interest Expense REPOs $ — — % $ 36 $ 84,491 0.10 % $ 79 $ 65,163 0.25 % $ 169 FHLB advances 370,000 4.49 % 1,649 — — % 12 75,000 0.19 % 1,434 Total Short-term Borrowings $ 370,000 4.49 % $ 1,685 $ 84,491 0.10 % $ 91 $ 140,163 0.22 % $ 1,603 97 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17. LONG-TERM BORROWINGS AND SUBORDINATED DEBT Long-term borrowings are for original terms greater than one year and are comprised of FHLB advances, finance leases and junior subordinated debt securities. Our long-term borrowings were $ 14.7 million as of December 31, 2022 and $ 22.4 million as of December 31, 2021. Long-term FHLB advances are secured by the same loans as short-term FHLB advances. Total loans pledged as collateral at the FHLB were $ 4.2 billion at December 31, 2022. We were eligible to borrow up to an additional $ 2.4 billion based on qualifying collateral and up to a maximum borrowing capacity of $ 2.9 billion at December 31, 2022. The following table represents the balance of long-term borrowings, the weighted average interest rate as of December 31 and interest expense for the years ended December 31: (dollars in thousand) 2022 2021 2020 Long-term borrowings $ 14,741 $ 22,430 $ 23,681 Weighted average interest rate 2.61 % 1.94 % 2.03 % Interest expense $ 411 $ 458 $ 1,201 Scheduled annual maturities and average interest rates for all of our long-term debt for each of the five years subsequent to December 31, 2022 and thereafter are as follows: (dollars in thousands) Balance Average Rate 2023 $ 464 5.74 % 2024 13,380 2.27 % 2025 81 5.98 % 2026 87 6.00 % 2027 93 6.02 % Thereafter 636 5.91 % Total $ 14,741 2.61 % Junior Subordinated Debt Securities The following table represents the composition of junior subordinated debt securities at December 31 and the interest expense for the years ended December 31: 2022 2021 2020 (dollars in thousands) Balance Interest Expense Balance Interest Expense Balance Interest Expense Junior subordinated debt $ 25,000 $ 850 $ 25,000 $ 756 $ 34,750 $ 1,007 Junior subordinated debt—trust preferred securities 29,453 1,545 29,393 1,087 29,333 1,279 Total $ 54,453 $ 2,395 $ 54,393 $ 1,843 $ 64,083 $ 2,286 The following table summarizes the key terms of our junior subordinated debt securities: (dollars in thousands) 2001 Trust Preferred Securities 2005 Trust Preferred Securities 2006 Junior Subordinated Debt 2008 Trust Preferred Securities Junior Subordinated Debt $— $— $ 25,000 $— Trust Preferred Securities 5,155 4,124 — 20,619 Stated Maturity Date 7/25/2031 5/23/2035 12/15/2036 3/15/2038 Optional redemption date at par Any time after 7/25/2011 Any time after 5/23/2010 Any time after 9/15/2011 Any time after 3/15/2013 Regulatory Capital Tier 1 Tier 1 Tier 2 Tier 1 Interest Rate 6 Month LIBOR plus 375 bps 3 Month LIBOR plus 177 bps 3 month LIBOR plus 160 bps 3 month LIBOR plus 350 bps Interest Rate at December 31, 2022 7.09 % 6.46 % 6.37 % 8.27 % 98 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We have completed three private placements of trust preferred securities to financial institutions. As a result, we own 100 percent of the common equity of STBA Capital Trust I, DNB Capital Trust I and DNB Capital Trust II, or the Trusts. The Trusts were formed to issue mandatorily redeemable capital securities to third-party investors. The proceeds from the sale of the securities and the issuance of the common equity by the Trusts were invested in junior subordinated debt securities issued by us. The third-party investors are considered the primary beneficiaries of the Trusts; therefore, the Trusts qualify as variable interest entities, but are not consolidated into our financial statements. The Trusts pay dividends on the securities at the same rate as the interest paid by us on the junior subordinated debt held by the Trusts. DNB Capital Trust I and DNB Capital Trust II were acquired with the DNB merger. NOTE 18. COMMITMENTS AND CONTINGENCIES Commitments The following table sets forth our commitments and letters of credit as of the dates presented: December 31, (dollars in thousands) 2022 2021 Commitments to extend credit $ 2,713,586 $ 2,583,957 Standby letters of credit 64,356 87,335 Total $ 2,777,942 $ 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 in these arrangements. The activity in the unfunded loan commitments reserve is summarized