S&T BANCORP INC 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section reviews our financial condition for each of the past two fiscal years and results of operations for each of the past three fiscal years. The Company's discussion and analysis focuses on significant factors impacting the financial condition and results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and Supplementary Data and related notes within this Annual Report on Form 10-K. A similar discussion and analysis that compares the year ended December 31, 2022 to the year ended December 31, 2021 may be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations” on our Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on February 24, 2023. Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. Important Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains or incorporates statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally relate to our financial condition, results of operations, plans, objectives, outlook for earnings, revenues, expenses, capital and liquidity levels and ratios, asset levels, asset quality, financial position and other matters regarding or affecting S&T and its future business and operations. Forward-looking statements are typically identified by words or phrases such as “will likely result,” “expect,” “anticipate,” “estimate,” “forecast,” “project,” “intend,” “believe,” “assume,” “strategy,” “trend,” “plan,” “outlook,” “outcome,” “continue,” “remain,” “potential,” “opportunity,” “comfortable,” “current,” “position,” “maintain,” “sustain,” “seek,” “achieve,” and variations of such words and similar expressions, or future or conditional verbs such as will, would, should, could or may. Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for credit losses, or ACL; cyber-security concerns; rapid technological developments and changes; operational risks or risk management failures by us or critical third parties, including fraud risk; our ability to manage our reputational risks; sensitivity to the interest rate environment, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; any remaining uncertainties with the transition from LIBOR as a reference rate; regulatory supervision and oversight, including changes in regulatory capital requirements and our ability to address those requirements; unanticipated changes in our liquidity position; unanticipated changes in regulatory and governmental policies impacting interest rates and financial markets; changes in accounting policies, practices or guidance; legislation affecting the financial services industry as a whole, and S&T, in particular; developments affecting the industry and the soundness of financial institutions and further disruption to the economy and U.S. banking system; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on significant customer relationships; an interruption or cessation of an important service by a third-party provider; our ability to attract and retain talented executives and employees; general economic or business conditions, including the strength of regional economic conditions in our market area; ESG practices and disclosures, including climate change, hiring practices, the diversity of the work force, and racial and social justice issues; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge to net income; the stability of our core deposit base and access to contingency funding; re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses and geopolitical tensions and conflicts between nations. Many of these factors, as well as other factors, are described elsewhere in this report, including Part I, Item 1A, Risk Factors and any of our subsequent filings with the SEC. Forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. We caution you not to unduly rely on forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made. 26 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions and judgments. Certain policies are based, to a greater extent, on estimates, assumptions and judgments of management and, as such, have a greater possibility of producing results that could be materially different than originally reported. Our most significant accounting policies are presented in Note 1 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Report. These policies, along with the disclosures presented in the Notes to Consolidated Financial Statements, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined. We view critical accounting policies to be those which are highly dependent on subjective or complex estimates, assumptions and judgments and where changes in those estimates and assumptions could have a significant impact on the consolidated financial statements. Further, we view critical accounting estimates as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We currently view the determination of the ACL and goodwill and other intangible assets to be critical accounting policies. We did not significantly change the manner in which we applied our critical accounting policies or developed related assumptions or estimates during 2023. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee. Allowance for Credit Losses Our expected credit loss methodology requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset. The ACL is a valuation reserve established and maintained by charges against operating income. It is an estimate of expected credit losses, measured over the contractual life of a loan, that considers historical loss experience, current conditions and forecasts of future economic conditions. Management’s evaluation process used to determine the appropriateness of the ACL is complex and requires the use of estimates, assumptions and judgments which are inherently subject to high uncertainty. The evaluation process combines several factors: historical loan loss experience, managements ongoing review of lending policies and practices, experience and depth of staff, quality of the loan grading system, the fair value of underlying collateral, concentration of loans to specific borrowers or industries, existing economic conditions and forecasts, segment specific risks and other quantitative and qualitative factors which could affect future credit losses. Our reasonable and supportable forecast is based primarily on the national unemployment forecast produced by the Federal Reserve and is for a period of two years. For periods beyond our two-year forecast, we revert to historical loss rates utilizing a straight-line method over a one-year reversion period. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans and the appropriateness of the ACL could change significantly. It is challenging to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. In conjunction with our capital stress testing process, we consider different economic scenarios that impact the ACL. Among other balance sheet and income statement changes, our severely adverse scenario would have resulted in an increase to the ACL of approximately 70 percent. This severely adverse scenario shows how sensitive the ACL can be to key qualitative and quantitative assumptions underlying the overall ACL calculation. To the extent actual losses are higher than management estimates, additional provision for credit losses could be required and could adversely affect our earnings or financial position in future periods. 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. The acquisition method of accounting requires that assets acquired and liabilities assumed in business combinations are recorded at their fair values. This often involves estimates based on third-party valuations or internal valuations based on discounted cash flow analyses or other valuation techniques which are inherently subjective. Business combinations also typically result in goodwill which is subject to ongoing periodic impairment tests based on the fair values of the reporting units to which the acquired goodwill relates. The carrying value of goodwill is tested annually for impairment each October 1st or more frequently if events and circumstances indicate that it may be impaired. We test for impairment by comparing the fair value of the reporting unit with its 27 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS carrying amount. An impairment charge would be recognized if the carrying amount exceeds the reporting unit's fair value. 