UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-12508
S&T BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania
(State or other jurisdiction of incorporation or organization)
800 Philadelphia Street
Indiana
PA
(Address of principal executive offices)
25-1434426
(IRS Employer Identification No.)
15701
(zip code)
Registrant’s telephone number, including area code (800) 325-2265
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $2.50 per share
Trading Symbol
STBA
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Securities registered pursuant to Section 12(g) of the Act: None
(Title of class)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☒ No ☐
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. The aggregate estimated fair value
of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021:
Common Stock, $2.50 par value – $1,148,828,816
The number of shares outstanding of each of the registrant's classes of common stock as of February 25, 2022:
Common Stock, $2.50 par value –36,703,796
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement of S&T Bancorp, Inc., to be filed pursuant to Regulation 14A for the annual meeting of shareholders to be held May 16, 2022, are
incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
Part I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV
Item 15.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Signatures
PART I
2
3
14
24
24
24
24
25
25
27
56
58
126
127
128
128
129
129
129
129
129
130
133
Item 1. BUSINESS
General
S&T Bancorp, Inc. was incorporated on March 17, 1983 under the laws of the Commonwealth of Pennsylvania as a bank holding company and is registered with the Board of
Governors of the Federal Reserve System, or the Federal Reserve Board, under the Bank Holding Company Act of 1956, as amended, or the BHCA, as a bank holding company and a
financial holding company. S&T Bancorp, Inc. has five active direct wholly-owned subsidiaries including 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. DNB Capital Trust I and DNB Capital Trust II
were acquired with the DNB merger on November 30, 2019. When used in this Report, “S&T”, “we”, “us” or “our” may refer to S&T Bancorp, Inc. individually, S&T Bancorp, Inc.
and its consolidated subsidiaries or certain of S&T Bancorp, Inc.’s subsidiaries or affiliates, depending on the context. As of December 31, 2021, we had approximately $9.5 billion in
assets, $7.0 billion in total loans, $8.0 billion in deposits and $1.2 billion in shareholders’ equity.
On November 30, 2019, pursuant to the terms and conditions of the Agreement and Plan of Merger, dated as of June 5, 2019 (the “Merger Agreement”), by and between S&T
Bancorp, Inc. (“S&T”) and DNB Financial Corporation (“DNB”), DNB merged with and into S&T (the “DNB Merger”), with S&T continuing as the surviving corporation. At the
effective time of the DNB Merger, each share of the common stock of DNB issued and outstanding was converted into the right to receive 1.22 shares of S&T common stock. The
transaction was valued at $201.0 million and added total assets of $1.1 billion, including $909.0 million in loans, as well as $967.3 million in deposits.
S&T Bank is a full-service bank that operates in five markets including Western Pennsylvania, Eastern Pennsylvania, Northeast Ohio, Central Ohio and Upstate New York. S&T
Bank deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent provided by law. S&T Bank has four active wholly-owned operating
subsidiaries including S&T Insurance Group, LLC, S&T Bancholdings, Inc., Stewart Capital Advisors, LLC, and DN Acquisition Company, Inc.
Through S&T Bank and our non-bank subsidiaries, we offer consumer, commercial and small business banking services, which include accepting time and demand deposits and
originating commercial and consumer loans, brokerage services and trust services including serving as executor and trustee under wills and deeds and as guardian and custodian of
employee benefits. We also manage private investment accounts for individuals and institutions through our registered investment advisor. Total Wealth Management assets under
administration, which are not accounted for as part of our assets, were
$2.3 billion at December 31, 2021.
The main office of both S&T Bancorp, Inc. and S&T Bank is located at 800 Philadelphia Street, Indiana, Pennsylvania, and our phone number is (800) 325-2265.
Human Capital Management
As part of our mission to become the financial services provider of choice within the markets that we serve, we strive to employ talented people who are based in these
communities and are dedicated to providing the best financial products and services to our customers. Our commitment to every customer starts with a talented team. To attract and
retain our talented team we strive to make S&T an inclusive, safe and healthy workplace that provides our employees with opportunities to grow and develop. We consider our
employees to be the bedrock of the company and instrumental in assisting our customers address the challenges facing our markets, in particular, during the ongoing COVID-19
pandemic. As of December 31, 2021, we had approximately 1,160 full time equivalent employees.
Our Team and Culture
Our team strives to embody values to encourage a culture that has enabled us to be named a top workplace. The specific words or phrases that serve as the basis for our culture and
values are as follows:
Serve Our Customers
Challenge the Status Quo
Communicate
Empower Employees
•
•
•
•
• Work as a Team
Trust Each Other
•
• Develop People
•
Reward Success
• Measure Results
•
Support Our Communities
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Item 1. BUSINESS -- continued
Diversity and Inclusion
S&T Bank fosters a diverse work culture where employees work together to better our company, services and community.
We are committed to promoting a diverse workforce and developing all people through:
•
•
•
•
Equal Opportunity Employment
Educating our employees and board of directors
Fostering a culture to address employees’ and customers’ needs
Partnering with diverse vendors
Our Compensation and Benefits Committee of the Board of Directors oversees our diversity and inclusion strategy, and at least annually, measures the success of diversity and
inclusion initiatives by reviewing S&T’s strategies and statistics from S&T’s Human Capital Management System.
Diversity, equity, and inclusion, or DEI, is a commitment that we are focused on through various avenues to create awareness, provide education, support our colleagues and
communities, develop and improve products and services, partner with diverse vendors and drive results tied to our overall organizational strategy. As part of our DEI strategy, our DEI
Advisory Committee is expected to launch during 2022. The DEI Advisory Committee will be co-chaired by our Chief Executive Officer and Chief Human Resources Officer and be
made up of colleagues from departments across our organization. Through a partnership with a vendor who specializes in diversity, the DEI Advisory Committee will work to develop
objectives for the organization and metrics that will help us to understand our current state and what initiatives are needed to enhance our DEI strategy.
Talent Development and Training
Our Corporate Training Department maintains oversight of all training to ensure that it is implemented and monitored properly and encourages career development for our
employees. Our training program offers a blended learning approach comprised of classroom and online course delivery. In 2020, many training sessions were converted to a virtual
format through webinars and learning management system delivery for regulatory, compliance, skill-based, technology, leadership and career development. Certain trainings are
conducted live based on the needs of the program. In 2021, our employees logged approximately 64,300 training hours, on average 56 hours per employee, which is an increase of
approximately 15 percent compared to 2020.
Safety, Health and Wellness
The safety, health and well being of our employees is a top priority. We offer our employees and their families access to a variety of flexible and convenient health and welfare
programs that provide resources to help them maintain and/or improve their physical and mental health. We also have a financial wellness program that assists our employees and their
families with budgeting and various personal financial content consisting of an online personal financial program and internally produced webinars. We believe in the education and
offering of programs and initiatives that make lasting positive impacts in the lives of our employees.
Continuing with the pandemic plan that was developed in March 2020, we enhanced several COVID-19 pandemic risk mitigation programs in 2021 to remain steadfast with the
promotion of the health and safety of our employees and the customers and communities that we serve. Current measures include preventive healthcare and education measures for our
employees through rigorous sanitation, social distancing, regular communication and signage refreshing, wearing masks and remote working where feasible. We amended training
sessions, meetings and employee engagement events to virtual formats to continue business at the highest levels of engagement potential. We also amended our defined contribution
plan to allow eligible COVID-19 pandemic related withdrawals under the CARES Act. In addition, we employ extensive safety measures at our branches and encourage our customers
to use our online and mobile banking solutions. Our solution center hours have been extended to allow for customer consultation without entering a branch.
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Item 1. BUSINESS -- continued
Access to United States Securities and Exchange Commission Filings
All of our reports filed electronically with the United States Securities and Exchange Commission, or the SEC, including this Annual Report on Form 10-K for the fiscal year
ended December 31, 2021, our prior annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our annual proxy statements, as well as any
amendments to those reports, are accessible at no cost on our website at www.stbancorp.com under Financial Information, SEC Filings. These filings are also accessible on the SEC’s
website at www.sec.gov. The charters of the Audit Committee, the Compensation and Benefits Committee, the Credit Risk Committee, the Executive Committee, the Nominating and
Corporate Governance Committee, the Revenue Oversight Committee and the Risk Committee as well as the Complaints Regarding Accounting, Internal Accounting Controls or
Auditing Matters ("Whistleblower Policy"), the Code of Conduct for the CEO and CFO, the General Code of Conduct, the Shareholder Communications Policy, and the Corporate
Governance Guidelines are also available at www.stbancorp.com under Corporate Governance.
Supervision and Regulation
General
S&T is extensively regulated under federal and state law. Regulation of bank holding companies and banks is intended primarily for the protection of consumers, depositors,
borrowers, the Federal Deposit Insurance Fund, or DIF, and the banking system as a whole, and not for the protection of shareholders or creditors. The following describes certain
aspects of that regulation and does not purport to be a complete description of all regulations that affect S&T, or all aspects of any regulation discussed here. To the extent statutory or
regulatory provisions are described, the description is qualified in its entirety by reference to the particular statutory or regulatory provisions.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, enacted in July 2010, has had and will continue to have a broad impact on the financial
services industry, including significant regulatory and compliance changes addressing, among other things: (i) enhanced resolution authority of troubled and failing banks and their
holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the FDIC for federal deposit
insurance; (v) enhanced corporate governance and executive compensation requirements and disclosures; and (vi) numerous other provisions designed to improve supervision and
oversight of, and strengthen safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act established a new framework for systemic risk oversight within
the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Federal Reserve Board, the Office of
the Comptroller of the Currency and the FDIC. While many requirements called for in the Dodd-Frank Act have been implemented, these regulations are subject to continuing
interpretation and potential amendment, and a variety of the requirements remain to be implemented. Given the continued uncertainty associated with the ongoing implementation of
the requirements of the Dodd-Frank Act by the various regulatory agencies, including the manner in which the remaining provisions will be implemented and the interpretation of and
potential amendments to existing regulations, the full extent of the impact of such requirements on financial institutions’ operations remains unclear, but management expects will
continue to affect us in some way. The continuing changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our
business practices, increase our operating and compliance costs, or otherwise adversely affect our business. These changes may also require us to invest significant management
attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements.
In addition, proposals to change the laws and regulations governing the banking industry are frequently raised in Congress, in state legislatures and before the various bank
regulatory agencies that may impact S&T. Such initiatives to change the laws and regulations may include proposals to expand or contract the powers of bank holding companies and
depository institutions or proposals to substantially change the financial institution regulatory system. Any such legislation could change bank statutes and our operating environment
in substantial and unpredictable ways. If enacted, such legislation could affect how S&T and S&T Bank operate and could significantly increase costs, impede the efficiency of internal
business processes, limit our ability to pursue business opportunities in an efficient manner, or affect the competitive balance among banks, credit unions and other financial
institutions, any of which could materially and adversely affect our business, financial condition and results of operations. The likelihood and timing of any changes and the impact
such changes might have on S&T is impossible to determine with any certainty.
5
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Item 1. BUSINESS -- continued
S&T
We are a bank holding company subject to regulation under the BHCA and the examination and reporting requirements of the Federal Reserve Board. Under the BHCA, a bank
holding company may not directly or indirectly acquire ownership or control of more than five percent of the voting shares or substantially all of the assets of any additional bank, or
merge or consolidate with another bank holding company, without the prior approval of the Federal Reserve Board.
As a bank holding company, we are expected under statutory and regulatory provisions to serve as a source of financial and managerial strength to our subsidiary bank. A bank
holding company is also expected to commit resources, including capital and other funds, to support its subsidiary bank.
We elected to become a financial holding company under the BHCA in 2001 and thereby may engage in a broader range of financial activities than are permissible for traditional
bank holding companies. In order to maintain our status as a financial holding company, we must remain “well-capitalized” and “well-managed” and the depository institutions
controlled by us must remain “well-capitalized,” “well-managed” (as defined in federal law) and have at least a “satisfactory” Community Reinvestment Act, or CRA, rating. Refer to
Note 26 Regulatory Matters to the Consolidated Financial Statements contained in Part II, Item 8 of this Report for information concerning the current capital ratios of S&T and S&T
Bank. No prior regulatory approval is required for a financial holding company with total consolidated assets less than $50 billion to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board, unless the total
consolidated assets to be acquired exceed $10 billion. The BHCA identifies several activities as “financial in nature” including, among others, securities underwriting; dealing and
market making; sponsoring mutual funds and investment companies; insurance underwriting and sales agency; investment advisory activities; merchant banking activities and
activities that the Federal Reserve Board has determined to be closely related to banking. Banks may also engage in, subject to limitations on investment, activities that are financial in
nature, other than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the
bank is “well-capitalized,” “well-managed” and has at least a “satisfactory” CRA rating.
If S&T or S&T Bank ceases to be “well-capitalized” or “well-managed,” we will not be in compliance with the requirements of the BHCA regarding financial holding companies
or requirements regarding the operation of financial subsidiaries by insured banks.
If a financial holding company is notified by the Federal Reserve Board of such a change in the ratings of any of its subsidiary banks, it must take certain corrective actions within
specified time frames. Furthermore, if S&T Bank was to receive a CRA rating of less than “satisfactory,” then we would be prohibited from engaging in certain new activities or
acquiring companies engaged in certain financial activities until the rating is raised to “satisfactory” or better.
We are presently engaged in non-banking activities through the following six entities:
•
•
•
•
•
th
9 Street Holdings, Inc. was formed in June 1988 to hold and manage a group of investments previously owned by S&T Bank and to give us additional latitude to
purchase other investments.
S&T Bancholdings, Inc. was formed in August 2002 to hold and manage a group of investments previously owned by S&T Bank and to give us additional latitude to
purchase other investments.
CTCLIC is a joint venture with another financial institution, and acts as a reinsurer of credit life, accident and health insurance policies that were sold by S&T Bank and
the other institution. S&T Bank and the other institution each have ownership interests of 50 percent in CTCLIC.
S&T Insurance Group, LLC distributes life insurance and long-term disability income insurance products. During 2001, S&T Insurance Group, LLC and Attorneys
Abstract Company, Inc. entered into an agreement to form S&T Settlement Services, LLC, or STSS, with respective ownership interests of 55 percent and 45 percent.
STSS is a title insurance agency servicing commercial customers. We also have a 30 percent partnership interest in Evergreen Insurance, LLC.
Stewart Capital Advisors, LLC was formed in August 2005 and is a registered investment advisor that manages private investment accounts for individuals and
institutions.
• DN Acquisition Company, Inc. was acquired with the DNB First merger on November 30, 2019. DN Acquisition Company, Inc. was formed to acquire and hold Other
Real Estate Owned acquired through foreclosure or deed in-lieu-of foreclosure, as well as Bank-occupied real estate.
6
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Item 1. BUSINESS -- continued
S&T Bank
As a Pennsylvania-chartered, FDIC-insured non-member commercial bank, S&T Bank is subject to the supervision and regulation of the Pennsylvania Department of Banking and
Securities, or PADBS, and the FDIC. We are also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types, amount and terms and conditions of loans that may be granted and limits on the types of other activities in which S&T Bank may engage and the
investments it may make. In addition, pursuant to the federal Bank Merger Act, S&T Bank must obtain the prior approval of the FDIC before it can merge or consolidate with or
acquire the assets or assume the deposit liabilities of another bank.
S&T Bank is subject to affiliate transaction rules in Sections 23A and 23B of the Federal Reserve Act as implemented by the Federal Reserve Board's Regulation W, that limit the
amount of transactions between itself and S&T or any other company or entity that controls or is under common control with any company or entity that controls S&T Bank, including
for most purposes any financial or depository institution subsidiary of S&T Bank. Under these provisions, “covered” transactions, including making loans, purchasing assets, issuing
guarantees and other similar transactions, between a bank and its parent company or any other affiliate, generally are limited to 10 percent of the bank subsidiary’s capital and surplus,
and with respect to all transactions with affiliates, are limited to 20 percent of the bank subsidiary’s capital and surplus. Loans and extensions of credit from a bank to an affiliate
generally are required to be secured by eligible collateral in specified amounts, and in general all affiliated transactions must be on terms consistent with safe and sound banking
practices. Furthermore, in general, transactions between a bank and its affiliates must be on terms and conditions that are at least as favorable to the bank as the terms that would apply
in comparable transactions between the bank and a third party. The Dodd-Frank Act expanded the affiliate transaction rules to broaden the definition of affiliate to include as covered
transactions securities borrowing or lending, repurchase or reverse repurchase agreements and derivative activities, and to strengthen collateral requirements and limit Federal Reserve
exemptive authority.
Federal law also constrains the types and amounts of loans that S&T Bank may make to its executive officers, directors and principal shareholders. Among other things, these
loans are limited in amount, must be approved by the bank’s board of directors in advance, and must be on terms and conditions as favorable to the bank as those available to an
unrelated person. The Dodd-Frank Act strengthened restrictions on loans to insiders and expanded the types of transactions subject to the various limits to include credit exposure
arising from a derivative transaction, a repurchase or reverse repurchase agreement and a securities lending or borrowing transaction. The Dodd-Frank Act also placed restrictions on
certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board
of directors.
Insurance of Accounts; Depositor Preference
The deposits of S&T Bank are insured up to applicable limits per insured depositor by the DIF, as administered by the FDIC. The Dodd-Frank Act codified FDIC deposit
insurance coverage per separately insured depositor for all account types at $250,000.
As an FDIC-insured bank, S&T Bank is subject to FDIC insurance assessments, which are imposed based upon the calculated risk the institution poses to the DIF.
Under the current assessment system, for an institution with less than $10 billion in assets, assessment rates are determined based on a combination of financial ratios and
CAMELS composite ratings. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits. Under the current system, premiums
are assessed quarterly. Assessments are calculated as a percentage of average consolidated total assets less average tangible equity during the assessment period. The current total base
assessment rates on an annualized basis range from 1.5 basis points for certain “well-capitalized,” “well-managed” banks, with the highest ratings, to 40 basis points for complex
institutions posing the most risk to the DIF. The FDIC may raise or lower these assessment rates on a quarterly basis based on various factors designed to achieve a minimum
designated reserve ratio of the DIF, which the Dodd-Frank Act has mandated to be no less than 1.35 percent of estimated insured deposits, subsequently set at two percent by the FDIC.
The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a hearing that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the Federal Reserve Board.
It also may suspend deposit insurance temporarily during the hearing process if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of termination, less subsequent withdrawals, will continue to be insured for a period of six months to two years, as determined by the FDIC.
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Item 1. BUSINESS -- continued
Under federal law, deposits and certain claims for administrative expenses and employee compensation against insured depository institutions are afforded a priority over other
general unsecured claims against such an institution, including federal funds and letters of credit, in the liquidation or other resolution of such an institution by a receiver. Such priority
creditors would include the FDIC.
Capital
The Federal Reserve Board and the FDIC have issued substantially similar minimum risk-based and leverage capital rules applicable to the banking organizations they supervise.
At December 31, 2021, both S&T and S&T Bank met the applicable minimum regulatory capital requirements.
The following table summarizes the leverage and risk-based capital ratios for S&T and S&T Bank:
(dollars in thousands)
As of December 31, 2021
Leverage Ratio
S&T
S&T Bank
Common Equity Tier 1 (to Risk-Weighted Assets)
S&T
S&T Bank
Tier 1 Capital (to Risk-Weighted Assets)
S&T
S&T Bank
Total Capital (to Risk-Weighted Assets)
S&T
S&T Bank
Actual
Minimum
Regulatory Capital
Requirements
To be
Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
889,785
864,127
860,785
864,127
889,785
864,127
987,420
961,762
9.74 %
9.46 %
$
12.03 %
12.09 %
12.43 %
12.09 %
13.79 %
13.45 %
365,535
365,544
322,109
321,711
429,479
428,948
572,638
571,931
$
4.00 %
4.00 %
4.50 %
4.50 %
6.00 %
6.00 %
8.00 %
8.00 %
456,918
456,930
465,268
464,694
572,638
571,931
715,798
714,913
5.00 %
5.00 %
6.50 %
6.50 %
8.00 %
8.00 %
10.00 %
10.00 %
In addition, the banking regulatory agencies may from time to time require that a banking organization maintain capital above the minimum prescribed levels, whether because of
its financial condition or actual or anticipated growth.
The risk-based capital standards establish a systematic analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among
banking organizations, takes off-balance sheet exposures explicitly into account in assessing capital adequacy and minimizes disincentives to holding liquid, low-risk assets. For
purposes of the risk-based ratios, assets and specified off-balance sheet instruments are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios
represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The leverage ratio represents capital as a percentage of total average assets adjusted as
specified in the guidelines.
In July 2013 the federal banking agencies issued final regulatory capital rules that replaced the then existing general risk-based capital and related rules, broadly revising the basic
definitions and elements of regulatory capital and making substantial changes to the risk weightings for banking and trading book assets. These regulatory capital rules are designed to
implement Basel III (which were agreements reached in July 2010 by the international oversight body of the Basel Committee on Banking Supervision to require more and higher-
quality capital) as well as the minimum leverage and risk-based capital requirements of the Dodd-Frank Act. These capital standards apply to all banks, regardless of size, and to all
bank holding companies with consolidated assets greater than $500 million and became effective on January 1, 2015. For smaller banking organizations such as S&T and S&T Bank,
the rules were subject to a transition period providing for full implementation as of January 1, 2019.
The required regulatory capital minimum ratios applicable to S&T under the new capital standards as of December 31, 2021 (without consideration of the capital conservation
buffer discussed below) are as follows:
•
•
•
•
Common equity Tier 1 risk-based capital ratio (common equity Tier 1 capital to standardized total risk-weighted assets) of 4.50 percent;
Tier 1 risk-based capital ratio (Tier 1 capital to standardized total risk-weighted assets) of 6.00 percent;
Total risk-based capital ratio (total capital to standardized total risk-weighted assets) of 8.00 percent; and
Leverage ratio (Tier 1 capital to average total consolidated assets less amounts deducted from Tier 1 capital) of 4.00 percent.
Generally, under the guidelines, common equity Tier 1 capital consists of common stock instruments that meet the eligibility criteria in the rule, retained earnings, accumulated
other comprehensive income and common equity Tier 1 minority
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Item 1. BUSINESS -- continued
interest, less applicable regulatory adjustments and deductions including goodwill, intangible assets subject to limitation and certain deferred tax assets subject to limitation. Tier 1
capital is comprised of common equity Tier 1 capital plus generally non-cumulative perpetual preferred stock, Tier 1 minority interests and, for bank holding companies with less than
$15 billion in consolidated assets at December 31, 2009, certain restricted capital instruments including qualifying cumulative perpetual preferred stock and grandfathered trust
preferred securities, up to a limit of 25 percent of Tier 1 capital, less applicable regulatory adjustments and deductions. Tier 2, or supplementary, capital generally includes portions of
trust preferred securities and cumulative perpetual preferred stock not otherwise counted in Tier 1 capital, as well as preferred stock, subordinated debt, total capital minority interests
not included in Tier 1, and the allowance for credit losses, or ACL, in an amount not exceeding 1.25 percent of standardized risk-weighted assets, less applicable regulatory
adjustments and deductions. Total capital is the sum of Tier 1 and Tier 2 capital.
After a phase in period beginning in 2016, these regulatory capital rules also require 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 beginning in 2019. As a result, since 2019, a banking organization has been required to 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. Since 2019 the minimum capital requirements plus the capital
conservation buffer exceed the regulatory capital ratios required for an insured depository institution to be well-capitalized under prompt corrective action law, described in "Other
Safety and Soundness Regulations".
These regulatory capital rules also revise the calculation of risk-weighted assets, including a new framework under which the risk weight will increase for most credit exposures
that are 90 days or more past due or on nonaccrual, high-volatility commercial real estate loans, mortgage servicing and deferred tax assets that are not deducted from capital and
certain equity exposures. The rules include changes to the credit conversion factors of off-balance sheet items, such as the unused portion of a loan commitment.
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.
Payment of Dividends
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.
The payment of common dividends by S&T is subject to certain requirements and limitations of Pennsylvania law. S&T Bank, in turn, is subject to federal and state laws and
regulations that limit the amount of dividends it can pay to S&T. 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 Board 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. In connection with our reduced net income and our inability to
fully fund the dividend from net income available to common shareholders over the past year, due in substantial part to the customer fraud that occurred in the second quarter of 2020,
we received non-objection letters from the Federal Reserve to continue to pay our dividends declared in the third and fourth quarter of 2020 and first and second quarter of 2021.
Beginning in the third quarter of 2021, we no longer needed to obtain a non-objection letter with respect to our dividend.Thus, under certain circumstances based upon our financial
condition, our ability to declare and pay quarterly dividends may require consultation with the Federal Reserve Board and may be prohibited by applicable Federal Reserve Board
guidance.
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Item 1. BUSINESS -- continued
Other Safety and Soundness Regulations
There are a number of obligations and restrictions imposed on bank holding companies such as us and our depository institution subsidiary by federal law and regulatory policy.
These obligations and restrictions are designed to reduce potential loss exposure to the FDIC’s DIF in the event an insured depository institution becomes in danger of default or is in
default. Under current federal law, for example, the federal banking agencies possess broad powers to take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institution in question is “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” or “critically undercapitalized,” as defined by the law. As of December 31, 2021, S&T Bank was classified as “well-capitalized.” New definitions of these categories,
as set forth in the federal banking agencies’ final rule to implement Basel III and the minimum leverage and risk-based capital requirements of the Dodd-Frank Act, became effective
as of January 1, 2015. To be well-capitalized, an insured depository institution must have a common equity Tier 1 risk-based capital ratio of at least 6.50 percent, a Tier 1 risk-based
capital ratio of at least 8.00 percent, a total risk-based capital ratio of at least 10.00 percent and a leverage ratio of at least 5.00 percent, and the institution must not be subject to any
written agreement, order, capital directive or prompt corrective action directive by its primary federal regulator. To be adequately capitalized, an insured depository institution must
have a common equity Tier 1 risk-based capital ratio of at least 4.50 percent, a Tier 1 risk-based capital ratio of at least 6.00 percent, a total risk-based capital ratio of at least 8.00
percent and a leverage ratio of at least 4.00 percent. The classification of depository institutions is primarily for the purpose of applying the federal banking agencies’ prompt
corrective action provisions and is not intended to be and should not be interpreted as a representation of overall financial condition or prospects of any financial institution.
The federal banking agencies’ prompt corrective action powers, which increase depending upon the degree to which an institution is undercapitalized, can include, among other
things, requiring an insured depository institution to adopt a capital restoration plan, which cannot be approved unless guaranteed by the institution’s parent company; placing limits on
asset growth and restrictions on activities, including restrictions on transactions with affiliates; restricting the interest rates the institution may pay on deposits; restricting the institution
from accepting brokered deposits; prohibiting the payment of principal or interest on subordinated debt; prohibiting the holding company from making capital distributions, including
payment of dividends, without prior regulatory approval; and, ultimately, appointing a receiver for the institution.
The federal banking agencies have also adopted guidelines prescribing safety and soundness standards relating to internal controls and information systems, internal audit systems,
loan documentation, credit underwriting, interest rate exposure, asset growth, fees and compensation and benefits. In general, the guidelines require appropriate systems and practices
to identify and manage specified risks and exposures. The guidelines prohibit excessive compensation as an unsafe and unsound practice and characterize compensation as excessive
when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the agencies
have adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not in compliance with any of such safety
and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan, the agency must issue an order directing
action to correct the deficiency and may issue an order directing other actions of the types to which an “undercapitalized” institution is subject under the prompt corrective action
provisions described above.
Regulatory Enforcement Authority
The enforcement powers available to federal banking agencies are substantial and include, among other things and in addition to other powers described herein, the ability to
assess civil money penalties and impose other civil and criminal penalties, to issue cease-and-desist or removal orders, to appoint a conservator to conserve the assets of an institution
for the benefit of its depositors and creditors and to initiate injunctive actions against banks and bank holding companies and “institution affiliated parties,” as defined in the Federal
Deposit Insurance Act. In general, these enforcement actions may be initiated for violations of laws and regulations, and engagement in unsafe or unsound practices. Other actions or
inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.
At the state level, the PADBS also has broad enforcement powers over S&T Bank, including the power to impose fines and other penalties and to appoint a conservator or receiver.
Interstate Banking and Branching
The BHCA currently permits bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions,
including certain nationwide and state-imposed deposit concentration limits. In addition, because of changes to law made by the Dodd-Frank Act, S&T Bank may now establish de
novo branches in any state to the same extent that a bank chartered in that state could establish a branch.
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Item 1. BUSINESS -- continued
Community Reinvestment, Fair Lending and Consumer Protection Laws
In connection with its lending activities, S&T Bank is subject to a number of state and federal laws designed to protect borrowers and promote lending to various sectors of the
economy and population. The federal laws include, among others, the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Truth-in-Savings Act, the Home Mortgage
Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act and the CRA. In addition, federal rules require disclosure of privacy policies to consumers
and, in some circumstances, allow consumers to prevent the disclosure of certain personal information to nonaffiliated third parties.
The CRA requires the appropriate federal banking agency, in connection with its examination of a bank, to assess the bank’s record in meeting the credit needs of the communities
served by the bank, including low and moderate-income neighborhoods. Furthermore, such assessment is required of any bank that has applied, among other things, to merge or
consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch office. In the case of a bank holding company,
including a financial holding company, applying for approval to acquire a bank or bank holding company, the Federal Reserve Board will assess the record of each subsidiary bank of
the applicant bank holding company in considering the application. Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or
“unsatisfactory.” S&T Bank was rated “satisfactory” in its most recent CRA evaluation.
In December 2019, the OCC and FDIC issued a notice of proposed rulemaking related to the CRA. In 2020 the OCC issued its final revised CRA rule, but the FDIC did not
finalize the revisions to its CRA rule. In September 2020, the Federal Reserve Board issued an Advance Notice of Proposed Rulemaking (“ANPR”) that invites public comment on an
approach to modernize the regulations that implement the CRA by strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core
purpose of the CRA. The ANPR seeks feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access. On
December 14, 2021, the OCC issued a final rule to rescind its June 2020 CRA rule and replace it with a rule based on the rules adopted jointly by the federal banking agencies in 1995,
as amended. The Company will continue to monitor any changes to the regulations implementing the CRA in light of increased focus on modernizing the rules.
With respect to consumer protection, the Dodd-Frank Act created the Consumer Financial Protection Bureau, or the CFPB, which took over rulemaking responsibility on July 21,
2011 for the principal federal consumer financial protection laws, such as those identified above. Institutions that have assets of $10 billion or less, such as S&T Bank, are subject to
the rules established by the CFPB but will continue to be supervised in this area by their state and primary federal regulators, which in the case of S&T Bank is the FDIC. The Dodd-
Frank Act also gives the CFPB expanded data collection powers for fair lending purposes for both small business and mortgage loans, as well as expanded authority to prevent unfair,
deceptive and abusive practices. The consumer complaint function also has been consolidated into the CFPB with respect to the institutions it supervises. The CFPB established an
Office of Community Banks and Credit Unions, with a mission to ensure that the CFPB incorporates the perspectives of small depository institutions into the policy-making process,
communicates relevant policy initiatives to community banks and credit unions, and works with community banks and credit unions to identify potential areas for regulatory
simplification.
Fair lending laws prohibit discrimination in the provision of banking services, and the enforcement of these laws has been a focus for bank regulators. Fair lending laws include
the Equal Credit Opportunity Act and the Fair Housing Act, which outlaw discrimination in credit transactions and residential real estate on the basis of prohibited factors including,
among others, race, color, national origin, sex and religion. A lender may be liable for policies that result in a disparate treatment of or have a disparate impact on a protected class of
applicants or borrowers. If a pattern or practice of lending discrimination is alleged by a regulator, then that agency may refer the matter to the U.S. Department of Justice, or DOJ, for
investigation. In December of 2012, the DOJ and the CFPB entered into a Memorandum of Understanding under which the agencies have agreed to share information, coordinate
investigations and have generally committed to strengthen their coordination efforts. S&T Bank is required to have a fair lending program that is of sufficient scope to monitor the
inherent fair lending risk of the institution and that appropriately remediates issues which are identified.
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During 2013, the CFPB issued a series of final rules related to mortgage loan origination and mortgage loan servicing, which became effective in 2014. In particular, on January
10, 2013, the CFPB issued a final rule implementing the ability-to-repay and qualified mortgage (QM) provisions of the Truth-in-Lending Act, as amended by the Dodd-Frank Act
(“QM Rule”). The ability-to-repay provision requires creditors to make reasonable, good-faith determinations that borrowers are able to repay their mortgage loans before extending
the credit, based on a number of factors and consideration of financial information about the borrower from reasonably reliable third-party documents. Under the Dodd-Frank Act and
the QM Rule, loans meeting the definition of “qualified mortgage” are entitled to a presumption that the lender satisfied the ability-to-repay requirements. The presumption is a
conclusive presumption/safe harbor for prime loans meeting the QM requirements, and a rebuttable presumption for higher-priced/subprime loans meeting the QM requirements. The
QM Rule also adds an explicit maximum
43 percent debt-to-income ratio (DTI) for borrowers if the loan is to meet the QM definition, though some mortgages that meet government-sponsored enterprise, or GSE, Federal
Housing Administration, or FHA, and Veterans Affairs, or VA, underwriting guidelines may, for a period not to exceed seven years, meet the QM definition without being subject to
the
43 percent DTI limits (GSE Patch). These rules did not have a material impact on our mortgage business. In December 2020, the CFPB published a final rule that replaced the 43
percent DTI ratio limit in the general QM definition (the “General QM Rule”) and a final rule that created a new category of qualified mortgage, called a seasoned qualified mortgage,
for first lien, fixed rate covered loans that meet certain performance requirements, are held in portfolio by the originating creditor or first purchaser for a 36-month period, comply with
general restrictions on product features and points and fees, and meet certain underwriting requirements. The initial compliance date of the final rules was July 1, 2021. In April 2021,
the CFPB published a final rule extending the mandatory compliance date of the General QM Rule to October 1, 2022 and thereby also extending the GSE Patch to October 1, 2022 or
the date the applicable GSE exits conservatorship, whichever happens first.
Anti-Money Laundering Rules
S&T Bank is subject to the Bank Secrecy Act, its implementing regulations and other anti-money laundering laws and regulations, including the USA Patriot Act of 2001. Among
other things, these laws and regulations require S&T Bank to take steps to prevent the bank from being used to facilitate the flow of illegal or illicit money, to report large currency
transactions and to file suspicious activity reports. S&T Bank is also required to develop and implement a comprehensive anti-money laundering compliance program. Banks must also
have in place appropriate “know your customer” policies and procedures which includes requirements to (1) identify and verify, subject to certain exceptions, the identity of the
beneficial owners of all legal entity customers at the time a new account is opened, and (2) include in its anti-money laundering program, risk-based procedures for conducting ongoing
customer due diligence, which are to include procedures that (a) assist in understanding the nature and purpose of customer relationships for the purpose of developing a customer risk
profile, and (b) require ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. Violations of these
requirements can result in substantial civil and criminal sanctions. In addition, provisions of the USA Patriot Act of 2001 require the federal financial institution regulatory agencies to
consider the effectiveness of a financial institution’s anti-money laundering activities when considering applications for bank mergers and bank holding company acquisitions.
Other Dodd-Frank Provisions
In December 2013, federal regulators adopted final regulations regarding the Volcker Rule established in the Dodd-Frank Act. The Volcker Rule generally prohibits banks and
their affiliates from engaging in proprietary trading and investing in and sponsoring certain unregistered investment companies generally covering hedge funds and private equity
funds, subject to certain exemptions. Banking entities had until July 21, 2017 to conform their activities to the requirements of the rule. Because S&T generally does not engage in the
activities prohibited by the Volcker Rule, the effectiveness of the rule has not had a material effect on S&T Bank or its affiliates.
In addition, the Dodd-Frank Act provides that the amount of any interchange fee charged for electronic debit transactions by debit card issuers having assets over $10 billion must
be reasonable and proportional to the actual cost of a transaction to the issuer. The Federal Reserve Board has adopted a rule which limits the maximum permissible interchange fees
that such issuers can receive for an electronic debit transaction. This rule, Regulation II, which was effective October 1, 2011, does not apply to a bank that, together with its affiliates,
has less than $10 billion in assets, which includes S&T.