as of the dates presented: December 31, (dollars in thousands) 2022 2021 Balance at beginning of period $ 5,189 $ 4,467 Provision for credit losses 3,007 722 Total $ 8,196 $ 5,189 Contractual Obligations Contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude contingent contractual liabilities for which we cannot reasonably predict future payments. We have various financial obligations, including contractual obligations and commitments that may require future cash payments. The following table presents as of December 31, 2022 significant fixed and determinable contractual obligations to third parties by payment date: Payments Due In (dollars in thousands) 2023 2024-2025 2026-2027 Later Years Total Deposits without a stated maturity (1) $ 6,285,377 $ — $ — $ — $ 6,285,377 Certificates of deposit (1) 733,285 161,343 38,711 1,254 934,593 Short-term borrowings (1) 370,000 — — — 370,000 Long-term borrowings (1) 464 13,461 180 636 14,741 Junior subordinated debt securities (1) — — — 54,453 54,453 Operating and finance leases 5,053 9,984 9,587 60,837 85,461 Purchase obligations 32,555 62,656 53,190 — 148,401 Total $ 7,426,734 $ 247,444 $ 101,668 $ 117,180 $ 7,893,026 (1) Excludes interest Operating lease obligations represent lease arrangements as described in Note 10 Premises and Equipment, to the consolidated financial statements. Purchase obligations primarily represent obligations under agreement with our third-party data processing servicer, low income housing obligations and communications charges. 99 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Litigation In the normal course of business, we are subject to various legal and administrative proceedings and claims. While any type of litigation contains a level of uncertainty, we believe that the outcome of such proceedings or claims pending will not have a material adverse effect on our consolidated financial position or results of operations. NOTE 19. REVENUE FROM CONTRACTS WITH CUSTOMERS The information presented in the following table presents the point of revenue recognition for revenue from contracts with customers. Other revenue streams are excluded such as: interest income, net securities gains and losses, insurance, mortgage banking and other revenues that are accounted for under other GAAP. Years ended December 31, (dollars in thousands) 2022 2021 2020 Revenue Streams (1) Point of Revenue Recognition Service charges on deposit accounts Over a period of time $ 1,703 $ 1,880 $ 1,797 At a point in time 15,126 13,160 11,800 $ 16,829 $ 15,040 $ 13,597 Debit and credit card Over a period time $ 1,709 $ 919 $ 738 At a point in time 17,299 17,033 14,355 $ 19,008 $ 17,952 $ 15,093 Wealth management Over a period of time $ 8,714 $ 9,187 $ 7,919 At a point in time 4,003 3,702 2,038 $ 12,717 $ 12,889 $ 9,957 Other fee revenue At a point in time $ 1,550 $ 1,900 $ 1,810 (1) Refer to Note 1 Summary of Significant Accounting Policies for the types of revenue streams that are included within each category. NOTE 20. INCOME TAXES The following table presents the composition of income tax expense (benefit) for the years ended December 31: (dollars in thousands) 2022 2021 2020 Federal Current $ 35,514 $ 22,581 $ 4,256 Deferred ( 2,801 ) 2,273 ( 4,273 ) Total Federal 32,713 24,854 ( 17 ) State Current 828 361 145 Deferred ( 131 ) 110 ( 129 ) Total State 697 471 16 Total Federal and State $ 33,410 $ 25,325 $ ( 1 ) The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. We ordinarily generate an annual effective tax rate that is less than the statutory rate of 21 percent primarily due to benefits resulting from certain partnership investments, such as low income housing and historic rehabilitation projects, tax-exempt interest, excludable dividend income and tax-exempt income on BOLI. The state tax provision is due to taxable business activities conducted at our loan production office in New York. 100 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents a reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31: 2022 2021 2020 Statutory tax rate 21.0 % 21.0 % 21.0 % Tax-exempt interest ( 1.0 ) % ( 1.3 ) % ( 11.9 ) % Low income housing tax credits ( 0.7 ) % ( 1.5 ) % ( 11.1 ) % Bank owned life insurance ( 0.2 ) % ( 0.3 ) % ( 1.8 ) % Other 0.7 % 0.8 % 3.8 % Effective Tax Rate 19.8 % 18.7 % — % The following table presents