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 market based models. The discounted cash flow model has many assumptions including future earnings projections, a long-term growth rate and discount rate. The market based method calculates the fair value based on observed price multiples for similar companies. The fair values of each method are then weighted based on the relevance and reliability in the current economic environment. Based upon our qualitative assessment performed for our annual impairment analysis as of October 1, 2023, we concluded that goodwill is not impaired. Recent Accounting Pronouncements and Developments Note 1 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements, which is included in Part II, Item 8 Financial Statements and Supplementary Data of this Report, discusses new accounting pronouncements that we have adopted and the expected impact of accounting pronouncements recently issued or proposed, but not yet required to be adopted. Explanation of Use of Non-GAAP Financial Measures In addition to traditional financial measures presented in accordance with GAAP, our management uses, and this report contains or references, certain non-GAAP financial measures discussed below. We believe these non-GAAP financial measures provide information useful to investors in understanding our underlying business, operational performance and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Although we believe that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered alternatives to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies. The interest income on interest-earning assets, net interest income and net interest margin are presented on an FTE basis (non-GAAP). The FTE basis (non-GAAP) adjusts for the tax benefit of income on certain tax-exempt loans and securities and the dividend-received deduction for equity securities using the federal statutory tax rate of 21 percent for each period. We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income. The following table reconciles interest and dividend income and net interest income per the Consolidated Statements of Net Income to interest income, net interest income and net interest margin on an FTE basis (non-GAAP) for the periods presented: Years ended December 31, (dollars in thousands) 2023 2022 2021 Interest and dividend income per Consolidated Statements of Net Income $ 477,901 $ 340,751 $ 289,262 Plus: taxable equivalent adjustment 2,550 2,052 2,316 Interest Income on an FTE Basis (Non-GAAP) $ 480,451 $ 342,803 $ 291,578 Interest and dividend income per Consolidated Statements of Net Income $ 477,901 $ 340,751 $ 289,262 Less: Interest expense (128,491) (24,968) (13,150) Net Interest Income per Consolidated Statements of Net Income 349,410 315,783 276,112 Plus: taxable equivalent adjustment 2,550 2,052 2,316 Net Interest Income on an FTE Basis (Non-GAAP) $ 351,960 $ 317,835 $ 278,428 Net interest margin 4.10 % 3.74 % 3.19 % Plus: taxable equivalent adjustment 0.03 % 0.02 % 0.03 % Net Interest Margin on an FTE Basis (Non-GAAP) 4.13 % 3.76 % 3.22 % 28 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The efficiency ratio is noninterest expense divided by noninterest income plus net interest income, on an FTE basis (non-GAAP), which ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Below is a reconciliation of the non-GAAP efficiency ratio. Years ended December 31, (dollars in thousands) 2023 2022 2021 Efficiency Ratio (Non-GAAP) Noninterest expense per Consolidated Statements of Net Income $210,334 $196,746 $188,925 Net interest income per Consolidated Statements of Net Income $349,410 $315,783 $276,112 Plus: taxable equivalent adjustment 2,550 2,052 2,316 Net interest income (FTE) (non-GAAP) 351,960 317,835 278,428 Noninterest income per Consolidated Statements of Net Income 57,620 58,259 64,696 Less: net gains on sale of securities — (198) (29) Net interest income (FTE) (non-GAAP) plus noninterest income $409,580 $375,896 $343,095 Efficiency Ratio (Non-GAAP) 51.35 % 52.34 % 55.06 % Return on average tangible shareholders' equity (non-GAAP) is a key profitability metric used by management to measure financial performance. The following table provides a reconciliation of return on average tangible shareholders' equity (non-GAAP) by reconciling net income (GAAP) per the Consolidated Statements of Net Income to net income before amortization and intangibles and average shareholder's equity to average tangible shareholders' equity for the periods presented: Years ended December 31, (dollars in thousands) 2023 2022 2021 Net income $ 144,781 $ 135,520 $ 110,343 Plus: amortization of intangibles, net of tax 1,042 1,199 1,400 Net income before amortization of intangibles $ 145,823 $ 136,719 $ 111,743 Average shareholders' equity $ 1,227,332 $ 1,181,788 $ 1,186,161 Less: average goodwill and other intangible assets, net of deferred tax liability (377,157) (378,303) (379,612) Average tangible shareholders' equity $ 850,175 $ 803,485 $ 806,549 Return on Average Tangible Shareholders' Equity (non-GAAP) 17.15 % 17.02 % 13.85 % Executive Overview We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of $9.6 billion at December 31, 2023. We operate in Pennsylvania and Ohio providing a full range of financial services with retail and commercial banking products, cash management services, trust and brokerage services. Our common stock trades on the NASDAQ Global Select Market under the symbol “STBA”. We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. We incur expenses for the cost of deposits and other funding sources, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense. Our purpose is building a better future together through people-forward banking. We believe that all banking should be personal. We cultivate relationships rooted in trust, strengthened by going above and beyond and renewed with every interaction. Our strategic priorities for 2024 and beyond will be focused on our deposit franchise, core profitability, asset quality and talent and engagement. During the first quarter of 2023, the banking industry experienced significant volatility with several high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, our liquidity position and balance sheet remain well-positioned. We have a well-diversified deposit base with a balance mix of 56.4 percent personal, 34.1 percent business, 4.5 percent public funds and 5.0 percent brokered deposits at December 31, 2023. We have total uninsured deposits of $2.3 billion, or 30 percent of our total deposit base. At December 31, 2023, we had remaining borrowing availability of $4.1 billion, which includes $2.7 billion with the FHLB of Pittsburgh, $769.7 million from the Federal Reserve Borrower-in-Custody Program and $637.0 million from the Federal Reserve Bank Term Funding Program, or BTFP. Furthermore, our capital remains strong with a Common Equity Tier 1 Ratio of 13.37 percent and a total capital ratio of 15.27 percent at December 31, 2023. 29 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Year Ended December 31, 2023 Earnings Summary The following table presents a summary of key profitability metrics for the periods presented: Years ended December 31, (dollars in thousands) 2023 2022 2021 Net income $ 144,781 $ 135,520 $ 110,343 Earnings per share - diluted $ 3.74 $ 3.46 $ 2.81 Return on average assets 1.56 % 1.48 % 1.18 % Return on average shareholders' equity 11.80 % 11.47 % 9.30 % Return on average tangible shareholders' equity (non-GAAP) (1) 17.15 % 17.02 % 13.85 % (1) Reconciled to GAAP in the "Explanation of Use of Non-GAAP Financial Measures" section of this MD&A. We earned record net income of $144.8 million for the second consecutive year, representing an increase of $9.3 million or 6.83 percent, compared to net income of $135.5 million in 2022. Earnings per diluted share increased 8.1 percent to a record $3.74 in 2023 compared to $3.46 in 2022. The increase in net income was primarily due to higher net interest income related to higher interest rates. Return on average assets increased 8 basis points to 1.56 percent for 2023 compared to 1.48 percent for 2022. Return on average shareholders' equity increased 33 basis points to 11.80 percent for 2023 compared to 11.47 percent for 2022. Net interest income increased $33.6 million, or 10.65 percent, to $349.4 million compared to $315.8 million in 2022. Interest and dividend income increased $137.2 million and interest expense increased $103.5 million compared to 2022. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 37 basis points to 4.13 percent compared to 3.76 percent in 2022. The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2023 and an asset sensitive balance sheet. NIM is reconciled to net interest margin adjusted to an FTE basis (non-GAAP) above in the "Explanation of Use of Non-GAAP Financial Measures" section of this Management’s Discussion and Analysis, or MD&A. The provision for credit losses increased $9.5 million to $17.9 million for 2023 compared to $8.4 million for 2022. The increase in the provision for credit losses was mainly due to an increase in net charge-offs in 2023 and our qualitative reserve. Net loan charge-offs were $13.2 million, or 0.18 percent of average loans, in 2023 compared to $2.6 million, or 0.04 percent of average loans, in 2022. Noninterest income was relatively consistent at $57.6 million compared to $58.3 million in 2022. Mortgage banking income decreased $1.1 million due to a decline in loan sale activity caused by rising interest rates and a shift to holding originated mortgage loans on the balance sheet. Various other customer fees were down compared to the prior year due to lower activity. Offsetting these decreases was an increase of $2.5 million in other noninterest income primarily related to valuation adjustments and a $0.8 million increase in net gain on the sale of OREO partially offset by a $0.8 million decrease in fees on commercial loan swaps. Noninterest expense increased $13.6 million to $210.3 million compared to $196.7 million in 2022. Salaries and employee benefits increased $8.2 million primarily due to higher salaries related to inflationary wage pressure, the acquisition of new talent and a change in the valuation adjustment on a nonqualified benefit plan. Loan-related expense increased $2.1 million primarily due to an increase in loan collection and legal expenses for the workout of criticized and classified loans. Furniture, equipment and software expense increased $1.3 million due to new software implemented in 2023. FDIC insurance increased $1.3 million due to a two basis point increase in the assessment rate. The efficiency ratio (non-GAAP) for 2023 improved to 51.35 percent compared to 52.34 percent for 2022 due to higher revenue in 2023. A reconciliation of the efficiency ratio (non-GAAP) is provided above in the "Explanation of Use of Non-GAAP Financial Measures" section of this MD&A. The provision for income taxes increased $0.6 million to $34.0 million in 2023 compared to $33.4 million