Competition
S&T Bank competes with other local, regional and national financial services providers, such as other financial holding companies, commercial banks, credit unions, finance
companies, brokerage and insurance firms and financial technology companies, including competitors that provide their products and services online and through mobile devices.
Some of our competitors are not subject to the same level of regulation and oversight that is required of banks and bank holding companies and are thus able to operate under lower
cost structures. Our wealth management business competes with trust companies, mutual fund companies, investment advisory firms, law firms, brokerage firms and other financial
services companies.
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Changes in bank regulation, such as changes in the products and services banks can offer and permitted involvement in non-banking activities by bank holding companies, as well
as bank mergers and acquisitions, can affect our ability to compete with other financial services providers. Our ability to do so will depend upon how successfully we can respond to
the evolving competitive, regulatory, technological and demographic developments affecting our operations.
Our customers are primarily in Pennsylvania and the contiguous states of Ohio, West Virginia, New York, Maryland and Delaware. The majority of our commercial and consumer
loans are made to businesses and individuals in these states resulting in a geographic concentration. Our market area has a high density of financial institutions, some of which are
significantly larger institutions with greater financial resources than us, and many of which are our competitors to varying degrees. Our competition for loans comes principally from
commercial banks, mortgage banking companies, credit unions, online lenders and other financial service companies. Our most direct competition for deposits has historically come
from commercial banks and credit unions. We face additional competition for deposits from non-depository competitors such as the mutual fund industry, securities and brokerage
firms, insurance companies and financial technology companies. Because larger competitors have advantages in attracting business from larger corporations, we do not generally
attempt to compete for that business. Instead, we concentrate our efforts on attracting the business of individuals, and small and medium-size businesses. We consider our competitive
advantages to be customer service and responsiveness to customer needs, the convenience of banking offices and hours, access to electronic banking services and the availability and
pricing of our customized banking solutions. We emphasize personalized banking and the advantage of local decision-making in our banking business.
The financial services industry is likely to become more competitive as further technological advances enable more companies to provide financial services on a more efficient and
convenient basis. Technological innovations have lowered traditional barriers to entry and enabled many companies to compete in financial services markets. Many customers now
expect a choice of banking options for the delivery of services, including traditional banking offices, telephone, internet, mobile, ATMs, self-service branches, in-store branches and/or
digital and technology based solutions. These delivery channels are offered by traditional banks and savings associations, credit unions, brokerage firms, asset management groups,
financial technology companies, finance and insurance companies, internet-based companies, and mortgage banking firms.
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Item 1A. RISK FACTORS
Investments in our common stock involve risk. The following discussion highlights the risks that we believe are material to S&T, potentially impacting our business, results of
operations, financial condition and cash flows. However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could adversely affect our businesses,
results of operations and financial condition. Therefore, the risk factors below do necessarily include all risks that we may face.
Risks Related to Credit
Our ability to assess the credit-worthiness of our customers may diminish, which may adversely affect our results of operations.
We incur credit risk by virtue of making loans and extending loan commitments and letters of credit. Credit risk is one of our most significant risks. Our exposure to credit risk is
managed through the use of consistent underwriting standards that emphasize “in-market” lending while avoiding excessive industry and other concentrations. Our credit
administration function employs risk management techniques to ensure that loans adhere to corporate policy and problem loans are promptly identified. There can be no assurance that
such measures will be effective in avoiding undue credit risk. If the models and approaches that we use to select, manage and underwrite our consumer and commercial loan products
become less predictive of future charge-offs, due to events adversely affecting our customers, including rapid changes in the economy, we may have higher credit losses.
The value of the collateral used to secure our loans may not be sufficient to compensate for the amount of an unpaid loans and we may be unsuccessful in recovering the
remaining balances from our customers.
Decreases in real estate values, particularly with respect to our commercial lending and mortgage activities, could adversely affect the value of property used as collateral for our
loans and our customers’ ability to repay these loans, which in turn could impact our profitability. Repayment of our commercial loans is often dependent on the cash flow of the
borrower, which may become unpredictable. If the value of the assets, such as real estate, serving as collateral for the loan portfolio were to decline materially, a significant part of the
loan portfolio could become under-collateralized. If the loans that are secured by real estate become troubled when real estate market conditions are declining or have declined, in the
event of foreclosure, we may not be able to realize the amount of collateral that was anticipated at the time of originating the loan. This could result in higher charge-offs which could
have a material adverse effect on our operating results and financial condition.
Changes in the overall credit quality of our portfolio can have a significant impact on our earnings.
Like other lenders, we face the risk that our customers will not repay their loans. We reserve for losses in our loan portfolio based on our assessment of expected credit losses. This
process, which is critical to our financial results and condition, requires complex judgment including our assessment of economic conditions, which are difficult to predict. Through a
periodic review of the loan portfolio, management determines the amount of the ACL by considering historical losses combined with qualitative factors including changes in lending
policies and practices, economic conditions, changes in the loan portfolio, changes in lending management, results of internal loan reviews, asset quality trends, collateral values,
concentrations of credit risk and other external factors. The amount of future losses is susceptible to changes in economic, operating and other conditions, including changes in interest
rates, which may be beyond our control. Although we have policies and procedures in place to determine future losses, due to the subjective nature of this area, there can be no
assurance that our management has accurately assessed the level of allowances reflected in our Consolidated Financial Statements. We may underestimate our expected credit losses
and fail to hold an ACL sufficient to account for these losses. Incorrect assumptions could lead to material underestimates of expected losses and an inadequate ACL. As our
assessment of expected losses changes, we may need to increase or decrease our ACL, which could significantly impact our financial results and profitability.
The adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, referred to as CECL, effective for us on January 1, 2020, resulted in a
significant change in how we recognize credit losses. If the assumptions or estimates we used in adopting the new standard are incorrect or we need to change our underlying
assumptions, there may be a material adverse impact on our results of operations and financial condition.
Effective January 1, 2020, we adopted CECL, which replaces the incurred loss impairment methodology in current U.S. generally accepted accounting principles, or GAAP, with a
methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The
measurement of expected credit losses is to be based on historical loss experience, current conditions and reasonable and supportable forecasts that affect the collectability of the
reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the
incurred loss model which delayed
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Item 1A. RISK FACTORS - continued
recognition until it was probable a loss had been incurred. Upon origination of a loan, the estimate of expected credit losses, and any subsequent changes to such estimate, will be
recorded through provision for credit losses in our consolidated statement of income. The CECL model may create more volatility in the level of our ACL.
The CECL model permits the use of judgment in determining the approach that is most appropriate for us, based on facts and circumstances. Changes in economic conditions
affecting borrowers, new information regarding our loans and other factors, both within and outside of our control, may require an increase in the ACL. Actual credit losses may
exceed our estimate of expected losses. We will continue to periodically review and update our CECL methodology, models and the underlying assumptions, estimates and assessments
we use to establish our ACL under the CECL standard to reflect our view of current conditions and reasonable and supportable forecasts. We will implement further enhancements or
changes to our methodology, models and the underlying assumptions, estimates and assessments, as needed. If the assumptions we used in developing our estimate of expected credit
losses require updating over time, there may be a material adverse impact on our results of operations and financial condition.
For additional information on our adoption of the CECL standard, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
Our loan portfolio is concentrated within our market area, and our lack of geographic diversification increases our risk profile.
The regional economic conditions within our market area affect the demand for our products and services as well as the ability of our customers to repay their loans and the value
of the collateral securing these loans. A significant decline in the regional economy caused by inflation, recession, unemployment or other factors could negatively affect our
customers, the quality of our loan portfolio and the demand for our products and services. Any sustained period of increased payment delinquencies, foreclosures or losses caused by
adverse market or economic conditions in our market area could adversely affect the value of our assets, revenues, results of operations and financial condition. Moreover, we cannot
give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market area.
Our loan portfolio has a significant concentration of commercial loans that have a higher risk of loss.
The majority of our loans are to commercial borrowers including commercial and industrial, or C&I, commercial real estate, or CRE, and construction loans with real estate as the
primary collateral. The commercial loan portfolio typically involves a higher degree of credit risk than other types of loans. For the C&I segment this is due to the customer’s
repayment ability being based upon the success of its business operations, the susceptibility of the customer’s business to changing economic conditions, the dependence of our
customer on maintaining sufficient cash flow to make payments on the loan and our reliance on the underlying collateral, which is usually only the business assets that may not have
sufficient value when the borrower encounters financial difficulties. For the CRE segment higher risk is due to higher loan principal amounts, where the repayment of these loans is
generally dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Because payments on loans secured by
CRE often depend upon the successful operation and management of the properties, repayment of these loans may be affected by factors outside the borrower’s control, including
adverse conditions in the real estate market or the economy. Additionally, we have a number of significant credit exposures to commercial borrowers, and while the majority of these
borrowers have numerous projects that make up the total aggregate exposure, if one or more of these borrowers default or have financial difficulties, we could experience higher credit
losses, which could adversely impact our financial condition and results of operations. Further, an individual commercial loan balance is typically larger than other loans in our
portfolio, creating the potential for larger credit losses on an individual loan. The deterioration of one or a few of these loans could have a material adverse effect on our financial
condition and results of operations.
Risks Related to General Economic Conditions
General economic conditions may harm our industry, business and results of operations.
Various aspects of our business could be impacted by general macroeconomic conditions including, among others, inflation, interest rates, supply chain complications and
economic uncertainty. Inflation rates in the United States have increased to levels not experienced in several years. Inflation, interest rates and related economic volatility, as well as
supply chain complications, could adversely affect our business, financial condition, results of operations and cash flows. These unfavorable economic conditions could, among other
things, impact the value of our securities portfolio, impact our net interest margin, adversely impact our customer’s ability to make payments on floating rate loans, if interest rates rise,
and increase the risk of default by our customers experiencing financial difficulties and business disruptions.
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Item 1A. RISK FACTORS - continued
Risks Related to Our Operations
Failure to keep pace with technological changes could have a material adverse effect on our results of operations and financial condition.
The financial services industry is constantly undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use
of technology increases efficiency and enables financial institutions to better service customers and reduce costs. Our future success depends, in part, upon our ability to address the
needs of our customers by using technology to provide products and services that will satisfy their demands, as well as create additional efficiencies within our operations. Many of our
large competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and
services quickly or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services
industry could have a material adverse impact on our business, financial condition and results of operations.
A failure in or breach of our operational or security systems or infrastructure, or those of third parties, could disrupt our businesses, and adversely impact our results of
operations, liquidity and financial condition, as well as cause reputational harm.
Our operational and security systems, infrastructure, including our computer systems, data management and internal processes, as well as those of third parties, are integral to our
business. We rely on our employees and third parties in our day-to-day and ongoing operations, who may, as a result of human error, misconduct or malfeasance, or failure or breach of
third- party systems or infrastructure, expose us to risk. We have taken measures to implement backup systems and other safeguards to support our operations, but our ability to
conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact. In addition, our ability to implement backup systems and
other safeguards with respect to third-party systems is more limited than with our own systems.
We handle a substantial volume of customer and other financial transactions every day. Our financial, accounting, data processing, check processing, electronic funds transfer, loan
processing, online and mobile banking, automated teller machines, or ATMs, backup or other operating or security systems and infrastructure may fail to operate properly or become
disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control. This could adversely affect our ability to process these
transactions or provide these services. There could be sudden increases in customer transaction volume, electrical, telecommunications or other major physical infrastructure outages,
natural disasters, events arising from local or larger scale political or social matters, including terrorist acts, and cyber attacks. We continuously update these systems to support our
operations and growth. This updating entails significant costs and creates risks associated with implementing new systems and integrating them with existing ones. Operational risk
exposures could adversely impact our results of operations, liquidity and financial condition, and cause reputational harm.
A cyber attack, information or security breach, or a technology failure of ours or of a third-party could adversely affect our ability to conduct our business or manage our
exposure to risk, result in the disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our operational and security systems
and infrastructure, and adversely impact our results of operations, liquidity and financial condition, as well as cause reputational harm.
Our business is highly dependent on the security and efficacy of our infrastructure, computer and data management systems, as well as those of third parties with whom we
interact. Cyber security risks for financial institutions have significantly increased in recent years in part because of the proliferation of new technologies, the use of the Internet and
telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties,
including foreign state actors. Our operations rely on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer and
data management systems and networks, and in the computer and data management systems and networks of third parties. We rely on digital technologies, computer, database and
email systems, software, and networks to conduct our operations. In addition, to access our network and products and services, our customers and third parties may use personal mobile
devices or computing devices that are outside of our network environment.
Financial services institutions have been subject to, and are likely to continue to be the target of, cyber attacks, including computer viruses, malicious or destructive code, phishing
attacks, denial of service or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other
information of the institution, its employees or customers or of third parties, or otherwise materially disrupt network access or business
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Item 1A. RISK FACTORS - continued
operations. For example, denial of service attacks have been launched against a number of large financial institutions and several large retailers have disclosed substantial cyber
security breaches affecting debit and credit card accounts of their customers. We have experienced cyber security incidents in the past and although not material, we anticipate that, as a
growing regional bank, we could experience further incidents. There can be no assurance that we will not suffer material losses or other material consequences relating to technology
failure, cyber attacks or other information or security breaches.
In addition to external threats, insider threats also present a risk to us. Insiders, having legitimate access to our systems and the information contained in them, have the
opportunity to make inappropriate use of the systems and information. We have policies, procedures, and controls in place designed to prevent or limit this risk, but we cannot
guarantee that these policies, procedures and controls fully mitigate this risk.
As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify and enhance our protective measures or to investigate and
remediate any information security vulnerabilities or incidents. Any of these matters could result in our loss of customers and business opportunities, significant disruption to our
operations and business, misappropriation or destruction of our confidential information and/or that of our customers, or damage to our customers’ and/or third parties’ computers or
systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in our security
measures, reputational damage, reimbursement or other compensatory costs, and additional compliance costs. In addition, any of the matters described above could adversely impact
our results of operations and financial condition.
Fraudulent activity associated with our products and services could adversely affect our results of operations, financial condition and stock price, negatively impact our
brand and reputation, and result in regulatory intervention or sanctions.
As a financial institution we are exposed to operational risk in the form of fraudulent activity that may be committed by customers, other third parties, or employees, targeting us
and our customers. The risk of fraud continues to increase for the financial services industry. Fraudulent activity has escalated, become more sophisticated, and continues to evolve, as
there are more options to access financial services. In our Form 8-K filed May 26, 2020, we disclosed that we discovered customer fraud resulting from a check kiting scheme by a
business customer of S&T. We recognized a pre-tax loss of $58.7 million during the second quarter of 2020 related to this customer fraud. As a result of our internal review of the
fraud, we have made process and monitoring enhancements. While we believe we have operational risk controls in place to prevent or detect future instances of fraud or to mitigate the
impact of any fraud, we cannot provide assurance that we can prevent or detect fraud or that we will not experience future fraud losses or incur costs or other damage related to such
fraud, at levels that adversely affect our results of operation, financial condition, or stock price. Furthermore, fraudulent activity could negatively impact our brand and reputation,
which could also adversely affect our results of operation, financial condition, or stock price. Fraudulent activity could also lead to regulatory intervention or regulatory sanctions.
We rely on third-party providers and other suppliers for a number of services that are important to our business. An interruption or cessation of an important service by
any third-party could have a material adverse effect on our business.
We are dependent for the majority of our technology, including our core operating system, on third-party providers. If these companies were to discontinue providing services to
us, we may experience significant disruption to our business. In addition, each of these third parties faces the risk of cyber attack, information breach or loss, or technology failure. If
any of our third-party service providers experience such difficulties, or if there is any other disruption in our relationships with them, we may be required to find alternative sources of
such services. We are dependent on these third-party providers securing their information systems, over which we have limited control, and a breach of their information systems could
adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information,
which could have a material adverse impact on our business through damage to our reputation, loss of business, remedial costs, additional regulatory scrutiny or exposure to civil
litigation and possible financial liability. Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with
similar functionality as found in existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of
operations.
Failure to continue to attract, develop, and maintain a highly skilled workforce may have an adverse effect on our business.
Our business requires that we attract, develop, and maintain a highly skilled workforce. Competition for qualified employees and personnel in the banking industry is strong, and
there are a limited number of qualified persons with knowledge of, and experience in, the banking industry where we conduct our business. Our ability to attract and retain skilled
personnel cost effectively is subject to a variety of external factors, including the limited availability of qualified personnel in the
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Item 1A. RISK FACTORS - continued
workforce in the local markets in which we operate, unemployment levels within those markets, prevailing wage rates, which have increased significantly, health and other insurance
costs, and changes in employment and labor laws. Furthermore, the complexities introduced into the labor market as a result of the transition to increased work-from-home
arrangements have impacted the competitive landscape in our labor market. Based on current conditions in the labor market, we have experienced some difficulty in retaining and
attracting personnel and there is no assurance that we will be able to continue to successfully do so.
Risks Related to Our Business Strategy
Our strategy includes growth plans through organic growth and by means of acquisitions. Our financial condition and results of operations could be negatively affected if we
fail to grow or fail to manage our growth effectively.
We intend to continue pursuing a growth strategy through organic growth within our current footprint and through market expansion. We also actively evaluate acquisition
opportunities as another source of growth. We cannot give assurance that we will be able to expand our existing market presence, or successfully enter new markets or that any such
expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial
condition or results of operations and could adversely affect our ability to successfully implement our business strategy.
Our failure to find suitable acquisition candidates, or successfully bid against other competitors for acquisitions, could adversely affect our ability to fully implement our business
strategy. If we are successful in acquiring other entities, the process of integrating such entities will divert significant management time and resources. We may not be able to integrate
efficiently or operate profitably any entity we may acquire. We may experience disruption and incur unexpected expenses in integrating acquisitions. These failures could adversely
impact our future prospects and results of operation.
Our future performance will depend, in part, on the successful transition of our new CEO.
Christopher J. McComish was appointed Chief Executive Officer (CEO) of S&T and S&T Bank, effective August 23, 2021 (the “Effective Date”) and was appointed to the Boards
of Directors of S&T and S&T Bank on the Effective Date. David G. Antolik, who served as Interim Chief Executive Officer since April 2021 through the Effective Date, continues to
serve as President of S&T and S&T Bank and as a member of the Boards of Directors of S&T and S&T Bank. Our future performance will depend, in part, on the successful transition
of our new CEO. This transition may be disruptive to our business, and if we are unable to execute an orderly transition and successfully integrate our new CEO into our management
team, our revenue, results of operations, and financial condition may be adversely affected. Further, if our new CEO formulates different or changed views, the future strategy and
plans of S&T may differ materially from those of the past.
We are subject to competition from both banks and non-banking companies.
The financial services industry is highly competitive, and we encounter strong competition for deposits, loans and other financial services in our market area, including online
providers of these products and services. Our principal competitors include other local, regional and national financial services providers, such as other financial holding companies,
commercial banks, credit unions, finance companies and brokerage and insurance firms, including competitors that provide their products and services online. Many of our non-bank
competitors are not subject to the same degree of regulation that we are and have advantages over us in providing certain services. Additionally, many of our competitors are
significantly larger than we are and have greater access to capital and other resources. Failure to compete effectively for deposit, loan and other financial services customers in our
markets could cause us to lose market share, slow our growth rate and have an adverse effect on our financial condition and results of operations.
We may be required to raise capital in the future, but that capital may not be available or may not be on acceptable terms when it is needed.
We are required by federal regulatory authorities to maintain adequate capital levels to support operations. While we believe we currently have sufficient capital, if we cannot raise
additional capital when needed, we may not be able to meet these requirements. In addition, our ability to further expand our operations through organic growth, which includes growth
within our current footprint and growth through market expansion, may be adversely affected by any inability to raise necessary capital. Our ability to raise additional capital at any
given time is dependent on capital market conditions at that time and on our financial performance and outlook.
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Item 1A. RISK FACTORS - continued
Risks Related to Interest Rates and Investments
Our net interest income could be negatively affected by interest rate changes which may adversely affect our financial condition.
Our results of operations are largely dependent on net interest income, which is the difference between the interest and fees earned on interest-earning assets and the interest paid
on interest-bearing liabilities. Therefore, any change in general market interest rates, including changes resulting from the Federal Reserve Board’s policies, can have a significant
effect on our net interest income and total income. There may be mismatches between the maturity and repricing of our assets and liabilities that could cause the net interest rate spread
to compress, depending on the level and type of changes in the interest rate environment. Interest rates are highly sensitive to many factors that are beyond our control, including
general economic conditions and the policies of various governmental agencies. In addition, some of our customers often have the ability to prepay loans or redeem deposits with
either no penalties or penalties that are insufficient to compensate us for the lost income. A significant reduction in our net interest income will adversely affect our business and results
of operations. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially harmed.
Declines in the value of investment securities held by us could require write-downs, which would reduce our earnings.
In order to diversify earnings and enhance liquidity, we own debt instruments of government agencies and municipalities. We may be required to record impairment charges on our
debt securities if they suffer a decline in value due to the underlying credit of the issuer. Additionally, the value of these investments may fluctuate depending on the interest rate
environment, general economic conditions and circumstances specific to the issuer. Volatile market conditions may detrimentally affect the value of these securities, such as through
reduced valuations due to the perception of heightened credit or liquidity risks. Changes in the value of these instruments may result in a reduction to earnings and/or capital, which
may adversely affect our results of operations and financial condition.
Risks Related to Regulatory Compliance and Legal Matters
We are subject to extensive governmental regulation and supervision.
We are subject to extensive state and federal regulation, supervision and legislation that govern nearly every aspect of our operations. The regulations are primarily intended to
protect depositors, customers and the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend
policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The Dodd-Frank Act,
enacted in July 2010, instituted major changes to the banking and financial institutions regulatory regimes. Other changes to statutes, regulations or policies could affect us in
substantial and unpredictable ways. The regulatory environment of the current administration may take a more active approach to financial services regulation with respect to its major
policy goals, such as climate change, racial equity, and consumer protection. Any regulatory changes could subject us to additional costs of regulatory compliance and of doing
business, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other
things, and could divert management’s time from other business activities. Failure to comply with applicable laws, regulations, policies or supervisory guidance could lead to
enforcement and other legal actions by federal or state authorities, including criminal or civil penalties, the loss of FDIC insurance, the revocation of a banking charter, other sanctions
by regulatory agencies, and/or damage to our reputation. The ramifications and uncertainties of the level of government intervention in the U.S. financial system could also adversely
affect us.
Our controls and policies and procedures may fail or be circumvented, which may result in a material adverse effect on our business, financial condition and results of
operations.
Management regularly reviews and updates our internal controls, disclosure controls and procedures, operating, risk management and corporate governance policies and
procedures. Any system of controls, policies and procedures, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not
absolute, assurances that the objectives of the system are met. Any failure or circumvention of internal controls, disclosure controls and procedures, or operating, risk management and
corporate governance policies and procedures, whether as a result of human error, misconduct or malfeasance, or failure to comply with regulations related to controls and policies and
procedures could have a material adverse effect on our business, results of operations and financial condition.
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Item 1A. RISK FACTORS - continued
Furthermore, we may in the future discover areas of our internal controls, disclosure controls and procedures, or operating, risk management and corporate governance policies
and procedures that need improvement. Failure to maintain effective controls or to timely implement any necessary improvement of our internal and disclosure controls, or operating,
risk management and corporate governance policies and procedures, could, among other things, result in losses from errors, harm our reputation, or cause investors to lose confidence
in our reported financial information, all of which could have a material adverse effect on our results of operations and financial condition.
As a participating lender in the Paycheck Protection Program, or PPP, we are subject to risks of litigation from our customers or other parties in connection with our
processing of loans for the PPP and risks that the Small Business Administration may not fund some or all PPP loans.
We participate as a lender in the PPP. Due to the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and
guidance regarding the operation of the program, which exposes us to risks relating to noncompliance with the PPP. Since the opening of the PPP, several large banks have been subject
to litigation relating to the policies and procedures they used in processing applications for the program. We may be exposed to the risk of litigation, from both customers and non-
customers who approached us requesting PPP loans, regarding the process and procedures used by us in processing applications for the PPP. Any such litigation filed against us may be
costly, regardless of the outcome, and result in significant financial liability or adversely affect our reputation.
In addition, while the PPP loans are fully guaranteed by the Small Business Administration, or SBA, and we believe that the majority of these loans will be forgiven, there can be
no assurance that the borrowers will use or have used the funds appropriately or will have satisfied the staffing or payment requirements to qualify for forgiveness in whole or in part.
Any portion of the loan that is not forgiven must be repaid by the borrower. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was
a deficiency in the manner in which the PPP loan was originated, funded or serviced by us, which may or may not be related to an ambiguity in the laws, rules or guidance regarding
operation of the PPP, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if we have already been paid under the guaranty, seek recovery from us
of any loss related to the deficiency.
Negative public opinion could damage our reputation and adversely impact our earnings and liquidity.
Reputational risk, or the risk to our business, earnings, liquidity and capital from negative public opinion, is inherent in our operations. Negative public opinion could result from
our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues or inadequate protection
of customer information. Financial companies are highly vulnerable to reputational damage when they are found to have harmed customers, particularly retail customers, through
conduct that is illegal or viewed as unfair, deceptive, manipulative or otherwise wrongful. We are dependent on third-party providers for a number of services that are important to our
business. Refer to the risk factor titled, “We rely on third-party providers and other suppliers for a number of services that are important to our business. An interruption or cessation of
an important service by any third-party could have a material adverse effect on our business.” for additional information. A failure by any of these third-party service providers could
cause a disruption in our operations, which could result in negative public opinion about us or damage to our reputation. We expend significant resources to comply with regulatory
requirements, and the failure to comply with such regulations could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect
our ability to retain and attract new customers and employees, expose us to litigation and regulatory action and adversely impact our earnings and liquidity.
Our ability to pay dividends on our common stock may be limited
Holders of our common stock will be entitled to receive only such dividends as our Board of Directors may declare out of funds legally available for such payments. The payment
of common dividends by S&T is subject to certain requirements and limitations of Pennsylvania law. Although we have historically declared cash dividends on our common stock, we
are not required to do so and our Board of Directors could reduce, suspend or eliminate our dividend at any time. Substantial portions of our revenue consist of dividend payments we
receive from S&T Bank. The payment of common dividends by S&T Bank is subject to certain requirements and limitations under federal and state laws and regulations that limit the
amount of dividends it can pay to S&T. 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. Any decrease to or elimination of the dividends on our common stock could adversely affect the market price of
our common stock.
We may be adversely impacted by the transition from LIBOR as a reference rate.
On July 27, 2017, the Financial Conduct Authority in the United Kingdom announced that it would phase out LIBOR as a benchmark by the end of 2021. In late 2020, the ICE
Benchmark Administration (IBA) extended the cessation date for submission and publication of rates for all LIBOR currency-tenor pairs until June 30, 2023, except for the one-week
and two-
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Item 1A. RISK FACTORS - continued
month USD LIBOR tenors, which ceased on December 31, 2021. U.S. regulators, including the U.S. Federal Reserve, published a statement supporting the IBA’s plans and urged
banks to phase out LIBOR as soon as practicable. On March 5, 2021, IBA stated that it will cease the publication of (i) the overnight and 1, 3, 6 and 12 months USD LIBOR settings
immediately following the LIBOR publication on June 30, 2023 and (ii) all other LIBOR settings, including the 1 week and 2 month USD LIBOR settings, immediately following the
LIBOR publication on Friday, December 31, 2021. In October 2021, five federal financial institution regulatory agencies, in conjunction with the state bank and state credit union
regulators, jointly issued a statement to emphasize the expectation that supervised institutions with LIBOR exposure continue to progress toward an orderly transition away from
LIBOR. In that guidance, the agencies offered their regulatory expectations and outlined potential supervisory and enforcement consequences for banks that fail to adequately plan for
and implement the transition away from LIBOR. The failure to properly transition away from LIBOR may result in increased supervisory scrutiny. The U.S. Federal Reserve, in
conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate,
or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities, as its preferred alternative rate for LIBOR however, other market alternatives
have been developed. While SOFR has been adopted in select product areas it has not achieved full implementation as an alternative reference rate. At this time, it is not possible to
predict how markets will respond to alternative reference rates as markets continue to transition away from LIBOR. While several states have enacted legislation addressing the
LIBOR transition and others may do so and the U.S. House of Representatives passed LIBOR transition legislation on December 8, 2021, it remains unclear that these initiatives will
fully address the issues with the LIBOR transition.
Furthermore, because of the complexity of the transition from LIBOR, at this time, it is not possible to predict what rate or rates may become accepted alternatives to LIBOR, or
what the effect of any such changes in views or alternatives may be on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or
financial arrangements.
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.
We have established a committee to guide our transition from LIBOR and have begun efforts to transition to alternative rates consistent with industry timelines. We have identified
products that utilize LIBOR and are revising fallback language to facilitate the transition to alternative reference rates. Our failure to adequately manage the transition could have a
material adverse effect on our business, financial condition and results of operations.
Climate change and related legislative and regulatory initiatives may have an adverse impact on us and our clients.
Increased focus and concern over the effects of climate change have resulted in increased political and social initiatives directed toward climate change. Governments have entered
into international agreements with respect to climate change, and U.S. federal and state legislatures, regulatory agencies, and supervisory authorities, including those with oversight of
financial institutions, have proposed initiatives seeking to mitigate the effects of climate change. While many of the current regulatory proposals do not apply directly to S&T,
continued focus on climate change may lead to the promulgation of new regulations or supervisory guidance applicable to S&T and, as a result, we may experience increased
compliance costs and other compliance-related risks. Furthermore, our customers could be impacted by regulatory initiatives focused on addressing and mitigating the effects of
climate change resulting in an adverse impact on their financial condition and creditworthiness. Depending on the nature of the initiative, the business impacted, and the composition
of loan portfolio, our business and results of operations could be negatively impacted by climate change initiatives directed at our customers. Additionally, our business and the
business of our customers could be negatively impacted by disruptions in economic activity resulting from the physical impacts of climate change.
Risks Related to Liquidity
We rely on a stable core deposit base as our primary source of liquidity.
We are dependent for our funding on a stable base of core deposits. Our ability to maintain a stable core deposit base is a function of our financial performance, our reputation and
the security provided by FDIC insurance, which combined, gives customers confidence in us. If any of these considerations deteriorates, the stability of our core deposits could be
harmed. In addition, deposit levels may be affected by factors such as general interest rate levels, rates paid by competitors, returns available to customers on alternative investments
and general economic conditions. Accordingly, we may be required from time to time to rely on other sources of liquidity to meet withdrawal demands or otherwise fund operations.
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Item 1A. RISK FACTORS - continued
Our ability to meet contingency funding needs, in the event of a crisis that causes a disruption to our core deposit base, is dependent on access to wholesale markets,
including funds provided by the FHLB of Pittsburgh.
We own stock in the Federal Home Loan Bank of Pittsburgh, or FHLB, in order to qualify for membership in the FHLB system, which enables us to borrow on our line of credit
with the FHLB that is secured by a blanket lien on a significant portion of our loan portfolio. Changes or disruptions to the FHLB or the FHLB system in general may materially
impact our ability to meet short and long-term liquidity needs or meet growth plans. Additionally, we cannot be assured that the FHLB will be able to provide funding to us when
needed, nor can we be certain that the FHLB will provide funds specifically to us, should our financial condition and/or our regulators prevent access to our line of credit. The inability
to access this source of funds could have a materially adverse effect on our ability to meet our customer’s needs. Our financial flexibility could be severely constrained if we were
unable to maintain our access to funding or if adequate financing is not available at acceptable interest rates.
Risks Related to the COVID-19 Pandemic
The duration and severity of the COVID-19 pandemic, in our principal area of operations, nationally and globally, has adversely impacted and will likely continue to
adversely impact S&T’s business, results of operations and financial condition. While it is difficult to predict the further impact of the COVID-19 pandemic (or any other
outbreak) on the economy and S&T, the future impacts may include, but are not limited to, the following:
• Our results of operations may negatively be impacted by general economic or business conditions and uncertainty, including the strength of economic conditions in our
•
•
•
•
principal area of operations impacting the demand for our products and services.
Credit losses may be higher and our provision for credit losses may be elevated due to deterioration in the financial condition of S&T’s commercial and consumer loan
customers.
Lower asset and collateral values may necessitate increases in our provision for credit losses and net charge-offs.
The pace of recovery in the hospitality and healthcare industries and our associated loan portfolio could result in additional credit losses and net charge-offs.
Expense management will be impacted by the uncertainty of the effects of the pandemic and S&T’s continued efforts to promote the health and safety of our employees, and
the customers and communities we serve.
S&T’s liquidity and regulatory capital could be adversely impacted.
• We may have an interruption or cessation of an important service provided by a third-party provider.
•
• Any new or revised regulations regarding capital and liquidity adopted in response to the COVID-19 pandemic may require us to maintain materially more capital or liquidity.
•
Investors may have less confidence in the equity markets in general and in financial services industry in particular, which could have a negative impact on S&T’s stock price
and resulting market valuation.
Economic pressure caused by the pandemic may recur, be deeper and last longer in the areas where we do business, relative to other areas of the country, which could
negatively affect our relative financial performance.
•
• We face heightened cyber security risk in connection with our operation in a remote working environment.
•
It may become harder to maintain our corporate culture, which is somewhat dependent on a level of in-person interaction.
Even after the COVID-19 pandemic subsides, the U.S. economy will likely require time to recover. It is uncertain how long this recovery will take. As a result, we anticipate our
business may be adversely affected during this recovery.
To the extent the COVID-19 pandemic continues to adversely affect the global economy it may also increase the likelihood and/or magnitude of other risks described in this
section.
The impact that the COVID-19 pandemic will have on S&T’s credit losses is uncertain, and continued economic uncertainty in the forward looking economic forecasts used
to estimate credit losses, as well as the potential inability of our credit models to accurately predict the relevant financial metrics, may adversely affect our ACL.
S&T calculates the ACL in accordance with Current Expected Credit Loss, or CECL, accounting standard adopted January 1, 2020. The CECL methodology reflects expected
credit losses and requires consideration of a broad range of reasonable and supportable information to form credit loss estimates. The CECL accounting standard bases the
measurement of expected credit losses on historical loss experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount.
S&T’s ability to assess expected credit losses may be impaired if the models and approaches we use become less predictive of future behaviors. In particular, the reliance on
supportable economic forecasts in light of the COVID-19 pandemic has had and is expected to have an impact on the estimates of our ACL. Given the unprecedented nature of the
COVID-19 pandemic, if our credit models fail to adequately predict or forecast relevant financial
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Item 1A. RISK FACTORS - continued
metrics during and after the pandemic and these forecasts deteriorate and contain economic uncertainty, our ACL may be adversely affected.
Risks Related to Owning Our Stock
The market price of our common stock may fluctuate significantly in response to a number of factors.
Our quarterly and annual operating results have varied significantly in the past and could vary significantly in the future, which makes it difficult for us to predict our future
operating results. Our operating results may fluctuate due to a variety of factors, many of which are outside of our control, including the changing U.S. economic environment and
changes in the commercial and residential real estate market, any of which may cause our stock price to fluctuate. If our operating results fall below the expectations of investors or
securities analysts, the price of our common stock could decline substantially. Our stock price can fluctuate significantly in response to a variety of factors including, among other
things:
•
•
•
•
•
•
•
•
•
volatility of stock market prices and volumes in general;
changes in market valuations of similar companies;
changes in the conditions of credit markets;
changes in accounting policies or procedures as required by the Financial Accounting Standards Board, or FASB, or other regulatory agencies;
legislative and regulatory actions, including the impact of the Dodd-Frank Act and related regulations, that may subject us to additional regulatory oversight which may
result in increased compliance costs and/or require us to change our business model;
government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate
policies of the Federal Reserve Board;
additions or departures of key members of management;
fluctuations in our quarterly or annual operating results; and
changes in analysts’ estimates of our financial performance.