significant components of our temporary differences as of the dates presented: December 31, (dollars in thousands) 2022 2021 Deferred Tax Assets: Allowance for loan losses $ 23,383 $ 22,083 Net unrealized holding losses on securities available-for-sale 21,843 — Lease liabilities 10,767 10,876 State net operating loss carryforwards 5,924 5,565 Net unrealized losses on interest rate swaps 4,562 — Cumulative adjustment to funded status of pension 4,029 3,922 Low income housing partnerships 3,098 3,270 Other employee benefits 3,070 3,433 Other 3,842 3,973 Deferred Tax Assets 80,518 53,122 Less: Valuation allowance ( 5,924 ) ( 5,565 ) Total Deferred Tax Assets 74,594 47,557 Deferred Tax Liabilities: Right-of-use lease assets ( 9,385 ) ( 9,603 ) Deferred loan income ( 6,113 ) ( 6,697 ) Prepaid pension ( 4,084 ) ( 4,566 ) Purchase accounting adjustments ( 1,853 ) ( 1,954 ) Depreciation on premises and equipment ( 629 ) ( 1,107 ) Net unrealized holding gains on securities available-for-sale — ( 2,004 ) Other ( 922 ) ( 1,466 ) Total Deferred Tax liabilities ( 22,986 ) ( 27,397 ) Net Deferred Tax Asset $ 51,608 $ 20,160 We establish a valuation allowance when it is more likely than not that we will not be able to realize the benefit of the deferred tax assets. Except for Pennsylvania net operating losses, or NOLs, we have determined that no valuation allowance is needed for deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing temporary differences and through future taxable income. The valuation allowance is reviewed quarterly and adjusted based on management’s assessments of realizable deferred tax assets. Gross deferred tax assets were reduced by a valuation allowance of $ 5.9 million in 2022 compared to $ 5.6 million in 2021 related to Pennsylvania income tax NOLs. The Pennsylvania NOL carryforwards total $ 59.3 million and will expire in the years 2022-2042. 101 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unrecognized Tax Benefits The following table reconciles the change in Federal and State gross unrecognized tax benefits, or UTB, for the years ended December 31: (dollars in thousands) 2022 2021 2020 Balance at beginning of year $ 1,331 $ 1,277 $ 1,051 Prior period tax positions — — ( 18 ) Current period tax positions 317 54 244 Balance at End of Year $ 1,648 $ 1,331 $ 1,277 Amount That Would Impact the Effective Tax Rate if Recognized $ 1,148 $ 1,069 $ 1,027 We classify interest and penalties as an element of tax expense. We monitor changes in tax statutes and regulations to determine if significant changes will occur over the next 12 months. As of December 31, 2022, no significant changes to UTB are projected; however, tax audit examinations are possible. As of December 31, 2022, all income tax returns filed for the tax years 2019 - 2021 remain subject to examination by the Internal Revenue Service and the New York State Department of Taxation and Finance. NOTE 21. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME The following table presents the changes in the components of Accumulated Other Comprehensive Income for the periods presented: Available-for-Sale Debt Securities Interest Rate Swaps Employee Benefit Plans Total Balance at December 31, 2019 $ 8,428 $ — $ ( 20,098 ) $ ( 11,670 ) Net Change 17,856 — 2,785 20,641 Balance at December 31, 2020 $ 26,284 $ — $ ( 17,313 ) $ 8,971 Net Change ( 18,857 ) — 2,796 ( 16,061 ) Balance at December 31, 2021 $ 7,427 $ — $ ( 14,517 ) $ ( 7,090 ) Net Change ( 87,890 ) ( 16,806 ) ( 339 ) ( 105,035 ) Balance at December 31, 2022 $ ( 80,463 ) $ ( 16,806 ) $ ( 14,856 ) $ ( 112,125 ) All amounts are net of tax. NOTE 22. EMPLOYEE BENEFITS We maintain a qualified defined benefit pension plan, or Plan, covering substantially all employees hired prior to January 1, 2008. The benefits are based on years of service and the employee’s compensation for the highest five consecutive years in the last ten years through March 31, 2016 when the Plan was frozen. Contributions are intended to provide for benefits attributed to employee service to date and for those benefits expected to be earned in the future. Our qualified and nonqualified defined benefit plans, or Plans, were amended to freeze benefit accruals for all persons entitled to benefits under the Plans in 2016. We will continue recording pension expense related to these plans, primarily representing interest costs on the accumulated benefit obligation and amortization of actuarial losses accumulated in the Plans, as well as income from expected investment returns on pension assets. Since the Plans have been frozen, no service costs are included in net periodic pension expense. 