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What changed in S&T BANCORP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of S&T BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+367 added−344 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-24)

Top changes in S&T BANCORP INC's 2023 10-K

367 paragraphs added · 344 removed · 211 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

56 edited+12 added−12 removed99 unchanged
Biggest changeThe agencies invited public comment through August 5, 2022 on their joint proposal, which has the following key elements: • Expand access to credit, investment and basic banking services in low-and moderate-income communities. • Adapt to changes in the banking industry, including internet and mobile banking. • Provide greater clarity, consistency and transparency. • Tailor CRA evaluations and data collection to bank size and type. • Maintain a unified approach.
Biggest changeThe changes are designed to encourage banks to expand access to credit, investment and banking services in LMI communities, adapt to changes in the banking industry, including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type.
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.
AND SUBSIDIARIES 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 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.
AND SUBSIDIARIES 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.
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.
AND SUBSIDIARIES 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.
Second, the proposed change in assessment rates is further intended to support growth in the DIF in progressing toward the 2 percent Designated Reserve Ratio, or DRR, established by the FDIC. The FDIC has indicated that the proposed assessment rate schedules will remain in effect unless and until the DRR meets or exceeds 2 percent, absent further FDIC action.
Second, the proposed change in assessment rates is further intended to support growth in the DIF in progressing toward the 2 percent Designated Reserve Ratio, or DRR, established by the FDIC. The FDIC has indicated that the new assessment rate schedules will remain in effect unless and until the DRR meets or exceeds 2 percent, absent further FDIC action.
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.
AND SUBSIDIARIES 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.
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.
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, New York, West Virginia, New Jersey, Delaware and Maryland.
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.
AND SUBSIDIARIES 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.
Cybersecurity We are subject to a variety of regulatory expectations and requirements regarding cybersecurity and privacy. Federal regulators have issued statements regarding cybersecurity addressing the controls that financial institutions should design and business continuity planning and recovery processes that should be in place.
Cybersecurity We are subject to a variety of regulatory expectations and requirements regarding cybersecurity and data privacy. Federal regulators have issued statements regarding cybersecurity addressing the controls that financial institutions should design and business continuity planning and recovery processes that should be in place.
AND SUBSIDIARIES The purpose of the CRA is to help address inequities in credit access for low- and moderate-income (LMI) individuals and communities. It is designed to encourage regulated banks to help meet the credit needs of the local communities in which they are chartered.
The purpose of the CRA is to help address inequities in credit access for low- and moderate-income (LMI) individuals and communities. It is designed to encourage regulated banks to help meet the credit needs of the local communities in which they are chartered.
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.
AND SUBSIDIARIES 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.
As of December 31, 2022, 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. Refer to the above section titled Capital within this Item 1.
As of December 31, 2023, 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. Refer to the above section titled Capital within this Item 1.
AND SUBSIDIARIES The FDIC may terminate the deposit insurance of any insured depository institution if it determines, after hearing that the institution has engaged in unsafe or unsound practices, that the institution 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.
The FDIC may terminate the deposit insurance of any insured depository institution if it determines, after hearing that the institution has engaged in unsafe or unsound practices, that the institution 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.
AND SUBSIDIARIES 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, 2022, 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 Financials, SEC Filings.
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, 2023, 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 Financials, SEC Filings.
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.
Insurance of Accounts; Depositor Preference The deposits of S&T Bank are insured up to applicable limits per insured depositor by the Deposit Insurance Fund, or 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.
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.
S&T Bancorp, Inc. has four active direct wholly-owned subsidiaries including S&T Bank, 9th Street Holdings, Inc., STBA Capital Trust I and DNB Capital Trust II, and owns a 50 percent interest in Commonwealth Trust Credit Life Insurance Company, or CTCLIC.
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 $2.2 billion at December 31, 2022.
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 $2.2 billion at December 31, 2023.
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.
AND SUBSIDIARIES 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.
Refer to Note 25 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.
Refer to Note 23 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.
The DEI Advisory Council is co-chaired by our Chief Executive Officer and Chief Human Resources Officer and is made up of colleagues from departments across our organization. We have conducted an ongoing S&T Commemorates webinar series that is designed to explore a wide scope of DEI topics.
The DEI Advisory Council is co-chaired by our Chief Executive Officer and Chief Human Resources Officer and is made up of colleagues from departments across our organization. We conduct an ongoing S&T Commemorates webinar series that is designed to explore a wide scope of DEI topics.
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. As of December 31, 2022, we had approximately 1,182 full time equivalent employees. Our Team and Culture Our purpose is building a better future together through people-forward banking.
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. As of December 31, 2023, we had approximately 1,244 full time equivalent employees. Our Team and Culture Our purpose is building a better future together through people-forward banking.
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.
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 and regulations designed to protect consumers and promote lending to various sectors of the economy and population.
AND SUBSIDIARIES 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’ 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. 8 Table of Contents S&T BANCORP, INC.
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.
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.
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, 2022, both S&T and S&T Bank met the applicable minimum regulatory capital requirements.
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. On December 31, 2023, both S&T and S&T Bank met the applicable minimum regulatory capital requirements.
As of December 31, 2022, we had approximately $9.1 billion in assets, $7.2 billion in total loans, $7.2 billion in deposits and $1.2 billion in shareholders’ equity. S&T Bank is a full-service bank that operates in Pennsylvania and Ohio. S&T Bank deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent provided by law.
As of December 31, 2023, we had approximately $9.6 billion in assets, $7.7 billion in total loans, $7.5 billion in deposits and $1.3 billion in shareholders’ equity. S&T Bank is a full-service bank that operates in Pennsylvania and Ohio. S&T Bank deposits are insured by the Federal Deposit Insurance Corporation, or FDIC, to the maximum extent provided by law.
Banking entities had until July 21, 2017 to conform their activities to the requirements of the rule. Since 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.
Banking entities had until July 21, 2017 to conform their activities to the requirements of the rule. Since 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. 10 Table of Contents S&T BANCORP, INC.
The charters of the Audit Committee, the Compensation and Benefits Committee, the Credit Risk Committee, the Executive Committee, the Nominating and Corporate Governance 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 Governance.
The charters of the Audit Committee, the Compensation and Benefits Committee, the Credit Risk Committee, the Executive Committee, the Nominating and Corporate Governance 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 Governance. 3 Table of Contents S&T BANCORP, INC.
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 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES 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.
The likelihood and timing of any changes and the impact such changes might have on S&T is impossible to determine with any certainty. 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.
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.
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. 5 Table of Contents S&T BANCORP, INC.
Business section for capital requirements. 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. 9 Table of Contents S&T BANCORP, INC.
Business section for capital requirements. 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 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.
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 LMI neighborhoods.
Under the new rule, the total base assessment rates on an annualized basis range from 2.5 basis points for certain “well-capitalized,” “well-managed” banks, with the highest ratings, to 42 basis points for complex institutions posing the most risk to the DIF, compared to the 2022 rates that ranged from 1.5 to 40. 7 Table of Contents S&T BANCORP, INC.
Under the new rule, the total base assessment rates on an annualized basis range from 2.5 basis points for certain “well-capitalized,” “well-managed” banks, with the highest ratings, to 42 basis points for complex institutions posing the most risk to the DIF, compared to the 2022 rates that ranged from 1.5 to 40.
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 prohibit discrimination in the provision of bank's lending practices, and the enforcement of these laws has been a focus for bank regulators.
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. 10 Table of Contents S&T BANCORP, INC.
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.
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.
While many requirements called for in the Dodd-Frank Act have been implemented, these regulations are subject to continuing interpretation and potential amendment.
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.
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. 4 Table of Contents S&T BANCORP, INC.
In every case, we seek the right solutions based on a holistic understanding of the opportunities ahead of us. 3 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Value Every Voice We stand for inclusivity, accessibility and opportunity. We listen for forward-looking ideas to better ourselves and improve our experience.
In every case, we seek the right solutions based on a holistic understanding of the opportunities ahead of us. Value Every Voice We stand for inclusivity, accessibility and opportunity. We listen for forward-looking ideas to better ourselves and improve our experience.
AND SUBSIDIARIES Additionally, the FDIC, OCC and Federal Reserve Board issued a final rule effective April 1, 2022, with compliance by May 1, 2022, requiring banking organizations that experience a computer-security incident to notify its federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident has occurred.
Additionally, the FDIC, OCC and Federal Reserve Board issued a final rule that became effective in May 2022, requiring banking organizations that experience a computer-security incident to notify certain entities and its federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident has occurred.
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.
Many customers now expect 11 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES 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.
And we always welcome an honest and open dialogue with our colleagues, customers and the community at large. Win as One Team We function as one connected team working together to deliver a seamless experience.
And we always welcome an honest and open dialogue with our colleagues, customers and the community at large. 2 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Win as One Team We function as one connected team working together to deliver a seamless experience.
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 final rule also 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.
In 2022, our employees logged approximately 70,087 training hours, on average 59 hours per employee, which is an increase of approximately 9 percent compared to 2021. Safety, Health and Wellness The safety, health and well being of our employees is a top priority.
In 2023, our employees logged approximately 78,532 training hours, on average 63 hours per employee, which is an increase of approximately 7 percent compared to 2022. Safety, Health and Wellness The safety, health and well-being of our employees is a top priority.
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. 13 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES
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.
The compliance date of the final rules was October 1, 2022. 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.
The compliance date of the final rules was October 1, 2022. These rules did not have a material impact on our mortgage business. 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.
Consistent with the amended restoration plan, in October 2022, the FDIC adopted a final rule, applicable to all insured depository institutions, to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023 (January 1 through March 31, 2023).
The new rule, applicable to all insured depository institutions, increased the initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023 (January 1 through March 31, 2023).
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 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.
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.
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 7 Table of Contents S&T BANCORP, INC.
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.
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. 6 Table of Contents S&T BANCORP, INC.
We actively monitor developments regarding regulatory expectations and federal and state requirements with respect to cybersecurity and data breach notifications.
State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations, including data breach notification requirements. We actively monitor developments regarding regulatory expectations and federal and state requirements with respect to cybersecurity and data breach notifications.
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 Table of Contents S&T BANCORP, INC.
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. 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.
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. 11 Table of Contents S&T BANCORP, INC.
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. During 2013, the CFPB issued a series of final rules related to mortgage loan origination and mortgage loan servicing, which became effective in 2014.
As part of its semiannual update of the restoration plan established by the FDIC to facilitate restoration of the reserve ratio of the DIF to the statutory minimum in the mandated time frame, in June 2022 the FDIC approved an amended restoration plan and proposed an increase in the initial base deposit insurance assessment rate schedules.
As part of its semiannual update of the restoration plan established by the FDIC to facilitate restoration of the reserve ratio of the DIF to the statutory minimum in the mandated time frame the FDIC adopted a final rule in October 2022.
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. Several attempts have been made by one or more of the agencies to modernize the CRA regulations.
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 performance evaluation. More recently, on October 24, 2023, the FDIC, OCC and FRB jointly issued a final rule to the CRA designed to strengthen and modernize the regulations implementing the CRA.
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 8 Table of Contents S&T BANCORP, INC.
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 interest, less applicable regulatory adjustments and deductions including goodwill, intangible assets subject to limitation and certain deferred tax assets subject to limitation.
The following table summarizes the leverage and risk-based capital ratios for S&T and S&T Bank: Actual Minimum Regulatory Capital Requirements To be Well Capitalized Under Prompt Corrective Action Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 2022 Leverage Ratio S&T $ 967,708 11.06 % $ 349,914 4.00 % $ 437,392 5.00 % S&T Bank 938,377 10.73 % 349,746 4.00 % 437,182 5.00 % Common Equity Tier 1 (to Risk-Weighted Assets) S&T 938,708 12.81 % 329,701 4.50 % 476,235 6.50 % S&T Bank 938,377 12.81 % 329,565 4.50 % 476,038 6.50 % Tier 1 Capital (to Risk-Weighted Assets) S&T 967,708 13.21 % 439,602 6.00 % 586,135 8.00 % S&T Bank 938,377 12.81 % 439,420 6.00 % 585,893 8.00 % Total Capital (to Risk-Weighted Assets) S&T 1,078,897 14.73 % 586,135 8.00 % 732,669 10.00 % S&T Bank 1,049,566 14.33 % 585,893 8.00 % 732,367 10.00 % 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 following table summarizes the leverage and risk-based capital ratios for S&T and S&T Bank: Actual Minimum Regulatory Capital Requirements To be Well Capitalized Under Prompt Corrective Action Provisions (dollars in thousands) Amount Ratio Amount Ratio Amount Ratio As of December 31, 2023 Leverage Ratio S&T $ 1,034,828 11.21 % $ 369,297 4.00 % $ 461,621 5.00 % S&T Bank 995,824 10.79 % 369,133 4.00 % 461,416 5.00 % Common Equity Tier 1 (to Risk-Weighted Assets) S&T 1,010,828 13.37 % 340,159 4.50 % 491,341 6.50 % S&T Bank 995,824 13.18 % 339,954 4.50 % 491,045 6.50 % Tier 1 Capital (to Risk-Weighted Assets) S&T 1,034,828 13.69 % 453,545 6.00 % 604,727 8.00 % S&T Bank 995,824 13.18 % 453,272 6.00 % 604,362 8.00 % Total Capital (to Risk-Weighted Assets) S&T 1,154,376 15.27 % 604,727 8.00 % 755,909 10.00 % S&T Bank 1,115,315 14.76 % 604,362 8.00 % 755,453 10.00 % 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.
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We believe in the education and offering of programs and initiatives that make lasting positive impacts in the lives of our employees. 4 Table of Contents S&T BANCORP, INC.
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The discussion of the regulations applicable to S&T provided below is based on our status as an institution with less than $10 billion in assets. If S&T’s assets cross the $10 billion threshold, we will be subject to different and additional regulations than those described below.
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AND SUBSIDIARIES 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.
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S&T’s total assets were below $10 billion at December 31, 2023. In November 2023, the FDIC approved a final rule to implement special assessments to recover the loss to the DIF associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank.