in 2022. The increase in our income tax provision was primarily due to a $9.9 million increase in pretax income in 2023 compared to 2022. The effective tax rate decreased 0.8 percent to 19.0 percent in 2023 compared to 19.8 percent in 2022. The decrease in the effective tax rate was primarily due to an increase in Low Income Housing Tax Credits, or LIHTCs, in 2023 compared to 2022. Net Interest Income Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and 30 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or ALCO, in order to mitigate interest rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what we believe is an acceptable level of net interest income. As part of our interest rate risk management strategy, we use interest rate swaps to add stability to net interest income by managing our exposure to interest rate movements. During 2022, we entered into interest rate swaps with a total notional amount of $500.0 million with original maturities ranging from three to five years. There were no new interest rates swaps entered into in 2023. Our strategy is to reduce our exposure to variability in expected future cash flows related to interest payments on commercial loans that are currently indexed to the 1-month SOFR rate. Interest rates have increased substantially in 2022 and 2023 resulting in an unrealized loss on the cash flow hedges of $11.6 million, which is reported in Other Comprehensive Income (Loss), or OCI, net of applicable taxes. Average Balance Sheet and Net Interest Income Analysis (FTE) (non-GAAP) The following tables provide information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on interest-bearing liabilities for the periods presented: 31 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2023 2022 2021 (dollars in thousands) Average Balance Interest Rate Average Balance Interest Rate Average Balance Interest Rate ASSETS Interest-bearing deposits with banks $ 141,954 $ 7,344 5.17 % $ 378,323 $ 2,952 0.78 % $ 722,057 $ 973 0.13 % Securities, at fair value (1)(2) 976,095 25,445 2.61 % 1,017,471 22,880 2.25 % 832,304 18,135 2.18 % Loans held for sale 121 8 6.71 % 1,115 49 4.38 % 4,094 124 3.03 % Commercial real estate 3,216,593 183,204 5.70 % 3,182,821 139,575 4.39 % 3,249,559 119,594 3.68 % Commercial and industrial 1,665,630 118,221 7.10 % 1,706,861 83,568 4.90 % 1,829,563 75,860 4.15 % Commercial construction 381,838 28,835 7.55 % 401,780 18,795 4.68 % 471,286 15,443 3.28 % Total Commercial Loans 5,264,061 330,260 6.27 % 5,291,462 241,938 4.57 % 5,550,407 210,897 3.80 % Residential mortgage 1,282,078 59,170 4.62 % 980,134 40,146 4.10 % 881,494 36,211 4.11 % Home equity 648,525 43,158 6.65 % 611,134 25,887 4.24 % 543,777 18,822 3.46 % Installment and other consumer 117,807 9,929 8.43 % 119,703 7,177 6.00 % 90,129 5,351 5.94 % Consumer construction 51,146 2,462 4.81 % 33,922 1,198 3.53 % 14,748 668 4.53 % Total Consumer Loans 2,099,556 114,719 5.46 % 1,744,893 74,408 4.26 % 1,530,148 61,052 3.99 % Total Portfolio Loans 7,363,617 444,979 6.04 % 7,036,355 316,346 4.50 % 7,080,555 271,949 3.84 % Total Loans (1)(3) 7,363,738 444,987 6.04 % 7,037,470 316,395 4.50 % 7,084,649 272,073 3.84 % Total other earning assets 37,988 2,675 7.04 % 12,694 576 4.54 % 10,363 397 3.83 % Total Interest-earning Assets 8,519,775 $ 480,451 5.64 % 8,445,958 $ 342,803 4.06 % 8,649,372 $ 291,578 3.37 % Noninterest-earning assets 756,481 721,080 726,478 Total Assets $ 9,276,256 $ 9,167,038 $ 9,375,850 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand $ 844,588 $ 6,056 0.72 % $ 918,222 $ 1,025 0.11 % $ 956,211 $ 809 0.08 % Money market 1,677,584 39,480 2.33 % 1,909,208 11,948 0.63 % 2,033,631 3,651 0.18 % Savings 1,020,314 4,352 0.43 % 1,121,818 1,121 0.10 % 1,047,855 366 0.03 % Certificates of deposit 1,302,478 42,948 3.30 % 993,722 5,813 0.58 % 1,255,370 5,930 0.47 % Total Interest-bearing Deposits 4,844,964 92,836 1.92 % 4,942,970 19,907 0.40 % 5,293,066 10,757 0.20 % Securities sold under repurchase agreements — — — % 35,836 36 0.10 % 69,964 79 0.11 % Short-term borrowings 500,421 27,238 5.44 % 40,013 1,659 4.15 % 6,301 12 0.19 % Long-term borrowings 31,706 1,332 4.20 % 19,090 411 2.15 % 22,995 458 1.99 % Junior subordinated debt securities 52,215 4,110 7.87 % 54,420 2,395 4.40 % 61,653 1,843 2.99 % Total Borrowings 584,342 32,680 5.59 % 149,359 4,501 3.01 % 160,913 2,392 1.49 % Other interest-bearing liabilities 58,135 2,975 5.12 % 15,163 560 3.69 % Total Interest-bearing Liabilities 5,487,441 128,491 2.34 % 5,107,492 24,968 0.49 % 5,453,979 13,150 0.24 % Noninterest-bearing liabilities 2,561,483 2,877,758 2,735,710 Shareholders' equity 1,227,332 1,181,788 1,186,161 Total Liabilities and Shareholders' Equity $ 9,276,256 $ 9,167,038 $ 9,375,850 Net Interest Income (1)(2) $ 351,960 $ 317,835 $ 278,428 Net Interest Margin (1)(2) 4.13 % 3.76 % 3.22 % (1) Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent. (2) Taxable investment income is adjusted for the dividend-received deduction for equity securities. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. Net interest income on an FTE basis (non-GAAP) increased $34.1 million, or 10.7 percent, compared to 2022. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 37 basis points to 4.13 percent compared to 3.76 percent in 2022. The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2023. Interest income on an FTE basis (non-GAAP) increased $137.6 million compared to 2022. The increase in interest income on an FTE basis (non-GAAP) was primarily due to higher interest rates. Average loan balances increased $326.3 million compared to 2022. The average yield on loan balances increased 154 basis points compared to 2022 due to higher interest rates. Average interest-bearing deposits with banks decreased $236.4 million compared to 2022 due to declines in deposit balances and loan growth. The average yield on interest-bearing deposits with banks increased 439 basis points compared to 2022 due to 32 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS increased interest rates. Overall, the FTE rate (non-GAAP) on interest-earning assets increased 158 basis points compared to 2022. Interest expense increased $103.5 million compared to 2022. The increase in interest expense was primarily due to higher interest rates and a shift in our funding mix to higher cost certificates of deposits and borrowings. Average interest-bearing deposits decreased $98.0 million compared to 2022 due to the competitive market driven by rising interest rates. The average rate paid on interest-bearing deposits increased 152 basis points due to higher interest rates. Certificates of deposit increased $308.8 million compared to 2022. The increase in certificates of deposits was primarily due to higher interest rates resulting in customers moving deposits to higher yield accounts. Average borrowings increased $435.0 million compared to 2022 primarily due to decreased deposit balances and increased loans. The average rate paid on borrowings increased 258 basis points compared to 2022 due to higher interest rates. Overall, the cost of interest-bearing liabilities increased 185 basis points compared to 2022. The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates: 2023 Compared to 2022 Increase (Decrease) Due to 2022 Compared to 2021 Increase (Decrease) Due to (dollars in thousands) Volume (4) Rate (4) Total Volume (4) Rate (4) Total Interest earned on: Interest-bearing deposits with banks $ (1,845) $ 6,236 $ 4,392 $ (463) $ 2,443 $ 1,980 Securities, at fair value (2)(3) (930) 3,495 2,565 4,035 710 4,745 Loans held for sale (44) 3 (41) (90) 15 (75) Commercial real estate 1,481 42,149 43,630 (2,456) 22,437 19,981 Commercial and industrial (2,019) 36,671 34,653 (5,088) 12,796 7,708 Commercial construction (933) 10,973 10,040 (2,278) 5,630 3,352 Total Commercial Loans (1,471) 89,793 88,322 (9,822) 40,863 31,041 Residential mortgage 12,368 6,656 19,024 4,052 (117) 3,935 Home equity 1,584 15,688 17,272 2,332 4,733 7,065 Installment and other consumer (114) 2,866 2,752 1,756 70 1,826 Consumer construction 608 654 1,263 868 (338) 530 Total Consumer Loans 14,446 25,864 40,311 9,008 4,348 13,356 Total Portfolio Loans 12,976 115,657 128,633 (814) 45,211 44,397 Total Loans (1)(2) 12,932 115,660 128,592 (904) 45,226 44,322 Total other earning assets 1,149 950 2,099 89 90 179 Change in Interest Earned on Interest-earning Assets $ 11,306 $ 126,341 $ 137,647 $ 2,757 $ 48,469 $ 51,226 Interest paid on: Interest-bearing demand $ (82) $ 5,114 $ 5,031 $ (32) $ 248 $ 216 Money market (1,449) 28,981 27,532 (224) 8,520 8,296 Savings (101) 3,332 3,231 26 728 754 Certificates of deposit 1,806 35,329 37,135 (1,236) 1,119 (117) Total Interest-bearing Deposits 173 72,756 72,929 (1,466) 10,615 9,149 Securities sold under repurchase agreements (36) — (36) (38) (5) (43) Short-term borrowings 19,095 6,484 25,578 65 1,582 1,647 Long-term borrowings 272 650 921 (78) 31 (47) Junior subordinated debt securities (97) 1,811 1,714 (216) 768 552 Total Borrowings 19,233 8,945 28,178 (267) 2,376 2,109 Other interest-bearing liabilities 1,587 829 2,416 560 — 560 Change in Interest Paid on Interest-bearing Liabilities 20,993 82,530 103,523 (1,173) 12,991 11,818 Change in Net Interest Income $ (9,687) $ 43,812 $ 34,124 $ 3,930 $ 35,478 $ 39,408 (1) Nonaccruing loans are included in the daily average loan amounts outstanding. (2) Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent. (3) Taxable investment income is adjusted for the dividend-received deduction for equity securities. (4) Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis. 33 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Provision for Credit Losses The provision for credit losses includes a