102 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the activity in the benefit obligation and Plan assets deriving the funded status: (dollars in thousands) 2022 2021 Change in Projected Benefit Obligation Projected benefit obligation at beginning of year $ 104,097 $ 117,506 Interest cost 3,160 2,950 Actuarial gain ( 23,020 ) ( 2,136 ) Benefits paid ( 10,871 ) ( 14,223 ) Projected Benefit Obligation at End of Year $ 73,366 $ 104,097 Change in Plan Assets Fair value of plan assets at beginning of year $ 107,525 $ 122,344 Actual loss on plan assets ( 23,568 ) ( 596 ) Benefits paid ( 10,871 ) ( 14,223 ) Fair Value of Plan Assets at End of Year $ 73,086 $ 107,525 Funded Status $ ( 280 ) $ 3,428 The following table sets forth the amounts recognized in accumulated OCI at December 31: (dollars in thousands) 2022 2021 Net actuarial loss 19,409 18,029 Total (Before Tax Effects) $ 19,409 $ 18,029 Below are the actuarial weighted average assumptions used in determining the benefit obligation: 2022 2021 Discount rate 5.41 % 2.80 % Rate of compensation increase (1) — % — % (1) Rate of compensation increase is not applicable due to the plan amendment to freeze benefit accruals under the qualified and nonqualified defined benefit pension plans effective March 31, 2016. The following table summarizes the components of net periodic pension cost and other changes in Plan assets and benefit obligations recognized in other comprehensive loss for the years ended December 31: (dollars in thousands) 2022 2021 2020 Components of Net Periodic Pension Cost Interest cost on projected benefit obligation $ 3,160 $ 2,950 $ 3,456 Expected return on plan assets ( 3,158 ) ( 2,677 ) ( 3,925 ) Recognized net actuarial loss 1,229 1,051 1,419 Settlement charge 1,097 1,629 833 Net Periodic Pension Expense $ 2,328 $ 2,953 $ 1,783 Other Changes in Plan Assets and Benefit Obligation Recognized in Other Comprehensive Income (Loss) Net actuarial loss/(gain) $ 3,706 $ 1,137 $ ( 1,282 ) Recognized net actuarial loss ( 1,229 ) ( 1,051 ) ( 1,419 ) Settlement loss recognized ( 1,097 ) $ ( 1,629 ) ( 833 ) Total Changes in Plan Assets and Benefit Obligation Before Tax Effects $ 1,380 $ ( 1,543 ) $ ( 3,534 ) Total Recognized in Net Benefit Cost and Other Comprehensive Income/(Loss) (Before Tax Effects) $ 3,708 $ 1,410 $ ( 1,751 ) The following table summarizes the actuarial weighted average assumptions used in determining net periodic pension cost: 2022 2021 2020 Discount rate 2.80 % 2.48 % 3.25 % Rate of compensation increase (1) — % — % — % Expected return on assets 3.29 % 2.42 % 3.45 % (1) Rate of compensation increase is not applicable due to the plan amendment to freeze benefit accruals under the qualified and nonqualified defined benefit pension plans effective March 31, 2016. 103 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The accumulated benefit obligation for the Plan was $ 73.4 million at December 31, 2022 and $ 104.1 million at December 31, 2021. We consider many factors when setting the assumed rate of return on Plan assets. As a general guideline the assumed rate of return is equal to the weighted average of the expected returns for each asset category and is estimated based on historical returns as well as expected future returns. The weighted average discount rate is derived from corporate yield curves. S&T Bank’s Retirement Plan Committee determines the investment policy for the Plan. In general, the targeted asset allocation is 5 percent to 15 percent equities and alternatives and 85 percent to 95 percent fixed income. A strategic allocation within each asset class is based on the Plan’s duration, time horizon, risk tolerances, performance expectations, and asset class preferences. Investment managers have discretion to invest in any equity or fixed-income asset class, subject to the securities guidelines of the Plan’s Investment Policy Statement. At this time, S&T Bank is not required to make a cash contribution to the Plan in 2023. The following table provides information regarding