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AND SUBSIDIARIES interest, less applicable regulatory adjustments and deductions including goodwill, intangible assets subject to limitation and certain deferred tax assets subject to limitation.
Added
The assessment base for the special assessment is equal to estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion.
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On May 5, 2022, the FDIC, OCC and FRB jointly issued a proposal to strengthen and modernize regulations implementing the CRA to better achieve the purposes of the law.
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The special assessment will be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods, beginning in the first quarterly assessment period of 2024 (January 1 through March 31, 2024). Because the Bank's uninsured deposits were below $5 billion at December. 31, 2022, this special assessment is not applicable to S&T.
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Final regulations have not yet been adopted. Also, on September 15, 2022 legislation was introduced by Maxine Waters (D-Cal.), chair of the House Committee on Financial Services, that would significantly revise the CRA, adding a number of new substantive and procedural requirements.
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It also may suspend deposit insurance temporarily during the hearing process if the institution has no tangible capital.
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While the future of such legislation is uncertain, it may impact the timing of any final CRA regulations by the agencies. We will continue to monitor any changes to the regulations implementing the CRA or proposed changes to the CRA in light of increased focus on modernizing the rules.
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AND SUBSIDIARIES 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.
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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.
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Most of the final rule’s requirements will be applicable beginning in January 2026, while the remaining requirements, including data reporting requirements, will be applicable in January 2027. 9 Table of Contents S&T BANCORP, INC.
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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.
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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”) with a limit based on the loan’s pricing.
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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.
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This rule also requires banking organizations to notify their customers of a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.
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AND SUBSIDIARIES During 2013, the CFPB issued a series of final rules related to mortgage loan origination and mortgage loan servicing, which became effective in 2014.
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Moreover, in March 2022, the Cyber Incident Reporting for Critical Infrastructure Act was enacted and once final rules are adopted, will require certain covered entities to report a covered cyber incident to the U.S. Department of Homeland Security’s Cybersecurity & Infrastructure Security Agency, or CISA, within 72 hours after a covered entity reasonably believes an incident has occurred.
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These rules did not have a material impact on our mortgage business.
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Separate reporting to CISA will also be required within 24 hours if a ransom payment is made as a result of a ransomware attack.
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State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations, including data breach notification requirements. 12 Table of Contents S&T BANCORP, INC.
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Furthermore, in September 2023, the SEC’s Cybersecurity Risk Management, Strategy, Governance and Incident Disclosure rules went into effect now requiring, among other disclosure obligations, companies to publicly disclose the occurrence of a material cybersecurity incident, including the material aspects of the nature, scope and timing of the incident and the material impact on the company including financial condition and results of operation beginning with any material cybersecurity incidents occurring on or after December 18, 2023.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

41 edited+24 added−14 removed96 unchanged
Biggest changeIncreased cost of borrowings, additional borrowings and increased leverage, drawdowns from savings and business disruption, financial difficulties, or business losses, particularly for borrowers in our C&I or CRE portfolio, could increase the risk of our customers defaulting or becoming delinquent in their obligations to us, which could increase credit losses and adversely affect our credit portfolios and provision for credit losses.
Biggest changeThe following could increase the risk of our customers defaulting or becoming delinquent in their obligations to us, which could increase credit losses and adversely affect our credit portfolios and provision for credit losses: (i) increased cost of borrowings, (ii) additional borrowings and increased leverage, (iii) drawdown from savings due to business disruption, (iv) financial difficulties, or (v) business losses, particularly for borrowers in our C&I or CRE portfolio.
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.
While we believe we have operational risk controls in place to prevent or detect 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.
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.
AND SUBSIDIARIES 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.
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. 19 Table of Contents S&T BANCORP, INC.
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. 18 Table of Contents S&T BANCORP, INC.
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.
AND SUBSIDIARIES 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.
Refer to the risk factor titled, “We rely on third-party providers for a number of services that are important to our business. An interruption or cessation of an important service by any third-party provider could have a material adverse effect on our business.” for additional information.
Refer to the risk factor titled, “We rely on certain critical third-party providers for a number of services that are important to our business. An interruption or cessation of an important service by any third-party provider could have a material adverse effect on our business.” for additional information.
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. 17 Table of Contents S&T BANCORP, INC.
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. 16 Table of Contents S&T BANCORP, INC.
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. 18 Table of Contents S&T BANCORP, INC.
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. 17 Table of Contents S&T BANCORP, INC.
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.
There can be no assurance that we will not suffer material losses or other material consequences relating to technology failure, cyber incidents or other information or security breaches. In addition to external threats, insider threats also present a risk to us.
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 operations.
Financial services institutions, and third parties whom they conduct business with, 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 operations.
Through a periodic review of the loan portfolio, management determines the amount of the ACL by considering historical losses, the national unemployment forecast produced by the Federal Reserve combined with qualitative factors around current conditions 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.
Management determines the amount of ACL through undergoing a periodic review of the loan portfolio, where it considers historical losses, the national unemployment forecast produced by the Federal Reserve combined with qualitative factors around current conditions 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.
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.
We manage our exposure to credit risk 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.
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 stock dividends by S&T is subject to certain requirements and limitations of Pennsylvania law.
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 stock dividends by S&T is subject to certain requirements and limitations of Pennsylvania law.
Furthermore, new government regulations with respect to other environmental, social or governance matters could also result in new or more stringent forms of ESG oversight and expanded mandatory and voluntary reporting, diligence, disclosure and ESG-related compliance costs.
AND SUBSIDIARIES Furthermore, new government regulations with respect to other ESG matters could also result in new or more stringent forms of ESG oversight and expanded mandatory and voluntary reporting, diligence, disclosure and ESG-related compliance costs.
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.
Additionally, 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; • the nature and composition of our ownership base; • investor views on the attractiveness of a given sector in the market; • the flow of capital among market sectors; • 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.
In response to the military action by Russia, government actions, including broad-ranging economic sanctions against Russia, have been taken by the United States, the United Kingdom, the European Union and other countries. The U.S. and global markets are experiencing volatility and disruption following the start of this military conflict and imposition of sanctions, impacting the financial and commodities markets.
In response to the military action by Russia, government actions, including broad-ranging economic sanctions against Russia, have been taken by the United States, the United Kingdom, the European Union and other countries. The U.S. and global markets have experienced volatility and disruption as a result of this military conflict and imposition of sanctions, impacting the financial and commodities markets.
The majority of our loans are to commercial borrowers including commercial and industrial, or C&I, CRE, and construction loans. The commercial loan portfolio typically involves a higher degree of credit risk than other types of loans.
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, CRE, and construction loans. The commercial loan portfolio typically involves a higher degree of credit risk than other types of loans.
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. 22 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 1B. UNRESOLVED STAFF COMMENTS There are no unresolved SEC staff comments.
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. Item 1B. UNRESOLVED STAFF COMMENTS There are no unresolved SEC staff comments.
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, or as a result 16 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES of human error, misconduct or malfeasance, expose us to risk.
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, or as a result of human error, misconduct or malfeasance, expose us to risk.
Although the extent and duration of the military action or future escalation of such hostilities, the extent and impact of existing and future sanctions, market disruptions and volatility and the result of any diplomatic negotiations remains uncertain, these consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of our common stock to be adversely affected.
Although the extent and duration of these military conflicts and any future escalation of such hostilities, market disruptions and volatility, and the result of any diplomatic negotiations remains uncertain, these consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of our common stock to be adversely affected. 14 Table of Contents S&T BANCORP, INC.
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.
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 and other short-term funding sources, including the Federal Reserve Discount Window and brokered deposits.
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.
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.
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.
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.
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.
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.
We may not accurately predict the nature or timing of future changes in monetary policies and interest rates or the precise effects that they may have on our activities and financial results, which could negatively impact our financial condition and results of operations.
AND SUBSIDIARIES monetary policies and interest rates or the precise effects that they may have on our activities and financial results, which could negatively impact our financial condition and results of operations.
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.
AND SUBSIDIARIES 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.
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.
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.
Russia’s invasion of Ukraine has created significant economic and financial disruptions and uncertainties, which could adversely affect our business, financial condition and results of operations 15 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES In late February 2022, Russia launched a large-scale military attack on Ukraine.
Geopolitical tensions and conflicts between nations has created significant economic and financial disruptions and uncertainties, which could adversely affect our business, financial condition and results of operations. In late February 2022, Russia launched a large-scale military attack on Ukraine.
In addition, monetary policy actions by governmental authorities in the European Union or other countries could have an impact on global interest rates, which could affect rates in the U.S.
In addition, monetary policy actions by governmental authorities in the European Union or other countries could have an impact on global interest rates, which could affect rates in the U.S. We may not accurately predict the nature or timing of future changes in 13 Table of Contents S&T BANCORP, INC.
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.
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. The amount of future losses is difficult to predict because it is susceptible to changes in economic, operating and other conditions, including changes in interest rates, which may be beyond our control.
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 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.
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 accounts of their customers.
AND SUBSIDIARIES 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 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.
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. Our loan portfolio is concentrated within our market area, and our lack of geographic diversification increases our risk profile.
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. 12 Table of Contents S&T BANCORP, INC.
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.
Risks Related to Regulatory Compliance and Legal Matters We are subject to extensive governmental regulation and supervision. As discussed above, under :Supervision and regulation" in Item 1, we are subject to extensive state and federal regulation, supervision and legislation that govern nearly every aspect of our operations.
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 had a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that were either directly or indirectly dependent on LIBOR.
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.
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 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. 21 Table of Contents S&T BANCORP, INC.
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. 20 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Risks Related to Owning Our Stock The market price of our common stock may fluctuate significantly in response to a number of factors.
Russian military actions and the resulting sanctions could further adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. In addition, Russia may take retaliatory actions and other counter measures including cyberattacks against the U.S., its government, infrastructure and businesses, including S&T.
The continued impact on financial markets, including the level and volatility of interest rates, could impact our earnings. Russian military actions and the resulting sanctions could further adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.
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.
We reserve for losses in our loan portfolio based on our assessment of expected credit losses.
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.
Fraudulent activity has escalated, become more sophisticated, and continues to evolve, as there are more options to access financial services.
Our business could be negatively impacted by environmental, social and governance (ESG) matters, including climate change and related legislative and regulatory initiatives.
While we do not expect the transition from LIBOR and the risks related thereto to have a material adverse effect on us, there remains some uncertainty as to the ultimate impact on our business and results of operations. Our business could be negatively impacted by environmental, social and governance (ESG) matters, including climate change and related legislative and regulatory initiatives.
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Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our primary market area. 14 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Our loan portfolio has a significant concentration of commercial loans that have a higher risk of loss.
Added
Financial challenges at other banking institutions and further adverse developments affecting the financial services industry, and the soundness of financial institutions, and further disruption to the economy and U.S. banking system may adversely affect our business, results of operations, liquidity and stock price.
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The continued impact on financial markets, including the level and volatility of interest rates, could impact our earnings. Furthermore, continued increases in commodity prices contributing to higher inflation could negatively impact our customers and our earnings.
Added
Several bank receiverships in 2023 caused a state of volatility in the financial services industry and uncertainty with respect to liquidity and the health of the U.S. banking system.
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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.
Added
Although we were not directly affected by these bank receiverships, this news caused fear among depositors, which caused them to withdraw or attempt to withdraw their funds from these and other financial institutions.
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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.
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Uncertainty may be compounded by the reach and depth of media attention, including social media, and its ability to disseminate concerns or rumors about any events of these kinds or other similar risks, and have in the past and may in the future lead to market-wide liquidity problems. Additionally, the stock prices of many financial institutions dropped and became volatile.
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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-month USD LIBOR tenors, which ceased on December 31, 2021. U.S. regulators, including the U.S.
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While the FDIC resolution of these banks was done in a manner that protected depositors, there remains concern over the U.S. banking system as a result of continued economic volatility.
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Federal Reserve, published a statement supporting the IBA’s plans and urged banks to phase out LIBOR as soon as practicable.
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Furthermore, financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships, which may expose us to credit risk and losses in the event of a default by a counterparty or client.
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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.
Added
As a result of these recent events, we face the potential for reputational risk, deposit outflows and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations and liquidity.
Removed
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.
Added
Furthermore, if such levels of financial market and economic disruption and volatility continue, if actual events or concerns or rumors involving limited liquidity, defaults, or other adverse developments, or if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened due to market-wide liquidity problems.
Removed
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.
Added
While we maintain liquidity primarily through customer deposits and through access to other short-term funding sources, including advances from the Federal Home Loan Bank (FHLB), our efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated increase or reductions in our liquidity, particularly in light of the impact of increased interest rates on the market value of investment securities.
Removed
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.
Added
This situation could have a material adverse impact on our results of operations and financial condition. Additionally, regulatory pressures and additional regulation of financial institutions as a result of the industry developments could have material adverse effects on our business, results of operations, financial condition and growth prospects.
Removed
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.
Added
In addition, Russia may take retaliatory actions and other counter measures including cyberattacks against the U.S., its government, infrastructure and businesses, including S&T. Additionally, an armed conflict began in October 2023 involving Hamas and Israel.
Removed
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.
Added
This conflict, as well as further escalation of tensions between Israel and various countries in the Middle East and North Africa may cause additional detrimental effects on the global economy, including capital markets.
Removed
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.
Added
We have experienced cyber security incidents in the past, such as vendor malware attacks, phishing and other social engineering schemes designed to gain access to confidential information from our employees,customers or vendors and, although not material, we anticipate that we could experience further incidents.
Removed
We have identified products that utilize 20 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES 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.
Added
Additionally, a number of our employees have shifted to working from remote locations, which we expect to remain high for the foreseeable future, increasing the number of surfaces that require protection and the overall risks and exposures to cyber threats.
Added
Moreover, we are subject to laws and regulations in the United States and other jurisdictions regarding privacy, data protection and data security and there continues to be heightened legislative and regulatory focus in this area.
Added
These laws and regulations are rapidly evolving and increasing in complexity and will require us to incur costs, some of which may be significant, to achieve and maintain compliance and could restrict our ability to provide certain products and services which could have an adverse effect on our business, financial condition and results of operations.