General Risk Factors
We may be a defendant from time to time in a variety of litigation and other actions, which could have a material adverse effect on our financial condition and results of
operations.
From time to time, customers and others make claims and take legal action pertaining to the performance of our responsibilities. Whether customer claims and legal action related
to the performance of our responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant
expenses, attention from management and financial liability. Any financial liability or reputational damage could have a material adverse effect on our business, which, in turn, could
have a material adverse effect on our financial condition and results of operations.
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Item 1B. UNRESOLVED STAFF COMMENTS
There are no unresolved SEC staff comments.
Item 2. PROPERTIES
S&T Bancorp, Inc. headquarters is located in Indiana, Pennsylvania. We operate in five markets including Western Pennsylvania, Eastern Pennsylvania, Northeast Ohio, Central
Ohio and Upstate New York. At December 31, 2021, we operate 73 banking branches and 5 loan production offices, of which 43 are leased facilities.
Item 3. LEGAL PROCEEDINGS
The nature of our business generates a certain amount of litigation that arises in the ordinary course of business. However, in management’s opinion, there are no proceedings
pending that we are a party to or to which our property is subject that would be material in relation to our financial condition or results of operations. In addition, no material
proceedings are pending nor are known to be threatened or contemplated against us by governmental authorities or other parties.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stock Prices and Dividend Information
Our common stock is listed on the NASDAQ Global Select Market System, or NASDAQ, under the symbol STBA. As of the close of business on January 31, 2022, we had
approximately 2,813 shareholders of record. The number of record-holders does not reflect the number of persons or entities holding stock in nominee name through banks, brokerage
firms and other nominees.
As discussed under "Our ability to pay dividends on our common stock may be limited." included in Item 1A. Risk Factors in Part I, the amount and timing of dividends is subject
to the discretion of the Board and depends upon business conditions and regulatory requirements. The Board has the discretion to change the dividend at any time for any reason. The
Board of Directors presently intends to continue the policy of paying quarterly cash dividends. The amount of any future dividends will depend on economic and market conditions,
our financial condition and operating results and other factors, including applicable government regulations and policies. S&T’s Board of Directors approved a quarterly cash dividend
of $0.29 per share on January 24, 2022.
Certain information relating to securities authorized for issuance under equity compensation plans is set forth under the heading Equity Compensation Plan Information in Part III,
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this Report.
Purchases of Equity Securities
The following table is a summary of our purchases of common stock during the fourth quarter of 2021:
Period
10/1/2021 - 10/31/2021
11/1/2021 - 11/30/2021
12/1/2021 - 12/31/2021
Total
Total number of shares purchased
—
Average price paid per share
—
$
—
—
—
—
—
—
$
Total number of shares purchased as
(1)
part of publicly announced plan
—
—
—
—
Approximate dollar value of shares that
may yet be purchased under the plan
37,441,184
$
37,441,184
37,441,184
37,441,184
$
(1)
On March 15, 2021, our Board of Directors authorized an extension of the $50 million share repurchase plan. This authorization extended the expiration date of the repurchase plan through March 31, 2022. The plan permits
S&T to repurchase from time to time up to the previously authorized $50 million in aggregate value of shares of S&T's common stock, with $37.4 million of capacity remaining at December 31, 2021, 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. Share repurchases will not occur unless permissible under applicable laws.
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Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES -
continued
Five-Year Cumulative Total Return
The following chart compares the cumulative total shareholder return on our common stock with the cumulative total shareholder return of the NASDAQ Composite Index and
(1)
the NASDAQ Bank Index assuming a $100 investment in each on December 31, 2016 and the reinvestment of dividends.
(2)
Source: Bloomberg
Index
S&T Bancorp, Inc.
NASDAQ Composite
NASDAQ Bank
(2)
(1)
12/31/2016
100.00
100.00
100.00
12/31/2017
104.22
129.73
105.46
Period Ending
12/31/2018
101.43
126.08
88.40
12/31/2019
111.05
172.41
109.95
12/31/2020
71.74
250.08
101.70
12/31/2021
94.47
305.63
145.34
(1)
(2)
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
The NASDAQ Bank Index contains securities of NASDAQ-listed companies classified according to the Industry Classification Benchmark as Banks. These companies include banks providing a broad range of financial services,
including retail banking, loans and money transmissions.
Item 6. [RESERVED]
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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 years and results of operations for each of the past three years. Certain reclassifications have been made to
prior periods to place them on a basis comparable with the current period presentation. Some tables may include additional time periods to illustrate trends within our Consolidated
Financial Statements. The results of operations reported in the accompanying Consolidated Financial Statements are not necessarily indicative of results to be expected in future
periods.
Important Note Regarding Forward-Looking Statements
This 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 including a prolonged period of low interest rates, a rapid increase in interest rates or a change in the shape of
the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; the transition from LIBOR as a reference rate; regulatory supervision and oversight,
including changes in regulatory capital requirements and our ability to address those requirements; unanticipated changes in our liquidity position; changes in accounting policies,
practices, or guidance; legislation affecting the financial services industry as a whole, and S&T, in particular; climate change and related legislative and regulatory initiatives; the
outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new
products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully
realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on
significant customer relationships; an interruption or cessation of an important service by a third-party provider; our ability to attract and retain talented executives and employees,
particularly in light of the strong competition in the marketplace; our ability to successfully manage our CEO transition; general economic or business conditions, including the
strength of regional economic conditions in our market area; macroeconomic conditions including inflation and economic uncertainty; the duration and severity of the coronavirus, or
COVID-19 pandemic, both in our principal area of operations and nationally, including the ultimate impact of the pandemic on the economy generally and on our operations; our
participation in the Paycheck Protection Program; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the
state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge
to net income; the stability of our core deposit base and access to contingency funding; re-emergence of turbulence in significant portions of the global financial and real estate markets
that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to
capital in the amounts, at the times and on the terms required to support our future businesses. Many of these factors, as well as other factors, are described elsewhere in this report,
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.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
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. Refer to our Annual Report on Form 10-K for the year ended
December 31, 2020 for critical accounting policies and estimates for the prior year. We did not significantly change the manner in which we applied our critical accounting policies or
developed related assumptions or estimates during 2021. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee.
Allowance for Credit Losses
In January 2020, we adopted ASC 326, which replaced the former incurred loss methodology with an expected credit loss methodology that requires consideration of a broader
range of information to estimate expected credit losses over the lifetime of an asset. The allowance for credit losses, or ACL, is a valuation reserve established and maintained by
charges against operating income. 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 80 percent. This stressed scenario includes both the quantitative and qualitative
components of the model. This severely adverse scenario shows how sensitive the ACL can be to key qualitative and quantitative assumptions underlying the overall ACL calculation.
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
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
circumstances indicate that it may be impaired. We test for impairment by comparing the fair value of our Community Banking reporting unit with its carrying amount. An impairment
charge would be recognized if the the carrying amount exceeds the reporting unit's fair value. 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.
We last completed a quantitative goodwill impairment test as of November 30, 2020 and concluded that goodwill was not impaired. A discount rate of 11.50 percent was used for
the income approach. If the discount rate was increased 2 percent to 13.50 percent, our fair value would have still exceeded carrying value resulting in no goodwill impairment. Based
upon our qualitative assessment performed for our annual impairment analysis as of October 1, 2021, we concluded that goodwill is not impaired.
The financial services industry and securities markets can be adversely affected by declining values. If economic conditions result in a prolonged period of economic weakness in
the future, our business may be adversely affected. In the event that we determine that our goodwill is impaired, recognition of an impairment charge could have a significant adverse
impact on our financial position or results of operations in the period in which the impairment occurs.
Recent Accounting Pronouncements and Developments
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 measures presented in accordance with GAAP, our management uses, and this Report contains or references, certain non-GAAP financial measures
identified below. We believe these non-GAAP financial measures provide information useful to investors in understanding our underlying operational performance and our business
and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry. Although we believe that these non-GAAP financial
measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP or considered to be
more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other
companies. See discussion of net interest income on an FTE basis (non-GAAP) and the efficiency ratio (non-GAAP) and related reconciliations to GAAP discussed below.
Executive Overview
We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of $9.5 billion at December 31, 2021. We operate in five markets including Western
Pennsylvania, Eastern Pennsylvania, Northeast Ohio, Central Ohio and Upstate New York. We provide a full range of financial services with retail and commercial banking products,
cash management services, trust and brokerage services. Our common stock trades on the NASDAQ Global Select Market under the symbol "STBA."
We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers. We incur expenses for the cost of deposits and
other funding sources, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense.
Our mission is to become the financial services provider of choice within the markets that we serve which will enable us to be a high performing regional community bank. We
strive to do this by delivering exceptional service and value.
On August 23, 2021, Christopher McComish joined S&T as our new chief executive officer. He brings over 34 years of proven banking leadership with a track record of growth
and transformation of commercial, consumer and wealth businesses. Additionally, we have elevated both proven internal leaders and attracted external talent from larger banking
institutions to position us for future growth. Our priorities for 2022 and beyond include pursuing high impact growth initiatives, ensuring rigorous credit risk and enterprise governance
practices, advancing strategic infrastructure and platform investments, investing in organization talent and performance and promoting strategic clarity and effective communications.
Organic loan growth continues to be our top priority within our current footprint and through market expansion. Our growth strategy includes a collaborative model that combines
expertise from all areas of our business and focuses on satisfying each customer’s individual financial objectives.We also actively evaluate acquisition opportunities that align with our
strategic objectives as another source of growth.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Results of Operations
Year Ended December 31, 2021
COVID-19 Pandemic Update
S&T continues to monitor the impact of the COVID-19 pandemic and has taken steps to mitigate the potential risks and impact on S&T and to promote the health and safety of our
employees, and the customers and communities that we serve. We have taken preventive health measures for our employees through rigorous sanitation, social distancing, wearing
masks, remote work where feasible and providing access to financial wellness programs. We have taken extensive safety measures for our customers in our branches and are
encouraging our customers to use online and mobile banking solutions. We have also extended our solution center hours to allow for customer consultation without entering a branch.
Our Business Continuity teams were activated and have guided our response efforts.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES Act was signed into law. It contained substantial tax and spending provisions intended to
address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program, or PPP, a $349 billion program designed to aid small and medium sized
businesses through federally guaranteed loans distributed through banks. The PPP and Health Care Enhancement Act, or PPP/HCEA, was signed into law on April 24, 2020. The
PPP/HCEA authorized an additional $310 billion of funding under the CARES Act for PPP loans among other provisions. On July 4, 2020, legislation was passed to extend the
application period for the PPP through August 8, 2020.These loans are intended to cover eight weeks of payroll and other permitted expenses to help those businesses remain viable.
The PPP ended on May 31, 2021.
We originated $771.5 million of PPP loans during 2020 and 2021. PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted expenses in
accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00 percent and a term of two years, or five years for loans approved by the SBA, on or after June 5,
2020. Payments are deferred for at least six months of the loan. The loans are 100 percent guaranteed by the SBA.
The extent to which the COVID-19 pandemic may adversely impact our business depends on future developments, which remain highly uncertain and unpredictable. The
pandemic has had, and we expect that it will continue to have, negative impacts on S&T’s commercial and consumer loan customers and the economy as a whole. The severity and
length of the pandemic’s impact on S&T and the U.S. and global economies continue to be unknown. Our financial performance continues to be negatively impacted in many ways due
to the pandemic. We are closely monitoring our asset quality with a focus on the loan portfolios that have been significantly impacted by the pandemic, including hotel, healthcare and
C&I portfolios. We have increased our ACL to be responsive to this additional risk within our loan portfolio. We did experience improvement in our asset quality during 2021, but
remain cautious given the current environment. The hotel portfolio improved in the second half of 2021 with $34.0 million of loans being returned to performing status due to
improved operating performance. Our balance sheet is asset sensitive resulting in our net interest income and net interest margin, or NIM, being negatively impacted in this low interest
rate environment. Loan demand was challenging in the first half of 2021, but we saw growth trends improving late in the second quarter and for the third and fourth quarter of 2021.
Net interest income was favorably impacted by PPP loans which contributed to net interest income $17.3 million for 2021 and $11.4 million for 2020.
In order to assist our customers through this difficult period, we have provided the following assistance, which may have an adverse impact on our results in the short term, but
which we believe will provide better outcomes in the long term for our customers and for S&T.
• We provided needs-based payment deferrals and modifications to interest only periods to commercial loans during 2020 and 2021 totaling $995.7 million. Only $28.8 million
remain on deferral at December 31, 2021.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
• We provided loan payment deferrals, with no negative credit bureau reporting, to mortgage and consumer loans during 2020 and 2021 totaling $81.6 million. No loans remain
on deferral at December 31, 2021.
None of these were designated troubled debt restructurings, or TDRs, for accounting purposes.
Earnings Summary
Net income increased $89.3 million to $110.3 million, or $2.81 per diluted share, in 2021 compared to $21.0 million, or $0.53 per diluted share in 2020. This net increase was
primarily due to a lower provision for credit losses related to improving economic conditions, as well the offsetting impact of the 2020 customer fraud that reduced net income by
$46.3 million, or $1.19 per diluted share.We experienced a pre-tax loss of $58.7 million related to a customer fraud resulting from a check kiting scheme during 2020. The fraud was
perpetrated by a single business customer and the customer has plead guilty in a criminal investigation. We continue to pursue all available sources of recovery to mitigate the loss.
Return on average assets, or ROA, was 1.18 percent and return on average equity, or ROE, was 9.30 percent for 2021 compared to ROA of 0.23 percent and ROE of 1.80 percent
for 2020.
Net interest income decreased $3.3 million to $276.1 million compared to 2020. The decrease in interest income was primarily due to lower average loan balances and the low rate
interest environment compared to 2020. Average loan balances decreased $325.8 million compared to 2020. Net interest income was favorably impacted by PPP loans which
contributed $17.3 million compared to $11.4 million in 2020. Average interest-bearing deposits decreased $126.2 million compared to 2020. The net interest margin, or NIM, on an
FTE basis (non-GAAP) decreased 16 basis points compared to 2020. The decrease is primarily due to higher average cash balances and the low interest rate environment. PPP loans
positively impacted the NIM on an FTE basis (non-GAAP) by 8 basis points compared to the negative impact of 3 basis points in 2020. NIM is reconciled to net interest income
adjusted to an FTE basis (non-GAAP) below in the "Net Interest Income" section of this MD&A.
The provision for credit losses was $16.2 million for 2021 compared to $131.4 million in 2020. Excluding a customer fraud loss of $58.7 million, the provision for credit losses
was $72.7 million for 2020. The significant decrease in the provision for credit losses during 2021 was mainly due to the customer fraud in 2020 and an improved outlook for the
economy and our loan portfolio. Net loan charge-offs were $34.5 million, or 0.49 percent of average loans, in 2021 compared to $103.4 million, or 1.40 percent of average loans,
during 2020. Excluding the customer fraud, net loan charge-offs were $44.7 million, or 0.61 percent of average loans in 2020.
Noninterest income increased $4.9 million to $64.6 million compared to $59.7 million in 2020. Wealth management income increased $2.9 million due to customer growth and
improved market conditions. Debit and credit card fees increased $2.9 million and service charges on deposit accounts increased $1.4 million due to increased customer activity. These
were offset by lower commercial loan swap income of $3.6 million and mortgage banking income of $1.2 million.
Noninterest expense increased $2.2 million to $188.8 million compared to $186.6 million in 2020. Salaries and employee benefits increased $10.1 million primarily due to higher
incentives. Data processing and information technology increased $1.2 million due to new products and services in 2021. These higher expenses were offset by decreases in other
noninterest expense of $4.1 million, merger related expenses of $2.3 million and marketing of $1.4 million. The efficiency ratio (non-GAAP) for 2021 was 55.05 percent compared to
53.86 percent for 2020.
The efficiency ratio is noninterest expense divided by noninterest income plus net interest income, on an FTE basis, which ensures comparability of net interest income arising
from both taxable and tax-exempt sources and is consistent with industry practice. Below is a reconciliation of the non-GAAP efficiency ratio.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Efficiency Ratio (non-GAAP)
Noninterest expense
Less: merger related expenses
Noninterest expense excluding nonrecurring items
Net interest income per consolidated statements of net income
Plus: taxable equivalent adjustment
Net interest income (FTE) (non-GAAP)
Noninterest income
Less: net (gains) losses on sale of securities
Net interest income (FTE) (non-GAAP) plus noninterest income
Efficiency ratio (non-GAAP)
December 31,
2021
2020
2019
$188,839
—
$188,839
$276,112
2,316
278,428
64,611
(29)
$343,010
$186,644
(2,342)
$184,302
$279,388
3,202
282,590
59,719
(142)
$342,167
$167,116
(11,350)
$155,766
$246,791
3,757
250,548
52,558
26
$303,132
55.05 %
53.86 %
51.39 %
The provision for income taxes increased to $25.3 million in 2021 compared to nearly zero for 2020. The increase in our income tax provision was primarily due to a $114.6
million increase in pretax income in 2021 compared to 2020 when pretax income was impacted by significantly higher provision for credit losses. The effective tax rate increased to
18.7 percent in 2021 compared to a nominal negative annual effective tax rate in 2020. The increase in the effective tax rate was primarily due to significantly higher income before
taxes in 2021 compared to 2020.
Net Interest Income
Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest
paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest
rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or ALCO, in order to mitigate interest
rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what we believe is an acceptable
level of net interest income.
The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt
loans and securities and the dividend-received deduction for equity securities using the federal statutory tax rate of 21 percent and the dividend-received deduction for equity securities.
We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.
The following table reconciles interest income per the Consolidated Statements of Net Income to net interest income and rates on an FTE basis for the periods presented:
(dollars in thousands)
Total interest income
Total interest expense
Net interest income per Consolidated Statements of Net Income
Adjustment to FTE basis
Net Interest Income (FTE) (non-GAAP)
Net interest margin
Adjustment to FTE basis
Net Interest Margin (FTE) (non-GAAP)
$
$
Years Ended December 31,
2021
2020
2019
$
$
289,262
13,150
276,112
2,316
278,428
3.19 %
0.03
3.22 %
$
$
320,464
41,076
279,388
3,202
282,590
3.34 %
0.04
3.38 %
320,484
73,693
246,791
3,757
250,548
3.58 %
0.06
3.64 %
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Average Balance Sheet and Net Interest Income Analysis
The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on
interest-bearing liabilities for the years ended December 31:
2021
2020
2019
Interest
Rate
Interest
Rate
Interest
Rate
(dollars in thousands)
ASSETS
Interest-bearing deposits with banks
Securities at fair value
Loans held for sale
(2)(3)
Commercial real estate
Commercial and industrial
Commercial construction
Total commercial loans
Residential mortgage
Home equity
Installment and other consumer
Consumer construction
Total consumer loans
(1)(2)
Total portfolio loans
Total Loans
Federal Home Loan Bank and other restricted stock
Total Interest-earning Assets
Noninterest-earning assets
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing demand
Money market
Savings
Certificates of deposit
Total Interest-bearing deposits
Securities sold under repurchase agreements
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Total borrowings
Total Interest-bearing Liabilities
Noninterest-bearing liabilities
Shareholders’ equity
Total Liabilities and Shareholders’ Equity
(2)(3)
Net Interest Income
Net Interest Margin
(2)(3)
$
$
Average
Balance
722,057
832,304
4,094
3,249,559
1,829,563
471,286
5,550,407
881,494
543,777
90,129
14,748
1,530,148
7,080,555
7,084,649
10,363
8,649,372
726,478
9,375,850
956,211
2,033,631
1,047,855
1,255,370
5,293,066
69,964
6,301
22,995
61,653
160,913
5,453,979
2,735,710
1,186,161
9,375,850
$
$
$
$
973
18,135
124
119,594
75,860
15,443
210,897
36,211
18,822
5,351
668
61,052
271,949
272,073
397
291,578
809
3,651
366
5,930
10,757
79
12
458
1,843
2,392
13,150
$
$
Average
Balance
179,887
764,311
5,105
3,347,234
2,018,318
442,088
5,807,640
964,740
539,461
80,032
13,484
1,597,717
7,405,357
7,410,462
18,234
8,372,894
779,853
9,152,747
961,823
2,040,116
899,717
1,517,643
5,419,299
57,673
155,753
47,953
64,092
325,471
5,744,770
2,238,488
1,169,489
9,152,747
515
19,011
160
140,288
77,752
16,702
234,742
40,998
21,469
5,248
594
68,309
303,051
303,211
929
323,666
2,681
11,645
972
20,688
35,986
169
1,434
1,201
2,286
5,090
41,076
0.13 % $
2.18 %
3.03 %
3.68 %
4.15 %
3.28 %
3.80 %
4.11 %
3.46 %
5.94 %
4.53 %
3.99 %
3.84 %
3.84 %
3.83 %
3.37 %
$
0.08 % $
0.18 %
0.03 %
0.47 %
0.20 %
0.11 %
0.19 %
1.99 %
2.99 %
1.49 %
0.24 %
$
3.22 %
(1)
(2)
(3)
Nonaccruing loans are included in the daily average loan amounts outstanding.
Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent .
Taxable investment income is adjusted for the dividend-received deduction for equity securities.
33
$
$
Average
Balance
59,941
678,069
2,169
2,945,278
1,575,485
278,665
4,799,428
765,604
475,149
72,283
10,896
1,323,932
6,123,360
6,125,529
21,833
6,885,372
550,164
7,435,536
641,403
1,691,910
766,142
1,396,706
4,496,161
16,863
255,264
66,392
47,934
386,453
4,882,614
1,569,014
983,908
7,435,536
1,233
17,876
84
144,877
79,429
14,237
238,543
33,889
25,208
5,173
593
64,863
303,406
303,490
1,642
324,241
3,915
30,236
1,928
26,947
63,026
110
6,416
1,831
2,310
10,667
73,693
0.29 % $
2.49 %
3.13 %
4.19 %
3.85 %
3.78 %
4.04 %
4.25 %
3.98 %
6.56 %
4.40 %
4.28 %
4.09 %
4.09 %
5.10 %
3.87 %
$
0.28 % $
0.57 %
0.11 %
1.36 %
0.66 %
0.29 %
0.92 %
2.50 %
3.57 %
1.56 %
0.72 %
$
3.38 %
2.06 %
2.64 %
3.88 %
4.92 %
5.04 %
5.11 %
4.97 %
4.43 %
5.31 %
7.16 %
5.44 %
4.90 %
4.95 %
4.95 %
7.52 %
4.71 %
0.61 %
1.79 %
0.25 %
1.93 %
1.40 %
0.65 %
2.51 %
2.76 %
4.82 %
2.76 %
1.51 %
3.64 %
$
278,428
$
282,590
$
250,548
Table of Contents
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
(dollars in thousands)
Interest earned on:
Interest-bearing deposits with banks
Securities at fair value
Loans held for sale
(2)(3)
Commercial real estate
Commercial and industrial
Commercial construction
Total commercial loans
Residential mortgage
Home equity
Installment and other consumer
Consumer construction
Total consumer loans
(1)(2)
Total portfolio loans
Total loans
Federal Home Loan Bank and other restricted stock
Change in Interest Earned on Interest-earning Assets
Interest paid on:
Interest-bearing demand
Money market
Savings
Certificates of deposit
Total interest-bearing deposits
Securities sold under repurchase agreements
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Total borrowings
Change in Interest Paid on Interest-bearing Liabilities
Change in Net Interest Income
2021 Compared to 2020
Increase (Decrease) Due to
(4)
(4)
Rate
Volume
$
$
$
$
$
1,552 $
1,691
(32)
(4,094)
(7,271)
1,103
(10,262)
(3,538)
172
662
56
(2,648)
(12,910)
(12,942)
(401)
(10,100) $
(16) $
(37)
160
(3,575)
(3,468)
36
(1,376)
(625)
(87)
(2,052)
(5,520) $
(4,580) $
(1,095) $
(2,566)
(4)
(16,601)
5,380
(2,362)
(13,584)
(1,249)
(2,819)
(559)
19
(4,609)
(18,193)
(18,197)
(131)
(21,989) $
(1,857) $
(7,957)
(765)
(11,182)
(21,761)
(126)
(46)
(118)
(356)
(645)
(22,406) $
417 $
Net
457
(875)
(36)
(20,695)
(1,892)
(1,259)
(23,846)
(4,787)
(2,647)
103
74
(7,257)
(31,103)
(31,139)
(533)
(32,089)
(1,872)
(7,994)
(605)
(14,757)
(25,229)
(90)
(1,422)
(743)
(443)
(2,697)
(27,926)
(4,163)
$
$
$
$
$
2020 Compared to 2019
Increase (Decrease) Due to
(4)
(4)
Rate
Volume
2,467 $
2,274
114
19,772
22,326
8,349
50,447
8,815
3,412
555
141
12,923
63,370
63,484
(271)
67,954 $
1,956 $
6,223
336
2,333
10,848
266
(2,501)
(509)
779
(1,965)
8,883 $
59,071 $
(3,185) $
(1,139)
(38)
(24,361)
(24,003)
(5,884)
(54,248)
(1,706)
(7,151)
(480)
(140)
(9,477)
(63,725)
(63,763)
(442)
(68,529) $
(3,190) $
(24,814)
(1,292)
(8,592)
(37,888)
(207)
(2,481)
(121)
(803)
(3,612)
(41,500) $
(27,029) $
Net
(718)
1,135
76
(4,589)
(1,677)
2,465
(3,801)
7,109
(3,739)
75
1
3,446
(355)
(279)
(713)
(575)
(1,234)
(18,591)
(956)
(6,259)
(27,040)
59
(4,982)
(630)
(24)
(5,577)
(32,617)
32,042
(1)
(2)
(3)
(4)
Nonaccruing loans are included in the daily average loan amounts outstanding.
Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent.
Taxable investment income is adjusted for the dividend-received deduction for equity securities.
Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.
Net interest income on an FTE basis (non-GAAP) decreased $4.2 million compared to 2020. The decline was primarily due to lower average loan balances compared to 2020. Net
interest income was favorably impacted by PPP loans which contributed $17.3 million compared to $11.4 million in 2020. The net interest margin, or NIM, on an FTE basis (non-
GAAP) decreased 16 basis points compared to 2020. The decrease is primarily due to higher average cash balances and the low interest rate environment. PPP loans positively
impacted the net interest margin on an FTE basis (non-GAAP) by 8 basis points compared to the negative impact of 3 basis points in 2020.
Interest income on an FTE basis (non-GAAP) decreased $32.1 million compared to 2020. The decrease in interest income was primarily due to lower average loan balances
compared to 2020 and the continued low interest rate environment. Average loan balances decreased $325.8 million compared to 2020. Average PPP loans decreased $53.7 million
compared to 2020. The average rate earned on loans decreased 25 basis points primarily due to lower short-term interest rates. Average interest-bearing deposits with banks increased
$542.2 million compared to 2020 due to PPP loan forgiveness, lower loan balances and a significant increase in average deposits as a result of customer PPP loans and stimulus
payments along with customers' liquidity preferences. Overall, the FTE rate on interest-earning assets (non-GAAP) decreased 50 basis points compared to 2020.
Interest expense decreased $27.9 million compared to 2020. The decrease was primarily due to lower short-term interest
34
Table of Contents
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
rates. Average interest-bearing deposits decreased $126.2 million compared to 2020. The average rate paid on interest-bearing deposits decreased 46 basis points compared to 2020
primarily due to lower short-term interest rates. The interest-bearing deposit decreases are favorably offset by a $521.8 million increase in demand deposits. We experienced demand
deposit growth due to customer PPP loans and stimulus payments along with customers' liquidity preferences. Brokered deposits decreased $216.0 million and borrowings decreased
$164.6 million compared to 2020 due to maturities and a reduced need for wholesale funding. Overall, the cost of interest-bearing liabilities decreased 48 basis points compared to
2020.
Provision for Credit Losses
The provision for credit losses, which includes a provision for losses on loans and on unfunded loan commitments, is a charge to earnings to maintain the ACL at a level consistent
with management's assessment of expected losses in the loan portfolio at the balance sheet date. The provision for credit losses decreased $115.2 million to $16.2 million for 2021
compared to $131.4 million for 2020. Excluding the customer fraud loss of $58.7 million, the provision for credit losses was $72.7 million for 2020.
The significant decrease in the provision for credit losses during 2021 was mainly due to the customer fraud in 2020 and an improved outlook for the economy and our loan
portfolio. Our total qualitative reserve decreased $7.3 million compared to 2020. The decrease was primarily due to improved economic conditions offset by additional segment
allocations for our healthcare and C&I portfolios along with the increased uncertainty at year-end related to the COVID-19 Omicron variant. Specific reserves on loans individually
assessed decreased $11.7 million to $1.8 million at December 31, 2021 compared to $13.5 million in 2020. The decrease in specific reserves was the result of approximately $7.8
million of loan charge-offs and the release of $5.7 million of specific reserves due to improved operating performance within our hotel portfolio. Offsetting this decrease in specific
reserve was the addition of a $1.8 million specific reserve related to a $21.7 million C&I relationship that also had a $10.3 million charge-off in 2021 based on an estimated enterprise
value of the company.
Net loan charge-offs were $34.5 million, or 0.49 percent of average loans, in 2021 compared to $103.4 million, or 1.40 percent of average loans, during 2020. Excluding the
customer fraud, net loan charge-offs were $44.7 million, or 0.61 percent of average loans in 2020. The decrease in net loan charge-offs in 2021 was primarily due to improving
economic conditions.
Refer to the Credit Quality section of this MD&A for further details.
Noninterest Income
(dollars in thousands)
Debit and credit card
Service charges on deposit accounts
Wealth management
Mortgage banking
Commercial loan swap income
Securities gains, net
Other
Total Noninterest Income
2021
17,952
15,040
12,889
9,734
1,146
29
7,820
64,610
$
$
Years Ended December 31,
2020
15,093
13,597
9,957
10,923
4,740
142
5,267
59,719
$
$
$ Change
2,859
1,443
2,932
(1,189)
(3,594)
(113)
2,553
4,891
$
$
% Change
18.9 %
10.6 %
29.4 %
(10.9) %
(75.8) %
(79.6) %
48.5 %
8.2 %
Noninterest income increased $4.9 million, or 8.2 percent, in 2021 compared to 2020. Wealth management fees increased $2.9 million compared to the prior year. Brokerage fees
increased $1.6 million primarily due to the addition of six new financial advisors added during 2021. Trust income increased $1.3 million mainly due to new customer growth resulting
in higher assets under management and improved market conditions. Debit and credit card fees increased $2.9 million due to increased debit and credit card usage. Other noninterest
income increased $2.6 million due to a $1.4 million change in the credit valuation adjustment for our commercial loan swaps for risk associated with our hotel loan portfolio, a $0.8
million change in the equity securities portfolio and a $0.5 million change in the valuation of a deferred compensation plan, which has a corresponding offset in salaries and benefit
expense resulting in no impact to net income. Service charges on deposit accounts increased $1.4 million due to the improving economic environment which drove higher customer
activity. Commercial loan swap income decreased $3.6 million due to the lower customer activity related to the pandemic and interest rate environment. Mortgage banking decreased
$1.2 million due to changes in the valuation of the mortgage interest rate locks offset by an improved mortgage servicing rights valuation compared to 2020.
35
Table of Contents
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Noninterest Expense
(dollars in thousands)
Salaries and employee benefits
Data processing and information technology
Occupancy
Furniture, equipment and software
Other taxes
Professional services and legal
Marketing
FDIC insurance
Merger-related expenses
Other
Total Other Noninterest Expense
NM - percentage not meaningful
$
$
2021
100,214
16,681
14,544
10,684
6,644
6,368
4,553
4,224
—
24,927
188,839
$
$
Years Ended December 31,
2020
90,115
15,499
14,529
11,050
6,622
6,394
5,996
5,089
2,342
29,008
186,644
$
$
$ Change
10,099
1,182
15
(366)
22
(26)
(1,443)
(865)
(2,342)
(4,081)
2,195
% Change
11.2 %
7.6 %
0.1 %
(3.3) %
0.3 %
(0.4) %
(24.1) %
(17.0) %
NM
(14.1) %
1.2 %
Noninterest expense increased $2.2 million, or 1.2 percent, to $188.8 million in 2021 compared to 2020. Total merger-related expense decreased $2.3 million compared to 2020
due to no merger during 2021. Salaries and employee benefits increased $10.1 million during 2021 primarily due to higher incentive, restricted stock, commissions and pension
expense due to an increase in retirees electing lump-sum distributions. Data processing and information technology increased $1.2 million due to new products and services in 2021.
Offsetting these increases, other noninterest expense decreased $4.1 million due to lower loan related expenses and lower amortization of both our qualified affordable housing projects
and core deposit intangible assets. Marketing expense decreased $1.4 million due to the pandemic and a reduction in promotions. FDIC insurance decreased $0.9 million due to the
improvement of the financial ratios used to determine the assessment.
Income Taxes
The provision for income taxes increased to $25.3 million in 2021 compared to nearly zero for 2020. The increase in our income tax provision was primarily due to a $114.6
million increase in income before taxes in 2021 compared to 2020 when income before taxes was impacted by a customer fraud of $58.7 million.
The effective tax rate, which is total tax expense as a percentage of income before taxes, increased to 18.7 percent in 2021 compared to a nominal negative annual effective tax rate
in 2020. The increase in the effective tax rate was primarily due to significantly higher income before taxes in 2021 compared to 2020. Historically, we have generated an annual
effective tax rate that is less than the statutory rate of 21 percent due to benefits resulting from tax-exempt interest, excludable dividend income, tax-exempt income on Bank Owned
Life Insurance, or BOLI, and tax benefits associated with Low Income Housing Tax Credits, or LIHTC.
Results of Operations
Year Ended December 31, 2020
Earnings Summary
Net income decreased $77.2 million, or 78.6 percent, to $21.0 million, or $0.53 per diluted share, in 2020 compared to $98.2 million, or $2.82 per diluted share in 2019. Net
income in 2020 was significantly impacted by a $46.3 million after-tax, or $1.19 per diluted share, fraud loss. The 2019 results included $11.4 million, or $0.27 per diluted share, of
merger related expenses. The DNB Merger results have been included in our financial statements since the consummation of the DNB Merger on November 30, 2019.
Net interest income increased $32.6 million, or 13.2 percent, to $279.4 million compared to $246.8 million in 2019 primarily due to the merger with DNB in late 2019. Average
interest-earnings assets increased $1.5 billion, or 21.6 percent, to $8.4 billion compared to 2019. Average interest-bearing liabilities increased $862.2 million, or 17.7 percent, to $5.7
billion compared to 2019 with increases in average interest-bearing deposits of $923.1 million offset by decreases in borrowings of $61.0 million. Net interest margin, on a fully
taxable-equivalent, or FTE, basis (non-GAAP), decreased 26 basis points to 3.38 percent for 2020 compared to 3.64 percent for 2019.
Net interest margin is reconciled to net interest income adjusted to an FTE basis above in the "Results of Operations - Year Ended December 31, 2021 -Net Interest Income"
section of this MD&A.
36
Table of Contents
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The provision for credit losses was $131.4 million for 2020 compared to $14.9 million in 2019. Excluding the customer fraud loss of $58.7 million, the provision for credit losses
increased $57.8 million to $72.7 million for 2020 compared to $14.9 million in 2019. The significant increase in the provision for credit losses during the year was mainly due to the
impact of the COVID-19 pandemic and our adoption of CECL on January 1, 2020. The COVID-19 pandemic has negatively impacted the hospitality industry resulting in deterioration
in our $248 million hotel portfolio. Net loan charge-offs increased $89.7 million to $103.4 million, or 1.40 percent of average loans, for 2020 compared to $13.6 million, or 0.22
percent of average loans, in 2019. Excluding the customer fraud, net loan charge-offs were $44.7 million, or 0.60 percent in 2020.
Total noninterest income increased $7.1 million to $59.7 million compared to $52.6 million in 2019. Total noninterest income includes a full-year impact of the DNB Merger for
2020 compared to one month in 2019. Additionally, the increase in noninterest income related to an increase of $8.4 million in mortgage banking income to $10.9 million compared to
2019 due to the strong refinance activity in the current interest rate environment.