estimated future benefit payments to be paid in each of the next five years and in the aggregate for the five years thereafter: (dollars in thousands) Amount 2023 $ 6,285 2024 6,071 2025 5,973 2026 5,861 2027 5,858 2028 - 2032 28,021 We maintain a Thrift Plan, a qualified defined contribution plan, in which substantially all employees are eligible to participate. We make matching contributions to the Thrift Plan up to 3.5 percent of participants’ eligible compensation and may make additional profit-sharing contributions as provided by the Thrift Plan. Expense related to these contributions amounted to $ 2.5 million in 2022 and $ 2.4 million in 2021 and 2020. Fair Value Measurements The following tables present our Plan assets measured at fair value on a recurring basis by fair value hierarchy level at December 31, 2022 and 2021. During the years ended December 31, 2022 and 2021 there were no transfers between Level 1 and Level 2 for items of a recurring basis. There were no purchases or transfers of Level 3 plan assets in 2022 or 2021. December 31, 2022 Fair Value Asset Classes (1) (dollars in thousands) Level 1 Level 2 Level 3 Total Cash and cash equivalents (2) $ 939 $ — $ — $ 939 Fixed income (3) 64,878 — — 64,878 Equities: Equity index mutual funds—international (4) 2,231 — — 2,231 Domestic individual equities (5) 5,038 — — 5,038 Total Assets at Fair Value $ 73,086 $ — $ — $ 73,086 (1) Refer to Note 1 Summary of Significant Accounting Policies, Fair Value Measurements for a description of levels within the fair value hierarchy. (2) This asset class includes FDIC insured money market instruments. (3) This asset class includes a variety of fixed income mutual funds which primarily invest in investment grade rated securities. Investment managers have discretion to invest in fixed income related securities including futures, options and other derivatives. Investments may be made in currencies other than the U.S. dollar. (4) The sole investment within this asset class is the Vanguard Total International Stock Index Fund Admiral Shares. (5) This asset class includes individual domestic equities invested in an active all-cap strategy. It may also include convertible bonds. 104 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 Fair Value Asset Classes (1) (dollars in thousands) Level 1 Level 2 Level 3 Total Cash and cash equivalents (2) $ 3,759 $ — $ — $ 3,759 Fixed income (3) 93,495 — — 93,495 Equities: Equity index mutual funds—international (4) 3,043 — — 3,043 Domestic individual equities (5) 7,228 — — 7,228 Total Assets at Fair Value $ 107,525 $ — $ — $ 107,525 (1) Refer to Note 1 Summary of Significant Accounting Policies, Fair Value Measurements for a description of levels within the fair value hierarchy. (2) This asset class includes FDIC insured money market instruments. (3) This asset class includes a variety of fixed income mutual funds which primarily invest in investment grade rated securities. Investment managers have discretion to invest in fixed income related securities including futures, options and other derivatives. Investments may be made in currencies other than the U.S. dollar. (4) The sole investment within this asset class is Vanguard Total International Stock Index Fund Admiral Shares. (5) This asset class includes individual domestic equities invested in an active all-cap strategy. It may also include convertible bonds. NOTE 23. INCENTIVE AND RESTRICTED STOCK PLAN AND DIVIDEND REINVESTMENT PLAN On May 17, 2021 shareholders approved the adoption of the 2021 Incentive Plan that provides for cash performance awards and for granting incentive stock options, nonstatutory stock options, restricted stock, restricted stock units and appreciation rights. The 2021 Plan replaces and supersedes the S&T Bancorp, Inc. 2014 Incentive Plan. Since the 2021 Plan has been approved by our shareholders, no new awards will be granted under the 2014 Plan. The 2014 Plan will continue to govern all awards granted under that plan. A maximum of 1,000,000 shares of our common stock were available for awards granted under the 2021 Incentive Plan and the plan expires ten years from the date of board approval. Previously granted but forfeited shares are added to the shares available for issuance. The 2014 Incentive Stock Plan also provided for cash performance awards and for granting