provision for losses on loans and on unfunded commitments. The provision for credit losses fluctuates based on changes in loan balances, risk ratings, net loan charge-offs/recoveries, the macro environment and our Current Expected Credit Loss, or CECL, forecast. The provision for credit losses increased $9.5 million to $17.9 million for 2023 compared to $8.4 million for 2022. The provision for credit losses included a reduction of $1.4 million for the reserve for unfunded commitments for 2023 compared to an increase of $3.0 million for 2022. The increase in the provision for credit losses for 2023 compared to 2022 was primarily due to increases in net loan charge-offs and our qualitative reserve. Net loan charge-offs for 2023 were $13.2 million, or 0.18 percent of average loans, compared to $2.6 million, or 0.04 percent of average loans for 2022. Offsetting loan charge-offs during 2023 were $11.5 million of loan recoveries which included a $9.3 million recovery related to a 2020 customer fraud compared to $9.0 million of loan recoveries during 2022. The increase in qualitative reserve was primarily due to deterioration in the CRE Price Index and our qualitative reserve capturing additional expected losses in commercial loans that are not included in the model. Offsetting the increase in provision for credit losses during 2023 was a $4.4 million decrease in the provision for unfunded loan commitments primarily due to a decrease in loss rates and unused commitments in the construction portfolio. Refer to the "Credit Quality" section of this MD&A for further details. Noninterest Income Years Ended December 31, Twelve Months Ended December 31, (dollars in thousands) 2023 2022 $ Change % Change Net gain on sale of securities $ — $ 198 $ (198) (100.0) % Debit and credit card 18,248 19,008 (760) (4.0) % Service charges on deposit accounts 16,193 16,829 (636) (3.8) % Wealth management 12,186 12,717 (531) (4.2) % Mortgage banking 1,164 2,215 (1,051) (47.4) % Other noninterest income 9,829 7,292 2,537 34.8 % Total Noninterest Income $ 57,620 $ 58,259 $ (639) (1.1) % NM - not meaningful Noninterest income decreased $0.6 million to $57.6 million compared to $58.2 million in 2022. Mortgage banking income decreased $1.1 million due to a decline in loan sale activity caused by rising interest rates and a shift to holding originated mortgage loans on the balance sheet. Debit and credit card income decreased by $0.8 million due to decreased customer activity. Service charges on deposit accounts decreased by $0.6 million due to decreases in returned check and the elimination of non-sufficient funds, or NSF, fees. Other noninterest income increased $2.5 million primarily related to a $3.3 million increase in the fair value of assets in a nonqualified benefit plan, which has a corresponding offset in salaries and benefits resulting in no impact to net income, and an increase in net gain on the sale of OREO of $0.8 million, partially offset by a $0.7 million decrease in the valuation of our commercial loan swaps and a $0.8 million decrease in fees on our commercial loan swaps. Noninterest Expense Years Ended December 31, (dollars in thousands) 2023 2022 $ Change % Change Salaries and employee benefits $ 111,462 $ 103,221 $ 8,241 8.0 % Data processing and information technology 17,437 16,918 519 3.1 % Occupancy 14,814 14,812 2 — % Furniture, equipment and software 12,912 11,606 1,306 11.3 % Professional services and legal 7,823 8,318 (495) (6.0) % Other taxes 6,813 6,620 193 2.9 % Marketing 6,488 5,600 888 15.9 % FDIC insurance 4,122 2,854 1,268 44.4 % Loan-related expense 5,391 3,337 2,054 61.6 % Other 23,072 23,460 (388) (1.7) % Total Noninterest Expense $ 210,334 $ 196,746 $ 13,588 6.9 % Noninterest expense increased $13.6 million to $210.3 million compared to $196.7 million in 2022. Salaries and employee benefits increased $8.2 million during 2023 primarily due to inflationary wage pressure, the acquisition of new talent, higher 34 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS medical costs and an increase in the fair value of assets in a nonqualified benefit plan, partially offset by a decrease in incentives. Loan-related expense increased $2.1 million primarily due to an increase in loan collection and legal expenses for the workout of criticized and classified loans. Furniture, equipment and software expense increased $1.3 million mainly due to new software implemented in 2023. FDIC insurance increased $1.3 million due to a two basis point increase in the assessment rate. Provision for Income Taxes The provision for income taxes increased $0.6 million to $34.0 million in 2023 compared to $33.4 million for 2022. The increase in our income tax provision was primarily due to a $9.9 million increase in income before taxes in 2023 compared to 2022. The effective tax rate, which is total tax expense as a percentage of income before taxes, decreased to 19.0 percent in 2023 compared to 19.8 percent in 2022. The decrease in the effective tax rate was primarily due to an increase in LIHTCs in 2023 compared to 2022. We have generated an annual effective tax rate that is less than the statutory rate of 21 percent due to benefits resulting from tax-exempt interest, excludable dividend income, tax-exempt income on Bank Owned Life Insurance, or BOLI, and tax benefits associated with LIHTCs. Financial Condition as of December 31, 2023 Total assets increased $441.0 million to $9.6 billion at December 31, 2023 compared to $9.1 billion at December 31, 2022. Total portfolio loans increased $469.4 million to $7.7 billion at December 31, 2023 compared to $7.2 billion at December 31, 2022. The increase in loans is primarily related to consumer loan growth of $352.9 million with an increase in consumer real estate of $362.9 million compared to December 31, 2022. The commercial loan portfolio increased $116.5 million at December 31, 2023 compared to December 31, 2022 due to an increase of $229.4 million in CRE loans offset by decreases of $76.9 million in C&I and $36.1 million in construction. Securities remained relatively unchanged at $970.4 million at December 31, 2023 compared to $1.0 billion at December 31, 2022. The bond portfolio was in a net unrealized loss position of $82.0 million at December 31, 2023 compared to a net unrealized loss position of $102.3 million at December 31, 2022. The decrease in the net unrealized loss portion of the bond portfolio of $20.3 million was due to a change in interest rates. Our deposits increased $301.8 million to $7.5 billion at December 31, 2023 compared to $7.2 billion at December 31, 2022. The increase related to the addition of $375.7 million of brokered deposits, including $200.7 million of brokered money market accounts and $175.0 million of brokered certificates of deposit. Customer deposits decreased $73.9 million compared to the prior year with decreases in noninterest-bearing demand deposits of $366.8 million and savings of $168.0 million partially offset by an increase in certificates of deposit of $472.1 million. Customer deposits decreased primarily due to lower commercial and consumer deposits due to the competitive pricing in this higher interest rate environment. Additionally, noninterest-bearing demand decreased due to the shift into interest-bearing deposits as a result of the elevated interest rate environment. Total borrowings increased $64.4 million to $503.6 million at December 31, 2023 compared to $439.2 million at December 31, 2022 primarily due to loan growth. Total shareholders’ equity increased by $98.8 million to $1.3 billion at December 31, 2023 compared to $1.2 billion at December 31, 2022. The increase was primarily due to net income of $144.8 million and other comprehensive income of $21.2 million, offset by dividends of $49.9 million and common stock repurchases of $20.0 million. 35 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Securities Activity The balances and average rates of our securities portfolio are presented below as of December 31: 2023 2022 2021 (dollars in thousands) Balance Weighted-Average Yield Balance Weighted-Average Yield Balance Weighted-Average Yield U.S. Treasury securities $ 133,786 1.71 % $ 131,695 1.71 % $ 95,327 1.26 % Obligations of U.S. government corporations and agencies 32,513 2.28 % 41,811 2.32 % 70,348 2.29 % Collateralized mortgage obligations of U.S. government corporations and agencies 460,939 3.04 % 428,407 2.56 % 270,294 1.97 % Residential mortgage-backed securities of U.S. government corporations and agencies 38,177 1.86 % 41,587 1.86 % 56,793 1.57 % Commercial mortgage-backed securities of U.S. government corporations and agencies 273,425 2.42 % 327,313 2.28 % 341,300 2.09 % Corporate obligations — — % 500 7.67 % 500 3.22 % Obligations of states and political subdivisions 30,468 3.34 % 30,471 3.35 % 75,089 3.28 % Available-for-Sale Debt Securities 969,308 1,001,784 909,651 Equity securities 1,083 3.06 % 994 3.32 % 1,142 2.93 % Total Securities Available for Sale $ 970,391 2.62 % $ 1,002,778 2.34 % $ 910,793 2.05 % We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security purchases are subject to an investment policy approved annually by our Board of Directors and administered through ALCO and our treasury function. Our securities portfolio represents 10.2 percent of total assets and is classified as available for sale.The portfolio primarily consists of structured agency backed fixed income securities with limited credit exposure. Securities decreased $32.4 million to $970.4 million at December 31, 2023 compared to $1.0 billion at December 31, 2022. At December 31, 2023, our bond portfolio was in a net unrealized loss position of $82.0 million compared to a net unrealized loss position of $102.3 million at December 31, 2022. At December 31, 2023, our bond portfolio had gross unrealized losses of $83.8 million offset by $1.8 million in gross unrealized gains, compared to December 31, 2022, when total gross unrealized losses were $102.6 million offset by gross unrealized gains of $0.3 million. Management evaluates the securities portfolio to determine if an ACL is needed each quarter. We did not record an ACL related to the securities portfolio at December 31, 2023 or December 31, 2022. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities. All debt securities were determined to be investment grade and paying principal and interest according to the contractual terms of the security at December 31, 2023. We do not intend to sell and it is more likely than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost. We did not recognize any impairment charges on our securities portfolio in 2023, 2022 or 2021. The securities portfolio could generate impairments in future periods requiring realized losses to be reported. 36 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the maturities of securities at December 31, 2023 and the weighted average yields of such securities. Taxable-equivalent adjustments for 2023 have been made in calculating yields on obligations of state and political subdivisions. Maturing Within One Year After One But within Five Years After Five But Within Ten Years After Ten Years No Fixed Maturity (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Available-for-Sale U.S. Treasury securities $ — — % $ 133,786 1.71 % $ — — % $ — — % $ — — % Obligations of U.S. government corporations and agencies 17,719 2.40 % 14,794 2.14 % — — % — — % — — % Collateralized mortgage obligations of U.S. government corporations and agencies — — % 11,127 2.86 % 48,724 3.66 % 401,088 2.97 % — — % Residential mortgage-backed securities of U.S. government corporations and agencies 8 5.00 % 1,458 2.79 % — — % 36,711 1.82 % — — % Commercial mortgage-backed securities of U.S. government corporations and agencies 41,495 2.61 % 171,483 2.11 % 60,447 3.16 % — — % — — % Obligations of states and political subdivisions (1) — — % 2,656 3.22 % 16,368 3.48 % 11,444 3.18 % — — % Corporate bonds — — % — — % — — % — — % — — % Marketable equity securities — — % — — % — — % — — % 1,083 3.06 % Total $ 59,222 $ 335,304 $ 125,539 $ 449,243 $ 1,083 Weighted Average Yield 2.55 % 1.99 % 3.40 % 2.88 % 3.06 % (1) Weighted-average yields are calculated on a taxable-equivalent basis using the federal statutory tax rate of 21 percent for 2023. Lending Activity The following table summarizes our loan portfolio as of December 31: 2023 2022 2021 2020 2019 (dollars in thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Commercial Commercial real estate $ 3,357,603 43.9 % $ 3,128,187 43.5 % $ 3,236,653 46.2 % $ 3,244,974 44.9 % $ 3,416,518 47.9 % Commercial and industrial 1,642,106 21.5 % 1,718,976 23.9 % $ 1,728,969 24.7 % $ 1,954,453 27.0 % $ 1,720,833 24.1 % Commercial construction 363,284 4.7 % 399,371 5.6 % 440,962 6.3 % 474,280 6.6 % 375,445 5.3 % Total Commercial Loans 5,362,993 70.1 % 5,246,534 73.0 % 5,406,584 77.2 % 5,673,706 78.5 % 5,512,796 77.2 % Consumer Consumer real estate 2,175,451 28.4 % 1,812,539 25.2 % 1,485,478 21.2 % 1,471,238 20.4 % 1,545,323 21.7 % Other consumer 114,897 1.5 % 124,896 1.7 % 107,928 1.5 % 80,915 1.1 % 79,033 1.1 % Total Consumer Loans 2,290,348 29.9 % 1,937,435 27.0 % 1,593,406 22.8 % 1,552,153 21.5 % 1,624,356 22.8 % Total Portfolio Loans $ 7,653,341 100.0 % $ 7,183,969 100.0 % $ 6,999,990 100.0 % $ 7,225,859 100.0 % $ 7,137,152 100.0 % The loan portfolio represents the most significant source of interest income for us. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions such as downturns in the borrower’s industry or the overall economic climate can significantly impact the borrower’s ability to pay. We maintain a General Lending Policy to control the quality of our loan portfolio. The policy delegates the authority to extend loans under specific guidelines and underwriting standards. The General Lending Policy is formulated by management and reviewed and ratified annually by the Board of Directors. We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When concentrations exist in certain segments, we assess the credit risk within those segments to determine if additional reserve is needed in the qualitative portion of the ACL. Total commercial loans represented 70.1 percent of total portfolio loans at December 31, 2023 compared to 73.0 percent at December 31, 2022. Within our commercial portfolio, the CRE and commercial construction portfolios combined comprised $3.7 billion, or 69.4 percent, of total commercial loans and 48.6 percent of total portfolio loans at December 31, 2023 compared to $3.5 billion, or 67.2 percent, of total commercial loans and 49.1 percent of total portfolio loans at December 31, 2022. 37 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our multi-family and office segments are the most significant CRE and commercial construction concentrations for us. The multi-family segment was $658.9 million, or 8.6 percent of total portfolio loans at December 31, 2023 compared to $568.3 million, or 7.9 percent at December 31, 2022. Criticized and classified loans in the multi-family segment are minimal at only $7.4 million at December 31, 2023. The office segment represents $516.5 million, or 6.7 percent of total portfolio loans at December 31, 2023 compared to $511.8 million, or 7.1 percent at December 31, 2022. Criticized and classified loans in the office segment were only $11.6 million at December 31, 2023. Approximately 85 percent of the office portfolio is located in non central business districts, or CBD, with the remaining 15 percent in CBD within our direct markets. We completed a target review of the office portfolio in the third quarter of 2023 and did not identify any material credit risk. We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia, New Jersey, Delaware and Maryland. The majority of our commercial and consumer loans are made to businesses and individuals in these states resulting in a geographic concentration. We believe our knowledge of these markets outweighs the geographic concentration risk. Our operating knowledge at the local and regional level is derived from our front-line connection to the customer and our understanding of their businesses. We also have a portfolio management group that utilizes multiple data sources including customer information, publicly available data and subscription service data to assess risk on an on-going basis and strong overall risk management practices which help us understand and evaluate concentration risk. Our CRE and commercial construction portfolios have exposure outside this geography of 3.9 percent of the combined portfolios and 1.9 percent of total portfolio loans at December 31, 2023. This compares to 5.8 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, 2022. Total portfolio loans increased $469.4 million, or 6.5 percent, to $7.7 billion at December 31, 2023 compared to $7.2 billion at December 31, 2022. As of December 31, 2023, 65.0 percent of our total loans were variable rate loans and 35.0 percent were fixed rate loans. Commercial loans increased $116.5 million related to an increase of $229.4 million in CRE offset by decreases of $76.9 million in C&I and $36.1 million in commercial construction compared to December 31, 2022. Our loan demand was influenced by the uncertain macroeconomic environment during 2023. Consumer loans represent 29.9 percent of our total portfolio loans at December 31, 2023 and 27.0 percent at December 31, 2022. Consumer loans increased $352.9 million compared to December 31, 2022 primarily due to an increase of $343.2 million in the residential real estate portfolio and $19.7 million in consumer construction. Portfolio consumer real estate loans increased in 2023 based on a shift from mortgage loans sold to loans held in the portfolio on our balance sheet due to increased jumbo loans and the pricing of loans in the secondary market compared to December 31, 2022 . We originate traditional fixed rate mortgage loans and adjustable rate mortgages with a maximum amortization term of 30 years. The loan to value, or LTV, policy guideline is 80 percent for residential first lien mortgages. Higher LTV loans may be approved within unique program guidelines. We may originate home equity loans with a lien position that is second to unrelated third-party lenders, but normally only to the extent that the combined LTV considering both the first and second liens does not exceed 100 percent of the fair value of the property. Combo mortgage loans consisting of a residential first mortgage and a home equity second mortgage are also available. We typically originate and sell loans into the secondary market, primarily to Fannie Mae. We sell these loans in order to mitigate interest-rate risk associated with holding lower rate, long-term residential mortgages in the loan portfolio and to generate fee revenue from sales and servicing of the loans. During 2023, our strategy changed whereby we held more mortgages on our balance sheet versus selling these loans in the secondary market. This shift in strategy was mainly due to loan pricing in the secondary market and the desire to reduce our variable rate loan exposure in this interest rate environment. We continue to monitor this strategy and could shift back to selling more residential mortgages into the secondary market in future periods. We sold $0.2 million of 1-4 family mortgages in 2023 and $28.6 million in 2022 to Fannie Mae. Our servicing portfolio of mortgage loans that we had originated and sold into the secondary market was $707.8 million at December 31, 2023 compared to $772.9 million at December 31, 2022. We also offer a variety of unsecured and secured consumer loan products. 