Added
Furthermore, as cybersecurity incidents increase in frequency and magnitude, we may be unable to obtain cybersecurity insurance in amounts and on terms we view as adequate for our operations. 15 Table of Contents S&T BANCORP, INC.
Added
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.
Added
We are subject to remaining uncertainty associated with the transition away from LIBOR. Following publication on June 30, 2023, no settings of the London Interbank Offered Rate (“LIBOR”) continue to be published on a representative basis and publication of many non-U.S. dollar LIBOR settings has been entirely discontinued.
Added
While we believe that we have successfully managed our transition from LIBOR to alternative reference rates, given the inherent difference between LIBOR and the alternative reference rates, there remain some uncertainties regarding the transition from LIBOR.
Added
In addition, due in part to the limited history of the alternative reference rates, and continued uncertainty regarding their future performance, the impact on interest income and expense, the return on and market value of assets and the impact on certain derivative financial instruments may vary from expectations.
Added
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. 19 Table of Contents S&T BANCORP, INC.
Added
Additional funding sources accessible to S&T include borrowing availability at the Federal Home Loan Bank of Pittsburgh, or FHLB, federal funds lines with other financial institutions, the Federal Reserve Borrower-in-Custody Program and the Federal Reserve Bank Term Funding Program, or BTFP.
Added
We have other funding sources that can be used such as the Federal Reserve Borrower-in-Custody Program, as well as the Federal Reserve BTFP which is available to us through March 11, 2024 and brokered deposits. The inability to access this source of funds could have a materially adverse effect on our ability to meet our customer’s needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed1 unchanged
Biggest changeIn addition, no material proceedings are pending nor are known to be threatened or contemplated against us by governmental authorities or other parties.
Biggest changeIn 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. 23 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

9 edited+74 added−0 removed3 unchanged
Biggest changeWe expect to fund any repurchases from cash on hand and internally generated funds. Share repurchases will not occur unless permissible under applicable laws.
Biggest changeS&T expects to fund any repurchases from cash on hand and internally generated funds. Any share repurchases will not begin until permissible under applicable laws. (2 ) Includes excise tax on repurchases, net of issuances for restricted stock awards. 24 Table of Contents S&T BANCORP, INC.
This authorization extended the expiration date of the repurchase plan through March 31, 2024. The plan permits S&T to repurchase shares up to the previously authorized $50 million in aggregate value of S&T's common stock through a combination of open market and privately negotiated repurchases.
This authorization extended the expiration date of the repurchase plan through March 31, 2024. The plan permitted S&T to repurchase shares up to the previously authorized $50 million in aggregate value of S&T's common stock through a combination of open market and privately negotiated repurchases.
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 (1) and the NASDAQ Bank Index (2) assuming a $100 investment in each on December 31, 2017 and the reinvestment of dividends.
AND SUBSIDIARIES 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 (1) and the NASDAQ Bank Index (2) assuming a $100 investment in each on December 31, 2018 and the reinvestment of dividends.
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, 2023, we had approximately 2,655 shareholders of record.
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, 2024, we had approximately 2,539 shareholders of record.
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.
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 the common stock, legal and contractual requirements and S&T’s financial performance. The repurchase plan does not obligate S&T to repurchase any particular number of shares.
Purchases of Equity Securities The following table is a summary of our purchases of common stock during the fourth quarter of 2022: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plan (1) Approximate dollar value of shares that may yet be purchased under the plan 10/1/2022 - 10/31/2022 — $ — — $ 29,805,161 11/1/2022 - 11/30/2022 — — — 29,805,161 12/1/2022 - 12/31/2022 — — — 29,805,161 Total — $ — — $ 29,805,161 ( 1) On January 25, 2023, our Board of Directors authorized an extension of its $50 million share repurchase plan, which was set to expire March 31, 2023.
Purchases of Equity Securities The following table is a summary of our purchases of common stock during the fourth quarter of 2023: Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced plan (1) Approximate dollar value of shares that may yet be purchased under the plan (2) 10/1/2023 - 10/31/2023 — $ — — $ 9,807,925 11/1/2023 - 11/30/2023 — — — 9,807,925 12/1/2023 - 12/31/2023 — — — 9,807,925 Total — $ — — $ 9,807,925 ( 1) On January 25, 2023, our Board of Directors authorized an extension of its $50 million share repurchase plan, which was set to expire March 31, 2023.
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 $0.32 per share on January 25, 2023.
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 $0.33 per share on January 24, 2024.
(2) 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.
(2) 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] 25 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Source: Bloomberg Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 S&T Bancorp, Inc. 100.00 97.33 106.56 68.84 90.64 102.07 NASDAQ Composite (1) 100.00 97.18 132.88 192.74 235.56 158.97 NASDAQ Bank (2) 100.00 83.83 104.26 96.44 137.82 115.38 (1) The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
Source: Bloomberg Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 S&T Bancorp, Inc. 100.00 109.49 70.73 93.13 104.88 107.06 NASDAQ Composite (1) 100.00 136.73 198.33 242.38 163.58 236.70 NASDAQ Bank (2) 100.00 124.38 115.04 164.41 137.65 132.92 (1) The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on the Nasdaq Stock Market.
Added
On January 24, 2024, our Board of Directors authorized a new $50 million share repurchase plan.The new plan replaced the existing share repurchase plan effective immediately and is set to expire May 30, 2025.
Added
This repurchase authorization permits S&T to repurchase shares of S&T's common stock from time to time through a combination of open market and privately negotiated repurchases up to the authorized $50 million aggregate value of S&T's common stock.
Added
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section reviews our financial condition for each of the past two fiscal years and results of operations for each of the past three fiscal years.
Added
The Company's discussion and analysis focuses on significant factors impacting the financial condition and results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This discussion and analysis should be read in conjunction with our Consolidated Financial Statements and Supplementary Data and related notes within this Annual Report on Form 10-K.
Added
A similar discussion and analysis that compares the year ended December 31, 2022 to the year ended December 31, 2021 may be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations” on our Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission, or SEC, on February 24, 2023.
Added
Certain reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. Important Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains or incorporates statements that we believe are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Added
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.
Added
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.
Added
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.
Added
The matters discussed in these forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to: credit losses and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for credit losses, or ACL; cyber-security concerns; rapid technological developments and changes; operational risks or risk management failures by us or critical third parties, including fraud risk; our ability to manage our reputational risks; sensitivity to the interest rate environment, a rapid increase in interest rates or a change in the shape of the yield curve; a change in spreads on interest-earning assets and interest-bearing liabilities; any remaining uncertainties with the transition from LIBOR as a reference rate; regulatory supervision and oversight, including changes in regulatory capital requirements and our ability to address those requirements; unanticipated changes in our liquidity position; unanticipated changes in regulatory and governmental policies impacting interest rates and financial markets; changes in accounting policies, practices or guidance; legislation affecting the financial services industry as a whole, and S&T, in particular; developments affecting the industry and the soundness of financial institutions and further disruption to the economy and U.S. banking system; the outcome of pending and future litigation and governmental proceedings; increasing price and product/service competition; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; managing our internal growth and acquisitions; the possibility that the anticipated benefits from acquisitions cannot be fully realized in a timely manner or at all, or that integrating the acquired operations will be more difficult, disruptive or costly than anticipated; containing costs and expenses; reliance on significant customer relationships; an interruption or cessation of an important service by a third-party provider; our ability to attract and retain talented executives and employees; general economic or business conditions, including the strength of regional economic conditions in our market area; ESG practices and disclosures, including climate change, hiring practices, the diversity of the work force, and racial and social justice issues; deterioration of the housing market and reduced demand for mortgages; deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge to net income; the stability of our core deposit base and access to contingency funding; re-emergence of turbulence in significant portions of the global financial and real estate markets that could impact our performance, both directly, by affecting our revenues and the value of our assets and liabilities, and indirectly, by affecting the economy generally and access to capital in the amounts, at the times and on the terms required to support our future businesses and geopolitical tensions and conflicts between nations.
Added
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.
Added
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.
Added
Any forward-looking statement speaks only as to the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect developments occurring after the statement is made. 26 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Added
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP. Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
We currently view the determination of the ACL and goodwill and other intangible assets to be critical accounting policies. We did not significantly change the manner in which we applied our critical accounting policies or developed related assumptions or estimates during 2023. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee.
Added
Allowance for Credit Losses Our expected credit loss methodology requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset. The ACL is a valuation reserve established and maintained by charges against operating income.
Added
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.
Added
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.
Added
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.
Added
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.
Added
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.
Added
Among other balance sheet and income statement changes, our severely adverse scenario would have resulted in an increase to the ACL of approximately 70 percent. This severely adverse scenario shows how sensitive the ACL can be to key qualitative and quantitative assumptions underlying the overall ACL calculation.
Added
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.
Added
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.
Added
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.
Added
The carrying value of goodwill is tested annually for impairment each October 1st or more frequently if events and circumstances indicate that it may be impaired. We test for impairment by comparing the fair value of the reporting unit with its 27 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Added
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS carrying amount. An impairment charge would be recognized if the carrying amount exceeds the reporting unit's fair value. A qualitative assessment is performed to determine whether it is more likely than not that the reporting unit's fair value is less than it's carrying value.
Added
We perform a quantitative impairment test only if we conclude that it is more likely than not that a reporting unit's fair value is less than the carrying amount. Determining the fair value of a reporting unit is judgmental and involves the use of significant estimates and assumptions.
Added
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.
Added
The fair values of each method are then weighted based on the relevance and reliability in the current economic environment. Based upon our qualitative assessment performed for our annual impairment analysis as of October 1, 2023, we concluded that goodwill is not impaired.
Added
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.
Added
Explanation of Use of Non-GAAP Financial Measures In addition to traditional financial measures presented in accordance with GAAP, our management uses, and this report contains or references, certain non-GAAP financial measures discussed below.
Added
We believe these non-GAAP financial measures provide information useful to investors in understanding our underlying business, operational performance and performance trends as they facilitate comparisons with the performance of other companies in the financial services industry.
Added
Although we believe that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered alternatives to GAAP or considered to be more important than financial results determined in accordance with GAAP, nor are they necessarily comparable with non-GAAP measures which may be presented by other companies.
Added
The interest income on interest-earning assets, net interest income and net interest margin are presented on an FTE basis (non-GAAP). The FTE basis (non-GAAP) adjusts for the tax benefit of income on certain tax-exempt loans and securities and the dividend-received deduction for equity securities using the federal statutory tax rate of 21 percent for each period.
Added
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.
Added
The following table reconciles interest and dividend income and net interest income per the Consolidated Statements of Net Income to interest income, net interest income and net interest margin on an FTE basis (non-GAAP) for the periods presented: Years ended December 31, (dollars in thousands) 2023 2022 2021 Interest and dividend income per Consolidated Statements of Net Income $ 477,901 $ 340,751 $ 289,262 Plus: taxable equivalent adjustment 2,550 2,052 2,316 Interest Income on an FTE Basis (Non-GAAP) $ 480,451 $ 342,803 $ 291,578 Interest and dividend income per Consolidated Statements of Net Income $ 477,901 $ 340,751 $ 289,262 Less: Interest expense (128,491) (24,968) (13,150) Net Interest Income per Consolidated Statements of Net Income 349,410 315,783 276,112 Plus: taxable equivalent adjustment 2,550 2,052 2,316 Net Interest Income on an FTE Basis (Non-GAAP) $ 351,960 $ 317,835 $ 278,428 Net interest margin 4.10 % 3.74 % 3.19 % Plus: taxable equivalent adjustment 0.03 % 0.02 % 0.03 % Net Interest Margin on an FTE Basis (Non-GAAP) 4.13 % 3.76 % 3.22 % 28 Table of Contents S&T BANCORP, INC.
Added
AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The efficiency ratio is noninterest expense divided by noninterest income plus net interest income, on an FTE basis (non-GAAP), which ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.
Added
Below is a reconciliation of the non-GAAP efficiency ratio.
Added
Years ended December 31, (dollars in thousands) 2023 2022 2021 Efficiency Ratio (Non-GAAP) Noninterest expense per Consolidated Statements of Net Income $210,334 $196,746 $188,925 Net interest income per Consolidated Statements of Net Income $349,410 $315,783 $276,112 Plus: taxable equivalent adjustment 2,550 2,052 2,316 Net interest income (FTE) (non-GAAP) 351,960 317,835 278,428 Noninterest income per Consolidated Statements of Net Income 57,620 58,259 64,696 Less: net gains on sale of securities — (198) (29) Net interest income (FTE) (non-GAAP) plus noninterest income $409,580 $375,896 $343,095 Efficiency Ratio (Non-GAAP) 51.35 % 52.34 % 55.06 % Return on average tangible shareholders' equity (non-GAAP) is a key profitability metric used by management to measure financial performance.
Added
The following table provides a reconciliation of return on average tangible shareholders' equity (non-GAAP) by reconciling net income (GAAP) per the Consolidated Statements of Net Income to net income before amortization and intangibles and average shareholder's equity to average tangible shareholders' equity for the periods presented: Years ended December 31, (dollars in thousands) 2023 2022 2021 Net income $ 144,781 $ 135,520 $ 110,343 Plus: amortization of intangibles, net of tax 1,042 1,199 1,400 Net income before amortization of intangibles $ 145,823 $ 136,719 $ 111,743 Average shareholders' equity $ 1,227,332 $ 1,181,788 $ 1,186,161 Less: average goodwill and other intangible assets, net of deferred tax liability (377,157) (378,303) (379,612) Average tangible shareholders' equity $ 850,175 $ 803,485 $ 806,549 Return on Average Tangible Shareholders' Equity (non-GAAP) 17.15 % 17.02 % 13.85 % Executive Overview We are a bank holding company that is headquartered in Indiana, Pennsylvania with assets of $9.6 billion at December 31, 2023.
Added
We operate in Pennsylvania and Ohio providing a full range of financial services with retail and commercial banking products, cash management services, trust and brokerage services. Our common stock trades on the NASDAQ Global Select Market under the symbol “STBA”. We earn revenue primarily from interest on loans and securities and fees charged for financial services provided to our customers.