Noninterest expense increased $19.5 million to $186.6 million for 2020 compared to $167.1 million for 2019. Total noninterest expense includes a full-year impact of the DNB
Merger for 2020 compared to one month in 2019 with increases in most noninterest expense categories. FDIC insurance increased $4.3 million due to the DNB Merger, the impact of
recent financial results on certain components of the assessment calculation and Small Bank Assessment Credits received in 2019. These increases were offset by a $9.0 million
decrease in merger related expenses compared to 2019.
The income tax provision decreased to nearly zero for 2020 compared to an expense of $19.1 million in 2019. The decrease in our income tax provision was mainly due to a $96.3
million decrease in taxable income in 2020 compared to 2019.
Net Interest Income
Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest
paid on interest-bearing liabilities. Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest
rates and spreads. The level and mix of interest-earning assets and interest-bearing liabilities is managed by our Asset and Liability Committee, or ALCO, in order to mitigate interest
rate and liquidity risks of the balance sheet. A variety of ALCO strategies were implemented, within prescribed ALCO risk parameters, to produce what we believe is an acceptable
level of net interest income.
The interest income on interest-earning assets and the net interest margin are presented on an FTE basis. The FTE basis adjusts for the tax benefit of income on certain tax-exempt
loans and securities and the dividend-received deduction for equity securities using the federal statutory tax rate of 21 percent and the dividend-received deduction for equity securities.
We believe this to be the preferred industry measurement of net interest income that provides a relevant comparison between taxable and non-taxable sources of interest income.
Net interest margin is reconciled to net interest income adjusted to an FTE basis above in the "Results of Operations - Year Ended December 31, 2021 - Net Interest Income"
section of this MD&A.
37
Table of Contents
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Average Balance Sheet and Net Interest Income Analysis
The following table provides information regarding the average balances, interest and rates earned on interest-earning assets and the average balances, interest and rates paid on
interest-bearing liabilities for the years ended December 31:
2020
2019
2018
Average
Balance
Interest
Rate
Average
Balance
Interest
Rate
Average
Balance
Interest
Rate
(dollars in
thousands)
ASSETS
Interest-bearing
deposits with banks
Securities at fair
(2)(3)
value
Loans held for
sale
Commercial
real estate
Commercial
and industrial
Commercial
construction
Total
commercial
loans
Residential
mortgage
Home equity
Installment
and other
consumer
Consumer
construction
Total
consumer
loans
Total portfolio
loans
(1)(2)
Total Loans
Federal Home
Loan Bank and other
restricted stock
Total Interest-
earning Assets
Noninterest-
earning assets
Total Assets
LIABILITIES
AND
SHAREHOLDERS’
EQUITY
Interest-
bearing demand
Money
market
Savings
Certificates
of deposit
Total Interest-
bearing deposits
Securities
sold under
repurchase
agreements
Short-term
borrowings
Long-term
borrowings
Junior
subordinated debt
securities
Total
borrowings
Total Interest-
bearing Liabilities
Noninterest-
bearing liabilities
Shareholders’
equity
Total Liabilities
and Shareholders’
Equity
Net Interest
Income
(2)(3)
Net Interest
Margin
(2)(3)
$
179,887
$
515
19,011
160
140,288
77,752
16,702
234,742
40,998
21,469
5,248
594
68,309
303,051
303,211
929
304,140
764,311
5,105
3,347,234
2,018,318
442,088
5,807,640
964,740
539,461
80,032
13,484
1,597,717
7,405,357
7,410,462
18,234
8,372,894
779,853
9,152,747
961,823
$
2,681
$
$
$
59,941
$
1,233
17,876
84
144,877
79,429
14,237
238,543
33,889
25,208
5,173
593
64,863
303,406
303,490
1,642
324,241
678,069
2,169
2,945,278
1,575,485
278,665
4,799,428
765,604
475,149
72,283
10,896
1,323,932
6,123,360
6,125,529
21,833
6,885,372
550,164
7,435,536
641,403
$
3,915
$
$
0.29
2.49
3.13
4.19
3.85
3.78
4.04
4.25
3.98
6.56
4.40
4.28
4.09
4.09
5.10
3.87
0.28
0.57
0.11
1.36
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
$
56,210
$
1,042
17,860
85
132,139
67,770
15,067
214,976
29,772
22,981
4,594
267
57,614
272,590
272,675
2,052
293,629
682,806
1,515
2,779,096
1,441,560
314,265
4,534,921
696,849
474,538
67,047
5,336
1,243,770
5,778,691
5,780,206
30,457
6,549,679
494,149
7,043,828
570,459
$
1,883
$
$
2.06
2.64
3.88
4.92
5.04
5.11
4.97
4.43
5.31
7.16
5.44
4.90
4.95
4.95
7.52
4.71
0.61
1.79
0.25
1.93
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
1.85
2.62
5.60
4.75
4.70
4.79
4.74
4.27
4.84
6.85
5.00
4.63
4.72
4.72
6.74
4.48
0.33
1.40
0.21
1.43
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
2,040,116
899,717
1,517,643
5,419,299
57,673
155,753
47,953
64,092
325,471
5,744,770
2,238,488
1,169,489
11,645
972
20,688
35,986
0.66
%
169
1,434
1,201
2,286
5,090
41,076
0.29
0.92
2.50
3.57
1.56
0.72
%
%
%
%
%
%
1,691,910
766,142
1,396,706
4,496,161
16,863
255,264
66,392
47,934
386,453
4,882,614
1,569,014
983,908
30,236
1,928
26,947
63,026
1.40
%
110
6,416
1,831
2,310
10,667
73,693
0.65
2.51
2.76
4.82
2.76
1.51
%
%
%
%
%
%
1,299,185
836,747
1,328,985
4,035,376
45,992
525,172
47,986
45,619
664,769
4,700,145
1,435,328
908,355
18,228
1,773
18,972
40,856
1.01
%
221
11,082
1,129
2,100
14,532
55,388
0.48
2.11
2.35
4.60
2.19
1.18
%
%
%
%
%
%
$
9,152,747
$
7,435,536
$
7,043,828
$
282,590
$
250,548
$
238,241
3.38
%
3.64
%
3.64
%
(1)
(2)
(3)
Nonaccruing loans are included in the daily average loan amounts outstanding.
Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent .
Taxable investment income is adjusted for the dividend-received deduction for equity securities.
38
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:
(dollars in thousands)
Interest earned on:
Interest-bearing deposits with banks
Securities at fair value
Loans held for sale
(2)(3)
Commercial real estate
Commercial and industrial
Commercial construction
Total commercial loans
Residential mortgage
Home equity
Installment and other consumer
Consumer construction
Total consumer loans
(1)(2)
Total portfolio loans
Total loans
Federal Home Loan Bank and other restricted stock
Change in Interest Earned on Interest-earning Assets
Interest paid on:
Interest-bearing demand
Money market
Savings
Certificates of deposit
Total interest-bearing deposits
Securities sold under repurchase agreements
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Total borrowings
Change in Interest Paid on Interest-bearing Liabilities
Change in Net Interest Income
Volume
(4)
2,467
2,274
114
19,772
22,326
8,349
50,447
8,815
3,412
555
141
12,923
63,370
63,484
(271)
67,954
1,956
6,223
336
2,333
10,848
266
(2,501)
(509)
779
(1,965)
8,883
59,071
$
$
$
$
$
2020 Compared to 2019
Increase (Decrease) Due to
(4)
Rate
$
$
$
$
$
(3,185)
(1,139)
(38)
(24,361)
(24,003)
(5,884)
(54,248)
(1,706)
(7,151)
(480)
(140)
(9,477)
(63,725)
(63,763)
(442)
(68,529)
(3,190)
(24,814)
(1,292)
(8,592)
(37,888)
(207)
(2,481)
(121)
(803)
(3,612)
(41,500)
(27,029)
$
$
$
$
$
Net
(718)
1,135
76
(4,589)
(1,677)
2,465
(3,801)
7,109
(3,739)
75
1
3,446
(355)
(279)
(713)
(575)
(1,234)
(18,591)
(956)
(6,259)
(27,040)
59
(4,982)
(630)
(24)
(5,577)
(32,617)
32,042
Volume
(4)
69
(124)
37
7,902
6,296
(1,707)
12,491
2,937
30
359
278
3,604
16,095
16,132
(581)
15,496
234
5,510
(150)
967
6,561
(140)
(5,696)
433
107
(5,296)
1,265
14,231
$
$
$
$
$
2019 Compared to 2018
Increase (Decrease) Due to
(4)
Rate
$
$
$
$
$
122
140
(38)
4,836
5,363
877
11,076
1,180
2,197
220
48
3,645
14,721
14,683
171
15,116
1,798
6,498
305
7,008
15,609
29
1,030
269
103
1,431
17,040
(1,924)
$
$
$
$
$
Net
191
16
(1)
12,738
11,659
(830)
23,567
4,117
2,227
579
326
7,249
30,816
30,815
(410)
30,612
2,032
12,008
155
7,975
22,170
(111)
(4,666)
702
210
(3,865)
18,305
12,307
(1)
(2)
(3)
(4)
Nonaccruing loans are included in the daily average loan amounts outstanding.
Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent.
Taxable investment income is adjusted for the dividend-received deduction for equity securities.
Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.
Net interest income on an FTE basis (non-GAAP) increased $32.0 million, or 12.8 percent, compared to 2019. Net interest income was favorably impacted by purchase accounting
fair value adjustments of $4.8 million mainly related to the DNB merger. The net interest margin on an FTE basis (non-GAAP) decreased 26 basis points to 3.38 percent compared to
2019. This is mostly due to decreases in short-term interest rates of approximately 225 basis points. Purchase accounting fair value adjustments favorably impacted the net interest
margin rate on an FTE basis by 6 basis points for 2020.
Interest income on an FTE basis (non-GAAP) decreased $0.6 million, or 0.2 percent, compared to 2019. The change was primarily due to increases in average interest-earning
assets of $1.5 billion offset by lower short-term interest rates compared to 2019. Average loan balances increased $1.3 billion compared to 2019 due to the DNB merger and organic
loan growth. PPP loans contributed $380.1 million of the average increase in loans. The average rate earned on loans decreased 86 basis points primarily due to lower short-term
interest rates. Average interest-bearing deposits with banks increased $119.9 million and the average rate earned decreased 177 basis points compared to 2019. Average investment
securities increased $86.2 million and the average rate earned decreased 15 basis points. Overall, the FTE rate on interest-earning assets (non-GAAP) decreased 84 basis points
compared to 2019.
Interest expense decreased $32.6 million compared to 2019. The decrease was primarily due to lower short-term interest
39
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
rates. Average interest-bearing deposits increased $923.1 million compared to 2019 due to the DNB merger and organic deposit growth. We experienced deposit growth throughout
2020 due to customer PPP loans and stimulus payments along with customers conservatively holding cash deposits in these uncertain times. The average rate paid decreased 74 basis
points compared to 2019 primarily due to lower short-term interest rates. Average borrowings decreased $61.0 million due to increased deposits and the average rate paid decreased
120 basis points due to lower short-term interest rates. Overall, the cost of interest-bearing liabilities decreased 79 basis points compared to 2019.
Provision for Credit Losses
The provision for credit losses, which includes a provision for losses on loans and on unfunded loan commitments, is a charge to earnings to maintain the ACL at a level consistent
with management's assessment of expected losses in the loan portfolio at the balance sheet date. The provision for credit losses increased $116.5 million to $131.4 million for 2020
compared to $14.9 million for 2019.
We recognized a charge-off of $58.7 million related to a customer fraud from a check kiting scheme during the second quarter of 2020. The fraud was perpetrated by a single
business customer and the customer has plead guilty in a criminal investigation. We continue to pursue all available sources of recovery to mitigate the loss. The customer also had a
lending relationship of $14.8 million, including a $14.0 million commercial real estate loan and an $0.8 million line of credit which resulted in an additional $8.9 million charge-off in
2020. At December 31, 2020, $5.9 million remains outstanding as a nonperforming loan that has been fully charged down to the estimated sale price of the collateral.
Excluding the customer fraud loss of $58.7 million, the provision for credit losses increased $57.8 million to $72.7 million for 2020 compared to $14.9 million in 2019. The
significant increase in the provision for credit losses during the year was mainly due to the impact of the COVID-19 pandemic and our adoption of CECL on January 1, 2020. The
COVID-19 pandemic has negatively impacted the hospitality industry resulting in deterioration in our $248 million hotel portfolio.
The impact of COVID-19 pandemic was captured in our quantitative reserve as certain impacted loans were downgraded to special mention and substandard and in our qualitative
reserve through our economic forecast and other qualitative adjustments. Commercial special mention, substandard and doubtful loans increased $281 million to $572 million
compared to $290 million at December 31, 2019, with an increase of $162 million in substandard loans, $113 million in special mention loans and $11.4 million in doubtful loans. The
increase in both special mention and substandard loans was mainly due to downgrades in our hotel portfolio. Specific reserves on loans individually assessed increased $11.3 million to
$13.5 million compared to $2.2 million in 2019. Included in the $13.5 million of specific reserves was $6.7 million for loans in our hotel portfolio. Specific reserves for hotels were
based on liquidation values from appraisals received in the fourth quarter of 2020. Our qualitative reserve increased $14.1 million in 2020 which included $8.6 million for the
economic forecast and $3.2 million for portfolio allocations made in our hotel, business banking and C&I portfolios due to the COVID-19 pandemic. The change in reserve attributed
to the economic forecast reflected reductions in the second and third quarters due to an improved economic forecast. Our forecast covers a period of two years and is driven primarily
by national unemployment data. The change attributed to the portfolio allocations was primarily due to $3.0 million of ACL added for our business banking portfolio.
Net loan charge-offs were $103.4 million, or 1.40 percent of average loans, in 2020 compared to $13.6 million, or 0.22 percent of average loans, during 2019. Excluding the
customer fraud, net loan charge-offs were $44.7 million, or 0.60 percent in 2020.
Refer to the Credit Quality section of this MD&A for further details.
Noninterest Income
(dollars in thousands)
Securities gains (losses), net
Debit and credit card
Service charges on deposit accounts
Mortgage banking
Wealth management
Commercial loan swap income
Other
Total Noninterest Income
NM- percentage change not meaningful
$
$
2020
142
15,093
13,597
10,923
9,957
4,740
5,267
59,719
$
$
Years Ended December 31,
2019
(26)
13,405
13,316
2,491
8,623
5,503
9,246
52,558
$
$
$ Change
168
1,688
281
8,432
1,334
(763)
(3,979)
7,161
% Change
NM
12.6 %
2.1 %
338.5 %
15.5 %
(13.9) %
(43.0) %
13.6 %
Noninterest income increased $7.2 million, or 13.6 percent, in 2020 compared to 2019. Total noninterest income includes a full-year impact of the DNB Merger for 2020
compared to one month in 2019. Our noninterest income has been negatively impacted due to changes in our customers' behavior during the pandemic. The increase in noninterest
income primarily related
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
to higher mortgage banking income of $8.4 million compared to 2019 due to an increase in the volume of loans originated for sale in the secondary market resulting from a decline in
mortgage interest rates. Debit and credit card fees increased $1.7 million compared to the prior year due to increased debit and credit card usage and the DNB Merger. Wealth
management fees increased $1.3 million due to the DNB Merger. The $3.9 million decrease in other noninterest income was attributable to a change in the valuation of a deferred
compensation plan, which has a corresponding offset in salaries and benefit expense resulting in no impact to net income, a change in the equity securities portfolio and a change in the
credit valuation adjustment for our commercial loan swaps for risk associated with our hotel loan portfolio.
Noninterest Expense
(dollars in thousands)
Salaries and employee benefits
Data processing and information technology
Occupancy
Merger-related expenses
Furniture, equipment and software
Marketing
Professional services and legal
Other taxes
FDIC insurance
Other expenses:
Loan related expenses
Joint venture amortization
Supplies
Postage
Amortization of intangibles
Other
Total Other Noninterest Expense
Total Noninterest Expense
NM - percentage not meaningful
$
$
2020
90,115
15,499
14,529
2,342
11,050
5,996
6,394
6,622
5,089
5,044
3,215
1,318
1,262
2,531
15,638
29,008
Years Ended December 31,
$
2019
83,986
14,468
12,103
11,350
8,958
4,631
4,244
3,364
758
3,250
2,648
1,159
1,082
836
14,279
23,254
$ Change
6,129
1,031
2,426
(9,008)
2,092
1,365
2,150
3,258
4,331
1,794
567
159
180
1,695
1,359
5,754
$
186,644
$
167,116
$
19,528
% Change
7.3 %
7.1 %
20.0 %
NM
23.4 %
29.5 %
50.7 %
96.8 %
571.4 %
55.2 %
21.4 %
13.7 %
16.6 %
202.8 %
9.5 %
24.7 %
11.7 %
Noninterest expense increased $19.5 million, or 11.7 percent, to $186.6 million in 2020 compared to 2019. Total noninterest expense includes a full-year impact of the DNB
Merger for 2020 compared to one month in 2019. Total merger expenses decreased $9.0 million compared to 2019. Total merger related expenses of $2.3 million in 2020 were
comprised of $1.4 million of salaries and employee benefits, $0.4 million for data processing, $0.2 million for professional services and $0.3 million in various other expenses. The
increases in net occupancy expense, furniture, equipment and software and other taxes related to the DNB merger. The increase in FDIC insurance of $4.3 million was due to the
impact of recent results on certain components of the assessment calculation, such as our net loss in the second quarter of 2020 and also the Small Bank Assessment Credits that were
received by all banking institutions with assets of less than $10 billion in third quarter 2019 that were not received in 2020. Also in addition to the merger, the increase of $3.3 million
in other taxes was due to a one-time adjustment related to a state sales tax assessment in 2019. Salaries and employee benefits increased $6.1 million during 2020 primarily due to
additional employees, mainly related to the merger, annual merit increases and higher pension expense due to an increase in retirees electing lump-sum distributions. Partially
offsetting these increases were a decrease in restricted stock of $1.7 million and $3.0 million of deferred origination costs due to PPP loans and increased mortgage activity. Loan
related expenses increased $1.8 million due to the customer fraud and increased mortgage volume. Professional services and legal expenses increased $2.1 million mainly due to higher
legal expense.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Federal Income Taxes
The income tax provision was nearly zero compared to $19.1 million in 2019. The decrease in our income tax provision was mainly due to a $96.3 million decrease in net income
before taxes in 2020 compared to 2019.
The effective tax rate, which is total tax expense as a percentage of net income before taxes, decreased 16.3 percent in 2020 to a nominal negative annual effective tax rate
compared to 16.3 percent in 2019. The decrease in the effective tax rate was primarily due to significantly lower net income before taxes in 2020 compared to 2019. Historically, we
have generated an annual effective tax rate that is less than the statutory rate of 21 percent due to benefits resulting from tax-exempt interest, excludable dividend income, tax-exempt
income on BOLI and tax benefits associated with Low Income Housing Tax Credits, or LIHTC.
Financial Condition
December 31, 2021
Total assets increased $520.6 million to $9.5 billion at December 31, 2021 compared to $9.0 billion at December 31, 2020. Cash and due from banks increased $692.5 million to
$922.2 million at December 30, 2021 compared to $229.7 million at December 31, 2020 due to PPP forgiveness and a significant increase in deposits as a result of government
stimulus programs, a second round of PPP loans and our customers' liquidity preferences. Total portfolio loans decreased $225.9 million to $7.0 billion at December 31, 2021
compared to $7.2 billion at December 31, 2020. The decrease in portfolio loans is primarily related to decreases in the commercial loan portfolio of $267.1 million with decreases of
$225.5 million in C&I, which included a decrease of $377.2 million of loans from the PPP, and a decrease of $33.3 million in commercial construction compared to December 31,
2020. Excluding the PPP loans, portfolio loans increased $151.3 million compared to December 31, 2020 due a modest increase in activity as the economic outlook improved.
Consumer loans increased $41.3 million compared to December 31, 2020 primarily due to an increase of $29.1 million in the home equity portfolio and $27.0 million in installment
and other consumer loans offset by a decrease in the residential mortgage portfolio of $18.4 million.
Securities increased $137.1 million to $910.8 million at December 31, 2021 from $773.7 million at December 31, 2020. The increase in securities is primarily due to a resumption
in overall investing activities mainly during the second half of the year due to the increasing interest rate environment and the cash position. The bond portfolio had an unrealized gain
of $9.4 million at December 31, 2021 compared to $33.4 million at December 31, 2020 due to an increase in interest rates.
Our deposits increased $576.0 million, with total deposits of $8.0 billion at December 31, 2021 compared to $7.4 billion at December 31, 2020. Customer deposits increased
$639.2 million from December 31, 2020. The increase in customer deposits primarily related to PPP and stimulus programs along with customers conservatively holding cash deposits
during these uncertain times. Customer noninterest-bearing demand deposits increased $486.6 million, interest-bearing demand increased $114.6 million, money market deposits
increased $183.5 million and savings increased $140.6 million offset by a decrease in certificates of deposit of $286.2 million. Total brokered deposits decreased $63.2 million from
December 31, 2020 due to a reduced need for wholesale funding given the customer deposit growth.
Total borrowings decreased $66.6 million to $161.3 million at December 31, 2021 compared to $227.9 million at December 31, 2020 due to an increase in customer deposits. The
decrease in borrowings primarily related to a decline in short-term borrowings of $75.0 million offset by an increase in securities sold under repurchase agreements of $19.3 million
due to demand for the product by our repurchase agreements, or REPO, customers.
Total shareholders’ equity increased $51.7 million to $1.2 billion at December 31, 2021 compared to $1.2 billion at December 31, 2020. The increase was primarily due to net
income of $110.3 million offset partially by dividends of $44.3 million and a decrease in other comprehensive income of $16.1 million. The decrease in other comprehensive income
was mainly due to a decrease of $18.9 million, net of tax, in unrealized gains on our available-for-sale investment securities due to higher interest rates.
42
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Securities Activity
The balances and average rates of our securities portfolio are presented below as of December 31:
(dollars in thousands)
U.S. Treasury securities
Obligations of U.S. government corporations and agencies
Collateralized mortgage obligations of U.S. government corporations and
agencies
Residential mortgage-backed securities of U.S. government corporations and
agencies
Commercial mortgage-backed securities of U.S. government corporations and
agencies
Corporate securities
Obligations of states and political subdivisions
Marketable equity securities
Total Securities
(1)
$
$
Balance
95,327
70,348
270,294
56,793
341,300
500
75,089
1,142
910,793
2021
Weighted-Average
Yield
1.26 % $
2.29 %
1.97 %
1.57 %
2.09 %
3.22 %
3.28 %
2.93 %
2.05 % $
2020
Weighted-Average
Yield
1.87 % $
2.28 %
2.23 %
1.26 %
2.41 %
3.90 %
3.49 %
2.90 %
2.42 % $
Balance
10,282
82,904
209,296
67,778
273,681
2,025
124,427
3,300
773,693
2019
Weighted-Average
Yield
1.87 %
2.20 %
2.68 %
2.95 %
2.42 %
4.35 %
3.45 %
2.77 %
2.56 %
Balance
10,040
157,697
189,348
22,418
275,870
7,627
116,133
5,150
784,283
(1)
Weighted-average yields are calculated on a taxable-equivalent basis using the federal statutory tax rate of 21 percent for 2021, 2020 and 2019.
We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income, and as a tool of ALCO to
reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us. Security purchases are
subject to an investment policy approved annually by our Board of Directors and administered through ALCO and our treasury function. Securities increased $137.1 million to $910.8
million at December 31, 2021 from $773.7 million at December 31, 2020. The increase in securities is primarily due to an increase in overall investing activities due to excess liquidity.
These increases were partially offset by reductions in unrealized gains due to a rising interest rate environment.
At December 31, 2021 our bond portfolio was in a net unrealized gain position of $9.4 million compared to a net unrealized gain position of $33.4 million at December 31, 2020.
At December 31, 2021, total gross unrealized gains in the bond portfolio were $15.2 million offset by gross unrealized losses of $5.8 million compared to December 31, 2020, when
total gross unrealized gains were $33.5 million offset by gross unrealized losses of $0.1 million. The decrease in the net unrealized gain position was primarily due to an increase in
interest rates from December 31, 2020 to December 31, 2021. 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, 2021 or December 31, 2020.
Management evaluates the bond portfolio for impairment on a quarterly basis. 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, 2021. 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 2021, 2020 or 2019. The performance of the debt securities markets could
generate impairments in future periods requiring realized losses to be reported.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The following table sets forth the maturities of securities at December 31, 2021 and the weighted average yields of such securities. Taxable-equivalent adjustments for 2021 have
been made in calculating yields on obligations of state and political subdivisions.
(dollars in thousands)
Available-for-Sale
U.S. Treasury securities
Obligations of U.S. government corporations and agencies
Collateralized mortgage obligations of U.S. government
corporations and agencies
Residential mortgage-backed securities of U.S. government
corporations and agencies
Commercial mortgage-backed securities of U.S. government
corporations and agencies
Obligations of states and political subdivisions
Corporate bonds
Marketable equity securities
Total
(1)
Within
One Year
After
One But within
Five Years
Maturing
After
Five But Within
Ten Years
After
Ten Years
No Fixed
Maturity
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
$
10,107
25,201
1.87 % $
2.25 %
—
45,146
— % $
2.32 %
85,221
—
1.19 % $
— %
—
—
— % $
— %
—
—
10,066
8,720
—
—
— %
— %
2.37 %
3.37 %
— %
— %
4,630
2.46 %
69,824
3.00 %
195,840
1.60 %
2,001
3.60 %
1,974
2.32 %
52,819
1.47 %
215,185
21,216
500
—
2.41 %
3.09 %
3.22 %
— %
116,048
22,206
—
—
1.47 %
3.56 %
— %
— %
—
22,947
—
—
$
54,094
$
288,678
$
295,273
$
271,606
— %
3.14 %
— %
— %
$
1.70 %
—
—
—
—
—
—
—
1,142
1,142
Weighted Average Yield
2.38 %
2.45 %
1.91 %
(1)
Weighted-average yields are calculated on a taxable-equivalent basis using the federal statutory tax rate of 21 percent for 2021.
Lending Activity
The following table summarizes our loan portfolio as of December 31:
2020
2021
$
(dollars in thousands)
Commercial
Commercial real estate
Commercial and industrial
Commercial construction
Total Commercial Loans
Consumer
Residential mortgage
Home equity
Installment and other consumer
Consumer construction
Total Consumer Loans
Amount
3,236,653
1,728,969
440,962
5,406,584
899,956
564,219
107,928
21,303
1,593,406
% of
Total
46.2 % $
24.7 %
6.3 %
77.2 %
12.9 %
8.1 %
1.5 %
0.3 %
22.8 %
Total Portfolio Loans
$
6,999,990
100.0 % $
Amount
3,244,974
1,954,453
474,280
5,673,706
918,398
535,165
80,915
17,675
1,552,153
7,225,859
2019
2018
2017
% of
Total
44.9 % $
27.0 %
6.6 %
78.5 %
12.7 %
7.4 %
1.1 %
0.2 %
21.5 %
100.0 % $
Amount
3,416,518
1,720,833
375,445
5,512,796
998,585
538,348
79,033
8,390
1,624,356
7,137,152
% of
Total
47.9 % $
24.1 %
5.3 %
77.2 %
14.0 %
7.5 %
1.1 %
0.1 %
22.8 %
100.0 % $
Amount
2,921,832
1,493,416
257,197
4,672,445
726,679
471,562
67,546
8,416
1,274,203
5,946,648
% of
Total
49.1 % $
25.1 %
4.3 %
78.6 %
12.2 %
7.9 %
1.1 %
0.1 %
21.4 %
100.0 % $
Amount
2,685,994
1,433,266
384,334
4,503,594
698,774
487,326
67,204
4,551
1,257,855
5,761,449
— %
— %
—%
— %
—%
— %
— %
2.93 %
2.93 %
% of
Total
44.6 %
24.9 %
6.7 %
78.2 %
12.1 %
8.5 %
1.2 %
0.1 %
21.8 %
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.
Total portfolio loans decreased $225.9 million, or 3.1 percent, to $7.0 billion at December 31, 2021 compared to $7.2 billion at December 31, 2020. Commercial and industrial
loans, or C&I, included $88.3 million of loans originated under the PPP at December 31, 2021. On March 27, 2020, the CARES Act was signed into law. The CARES Act included the
PPP, a
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
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 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.
As of December 31, 2021, 74 percent of our total loans were variable rate loans and 26 percent were fixed rate loans. Commercial loans, including CRE, C&I and commercial
construction, comprised 77.2 percent of total portfolio loans at December 31, 2021 and 78.5 percent at December 31, 2020. The decrease of $267.1 million in commercial loans related
to $225.5 million in C&I, which included a decrease of $377.1 million of loans from the PPP, and a decrease of $33.3 million in commercial construction loans compared to December
31, 2020. Excluding the PPP loans, portfolio loans increased $151.3 million compared to December 31, 2020. Our loan demand was influenced by the pandemic during 2021, but we
did see loan growth in the second half of 2021.
Consumer loans represent 22.8 percent of our total portfolio loans at December 31, 2021 and 21.5 percent at December 31, 2020. Consumer loans increased $41.3 million
compared to December 31, 2020 primarily due to an increase of $29.1 million in the home equity portfolio and $27.0 million in installment and other consumer loans offset by a
decrease in the residential mortgage portfolio of $18.4 million. Much of this growth came from our Eastern Pennsylvania market.
Residential mortgage lending continues to be a focus for us. 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 and the appropriate private mortgage insurance coverage. We originate traditional fixed rate mortgage loans and adjustable rate or balloon
mortgages with a maximum amortization term of 30 years. 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 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. We sold $288.3 million of 1-4 family mortgages in 2021 and $345.1
million in 2020 to Fannie Mae. Our servicing portfolio of mortgage loans that we had originated and sold into the secondary market was $841.7 million at December 31, 2021
compared to $718.2 million at December 31, 2020.
We also offer a variety of unsecured and secured consumer loan products.
The following table presents the maturity of commercial and consumer loans outstanding as of December 31, 2021:
(dollars in thousands)
Fixed interest rates
Variable interest rates
Total Commercial Loans
Fixed interest rates
Variable interest rates
Total Consumer Loans
Total Portfolio Loans
Off Balance Sheet Arrangements
Within One Year
247,852
883,641
1,131,493
56,152
539,454
595,606
1,727,099
$
$
$
$
$
After One But Within
Five Years
700,593
1,859,126
2,559,719
167,291
113,069
280,361
2,840,080
$
$
$
$
$
$
$
$
$
$
Maturity
After Five Years
through 15 years
302,349
1,299,190
1,601,538
252,522
277,759
530,282
2,131,820
$
$
$
$
$
After 15 years
17,995
95,840
113,834
56,744
130,413
187,157
300,992
$
$
$
$
$
Total
1,268,788
4,137,796
5,406,584
532,710
1,060,696
1,593,406
6,999,990
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:
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
(dollars in thousands)
Commitments to extend credit
Standby letters of credit
Total
December 31,
2021
2,583,957
87,335
2,671,292
$
$
2020
2,185,752
89,095
2,274,847
$
$
See Note 19 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 to establish action plans for these loans.
These loans typically represent the highest risk of loss to us. These loans are monitored 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 process in place that includes an annual review of all commercial relationships greater than
$1.5 million. 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.
Nonperforming assets, or NPAs, consist of nonaccrual loans, nonaccrual TDRs and OREO. The following represents NPAs as of December 31:
(dollars in thousands)
Nonperforming Loans
Commercial real estate
Commercial and industrial
Commercial construction
Consumer real estate
Other consumer
Total Nonperforming Loans
Nonperforming Troubled Debt Restructurings
Commercial real estate
Commercial and industrial
Commercial construction
Consumer real estate
Other consumer
Total Nonperforming Troubled Debt Restructurings
Total Nonperforming Loans
OREO
Total Nonperforming Assets
2021
2020
2019
2018
2017
$
$
30,924
3,575
384
9,476
158
44,517
1,968
16,235
2,087
1,484
—
21,774
66,291
13,313
79,604
$
$
87,951
13,430
384
15,624
96
117,485
17,062
9,907
—
2,320
—
29,289
146,774
2,155
148,929
$
$
22,427
13,287
737
8,658
36
45,145
6,713
695
—
1,500
4
8,912
54,057
3,525
57,582
$
$
11,085
5,763
11,780
6,262
33
34,923
967
3,197
2,413
4,564
9
11,150
46,073
3,092
49,165
$
$
2,501
2,449
1,460
6,316
62
12,788
646
4,493
430
6,022
7
11,598
24,386
469
24,855
Nonperforming loans as a percent of total loans
Nonperforming assets as a percent of total loans plus OREO
0.95 %
1.13 %
2.03 %
2.06 %
0.76 %
0.81 %
0.77 %
0.83 %
0.42 %
0.42 %
Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days
or more past due.
Nonperforming loans decreased $80.5 million to $66.3 million at December 31, 2021 compared to $146.8 million at December 31, 2020. The significant decrease in
nonperforming loans primarily related to the return to performing status of $34.0 million of hotel loans, payoff of three CRE relationships for $14.4 million, charge-offs of four
commercial relationships for $19.9 million and two loans moving to OREO for $12.2 million. Offsetting the decrease in nonperforming loans was the
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
addition of a $21.7 million C&I relationship that had a $10.3 million charge-off in 2021 and a $1.8 million specific reserve at December 31, 2021 based on an estimated enterprise
value of the company.
TDRs are loans where we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise grant. We
strive to identify borrowers in financial difficulty early and work with them to modify the terms before their loan reaches nonaccrual status. These modified terms generally include
extensions of maturity dates at a stated interest rate lower than the current market rate for a new loan with similar risk characteristics, reductions in contractual interest rates or
principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods that would not be considered
insignificant. Additionally, we classify loans where the debt obligation has been discharged through a Chapter 7 bankruptcy and not reaffirmed by the borrower as TDRs.
An accruing loan that is modified into a TDR can remain in accrual status if, based on a current credit analysis, collection of principal and interest in accordance with the modified
terms is reasonably assured and the borrower has demonstrated sustained historical repayment performance for a reasonable period before the modification. All commercial TDRs are
individually evaluated, and all consumer TDRs are reserved for at the pool level based on their similar risk characteristics. For all commercial TDRs, regardless of size, we conduct
further analysis to determine the loss and assign a specific reserve to the loan if deemed appropriate. 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.
TDRs decreased $15.0 million to $31.7 million at December 31, 2021 compared to $46.7 million at December 31, 2020. Total TDRs of $31.7 million at December 31, 2021
included $9.9 million, or 31.2 percent, that were performing and $21.8 million, or 68.8 percent, that were not performing. This is a decrease from December 31, 2020 when we had
$46.7 million in TDRs, including $17.4 million that were performing and $29.3 million that were nonperforming. The decrease in nonperforming TDRs during 2021 primarily related
to a $6.1 million CRE loan that moved to OREO in the third quarter of 2021, a $4.6 million charge-off of a C&I loan and a $4.8 million payoff of a CRE loan. Offsetting this decrease
was the addition of the $21.7 million C&I relationship discussed above that moved to TDR during the three months ended December 31, 2021. The modification was classified a TDR
as it resulted in a payment delay at a non-market rate of interest. The decrease in performing TDRs during 2021 was attributed to payoffs of a $3.7 million CRE loan and a $2.5 million
C&I loan.
Loan modifications resulting in new TDRs during 2021 included 40 modifications for $17.6 million compared to 40 modifications for $22.7 million of new TDRs in 2020.
Included in the 2021 new TDRs were 25 loans totaling $1.1 million related to consumer bankruptcy filings that were not reaffirmed, thus resulting in discharged debt, which compares
to 23 loans totaling $1.0 million in 2020.
The following represents delinquency as of December 31:
(dollars in thousands)
90 days or more:
Commercial real estate
Commercial and industrial
Commercial construction
Consumer real estate
Other consumer
Total Loans
30 to 89 days:
Commercial real estate
Commercial and industrial
Commercial construction
Consumer real estate
Other consumer
Loans held for sale
Total Loans
2021
Amount
32,892
19,810
2,471
10,960
158
66,291
—
1,711
502
3,287
256
—
5,757
% of
Loans
1.02 %
1.15 %
0.56 %
0.74 %
0.15 %
0.95 %
— %
0.10 %
0.11 %
0.22 %
0.24 %
— %
0.08 %
$
$
$
$
2020
Amount
105,014
23,337
384
17,943
96
146,774
415
1,161
3,641
3,430
205
—
8,852
% of
Loans
3.24 %
1.19 %
0.08 %
1.22 %
0.12 %
2.03 %
0.01 %
0.04 %
0.01 %
0.24 %
0.21 %
— %
0.12 %
$
$
$
$
2019
Amount
29,140
13,982
737
10,158
40
54,057
10,311
4,886
2,119
5,943
718
—
23,977
% of
Loans
0.85 %
0.81 %
0.20 %
0.66 %
0.05 %
0.76 %
0.28 %
0.17 %
0.25 %
0.39 %
0.54 %
— %
0.34 %
$
$
$
$
2018
Amount
12,052
8,960
14,193
10,826
42
46,073
5,783
1,983
—
4,816
223
—
12,805
% of
Loans
0.41 %
0.60 %
5.52 %
0.90 %
0.06 %
0.77 %
0.20 %
0.13 %
— %
0.40 %
0.33 %
— %
0.22 %
$
$
$
$
2017
Amount
3,468
5,646
3,873
10,880
71
23,938
1,131
866
2,493
7,069
363
—
11,922
% of
Loans
0.13 %
0.39 %
1.01 %
0.91 %
0.11 %
0.42 %
0.04 %
0.06 %
0.65 %
0.60 %
0.54 %
— %
0.21 %
$
$
$
$
47
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
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 decreased $80.5 million compared to December 31, 2020 and represented 0.95 percent of total loans at December 31, 2021. The change in loans past
due 90 days or more is explained above in nonperforming assets discussion under Credit Quality. Loans past due by 30 to 89 days decreased $3.1 million and represented 0.08 percent
of total loans at December 31, 2021.
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 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 becomes probable, 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 is less than the remaining investment in
the loan. A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined there exists sufficient collateral to protect the
remaining loan balance and (ii) there exists a strategy to liquidate the collateral. Management may also consider a number of other factors to determine when a charge-off is
appropriate. These factors may include, but are not limited to:
The status of a bankruptcy proceeding;
The value of collateral and probability of successful liquidation; and/or
The status of adverse proceedings or litigation that may result in collection.
•
•
•
Consumer unsecured loans and secured loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged off and secured loans are
charged down to the estimated fair value of the collateral less the cost to sell.
The following summarizes our loan charge-off experience for each of the four years presented below:
(dollars in thousands)
ACL Balance at Beginning of Year:
Charge-offs:
Commercial real estate
Commercial and industrial
Commercial construction
Consumer real estate
Other consumer
Total
Recoveries:
Commercial real estate
Commercial and industrial
Commercial construction
Consumer real estate
Other consumer
Total
Net Charge-offs
Impact of CECL adoption
Provision for credit losses
ACL Balance at End of Year:
(1)
Represents ALL for year presented
$
2021
117,612
$
2020
62,224
$
(1)
2019
60,996
$
Years Ended December 31,
(13,493)
(22,305)
(55)
(719)
(952)
(37,524)
1,196
822
14
310
652
2,994
(34,530)
—
15,494
98,576
$
(27,512)
(75,408)
(454)
(1,101)
(1,890)
(106,365)
348
1,733
183
233
489
2,986
(103,379)
27,346
131,421
117,612
$
(3,664)
(8,928)
(406)
(1,353)
(1,838)
(16,189)
137
1,388
5
637
377
2,544
(13,645)
—
14,873
62,224
$
$
48
(1)
2018
56,390
(372)
(8,574)
(2,630)
(1,319)
(1,694)
(14,589)
309
1,723
1,135
541
492
4,200
(10,389)
—
14,995
60,996
Table of Contents
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Net loan charge-offs for 2021 were $34.5 million, or 0.49 percent of average loans, compared to $103.4 million, or 1.41 percent of average loans for 2020. Excluding the customer
fraud, net loan charge-offs were $44.7 million, or 0.61 percent of average loans for 2020. There were two significant charge-offs during 2021. The first was a $10.3 million charge-off
for a C&I relationship based on an estimated enterprise value of the company. The second charge-off of $9.5 million was for a C&I relationship during 2021 due to updated financial
information that evidenced a decrease in the collateral value.In addition to the above, other significant charge-offs during 2021 included two CRE relationships totaling $9.2 million.
The charge-offs were due to market deterioration in the collateral values.
The following table summarizes net charge-offs as a percentage of average loans for the years presented:
Commercial real estate
Commercial and industrial
Commercial construction
Consumer real estate
Other consumer
Net charge-offs to average loans outstanding
Allowance for credit losses as a percentage of total portfolio loans
Allowance for credit losses as a percentage of total portfolio loans excluding PPP
Allowance for credit losses to total nonperforming loans
Provision for credit losses as a percentage of net loan charge-offs
NM - percentage not meaningful
The following is the ACL balance by portfolio segment as of December 31:
2021
0.38 %
1.17 %
0.01 %
0.03 %
0.33 %
0.49 %
1.41 %
1.43 %
149 %
45 %
2020
0.81 %
3.65 %
0.06 %
0.06 %
1.75 %
1.40 %
1.63 %
1.74 %
80 %
127 %
2019
0.10 %
0.44 %
0.11 %
0.05 %
1.85 %
0.22 %
0.87 %
— %
115 %
109 %
2018
NM
0.48 %
0.48 %
0.07 %
1.79 %
0.18 %
1.03 %
— %
132 %
144 %
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
2021
2020
2019
2018
2017
Amount
50,700
19,727
5,355
11,338
8,733
2,723
98,576
$
$
% of
Total
51.4 % $
20.0 %
5.4 %
11.5 %
8.9 %
2.8 %
100.0 % $
Amount
65,656
16,100
7,239
15,917
10,014
2,686
117,612
% of
Total
55.8 % $
13.7 %
6.2 %
13.5 %
8.5 %
2.3 %
100.0 % $
Amount
30,577
15,681
7,900
—
6,337
1,729
62,224
% of
Total
49.1 % $
25.2 %
12.7 %
— %
10.2 %
2.8 %
100.0 % $
Amount
33,707
11,596
7,983
—
6,187
1,523
60,996
% of
Total
55.3 % $
19.0 %
13.1 %
— %
10.1 %
2.5 %
100.0 % $
Amount
27,235
8,966
13,167
—
5,479
1,543
56,390
2017
0.06 %
0.28 %
0.40 %
0.16 %
1.54 %
0.18 %
0.98 %
— %
236 %
135 %
% of
Total
48.3 %
15.9 %
23.4 %
— %
9.7 %
2.7 %
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 following table summarizes the ACL balance as of December 31:
(dollars in thousands)
Collectively Evaluated
Individually Evaluated
Total Allowance for Credit Losses
$
$
2021
96,799
1,777
98,576
$
$
2020
104,048
13,564
117,612
$
$
2019
60,024
2,200
62,224
$
$
2018
59,233
1,763
60,996
$
$
2017
56,313
77
56,390
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The ACL was $98.6 million, or 1.41 percent of total portfolio loans, at December 31, 2021, compared to $117.6 million, or 1.63 percent of total portfolio loans, at December 31,
2020. The decrease in the ACL of $19.0 million was due to an $11.7 million decrease in specific reserves on loans individually evaluated and a $7.3 million decrease in loans
collectively evaluated. The decrease in specific reserves was the result of approximately $7.8 million of loan charge-offs and the release of $5.7 million of specific reserve due to
improved operating performance within our hotel portfolio. Offsetting this decrease in specific reserve was the addition of a $1.8 million specific reserve related to a $21.7 million C&I
relationship that also had a $10.3 million charge-off in 2021 based on an estimated enterprise value of the company. The decrease in loans collectively evaluated of $7.3 million was
due to improved economic conditions offset by additional segment allocations for our healthcare and C&I portfolios along with the increased uncertainty at year-end related to the
Covid-19 Omicron variant.
Federal Home Loan Bank and Other Restricted Stock
At December 31, 2021 and 2020, we held FHLB of Pittsburgh stock of $8.5 million and $12.0 million. 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 on 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, 2021. The FHLB exceeds all required capital ratios. Additionally, we considered that the FHLB
has been paying dividends and actively redeeming stock throughout 2021 and 2020. Accordingly, we believe sufficient evidence exists to conclude that no impairment existed at
December 31, 2021.
Deposits
The following table presents the composition of deposits at December 31:
(dollars in thousands)
Customer deposits
Noninterest-bearing demand
Interest-bearing demand
Money market
Savings
Certificates of deposit
Total customer deposits
Brokered deposits
Money market
Certificates of deposit
Total brokered deposits
Total Deposits
2021
2020
$ Change
$
$
2,748,586
979,133
2,070,579
1,110,155
1,083,071
7,991,524
—
5,000
5,000
$
2,261,994
864,510
1,887,051
969,508
1,369,239
7,352,302
50,012
18,224
68,236
$
7,996,524
$
7,420,538
$
486,592
114,623
183,528
140,647
(286,168)
639,222
(50,012)
(13,224)
(63,236)
575,986
Deposits are our primary source of funds. We believe that our deposit base is stable and that we have the ability to attract new deposits. Total deposits increased $576.0 million, or
7.8 percent, at December 31, 2021 compared to December 31, 2020. Total customer deposits increased $639.2 million from December 31, 2020 primarily related to government
stimulus programs, PPP loans and our customers' liquidity preferences. Total brokered deposits decreased $63.2 million from December 31, 2020 due to a reduced need for this
funding given the customer deposit growth. 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.
50
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
The daily average balance of deposits and rates paid on deposits are summarized in the following table for the years ended December 31:
(dollars in thousands)
Noninterest-bearing demand
Interest-bearing demand
Money market
Savings
Certificates of deposit
Brokered deposits
Total
2021
2020
2019
Amount
2,594,152
956,211
2,026,083
1,047,855
1,246,499
16,419
7,887,218
$
$
Rate
—
0.08 %
0.18 %
0.03 %
0.46 %
1.15 %
0.14 %
$
$
Amount
2,072,310
844,331
1,960,741
899,717
1,482,127
232,384
7,491,610
Rate
—
0.19 %
0.57 %
0.11 %
1.34 %
1.02 %
0.48 %
$
$
Amount
1,475,960
561,756
1,474,841
766,142
1,322,643
370,779
5,972,121
Rate
—
0.41 %
1.69 %
0.25 %
1.91 %
2.32 %
1.06 %
CDs of $250,000 and over accounted for 3.0 percent of total deposits at December 31, 2021 and 4.5 percent of total deposits at December 31, 2020 and primarily represent deposit
relationships with local customers in our market area.
Maturities of CDs of $250,000 or more outstanding at December 31, 2021 are summarized as follows:
(dollars in thousands)
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
Borrowings
The following table represents the composition of borrowings for the years ended December 31:
(dollars in thousands)
Securities sold under repurchase agreements, retail
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Total Borrowings
$
$
2021
84,491
—
22,430
54,393
161,314
$
$
2020
65,163
75,000
23,681
64,083
227,928
$
$
$
$
2021
143,843
45,989
45,524
8,045
243,401
$ Change
19,328
(75,000)
(1,251)
(9,690)
(66,614)
Borrowings are an additional source of funding for us. Total borrowings decreased $66.6 million compared to December 31, 2020 due to increased customer deposits. Short-term
borrowings decreased $75.0 million compared to December 31, 2020. At December 31, 2021, our long-term borrowings outstanding of $22.4 million included $19.3 million that were
at a fixed rate and $3.1 million at a variable rate. Junior subordinated debt securities decreased $9.7 million compared to December 31, 2020 due to the repayment of a subordinated
debt.
Information pertaining to short-term borrowings is summarized in the tables below:
(dollars in thousands)
Balance at December 31
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Average interest rate at December 31
(dollars in thousands)
Balance at December 31
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Average interest rate at December 31
$
$
$
$
$
$
Securities Sold Under Repurchase Agreements
2021
84,491
69,964
0.11 %
84,491
0.10 %
2021
—
6,301
0.19 %
25,000
— %
$
$
$
2020
65,163
57,673
0.29 %
92,159
0.25 %
Short-Term Borrowings
$
$
$
2020
75,000
155,753
0.92 %
410,240
0.19 %
$
$
$
$
$
$
2019
19,888
16,863
0.65 %
23,427
0.74 %
2019
281,319
255,264
2.51 %
425,000
1.84 %
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Information pertaining to long-term borrowings is summarized in the tables below:
(dollars in thousands)
Balance at December 31
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Average interest rate at December 31
(dollars in thousands)
Balance at December 31
Average balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Average interest rate at December 31
$
$
$
$
$
2021
22,430
22,995
1.99 %
23,549
1.94 %
Long-Term Borrowings
2020
$
$
23,681
47,953
2.50 %
50,635
2.03 %
$
$
$
Junior Subordinated Debt Securities
2021
54,393
61,653
2.99 %
64,128
2.69 %
$
$
$
2020
64,083
64,092
3.57 %
64,848
3.01 %
$
$
$
2019
50,868
66,392
2.76 %
70,418
2.61 %
2019
64,277
47,934
4.82 %
64,277
4.42 %
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 pays 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. Refer to Note 17 Short-Term Borrowings and Note 18 Long-Term Borrowings and Subordinated Debt to the Consolidated Financial Statements included in Part II, Item 8.
Financial Statements and Supplementary Data, of this Report, for more details.
Wealth Management Assets
As of December 31, 2021, the fair value of the S&T Bank Wealth Management assets under administration, which are not accounted for as part of our assets, increased to $2.3
billion from $2.1 billion as of December 31, 2020. Assets under administration consisted of $1.4 billion in S&T Trust, $0.8 billion in S&T Financial Services and $0.1 billion in
Stewart Capital Advisors.
Liquidity and Capital Resources
Liquidity
Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. Our primary future cash needs are centered on the ability to (i)
satisfy the financial needs of depositors who may want to
withdraw funds or of borrowers needing to access funds to meet their credit needs and (ii) to meet our future cash commitments
under contractual obligations with third parties. In order to manage liquidity risk, our Board of Directors has delegated authority to ALCO for the formulation, implementation and
oversight of liquidity risk management for S&T. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating
environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and
having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high
risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.
Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing and attract new deposits, mitigating any funding
dependency on other more volatile sources. Our deposits grew significantly during 2021 and we ended the year in a strong liquidity position. Refer to the Deposits section of this
MD&A for additional discussion on deposits. Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our
normal funding program when either a structure or cost efficiency has been identified.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
Additional funding sources accessible to S&T include borrowing availability at the FHLB of Pittsburgh, federal funds lines with other financial institutions, the brokered deposit
market and borrowing availability through the Federal Reserve Borrower-In-Custody program. 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, our credit
rating, the liquidity of the overall capital markets and the current state of the economy.
The following table summarizes our material contractual obligations as of December 31, 2021:
(1)
(dollars in thousands)
Certificates of deposit
Securities sold under repurchase agreements
Junior subordinated debt securities
Operating and capital leases
Purchase obligations
(1)
(1)
Payments Due In
$
$
2022
961,578
84,491
—
4,932
19,823
$
2023-2024
62,334
—
—
9,290
42,432
$
2025-2026
60,820
—
—
9,383
46,492
Later Years
3,339
—
54,393
65,052
—
$
$
$
$
$
Total
1,088,071
84,491
54,393
88,657
108,747
(1)
Excludes interest
Excluded from the table are deposits with no stated maturity of $6,908,453 as of December 31, 2021, a contractual obligation that we consider when assessing our liquidity,
particularly in the context of a liquidity stress event as discussed below.
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, 2021, we had $1.3 billion in highly liquid assets, which consisted of $856.7 million in interest-bearing deposits
with banks, $442.8 million in unpledged securities and $1.5 million in loans held for sale. This resulted in a highly liquid assets to total assets ratio of 13.7 percent at December 31,
2021. Also, at December 31, 2021, we had a remaining borrowing availability of $2.5 billion with the FHLB of Pittsburgh. Refer to Note 17 Short-Term Borrowings and Note 18
Long-Term Borrowings and Subordinated Debt to the Consolidated Financial Statements included in Part II, Item 8. Financial Statements and Supplementary Data, and the Borrowings
section of this MD&A, for more details.
Capital Resources
Shareholders’ equity increased $51.7 million, or 4.5 percent, to $1.2 billion at December 31, 2021 compared to $1.2 billion at December 31, 2020. The increase was primarily due
to net income of $110.3 million partially offset by dividends of $44.3 million and a $16.1 million decrease in other comprehensive income. The decrease in other comprehensive
income was due to a $18.9 million decrease in unrealized gains on our available-for-sale securities, net of tax, which was partially offset by a $2.8 million change in the funded status
of our employee benefit plan.
We continue to maintain our capital position with a leverage ratio of 9.74 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 12.03 percent compared to the regulatory guideline of 6.50 percent to be well-capitalized. Our risk-based Tier 1 and Total capital ratios were 12.43
percent and 13.79 percent, which places us above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00 percent and 10.00 percent, respectively. 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
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
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.
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, 2021, we had not
issued any securities pursuant to the shelf registration statement.
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Inflation
Management is aware of the significant effect inflation has on interest rates and can have on financial performance and is closely monitoring the increased inflation rates being
experienced in the economy. Our ability to cope with this is best determined 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 ALCO in order to reduce the impact of inflation on net interest income. We also control
the effects of inflation by reviewing the prices of our products and services, by introducing new products and services and by controlling overhead expenses.
55
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices or equity prices can adversely affect a financial institution’s
earnings or capital. For most financial institutions, including S&T, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by
changing net interest income and other interest-sensitive income and expense levels. Interest rate changes also affect capital by changing the net present value of a bank’s future cash
flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value.
However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by
the ALCO. The ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, analyses and by performing stress tests and simulations to
mitigate earnings and market value fluctuations due to changes in interest rates.
Rate shock analyses results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 and 24 months of pretax net interest income.
The base case and rate shock analyses are performed on a static balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are
reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and include management assumptions
regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the
prepayment behavior of loans and securities with optionality. S&T policy guidelines limit the change in pretax net interest income over 12- and 24-month horizons using rate shocks in
increments of +/- 100 basis points. Policy guidelines define the percentage change in pretax net interest income by graduated risk tolerance levels of minimal, moderate, and high. We
have temporarily suspended the analyses on downward rate shocks of 200 basis points or more because they do not provide meaningful insight into our interest rate risk position.
In order to monitor interest rate risk beyond the 24-month time horizon of rate shocks on pretax net interest income, we also perform EVE analyses. EVE represents the present
value of all asset cash flows minus the present value of all liability cash flows. EVE change results are compared to a base case to determine the impact that market rate changes may
have on our EVE. As with rate shock analyses on pretax net interest income, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans
and securities with optionality and the behavior and value of non-maturity deposit products. S&T policy guidelines limit the change in EVE using rate shocks in increments of +/- 100
basis points. Policy guidelines define the percent change in EVE by graduated risk tolerance levels of minimal, moderate, and high. We have also temporarily suspended the downward
rate shocks of 200 basis points or more for EVE.
The table below reflects the rate shock analyses results for the 1 to 12 and 13 to 24 month periods of pretax net interest income and EVE. All results are in the minimal risk
tolerance level.
Change in Interest
Rate (basis points)
400
300
200
100
-100
1 - 12 Months
December 31, 2021
13 - 24 Months
1 - 12 Months
December 31, 2020
13 - 24 Months
% Change in
Pretax Net
Interest Income
30.4
22.5
14.9
7.0
(4.6)
% Change in
Pretax Net Interest
Income
40.3
30.0
20.2
9.9
(8.4)
% Change in EVE
18.4
19.9
18.4
11.9
(26.3)
% Change in
Pretax Net
Interest Income
15.8
11.7
7.7
4.4
(2.8)
% Change in
Pretax Net Interest
Income
28.5
21.3
14.3
8.0
(5.7)
% Change in EVE
28.5
29.0
25.6
17.7
(28.2)
The results from the rate shock analyses on net interest income are consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means more
assets than liabilities will reprice during the measured time frames. The implications of an asset sensitive balance sheet will differ depending upon the change in market interest rates.
For example, with an asset sensitive balance sheet in a declining interest rate environment, more assets than liabilities will decrease in rate. This situation could result in a decrease in
net interest income and operating income. Conversely, with an asset sensitive balance sheet in a rising interest rate environment, more assets than liabilities will increase in rate. This
situation could result in an increase in net interest income and operating income.
Our rate shock analyses show an improvement in the percentage change in pretax net interest income in the rates up scenarios and a decline in the rates down scenarios when
comparing December 31, 2021 to December 31, 2020. We have become more asset sensitive due to our increased balances at the Federal Reserve. Our EVE analyses show a decline in
the percentage change in EVE in the rates up scenarios and an improvement in the rates down scenario when comparing December 31, 2021 to December 31, 2020. The EVE decline
is due to the impact of a steepened yield curve on the value of non-maturity deposits.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - continued
In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations.
Sensitivity analyses are performed to help us identify which model assumptions cause the greatest impact on pretax net interest income. Sensitivity analyses may include changing
prepayment behavior of loans and securities with optionality and the impact of interest rate changes on non-maturity deposit products. Simulation analyses may include the potential
impact of rate changes other than the policy guidelines, yield curve shape changes, significant balance mix changes, and various growth scenarios.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Net Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (PCAOB ID: 42)
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
58
59
60
61
62
63
65
123
125
Table of Contents
CONSOLIDATED BALANCE SHEETS
S&T Bancorp, Inc. and Subsidiaries
( in thousands, except share and per share data)
ASSETS
Cash and due from banks, including interest-bearing deposits of $857,192 and $158,903 at December 31, 2021 and December 31, 2020
Securities, at fair value
Loans held for sale
Portfolio loans, net of unearned income
Allowance for credit losses
Portfolio loans, net
Bank owned life insurance
Premises and equipment, net
Federal Home Loan Bank and other restricted stock, at cost
Goodwill
Other intangible assets, net
Other assets
Total Assets
LIABILITIES
Deposits:
Noninterest-bearing demand
Interest-bearing demand
Money market
Savings
Certificates of deposit
Total Deposits
Securities sold under repurchase agreements
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Other liabilities
Total Liabilities
SHAREHOLDERS’ EQUITY
Common stock ($2.50 par value)
Authorized—50,000,000 shares
Issued—41,449,444 shares at December 31, 2021 and December 31, 2020
Outstanding—39,351,194 shares at December 31, 2021 and 39,298,007 shares at December 31, 2020
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Treasury stock — 2,098,250 shares at December 31, 2021 and 2,151,437 shares at December 31, 2020, at cost
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
See Notes to Consolidated Financial Statements
59
December 31,
2021
2020
$
$
$
$
922,215
910,793
1,522
6,999,990
(98,576)
6,901,414
83,685
52,632
9,519
373,424
6,895
226,430
9,488,529
2,748,586
979,133
2,070,579
1,110,155
1,088,071
7,996,524
84,491
—
22,430
54,393
124,237
8,282,075
103,623
403,095
773,659
(7,090)
(66,833)
1,206,454
9,488,529
$
$
$
$
229,666
773,693
18,528
7,225,860
(117,612)
7,108,248
82,303
55,614
13,030
373,424
8,675
304,716
8,967,897
2,261,994
864,510
1,937,063
969,508
1,387,463
7,420,538
65,163
75,000
23,681
64,083
164,721
7,813,186
103,623
400,668
710,061
8,971
(68,612)
1,154,711
8,967,897
Table of Contents
CONSOLIDATED STATEMENTS OF NET INCOME
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except per share data)
INTEREST AND DIVIDEND INCOME
Loans, including fees
Investment securities:
Taxable
Tax-exempt
Dividends
(1)
Total Interest and Dividend Income
INTEREST EXPENSE
Deposits
Borrowings and junior subordinated debt securities
Total Interest Expense
NET INTEREST INCOME
Provision for credit losses
Net Interest Income After Provision for Credit Losses
NONINTEREST INCOME
Net gain (loss) on sale of securities
Debit and credit card
Service charges on deposit accounts
Wealth management
Mortgage banking
Commercial loan swap income
Other
Total Noninterest Income
NONINTEREST EXPENSE
Salaries and employee benefits
Data processing and information technology
Occupancy
Furniture, equipment and software
Other taxes
Professional services and legal
Marketing
FDIC insurance
Merger related expenses
Other
Total Noninterest Expense
Income Before Taxes
Income taxes (benefit) expense
Net Income
Earnings per common share—basic
Earnings per common share—diluted
Dividends declared per common share
2021
Years ended December 31,
2020
2019
$
270,460
$
300,960
$
300,625
15,706
2,593
503
289,262
10,757
2,393
13,150
276,112
16,215
259,897
29
17,952
15,040
12,889
9,734
1,146
7,820
64,610
100,214
16,681
14,544
10,684
6,644
6,368
4,553
4,224
—
24,927
188,839
135,668
25,325
110,343
2.81
2.81
1.13
$
$
$
$
14,918
3,497
1,089
320,464
35,986
5,090
41,076
279,388
131,424
147,964
142
15,093
13,597
9,957
10,923
4,740
5,267
59,719
90,115
15,499
14,529
11,050
6,622
6,394
5,996
5,089
2,342
29,008
186,644
21,039
(1)
21,040
0.54
0.53
1.12
$
$
$
$
14,733
3,302
1,824
320,484
63,026
10,667
73,693
246,791
14,873
231,918
(26)
13,405
13,316
8,623
2,491
5,503
9,246
52,558
83,986
14,468
12,103
8,958
3,364
4,244
4,631
758
11,350
23,254
167,116
117,360
19,126
98,234
2.84
2.82
1.09
$
$
$
$
(1)
Beginning January 1, 2020, provision for credit losses is based on current expected credit loss methodology due to the adoption of CECL. Prior to January 1, 2020, it was based on incurred loss methodology.
See Notes to Consolidated Financial Statements
60
Table of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands)
Net Income
Other Comprehensive Income (Loss), Before Tax:
Net change in unrealized (losses) gains on debt securities available-for-sale
Net available-for-sale securities losses reclassified into earnings
Adjustment to funded status of employee benefit plans
Other Comprehensive (Loss) Income, Before Tax
Income tax benefit (expense) related to items of other comprehensive income
Other Comprehensive (Loss) Income, After Tax
(1)
Comprehensive Income
2021
Years ended December 31,
2020
2019
$
110,343
$
21,040
$
98,234
(23,972)
—
3,561
(20,411)
4,350
(16,061)
94,282
$
22,683
—
3,549
26,232
(5,591)
20,641
41,681
$
15,793
26
(1,282)
14,537
(3,100)
11,437
$
109,671
(1)
Reclassification adjustments are comprised of realized security gains or losses. The realized gains or losses have been reclassified out of accumulated other comprehensive income/(loss) and have affected certain lines in the
Consolidated Statements of Net Income as follows: the pre-tax amount is included in securities gains/losses-net, the tax expense amount is included in the provision for income taxes and the net of tax amount is included in net
income.
See Notes to Consolidated Financial Statements
61
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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands, except share and per share data)
Balance at December 31, 2018
Net Income for 2019
Other comprehensive income, net of tax
Impact of new lease standard
Cash dividends declared ($1.09 per share)
Common stock issuance cost
Common stock issued in acquisition (5,318,962 shares)
Treasury stock repurchased (470,708 shares)
Treasury stock issued (28,174 shares, net)
Recognition of restricted stock compensation expense
Balance at December 31, 2019
Net income for 2020
Other comprehensive income, net of tax
Impact of adoption of CECL
Cash dividends declared ($1.12 per share)
Treasury stock repurchased (411,430 shares)
Treasury stock issued (149,133 shares, net)
Recognition of restricted stock compensation expense
Balance at December 31, 2020
Net income for 2021
Other comprehensive loss, net of tax
Cash dividends declared ($1.13 per share)
Treasury stock repurchased (no shares)
Treasury stock issued (53,187 shares, net)
Recognition of restricted stock compensation expense
Balance at December 31, 2021
See Notes to Consolidated Financial Statements
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss)/Income
Treasury
Stock
Total
210,345
—
—
—
—
(176)
187,334
—
—
2,441
399,944
—
—
—
—
—
—
724
400,668
—
—
—
—
—
2,427
403,095
$
$
$
$
701,819
98,234
—
167
(37,360)
—
—
—
(1,777)
—
761,083
21,040
—
(22,590)
(43,949)
—
(5,523)
—
710,061
110,343
—
(44,336)
—
(2,409)
—
773,659
$
$
$
$
(23,107)
—
11,437
—
—
—
—
—
—
—
(11,670)
—
20,641
—
—
—
—
—
8,971
—
(16,061)
—
—
—
—
(7,090)
$
$
$
$
(43,622)
—
—
—
—
—
—
(18,222)
862
—
(60,982)
—
—
—
(12,559)
4,929
—
(68,612)
—
—
—
—
1,779
—
(66,833)
$
$
$
$
935,761
98,234
11,437
167
(37,360)
(176)
200,631
(18,222)
(915)
2,441
1,191,998
21,040
20,641
(22,590)
(43,949)
(12,559)
(594)
724
1,154,711
110,343
(16,061)
(44,336)
—
(630)
2,427
1,206,454
$
$
$
$
90,326
—
—
—
—
—
13,297
—
—
—
103,623
—
—
—
—
—
—
—
103,623
—
—
—
—
—
—
103,623
$
$
$
$
62
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands)
OPERATING ACTIVITIES
Net Income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Provision for unfunded loan commitments
Depreciation and amortization
Net amortization of discounts and premiums
Stock-based compensation expense
Securities (gains) losses
Deferred income taxes
Loss (gain) on sale of fixed assets
Gain on the sale of loans, net
Pension contribution
Net change in:
Mortgage loans originated for sale
Proceeds from sale of mortgage loans
Net decrease (increase) in interest receivable
Net decrease in interest payable
Net decrease (increase) in other assets
Net (decrease) increase in other liabilities
Net Cash Provided by Operating Activities
INVESTING ACTIVITIES
Purchases of securities available-for-sale
Proceeds from maturities, prepayments and calls of securities available-for-sale
Proceeds from sales of securities available-for-sale
Purchases of Federal Home Loan Bank stock
Proceeds from redemption of Federal Home Loan Bank stock
Net decrease (increase) in loans
Proceeds from the sale of loans not originated for resale
Purchases of premises and equipment
Proceeds from the sale of premises and equipment
Net cash acquired from bank acquisitions
Proceeds from settlement of bank owned life insurance
Net Cash Provided by (Used in) Investing Activities
FINANCING ACTIVITIES
Net increase in core deposits
Net decrease in certificates of deposit
Net increase in securities sold under repurchase agreements
Net decrease in short-term borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Treasury shares issued - net
Repurchase common stock
Costs to issue equity securities
Cash dividends paid to common shareholders
Net Cash Provided by Financing Activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and Cash Equivalents at End of Year
2021
Years ended December 31,
2020
2019
$
110,343
$
21,040
$
98,234
16,215
—
11,480
5,482
2,427
(29)
2,383
30
(8,856)
—
(286,257)
311,479
3,561
(2,087)
85,509
(35,569)
216,111
(313,617)
144,905
1,917
(22,515)
26,026
173,401
5,107
(3,611)
14
—
353
11,980
875,378
(299,292)
19,328
(75,000)
—
(11,001)
(630)
—
—
(44,325)
464,458
692,549
229,666
922,215
$
131,424
—
12,066
4,205
724
(142)
(4,402)
(23)
(8,998)
(115)
(361,704)
357,613
(2,560)
(3,178)
(142,891)
50,392
53,451
(178,389)
205,606
1,349
(33,755)
43,702
(194,768)
547
(5,416)
23
—
—
(161,101)
591,932
(207,106)
45,275
(206,319)
—
(27,187)
(594)
(12,559)
—
(43,949)
139,493
31,843
197,823
229,666
$
14,873
436
11,724
3,243
2,441
26
(381)
37
(1,887)
—
(109,624)
109,082
(3,768)
(2,223)
(8,286)
24,496
138,423
(129,973)
92,412
59,934
(61,852)
68,467
(298,741)
520
(5,153)
71
63,759
—
(210,556)
423,203
(27,632)
1,505
(200,000)
10,000
(35,936)
(915)
(18,222)
(176)
(37,360)
114,467
42,334
155,489
197,823
$
63
Table of Contents
STATEMENTS OF CASH FLOWS
S&T Bancorp, Inc. and Subsidiaries
(dollars in thousands)
Supplemental Disclosures
Interest paid
Income taxes paid, net of refunds
Loans transferred to held for sale
Leased right-of-use operating assets and lease liabilities added to Balance Sheet
Net assets (liabilities) from acquisitions, excluding cash and cash equivalents
Transfers to other real estate owned and other repossessed assets
See Notes to Consolidated Financial Statements
2021
Years ended December 31,
2020
2019
$
$
$
$
$
$
15,236
24,213
4,467
2,987
—
12,392
$
$
$
$
$
$
44,353
6,231
640
91
—
631
$
$
$
$
$
$
75,278
14,663
456
49,490
43,637
2,592
64
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
S&T Bancorp, Inc. and Subsidiaries
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. DNB Capital Trust I and DNB Capital Trust II
were acquired with the DNB merger on November 30, 2019. We own 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, Inc. 9th Street Holdings, Inc. and S&T Bancholdings, Inc. are investment holding companies. 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 acquired
through foreclosure or deed in-lieu-of foreclosure, as well as Bank-occupied real estate.
On June 5, 2019, we entered into an agreement to acquire DNB Financial Corporation, or DNB, and the transaction was completed on November 30, 2019. The transaction was
valued at $201.0 million and added total assets of $1.1 billion, including $909.0 million in loans, $84.2 million in goodwill and $967.3 million in deposits.
Accounting Policies
Our financial statements have been prepared in accordance with GAAP. In preparing the financial statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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
65
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
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.
Prior to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the methods utilized to estimate
the required allowance for loan losses, or ALL for acquired loans was similar to the method used for originated loans; however, we recorded a provision for credit losses only when the
required allowance exceeded the remaining fair value adjustment. Acquired loans were considered impaired if there was evidence of credit deterioration since origination and if it was
probable at time of acquisition that all contractually required payments would not be collected.
Fair Value Measurements
We use fair value measurements when recording and disclosing certain financial assets and liabilities. Debt securities, equity securities and derivative financial instruments are
recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record other assets at fair value on a nonrecurring basis, such as loans held for sale,
individually assessed loans, other real estate owned, or OREO, and other repossessed assets, mortgage servicing rights, or MSRs, and certain other assets.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market
participants at the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing
activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction. In determining fair value, we use various valuation approaches,
including market, income and cost approaches. The fair value standard establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing an
asset or liability, which are developed based on market data we have obtained from independent sources. Unobservable inputs reflect our estimates of assumptions that market
participants would use in pricing an asset or liability, which are developed based on the best information available in the circumstances.
The fair value hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest
priority to unobservable inputs (Level 3 measurement). The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1: valuation is based upon unadjusted quoted market prices for identical instruments traded in active markets.
Level 2: valuation is based upon quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets
that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by market data.
Level 3: valuation is derived from other valuation methodologies, including discounted cash flow models and similar techniques that use significant assumptions not observable in
the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in determining fair value.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our policy is to recognize
transfers between any of the fair value hierarchy levels at the end of the reporting period in which the transfer occurred.
The following are descriptions of the valuation methodologies that we use for financial instruments recorded at fair value on either a recurring or nonrecurring basis.
Recurring Basis
Debt Securities Available-for-Sale
We obtain fair values for debt securities from a third-party pricing service which utilizes several sources for valuing fixed-income securities. We validate prices received from our
pricing service through comparison to a secondary pricing service and broker quotes. We review the methodologies of the pricing 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.
Generally, the methodologies include broker quotes, proprietary models and extensive quality control programs.
66
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
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 and are
based on other observable information for comparable assets are classified as Level 2.
Securities Held in a Deferred Compensation Plan
We use quoted market prices to determine the fair value of our equity security assets. These securities 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.
Derivative Financial Instruments
We use derivative instruments, including 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. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we
have considered the impact of netting and any applicable credit enhancements and collateral postings. Interest rate swaps for commercial loans 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 is based on the principal or most advantageous market
currently offered for similar loans using observable market data. The fair value of the loans transferred from the loan portfolio is based on the amounts offered for these loans in
currently pending sales transactions. Loans held for sale marked to fair value are classified as Level 3.
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 the following methods: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the
fair value of the collateral less estimated selling costs when the loan is collateral dependent and we expect to liquidate the collateral. However, if repayment is expected to come from
the operation of the collateral, rather than liquidation, then we do not consider estimated selling costs in determining the fair value of the collateral. Collateral values are generally
based upon appraisals by approved, independent state certified appraisers. Appraisals may be discounted based on our historical knowledge, changes in market conditions from the
time of appraisal or our knowledge of the borrower and the borrower’s business. Loans individually evaluated that are market to fair value are classified as Level 3.
OREO and Other Repossessed Assets
OREO and other repossessed assets obtained in partial or total satisfaction of a loan are recorded at the lower of recorded investment in the loan or fair value less cost to sell.
Subsequent to foreclosure, these assets are carried at the lower of the amount recorded at acquisition date or fair value less cost to sell. Accordingly, it may be necessary to record
nonrecurring fair value adjustments. Fair value, when recorded, is generally based upon appraisals by approved, independent state certified appraisers. Appraisals on OREO may be
discounted based on our historical knowledge, changes in market conditions from the time of appraisal or other information available to us. OREO and other repossessed assets carried
at fair value are classified as Level 3. OREO and other repossessed assets are reported in other assets in the Consolidated Balance Sheets.
67
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
Mortgage Servicing Rights
MSRs are reported pursuant to the amortization method 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. 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.
Financial Instruments
In addition to financial instruments recorded at fair value in our financial statements, fair value accounting guidance requires disclosure of the fair value of all of an entity’s assets
and liabilities that are considered financial instruments. The majority of our assets and liabilities are considered financial instruments. Many of these instruments lack an available
trading market as characterized by a willing buyer and willing seller engaged in an exchange transaction. Also, it is our general practice and intent to hold our financial instruments to
maturity and to not engage in trading or sales activities with respect to such financial instruments. For fair value disclosure purposes, we substantially utilize the fair value
measurement criteria as required and explained above. In cases where quoted fair values are not available, we use present value methods to determine the fair value of our financial
instruments.
Cash and Cash Equivalents
The carrying amounts reported in the Consolidated Balance Sheets for cash and due from banks, including interest-bearing deposits approximate fair value.
Loans
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.
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. The carrying amounts for variable rate, fixed-term time deposits approximate their fair values. Estimated fair values for fixed rate and other time deposits
are based on discounted cash flow analysis using interest rates currently offered for time deposits with similar terms. The carrying amount of accrued interest approximates fair value.
Short-Term Borrowings
The carrying amounts of securities sold under repurchase agreements, or REPOs, and other short-term borrowings approximate their fair values.
68
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
Long-Term Borrowings
The fair values disclosed for fixed rate long-term borrowings are determined by discounting their contractual cash flows using current interest rates for long-term borrowings of
similar remaining maturities. The carrying amounts of variable rate long-term borrowings approximate their fair values.
Junior Subordinated Debt Securities
The interest rate on the variable rate junior subordinated debt securities is reset quarterly; therefore, the carrying values approximate their fair values.
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 Other Comprehensive Income, or 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 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, unamortized premiums or discounts and deferred origination fees and costs. 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 respective 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.
Acquired loans are recorded at fair value on the date of acquisition with no carryover of the related ACL. Determining the fair value of the 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 consider a number of factors including the loan term, internal risk rating, delinquency status, prepayment rates, recovery periods, estimated
69
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
value of the underlying collateral and the current interest rate environment.
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.
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 or Nonperforming 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. 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 a new loan with similar risk characteristics,
reductions in contractual interest rates or principal deferment. While unusual, there may be instances of principal forgiveness. These modifications are generally for longer term periods
that would not be considered insignificant. Additionally, we classify loans where the debt obligation has been discharged through a Chapter 7 Bankruptcy and not reaffirmed 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 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 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) 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
adjustment 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,
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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 historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve. A similar process is
employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in other
liabilities.
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 nonperforming 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.
Allowance for Loan Losses
Prior to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, we calculated our ALL using an
incurred loan loss methodology. Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 for our Allowance for Loan Losses policy.
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
2) Buildings
3) Furniture and Fixtures
4) Computer Equipment and Software
5) Other Equipment
6) Vehicles
7) Leasehold Improvements
Right-of-Use Assets and Lease Liabilities
Non-depreciating assets
25 years
5 years
5 years or term of license
5 years
5 years
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
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 property and equipment and related finance lease liabilities are included in long-term
borrowings.
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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 of Net Income. Refer to Note 10
Right-of-Use Assets and Lease Liabilities for more details.
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.
Atlantic Community Bankers’ Bank, or ACBB, stock is carried at cost and evaluated for impairment based on the ultimate recoverability of the carrying value. We do not currently
use their membership products and services. We acquired ACBB stock through various mergers of banks that were ACBB members. ACBB 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, Community Banking. Existing goodwill relates to value inherent in the Community Banking reporting unit and that value is dependent upon our
ability to provide quality, cost-effective services in the face of competition from other market participants. This ability relies upon continuing investments in processing systems, the
development of value-added service features and the ease of use of our services. As such, goodwill value is supported ultimately by profitability that is driven by the volume of
business transacted. A decline in earnings as a result of a lack of growth or the inability to deliver cost-effective services over sustained periods can lead to impairment of goodwill,
which could adversely impact our earnings in the period in which impairment occurs.
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 our Community Banking reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying
amount exceeds the reporting unit's fair value.
Determining the fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions. 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, 2021 and 2020.
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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.
Joint Ventures
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 on our balance sheet. 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 expenses
in the Consolidated Statements of Net Income.
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.
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Derivative Financial Instruments
Interest Rate Swaps
In accordance with applicable accounting guidance for derivatives and hedging, all derivatives are recognized as either assets or liabilities on the balance sheet at fair value.
Interest rate swaps are contracts in which a series of interest rate flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest
payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time
entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, we agree to pay interest to the customer on a notional amount at a
variable interest rate and receive interest from the customer on the same notional amount at a fixed rate. At the same time, we agree to pay another financial institution the same fixed
interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable
rate loan to a fixed rate loan with us receiving a variable rate. These agreements could have floors or caps on the contracted interest rates.
Pursuant to our agreements with various financial institutions, we may receive collateral or may be required to post collateral based upon mark-to-market positions. Beyond
unsecured threshold levels, collateral in the form of cash or securities may be made available to counterparties of interest rate swap transactions. Based upon our current positions and
related future collateral requirements relating to them, we believe any effect on our cash flow or liquidity position to be immaterial.
Derivatives contain an element of credit risk, the possibility that we will incur a loss because a counterparty, which may be a financial institution or a customer, fails to meet its
contractual obligations. All derivative contracts with financial institutions may be executed only with counterparties approved by our Asset and Liability Committee, or ALCO, and
derivatives with customers may only be executed with customers within credit exposure limits approved in accordance with our credit policy. Interest rate swaps are considered
derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings and included in other
noninterest income in the Consolidated Statements of 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.
Allowance for Unfunded Commitments
In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event the customer does not satisfy
the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby
letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may
require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements. The allowance for unfunded commitments is determined using a similar methodology as our ACL methodology except that we apply a probability to fund assumption.
The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets. The reserve is calculated by applying historical loss rates and qualitative
adjustments to our unfunded commitments. The provision for unfunded commitments is included in the provision for credit losses on the Consolidated Statements of Net Income.
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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.
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, checksale 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 which is measured using the fair value method of accounting. 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,
generally the entire vesting period, based on fair value on the grant date. Compensation expense for performance-based restricted stock is recognized ratably over the remaining
vesting period once 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.
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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- continued
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 other comprehensive income
(loss) 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.
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.
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Recently Adopted Accounting Standards Updates, or ASU or Update
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the
accounting for income taxes by removing certain exceptions and improve the consistent application of GAAP by clarifying and amending other existing guidance. We adopted this
ASU on January 1, 2021. The amendments in this ASU did not impact our Consolidated Financial Statements.
Accounting Standards Issued But Not Yet Adopted
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. Modified contracts that meet certain scope guidance are eligible for relief from the modification
accounting requirements in US GAAP. 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. We have established a committee to guide our transition from LIBOR and have begun efforts to transition to alternative rates consistent with industry
timelines. We have identified products that utilize LIBOR and are revising fallback language to facilitate the transition to alternative reference rates. ASU 2020-04 is not expected to
have a material impact on our Consolidated Financial Statements.
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NOTE 2. BUSINESS COMBINATIONS
On November 30, 2019, we completed our acquisition of DNB Financial Corporation, or DNB, and DNB First National Association, its wholly-owned bank subsidiary, located in
Downingtown, Pennsylvania. The acquisition of DNB expanded our Eastern Pennsylvania market by adding 14 banking locations, in an all-stock transaction structured as a merger of
DNB with and into S&T, with S&T being the surviving entity. The related systems conversion of DNB into S&T Bank occurred on February 7, 2020.
DNB shareholders received, without interest, 1.22 shares of S&T common stock for each share of DNB common stock. The total purchase price was approximately
$201.0 million, which included $0.4 million of cash and 5,318,964 S&T common shares at a fair value of $37.72 per share. The fair value of $37.72 per share of S&T common stock
was based on the
November 30, 2019 closing price.
The Merger was accounted for under the acquisition method of accounting and our Consolidated Financial Statements include all DNB Bank transactions beginning on December
1, 2019. Goodwill of $86.0 million at December 31, 2020 was calculated as the excess of the consideration exchanged over the fair value of the identifiable net assets acquired. All of
the goodwill was assigned to our Community Banking segment. The goodwill recognized is not deductible for tax purposes.
Measurement period adjustments were $1.8 million as of November 30, 2020 which reflect facts and circumstances in existence as of the closing date of the acquisition. These
measurement period adjustments primarily related to a $2.4 million reduction in the fair value of loans, a $0.3 million reduction in the fair value of borrowings, a $0.1 million
reduction of other liabilities, a $0.1 million reduction in other assets and a $0.3 million increase in deferred income tax assets. The accounting for the acquisition was finalized on
November 30, 2020.
78
Table of Contents
NOTE 2. BUSINESS COMBINATIONS - continued
The following table presents the fair value adjustments and the measurement period adjustments as of the dates presented:
As Recorded by DNB
November 30, 2019
Fair Value
Adjustments
As Recorded by S&T
Measurement Period
Adjustments
As Recorded by S&T
November 30, 2020
Fair Value of Assets Acquired
Cash and cash equivalents
Securities and other investments
Loans
Allowance for credit losses
Goodwill
Premises and equipment
Accrued interest receivable
Deferred income taxes
Core deposits and other intangible assets
Other assets
Total Assets Acquired
Fair Value of Liabilities Assumed
Deposits
Borrowings
Accrued interest payable and other liabilities
Total Liabilities Assumed
Total Net Assets Acquired
Core Deposit Intangible Asset
Wealth Management Intangible Asset
Total Fair Value of Net Assets Acquired and Identified
Consideration Paid
Cash
Common stock
Fair Value of Total Consideration
Goodwill
$
$
64,119
108,715
917,127
(6,487)
15,525
6,782
4,138
2,017
269
24,883
1,137,088
966,263
37,617
11,157
1,015,037
122,051
$
$
—
183
(8,143)
6,487
(15,525)
8,090
—
(3,298)
(269)
(4,278)
(16,753)
1,002
(276)
(3,184)
(2,458)
(14,295)
$
$
$
$
$
$
$
64,119
108,898
908,984
—
—
14,872
4,138
(1,281)
—
20,605
1,120,335
967,265
37,341
7,973
1,012,579
107,756
7,288
1,772
116,816
360
200,631
200,991
84,175
$
$
$
$
$
$
$
—
—
(2,377)
—
—
—
—
311
—
(116)
(2,182)
—
(257)
(122)
(379)
(1,803)
—
—
(1,803)
—
—
—
1,803
$
$
$
$
$
$
$
64,119
108,898
906,607
—
—
14,872
4,138
(970)
—
20,489
1,118,153
967,265
37,084
7,851
1,012,200
105,953
7,288
1,772
115,013
360
200,631
200,991
85,978
Loans acquired in the Merger were recorded at fair value with no carryover of the related ACL from DNB. Determining the fair value of the loans involves estimating the amount
and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. The fair value of the loans acquired
was estimated at $909.0 million, net of a $10.5 million discount. The discount is accreted to interest income over the remaining contractual life of the loans. During the measurement
period ended November 30, 2020, the fair value of acquired loans was reduced by $2.4 million as we finalized our evaluation of the loan portfolio to reflect facts and circumstances in
existence as of the acquisition date.
As of December 31, 2020, direct costs related to the DNB merger of $13.7 million were recognized and expensed as incurred. During the year ended December 31, 2020, we
recognized $2.3 million of merger related expenses including $0.2 million in legal and professional fees, $1.4 million in severance payments and stay-bonuses, $0.4 million for data
processing and $0.3 million in other expenses. As of December 31, 2019, we recognized $11.4 million of merger related expenses, including $4.7 million for data processing contract
termination and system conversion costs, $2.8 million in legal and professional expenses, $3.4 million in severance payments and $0.5 million in other expenses.
79
Table of Contents
NOTE 3. 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 2021, 2020 and 2019 and was used to determine reported earnings
per share. The following table reconciles the numerators and denominators of basic and diluted EPS:
(dollars in thousands, except share and per share data)
Numerators for Earnings per Common Share—Basic and Diluted:
Net income
Less: Income allocated to participating shares
Net Income Allocated to Common Shareholders
Denominators:
Weighted Average Common Shares Outstanding—Basic
Add: Average participating shares outstanding
Denominator for Diluted
Earnings per common share—basic
Earnings per common share—diluted
Restricted stock considered anti-dilutive excluded from dilutive potential common shares
2021
110,343
492
109,851
39,050,241
2,720
39,052,961
2.81
2.81
793
$
$
$
$
Years ended December 31,
2020
$
$
$
$
21,040
68
20,972
39,070,439
2,780
39,073,219
0.54
0.53
1,242
2019
98,234
260
97,974
34,628,191
51,287
34,679,478
2.84
2.82
12,686
$
$
$
$
80
Table of Contents
NOTE 4. 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, 2021 and 2020. Interest rate
lock commitments to borrowers were transferred from Level 2 to Level 3 during the year ended December 31, 2020 due to pull-through factors being a significant unobservable input.
(dollars in thousands)
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities
Obligations of U.S. government corporations and agencies
Collateralized mortgage obligations of U.S. government corporations and agencies
Residential mortgage-backed securities of U.S. government corporations and agencies
Commercial mortgage-backed securities of U.S. government corporations and agencies
Corporate obligations
Obligations of states and political subdivisions
Total Debt Securities Available-for-Sale
Marketable equity securities
Total Securities
Securities held in a deferred compensation plan
Derivative financial assets:
Interest rate swaps
Interest rate lock commitments
Forward sale contracts
Total Assets
LIABILITIES
Derivative financial liabilities:
Interest rate swaps
Total Liabilities
Level 1
Level 2
Level 3
Total
December 31, 2021
$
$
$
$
95,327
—
—
—
—
—
—
95,327
1,061
96,388
10,230
—
—
—
106,618
—
—
$
$
$
$
—
70,348
270,294
56,793
341,300
500
75,089
814,324
81
814,405
—
33,528
—
—
847,933
33,631
33,631
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
401
4
405
—
—
$
$
$
$
95,327
70,348
270,294
56,793
341,300
500
75,089
909,651
1,142
910,793
10,230
33,528
401
4
954,956
33,631
33,631
81
Table of Contents
NOTE 4. FAIR VALUE MEASUREMENTS -- continued
(dollars in thousands)
ASSETS
Debt securities available-for-sale:
U.S. Treasury securities
Obligations of U.S. government corporations and agencies
Collateralized mortgage obligations of U.S. government corporations and agencies
Residential mortgage-backed securities of U.S. government corporations and agencies
Commercial mortgage-backed securities of U.S. government corporations and agencies
Corporate obligations
Obligations of states and political subdivisions
Total Debt Securities Available-for-Sale
Marketable equity securities
Total Securities
Securities held in a deferred compensation plan
Derivative financial assets:
Interest rate swaps
Interest rate lock commitments
Total Assets
LIABILITIES
Derivative financial liabilities:
Interest rate swaps
Forward sale contracts
Total Liabilities
Level 1
Level 2
Level 3
Total
December 31, 2020
$
$
$
$
10,282
—
—
—
—
—
—
10,282
3,228
13,510
6,794
—
—
20,304
—
—
—
$
$
$
$
—
82,904
209,296
67,778
273,681
2,025
124,427
760,111
72
760,183
—
78,319
—
838,502
79,033
385
79,418
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
2,900
2,900
—
—
—
$
$
$
$
10,282
82,904
209,296
67,778
273,681
2,025
124,427
770,393
3,300
773,693
6,794
78,319
2,900
861,706
79,033
385
79,418
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, 2021 or December 31, 2020.
For Level 3 assets measured at fair value on a nonrecurring basis at December 31, 2021 and 2020, the significant unobservable inputs used in the fair value measurements were as
follows:
(dollars in thousands)
December 31, 2021
Valuation Technique
Significant Unobservable Inputs
Loans individually evaluated
Other real estate owned
Mortgage servicing rights
Loans held for sale
Total Assets
(1)
(2)
$
$
16,004
Collateral method
Discounted cash flow method
1,011 Collateral method
— Discounted cash flow method
— Collateral method
17,015
Appraisal adjustment
Discount rate
Appraisal adjustment
NA
NA
Weighted averages for loans individually evaluated were weighted by loan amounts.
Weighted averages for other real estate owned were weighted by OREO balances.
0%
10%
20%
19%
Range
-
2.53%
NA
NA
Weighted Average
(1) (2)
4.48%
10.46%
2.53%
NA
NA
82
Table of Contents
NOTE 4. FAIR VALUE MEASUREMENTS -- continued
(dollars in thousands)
December 31, 2020
Valuation Technique
Significant Unobservable Inputs
Loans individually evaluated
Other real estate owned
Mortgage servicing rights
Loans held for sale
Total Assets
(1)
(2)
$
$
64,286
Collateral method
Appraisal adjustment
Discounted cash flow method
Discount rate
600 Collateral method
4,976 Discounted cash flow method
586 Collateral method
70,448
Appraisal adjustment
Discount rate
Constant prepayment rates
NA
Weighted averages for loans individually evaluated were weighted by loan amounts.
Weighted averages for other real estate owned were weighted by OREO balances.
Weighted averages for mortgage services rights discount rate and prepayment rates were weighted based on note rate tranches.
(3)
0%
—%
Range
-
-
21.80%
12%
—%
9.24% -
8.82% -
12.55%
14.58%
NA
Weighted Average
(1) (2) (3)
7.70%
—%
21.80%
9.42%
13.37%
NA
The carrying values and fair values of our financial instruments at December 31, 2021 and 2020 are presented in the following tables:
(dollars in thousands)
ASSETS
Cash and due from banks, including interest-bearing deposits
Securities
Loans held for sale
Portfolio loans, net
Collateral receivable
Securities held in a deferred compensation plan
Mortgage servicing rights
Interest rate swaps
Interest rate lock commitments
Forward sale contracts
LIABILITIES
Deposits
Securities sold under repurchase agreements
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Interest rate swaps
(1)
As reported in the Consolidated Balance Sheets
Fair Value Measurements at December 31, 2021
Total
Level 1
Level 2
Level 3
$
$
922,215
910,793
1,522
6,815,468
37,363
10,230
7,677
33,528
401
4
7,992,942
84,491
—
22,678
54,393
33,631
$
$
922,215
96,388
—
—
37,363
10,230
—
—
—
—
6,908,453
84,491
—
4,300
54,393
—
$
$
—
814,405
—
—
—
—
—
33,528
—
—
1,084,489
—
—
18,378
—
33,631
$
—
—
1,522
6,815,468
—
—
7,677
—
401
4
—
—
—
—
—
—
Carrying
Value
(1)
922,215
910,793
1,522
6,901,414
37,363
10,230
7,677
33,528
401
4
7,996,524
84,491
—
22,430
54,393
33,631
$
$
83
Table of Contents
NOTE 4. FAIR VALUE MEASUREMENTS -- continued
(dollars in thousands)
ASSETS
Cash and due from banks, including interest-bearing deposits
Securities
Loans held for sale
Portfolio loans, net
Securities held in a deferred compensation plan
Mortgage servicing rights
Interest rate swaps
Interest rate lock commitments
Forward sale contracts
LIABILITIES
Deposits
Securities sold under repurchase agreements
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Interest rate swaps
Forward sale contracts
(1)
As reported in the Consolidated Balance Sheets
Fair Value Measurements at December 31, 2020
Total
Level 1
Level 2
Level 3
$
$
229,666
773,693
18,528
7,028,446
77,936
6,794
4,976
78,319
2,900
7,422,894
65,163
75,000
24,545
64,083
79,033
385
$
$
229,666
13,510
—
—
77,936
6,794
—
—
—
6,033,075
65,163
75,000
4,494
64,083
—
—
$
$
—
760,183
—
—
—
—
—
78,319
—
1,389,819
—
—
20,051
—
79,033
385
$
$
—
—
18,528
7,028,446
—
—
4,976
—
2,900
—
—
—
—
—
—
—
Carrying
(1)
Value
229,666
773,693
18,528
7,108,248
77,936
6,794
4,976
78,319
2,900
7,420,538
65,163
75,000
23,681
64,083
79,033
385
$
$
84
Table of Contents
NOTE 5. 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. The required reserves averaged $0.0 million for 2021, $15.5 million for 2020 and $43.9 million for
2019. The decrease in the required reserve average from 2020 to 2021 was due to the Federal Reserve reducing the reserve requirement ratio to zero percent effective March 26, 2020.
NOTE 6. 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. In connection with our
reduced net income in 2020 and our inability to fully fund the dividend from earnings over the prior year, due in substantial part to the customer fraud that occurred in the second
quarter of 2020, we received non-objection letters from the Federal Reserve to continue to pay our dividends declared in the third and fourth quarter of 2020 and the first and second
quarter of 2021. Thus, under certain circumstances based upon our financial condition, our ability to declare and pay quarterly dividends may require consultation with the Federal
Reserve and may be prohibited by applicable Federal Reserve Board guidance.
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 7. SECURITIES
The following table presents the fair values of our securities portfolio at the dates presented:
(dollars in thousands)
Debt securities available-for-sale
Marketable equity securities
Total Securities
Debt Securities Available-for-Sale
December 31,
2021
$
$
909,651
1,142
910,793
2020
$
$
770,393
3,300
773,693
The following tables present the amortized cost and fair value of debt securities available-for-sale as of December 31, 2021 and December 31, 2020:
(dollars in thousands)
U.S. Treasury securities
Obligations of U.S. government corporations and agencies
Collateralized mortgage obligations of U.S. government
corporations and agencies
Residential mortgage-backed securities of U.S. government
corporations and agencies
Commercial mortgage-backed securities of U.S. government
corporations and agencies
Corporate Obligations
Obligations of states and political subdivisions
Total Debt Securities Available-for-Sale
Amortized
Cost
95,954
68,599
270,696
57,029
336,918
500
70,539
900,235
$
$
$
$
December 31, 2021
Gross
Unrealized
Gains
115
1,749
2,408
392
5,969
—
4,550
15,183
Gross
Unrealized
Losses
(742)
—
(2,810)
(628)
(1,587)
—
—
(5,767)
$
$
Fair Value
95,327
70,348
270,294
56,793
341,300
500
75,089
909,651
$
$
December 31, 2020
Amortized
Cost
9,980
78,755
202,975
66,960
258,875
2,021
117,439
737,005
$
$
$
$
Gross
Unrealized
Gains
302
4,149
6,410
818
14,806
5
6,988
33,478
$
$
Gross
Unrealized
Losses
—
—
(89)
—
—
(1)
—
(90)
Fair Value
10,282
82,904
209,296
67,778
273,681
2,025
124,427
770,393
$
$
85
Table of Contents
NOTE 7. SECURITIES AVAILABLE-FOR-SALE -- continued
The following table shows the composition of gross and net realized gains and losses for the periods presented:
(dollars in thousands)
Gross realized gains
Gross realized losses
Net Realized Gains/(Losses)
$
$
2021
29
—
29
Years ended December 31,
$
$
2020
219
(77)
142
$
$
2019
41
(67)
(26)
The following tables present the fair value and the age of gross unrealized losses on debt securities available-for-sale by investment category as of the dates presented:
Less Than 12 Months
December 31, 2021
12 Months or More
(dollars in thousands)
U.S. Treasury securities
Collateralized mortgage obligations of
U.S. government corporations and
agencies
Residential mortgage-backed securities
of U.S. government corporations and
agencies
Commercial mortgage-backed securities
of U.S. government corporations and
agencies
Corporate Obligations
Total
Number
of
Securities
8
12
3
7
—
30
$
$
Fair
Value
85,221
$
Unrealized
Losses
(742)
141,204
(2,436)
46,042
(628)
100,032
—
372,499
$
(1,587)
—
(5,393)
Number
of
Securities
—
1
—
—
—
1
$
$
8,933
—
—
—
8,933
(dollars in thousands)
U.S. Treasury securities
Collateralized mortgage obligations of
U.S. government corporations and
agencies
Residential mortgage-backed securities
of U.S. government corporations and
agencies
Commercial mortgage-backed securities
of U.S. government corporations and
agencies
Corporate Obligations
Total
Less Than 12 Months
Number
of
Securities
—
$
Fair
Value
—
$
Unrealized
Losses
—
Number
of
Securities
—
2
—
35,697
—
1
3
$
499
36,196
$
(89)
—
(1)
(90)
—
—
—
—
—
December 31, 2020
12 Months or More
Fair
Value
—
—
—
—
—
—
$
$
Fair
Value
—
$
Unrealized
Losses
—
Number
of
Securities
8
(374)
—
—
—
(374)
13
3
7
—
31
Unrealized
Losses
—
Number
of
Securities
—
—
—
—
—
—
2
—
—
1
3
$
$
$
Total
Fair
Value
85,221
150,137
46,042
100,032
—
381,432
$
$
Total
Fair
Value
—
35,697
—
—
499
36,196
$
$
Unrealized
Losses
(742)
(2,810)
(628)
(1,587)
—
(5,767)
Unrealized
Losses
—
(89)
—
—
(1)
(90)
$
$
$
$
We evaluate securities with unrealized losses quarterly to determine if the decline in fair value has resulted from credit loss or other factors. We do not believe any individual
unrealized loss as of December 31, 2021 represents an impairment. At December 31, 2021, there were 31 debt securities and at December 31, 2020 there were 3 debt securities in an
unrealized loss position. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of 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 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.
86
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NOTE 7. SECURITIES AVAILABLE-FOR-SALE -- continued
We concluded that the ACL for debt securities was immaterial at December 31, 2021. Prior to the adoption of ASU 2016-13 there was no other than temporary impairment, or OTTI,
recorded during the year ended December 31, 2020.
The following table presents net unrealized gains and losses, net of tax, on debt securities available-for-sale included in accumulated other comprehensive income/(loss), for the
periods presented:
(dollars in thousands)
Total unrealized gains/(losses) on debt securities available-for-sale
Income tax (expense) benefit
Net Unrealized Gains/(Losses), Net of Tax Included in Accumulated
Other Comprehensive Income/(Loss)
$
$
Gross Unrealized
Gains
15,183
(3,215)
December 31, 2021
Gross Unrealized
Losses
(5,767)
1,221
$
11,968
$
(4,546)
Net Unrealized
Gains (Losses)
9,416
(1,994)
7,422
$
$
$
$
Gross Unrealized
Gains
33,478
(7,128)
December 31, 2020
Gross Unrealized
Losses
(90)
19
$
26,350
$
(71)
Net Unrealized
Gains (Losses)
33,388
(7,109)
26,279
$
$
The amortized cost and fair value of debt securities available-for-sale at December 31, 2021 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.
(dollars in thousands)
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
Due after one year through five years
Due after five years through ten years
Due after ten years
Debt Securities Available-for-Sale With Maturities
Collateralized mortgage obligations of U.S. government corporations and agencies
Residential mortgage-backed securities of U.S. government corporations and agencies
Commercial mortgage-backed securities of U.S. government corporations and agencies
Corporate Obligations
Total Debt Securities Available-for-Sale
December 31, 2021
Amortized
Cost
Fair Value
$
$
43,513
63,849
106,881
20,849
235,092
270,696
57,029
336,918
500
900,235
$
$
44,027
66,363
107,427
22,947
240,764
270,294
56,793
341,300
500
909,651
At December 31, 2021 and 2020, debt securities with carrying values of $466.9 million and $308.3 million were pledged for various regulatory and legal requirements.
Marketable Equity Securities
The following table presents realized and unrealized net gains and losses for our marketable equity securities for the periods presented:
(dollars in thousands)
Marketable Equity Securities
Net market gains (losses) recognized
Less: Net gains recognized for equity securities sold
Unrealized Gains (Losses) on Equity Securities Still Held
Years ended December 31,
2021
189
29
160
$
$
2020
(500)
142
(642)
$
$
$
$
2019
334
—
334
87
Table of Contents
NOTE 8. LOANS AND LOANS HELD FOR SALE
Loans are presented net of unearned income of $14.1 million and $16.0 million at December 31, 2021 and 2020 and net of a discount related to purchase accounting fair value
adjustments of $6.7 million and $8.6 million at December 31, 2021 and December 31, 2020.
The following table summarizes the composition of originated and acquired loans as of the dates presented:
(dollars in thousands)
Commercial
Commercial real estate
Commercial and industrial
Commercial construction
Total Commercial Loans
Consumer
Consumer real estate
Installment and other consumer
Total Consumer Loans
Total Portfolio Loans
Loans held for sale
Total Loans
(1)
December 31, 2021
December 31, 2020
$
$
3,236,653
1,728,969
440,962
5,406,584
1,485,478
107,928
1,593,406
6,999,990
1,522
7,001,512
$
$
3,244,974
1,954,453
474,280
5,673,707
1,471,238
80,915
1,552,153
7,225,860
18,528
7,244,388
(1)
Excludes interest receivable of $18.7 million at December 31, 2021 and $24.7 million at December 31, 2020. Interest receivable is included in other assets in the Consolidated Balance Sheets.
Commercial and industrial loans, or C&I, included $88.3 million of loans originated under the Paycheck Protection Program, or PPP, at December 31, 2021 compared to $465.0
million at December 31, 2020. 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.
At December 31, 2021, our business banking segment was $1.1 billion compared to $1.2 billion at December 31, 2020. 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. Business banking consisted of $546.1 million of commercial real estate loans, $215.4 million of C&I
loans of which $39.7 million are PPP loans, $16.2 million of commercial construction loans and $357.9 million of consumer real estate loans at December 31, 2021. At December 31,
2020 business banking consisted of $453.0 million of commercial real estate loans, $394.9 million of C&I loans of which $178.4 million are PPP Loans, $8.2 million of commercial
construction loans and $303.9 million of consumer real estate loans that have a commercial purpose.
We attempt to limit our exposure to credit risk by diversifying our loan portfolio by segment, geography, collateral and industry and actively managing concentrations. When
concentrations exist in certain segments, we mitigate this risk by reviewing the relevant economic indicators and internal risk rating trends and through stress testing of the loans in
these segments. Total commercial loans represented 77.2 percent of total portfolio loans at December 31, 2021 and 78.5 percent at December 31, 2020. Within our commercial
portfolio, the CRE and Commercial Construction portfolios combined comprised $3.7 billion or 68.0 percent of total commercial loans and 52.5 percent of total portfolio loans at
December 31, 2021 and comprised $3.7 billion or 65.6 percent of total commercial loans and 51.5 percent of total portfolio loans at December 31, 2020.
88
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NOTE 8. LOANS AND LOANS HELD FOR SALE -- continued
We lend primarily in Pennsylvania and the contiguous states of Ohio, New York, West Virginia and Maryland. The majority of our commercial and consumer loans are made to
businesses and individuals in this geography, resulting in a concentration. We believe our knowledge and familiarity with customers and conditions locally outweighs this geographic
concentration risk. The conditions of the local and regional economies are monitored closely through publicly available data and information supplied by our customers. We also use
subscription services for additional geographic and industry specific information. Our CRE and Commercial Construction portfolios have exposure outside this geography of 5.7
percent of the combined portfolios at December 31, 2021 and 5.9 percent at December 31, 2020. Exposure of total portfolio loans was 3.0 percent at December 31, 2021and
December 31, 2020.
The following table summarizes our restructured loans as of the dates presented:
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
$
$
Performing
TDRs
December 31, 2021
Nonperforming
TDRs
Total
TDRs
Performing
TDRs
December 31, 2020
Nonperforming
TDRs
Total
TDRs
—
748
2,190
858
6,122
3
9,921
$
$
1,697
14,889
2,087
1,696
1,405
—
21,774
$
$
1,697
15,637
4,277
2,554
7,527
3
31,695
$
$
14
7,090
3,267
1,503
5,581
5
17,460
$
$
16,654
9,885
—
430
2,319
—
29,289
$
$
16,668
16,975
3,267
1,933
7,900
5
46,748
The following tables present the restructured loans by loan segment and by type of concession for the years ended:
December 31, 2021
Type of Modification
Bankruptcy
(1)
Other
Extend
Maturity
Modify
Rate
Modify
Payments
Number
of
Contracts
Total
Post-Modification
Outstanding Recorded
Investment
(2)
Total
Pre-Modification
Outstanding Recorded
Investment
(2)
1
3
1
9
26
—
40
$
$
—
—
—
8
1,099
—
1,107
$
$
—
—
—
—
—
—
—
$
$
—
2,039
2,087
558
—
—
4,684
$
$
—
—
—
—
—
—
—
$
$
1,300
9,182
—
1,155
147
—
11,784
$
$
1,300
11,221
2,087
1,721
1,246
—
17,575
$
$
1,824
21,297
5,279
1,792
1,280
—
31,472
(dollars in thousands)
Commercial real estate
Commercial industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
(1)
(2)
period end.
Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.
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
(dollars in thousands)
Commercial real estate
Commercial industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
Number
of
Contracts
1
3
3
3
29
1
40
$
$
December 31, 2020
Type of Modification
Bankruptcy
(1)
Other
Extend
Maturity
Modify
Rate
Modify
Payments
Total
Post-Modification
Outstanding Recorded
Investment
(2)
Total
Pre-Modification
Outstanding Recorded
Investment
(2)
—
—
—
—
956
4
960
$
$
—
—
—
—
—
—
—
$
$
—
13,339
2,330
165
690
—
16,524
$
$
—
—
—
—
—
—
—
$
$
4,791
281
—
95
—
—
5,167
$
$
4,791
13,620
2,330
260
1,646
4
22,651
$
$
5,292
15,217
2,592
501
1,688
5
25,295
(1)
(2)
Bankruptcy is consumer bankruptcy loans where the debt has been legally discharged through the bankruptcy court and not reaffirmed.
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.
89
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NOTE 8. LOANS AND LOANS HELD FOR SALE -- continued
In response to the coronavirus, or COVID-19 pandemic, and its economic impact on our customers, we implemented a short-term modification program that complies with the
CARES Act to provide temporary payment relief to those borrowers directly impacted by COVID-19 pandemic who were not more than 30 days past due as of December 31, 2019.
This program allows for a deferral of payments for 90 days and up to a maximum of 180 days for our commercial customers. The customer remains responsible for deferred payments
along with any additional interest accrued during the deferral period. For our consumer customers, interest does not accrue during the deferral period and the maturity date is extended
by the length of the deferral period. Under the applicable guidance, none of these loans were considered restructured during 2021. We had eight loans that were modified totaling
$28.8 million at December 31, 2021 compared to 52 loans that were modified totaling $195.6 million at December 31, 2020.
We had 12 commitments for $2.6 million to lend additional funds on TDRs at December 31, 2021 compared to 20 commitments for $0.8 million at December 31, 2020. We had no
TDR's that returned to accruing status during 2021. We returned one TDR totaling $0.1 million to accruing status during 2020.
Defaulted TDRs are defined as loans having a payment default of 90 days or more after the restructuring takes place that were restructured within the last 12 months prior to
defaulting. There were no TDRs that defaulted during the year ended December 31, 2021 and there were six TDRs totaling $11.8 million that defaulted during the year ended 2020.
The following table is a summary of nonperforming assets as of the dates presented:
(dollars in thousands)
Nonperforming Assets
Nonaccrual loans
Nonaccrual TDRs
Total nonaccrual loans
OREO
Total Nonperforming Assets
December 31,
2021
2020
$
$
44,517
21,774
66,291
13,313
79,604
$
$
117,485
29,289
146,774
2,155
148,929
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 December 31:
Balance at beginning of year
New loans
Repayments or no longer considered a related party
Balance at end of year
NOTE 9. ALLOWANCE FOR CREDIT LOSSES
2021
2020
6,329
1,826
(1,998)
6,157
$
$
8,225
3,343
(5,239)
6,329
$
$
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.
90
Table of Contents
Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
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 and credit cards. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the local economy, in particular the
unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral
values.
Management monitors various credit quality indicators for the commercial, business banking and consumer loan portfolios, including changes in risk ratings, nonperforming status
and delinquency on a monthly basis.
We monitor the commercial loan portfolio through an internal risk rating system. Loan risk ratings are assigned based upon the creditworthiness of the borrower and are reviewed
on an ongoing basis according to our internal policies. Loans within the pass rating generally have a lower risk of loss than loans risk rated as special mention or substandard.
Our risk ratings are consistent with regulatory guidance and are as follows:
Pass—The loan is currently performing and is of high quality.
Special Mention—A special mention loan has potential weaknesses that warrant management’s close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects or in the strength of our credit position at some future date.
Substandard—A substandard loan is not adequately protected by the net worth and/or paying capacity of the borrower or by the collateral pledged, if any. Substandard loans have a
well-defined weakness or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility that we will sustain some loss if the
deficiencies are not corrected.
Doubtful—Loans classified doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation
in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
The following tables present loan balances by year of origination and internally assigned risk rating for our portfolio segments as of the dates presented:
2021
2020
2019
2018
2017
2016 and Prior
Revolving
Revolving-
Term
Total
December 31, 2021
Risk Rating
(dollars in
thousands)
Commercial
Real Estate
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial Real
Estate
Commercial
and Industrial
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and
Industrial
Commercial
Construction
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial
Construction
Business
Banking
Pass
Special
Mention
Substandard
Doubtful
Total Business
Banking
Consumer Real
Estate
Pass
Special
Mention
Substandard
Doubtful
Total
Consumer Real
Estate
Other consumer
Pass
Special
Mention
Substandard
Doubtful
Total Other
Consumer
Total Loan
Balance
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
443
111
625
—
$
2,375,303
160,570
154,654
—
2,690,528
1,468,155
15,443
28,148
1,777
1,513,523
413,640
4,458
6,657
—
424,755
1,096,990
10,863
27,841
—
$
385,347
$
316,003
$
412,191
$
314,303
$
213,019
$
698,992
$
35,448
—
—
—
—
1,356
—
37,786
18,743
—
6,401
14,039
—
40,445
12,555
—
75,938
106,461
—
—
1,500
—
385,347
317,359
468,720
334,743
266,019
881,391
36,948
437,483
126,371
115,359
46
—
—
—
—
—
3,060
14,221
1,777
83,030
2,546
1,336
—
37,176
72
4,174
—
132,182
536,554
832
3,456
—
8,887
4,961
—
437,529
126,371
134,417
86,912
41,422
136,470
550,402
142,321
108,405
111,512
16,838
—
—
—
—
2,157
—
—
2,020
—
—
—
—
142,321
110,562
113,532
16,838
257,264
107,791
141,411
110,586
104
41
—
151
106
—
1,986
1,579
—
1,365
3,277
—
257,409
108,048
144,976
115,228
137,465
100,995
91,981
—
—
—
—
—
—
—
184
—
48,531
—
1,625
—
989
—
—
—
989
79,187
1,057
1,645
—
81,889
39,029
—
1,355
—
3,539
4,458
2,480
—
30,036
—
—
—
10,477
30,036
293,215
107,093
5,929
19,591
—
160
977
—
318,735
108,230
1,179
1,135,693
231,861
442,530
23,391
1,115,783
937
5,664
—
—
876
—
—
1,161
—
937
10,865
—
137,465
100,995
92,165
50,156
40,384
238,462
443,406
24,552
1,127,585
19,976
9,396
—
83
—
—
52
—
20,059
9,448
7,120
—
141
—
7,261
2,878
—
215
—
3,093
613
—
408
—
1,021
2,037
—
4,407
—
6,444
57,702
—
201
—
57,903
1,130
—
1,547
—
2,677
100,852
—
7,054
—
107,906
$
1,380,130
$
772,783
$
961,071
$
606,970
$
431,724
$
1,591,979
$
1,226,925
$
28,408
$
6,999,990
(dollars in
thousands)
Commercial
Real Estate
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial Real
Estate
Commercial
and Industrial
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial and
Industrial
Commercial
Construction
Pass
Special
Mention
Substandard
Doubtful
Total
Commercial
Construction
Business
Banking
Pass
Special
Mention
Substandard
Doubtful
Total Business
Banking
Consumer Real
Estate
Pass
Special
Mention
Substandard
Doubtful
Total
Consumer Real
Estate
Other consumer
Pass
Special
Mention
Substandard
Doubtful
Total Other
Consumer
Total Loan
Balance
2020
2019
2018
2017
2016
2015 and Prior
Revolving
Revolving-
Term
Total
December 31, 2020
Risk Rating
$
334,086
$
422,800
$
394,963
$
277,724
$
307,321
$
615,217
$
46,330
—
—
—
35,499
17,259
645
10,200
12,781
—
22,502
19,914
—
55,174
50,700
1,989
75,022
83,792
6,529
—
1,500
—
334,086
476,203
417,944
320,140
415,184
780,560
47,830
454,131
199,453
140,049
3,697
—
—
8,211
7,793
—
2,628
2,613
—
68,607
697
8,544
4,401
27,645
206,782
383,082
768
75
—
1,046
13,781
—
23,527
2,022
—
457,828
215,457
145,290
82,249
28,488
221,609
408,631
131,235
224,794
1,578
—
—
2,533
3,580
—
59,649
3,886
—
—
132,813
230,907
63,535
296,254
154,335
123,207
—
103
—
1,060
1,078
—
1,147
3,896
—
296,357
156,473
128,250
120,736
122,171
—
—
—
—
373
—
67,700
1,489
742
—
2,420
—
501
—
2,921
86,552
1,602
3,209
—
91,363
63,653
—
1,480
—
6,346
—
—
—
4,555
8,593
3,629
—
12,778
—
—
—
6,346
16,777
12,778
266,042
103,571
6,866
25,871
—
637
1,341
—
77,238
1,084
3,880
—
82,202
73,805
—
2,449
—
298,779
105,549
1,094
1,160,067
243,939
438,888
22,667
1,153,559
150
6,958
—
132
—
—
—
—
—
1,771
12,002
—
120,736
122,544
69,931
65,133
76,254
251,047
439,020
22,667
1,167,332
18,849
13,162
6,784
3,395
2,082
—
15
—
—
—
—
—
—
—
—
—
—
—
—
—
18,864
13,162
6,784
3,395
2,082
687
—
3,367
—
4,054
26,647
—
744
—
27,391
2,767
—
2,386
—
5,153
74,373
—
6,512
—
80,885
$
1,360,684
$
1,214,746
$
831,734
$
565,201
$
610,556
$
1,572,826
$
1,041,199
$
28,914
$
7,225,860
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
291
123
680
—
$
2,398,441
198,397
185,946
9,163
2,791,947
1,479,749
40,574
34,828
4,401
1,559,552
441,777
16,590
7,710
—
466,077
1,107,490
12,519
40,058
—
We monitor the delinquent status of the commercial and consumer portfolios on a monthly basis. Loans are considered nonperforming when interest and principal are 90 days or
more past due or management has determined that a material deterioration in the borrower’s financial condition exists. The risk of loss is generally highest for nonperforming loans.
91
Table of Contents
Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
The following tables present loan balances by year of origination and performing and nonperforming status for our portfolio segments as of the dates presented:
(dollars in thousands)
Commercial Real Estate
Performing
Nonperforming
Total Commercial Real Estate
Commercial and Industrial
Performing
Nonperforming
Total Commercial and Industrial
Commercial Construction
Performing
Nonperforming
Total Commercial Construction
Business Banking
Performing
Nonperforming
Total Business Banking
Consumer Real Estate
Performing
Nonperforming
Total Consumer Real Estate
Other Consumer
Performing
Nonperforming
Total Other Consumer
Performing
Nonperforming
Total Loan Balance
(dollars in thousands)
Commercial Real Estate
Performing
Nonperforming
Total Commercial Real Estate
Commercial and Industrial
Performing
Nonperforming
Total Commercial and Industrial
Commercial Construction
Performing
Nonperforming
Total Commercial Construction
Business Banking
Performing
Nonperforming
Total Business Banking
Consumer Real Estate
Performing
Nonperforming
Total Consumer Real Estate
Other Consumer
Performing
Nonperforming
Total Other Consumer
Performing
Nonperforming
Total Loan Balance
2021
2020
2019
2018
December 31, 2021
2017
2016 and Prior
Revolving
Revolving-Term
Total
$
385,347 $
317,359 $
—
385,347
437,529
—
437,529
142,321
—
142,321
257,368
41
257,409
137,465
—
137,465
20,059
—
20,059
1,380,089
41
$
1,380,130 $
317,359
126,371
—
126,371
110,562
—
110,562
107,984
64
108,048
100,253
742
100,995
9,290
158
9,448
771,819
964
772,783 $
461,613 $
7,107
468,720
332,482 $
2,261
334,743
259,723 $
6,296
266,019
865,567 $
15,824
881,391
36,948 $
—
36,948
— $
—
—
2,659,039
31,488
2,690,528
123,944
10,473
134,417
111,445
2,087
113,532
144,689
287
144,976
91,689
476
92,165
7,261
—
7,261
86,852
60
86,912
16,838
—
16,838
113,820
1,408
115,228
49,853
303
50,156
3,093
—
3,093
38,540
2,882
41,422
989
—
989
81,195
694
81,889
39,657
727
40,384
1,021
—
1,021
136,427
43
136,470
10,093
384
10,477
311,673
7,062
318,735
234,297
4,165
238,462
6,444
—
6,444
548,622
1,780
550,402
30,036
—
30,036
108,202
28
108,230
443,238
168
443,406
57,903
—
57,903
940,641
20,430
961,071 $
602,938
4,032
606,970 $
421,125
10,599
431,724 $
1,564,501
27,478
1,591,979 $
1,224,949
1,976
1,226,925 $
—
—
—
—
—
—
1,122
57
1,179
23,839
713
24,552
2,677
—
2,677
27,638
770
28,408 $
1,498,285
15,239
1,513,523
422,284
2,471
424,755
1,126,052
9,641
1,135,693
1,120,291
7,294
1,127,585
107,748
158
107,906
6,933,699
66,291
6,999,990
2020
2019
2018
2017
December 31, 2020
2016
2015 and Prior
Revolving
Revolving-Term
Total
$
334,086 $
—
334,086
457,828
—
457,828
132,813
—
132,813
296,327
30
296,357
120,736
—
120,736
18,864
—
18,864
1,360,654
30
$
1,360,684 $
459,799 $
16,404
476,203
417,944 $
—
417,944
313,465 $
6,675
320,140
394,972 $
20,212
415,184
722,782 $
57,778
780,560
47,830 $
—
47,830
— $
—
—
2,690,879
101,070
2,791,947
214,144
1,313
215,457
230,907
—
230,907
156,164
309
156,473
122,315
229
122,544
13,162
—
13,162
143,706
1,584
145,290
63,535
—
63,535
126,432
1,818
128,250
69,225
706
69,931
6,784
—
6,784
69,411
12,838
82,249
2,921
—
2,921
90,414
949
91,363
63,647
1,486
65,133
3,395
—
3,395
28,426
62
28,488
6,346
—
6,346
80,106
2,096
82,202
74,690
1,564
76,254
2,082
—
2,082
220,701
908
221,609
16,393
384
16,777
286,970
11,809
298,779
245,331
5,716
251,047
3,958
96
4,054
408,350
281
408,631
12,778
—
12,778
105,494
55
105,549
438,702
318
439,020
27,391
—
27,391
—
—
—
—
—
—
1,037
57
1,094
21,572
1,096
22,667
5,153
—
5,153
1,196,491
18,254
1,214,746 $
827,625
4,108
831,734 $
543,253
21,948
565,201 $
586,622
23,934
610,556 $
1,496,135
76,691
1,572,826 $
1,040,544
654
1,041,199 $
27,762
1,153
28,914 $
1,542,566
16,985
1,559,552
465,692
384
466,077
1,142,944
17,123
1,160,067
1,156,216
11,116
1,167,332
80,789
96
80,885
7,079,086
146,774
7,225,860
The following tables present the age analysis of past due loans segregated by class of loans as of the dates presented:
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
Current
2,659,040
1,497,755
421,834
1,124,748
1,117,073
107,492
6,927,943
$
$
30-59 Days
Past Due
—
529
450
813
1,087
206
3,085
$
$
December 31, 2021
(1)
60-89 Days
Past Due
—
—
—
491
2,130
50
2,672
$
$
Non-
performing
31,488
15,239
2,471
9,641
7,294
158
66,291
$
$
Total
Past Due
Loans
31,488
15,768
2,921
10,945
10,512
414
72,048
$
$
Total Loans
2,690,528
1,513,523
424,755
1,135,693
1,127,585
107,906
6,999,990
$
$
(1)
We had 8 loans that were modified totaling $28.8 million under the CARES Act at December 31, 2021 compared to 52 loans that were modified totaling $195.6 million at December 31, 2020. These customers were not
considered past due as a result of their delayed payments. Upon exiting the loan modification deferral program, the measurement of loan delinquency will resume where it left off upon entry into the program. Due to the
modification program, this delinquency table may not accurately reflect the credit risk associated with these loans.
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Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
Current
2,690,877
1,542,567
462,094
1,140,581
1,153,028
80,583
7,069,730
$
$
$
$
30-59 Days
Past Due
—
—
19
1,614
1,087
168
2,888
$
$
60-89 Days
Past Due
—
—
3,580
379
1,968
37
5,965
December 31, 2020
(2)
90 Days + Past
(1)
Due
$
$
—
—
—
371
132
—
503
$
$
Non-
performing
101,070
16,985
384
17,122
11,117
96
146,774
$
$
Total
Past Due
Loans
101,070
16,985
3,983
19,486
14,304
302
156,130
$
$
Total Loans
2,791,947
1,559,552
466,077
1,160,067
1,167,332
80,885
7,225,860
(1)
(2)
Represents acquired loans that were recorded at fair value at the acquisition date and remain performing at December 31, 2020.
We had 52 loans that were modified totaling $195.6 million at December 31, 2020. These customers were not considered past due as a result of their delayed payments. Upon exiting the loan modification deferral program, the
measurement of loan delinquency will resume where it left off upon entry into the program. Due to the modification program, this delinquency table may not accurately reflect the credit risk associated with these loans.
93
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Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
The following tables present loans on nonaccrual status and loans past due 90 days or more and still accruing by class of loan:
December 31, 2021
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
(1)
Represents only cash payments received and applied to interest on nonaccrual loans.
Beginning of Period
Nonaccrual
$
$
101,070
16,985
384
17,122
11,117
96
146,774
End of Period
Nonaccrual
$
$
Nonaccrual With
No Related Allowance
28,046
5,707
2,020
1,696
—
—
37,469
$
31,488
15,239
2,471
9,641
7,294
158
66,291
$
December 31, 2020
December 31, 2021
For the twelve months ended
Interest Income Recognized
on Nonaccrual
(1)
$
$
158
74
(28)
427
496
1
1,128
December 31, 2020
For the twelve months ended
Beginning of Period
Nonaccrual
End of Period
Nonaccrual
Nonaccrual With
No Related
Allowance
Past Due 90+ Days
Still Accruing
Interest Income Recognized on
Nonaccrual
(1)
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Other consumer
Total
$
$
25,356
10,911
737
9,863
6,063
1,127
54,057
(1)
Represents only cash payments received and applied to interest on nonaccrual loans.
The following tables present collateral-dependent loans by class of loan:
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Total
(dollars in thousands)
Commercial real estate
Commercial and industrial
Commercial construction
Business banking
Consumer real estate
Total
$
$
$
$
$
$
101,070
16,985
384
17,122
11,117
96
146,774
$
$
60,401
6,436
285
3,890
398
—
71,410
$
$
—
—
—
371
132
—
503
$
$
Real Estate
Blanket Lien
Investment/Cash
Other
December 31, 2021
Type of Collateral
—
4,905
—
1,636
—
6,541
$
$
December 31, 2020
Type of Collateral
Blanket Lien
Investment/Cash
—
15,080
—
1,619
—
16,699
$
$
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
Other
$
$
$
$
28,046
259
4,210
910
1,031
34,456
Real Estate
100,450
1,040
3,552
3,085
398
108,525
94
22
101
—
275
423
4
826
—
10,473
—
—
—
10,473
—
—
—
689
—
689
Table of Contents
Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
The following tables present activity in the ACL for years ended:
(dollars in thousands)
Allowance for credit losses on loans:
Balance at beginning of period
Provision for credit losses on loans
Charge-offs
Recoveries
(2)
Net (Charge-offs)/Recoveries
Balance at End of Period
(dollars in thousands)
Allowance for credit losses on loans:
Balance at beginning of period
Impact of CECL adoption
Provision for credit losses on loans
Charge-offs
Recoveries
(2)
Net (Charge-offs)/Recoveries
Balance at End of Period
Commercial
Real Estate
Commercial and
Industrial
Commercial
Construction
Business Banking
Consumer
Real Estate
Other
Consumer
Total
Loans
Twelve Months Ended December 31, 2021
$
$
$
$
65,656
(2,569)
(13,444)
1,057
(12,387)
50,700
Commercial
Real Estate
30,577
4,810
56,489
(26,460)
240
(26,220)
65,656
$
$
$
$
16,100
23,746
(20,923)
804
(20,119)
19,727
Commercial and
Industrial
(1)
15,681
7,853
65,288
(74,282)
1,560
(72,722)
16,100
$
$
$
$
7,239
(1,842)
(56)
14
(42)
5,355
$
$
15,917
(3,159)
(1,580)
160
(1,420)
11,338
$
$
10,014
(1,020)
(569)
308
(261)
8,733
Twelve Months Ended December 31, 2020
Commercial
Construction
Business Banking
Consumer
Real Estate
7,900
(3,376)
2,986
(454)
183
(271)
7,239
$
$
—
12,898
5,303
(2,612)
328
(2,284)
15,917
$
$
6,337
4,525
(368)
(667)
187
(480)
10,014
$
$
$
$
2,686
338
(952)
651
(301)
2,723
Other
Consumer
1,729
636
1,723
(1,890)
488
(1,402)
2,686
$
$
$
$
117,612
15,494
(37,524)
2,994
(34,530)
98,576
Total
Loans
62,224
27,346
131,421
(106,365)
2,986
(103,379)
117,612
(1)
(2)
During the three months ended June 30, 2020, we experienced a pre-tax loss of $58.7 million related to a customer fraud resulting from a check kiting scheme.
Excludes the provision for credit losses for unfunded commitments.
The provision for credit losses, which includes a provision for losses on loans and on unfunded loan commitments, is a charge to earnings to maintain the ACL at a level consistent
with management's assessment of expected losses in the loan portfolio at the balance sheet date. The provision for credit losses decreased $115.9 million to $15.5 million for 2021
compared to $131.4 million for 2020. The significant decrease in the provision for credit losses during 2021 was mainly due to the customer fraud in 2020 and an improved outlook for
the economy and our loan portfolio.
The C&I portfolio included $88.3 million of loans originated under the PPP at December 31, 2021 compared to $465.0 million at December 31, 2020. The loans are 100 percent
guaranteed by the SBA, therefore, we have not assigned any ACL to these loans at December 31, 2021.
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Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
NOTE 10. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES
We have 48 lease contracts, including 45 operating leases and three finance leases at December 31, 2021. 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 2021, 2020 and 2019.
The following table presents our lease expense for finance and operating leases for the years ended December 31:
(1)
(dollars in thousands)
Operating lease expense
Amortization of ROU assets - finance leases
(2)
Interest on lease liabilities - finance leases
Total Lease Expense
(1)
(2)
(1)
Included in occupancy expense in our Consolidated Statements of Net Income.
Included in borrowings interest expense in our Consolidated Statements of Net Income.
$
$
2021
5,135
224
74
5,433
$
$
2020
5,711
224
84
6,019
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)
Operating Leases
ROU assets
Operating cash flows
Finance Leases
ROU assets
Operating cash flows
Financing cash flows
Weighted Average Lease Term - Years
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
$
$
$
$
$
2021
44,067
6,570
1,055
74
194
18.9
12.4
5.82 %
5.91 %
$
$
$
$
$
$
$
2019
4,221
101
74
4,396
2020
46,245
6,489
1,278
84
180
18.7
12.1
5.90 %
5.81 %
During 2021, we entered into one new operating lease increasing the right-of-use asset and the related liability values by $3.0 million. During 2020, two operating leases were
considered abandoned due to branch closures and the right-of-use asset values were reduced by $0.5 million to zero and the related liabilities were reduced by $0.2 million. We
recognized additional expense of $0.3 million at the date of abandonment for these leases.
The following table presents the maturity analysis of lease liabilities for finance and operating leases as of December 31, 2021:
(dollars in thousands)
Maturity Analysis
2022
2023
2024
2025
2026
Thereafter
Total
Less: Present value discount
Lease Liabilities
Finance
225
129
130
132
133
1,012
1,761
(561)
1,200
$
$
Operating
4,707
4,519
4,512
4,544
4,574
64,040
86,896
(36,830)
50,066
$
$
Total
4,932
4,648
4,642
4,676
4,707
65,052
88,657
(37,391)
51,266
$
$
96
Table of Contents
Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
NOTE 11. PREMISES AND EQUIPMENT
The following table is a summary of premises and equipment as of the dates presented:
(dollars in thousands)
Land
Premises
Furniture and equipment
Leasehold improvements
Accumulated depreciation
Total
December 31,
2021
2020
8,651
62,313
46,799
12,205
129,968
(77,336)
52,632
$
$
8,651
61,299
45,072
12,061
127,083
(71,469)
55,614
$
$
Certain banking facilities are leased under finance leases and are included in total premises and equipment. We have one right-of-use asset for land in the amount of $0.1 million
and two right-of use assets for buildings totaling $1.0 million. Additional information relating to leased right-of-use assets is included in Note 10 Right-of-Use Assets and Lease
Liabilities.
Depreciation expense related to premises and equipment was $6.6 million in 2021, $6.7 million in 2020 and $5.4 million in 2019.
97
Table of Contents
Note 9. ALLOWANCE FOR CREDIT LOSSES - continued
NOTE 12. GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents goodwill as of the dates presented:
(dollars in thousands)
Balance at beginning of year
Additions
Balance at End of Year
December 31,
2021
2020
$
$
373,424
—
373,424
$
$
371,621
1,803
373,424
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Additional goodwill of $1.8 million was recorded during 2020 related to our
acquisition of DNB. Refer to Note 2 Business Combinations for further details on the DNB merger.
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, 2021, we concluded that it is more likely than not that the fair value of the reporting units exceeds the carrying value. In general, the
overall macroeconomic conditions and more specifically the economic conditions of the banking industry have improved throughout 2021. No events or circumstances since the
November 1, 2021 annual impairment test were noted that would indicate it was more likely than not that goodwill impairment exists.
The following table presents a summary of intangible assets as of the dates presented:
(dollars in thousands)
Gross carrying amount at beginning of year
Additions
Accumulated amortization
Balance at End of Year
December 31,
2021
2020
$
$
31,340
—
(24,445)
6,895
$
$
31,052
288
(22,665)
8,675
Intangible assets of $6.9 million at December 31, 2021 relate to core deposit and wealth management customer relationships resulting from acquisitions. The $0.3 million addition
during 2020 related to acquired wealth management customer relationships. 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 2021 requiring an impairment analysis to be completed.
Amortization expense on finite-lived intangible assets totaled $1.8 million, $2.5 million and $0.8 million for 2021, 2020 and 2019.
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,
2021 and thereafter:
(dollars in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
$
$
Amount
1,518
1,319
1,151
820
671
1,416
6,895
98
Table of Contents
NOTE 13. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The following table indicates the amounts representing the value of derivative assets and derivative liabilities at December 31:
(dollars in thousands)
Derivatives not Designated as Hedging Instruments
Interest Rate Swap Contracts—Commercial Loans
Fair value
Notional amount
Collateral posted
Interest Rate Lock Commitments—Mortgage Loans
Fair value
Notional amount
Forward Sale Contracts—Mortgage Loans
Fair value
Notional amount
Derivatives (included in
Other Assets)
Derivatives (included
in Other Liabilities)
2021
2020
2021
2020
$
$
33,528
1,017,178
—
401
12,148
4
8,436
78,319
983,638
—
2,900
51,053
—
—
$
$
33,631
1,017,178
37,360
—
—
—
—
79,033
983,638
77,930
—
—
385
47,062
Presenting offsetting derivatives that are subject to legally enforceable netting arrangements with the same party is permitted. For example, we may have a derivative asset and a
derivative liability with the same counterparty to a swap transaction and are permitted to offset the asset position and the liability position resulting in a net presentation.
The following table indicates the gross amounts of commercial loan swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated
Balance Sheets at December 31:
(dollars in thousands)
Derivatives not Designated as Hedging Instruments
Gross amounts recognized
Gross amounts offset
Net amounts presented in the Consolidated Balance Sheets
Gross amounts not offset
(1)
Net Amount
(1)
Amounts represent collateral posted for the periods presented.
Derivatives (included
in Other Assets)
Derivatives (included
in Other Liabilities)
2021
2020
2021
2020
$
$
37,289
(3,761)
33,528
—
33,528
$
$
82,655
(4,336)
78,319
—
78,319
$
$
37,392
(3,761)
33,631
(37,360)
(3,729)
2020
(746)
1,715
478
1,447
$
$
$
$
82,626
(3,593)
79,033
(77,930)
1,103
2019
(132)
70
(54)
(116)
The following table indicates the gain or loss recognized in income on derivatives for the years ended December 31:
(dollars in thousands)
Derivatives not Designated as Hedging Instruments
Interest rate swap contracts—commercial loans
Interest rate lock commitments—mortgage loans
Forward sale contracts—mortgage loans
Total Derivative (Loss)/Gain
2021
610
(2,499)
389
(1,500)
$
$
$
$
99
Table of Contents
NOTE 14. MORTGAGE SERVICING RIGHTS
For the years ended December 31, 2021, 2020 and 2019, the 1-4 family mortgage loans that were sold to Fannie Mae amounted to $287.9 million, $345.1 million and $94.5
million. At December 31, 2021, 2020 and 2019 our servicing portfolio totaled $841.7 million, $718.2 million and $509.2 million.
The following table indicates MSRs and the net carrying values:
(dollars in thousands)
Balance at December 31, 2019
Additions
Amortization
Temporary impairment
Balance at December 31, 2020
Additions
Amortization
Temporary recapture
Balance at December 31, 2021
Servicing
Rights
4,939
2,887
(1,206)
—
6,620
2,974
(1,707)
—
7,887
$
$
$
Valuation
Allowance
(277)
—
—
(1,354)
(1,631)
—
—
1,421
(210)
$
$
$
Net Carrying
Value
4,662
2,887
(1,206)
(1,354)
4,989
2,974
(1,707)
1,421
7,677
$
$
$
NOTE 15. 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. We use the cost method to
account for these partnerships. These investments are recorded in other assets on our balance sheet. 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 investments in 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 their economic performance.
Our total investment in qualified affordable housing projects was $12.6 million at December 31, 2021 and $8.4 million at December 31, 2020. Amortization expense, included in
other noninterest expense in the Consolidated Statements of Net Income (Loss), was $1.2 million, $3.2 million and $2.6 million for the twelve months ended December 31, 2021, 2020
and 2019. The amortization expense was offset by tax credits of $2.0 million, $2.2 million and $4.2 million for the twelve months ended December 31, 2021, 2020, and 2019 as a
reduction to our federal tax provision.
In 2021, we entered into two new qualified affordable housing projects and committed to a total investment of $19.4 million for these new projects. As of December 31, 2021,
$2.3 million of funds were invested into one of these new projects. No amortization expense or tax credits will be recognized for these new projects until complete.
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NOTE 16. DEPOSITS
The following table presents the composition of deposits at December 31 and interest expense for the years ended December 31:
(dollars in thousands)
Noninterest-bearing demand
Interest-bearing demand
Money market
Savings
Certificates of deposit
Total
2021
2020
2019
Balance
2,748,586
979,133
2,070,579
1,110,155
1,088,071
7,996,524
$
$
$
$
Interest
Expense
—
809
3,651
366
5,930
10,757
$
$
Balance
2,261,994
864,510
1,937,063
969,508
1,387,463
7,420,538
$
$
Interest
Expense
—
2,681
11,645
972
20,688
35,986
$
$
Balance
1,698,082
962,331
1,949,811
830,919
1,595,433
7,036,576
The aggregate of all certificates of deposits over $250,000, including brokered CDs, were $243.4 million and $329.7 million at December 31, 2021 and 2020.
The following table indicates the scheduled maturities of certificates of deposit at December 31, 2021:
(dollars in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
101
Interest
Expense
—
3,915
30,236
1,928
26,947
63,026
Amount
961,578
40,622
21,712
44,345
16,475
3,339
1,088,071
$
$
$
$
Table of Contents
NOTE 17. SHORT-TERM BORROWINGS
Short-term borrowings are for terms under or equal to one year and are comprised of securities sold under REPOs and FHLB advances. All REPOs are overnight short-term
investments and are not insured by the Federal Deposit Insurance Corporation, or FDIC. Securities pledged as collateral under these REPO financing arrangements cannot be sold or
repledged by the secured party and, therefore, the REPOs are accounted for as secured borrowings. Mortgage-backed securities with amortized cost of $86.3 million and carrying value
of $88.4 million at December 31, 2021 and amortized cost of $65.1 million and carrying value of $68.4 million at December 31, 2020 were pledged as collateral for these secured
transactions. The pledged securities are held in safekeeping at the Federal Reserve. Due to the overnight short-term nature of REPOs, potential risk due to a decline in the value of the
pledged collateral is low. Collateral pledging requirements with REPOs are monitored daily. FHLB advances are for various terms and are secured by a blanket lien on residential
mortgages and other real estate secured loans.
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:
(dollars in thousands)
REPOs
FHLB advances
Total Short-term Borrowings
Balance
84,491
—
84,491
$
$
2021
Weighted
Average
Interest
Rate
0.10 % $
— %
0.10 % $
Interest
Expense
79
12
91
$
$
Balance
65,163
75,000
140,163
2020
Weighted
Average
Interest
Rate
0.25 % $
0.19 %
0.22 % $
Interest
Expense
169
1,434
1,603
$
$
Balance
19,888
281,319
301,207
2019
Weighted
Average
Interest
Rate
0.74 % $
1.84 %
1.76 % $
Interest
Expense
110
6,416
6,526
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NOTE 18. 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 $22.4 million as of December 31, 2021 and $23.7 million as of December 31, 2020. Long-term FHLB advances are secured by the same loans as short-term FHLB
advances. Total loans pledged as collateral at the FHLB were $4.0 billion at December 31, 2021. We were eligible to borrow up to an additional $2.5 billion based on qualifying
collateral and up to a maximum borrowing capacity of $2.8 billion at December 31, 2021.
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)
Long-term borrowings
Weighted average interest rate
Interest expense
2021
2020
2019
$
$
22,430
1.94 %
458
$
$
23,681
2.03 %
1,201
$
$
50,868
2.60 %
1,831
Scheduled annual maturities and average interest rates for all of our long-term debt for each of the five years subsequent to December 31, 2020 and thereafter are as follows:
(dollars in thousands)
2022
2023
2024
2025
2026
Thereafter
Total
Junior Subordinated Debt Securities
$
$
Balance
7,689
464
13,381
81
87
728
22,430
Average Rate
2.29 %
5.74 %
1.34 %
5.98 %
6.00 %
6.01 %
1.94 %
The following table represents the composition of junior subordinated debt securities at December 31 and the interest expense for the years ended December 31:
(dollars in thousands)
Junior subordinated debt
Junior subordinated debt—trust preferred securities
Total
2021
Balance
25,000
29,393
54,393
$
$
$
$
Interest
Expense
756
1,087
1,843
$
$
2020
Balance
34,750
29,333
64,083
$
$
Interest
Expense
1,007
1,279
2,286
$
$
2019
Balance
34,753
29,524
64,277
$
$
Interest
Expense
1,059
1,251
2,310
The following table summarizes the key terms of our junior subordinated debt securities:
(dollars in thousands)
Junior Subordinated Debt
Trust Preferred Securities
Stated Maturity Date
Optional redemption date at par
Regulatory Capital
Interest Rate
Interest Rate at December 31, 2021
2001 Trust
Preferred Securities
$—
5,155
7/25/2031
Any time after 7/25/2011
Tier 1
6 Month LIBOR plus 375 bps
3.90%
2005 Trust
Preferred Securities
$—
4,124
5/23/2035
Any time after 5/23/2010
Tier 1
3 Month LIBOR plus 177 bps
1.93%
2006 Junior
Subordinated Debt
$25,000
—
12/15/2036
Any time after 9/15/2011
Tier 2
3 month LIBOR plus 160 bps
1.80%
2008 Trust
Preferred Securities
$—
20,619
3/15/2038
Any time after 3/15/2013
Tier 1
3 month LIBOR plus 350 bps
3.70%
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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 pays 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.
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NOTE 19. COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, we offer off-balance sheet credit arrangements to enable our customers to meet their financing objectives. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss, in the event the customer does not satisfy
the terms of the agreement, equals the contractual amount of the obligation less the value of any collateral. We apply the same credit policies in making commitments and standby
letters of credit that are used for the underwriting of loans to customers. Commitments generally have fixed expiration dates, annual renewals or other termination clauses and may
require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash
requirements.
Estimates of the fair value of these off-balance sheet items were not made because of the short-term nature of these arrangements and the credit standing of the counterparties.
The following table sets forth our commitments and letters of credit as of the dates presented:
(dollars in thousands)
Commitments to extend credit
Standby letters of credit
Total
$
$
December 31,
2021
2,583,957
87,335
2,671,292
$
$
2020
2,185,752
89,095
2,274,847
Allowance for Credit Losses on Unfunded Loan Commitments
We maintain an ACL 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:
(dollars in thousands)
Balance at beginning of period
Impact of adopting ASU 2016-13 at January 1, 2020
Balance after adoption of ASU 2016-13
Provision for credit losses
Total
Contractual Obligations
December 31, 2021
$
$
4,467
—
4,467
722
5,189
December 31, 2020
$
$
3,112
1,349
4,461
6
4,467
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, 2021 significant fixed and determinable contractual obligations to third parties by payment date:
(1)
(1)
(dollars in thousands)
Deposits without a stated maturity
Certificates of deposit
Securities sold under repurchase agreements
Short-term borrowings
Long-term borrowings
Junior subordinated debt securities
Operating and capital leases
Purchase obligations
Total
(1)
(1)
(1)
(1)
Payments Due In
2022
6,908,453
961,578
84,491
—
7,689
—
4,932
19,823
7,986,966
$
$
2023-2024
—
62,334
—
—
13,845
—
9,290
42,432
127,901
$
$
2025-2026
—
60,820
—
—
168
—
9,383
46,492
116,863
$
$
Later Years
—
3,339
—
—
728
54,393
65,052
—
123,512
$
$
$
$
Total
6,908,453
1,088,071
84,491
—
22,430
54,393
88,657
108,747
8,355,242
(1)
Excludes interest
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Operating lease obligations represent short and long-term lease arrangements as described in Note 11 Premises and Equipment, to the Consolidated Financial Statements. Purchase
obligations primarily represent obligations under agreement with our third party data processing servicer and communications charges.
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.
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NOTE 18. LONG-TERM BORROWINGS AND SUBORDINATED DEBT - continued
NOTE 20. 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.
(dollars in thousands)
Revenue Streams
Service charges on deposit accounts
(1)
Debit and credit card
Wealth management
Other fee revenue
Point of Revenue Recognition
Over a period of time
At a point in time
Over a period time
At a point in time
Over a period of time
At a point in time
At a point in time
Years ended December 31,
2021
1,880
13,160
15,040
919
17,033
17,952
9,187
3,702
12,889
1,900
$
$
$
$
$
$
$
2020
1,797
11,800
13,597
738
14,355
15,093
7,919
2,038
9,957
1,810
$
$
$
$
$
$
$
2019
1,859
11,457
13,316
723
12,682
13,405
6,939
1,684
8,623
3,836
$
$
$
$
$
$
$
(1)
Refer to Note 1 Summary of Significant Accounting Policies for the types of revenue streams that are included within each category.
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NOTE 21. INCOME TAXES
The following table presents the composition of income tax expense (benefit) for the years ended December 31:
(dollars in thousands)
Federal
Current
Deferred
Total Federal
State
Current
Deferred
Total State
Total Federal and State
2021
22,581
2,273
24,854
361
110
471
25,325
$
$
2020
4,256
(4,273)
(17)
145
(129)
16
(1)
$
$
2019
18,918
(406)
18,512
589
25
614
19,126
$
$
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.
The following table presents a reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31:
Statutory tax rate
Low income housing tax credits
Tax-exempt interest
Bank owned life insurance
Merger related expenses
Other
Effective Tax Rate
2021
21.0 %
(1.5) %
(1.3) %
(0.3) %
— %
0.8 %
18.7 %
2020
21.0 %
(11.1) %
(11.9) %
(1.8) %
— %
3.8 %
— %
2019
21.0 %
(3.3) %
(2.1) %
(0.4) %
0.3 %
0.8 %
16.3 %
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The following table presents significant components of our temporary differences as of the dates presented:
(dollars in thousands)
Deferred Tax Assets:
Allowance for credit losses
Lease liabilities
State net operating loss carryforwards
Net adjustment to funded status of pension
Low income housing partnerships
Other employee benefits
Other
Gross Deferred Tax Assets
Less: Valuation allowance
Total Deferred Tax Assets
Deferred Tax Liabilities:
Right-of-use lease assets
Net unrealized gains on securities available-for-sale
Deferred loan income
Prepaid pension
Purchase accounting adjustments
Depreciation on premises and equipment
Other
Total Deferred Tax liabilities
Net Deferred Tax Asset
December 31,
2021
22,083
10,876
5,565
3,922
3,270
3,433
3,973
53,122
(5,565)
47,557
(9,603)
(2,004)
(6,697)
(4,566)
(1,954)
(1,107)
(1,466)
(27,397)
20,160
$
$
2020
26,051
11,368
5,489
4,692
3,996
2,050
3,798
57,444
(5,489)
51,955
(10,141)
(7,125)
(6,796)
(5,209)
(1,971)
(1,275)
(1,245)
(33,762)
18,193
$
$
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 $5.5 million in 2021 and in 2020 related to Pennsylvania income tax NOLs. The
Pennsylvania NOL carryforwards total $55.7 million and will expire in the years 2021-2041.
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)
Balance at beginning of year
Prior period tax positions
Current period tax positions
Balance at End of Year
Amount That Would Impact the Effective Tax Rate if Recognized
$
$
$
2021
1,277
—
54
1,331
1,069
$
$
$
2020
1,051
(18)
244
1,277
1,027
$
$
$
2019
768
(10)
293
1,051
848
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, 2021, no significant changes to UTB are projected; however, tax audit examinations are possible. As of December 31, 2021, all income tax returns filed
for the tax years 2017 - 2020 remain subject to examination by the Internal Revenue Service. In 2021, an audit of our New York State tax returns for the period January 1, 2016
through December 31, 2018 concluded with a final tax assessment of $0.1 million primarily related to the qualified loans exemption and Metropolitan Commuter Transportation
District tax.
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NOTE 22. TAX EFFECTS ON OTHER COMPREHENSIVE (LOSS) INCOME
The following tables present the tax effects of the components of other comprehensive (loss) income for the years ended December 31:
(dollars in thousands)
2021
Net change in unrealized gains on debt securities available-for sale
Net available-for-sale securities (gains) losses reclassified into earnings
Adjustment to funded status of employee benefit plans
Other Comprehensive Loss
2020
Net change in unrealized gains on debt securities available-for-sale
Net available-for-sale securities (gains) losses reclassified into earnings
Adjustment to funded status of employee benefit plans
Other Comprehensive Income
2019
Net change in unrealized gains on debt securities available-for-sale
Net available-for-sale securities losses (gains) reclassified into earnings
Adjustment to funded status of employee benefit plans
Other Comprehensive Income
Pre-Tax
Amount
(23,972)
—
3,561
(20,411)
22,683
—
3,549
26,232
15,793
26
(1,282)
14,537
Tax Benefit (Expense)
Net of Tax
Amount
$
$
$
$
$
$
5,115
—
(765)
4,350
(4,827)
—
(764)
(5,591)
(3,367)
(6)
273
(3,100)
$
$
$
$
$
$
(18,857)
—
2,796
(16,061)
17,856
—
2,785
20,641
12,426
20
(1,009)
11,437
$
$
$
$
$
$
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NOTE 23. 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 were amended to freeze benefit accruals for all persons entitled to benefits under the plan in 2016. We will continue recording
pension expense related to these plans, primarily representing interest costs on the accumulated benefit obligation and amortization of actuarial losses accumulated in the plan, as well
as income from expected investment returns on pension assets. Since the plans have been frozen, no service costs are included in net periodic pension expense. The expected long-term
rate of return on plan assets is 2.42 percent.
The following table summarizes the activity in the benefit obligation and Plan assets deriving the funded status:
(dollars in thousands)
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year
Interest cost
Actuarial gain/(loss)
Benefits paid
Projected Benefit Obligation at End of Year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair Value of Plan Assets at End of Year
Funded Status
The following table sets forth the amounts recognized in accumulated other comprehensive income at December 31:
(dollars in thousands)
Net actuarial loss
Total (Before Tax Effects)
111
2021
2020
$
$
$
$
$
117,506
2,950
(2,136)
(14,223)
104,097
122,344
(596)
—
(14,223)
107,525
3,428
2021
(18,029)
113,679
3,456
10,525
(10,154)
117,506
116,652
15,731
115
(10,154)
122,344
4,838
2020
(19,572)
(18,029)
$
(19,572)
$
$
$
$
$
$
Table of Contents
NOTE 21. INCOME TAXES -- continued
Below are the actuarial weighted average assumptions used in determining the benefit obligation:
Discount rate
Rate of compensation increase
(1)
2021
2.80 %
— %
2020
2.48 %
— %
(1)
Rate of compensation increase is not applicable for 2021 and 2020 due to the 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)
Components of Net Periodic Pension Cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of prior service credit - DNB merger
Recognized net actuarial loss
Settlement charge
Net Periodic Pension Expense
Other Changes in Plan Assets and Benefit Obligation Recognized in Other Comprehensive Income (Loss)
Net actuarial loss/(gain)
Recognized net actuarial loss
Settlement loss recognized
Recognized prior service credit
Total (Before Tax Effects)
Total Recognized in Net Benefit Cost and Other Comprehensive Income/(Loss) (Before Tax Effects)
$
$
$
$
$
The following table summarizes the actuarial weighted average assumptions used in determining net periodic pension cost:
Discount rate
Rate of compensation increase
Expected return on assets
(1)
2021
2,950
(2,677)
—
1,051
1,629
2,953
1,137
(1,051)
(1,629)
—
(1,543)
1,410
$
$
$
$
$
2021
2.48 %
— %
2.42 %
$
$
$
$
$
2020
3,456
(3,925)
—
1,419
833
1,783
(1,282)
(1,419)
(833)
—
(3,534)
(1,751)
2020
3.25 %
— %
3.45 %
2019
3,987
(4,731)
7
1,604
—
867
2,370
(1,604)
—
—
766
1,633
2019
4.31 %
— %
4.80 %
(1)
Rate of compensation increase is not applicable for 2021, 2020, and 2019 due to the amendment to freeze benefit accruals under the qualified and nonqualified defined benefit pension plans effective March 31, 2016.
The accumulated benefit obligation for the Plan was $104.1 million at December 31, 2021 and $117.5 million at December 31, 2020.
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 2022.
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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)
2022
2023
2024
2025
2026
2027 - 2031
$
Amount
7,088
7,023
6,768
6,590
6,361
30,536
We also have nonqualified supplemental executive pension plans, or SERPs, for certain key employees. The SERPs are unfunded. The projected benefit obligations related to the
SERPs were $2.3 million and $5.6 million at December 31, 2021 and 2020. These amounts also represent the net amount recognized in the statement of financial position for the
SERPs. Net periodic benefit costs for the SERPs were $0.6 million for the year ended December 31, 2021 and $0.7 million for the year ended December 31, 2020 and $0.4 million for
the year ended December 31, 2019. Additionally, $0.4 million before tax was reflected in accumulated other comprehensive income (loss) at December 31, 2021 and $2.4 million at
December 31,2020 in relation to the SERPs. Net periodic benefit cost of $0.6 million for the year ended December 31, 2021 included a settlement charge of $0.3 million. The actuarial
assumptions used for the SERPs are the same as those used for the Plan.
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 $2.4 million in 2021 and 2020 and $2.0 million in 2019.
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, 2021 and 2020. During the years ended
December 31, 2021 and 2020 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 2021 or
2020.
(dollars in thousands)
Cash and cash equivalents
Fixed income
Equities:
(3)
(2)
Equity index mutual funds—international
Domestic individual equities
(5)
(4)
Total Assets at Fair Value
December 31, 2021
Fair Value Asset Classes
(1)
$
$
Level 1
3,759
93,495
3,043
7,228
107,525
$
$
Level 2
—
—
—
—
—
$
$
Level 3
—
—
—
—
—
$
$
Total
3,759
93,495
3,043
7,228
107,525
(1)
(2)
(3)
Refer to Note 1 Summary of Significant Accounting Policies, Fair Value Measurements for a description of levels within the fair value hierarchy.
This asset class includes FDIC insured money market instruments.
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.
This asset class includes individual domestic equities invested in an active all-cap strategy. It may also include convertible bonds.
(5)
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(dollars in thousands)
Cash and cash equivalents
Fixed income
Equities:
(3)
(2)
Equity index mutual funds—international
Domestic individual equities
(5)
(4)
Total Assets at Fair Value
December 31, 2020
Fair Value Asset Classes
(1)
$
$
Level 1
1,563
108,583
3,332
8,866
122,344
$
$
Level 2
—
—
—
—
—
$
$
Level 3
—
—
—
—
—
$
$
Total
1,563
108,583
3,332
8,866
122,344
(1)
(2)
Refer to Note 1 Summary of Significant Accounting Policies, Fair Value Measurements for a description of levels within the fair value hierarchy.
This asset class includes FDIC insured money market instruments.
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,
(3)
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.
This asset class includes individual domestic equities invested in an active all-cap strategy. It may also include convertible bonds.
(5)
NOTE 24. 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 2021, we granted 30,959 restricted shares of common stock under the 2021 Stock Plan.
In 2021, 2020 and 2019, we granted 99,711, 230,703 and 84,882 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:
2021 Stock Plan
Directors
Chief Executive Officer
Other Awards
2014 Stock Plan
Directors
Senior Management
Other Awards
Total Restricted Stock Grants
Vesting Period
One year
One year
Three years
One year
Three years
Three years
2021
14,650
8,309
8,000
—
78,769
20,942
130,670
December 31,
2020
—
—
—
23,153
123,881
83,669
230,703
2019
—
—
—
13,057
71,825
—
84,882
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.
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NOTE 23. EMPLOYEE BENEFITS -- continued
During 2021, 2020 and 2019, we recognized compensation expense of $2.4 million, $0.7 million and $2.4 million and realized a tax benefit of $0.5 million, $0.2 million and
$0.5 million related to restricted stock grants.
The following table provides information about restricted stock granted under the Plans for the years ended December 31:
Non-vested at December 31, 2019
Granted
Vested
Forfeited
Non-vested at December 31, 2020
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Restricted
Stock
182,035
230,703
77,317
58,741
276,680
130,670
71,152
57,810
278,388
$
Weighted Average
Grant Date
Fair Value
34.06
23.43
37.39
32.77
24.54
33.17
27.66
34.93
25.64
$
$
As of December 31, 2021, there was $3.6 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.
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NOTE 23. EMPLOYEE BENEFITS -- continued
NOTE 25. PARENT COMPANY CONDENSED FINANCIAL INFORMATION
The following condensed financial statements summarize the financial position of S&T Bancorp, Inc. as of December 31, 2021 and 2020 and the results of its operations and cash
flows for each of the three years ended December 31, 2021, 2020 and 2019.
BALANCE SHEETS
(dollars in thousands)
ASSETS
Cash
Investments in:
Bank subsidiary
Non-bank subsidiaries
Other assets
Total Assets
LIABILITIES
Long-term debt
Other liabilities
Total Liabilities
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
STATEMENTS OF NET INCOME
(dollars in thousands)
Dividends from subsidiaries
Investment income
Total Income
Interest expense on long-term debt
Other expenses
Total Expense
Income before income tax and undistributed net income of subsidiaries
Income tax benefit
Income before undistributed net income of subsidiaries
Equity in undistributed net income (distribution in excess of net income) of:
Bank subsidiary
Non-bank subsidiaries
Net Income
December 31,
2021
10,769
$
$
$
$
$
1,209,796
5,684
9,993
1,236,242
29,521
267
29,788
1,206,454
1,236,242
2020
6,585
1,168,831
10,493
8,614
1,194,523
39,317
495
39,812
1,154,711
1,194,523
2019
59,490
1
59,491
1,285
4,325
5,610
53,881
(1,189)
55,070
42,683
481
98,234
$
$
$
$
$
Years ended December 31,
2021
62,333
—
62,333
313
5,034
5,347
56,986
(1,140)
58,126
57,025
(4,808)
110,343
$
$
2020
59,315
—
59,315
1,696
4,464
6,160
53,155
(1,315)
54,470
(27,529)
(5,901)
21,040
$
$
116
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NOTE 23. EMPLOYEE BENEFITS -- continued
STATEMENTS OF CASH FLOWS
(dollars in thousands)
OPERATING ACTIVITIES
Net Income
Equity in undistributed (earnings) losses of subsidiaries
Other
Net Cash Provided by Operating Activities
INVESTING ACTIVITIES
Net investments in subsidiaries
Acquisitions
Net Cash Provided by Investing Activities
FINANCING ACTIVITIES
Repayment of long term debt
Sale of treasury shares, net
Purchase of treasury shares
Cash dividends paid to common shareholders
Payment to repurchase of warrant
Net Cash Used in Financing Activities
Net decrease in cash
Cash at beginning of year
Cash at End of Year
NOTE 26. REGULATORY MATTERS
Years ended December 31,
2021
110,343
(52,217)
761
58,887
—
—
—
(9,750)
(629)
—
(44,324)
—
(54,703)
4,184
6,585
10,769
$
$
2020
21,040
33,430
1,708
56,178
—
—
—
—
(594)
(12,559)
(43,949)
—
(57,102)
(924)
7,509
6,585
$
$
2019
98,234
(43,164)
(99)
54,971
176
(10)
166
—
(915)
(18,222)
(37,360)
—
(56,497)
(1,360)
8,869
7,509
$
$
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 2021 and 2020.
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 other comprehensive income 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, 2021 and 2020, we met all capital adequacy requirements to which we are subject.
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NOTE 24. INCENTIVE AND RESTRICTED STOCK PLAN AND DIVIDEND REINVESTMENT PLAN -- continued
The following table summarizes risk-based capital amounts and ratios for S&T and S&T Bank:
(dollars in thousands)
As of December 31, 2021
Leverage Ratio
S&T
S&T Bank
Common Equity Tier 1 (to Risk-Weighted Assets)
S&T
S&T Bank
Tier 1 Capital (to Risk-Weighted Assets)
S&T
S&T Bank
Total Capital (to Risk-Weighted Assets)
S&T
S&T Bank
As of December 31, 2020
Leverage Ratio
S&T
S&T Bank
Common Equity Tier 1 (to Risk-Weighted Assets)
S&T
S&T Bank
Tier 1 Capital (to Risk-Weighted Assets)
S&T
S&T Bank
Total Capital (to Risk-Weighted Assets)
S&T
S&T Bank
Actual
Minimum
Regulatory Capital
Requirements
To be
Well Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
$
889,785
864,127
860,785
864,127
889,785
864,127
987,420
961,762
852,515
810,636
796,515
810,636
825,515
810,636
944,686
922,007
365,535
365,544
322,109
321,711
429,479
428,948
572,638
571,931
350,311
349,739
316,338
315,792
421,784
421,056
562,379
561,408
9.74 %
9.46 %
$
12.03 %
12.09 %
12.43 %
12.09 %
13.79 %
13.45 %
9.43 %
9.27 %
$
11.33 %
11.55 %
11.74 %
11.55 %
13.44 %
13.14 %
118
$
$
4.00 %
4.00 %
4.50 %
4.50 %
6.00 %
6.00 %
8.00 %
8.00 %
4.00 %
4.00 %
4.50 %
4.50 %
6.00 %
6.00 %
8.00 %
8.00 %
456,918
456,930
465,268
464,694
572,638
571,931
715,798
714,913
437,889
437,174
456,933
456,144
562,379
561,408
702,974
701,760
5.00 %
5.00 %
6.50 %
6.50 %
8.00 %
8.00 %
10.00 %
10.00 %
5.00 %
5.00 %
6.50 %
6.50 %
8.00 %
8.00 %
10.00 %
10.00 %
Table of Contents
NOTE 27. SHARE REPURCHASE PLAN
On March 15, 2021, our Board of Directors authorized an extension of its $50 million share repurchase plan, which was set to expire March 31, 2021. This authorization extended
the expiration date of the repurchase plan through March 31, 2022. The plan permits S&T to repurchase from time to time up to the previously authorized $50 million in aggregate
value of shares of S&T's common stock, with $37.4 million of capacity remaining at December 31, 2021, 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.
During the twelve months ended December 31, 2021, we had no repurchases. Repurchase activity was suspended in March of 2020 due to the impact of the COVID-19 pandemic.
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NOTE 25. PARENT COMPANY CONDENSED FINANCIAL INFORMATION -- continued
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. (the Company) as of December 31, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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, 2021, 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 28, 2022 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-13
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses in 2020 due to the adoption of ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
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.
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NOTE 26. REGULATORY MATTERS -- continued
Allowance for Credit Losses (“ACL”)
Description of the Matter
At December 31, 2021, the Company’s gross portfolio of loans was $7.0 billion with an associated ACL of $98.6 million. As discussed in Note 1 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 or a charge-off is appropriate.
How We Addressed the
Matter in Our Audit
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
portion of the qualitative allowance.
Auditing the ACL involves a high degree of subjectivity due to the segment specific risk portion of the qualitative allowance. Management’s
identification and measurement of the segment specific risk is highly judgmental and could have a significant effect on the ACL.
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 portion of the
qualitative allowance and the reliability of the data utilized to support management’s assessment.
To test the segment specific risk portion 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 portion 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 28, 2022
121
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To the Shareholders and the Board of Directors of S&T Bancorp, Inc.
Opinion on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited S&T Bancorp, Inc.’s internal control over financial reporting as of December 31, 2021, 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. (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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, 2021 and 2020, 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, 2021, and the related notes and our report dated February 28, 2022 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 28, 2022
122
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
123
Item 9A. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of S&T’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal
financial officer), management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of December 31, 2021. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange
Commission, or the SEC, and that such information is accumulated and communicated to S&T’s management, including our CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure.
Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective in all material
respects, as of the end of the period covered by this Report.
b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
Management assessed S&T’s system of internal control over financial reporting as of December 31, 2021, in relation to criteria for effective internal control over financial reporting as
described in “Internal Control Integrated Framework (2013),” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on this
assessment, management concludes that, as of December 31, 2021, S&T’s system of internal control over financial reporting is effective and meets the criteria of the “Internal Control
Integrated Framework (2013).”
Management assessed the effectiveness of S&T's internal control over financial reporting as of December 31, 2021, in relation to criteria for effective internal control over
financial reporting as described in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
Based on this assessment, management concluded that, as of December 31, 2021, S&T's internal controls over financial reporting were effective. Our independent registered public
accounting firm, has issued a report on the effectiveness of S&T’s internal control over financial reporting as of December 31, 2021, which is included herein.
c) Changes in Internal Control Over Financial Reporting
No changes were made to S&T’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the last fiscal quarter that materially
affected, or are reasonably likely to materially affect, S&T’s internal control over financial reporting.
124
Item 9B. OTHER INFORMATION
Not applicable
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
125
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by Part III, Item 10 of Form 10-K is incorporated herein from the sections entitled “Beneficial Ownership of S&T Common Stock by Directors and
Officers - Delinquent Section 16(a) Reports,” “Proposal 1 -- Election of Directors,” “Executive Officers of the Registrant,” “Corporate Governance --Audit Committee,” “Corporate
Governance - Director Qualifications and Nominations: Board Diversity” and “Corporate Governance --Code of Conduct and Ethics” in our proxy statement relating to our May 16,
2022 annual meeting of shareholders.
Item 11. EXECUTIVE COMPENSATION
The information required by Part III, Item 11 of Form 10-K is incorporated herein from the sections entitled “Compensation Discussion and Analysis,” “Executive
Compensation,” “Director Compensation,” “Corporate Governance -- Compensation Committee Interlocks and Insider Participation,” “Corporate Governance - The S&T Board’s Role
in Risk Oversight” and “Compensation and Benefits Committee Report” in our proxy statement relating to our May 16, 2022 annual meeting of shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Except as set forth below, the information required by Part III, Item 12 of Form 10-K is incorporated herein from the sections entitled “Beneficial Owners of S&T Common Stock”
and “Beneficial Ownership of S&T Common Stock by Directors and Officers” in our proxy statement relating to our May 16, 2022 annual meeting of shareholders.
Equity Compensation Plan Information
The following table provides information as of December 31, 2021 related to the equity compensation plans in effect at that time.
Plan category
Equity compensation plan approved by shareholders
Equity compensation plans not approved by shareholders
Total
(a)
(b)
(c)
Number of securities to be issued upon
exercise of outstanding options,
(1)
warrants and rights
Weighted average exercise price of
outstanding options, warrants
and rights
(2)
100,542
—
100,542
$
—
—
Number of securities remaining
available for future issuance under
equity compensation plan (excluding
securities reflected in column (a))
969,041
—
969,041
(1)
(2)
Awards granted under the 2014 Incentive Stock Plan.
Represents performance shares that can be earned with no associated exercise price.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Part III, Item 13 of Form 10-K is incorporated herein from the sections entitled “Related Person Transactions” and “Corporate Governance -- Director
Independence” in our proxy statement relating to our May 16, 2022 annual meeting of shareholders.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Part III, Item 14 of Form 10-K is incorporated herein from the section entitled “Proposal 2: Ratification of the Selection of Independent Registered
Public Accounting Firm for Fiscal Year 2022” in our proxy statement relating to our May 16, 2022 annual meeting of shareholders.
126
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report.
PART IV
Consolidated Financial Statements: The following Consolidated Financial Statements are included in Part II, Item 8 of this Report. No financial statement schedules are being filed
because the required information is inapplicable or is presented in the Consolidated Financial Statements or related notes.
Consolidated Balance Sheets
Consolidated Statements of Net Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
127
59
60
61
62
63
65
123
125
(b) Exhibits
2.1
2.2
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Agreement and Plan of Merger, dated as of October 29, 2014, between S&T Bancorp, Inc. and Integrity Bancshares, Inc. Filed as Exhibit 2.1 to S&T
Bancorp, Inc. Current Report on Form 8-K filed on October 30, 2014, and incorporated herein by reference.
Agreement and Plan of Merger, dated June 5, 2019, by and between DNB Financial Corporation and S&T Bancorp, Inc. Filed as Exhibit 2.1 to S&T
Bancorp, Inc. Current Report on Form 8-K filed on June 5, 2019, and incorporated herein by reference.
Amended and Restated Articles of Incorporation of S&T Bancorp, Inc. Filed as Exhibit 3.1 to S&T Bancorp, Inc. Quarterly Report on Form 10-Q filed
for the quarter ended June 30, 2021 filed on August 4, 2021, and incorporated herein by reference.
Amended and Restated By-laws of S&T Bancorp, Inc. Filed as Exhibit 3.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on December 23,
2020, and incorporated herein by reference.
The Company has certain long-term debt but has not filed the instruments evidencing such debt as Exhibit 4 as none of such instruments authorize the
issuance of debt exceeding 10 percent of the Companies total consolidated assets. The Company agrees to furnish a copy of each such agreement to the
Securities and Exchange Commission upon request.
Description of Securities. Filed as Exhibit 4.1 to S&T Bancorp, Inc. Annual Report on Form 10-K for year ended December 31, 2019, and incorporated
herein by reference
S&T Bancorp, Inc. 2003 Incentive Stock Plan. Filed as Exhibit 4.2 to Form S-8 Registration Statement (No. 333-111557) of S&T Bancorp, Inc. dated
December 24, 2003, and incorporated herein by reference.*
S&T Bancorp, Inc. Thrift Plan for Employees of S&T Bank, as amended and restated. Filed as Exhibit 4.2 to Form S-8 Registration Statement (No.
333-156541) of S&T Bancorp, Inc. dated December 31, 2008, and incorporated herein by reference.*
Dividend Reinvestment and Stock Purchase Plan of S&T Bancorp, Inc. Filed as Exhibit 4.2 to Form S-3D Registration Statement (No. 333-156555) of
S&T Bancorp, Inc. dated January 2, 2009 (included within the prospectus contained therein), and incorporated herein by reference.
Severance Agreement, by and between Todd D. Brice and S&T Bancorp, Inc. dated April 7, 2015. Filed as Exhibit 10.1 to S&T Bancorp, Inc. Current
Report on Form 8-K filed on August 10, 2015, and incorporated herein by reference.*
Letter Agreement, dated as of October 2, 2020, by and between S&T Bancorp, Inc. and Todd D. Brice. Filed as Exhibit 10.1 to S&T Bancorp, Inc.
Current Report on Form 8-K filed on October 2, 2020, and incorporated herein by reference.*
Confidentiality, Trade Secrets, Non-Solicitation and Severance Agreement, dated October 14, 2020, by and between David G. Antolik and S&T
Bancorp, Inc. Filed as Exhibit 10.3 to S&T Bancorp, Inc. Current Report on Form 8-K filed on October 16, 2020, and incorporated herein by
reference.*
Restricted Stock Award Agreement David G. Antolik, dated October 12, 2020. Filed as Exhibit 10.1 to S&T Bancorp, Inc. Current Report on Form 8-K
filed on October 16, 2020, and incorporated herein by reference.*
Confidentiality, Trade Secrets, Non-Solicitation and Severance Agreement, dated October 14, 2020, by and between Mark Kochvar and S&T Bancorp,
Inc. Filed as Exhibit 10.4 to S&T Bancorp, Inc. Current Report on Form 8-K filed on October 16, 2020.*
Restricted Stock Award Agreement Mark Kochvar, dated October 12, 2020. Filed as Exhibit 10.2 to S&T Bancorp, Inc. Current Report on Form 8-K
filed on October 16, 2020, and incorporated herein by reference.*
10.10
S&T Bancorp, Inc. 2014 Incentive Plan. Filed as Exhibit 10.9 to S&T Bancorp, Inc. Annual Report on Form 10-K for the year ended December 31,
2013, and incorporated herein by reference. *
128
(b) Exhibits
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
21
23.1
31.1
31.2
32
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Severance and General Release Agreement, dated August 4, 2020, by and between David P. Ruddock and S&T Bancorp, Inc., S&T Bank and any of
their subsidiaries or affiliated business. Filed as Exhibit 10.1 to S&T Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2020,
and incorporated herein by reference *
Confidentiality, Trade Secrets, Non-Solicitation and Severance Agreement, dated November 2, 2020, by and between Ernest J. Draganza and S&T
Bancorp, Inc., S&T Bank and their subsidiaries and affiliated companies. Filed as Exhibit 10.2 to S&T Bancorp, Inc. Quarterly Report on Form 10-Q
for the quarter ended September 30, 2020, and incorporated herein by reference.*
Confidentiality, Trade Secrets, Non-Solicitation and Severance Agreement, October 21, 2020, by and between George Basara and S&T Bancorp, Inc.
Filed as Exhibit 10.1 to S&T Bancorp, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and incorporated herein by
reference.*
Severance Agreement dated April 20, 2015 by and between George Basara and S&T Bancorp, Inc. Filed as Exhibit 10.2 to S&T Bancorp, Inc.
Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and incorporated herein by reference.*
S&T Bancorp, Inc. 2021 Incentive Plan. Filed as Exhibit 10.1 to S&T Bancorp, Inc. Current Report on Form 8-K filed on May 20, 2021, and
incorporated herein by reference.*
Severance and General Release Agreement, by and between Ernest J. Draganza and S&T Bancorp, Inc. Filed as Exhibit 10.1 to S&T Bancorp, Inc.
Current Report on Form 8-K filed on June 3, 2021, and incorporated herein by reference.*
Employment Agreement, dated July 12, 2021, by and between S&T Bancorp, Inc. and Christopher J. McComish. Filed as Exhibit 10.1 to S&T
Bancorp, Inc. Current Report on Form 8-K filed on July 12, 2021, and incorporated herein by reference.*
Employment Agreement, dated July 12, 2021, by and between S&T Bancorp, Inc. and David G. Antolik Filed as Exhibit 10.2 to S&T Bancorp, Inc.
Current Report on Form 8-K filed on July 12, 2021, and incorporated herein by reference.*
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Rule 13a-14(a) Certification of the Principal Executive Officer.
Rule 13a-14(a) Certification of the Principal Financial Officer.
Rule 13a-14(b) Certification of the Chief Executive Officer and Principal Financial Officer.
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XBRL document
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104
Cover Page Interactive Data File ((formatted as Inline XBRL and contained in Exhibits 101))
*Management Contract or Compensatory Plan or Arrangement
129
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
/s/ Christopher J. McComish
Christopher J. McComish, Chief Executive Officer (Principal Executive Officer)
S&T BANCORP, INC.
(Registrant)
/s/ Mark Kochvar
Mark Kochvar
Senior Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
2/28/2022
Date
2/28/2022
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURE
TITLE
Chief Executive Officer (Principal Executive Officer)
DATE
2/28/2022
/s/ Christopher J. McComish
Christopher J. McComish
/s/ Mark Kochvar
Mark Kochvar
/s/ Melanie Lazzari
Melanie Lazzari
/s/ David G. Antolik
David G. Antolik
/s/ Christine J. Toretti
Christine J. Toretti
/s/ Lewis W. Adkins Jr
Lewis W. Adkins Jr.
/s/ Peter R. Barsz
Peter R. Barsz
Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)
2/28/2022
Executive Vice President, Controller
President and Director
Chair of the Board and Director
Director
Director
130
2/28/2022
2/28/2022
2/28/2022
2/28/2022
2/28/2022
SIGNATURE
/s/ Christina A. Cassotis
Christina A. Cassotis
/s/ Michael J. Donnelly
Michael J. Donnelly
/s/ Jeffrey D. Grube
Jeffrey D. Grube
/s/ William J. Hieb
William J. Hieb
/s/ Robert E. Kane
Robert E. Kane
/s/ Frank J. Palermo, Jr.
Frank J. Palermo, Jr.
/s/ Steven J. Weingarten
Steven J. Weingarten
Director
Director
Director
Director
Director
Director
Director
131
TITLE
DATE
2/28/2022
2/28/2022
2/28/2022
2/28/2022
2/28/2022
2/28/2022
2/28/2022
SUBSIDIARIES OF THE REGISTRANT
S&T Bancorp, Inc., a Pennsylvania corporation, is a financial holding company. The table below sets forth all of our subsidiaries, except certain inactive subsidiaries, as to state or
Exhibit 21
jurisdiction of organization.
Subsidiary
S&T Bank
9th Street Holdings, Inc.
S&T Bancholdings, Inc.
S&T Insurance Group, LLC
S&T Professional Resources Group, LLC
S&T-Evergreen Insurance, LLC (sold 1/1/2018)
S&T Settlement Services, LLC
Stewart Capital Advisors, LLC
STBA Capital Trust I
Commonwealth Trust Credit Life Insurance Company
DNB Capital Trust I
DNB Capital Trust II
DN Acquisition Company, Inc.
State or Jurisdiction of Organization
Pennsylvania
Delaware
Delaware
Pennsylvania
Pennsylvania
Pennsylvania
Pennsylvania
Pennsylvania
Delaware
Arizona
Delaware
Delaware
Pennsylvania
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
1. Registration Statement (Form S-3 No. 333-258470) of S&T Bancorp, Inc. pertaining to the automatic shelf registration filed August 5, 2021,
2. Registration Statement (Form S-3 No. 333-156555) of S&T Bancorp, Inc. pertaining to the Dividend Reinvestment and Stock Purchase Plan,
3. Registration Statement (Form S-8 No. 333-194083) of S&T Bancorp, Inc. pertaining to the 2014 Incentive Plan filed on February 21, 2014,
4. Registration Statement (Form S-8 No. 333- 258482) of S&T Bancorp, Inc. pertaining to the 2021 Incentive Plan filed on August 5, 2021, and
5. Registration Statement (Form S-8 No. 333-156541) of S&T Bancorp, Inc. pertaining to the Thrift Plan for Employees of S&T Bank;
of our reports dated February 28, 2022, with respect to the consolidated financial statements of S&T Bancorp, Inc. and the effectiveness of internal control over financial reporting of
S&T Bancorp, Inc. included in this Annual Report (Form 10-K) of S&T Bancorp, Inc. for the year ended December 31, 2021.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 28, 2022
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Christopher J. McComish, certify that:
1. I have reviewed this Annual Report on Form 10-K of S&T Bancorp, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: February 28, 2022
/s/ Christopher J. McComish
Christopher J. McComish
Chief Executive Officer (Principal Executive Officer)
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Mark Kochvar, certify that:
1. I have reviewed this Annual Report on Form 10-K of S&T Bancorp, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report), that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and
the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: February 28, 2022
/s/ Mark Kochvar
Mark Kochvar
Senior Executive Vice President, Chief Financial Officer
Exhibit 32
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
SARBANES-OXLEY ACT SECTION 906
Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the S&T Bancorp, Inc. (the “Company”) Annual Report
on Form 10-K for the period ending December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christopher J. McComish Chief
Executive Officer (Principal Executive Officer) of the Company, and I, Mark Kochvar, Senior Executive Vice President, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and
period covered by the report.
This certificate is being made for the exclusive purpose of compliance by the Chief Executive Officer and Chief Financial Officer of the Company with the requirements of
Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.
Date: February 28, 2022
/s/ Christopher J. McComish
Christopher J. McComish
Chief Executive Officer (Principal Executive Officer)
/s/ Mark Kochvar
Mark Kochvar
Senior Executive Vice President, Chief Financial Officer