38 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents the maturity of commercial and consumer loans outstanding as of December 31, 2023: Maturity (dollars in thousands) Within One Year After One But Within Five Years After Five Years through 15 years After 15 years Total Fixed interest rates $ 307,894 $ 833,408 $ 391,828 $ 5,750 $ 1,538,880 Variable interest rates 824,171 1,958,597 972,491 68,854 3,824,113 Total Commercial Loans $ 1,132,065 $ 2,792,005 $ 1,364,319 $ 74,604 $ 5,362,993 Fixed interest rates $ 183,841 $ 525,698 $ 330,538 $ 88,373 $ 1,128,450 Variable interest rates 191,615 441,854 438,758 89,671 1,161,898 Total Consumer Loans $ 375,456 $ 967,552 $ 769,296 $ 178,044 $ 2,290,348 Total Portfolio Loans $ 1,507,521 $ 3,759,557 $ 2,133,615 $ 252,648 $ 7,653,341 Off Balance Sheet Arrangements In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event the customer does not satisfy the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The following table sets forth our commitments and letters of credit as of the dates presented: December 31, (dollars in thousands) 2023 2022 Commitments to extend credit $ 2,566,154 $ 2,713,586 Standby letters of credit 61,889 64,356 Total $ 2,628,043 $ 2,777,942 See Note 16 Commitments and Contingencies in Part II, Item 8. Financial Statements and Supplementary Data of this Report for details on allowance for credit losses on unfunded commitments. Credit Quality On a quarterly basis, a criticized asset meeting is held to monitor all special mention and substandard loans greater than $1.5 million and all business banking special mention and substandard loans greater than $0.5 million to establish action plans for these loans. These loans typically represent the highest risk of loss to us. We monitor these loans through regular contact with the borrower, review of current financial information and other documentation, review of all loan or potential loan restructures or modifications and the regular re-evaluation of assets held as collateral. Additional credit risk management practices include periodic review, at least annually, and updates of our lending policies and procedures to support sound underwriting practices and portfolio management through portfolio stress testing. We have a portfolio monitoring group that performs an annual review of all commercial relationships greater than $1.5 million and a quarterly review of our Watch rated portfolio. Business banking relationships less than $1.5 million are monitored through portfolio management software that identifies credit risk indicators. Our credit risk review process serves to independently monitor credit quality and assess the effectiveness of credit risk management practices to provide oversight of all corporate lending activities. The credit risk review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as providing input to the loan risk rating process. 39 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nonperforming assets, or NPAs, consist of nonaccrual loans and OREO. The following represents NPAs as of December 31: (dollars in thousands) 2023 2022 Nonaccrual Loans Commercial real estate $ 7,267 $ 7,323 Commercial and industrial 3,244 2,974 Commercial construction 4,960 384 Consumer real estate 7,146 8,093 Other consumer 330 278 Total Nonaccrual Loans 22,947 19,052 OREO 75 3,065 Total Nonperforming Assets $ 23,022 $ 22,117 Nonaccrual loans as a percent of total loans 0.30 % 0.27 % Nonperforming assets as a percent of total loans plus OREO 0.30 % 0.31 % Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due. Nonperforming assets increased $0.9 million, or 4.1 percent, resulting in a nonperforming assets to total loans plus OREO ratio of 0.30% at December 31, 2023 compared to 0.31% at December 31, 2022. Nonaccrual loans increased $3.9 million, or 20.4 percent, to $22.9 million at December 31, 2023 compared to $19.1 million at December 31, 2022. The decrease in OREO related to the sale of a commercial property that resulted in a gain on sale of OREO of $3.9 million, which is included in other noninterest income. The following represents delinquency as of December 31: 2023 2022 (dollars in thousands) Amount % of Loans Amount % of Loans 90 days or more: Commercial real estate $ 7,267 0.22 % $ 7,323 0.23 % Commercial and industrial 3,244 0.20 % 2,974 0.17 % Commercial construction 4,960 1.37 % 384 0.10 % Consumer real estate 7,146 0.33 % 8,093 0.45 % Other consumer 330 0.29 % 278 0.22 % Total Loans $ 22,947 0.30 % $ 19,052 0.27 % 30 to 89 days: Commercial real estate $ 7,665 0.23 % $ 8,772 0.28 % Commercial and industrial 710 0.04 % 5,076 0.30 % Commercial construction 22 0.01 % — — % Consumer real estate 6,295 0.29 % 6,268 0.35 % Other consumer 429 0.37 % 225 0.18 % Total Loans $ 15,121 0.20 % $ 20,341 0.28 % 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 or more. We monitor delinquency on a monthly basis, including early-stage delinquencies of 30 to 89 days past due for early identification of potential problem loans. Loans past due 90 days or more increased $3.9 million compared to December 31, 2022 and represented 0.30 percent of total loans at December 31, 2023. Loans past due by 30 to 89 days decreased $5.2 million and represented 0.20 percent of total loans at December 31, 2023. 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 a loan 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 40 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS the following portfolio segments: 1) CRE, 2) C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss is confirmed, regardless of the delinquency status of the loan. We may elect to recognize a partial charge-off when management has determined that the value of collateral or present value of expected future cash flows is less than the remaining investment in the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined that sufficient collateral exists to protect the remaining loan balance and a strategy exists to liquidate the collateral, or (ii) management has determined that the present value of expected future cash flows is sufficient to protect the remaining loan balance. Management may also consider a number of other factors to determine when a charge-off is appropriate. These factors may include, but are not limited to: • The status of a bankruptcy proceeding; • The value of collateral and probability of successful liquidation; and/or • The status of adverse proceedings or litigation that may result in collection. Consumer loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged off and secured loans are charged down to the estimated fair value of the collateral less the cost to sell. The following table presents activity in the ACL for each of the three years presented below: Years Ended December 31, (dollars in thousands) 2023 2022 2021 ACL Balance at Beginning of Year: $ 101,340 $ 98,576 $ 117,612 Charge-offs: Commercial real estate (1,706) (1,820) (13,493) Commercial and industrial (20,535) (7,801) (22,305) Commercial construction (451) — (55) Consumer real estate (446) (621) (719) Other consumer (1,500) (1,375) (952) Total (24,638) (11,617) (37,524) Recoveries: Commercial real estate 1,084 1,052 1,196 Commercial and industrial 9,796 7,366 822 Commercial construction 2 1 14 Consumer real estate 214 203 310 Other consumer 360 400 652 Total 11,456 9,022 2,994 Net Charge-offs (13,182) (2,595) (34,530) Impact of adoption of ASU 2022-02 568 — — Provision for credit losses 19,240 5,359 15,494 ACL Balance at End of Year: $ 107,966 $ 101,340 $ 98,576 Net loan charge-offs for 2023 were $13.2 million, or 0.18 percent of average loans, compared to $2.6 million, or 0.04 percent of average loans for 2022. The most significant charge-offs during 2023 were for three C&I relationships totaling $16.9 million. Offsetting loan charge-offs during 2023 were $11.5 million of loan recoveries, which included a $9.3 million recovery related to a 2020 customer fraud compared to $9.0 million of loan recoveries during 2022. The following table summarizes net charge-offs as a percentage of average loans for the years presented: 2023 2022 2021 Commercial real estate 0.02 % 0.02 % 0.38 % Commercial and industrial 0.64 % 0.03 % 1.17 % Commercial construction 0.12 % — % 0.01 % Consumer real estate 0.01 % 0.03 % 0.03 % Other consumer 0.97 % 0.81 % 0.33 % Net charge-offs to average loans outstanding 0.18 % 0.04 % 0.49 % Allowance for credit losses as a percentage of total portfolio loans 1.41 % 1.41 % 1.41 % Allowance for credit losses to total nonaccrual loans 471 % 532 % 149 % Provision for credit losses as a percentage of net loan charge-offs 146 % 207 % 45 % 41 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is the ACL balance by portfolio segment as of December 31: 2023 2022 (dollars in thousands) Amount % of Total Amount % of Total Commercial real estate $ 37,886 35.1 % $ 41,428 40.9 % Commercial and industrial 34,538 32.0 % 25,710 25.4 % Commercial construction 5,382 5.0 % 6,264 6.2 % Business banking 12,858 11.9 % 12,547 12.4 % Consumer real estate 14,663 13.6 % 12,105 11.9 % Other consumer 2,639 2.4 % 3,286 3.2 % Total $ 107,966 100.0 % $ 101,340 100.0 % Significant to our ACL is a higher concentration of commercial loans. The ability of borrowers to repay commercial loans is dependent upon the success of their business and general economic conditions. Due to the greater potential for loss within our commercial portfolio, 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 