Added
We incur expenses for the cost of deposits and other funding sources, provision for credit losses and other operating costs such as salaries and employee benefits, data processing, occupancy and tax expense. Our purpose is building a better future together through people-forward banking. We believe that all banking should be personal.
Added
We cultivate relationships rooted in trust, strengthened by going above and beyond and renewed with every interaction. Our strategic priorities for 2024 and beyond will be focused on our deposit franchise, core profitability, asset quality and talent and engagement.
Added
During the first quarter of 2023, the banking industry experienced significant volatility with several high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, our liquidity position and balance sheet remain well-positioned.
Added
We have a well-diversified deposit base with a balance mix of 56.4 percent personal, 34.1 percent business, 4.5 percent public funds and 5.0 percent brokered deposits at December 31, 2023. We have total uninsured deposits of $2.3 billion, or 30 percent of our total deposit base.
Added
At December 31, 2023, we had remaining borrowing availability of $4.1 billion, which includes $2.7 billion with the FHLB of Pittsburgh, $769.7 million from the Federal Reserve Borrower-in-Custody Program and $637.0 million from the Federal Reserve Bank Term Funding Program, or BTFP.
Added
Furthermore, our capital remains strong with a Common Equity Tier 1 Ratio of 13.37 percent and a total capital ratio of 15.27 percent at December 31, 2023. 29 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Added
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Year Ended December 31, 2023 Earnings Summary The following table presents a summary of key profitability metrics for the periods presented: Years ended December 31, (dollars in thousands) 2023 2022 2021 Net income $ 144,781 $ 135,520 $ 110,343 Earnings per share - diluted $ 3.74 $ 3.46 $ 2.81 Return on average assets 1.56 % 1.48 % 1.18 % Return on average shareholders' equity 11.80 % 11.47 % 9.30 % Return on average tangible shareholders' equity (non-GAAP) (1) 17.15 % 17.02 % 13.85 % (1) Reconciled to GAAP in the "Explanation of Use of Non-GAAP Financial Measures" section of this MD&A.
Added
We earned record net income of $144.8 million for the second consecutive year, representing an increase of $9.3 million or 6.83 percent, compared to net income of $135.5 million in 2022. Earnings per diluted share increased 8.1 percent to a record $3.74 in 2023 compared to $3.46 in 2022.
Added
The increase in net income was primarily due to higher net interest income related to higher interest rates. Return on average assets increased 8 basis points to 1.56 percent for 2023 compared to 1.48 percent for 2022. Return on average shareholders' equity increased 33 basis points to 11.80 percent for 2023 compared to 11.47 percent for 2022.
Added
Net interest income increased $33.6 million, or 10.65 percent, to $349.4 million compared to $315.8 million in 2022. Interest and dividend income increased $137.2 million and interest expense increased $103.5 million compared to 2022. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 37 basis points to 4.13 percent compared to 3.76 percent in 2022.
Added
The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2023 and an asset sensitive balance sheet. NIM is reconciled to net interest margin adjusted to an FTE basis (non-GAAP) above in the "Explanation of Use of Non-GAAP Financial Measures" section of this Management’s Discussion and Analysis, or MD&A.
Added
The provision for credit losses increased $9.5 million to $17.9 million for 2023 compared to $8.4 million for 2022. The increase in the provision for credit losses was mainly due to an increase in net charge-offs in 2023 and our qualitative reserve.
Added
Net loan charge-offs were $13.2 million, or 0.18 percent of average loans, in 2023 compared to $2.6 million, or 0.04 percent of average loans, in 2022. Noninterest income was relatively consistent at $57.6 million compared to $58.3 million in 2022.
Added
Mortgage banking income decreased $1.1 million due to a decline in loan sale activity caused by rising interest rates and a shift to holding originated mortgage loans on the balance sheet. Various other customer fees were down compared to the prior year due to lower activity.
Added
Offsetting these decreases was an increase of $2.5 million in other noninterest income primarily related to valuation adjustments and a $0.8 million increase in net gain on the sale of OREO partially offset by a $0.8 million decrease in fees on commercial loan swaps. Noninterest expense increased $13.6 million to $210.3 million compared to $196.7 million in 2022.
Added
Salaries and employee benefits increased $8.2 million primarily due to higher salaries related to inflationary wage pressure, the acquisition of new talent and a change in the valuation adjustment on a nonqualified benefit plan. Loan-related expense increased $2.1 million primarily due to an increase in loan collection and legal expenses for the workout of criticized and classified loans.
Added
Furniture, equipment and software expense increased $1.3 million due to new software implemented in 2023. FDIC insurance increased $1.3 million due to a two basis point increase in the assessment rate. The efficiency ratio (non-GAAP) for 2023 improved to 51.35 percent compared to 52.34 percent for 2022 due to higher revenue in 2023.
Added
A reconciliation of the efficiency ratio (non-GAAP) is provided above in the "Explanation of Use of Non-GAAP Financial Measures" section of this MD&A. The provision for income taxes increased $0.6 million to $34.0 million in 2023 compared to $33.4 million in 2022.
Added
The increase in our income tax provision was primarily due to a $9.9 million increase in pretax income in 2023 compared to 2022. The effective tax rate decreased 0.8 percent to 19.0 percent in 2023 compared to 19.8 percent in 2022.
Added
The decrease in the effective tax rate was primarily due to an increase in Low Income Housing Tax Credits, or LIHTCs, in 2023 compared to 2022. Net Interest Income Our principal source of revenue is net interest income. Net interest income represents the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities.
Added
Net interest income is affected by changes in the average balance of interest-earning assets and interest-bearing liabilities and changes in interest rates and 30 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS spreads.
Added
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.
Added
As part of our interest rate risk management strategy, we use interest rate swaps to add stability to net interest income by managing our exposure to interest rate movements. During 2022, we entered into interest rate swaps with a total notional amount of $500.0 million with original maturities ranging from three to five years.

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Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2022 2021 2020 (dollars in thousands) Average Balance Interest Rate Average Balance Interest Rate Average Balance Interest Rate ASSETS Interest-bearing deposits with banks $ 378,323 $ 2,952 0.78 % $ 722,057 $ 973 0.13 % $ 179,887 $ 515 0.29 % Securities at fair value (2)(3) 1,017,471 22,880 2.25 % 832,304 18,135 2.18 % 764,311 19,011 2.49 % Loans held for sale 1,115 49 4.38 % 4,094 124 3.03 % 5,105 160 3.13 % Commercial real estate 3,182,821 139,575 4.39 % 3,249,559 119,594 3.68 % 3,347,234 140,288 4.19 % Commercial and industrial 1,706,861 83,568 4.90 % 1,829,563 75,860 4.15 % 2,018,318 77,752 3.85 % Commercial construction 401,780 18,795 4.68 % 471,286 15,443 3.28 % 442,088 16,702 3.78 % Total commercial loans 5,291,462 241,938 4.57 % 5,550,407 210,897 3.80 % 5,807,640 234,742 4.04 % Residential mortgage 980,134 40,146 4.10 % 881,494 36,211 4.11 % 964,740 40,998 4.25 % Home equity 611,134 25,887 4.24 % 543,777 18,822 3.46 % 539,461 21,469 3.98 % Installment and other consumer 119,703 7,177 6.00 % 90,129 5,351 5.94 % 80,032 5,248 6.56 % Consumer construction 33,922 1,198 3.53 % 14,748 668 4.53 % 13,484 594 4.40 % Total consumer loans 1,744,893 74,408 4.26 % 1,530,148 61,052 3.99 % 1,597,717 68,309 4.28 % Total portfolio loans 7,036,355 316,346 4.50 % 7,080,555 271,949 3.84 % 7,405,357 303,051 4.09 % Total Loans (1)(2) 7,037,470 316,395 4.50 % 7,084,649 272,073 3.84 % 7,410,462 303,211 4.09 % Total other earning assets 12,694 577 4.54 % 10,363 397 3.83 % 18,234 929 5.10 % Total Interest-earning Assets 8,445,958 342,804 4.06 % 8,649,372 291,578 3.37 % 8,372,894 323,666 3.87 % Noninterest-earning assets 721,080 726,478 779,853 Total Assets $ 9,167,038 $ 9,375,850 $ 9,152,747 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand $ 918,222 $ 1,025 0.11 % $ 956,211 $ 809 0.08 % $ 961,823 $ 2,681 0.28 % Money market 1,909,208 11,948 0.63 % 2,033,631 3,651 0.18 % 2,040,116 11,645 0.57 % Savings 1,121,818 1,121 0.10 % 1,047,855 366 0.03 % 899,717 972 0.11 % Certificates of deposit 993,722 5,813 0.58 % 1,255,370 5,930 0.47 % 1,517,643 20,688 1.36 % Total Interest-bearing deposits 4,942,970 19,907 0.40 % 5,293,066 10,757 0.20 % 5,419,299 35,986 0.66 % Securities sold under repurchase agreements 35,836 36 0.10 % 69,964 79 0.11 % 57,673 169 0.29 % Short-term borrowings 40,013 1,659 4.15 % 6,301 12 0.19 % 155,753 1,434 0.92 % Long-term borrowings 19,090 411 2.15 % 22,995 458 1.99 % 47,953 1,201 2.50 % Junior subordinated debt securities 54,420 2,395 4.40 % 61,653 1,843 2.99 % 64,092 2,286 3.57 % Total borrowings 149,359 4,501 3.01 % 160,913 2,392 1.49 % 325,471 5,090 1.56 % Total other costing liabilities 15,163 560 3.69 % — — — % — — — % Total Interest-bearing Liabilities 5,107,492 24,968 0.49 % 5,453,979 13,150 0.24 % 5,744,770 41,076 0.72 % Noninterest-bearing liabilities 2,877,758 2,735,710 2,238,488 Shareholders’ equity 1,181,788 1,186,161 1,169,489 Total Liabilities and Shareholders’ Equity $ 9,167,038 $ 9,375,850 $ 9,152,747 Net Interest Income (2)(3) $ 317,836 $ 278,428 $ 282,590 Net Interest Margin (2)(3) 3.76 % 3.22 % 3.38 % (1) Nonaccruing loans are included in the daily average loan amounts outstanding.
Biggest changeMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2023 2022 2021 (dollars in thousands) Average Balance Interest Rate Average Balance Interest Rate Average Balance Interest Rate ASSETS Interest-bearing deposits with banks $ 141,954 $ 7,344 5.17 % $ 378,323 $ 2,952 0.78 % $ 722,057 $ 973 0.13 % Securities, at fair value (1)(2) 976,095 25,445 2.61 % 1,017,471 22,880 2.25 % 832,304 18,135 2.18 % Loans held for sale 121 8 6.71 % 1,115 49 4.38 % 4,094 124 3.03 % Commercial real estate 3,216,593 183,204 5.70 % 3,182,821 139,575 4.39 % 3,249,559 119,594 3.68 % Commercial and industrial 1,665,630 118,221 7.10 % 1,706,861 83,568 4.90 % 1,829,563 75,860 4.15 % Commercial construction 381,838 28,835 7.55 % 401,780 18,795 4.68 % 471,286 15,443 3.28 % Total Commercial Loans 5,264,061 330,260 6.27 % 5,291,462 241,938 4.57 % 5,550,407 210,897 3.80 % Residential mortgage 1,282,078 59,170 4.62 % 980,134 40,146 4.10 % 881,494 36,211 4.11 % Home equity 648,525 43,158 6.65 % 611,134 25,887 4.24 % 543,777 18,822 3.46 % Installment and other consumer 117,807 9,929 8.43 % 119,703 7,177 6.00 % 90,129 5,351 5.94 % Consumer construction 51,146 2,462 4.81 % 33,922 1,198 3.53 % 14,748 668 4.53 % Total Consumer Loans 2,099,556 114,719 5.46 % 1,744,893 74,408 4.26 % 1,530,148 61,052 3.99 % Total Portfolio Loans 7,363,617 444,979 6.04 % 7,036,355 316,346 4.50 % 7,080,555 271,949 3.84 % Total Loans (1)(3) 7,363,738 444,987 6.04 % 7,037,470 316,395 4.50 % 7,084,649 272,073 3.84 % Total other earning assets 37,988 2,675 7.04 % 12,694 576 4.54 % 10,363 397 3.83 % Total Interest-earning Assets 8,519,775 $ 480,451 5.64 % 8,445,958 $ 342,803 4.06 % 8,649,372 $ 291,578 3.37 % Noninterest-earning assets 756,481 721,080 726,478 Total Assets $ 9,276,256 $ 9,167,038 $ 9,375,850 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand $ 844,588 $ 6,056 0.72 % $ 918,222 $ 1,025 0.11 % $ 956,211 $ 809 0.08 % Money market 1,677,584 39,480 2.33 % 1,909,208 11,948 0.63 % 2,033,631 3,651 0.18 % Savings 1,020,314 4,352 0.43 % 1,121,818 1,121 0.10 % 1,047,855 366 0.03 % Certificates of deposit 1,302,478 42,948 3.30 % 993,722 5,813 0.58 % 1,255,370 5,930 0.47 % Total Interest-bearing Deposits 4,844,964 92,836 1.92 % 4,942,970 19,907 0.40 % 5,293,066 10,757 0.20 % Securities sold under repurchase agreements — — — % 35,836 36 0.10 % 69,964 79 0.11 % Short-term borrowings 500,421 27,238 5.44 % 40,013 1,659 4.15 % 6,301 12 0.19 % Long-term borrowings 31,706 1,332 4.20 % 19,090 411 2.15 % 22,995 458 1.99 % Junior subordinated debt securities 52,215 4,110 7.87 % 54,420 2,395 4.40 % 61,653 1,843 2.99 % Total Borrowings 584,342 32,680 5.59 % 149,359 4,501 3.01 % 160,913 2,392 1.49 % Other interest-bearing liabilities 58,135 2,975 5.12 % 15,163 560 3.69 % Total Interest-bearing Liabilities 5,487,441 128,491 2.34 % 5,107,492 24,968 0.49 % 5,453,979 13,150 0.24 % Noninterest-bearing liabilities 2,561,483 2,877,758 2,735,710 Shareholders' equity 1,227,332 1,181,788 1,186,161 Total Liabilities and Shareholders' Equity $ 9,276,256 $ 9,167,038 $ 9,375,850 Net Interest Income (1)(2) $ 351,960 $ 317,835 $ 278,428 Net Interest Margin (1)(2) 4.13 % 3.76 % 3.22 % (1) Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.
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.
Combo mortgage loans consisting of a residential first mortgage and a home equity second mortgage are also available. We typically originate and sell loans into the secondary market, primarily to Fannie Mae.
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, 2022. The FHLB exceeds all required capital ratios.
Unlike equity securities of traditional for-profit enterprises, the stock of the FHLB does not provide its holders with an opportunity for capital appreciation because, by regulation, FHLB stock can only be purchased, redeemed and transferred at par value. We reviewed and evaluated the FHLB capital stock for impairment at December 31, 2023. The FHLB exceeds all required capital ratios.
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, 2022, we had not issued any securities pursuant to the shelf registration statement.
We may use the proceeds from the sale of securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of December 31, 2023, we had not issued any securities pursuant to the shelf registration statement.
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 2022, 2021 or 2020.
We do not intend to sell and it is more likely than not that we will not be required to sell any of the securities in an unrealized loss position before recovery of their amortized cost. We did not recognize any impairment charges on our securities portfolio in 2023, 2022 or 2021.
The 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. 45 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
The credit risk review function has the primary responsibility for assessing commercial credit administration and credit decision functions of consumer and mortgage underwriting, as well as providing input to the loan risk rating process. 39 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nonperforming assets, or NPAs, consist of nonaccrual loans, nonaccrual TDRs and OREO.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nonperforming assets, or NPAs, consist of nonaccrual loans and OREO.
Assets under administration consisted of $1.0 billion in S&T Trust, $0.8 billion in S&T Financial Services and $0.4 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.
Assets under administration consisted of $1.0 billion in S&T Trust, $1.0 billion in S&T Financial Services and $0.2 billion in Stewart Capital Advisors. Liquidity and Capital Resources Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost.
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, 2022.
All debt securities were determined to be investment grade and paying principal and interest according to the contractual terms of the security at December 31, 2023.
Additionally, we considered that the FHLB has been paying dividends and actively redeeming stock throughout 2022 and 2021. Accordingly, we believe sufficient evidence exists to conclude that no impairment existed at December 31, 2022. 49 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Additionally, we considered that the FHLB has been paying dividends and actively redeeming stock throughout 2023 and 2022. Accordingly, we believe sufficient evidence exists to conclude that no impairment existed at December 31, 2023. 42 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
We have generated an annual effective tax rate that is less than the statutory rate of 21 percent due to benefits resulting from tax-exempt interest, excludable dividend income, tax-exempt income on Bank Owned Life Insurance, or BOLI, and tax benefits associated with Low Income Housing Tax Credits, or LIHTC.
We have generated an annual effective tax rate that is less than the statutory rate of 21 percent due to benefits resulting from tax-exempt interest, excludable dividend income, tax-exempt income on Bank Owned Life Insurance, or BOLI, and tax benefits associated with LIHTCs.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Securities Activity The balances and average rates of our securities portfolio are presented below as of December 31: 2022 2021 2020 (dollars in thousands) Balance Weighted-Average Yield Balance Weighted-Average Yield Balance Weighted-Average Yield U.S.
AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Securities Activity The balances and average rates of our securities portfolio are presented below as of December 31: 2023 2022 2021 (dollars in thousands) Balance Weighted-Average Yield Balance Weighted-Average Yield Balance Weighted-Average Yield U.S.
Our CRE and commercial construction portfolios have exposure outside this geography of 5.8 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, 2022. This compares to 5.7 percent of the combined portfolios and 3.0 percent of total portfolio loans at December 31, 2021.
Our CRE and commercial construction portfolios have exposure outside this geography of 3.9 percent of the combined portfolios and 1.9 percent of total portfolio loans at December 31, 2023. This compares to 5.8 percent of the combined portfolios and 2.9 percent of total portfolio loans at December 31, 2022.
Offsetting the decrease in provision for credit losses during 2022 was a $2.3 million increase in the provision for unfunded loan commitments primarily due to an increase in loss rates and unused commitments in the construction portfolio. Refer to the Credit Quality section of this MD&A for further details.
Offsetting the increase in provision for credit losses during 2023 was a $4.4 million decrease in the provision for unfunded loan commitments primarily due to a decrease in loss rates and unused commitments in the construction portfolio. Refer to the "Credit Quality" section of this MD&A for further details.
We believe S&T has the ability to retain existing and attract new deposits, mitigating any funding dependency on other more volatile sources. Refer to the Deposits section of this MD&A for additional discussion on deposits.
We believe S&T has the ability to retain existing deposits and attract new deposits, mitigating any funding dependency on other more volatile funding sources. Refer to the "Financial Condition as of December 31, 2023 - Deposits" section of this MD&A, for additional discussion on deposits.
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.
We hold FHLB stock because we are a member of the FHLB of Pittsburgh. The FHLB requires members to purchase and hold a specified level of FHLB stock based upon the members’ asset values, level of borrowings and participation in other programs offered. Stock in the FHLB is non-marketable and is redeemable at the discretion of the FHLB.
Our risk-based Tier 1 and Total capital ratios were 13.21 percent and 14.73 percent, which places us above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00 percent and 10.00 percent, respectively.
Our risk-based Tier 1 and Total capital ratios were 13.69 percent and 15.27 percent, which places us above the federal bank regulatory agencies’ well-capitalized guidelines of 8.00 percent and 10.00 percent, respectively.
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.
Additional credit risk management practices include periodic review, at least annually, and updates of our lending policies and procedures to support sound underwriting practices and portfolio management through portfolio stress testing. We have a portfolio monitoring group that performs an annual review of all commercial relationships greater than $1.5 million and a quarterly review of our Watch rated portfolio.
We continue to maintain our capital position with a leverage ratio of 11.06 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 12.81 percent compared to the regulatory guideline of 6.50 percent to be well-capitalized.
We continue to maintain a strong capital position with a leverage ratio of 11.21 percent as compared to the regulatory guideline of 5.00 percent to be well-capitalized and a risk-based Common Equity Tier 1 ratio of 13.37 percent compared to the regulatory guideline of 6.50 percent to be well-capitalized.
(2) Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent. (3) Taxable investment income is adjusted for the dividend-received deduction for equity securities. (4) Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis.
(2) Tax-exempt income is on an FTE basis using the statutory federal corporate income tax rate of 21 percent. (3) Taxable investment income is adjusted for the dividend-received deduction for equity securities. (4) Changes to rate/volume are allocated to both rate and volume on a proportionate dollar basis. 33 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
At December 31, 2022, S&T Bank had $870.0 million in highly liquid assets, which consisted of $137.6 million in interest-bearing deposits with banks and $732.4 million in unpledged securities. This resulted in a highly liquid assets to total assets ratio of 9.6 percent at December 31, 2022.
At December 31, 2023, S&T Bank had $897.4 million in highly liquid assets, which consisted primarily of $160.3 million in interest-bearing deposits with banks and $736.9 million in unpledged securities. This resulted in a highly liquid assets to total assets ratio of 9.4 percent at December 31, 2023 compared to 9.6 percent at December 31, 2022.
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.
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.
The decrease in other comprehensive income was primarily due to a $87.9 million increase in unrealized losses on our available-for-sale securities, net of tax and an increase of $16.8 million in unrealized losses on our interest rate swaps.
The other comprehensive income was primarily due to a $15.9 million improvement in unrealized losses on our available-for-sale debt securities, net of tax and an improvement of $5.2 million in unrealized losses on our interest rate swaps, net of tax.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wealth Management Assets As of December 31, 2022, the fair value of the S&T Bank Wealth Management assets under administration, which are not accounted for as part of our assets, decreased to $2.2 billion from $2.3 billion as of December 31, 2021.
AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Wealth Management Assets The fair value of the S&T Bank Wealth Management assets under administration, which are not accounted for as part of our assets, remained unchanged at $2.2 billion at December 31, 2023 and December 31, 2022.
The following table summarizes net charge-offs as a percentage of average loans for the years presented: 2022 2021 2020 Commercial real estate 0.02 % 0.38 % 0.81 % Commercial and industrial 0.03 % 1.17 % 3.65 % Commercial construction — % 0.01 % 0.06 % Consumer real estate 0.03 % 0.03 % 0.06 % Other consumer 0.81 % 0.33 % 1.75 % Net charge-offs to average loans outstanding 0.04 % 0.49 % 1.40 % Allowance for credit losses as a percentage of total portfolio loans 1.41 % 1.41 % 1.63 % Allowance for credit losses as a percentage of total portfolio loans excluding PPP 1.41 % 1.43 % 1.74 % Allowance for credit losses to total nonaccrual loans 532 % 149 % 80 % Provision for credit losses as a percentage of net loan charge-offs 207 % 45 % 127 % 48 Table of Contents S&T BANCORP, INC.
The following table summarizes net charge-offs as a percentage of average loans for the years presented: 2023 2022 2021 Commercial real estate 0.02 % 0.02 % 0.38 % Commercial and industrial 0.64 % 0.03 % 1.17 % Commercial construction 0.12 % — % 0.01 % Consumer real estate 0.01 % 0.03 % 0.03 % Other consumer 0.97 % 0.81 % 0.33 % Net charge-offs to average loans outstanding 0.18 % 0.04 % 0.49 % Allowance for credit losses as a percentage of total portfolio loans 1.41 % 1.41 % 1.41 % Allowance for credit losses to total nonaccrual loans 471 % 532 % 149 % Provision for credit losses as a percentage of net loan charge-offs 146 % 207 % 45 % 41 Table of Contents S&T BANCORP, INC.
The following table sets forth our commitments and letters of credit as of the dates presented: December 31, (dollars in thousands) 2022 2021 Commitments to extend credit $ 2,713,586 $ 2,583,957 Standby letters of credit 64,356 87,335 Total $ 2,777,942 $ 2,671,292 See Note 18 Commitments and Contingencies in Part II, Item 8.
The following table sets forth our commitments and letters of credit as of the dates presented: December 31, (dollars in thousands) 2023 2022 Commitments to extend credit $ 2,566,154 $ 2,713,586 Standby letters of credit 61,889 64,356 Total $ 2,628,043 $ 2,777,942 See Note 16 Commitments and Contingencies in Part II, Item 8.
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.
In addition, our ability to access capital markets provides additional sources of funding with respect to strategic investing opportunities. Our access to and the availability of funds in the future will be affected by many factors, including, but not limited to our financial condition and prospects, the liquidity of the overall capital markets and the current state of the economy.
The minimum capital requirements plus the capital conservation buffer exceeds the regulatory capital ratios required for an insured depository institution to be well-capitalized under the FDIC's prompt corrective action framework.
The minimum capital requirements plus the capital conservation buffer exceeds the regulatory capital ratios required for an insured depository institution to be well-capitalized under the FDIC's prompt corrective action framework. 46 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Other noninterest income decreased $1.8 million primarily related to a $3.1 million decline in the fair value of assets in a nonqualified benefit plan, which has a corresponding offset in salaries and benefits resulting in no impact to net income, partially offset by a net gain on the sale of OREO.
Other noninterest income increased $2.5 million primarily related to a $3.3 million increase in the fair value of assets in a nonqualified benefit plan, which has a corresponding offset in salaries and benefits resulting in no impact to net income, and an increase in net gain on the sale of OREO of $0.8 million, partially offset by a $0.7 million decrease in the valuation of our commercial loan swaps and a $0.8 million decrease in fees on our commercial loan swaps.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is the ACL balance by portfolio segment as of December 31: 2022 2021 (dollars in thousands) Amount % of Total Amount % of Total Commercial real estate $ 41,428 40.9 % $ 50,700 51.4 % Commercial and industrial 25,710 25.4 % 19,727 20.0 % Commercial construction 6,264 6.2 % 5,355 5.4 % Business banking 12,547 12.4 % 11,338 11.5 % Consumer real estate 12,105 11.9 % 8,733 8.9 % Other consumer 3,286 3.2 % 2,723 2.8 % Total $ 101,340 100.0 % $ 98,576 100.0 % Significant to our ACL is a higher concentration of commercial loans.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is the ACL balance by portfolio segment as of December 31: 2023 2022 (dollars in thousands) Amount % of Total Amount % of Total Commercial real estate $ 37,886 35.1 % $ 41,428 40.9 % Commercial and industrial 34,538 32.0 % 25,710 25.4 % Commercial construction 5,382 5.0 % 6,264 6.2 % Business banking 12,858 11.9 % 12,547 12.4 % Consumer real estate 14,663 13.6 % 12,105 11.9 % Other consumer 2,639 2.4 % 3,286 3.2 % Total $ 107,966 100.0 % $ 101,340 100.0 % Significant to our ACL is a higher concentration of commercial loans.
The effective tax rate, which is total tax expense as a percentage of income before taxes, increased to 19.8 percent in 2022 compared to 18.7 percent in 2021. The increase in the effective tax rate was primarily due to significantly higher income before taxes in 2022 compared to 2021.
The increase in our income tax provision was primarily due to a $9.9 million increase in income before taxes in 2023 compared to 2022. The effective tax rate, which is total tax expense as a percentage of income before taxes, decreased to 19.0 percent in 2023 compared to 19.8 percent in 2022.
Within our commercial portfolio, the CRE and commercial construction portfolios combined comprised $3.5 billion, or 67.2 percent, of total commercial loans and 49.1 percent of total portfolio loans at December 31, 2022 compared to $3.7 billion, or 68.0 percent, of total commercial loans and 52.5 percent of total portfolio loans at December 31, 2021.
Within our commercial portfolio, the CRE and commercial construction portfolios combined comprised $3.7 billion, or 69.4 percent, of total commercial loans and 48.6 percent of total portfolio loans at December 31, 2023 compared to $3.5 billion, or 67.2 percent, of total commercial loans and 49.1 percent of total portfolio loans at December 31, 2022. 37 Table of Contents S&T BANCORP, INC.
Portfolio consumer real estate loans increased in 2022 due to a shift from mortgage loans sold to loans held in the portfolio due to increased jumbo loans and the pricing of loans in the secondary market compared to December 31, 2021. The consumer loan portfolio increase was offset by decreases in commercial loans.
Portfolio consumer real estate loans increased in 2023 based on a shift from mortgage loans sold to loans held in the portfolio on our balance sheet due to increased jumbo loans and the pricing of loans in the secondary market compared to December 31, 2022 .
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.
A loan or obligation does not need to be charged-off, regardless of delinquency status, if (i) management has determined that sufficient collateral exists to protect the remaining loan balance and a strategy exists to liquidate the collateral, or (ii) management has determined that the present value of expected future cash flows is sufficient to protect the remaining loan balance.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents activity in the ACL for each of the three years presented below: Years Ended December 31, (dollars in thousands) 2022 2021 2020 ACL Balance at Beginning of Year: $ 98,576 $ 117,612 $ 62,224 Charge-offs: Commercial real estate (1,820) (13,493) (27,512) Commercial and industrial (7,801) (22,305) (75,408) Commercial construction — (55) (454) Consumer real estate (621) (719) (1,101) Other consumer (1,375) (952) (1,890) Total (11,617) (37,524) (106,365) Recoveries: Commercial real estate 1,052 1,196 348 Commercial and industrial 7,366 822 1,733 Commercial construction 1 14 183 Consumer real estate 203 310 233 Other consumer 400 652 489 Total 9,022 2,994 2,986 Net Charge-offs (2,595) (34,530) (103,379) Impact of CECL adoption — — 27,346 Provision for credit losses 5,359 15,494 131,421 ACL Balance at End of Year: $ 101,340 $ 98,576 $ 117,612 (1) Represents ALL for year presented Net loan charge-offs for 2022 were $2.6 million, or 0.04 percent of average loans, compared to $34.5 million, or 0.49 percent of average loans for 2021.
The following table presents activity in the ACL for each of the three years presented below: Years Ended December 31, (dollars in thousands) 2023 2022 2021 ACL Balance at Beginning of Year: $ 101,340 $ 98,576 $ 117,612 Charge-offs: Commercial real estate (1,706) (1,820) (13,493) Commercial and industrial (20,535) (7,801) (22,305) Commercial construction (451) — (55) Consumer real estate (446) (621) (719) Other consumer (1,500) (1,375) (952) Total (24,638) (11,617) (37,524) Recoveries: Commercial real estate 1,084 1,052 1,196 Commercial and industrial 9,796 7,366 822 Commercial construction 2 1 14 Consumer real estate 214 203 310 Other consumer 360 400 652 Total 11,456 9,022 2,994 Net Charge-offs (13,182) (2,595) (34,530) Impact of adoption of ASU 2022-02 568 — — Provision for credit losses 19,240 5,359 15,494 ACL Balance at End of Year: $ 107,966 $ 101,340 $ 98,576 Net loan charge-offs for 2023 were $13.2 million, or 0.18 percent of average loans, compared to $2.6 million, or 0.04 percent of average loans for 2022.
The daily average balance of deposits and rates paid on deposits are summarized in the following table for the years ended December 31: 2022 2021 2020 (dollars in thousands) Amount Rate Amount Rate Amount Rate Noninterest-bearing demand $ 2,705,210 — $ 2,594,152 — $ 2,072,310 — Interest-bearing demand 918,222 0.11 % 956,211 0.08 % 844,331 0.19 % Money market 1,909,209 0.63 % 2,026,083 0.18 % 1,960,741 0.57 % Savings 1,121,818 0.10 % 1,047,855 0.03 % 899,717 0.11 % Certificates of deposit 991,396 0.58 % 1,246,499 0.46 % 1,482,127 1.34 % Brokered deposits 2,323 2.10 % 16,419 1.15 % 232,384 1.02 % Total $ 7,648,178 0.26 % $ 7,887,218 0.14 % $ 7,491,610 0.48 % CDs of $250,000 and over accounted for 3.0 percent of total deposits at December 31, 2022 and December 31, 2021 and primarily represent deposit relationships with local customers in our market area.
The daily average balance of deposits and rates paid on deposits are summarized in the following table for the years ended December 31: 2023 2022 2021 (dollars in thousands) Amount Rate Amount Rate Amount Rate Noninterest-bearing demand $ 2,349,919 — $ 2,705,210 — $ 2,594,152 — Interest-bearing demand 844,588 0.72 % 918,222 0.11 % 956,211 0.08 % Money market 1,638,947 2.28 % 1,909,209 0.63 % 2,026,083 0.18 % Savings 1,020,314 0.43 % 1,121,818 0.10 % 1,047,855 0.03 % Certificates of deposit 1,226,989 3.17 % 991,396 0.58 % 1,246,499 0.46 % Brokered deposits 114,322 5.43 % 2,323 2.10 % 16,419 1.15 % Total $ 7,195,079 1.29 % $ 7,648,178 0.26 % $ 7,887,219 0.14 % CDs of $250,000 and over accounted for 4.7 percent and 3.0 percent of total deposits at December 31, 2023 and December 31, 2022.
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.
We develop and document a systematic ACL methodology based on 40 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS the following portfolio segments: 1) CRE, 2) C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer.
Lending Activity The following table summarizes our loan portfolio as of December 31: 2022 2021 2020 2019 2018 (dollars in thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Commercial Commercial real estate $ 3,128,187 43.5 % $ 3,236,653 46.2 % $ 3,244,974 44.9 % $ 3,416,518 47.9 % $ 2,921,832 49.1 % Commercial and industrial 1,718,976 23.9 % 1,728,969 24.7 % 1,954,453 27.0 % 1,720,833 24.1 % 1,493,416 25.1 % Commercial construction 399,371 5.6 % 440,962 6.3 % 474,280 6.6 % 375,445 5.3 % 257,197 4.3 % Total Commercial Loans 5,246,534 73.0 % 5,406,584 77.2 % 5,673,706 78.5 % 5,512,796 77.2 % 4,672,445 78.6 % Consumer Residential mortgage 1,116,528 15.5 % 899,956 12.9 % 918,398 12.7 % 998,585 14.0 % 726,679 12.2 % Home equity 652,066 9.1 % 564,219 8.1 % 535,165 7.4 % 538,348 7.5 % 471,562 7.9 % Installment and other consumer 124,896 1.7 % 107,928 1.5 % 80,915 1.1 % 79,033 1.1 % 67,546 1.1 % Consumer construction 43,945 0.6 % 21,303 0.3 % 17,675 0.2 % 8,390 0.1 % 8,416 0.1 % Total Consumer Loans 1,937,435 27.0 % 1,593,406 22.8 % 1,552,153 21.5 % 1,624,356 22.8 % 1,274,203 21.4 % Total Portfolio Loans $ 7,183,969 100.0 % $ 6,999,990 100.0 % $ 7,225,859 100.0 % $ 7,137,152 100.0 % $ 5,946,648 100.0 % The loan portfolio represents the most significant source of interest income for us.
Lending Activity The following table summarizes our loan portfolio as of December 31: 2023 2022 2021 2020 2019 (dollars in thousands) Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total Commercial Commercial real estate $ 3,357,603 43.9 % $ 3,128,187 43.5 % $ 3,236,653 46.2 % $ 3,244,974 44.9 % $ 3,416,518 47.9 % Commercial and industrial 1,642,106 21.5 % 1,718,976 23.9 % $ 1,728,969 24.7 % $ 1,954,453 27.0 % $ 1,720,833 24.1 % Commercial construction 363,284 4.7 % 399,371 5.6 % 440,962 6.3 % 474,280 6.6 % 375,445 5.3 % Total Commercial Loans 5,362,993 70.1 % 5,246,534 73.0 % 5,406,584 77.2 % 5,673,706 78.5 % 5,512,796 77.2 % Consumer Consumer real estate 2,175,451 28.4 % 1,812,539 25.2 % 1,485,478 21.2 % 1,471,238 20.4 % 1,545,323 21.7 % Other consumer 114,897 1.5 % 124,896 1.7 % 107,928 1.5 % 80,915 1.1 % 79,033 1.1 % Total Consumer Loans 2,290,348 29.9 % 1,937,435 27.0 % 1,593,406 22.8 % 1,552,153 21.5 % 1,624,356 22.8 % Total Portfolio Loans $ 7,653,341 100.0 % $ 7,183,969 100.0 % $ 6,999,990 100.0 % $ 7,225,859 100.0 % $ 7,137,152 100.0 % The loan portfolio represents the most significant source of interest income for us.
Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss is confirmed, regardless of the delinquency status of the loan. We may elect to recognize a partial charge-off when management has determined that the value of collateral is less than the remaining investment in the loan.
Our charge-off policy for commercial loans requires that loans and other obligations that are not collectible be promptly charged-off when the loss is confirmed, regardless of the delinquency status of the loan.
Mortgage banking decreased $7.5 million due to a decline in loan sale activity caused by rising interest rates and a shift to holding originated mortgage loans.
Mortgage banking income decreased $1.1 million due to a decline in loan sale activity caused by rising interest rates and a shift to holding originated mortgage loans on the balance sheet. Debit and credit card income decreased by $0.8 million due to decreased customer activity.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following represents delinquency as of December 31: 2022 2021 (dollars in thousands) Amount % of Loans Amount % of Loans 90 days or more: Commercial real estate $ 7,323 0.23 % $ 32,892 1.02 % Commercial and industrial 2,974 0.17 % 19,810 1.15 % Commercial construction 384 0.10 % 2,471 0.56 % Consumer real estate 8,094 0.45 % 10,960 0.74 % Other consumer 277 0.22 % 158 0.15 % Total Loans $ 19,052 0.27 % $ 66,291 0.95 % 30 to 89 days: Commercial real estate $ 8,772 0.28 % $ — — % Commercial and industrial 5,076 0.30 % 1,711 0.10 % Commercial construction — — % 502 0.11 % Consumer real estate 6,268 0.35 % 3,287 0.22 % Other consumer 225 0.18 % 256 0.24 % Loans held for sale — — % — — % Total Loans $ 20,341 0.28 % $ 5,756 0.08 % 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.
The following represents delinquency as of December 31: 2023 2022 (dollars in thousands) Amount % of Loans Amount % of Loans 90 days or more: Commercial real estate $ 7,267 0.22 % $ 7,323 0.23 % Commercial and industrial 3,244 0.20 % 2,974 0.17 % Commercial construction 4,960 1.37 % 384 0.10 % Consumer real estate 7,146 0.33 % 8,093 0.45 % Other consumer 330 0.29 % 278 0.22 % Total Loans $ 22,947 0.30 % $ 19,052 0.27 % 30 to 89 days: Commercial real estate $ 7,665 0.23 % $ 8,772 0.28 % Commercial and industrial 710 0.04 % 5,076 0.30 % Commercial construction 22 0.01 % — — % Consumer real estate 6,295 0.29 % 6,268 0.35 % Other consumer 429 0.37 % 225 0.18 % Total Loans $ 15,121 0.20 % $ 20,341 0.28 % Closed-end installment loans, amortizing loans secured by real estate and any other loans with payments scheduled monthly are reported past due when the borrower is in arrears two or more monthly payments.
Provision for Credit Losses The provision for credit losses includes a provision for losses on loans and on unfunded loan commitments. The provision for credit losses fluctuates based on changes in loan balances, risk ratings, net loan charge-offs and our CECL assumptions.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Provision for Credit Losses The provision for credit losses includes a provision for losses on loans and on unfunded commitments. The provision for credit losses fluctuates based on changes in loan balances, risk ratings, net loan charge-offs/recoveries, the macro environment and our Current Expected Credit Loss, or CECL, forecast.
Nonperforming assets decreased $57.5 million, or 72.2 percent, resulting in a nonperforming assets to total loans plus OREO ratio of 0.31% at December 31, 2022 compared to 1.13% at December 31, 2021. Nonaccrual loans decreased $47.2 million, or 71.3 percent, to $19.1 million at December 31, 2022 compared to $66.3 million at December 31, 2021.
Nonperforming assets increased $0.9 million, or 4.1 percent, resulting in a nonperforming assets to total loans plus OREO ratio of 0.30% at December 31, 2023 compared to 0.31% at December 31, 2022. Nonaccrual loans increased $3.9 million, or 20.4 percent, to $22.9 million at December 31, 2023 compared to $19.1 million at December 31, 2022.
Loans past due by 30 to 89 days increased $14.6 million and represented 0.28 percent of total loans at December 31, 2022.
Loans past due 90 days or more increased $3.9 million compared to December 31, 2022 and represented 0.30 percent of total loans at December 31, 2023. Loans past due by 30 to 89 days decreased $5.2 million and represented 0.20 percent of total loans at December 31, 2023.
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.
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.
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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Federal regulators periodically propose amendments to the regulatory capital rules and the related regulatory framework and consider changes to the capital standards that could significantly increase the amount of capital needed to meet applicable standards.
Maturing Within One Year After One But within Five Years After Five But Within Ten Years After Ten Years No Fixed Maturity (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Available-for-Sale U.S.
Taxable-equivalent adjustments for 2023 have been made in calculating yields on obligations of state and political subdivisions. Maturing Within One Year After One But within Five Years After Five But Within Ten Years After Ten Years No Fixed Maturity (dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Available-for-Sale U.S.
The following represents NPAs as of December 31: (dollars in thousands) 2022 2021 Nonaccrual Loans Commercial real estate $ 7,323 $ 30,924 Commercial and industrial 1,887 3,575 Commercial construction 384 384 Consumer real estate 6,295 9,476 Other consumer 269 158 Total Nonaccrual Loans 16,158 44,517 Nonaccrual Troubled Debt Restructurings Commercial real estate — 1,968 Commercial and industrial 1,087 16,235 Commercial construction — 2,087 Consumer real estate 1,798 1,484 Other consumer 9 — Total Nonaccrual Troubled Debt Restructurings 2,894 21,774 Total Nonaccrual Loans 19,052 66,291 OREO 3,065 13,313 Total Nonperforming Assets $ 22,117 $ 79,604 Nonaccrual loans as a percent of total loans 0.27 % 0.95 % Nonperforming assets as a percent of total loans plus OREO 0.31 % 1.13 % Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.
The following represents NPAs as of December 31: (dollars in thousands) 2023 2022 Nonaccrual Loans Commercial real estate $ 7,267 $ 7,323 Commercial and industrial 3,244 2,974 Commercial construction 4,960 384 Consumer real estate 7,146 8,093 Other consumer 330 278 Total Nonaccrual Loans 22,947 19,052 OREO 75 3,065 Total Nonperforming Assets $ 23,022 $ 22,117 Nonaccrual loans as a percent of total loans 0.30 % 0.27 % Nonperforming assets as a percent of total loans plus OREO 0.30 % 0.31 % Our policy is to place loans in all categories in nonaccrual status when collection of interest or principal is doubtful, or generally when interest or principal payments are 90 days or more past due.
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 mortgages with a maximum amortization term of 30 years. The loan to value, or LTV, policy guideline is 80 percent for residential first lien mortgages. Higher LTV loans may be approved within unique program guidelines.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates: 2022 Compared to 2021 Increase (Decrease) Due to 2021 Compared to 2020 Increase (Decrease) Due to (dollars in thousands) Volume (4) Rate (4) Net Volume (4) Rate (4) Net Interest earned on: Interest-bearing deposits with banks $ (463) $ 2,443 $ 1,980 $ 1,552 $ (1,095) $ 457 Securities at fair value (2)(3) 4,035 710 4,745 1,691 (2,566) (875) Loans held for sale (90) 15 (75) (32) (4) (36) Commercial real estate (2,456) 22,437 19,981 (4,094) (16,601) (20,695) Commercial and industrial (5,088) 12,796 7,708 (7,271) 5,380 (1,892) Commercial construction (2,278) 5,630 3,352 1,103 (2,362) (1,259) Total commercial loans (9,822) 40,863 31,041 (10,262) (13,584) (23,846) Residential mortgage 4,052 (117) 3,935 (3,538) (1,249) (4,787) Home equity 2,332 4,733 7,065 172 (2,819) (2,647) Installment and other consumer 1,756 70 1,826 662 (559) 103 Consumer construction 868 (338) 530 56 19 74 Total consumer loans 9,008 4,348 13,356 (2,648) (4,609) (7,257) Total portfolio loans (814) 45,211 44,397 (12,910) (18,193) (31,103) Total loans (1)(2) (904) 45,226 44,322 (12,942) (18,197) (31,139) Total other earning assets 89 90 179 (401) (131) (533) Change in Interest Earned on Interest-earning Assets $ 2,757 $ 48,469 $ 51,226 $ (10,100) $ (21,989) $ (32,089) Interest paid on: Interest-bearing demand $ (32) $ 248 $ 216 $ (16) $ (1,857) $ (1,872) Money market (224) 8,520 8,296 (37) (7,957) (7,994) Savings 26 728 754 160 (765) (605) Certificates of deposit (1,236) 1,119 (117) (3,575) (11,182) (14,757) Total interest-bearing deposits (1,466) 10,615 9,149 (3,468) (21,761) (25,229) Securities sold under repurchase agreements (38) (5) (43) 36 (126) (90) Short-term borrowings 65 1,582 1,647 (1,376) (46) (1,422) Long-term borrowings (78) 31 (47) (625) (118) (743) Junior subordinated debt securities (216) 768 552 (87) (356) (443) Total borrowings (267) 2,376 2,109 (2,052) (645) (2,697) Total other costing liabilities $ 560 $ — $ 560 $ — $ — $ — Change in Interest Paid on Interest-bearing Liabilities $ (1,173) $ 12,991 $ 11,818 $ (5,520) $ (22,406) $ (27,926) Change in Net Interest Income $ 3,930 $ 35,478 $ 39,408 $ (4,580) $ 417 $ (4,163) (1) Nonaccruing loans are included in the daily average loan amounts outstanding.
The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates: 2023 Compared to 2022 Increase (Decrease) Due to 2022 Compared to 2021 Increase (Decrease) Due to (dollars in thousands) Volume (4) Rate (4) Total Volume (4) Rate (4) Total Interest earned on: Interest-bearing deposits with banks $ (1,845) $ 6,236 $ 4,392 $ (463) $ 2,443 $ 1,980 Securities, at fair value (2)(3) (930) 3,495 2,565 4,035 710 4,745 Loans held for sale (44) 3 (41) (90) 15 (75) Commercial real estate 1,481 42,149 43,630 (2,456) 22,437 19,981 Commercial and industrial (2,019) 36,671 34,653 (5,088) 12,796 7,708 Commercial construction (933) 10,973 10,040 (2,278) 5,630 3,352 Total Commercial Loans (1,471) 89,793 88,322 (9,822) 40,863 31,041 Residential mortgage 12,368 6,656 19,024 4,052 (117) 3,935 Home equity 1,584 15,688 17,272 2,332 4,733 7,065 Installment and other consumer (114) 2,866 2,752 1,756 70 1,826 Consumer construction 608 654 1,263 868 (338) 530 Total Consumer Loans 14,446 25,864 40,311 9,008 4,348 13,356 Total Portfolio Loans 12,976 115,657 128,633 (814) 45,211 44,397 Total Loans (1)(2) 12,932 115,660 128,592 (904) 45,226 44,322 Total other earning assets 1,149 950 2,099 89 90 179 Change in Interest Earned on Interest-earning Assets $ 11,306 $ 126,341 $ 137,647 $ 2,757 $ 48,469 $ 51,226 Interest paid on: Interest-bearing demand $ (82) $ 5,114 $ 5,031 $ (32) $ 248 $ 216 Money market (1,449) 28,981 27,532 (224) 8,520 8,296 Savings (101) 3,332 3,231 26 728 754 Certificates of deposit 1,806 35,329 37,135 (1,236) 1,119 (117) Total Interest-bearing Deposits 173 72,756 72,929 (1,466) 10,615 9,149 Securities sold under repurchase agreements (36) — (36) (38) (5) (43) Short-term borrowings 19,095 6,484 25,578 65 1,582 1,647 Long-term borrowings 272 650 921 (78) 31 (47) Junior subordinated debt securities (97) 1,811 1,714 (216) 768 552 Total Borrowings 19,233 8,945 28,178 (267) 2,376 2,109 Other interest-bearing liabilities 1,587 829 2,416 560 — 560 Change in Interest Paid on Interest-bearing Liabilities 20,993 82,530 103,523 (1,173) 12,991 11,818 Change in Net Interest Income $ (9,687) $ 43,812 $ 34,124 $ 3,930 $ 35,478 $ 39,408 (1) Nonaccruing loans are included in the daily average loan amounts outstanding.
Refer to Note 16 Short-Term Borrowings and Note 17 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. 52 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Qualified Affordable Housing, Note 13 Deposits, Note 14 Short Term Borrowings, Note 15 Long Term Borrowings and Subordinated Debt and Note 7 Right-Of-Use Assets and Lease Liabilities to the consolidated financial statements included in Part II, Item 8. Financial Statements and Supplementary Data, and the Deposits and Borrowings section of this MD&A, for more details.
At December 31, 2022, total gross unrealized gains in the bond portfolio were $0.3 million offset by gross unrealized losses of $102.6 million compared to December 31, 2021, when total gross unrealized gains were $15.2 million offset by gross unrealized losses of $5.8 million.
At December 31, 2023, our bond portfolio had gross unrealized losses of $83.8 million offset by $1.8 million in gross unrealized gains, compared to December 31, 2022, when total gross unrealized losses were $102.6 million offset by gross unrealized gains of $0.3 million. Management evaluates the securities portfolio to determine if an ACL is needed each quarter.
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.
We did not record an ACL related to the securities portfolio at December 31, 2023 or December 31, 2022. The unrealized losses on debt securities were primarily attributable to changes in interest rates and not related to the credit quality of these securities.
Net interest income on an FTE basis (non-GAAP) increased $39.4 million, or 14.2 percent, compared to 2021. The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 54 basis points to 3.76 percent compared to 3.22 percent in 2021.
The net interest margin, or NIM, on an FTE basis (non-GAAP) increased 37 basis points to 4.13 percent compared to 3.76 percent in 2022. The increases in net interest income and NIM on an FTE basis (non-GAAP) were primarily due to higher interest rates during 2023. Interest income on an FTE basis (non-GAAP) increased $137.6 million compared to 2022.
Overall, the FTE rate (non-GAAP) on interest-earning assets increased 69 basis points compared to 2021. 32 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Interest expense increased $11.8 million compared to 2021. The increase in interest expense was primarily due to higher interest rates.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS increased interest rates. Overall, the FTE rate (non-GAAP) on interest-earning assets increased 158 basis points compared to 2022. Interest expense increased $103.5 million compared to 2022.
When concentrations exist in certain segments, we assess the credit risk within those segments to determine if additional reserve is needed in the qualitative portion of the ACL. Total commercial loans 43 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
When concentrations exist in certain segments, we assess the credit risk within those segments to determine if additional reserve is needed in the qualitative portion of the ACL. Total commercial loans represented 70.1 percent of total portfolio loans at December 31, 2023 compared to 73.0 percent at December 31, 2022.
Noninterest Income Years Ended December 31, (dollars in thousands) 2022 2021 $ Change % Change Securities gains, net $ 198 $ 29 $ 169 582.8 % Debit and credit card 19,008 17,952 1,056 5.9 % Service charges on deposit accounts 16,829 15,040 1,789 11.9 % Wealth management 12,717 12,889 (172) (1.3) % Mortgage banking 2,215 9,734 (7,519) (77.2) % Other 7,292 9,052 (1,760) (19.4) % Total Noninterest Income $ 58,259 $ 64,696 $ (6,437) (9.9) % Noninterest income decreased $6.4 million to $58.3 million compared to $64.7 million in 2021.
Noninterest Income Years Ended December 31, Twelve Months Ended December 31, (dollars in thousands) 2023 2022 $ Change % Change Net gain on sale of securities $ — $ 198 $ (198) (100.0) % Debit and credit card 18,248 19,008 (760) (4.0) % Service charges on deposit accounts 16,193 16,829 (636) (3.8) % Wealth management 12,186 12,717 (531) (4.2) % Mortgage banking 1,164 2,215 (1,051) (47.4) % Other noninterest income 9,829 7,292 2,537 34.8 % Total Noninterest Income $ 57,620 $ 58,259 $ (639) (1.1) % NM - not meaningful Noninterest income decreased $0.6 million to $57.6 million compared to $58.2 million in 2022.
Our operating knowledge at the local and regional level is derived from our front-line connection to the customer and our understanding of their businesses.
The majority of our commercial and consumer loans are made to businesses and individuals in these states resulting in a geographic concentration. We believe our knowledge of these markets outweighs the geographic concentration risk. Our operating knowledge at the local and regional level is derived from our front-line connection to the customer and our understanding of their businesses.
We 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 $28.6 million of 1-4 family mortgages in 2022 and $288.3 million in 2021 to Fannie Mae.
We sell these loans in order to mitigate interest-rate risk associated with holding lower rate, long-term residential mortgages in the loan portfolio and to generate fee revenue from sales and servicing of the loans. During 2023, our strategy changed whereby we held more mortgages on our balance sheet versus selling these loans in the secondary market.
The provision for credit losses decreased $7.8 million to $8.4 million for 2022 compared to $16.2 million for 2021. The provision for credit losses included $3.0 million for the reserve for unfunded commitments for 2022 compared to $0.7 million for 2021.
The provision for credit losses increased $9.5 million to $17.9 million for 2023 compared to $8.4 million for 2022. The provision for credit losses included a reduction of $1.4 million for the reserve for unfunded commitments for 2023 compared to an increase of $3.0 million for 2022.
Additional funding sources accessible to S&T include borrowing availability at the Federal Home Loan Bank, or FHLB, of Pittsburgh, federal funds lines with other financial institutions, the brokered deposit market and borrowing availability through the Federal Reserve Borrower-In-Custody program. We believe that these funding sources will provide adequate resources to fund our short-term and long-term operating and financing needs.
Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our normal funding program. Additional funding sources accessible to S&T include borrowing availability at the Federal Home Loan Bank of Pittsburgh, or FHLB, federal funds lines with other financial institutions and the brokered deposit market.
These increases were partially offset by unrealized losses due to a rising interest rate environment. At December 31, 2022 our bond portfolio was in a net unrealized loss position of $102.3 million compared to a net unrealized gain position of $9.4 million at December 31, 2021.
At December 31, 2023, our bond portfolio was in a net unrealized loss position of $82.0 million compared to a net unrealized loss position of $102.3 million at December 31, 2022.
Total portfolio loans increased $184.0 million, or 2.6 percent, to $7.2 billion at December 31, 2022 compared to $7.0 billion at December 31, 2021. The increase in portfolio loans is primarily related to an increase in the consumer loan portfolio of $344.0 million due to $327.1 million of growth in consumer real estate.
Consumer loans represent 29.9 percent of our total portfolio loans at December 31, 2023 and 27.0 percent at December 31, 2022. Consumer loans increased $352.9 million compared to December 31, 2022 primarily due to an increase of $343.2 million in the residential real estate portfolio and $19.7 million in consumer construction.
The performance of the debt securities markets could generate impairments in future periods requiring realized losses to be reported. 42 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
The securities portfolio could generate impairments in future periods requiring realized losses to be reported. 36 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the maturities of securities at December 31, 2023 and the weighted average yields of such securities.
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.
Federal Home Loan Bank and Other Restricted Stock At December 31, 2023, we held FHLB of Pittsburgh stock of $24.0 million compared to $22.0 million at December 31, 2022. This investment is carried at cost and evaluated for impairment based on the ultimate recoverability of the par value.
Financial Condition December 31, 2022 Total assets decreased $378.0 million to $9.1 billion at December 31, 2022 compared to $9.5 billion at December 31, 2021.
Financial Condition as of December 31, 2023 Total assets increased $441.0 million to $9.6 billion at December 31, 2023 compared to $9.1 billion at December 31, 2022. Total portfolio loans increased $469.4 million to $7.7 billion at December 31, 2023 compared to $7.2 billion at December 31, 2022.
Interest income on an FTE basis (non-GAAP) increased $51.2 million compared to 2021. The increase in interest income was primarily due to higher interest rates partially offset by lower Paycheck Protection Program, or PPP, income. Average PPP loans decreased $301.7 million compared to 2021. Average loan balances, excluding PPP loans, increased $254.5 million compared to 2021.
The increase in interest income on an FTE basis (non-GAAP) was primarily due to higher interest rates. Average loan balances increased $326.3 million compared to 2022. The average yield on loan balances increased 154 basis points compared to 2022 due to higher interest rates.
The decrease in the provision for credit losses was primarily due to significantly lower net charge-offs in 2022 compared to 2021. Net loan charge-offs were $2.6 million in 2022 compared to $34.5 million in 2021.
The increase in the provision for credit losses for 2023 compared to 2022 was primarily due to increases in net loan charge-offs and our qualitative reserve. Net loan charge-offs for 2023 were $13.2 million, or 0.18 percent of average loans, compared to $2.6 million, or 0.04 percent of average loans for 2022.
The ACL was $101.3 million, or 1.41 percent of total portfolio loans, at December 31, 2022, compared to $98.6 million, or 1.41 percent of total portfolio loans, at December 31, 2021. The increase in the ACL of $2.8 million was due to a shift between the qualitative and quantitative reserves as well as loan growth.
The ACL was $108.0 million, or 1.41 percent of total portfolio loans, at December 31, 2023, compared to $101.3 million, or 1.41 percent of total portfolio loans, at December 31, 2022.
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. 47 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
Consumer loans are evaluated for charge-off after the loan becomes 90 days past due. Unsecured loans are fully charged off and secured loans are charged down to the estimated fair value of the collateral less the cost to sell.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Noninterest Expense Years Ended December 31, (dollars in thousands) 2022 2021 $ Change % Change Salaries and employee benefits $ 103,221 $ 100,214 $ 3,007 3.0 % Data processing and information technology 16,918 16,681 237 1.4 % Occupancy 14,812 14,544 268 1.8 % Furniture, equipment and software 11,606 10,684 922 8.6 % Professional services and legal 8,318 6,368 1,950 30.6 % Other taxes 6,620 6,644 (24) (0.4) % FDIC insurance 2,854 4,224 (1,370) (32.4) % Marketing 5,600 4,553 1,047 23.0 % Other 26,797 25,013 1,784 7.1 % Total Other Noninterest Expense $ 196,746 $ 188,925 $ 7,821 4.1 % Noninterest expense increased $7.8 million to $196.7 million compared to $188.9 million in 2021.
Noninterest Expense Years Ended December 31, (dollars in thousands) 2023 2022 $ Change % Change Salaries and employee benefits $ 111,462 $ 103,221 $ 8,241 8.0 % Data processing and information technology 17,437 16,918 519 3.1 % Occupancy 14,814 14,812 2 — % Furniture, equipment and software 12,912 11,606 1,306 11.3 % Professional services and legal 7,823 8,318 (495) (6.0) % Other taxes 6,813 6,620 193 2.9 % Marketing 6,488 5,600 888 15.9 % FDIC insurance 4,122 2,854 1,268 44.4 % Loan-related expense 5,391 3,337 2,054 61.6 % Other 23,072 23,460 (388) (1.7) % Total Noninterest Expense $ 210,334 $ 196,746 $ 13,588 6.9 % Noninterest expense increased $13.6 million to $210.3 million compared to $196.7 million in 2022.
Treasury securities $ 131,695 1.71 % $ 95,327 1.26 % $ 10,282 1.87 % Obligations of U.S. government corporations and agencies 41,811 2.32 % 70,348 2.29 % 82,904 2.28 % Collateralized mortgage obligations of U.S. government corporations and agencies 428,407 2.56 % 270,294 1.97 % 209,296 2.23 % Residential mortgage-backed securities of U.S. government corporations and agencies 41,587 1.86 % 56,793 1.57 % 67,778 1.26 % Commercial mortgage-backed securities of U.S. government corporations and agencies 327,313 2.28 % 341,300 2.09 % 273,681 2.41 % Corporate securities 500 7.67 % 500 3.22 % 2,025 3.90 % Obligations of states and political subdivisions (1) 30,471 3.35 % 75,089 3.28 % 124,427 3.49 % Marketable equity securities 994 3.32 % 1,142 2.93 % 3,300 2.90 % Total Securities $ 1,002,778 2.34 % $ 910,793 2.05 % $ 773,693 2.42 % (1) Weighted-average yields are calculated on a taxable-equivalent basis using the federal statutory tax rate of 21 percent for 2022, 2021 and 2020.
Treasury securities $ 133,786 1.71 % $ 131,695 1.71 % $ 95,327 1.26 % Obligations of U.S. government corporations and agencies 32,513 2.28 % 41,811 2.32 % 70,348 2.29 % Collateralized mortgage obligations of U.S. government corporations and agencies 460,939 3.04 % 428,407 2.56 % 270,294 1.97 % Residential mortgage-backed securities of U.S. government corporations and agencies 38,177 1.86 % 41,587 1.86 % 56,793 1.57 % Commercial mortgage-backed securities of U.S. government corporations and agencies 273,425 2.42 % 327,313 2.28 % 341,300 2.09 % Corporate obligations — — % 500 7.67 % 500 3.22 % Obligations of states and political subdivisions 30,468 3.34 % 30,471 3.35 % 75,089 3.28 % Available-for-Sale Debt Securities 969,308 1,001,784 909,651 Equity securities 1,083 3.06 % 994 3.32 % 1,142 2.93 % Total Securities Available for Sale $ 970,391 2.62 % $ 1,002,778 2.34 % $ 910,793 2.05 % We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of ALCO to reposition the balance sheet for interest rate risk purposes.
Total portfolio loans increased $184.0 million, or 2.6 percent, to $7.2 billion at December 31, 2022 compared to $7.0 billion at December 31, 2021. Commercial and industrial loans, or C&I, included $4.0 million of loans originated under the PPP at December 31, 2022 compared to $88.3 million at December 31, 2021.
Total portfolio loans increased $469.4 million, or 6.5 percent, to $7.7 billion at December 31, 2023 compared to $7.2 billion at December 31, 2022. As of December 31, 2023, 65.0 percent of our total loans were variable rate loans and 35.0 percent were fixed rate loans.
The most significant charge-off during 2022 was to a C&I relationship in the amount of $5.5 million. Offsetting loan charge-offs during 2022 were $6.6 million of loan recoveries related to two C&I relationships.
The most significant charge-offs during 2023 were for three C&I relationships totaling $16.9 million. Offsetting loan charge-offs during 2023 were $11.5 million of loan recoveries, which included a $9.3 million recovery related to a 2020 customer fraud compared to $9.0 million of loan recoveries during 2022.
The following table summarizes our material contractual obligations as of December 31, 2022: Payments Due In (dollars in thousands) 2023 2024-2025 2026-2027 Later Years Total Certificates of deposit (1) 733,285 161,343 38,711 1,254 934,593 Short-term borrowings (1) 370,000 — — — 370,000 Long-term borrowings (1) 464 13,461 180 636 14,741 Junior subordinated debt securities (1) — — — 54,453 54,453 Operating and finance leases 5,053 9,984 9,587 60,837 85,461 Purchase obligations 32,555 62,656 53,190 — 148,401 (1) Excludes interest An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets.
The following table summarizes our material contractual obligations as of December 31, 2023: Payments Due In (dollars in thousands) 2024 2025-2026 2027-2028 Later Years Total Certificates of deposit (1) 1,320,588 239,190 19,099 2,775 1,581,652 Short-term borrowings (1) 415,000 — — — 415,000 Long-term borrowings (1) 38,381 167 187 542 39,277 Junior subordinated debt securities (1) — — — 49,358 49,358 Operating and finance leases 4,995 9,881 9,302 59,550 83,728 Funding commitments on Low Income Housing Partnerships 7,262 4,727 — — 11,989 Total $ 1,786,226 $ 253,965 $ 28,588 $ 112,225 $ 2,181,004 (1) Excludes interest An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets.
Our servicing portfolio of mortgage loans that we had originated and sold into the secondary market was $772.9 million at December 31, 2022 compared to $841.7 million at December 31, 2021. We also offer a variety of unsecured and secured consumer loan products. 44 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
We also offer a variety of unsecured and secured consumer loan products. 38 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7.
The average yield on loans increased 66 basis points compared to 2021 due to higher interest rates. Average securities increased $185.2 million compared to 2021 due to interest-bearing deposits with banks being redeployed to higher yielding assets. Average interest-bearing deposits with banks decreased $343.7 million compared to 2021 due to decreased deposit balances and increased securities.
Average borrowings increased $435.0 million compared to 2022 primarily due to decreased deposit balances and increased loans. The average rate paid on borrowings increased 258 basis points compared to 2022 due to higher interest rates. Overall, the cost of interest-bearing liabilities increased 185 basis points compared to 2022.
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 $92.0 million to $1.0 billion at December 31, 2022 from $910.8 million at December 31, 2021. The increase in securities is primarily due to increased investing activities due to excess liquidity earlier in 2022.
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.
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.
The average rate paid on interest-bearing deposits increased 152 basis points due to higher interest rates. Certificates of deposit increased $308.8 million compared to 2022. The increase in certificates of deposits was primarily due to higher interest rates resulting in customers moving deposits to higher yield accounts.
Our quantitative reserve decreased $4.8 million primarily due to significant improvement in our CRE hotel portfolio, which was partially offset by deterioration in the C&I portfolio primarily related to a large relationship downgraded to substandard during the year.
Our quantitative reserve decreased $1.0 million primarily due to a reduction in criticized and classified loans mainly in our CRE healthcare and CRE hotel portfolios partially offset by higher C&I substandard loans and loan growth during 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeDecember 31, 2022 December 31, 2021 1 - 12 Months 13 - 24 Months 1 - 12 Months 13 - 24 Months Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income % Change in EVE % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income % Change in EVE 400 14.6 22.0 (13.2) 30.4 40.3 18.4 300 11.0 16.6 (8.5) 22.5 30.0 19.9 200 7.4 11.2 (4.6) 14.9 20.2 18.4 100 3.7 5.7 (1.5) 7.0 9.9 11.9 (100) (6.1) (8.8) (2.6) (4.6) (8.4) (26.3) (200) (10.2) (14.8) (7.7) — — — (300) (14.1) (21.0) (17.0) — — — (400) (21.1) (30.1) (32.7) — — — The results from the rate shock analyses on net interest income are consistent with having an asset sensitive balance sheet.
Biggest changeDecember 31, 2023 December 31, 2022 1 - 12 Months 13 - 24 Months % Change in EVE 1 - 12 Months 13 - 24 Months % Change in EVE Change in Interest Rate (basis points) % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income % Change in Pretax Net Interest Income 400 3.5 7.6 (31.4) 14.6 22.0 (13.2) 300 2.4 5.4 (23.5) 11.0 16.6 (8.5) 200 1.2 3.4 (15.2) 7.4 11.2 (4.6) 100 0.2 1.6 (7.3) 3.7 5.7 (1.5) -100 (3.5) (5.1) 3.7 (6.1) (8.8) (2.6) -200 (4.2) (6.7) 3.8 (10.2) (14.8) (7.7) -300 (6.6) (11.2) (0.5) (14.1) (21.0) (17.0) -400 (9.3) (15.1) (13.7) (21.1) (30.1) (32.7) 48 Table of Contents S&T BANCORP, INC.
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.
Rate shock analyses assume an immediate parallel shift in market interest rates and also include management assumptions regarding the impact of interest rate changes on non-maturity deposit products (noninterest-bearing demand, interest-bearing demand, money market and savings) and changes in the prepayment behavior of loans and securities with optionality.
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. 54 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES Item 7A.
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.
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. 55 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES
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. 49 Table of Contents S&T BANCORP, INC. AND SUBSIDIARIES
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.
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.
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.
S&T policy guidelines limit the change in EVE using rate shocks in increments of +/- 100 basis points. Policy guidelines define the percentage change in EVE by graduated risk tolerance levels of minimal, moderate and high. The table below reflects the rate shock analyses results for the 1-12 and 13-24 month periods of pretax net interest income and EVE.
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, 2022 to December 31, 2021 due to the impact of interest rates on the value of nonmaturity deposits.
The changes in our percentage changes in pretax net interest income reflect our strategic efforts to reduce our exposure to changes in interest rates. Our EVE analyses show a decline in the percentage change in EVE in the rates up scenarios and an improvement in rates down scenarios when comparing December 31, 2023 to December 31, 2022.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our rate shock analyses show less improvement in the percentage change in pretax net interest income in the rates up scenarios when comparing December 31, 2022 to December 31, 2021 because we have less excess cash and $500 million of received-fixed interest rate swaps were executed throughout 2022.
Our rate shock analyses show less improvement in the percentage change in pretax net interest income in the rates up scenarios when comparing December 31, 2023 to December 31, 2022 primarily because we have a different deposit mix, more short-term borrowings and a larger fixed-rate loan portfolio.
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.
These changes are mainly the result of the impact of interest rates on the value of nonmaturity deposits and deposit valuation methodology enhancements that recognize changes in customer behavior. 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.
The percentage change in pretax net interest income in the rates down scenario shows a decline when comparing December 31, 2022 to December 31, 2021 because the higher rate environment has increased our asset yields more than our liability costs. A decline in interest rates would result in less interest income with limited interest expense reduction.
The percentage change in pretax net interest income in the rates down scenario shows an improvement when comparing December 31, 2023 to December 31, 2022 because of our increased ability to cut liability costs as deposit rates have increased and we have more short-term borrowings.
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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.
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AND SUBSIDIARIES Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The results from the rate shock analyses on net interest income are consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means more assets than liabilities will reprice during the measured time frames.
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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.

Other STBA 10-K year-over-year comparisons