incentive stock options, nonstatutory stock options, restricted stock, restricted stock units and appreciation rights. A maximum of 750,000 shares of our common stock were available for awards granted under the 2014 Incentive Plan and the plan expires ten years from the date of board approval. Previously granted but forfeited shares are added to the shares available for issuance. Restricted Stock We periodically issue restricted stock to employees and directors pursuant to our 2021 and 2014 Stock Plans. Restricted stock awards are part of the compensation arrangements approved by the Compensation and Benefits Committee. Restricted shares granted under the plans consist of both time and performance-based awards. The awards are granted in accordance with performance levels set by the Compensation and Benefits Committee. During 2022 and 2021, we granted 181,392 and 30,959 restricted stock awards of common stock under the 2021 Stock Plan. During 2022, we did no t grant any shares under the 2014 stock plan. In 2021 and 2020, we granted, 99,711 and 230,703 restricted shares of common stock under the 2014 Stock Plan. The following table provides information about restricted stock awards granted under the plans for the periods presented: December 31, Vesting Period 2022 2021 2020 2021 Stock Plan Directors One year 16,488 14,650 — Chief Executive Officer One year — 8,309 — Other Awards Three years 164,904 8,000 — 2014 Stock Plan Directors One year — — 23,153 Other Awards Three years — 99,711 207,550 Total Restricted Stock Grants 181,392 130,670 230,703 Common stock is issued as vesting restrictions lapse, which varies according to the terms of the vesting schedules in the award agreements. Restricted stock grants are forfeited if a grantee leaves S&T before the end of the vesting period except where accelerated vesting provisions are defined with the award agreements. During 2022, 2021 and 2020, we recognized compensation expense of $ 3.2 million, $ 2.4 million and $ 0.7 million and realized a tax benefit of $ 0.7 million, $ 0.5 million and $ 0.2 million related to restricted stock grants. 105 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides information about restricted stock granted under the Plans for the years ended December 31: Restricted Stock Weighted Average Grant Date Fair Value Non-vested at December 31, 2020 276,680 $ 24.54 Granted 130,670 33.17 Vested 71,152 27.66 Forfeited 57,810 34.93 Non-vested at December 31, 2021 278,388 $ 25.64 Granted 181,392 29.51 Vested 87,513 28.17 Forfeited 80,122 31.91 Non-vested at December 31, 2022 292,145 $ 25.56 As of December 31, 2022, there was $ 4.1 million of total unrecognized compensation cost related to restricted stock that will be recognized as compensation expense over a weighted average period of 1.93 years. Dividend Reinvestment Plan We also sponsor a Dividend Reinvestment and Stock Purchase Plan, or Dividend Plan, where shareholders may purchase shares of S&T common stock at the average fair value with reinvested dividends and voluntary cash contributions. The plan administrator and transfer agent may purchase shares directly from us from shares held in treasury or purchase shares in the open market to fulfill the Dividend Plan’s needs. 106 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 24. PARENT COMPANY CONDENSED FINANCIAL INFORMATION The following condensed financial statements summarize the financial position of S&T Bancorp, Inc. as of December 31, 2022 and 2021 and the results of its operations and cash flows for each of the three years ended December 31, 2022, 2021 and 2020. BALANCE SHEETS December 31, (dollars in thousands) 2022 2021 ASSETS Cash $ 13,817 $ 10,769 Investments in: Bank subsidiary 1,184,327 1,209,796 Non-bank subsidiaries 4,662 5,684 Other assets 11,819 9,993 Total Assets $ 1,214,625 $ 1,236,242 LIABILITIES Long-term debt $ 29,713 $ 29,521 Other liabilities 253 267 Total Liabilities 29,966 29,788 Total Shareholders’ Equity 1,184,659 1,206,454 Total Liabilities and Shareholders’ Equity $ 1,214,625 $ 1,236,242 STATEMENTS OF NET INCOME Years ended December 31, (dollars in thousands) 2022 2021 2020 Dividends from subsidiaries $ 61,426 $ 62,333 $ 59,315 Investment income — — — Total Income 61,426 62,333 59,315 Interest expense on long-term debt 1,545 1,400 1,696 Other expenses 4,112 3,947 4,464 Total Expense 5,657 5,347 6,160 Income before income tax and undistributed net income of subsidiaries 55,769 56,986 53,155 Income tax benefit ( 1,208 ) ( 1,140 ) ( 1,315 ) Income before undistributed net income of subsidiaries 56,977 58,126 54,470 Equity in undistributed net income (distribution in excess of net income) of: Bank subsidiary 79,566 57,025 ( 27,529 ) Non-bank subsidiaries ( 1,023 ) ( 4,808 ) ( 5,901 ) Net Income $ 135,520 $ 110,343 $ 21,040 107 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STATEMENTS OF CASH FLOWS Years ended December 31, (dollars in thousands) 2022 2021 2020 OPERATING ACTIVITIES Net Income $ 135,520 $ 110,343 $ 21,040 Equity in undistributed (earnings) losses of subsidiaries ( 78,543 ) ( 52,217 ) 33,430 Other 1,468 761 1,708 Net Cash Provided by Operating Activities 58,445 58,887 56,178 FINANCING ACTIVITIES Repayment of long term debt — ( 9,750 ) — Sale of treasury shares, net ( 808 ) ( 629 ) ( 594 ) Purchase of treasury shares ( 7,637 ) — ( 12,559 ) Cash dividends paid to common shareholders ( 46,952 ) ( 44,324 ) ( 43,949 ) Net Cash Used in Financing Activities ( 55,397 ) ( 54,703 ) ( 57,102 ) Net increase (decrease) in cash 3,048 4,184 ( 924 ) Cash at beginning of year 10,769 6,585 7,509 Cash at End of Year $ 13,817 $ 10,769 $ 6,585 NOTE 25. REGULATORY MATTERS We are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. Under capital guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about risk weightings and other factors. The most recent notifications from the Federal Reserve and the FDIC categorized S&T and S&T Bank as well capitalized under the regulatory framework for corrective action. There have been no conditions or events that we believe have changed S&T's or S&T Bank’s status during 2022 and 2021. Common equity tier 1 capital includes common stock and related surplus plus retained earnings, less goodwill and intangible assets subject to a limitation and certain deferred tax assets subject to a limitation. In addition, we made a one-time permanent election to exclude accumulated OCI from capital. For regulatory purposes, trust preferred securities totaling $ 29.0 million, issued by an unconsolidated trust subsidiary of S&T underlying junior subordinated debt, are included in Tier 1 capital for S&T. Total capital consists of Tier 1 capital plus junior subordinated debt and the ACL subject to limitation. We currently have $ 25.0 million in junior subordinated debt which is included in Tier 2 capital for S&T in accordance with current regulatory reporting requirements. Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios of Total, Tier 1 and Common Equity Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets. As of December 31, 2022 and 2021, we met all capital adequacy requirements to which we are subject. 108 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes risk-based capital amounts and ratios for S&T and S&T Bank: Actual Minimum Regulatory Capital Requirements To be Well Capitalized Under Prompt Corrective Action Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 2022 Leverage Ratio S&T $ 967,708 11.06 % $ 349,914 4.00 % $ 437,392 5.00 % S&T Bank 938,377 10.73 % 349,746 4.00 % 437,182 5.00 % Common Equity Tier 1 (to Risk-Weighted Assets) S&T 938,708 12.81 % 329,701 4.50 % 476,235 6.50 % S&T Bank 938,377 12.81 % 329,565 4.50 % 476,038 6.50 % Tier 1 Capital (to Risk-Weighted Assets) S&T 967,708 13.21 % 439,602 6.00 % 586,135 8.00 % S&T Bank 938,377 12.81 % 439,420 6.00 % 585,893 8.00 % Total Capital (to Risk-Weighted Assets) S&T 1,078,897 14.73 % 586,135 8.00 % 732,669 10.00 % S&T Bank 1,049,566 14.33 % 585,893 8.00 % 732,367 10.00 % As of December 31, 2021 Leverage Ratio S&T $ 889,785 9.74 % $ 365,535 4.00 % $ 456,918 5.00 % S&T Bank 864,127 9.46 % 365,544 4.00 % 456,930 5.00 % Common Equity Tier 1 (to Risk-Weighted Assets) S&T 860,785 12.03 % 322,109 4.50 % 465,268 6.50 % S&T Bank 864,127 12.09 % 321,711 4.50 % 464,694 6.50 % Tier 1 Capital (to Risk-Weighted Assets) S&T 889,785 12.43 % 429,479 6.00 % 572,638 8.00 % S&T Bank 864,127 12.09 % 428,948 6.00 % 571,931 8.00 % Total Capital (to Risk-Weighted Assets) S&T 987,420 13.79 % 572,638 8.00 % 715,798 10.00 % S&T Bank 961,762 13.45 % 571,931 8.00 % 714,913 10.00 % 109 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 26. SHARE REPURCHASE PLAN On January 25, 2023, our Board of Directors authorized an extension of its $ 50 million share repurchase plan, which was set to expire March 31, 2023. This authorization extended the expiration date of the repurchase plan through March 31, 2024. 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. 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. The following table presents repurchase activity for the periods presented: Twelve Months Ended December 31, (in thousands, except share and per share data) 2022 2021 Value of shares authorized to repurchase $ 50,000 $ 50,000 Remaining plan capacity at the beginning of the period $ 37,442 $ 37,442 Total shares repurchased 268,503 — Average share price for the period $ 28.44 $ — Total cost of repurchases $ 7,637 $ — Remaining plan capacity at the end of the period $ 29,805 $ 37,442 110 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of S&T Bancorp, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of S&T Bancorp, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of net income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the account or disclosures to which it relates. 111 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Allowance for Credit Losses (ACL) Description of the Matter At December 31, 2022, the Company’s gross portfolio of loans was $7.2 billion with an associated ACL of $101.3 million. As discussed in Notes 1 and 8 to the consolidated financial statements, the ACL 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. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and an individual assessment of loans that do not share risk characteristics with other loans to determine if a specific reserve is appropriate. The ACL for homogeneous loans is calculated using a life-time loss rate methodology with both a quantitative and a qualitative analysis that is applied on a quarterly basis. Management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Judgment was required by management to determine the segment specific risk and the reasonable and supportable forecast, which are both part of the qualitative allowance. Auditing the ACL involves a high degree of subjectivity due to the segment specific risk and the reasonable and supportable forecast, which are both part of the qualitative allowance. Management’s identification and measurement of the segment specific risk and the reasonable and supportable forecast are highly judgmental and could have a significant effect on the ACL. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the ACL process, which include, among others, management’s review and approval controls designed to assess the need for and level of the segment specific risk and the reasonable and supportable forecast, which are both part of the qualitative allowance and the reliability of the data utilized to support management’s assessment. To test the segment specific risk and reasonable and supportable forecast, which are both part of the qualitative allowance, we evaluated the appropriateness of management’s methodology and assessed the basis for the adjustments and whether all relevant risks were reflected in the ACL. Regarding the measurement of the segment specific risk and the reasonable and supportable forecast, which are both part of the qualitative allowance, we evaluated the completeness, accuracy and relevance of the underlying internal and external data utilized in management’s estimate and considered the existence of additional or contrary information. We evaluated the overall ACL, inclusive of the qualitative adjustments, and whether the amount appropriately reflects a reasonable estimate of lifetime losses by comparing the overall ACL to historical losses and ACL reserves established by peer banking institutions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2018. Pittsburgh, Pennsylvania February 24, 2023 112 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of S&T Bancorp, Inc. Opinion on Internal Control Over Financial Reporting We have audited S&T Bancorp, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, S&T Bancorp, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of net income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 24, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania February 24, 2023 113 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None