rated special mention or substandard have potential or well-defined weaknesses not generally found in high quality, performing loans, and require attention from management to limit loss. The ACL was $108.0 million, or 1.41 percent of total portfolio loans, at December 31, 2023, compared to $101.3 million, or 1.41 percent of total portfolio loans, at December 31, 2022. The increase in the ACL of $6.7 million was primarily due to a $7.7 million increase in our qualitative reserve mainly related to deterioration in the Commercial Real Estate Price Index and a higher C&I segment specific reserve which captures additional expected losses that are not included in the quantitative model. Our quantitative reserve decreased $1.0 million primarily due to a reduction in criticized and classified loans mainly in our CRE healthcare and CRE hotel portfolios partially offset by higher C&I substandard loans and loan growth during 2023. Federal Home Loan Bank and Other Restricted Stock At December 31, 2023, we held FHLB of Pittsburgh stock of $24.0 million compared to $22.0 million at December 31, 2022. This investment 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 the members’ asset values, 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 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. We reviewed and evaluated the FHLB capital stock for impairment at December 31, 2023. The FHLB exceeds all required capital ratios. Additionally, we considered that the FHLB has been paying dividends and actively redeeming stock throughout 2023 and 2022. Accordingly, we believe sufficient evidence exists to conclude that no impairment existed at December 31, 2023. 42 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Deposits Deposits are our primary source of funds. We have a well-diversified deposit base with a balance mix of 56.4 percent personal, 34.1 percent business, 4.5 percent public funds and 5.0 percent brokered at December 31, 2023. December 31, 2023 December 31, 2022 (dollars in thousands) Amount % of Deposits Amount % of Deposits $ Change % Change Personal $ 4,244,386 56.4 % $ 4,171,701 57.8 % $ 72,685 1.0 % Business 2,565,853 34.1 % 2,666,995 36.9 % (101,142) (1.4) % Public funds 335,876 4.5 % 381,274 5.3 % (45,398) (0.6) % Brokered 375,654 5.0 % — — % 375,654 5.2 % Total Deposits $ 7,521,769 100.0 % $ 7,219,970 100.0 % $ 301,799 4.2 % The following table presents the composition of deposits at December 31: (dollars in thousands) 2023 2022 $ Change Customer deposits Noninterest-bearing demand $ 2,221,942 $ 2,588,692 $ (366,750) Interest-bearing demand 825,787 846,653 (20,866) Money market 1,741,189 1,731,521 9,668 Savings 950,546 1,118,511 (167,965) Certificates of deposit 1,406,652 934,593 472,059 Total customer deposits 7,146,116 7,219,970 (73,854) Brokered deposits Money market 200,653 — 200,653 Certificates of deposit 175,000 — 175,000 Total brokered deposits 375,653 — 375,653 Total Deposits $ 7,521,769 $ 7,219,970 $ 301,799 Total deposits increased $301.8 million, or 4.18 percent, at December 31, 2023 compared to December 31, 2022. Total customer deposits decreased $73.9 million from December 31, 2022 primarily due to lower commercial and consumer deposits due to the competitive pricing in this higher interest rate environment. Additionally, noninterest-bearing demand decreased due to the shift into interest-bearing deposits as a result of the elevated interest rate environment. Total brokered deposits increased $375.7 million from December 31, 2022. Brokered deposits are an additional source of funds utilized by ALCO as a way to diversify funding sources, as well as manage our funding costs and structure. As a member of the IntraFi network, we are able to offer our customers insurance coverage on interest-bearing demand, money market and certificate of deposit balances in excess of the FDIC insurance limits. IntraFi balances increased $210.4 million to $277.7 million at December 31, 2023 compared to $67.3 million at December 31, 2022. We have total uninsured deposits of $2.3 billion, or 30.0 percent of our total deposit base, compared to $2.5 billion, or 34.0 percent, at December 31, 2022. Included in uninsured deposits is $296.0 million, or 4.0 percent of our total deposit base, of municipal deposits which are fully collateralized. The daily average balance of deposits and rates paid on deposits are summarized in the following table for the years ended December 31: 2023 2022 2021 (dollars in thousands) Amount Rate Amount Rate Amount Rate Noninterest-bearing demand $ 2,349,919 — $ 2,705,210 — $ 2,594,152 — Interest-bearing demand 844,588 0.72 % 918,222 0.11 % 956,211 0.08 % Money market 1,638,947 2.28 % 1,909,209 0.63 % 2,026,083 0.18 % Savings 1,020,314 0.43 % 1,121,818 0.10 % 1,047,855 0.03 % Certificates of deposit 1,226,989 3.17 % 991,396 0.58 % 1,246,499 0.46 % Brokered deposits 114,322 5.43 % 2,323 2.10 % 16,419 1.15 % Total $ 7,195,079 1.29 % $ 7,648,178 0.26 % $ 7,887,219 0.14 % CDs of $250,000 and over accounted for 4.7 percent and 3.0 percent of total deposits at December 31, 2023 and December 31, 2022. These primarily represent deposit relationships with local customers in our market area. 43 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Maturities of CDs of $250,000 or more outstanding at December 31, 2023 are summarized as follows: (dollars in thousands) 2023 Three months or less $ 199,437 Over three through six months 60,757 Over six through twelve months 61,953 Over twelve months 28,580 Total $ 350,727 Borrowings (dollars in thousands) December 31, 2023 December 31, 2022 $ Change Short-term borrowings $ 415,000 $ 370,000 $ 45,000 Long-term borrowings 39,277 14,741 24,536 Junior subordinated debt securities 49,358 54,453 (5,095) Total Borrowings $ 503,635 $ 439,194 $ 64,441 Borrowings are an additional source of funding for us. Total borrowings increased $64.4 million to $503.6 million compared to $439.2 million at December 31, 2022 primarily due to loan growth. Information pertaining to short-term borrowings is summarized in the table below for the years ended December 31, 2023 and December 31, 2022. Short-Term Borrowings (dollars in thousands) 2023 2022 Balance at the period end $ 415,000 $ 370,000 Average balance during the period $ 500,421 $ 40,013 Average interest rate during the period 5.44 % 4.15 % Maximum month-end balance during the period $ 630,000 $ 370,000 Average interest rate at the period end 5.65 % 4.49 % Information pertaining to long-term borrowings and junior subordinated debt securities is summarized in the tables below for the years ended December 31, 2023 and December 31, 2022. Long-Term Borrowings (dollars in thousands) 2023 2022 Balance at the period end $ 39,277 $ 14,741 Average balance during the period $ 31,706 $ 19,090 Average interest rate during the period 4.20 % 2.15 % Maximum month-end balance during the period $ 39,589 $ 22,344 Average interest rate at the period end 4.52 % 2.61 % Junior Subordinated Debt Securities (dollars in thousands) 2023 2022 Balance at the period end $ 49,358 $ 54,453 Average balance during the period $ 52,215 $ 54,421 Average interest rate during the period 7.87 % 4.40 % Maximum month-end balance during the period $ 54,483 $ 54,453 Average interest rate at the period end 7.98 % 7.09 % In 2023, we redeemed $5.0 million of junior subordinated debt securities, along with $0.2 million in common equity issued by DNB Capital Trust I and held by us. 44 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wealth Management Assets The fair value of the S&T Bank Wealth Management assets under administration, which are not accounted for as part of our assets, remained unchanged at $2.2 billion at December 31, 2023 and December 31, 2022. Assets under administration consisted of $1.0 billion in S&T Trust, $1.0 billion in S&T Financial Services and $0.2 billion in Stewart Capital Advisors. Liquidity and Capital Resources Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. Our primary future cash needs are centered on the ability to (i) satisfy the financial needs of depositors who may want to withdraw funds or of borrowers needing to access funds to meet their credit needs and (ii) to meet our future cash commitments under contractual obligations with third parties. In order to manage liquidity risk, our Board of Directors has delegated authority to ALCO for the formulation, implementation and oversight of liquidity risk management for S&T. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position. Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing deposits and attract new deposits, mitigating any funding dependency on other more volatile funding sources. Refer to the "Financial Condition as of December 31, 2023 - Deposits" section of this MD&A, for additional discussion on deposits. Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our normal funding program. Additional funding sources accessible to S&T include borrowing availability at the Federal Home Loan Bank of Pittsburgh, or FHLB, federal funds lines with other financial institutions and the brokered deposit market. Additionally, S&T has borrowing availability through the Federal Reserve Borrower-in-Custody Program and the Federal Reserve BTFP. In response to recent bank failures, the Federal Reserve authorized additional funding availability to eligible depository institutions through the BTFP. The program is intended to help assure depositors that their institutions have an additional source of liquidity to meet their needs. Under the BTFP, any collateral eligible for purchase by the Federal Reserve Banks in open market operations can be pledged including U.S. Treasury securities, U.S. Agencies and U.S. Agency mortgage-backed securities. Collateral advances will be equal to 100 percent of the par value of the collateral pledged with a term of up to one year. Interest was charged at a fixed rate equal to the one-year overnight index swap rate plus 10 basis points with no prepayment penalty. The rate on new advances, beginning on January 25, 2024, is set to be no lower than the interest rate on reserve balances in effect on the day the loan is made. As of December 31, 2023, we have $637.0 million of collateral available to pledge under the program and no outstanding balance. The Federal Reserve has announced that it is ending the BTFP and will cease making new loans under this program on March 11, 2024. Available borrowing capacity exceeds uninsured deposits of $2.3 billion at December 31, 2023 and $2.5 billion at December 31, 2022. The following table summarizes borrowing funding sources available as of the dates presented: December 31, 2023 December 31, 2022 (dollars in thousands) Borrowing Capacity Balance Available Borrowing Capacity Balance Available FHLB $ 3,241,098 $ 552,136 $ 2,688,962 $ 2,925,614 $ 491,288 $ 2,434,326 Borrower-in-Custody Program $ 769,653 $ — $ 769,653 839,836 — 839,836 Federal Reserve BTFP (1) $ 636,963 $ — $ 636,963 — — — Total $ 4,647,714 $ 552,136 $ 4,095,578 $ 3,765,450 $ 491,288 $ 3,274,162 (1) Emergency lending program created by the Federal Reserve in March 2023. At December 31, 2023, we had available borrowing capacity of $4.1 billion, of which $2.7 billion was remaining borrowing availability with the FHLB of Pittsburgh. We believe that these funding sources will provide adequate resources to fund our short-term and long-term operating and financing needs. In addition, our ability to access capital markets provides additional sources of funding with respect to strategic investing opportunities. Our access to and the availability of funds in the future will be affected by many factors, including, but not limited to our financial condition and prospects, the liquidity of the overall capital markets and the current state of the economy. In the normal course of business, we enter into various contractual obligations, which require future payments that could impact our liquidity and capital resources. We also utilize interest rate swaps to add stability and manage exposure to interest rate movements, under which we are required to either receive cash from, or pay cash to, counterparties depending on changes 45 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in interest rates. Derivative contracts are carried at fair value representing the net present value of expected future cash receipts or payments based on market rates as of the balance sheet date. The following table summarizes our material contractual obligations as of December 31, 2023: Payments Due In (dollars in thousands) 2024 2025-2026 2027-2028 Later Years Total Certificates of deposit (1) 1,320,588 239,190 19,099 2,775 1,581,652 Short-term borrowings (1) 415,000 — — — 415,000 Long-term borrowings (1) 38,381 167 187 542 39,277 Junior subordinated debt securities (1) — — — 49,358 49,358 Operating and finance leases 4,995 9,881 9,302 59,550 83,728 Funding commitments on Low Income Housing Partnerships 7,262 4,727 — — 11,989 Total $ 1,786,226 $ 253,965 $ 28,588 $ 112,225 $ 2,181,004 (1) Excludes interest An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly, with little or no loss in value, to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. At December 31, 2023, S&T Bank had $897.4 million in highly liquid assets, which consisted primarily of $160.3 million in interest-bearing deposits with banks and $736.9 million in unpledged securities. This resulted in a highly liquid assets to total assets ratio of 9.4 percent at December 31, 2023 compared to 9.6 percent at December 31, 2022. Highly liquid assets have increased by $27.3 million when comparing December 31, 2023 to December 31, 2022. The majority of the increase in liquid assets is attributed to increases in cash balances. Refer to Note 12. Qualified Affordable Housing, Note 13 Deposits, Note 14 Short Term Borrowings, Note 15 Long Term Borrowings and Subordinated Debt and Note 7 Right-Of-Use Assets and Lease Liabilities to the consolidated financial statements included in Part II, Item 8. Financial Statements and Supplementary Data, and the Deposits and Borrowings section of this MD&A, for more details. Capital Resources Shareholders’ equity increased $98.8 million, or 8.3 percent, to $1.3 billion at December 31, 2023 compared to $1.2 billion at December 31, 2022. The increase was primarily due to net income of $144.8 million and other comprehensive income of $21.2 million, partially offset by dividends of $49.9 million and common stock repurchases of $20.0 million. The other comprehensive income was primarily due to a $15.9 million improvement in unrealized losses on our available-for-sale debt securities, net of tax and an improvement of $5.2 million in unrealized losses on our interest rate swaps, net of tax. We continue to maintain a strong capital position with a leverage ratio of 11.21 percent as compared to the regulatory guideline of 5.00 percent to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 13.37 percent compared to the regulatory guideline of 6.50 percent to be well-capitalized. Our risk-based Tier 1 and Total capital ratios were 13.69 percent and 15.27 percent, which places us above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00 percent and 10.00 percent, respectively. Our ratios are also above the required minimum ratios after the capital conservation buffer, discussed further below, of common equity tier 1 risk-based capital ratio greater than 7.00 percent, tier 1 risk-based capital ratio greater than 8.50 percent and a total risk-based capital ratio greater than 10.50 percent. We believe that we have the ability to raise additional capital, if necessary. On March 27, 2020, the regulators issued interim final rule, or IFR, “Regulatory Capital Rule: Revised Transition of the Current Expected Credit Losses Methodology for Allowances” in response to the disrupted economic activity from the spread of COVID-19. The IFR provides financial institutions that adopt CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided by the initial two-year delay (“five-year transition”). We adopted CECL effective January 1, 2020 and elected to implement the five-year transition. In July 2013, the federal banking agencies issued a final rule to implement Basel III and the minimum leverage and risk-based capital requirements of the Dodd-Frank Act. The rule requires a banking organization to maintain a capital conservation buffer composed of common equity tier 1 capital in an amount greater than 2.50 percent of total risk-weighted assets. Banking organizations must maintain a common equity tier 1 risk-based capital ratio greater than 7.00 percent, a tier 1 risk-based capital ratio greater than 8.50 percent and a total risk-based capital ratio greater than 10.50 percent; otherwise, it will be subject to restrictions on capital distributions and discretionary bonus payments. The minimum capital requirements plus the capital conservation buffer exceeds the regulatory capital ratios required for an insured depository institution to be well-capitalized under the FDIC's prompt corrective action framework. 46 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Federal regulators periodically propose amendments to the regulatory capital rules and the related regulatory framework and consider changes to the capital standards that could significantly increase the amount of capital needed to meet applicable standards. The timing of adoption, ultimate form and effect of any such proposed amendments cannot be predicted. We have filed a shelf registration statement on Form S-3 under the Securities Act of 1933 as amended, with the SEC, which allows for the issuance of a variety of securities including debt and capital securities, preferred and common stock and warrants. We may use the proceeds from the sale of securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of December 31, 2023, we had not issued any securities pursuant to the shelf registration statement. Inflation Inflation can have a significant impact on interest rates and, accordingly, can impact our financial performance. Inflation can influence our asset growth, deposits, noninterest income and expense and credit quality. As a result, we closely monitor the the rate of inflation in the economy. We do so by analyzing our capability to respond to changing interest rates and our ability to manage noninterest income and expense. We monitor the mix of interest-rate sensitive assets and liabilities through our management committee, ALCO, in order to manage the impact of inflation and the level of interest rates on net interest income. We also manage the effects of inflation on S&T by reviewing the prices of our products and services, by introducing new products and services and by controlling overhead expenses. Additionally, management is aware of the potential impacts that inflation can have on our loan portfolio and our customer's ability to operate their businesses. We seek to minimize the various inflationary inputs through a robust annual review process and sensitivity analysis when considering extensions of credit. Additionally, we leverage our internal credit risk review in support of the current economic cycle. We continuously monitor our portfolio for potential and emerging risks. See Risk Factors in Item 1A for further information regarding the impact of inflation on the economy and on S&T. 47 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES