S&T Bancorp Inc: Form 10-Q for the period ended Sep 30, 2024

(dollars in thousands)

(1) Tax-exempt interest income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

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

(3) Nonaccruing loans are included in the daily average loan amounts outstanding.

Net interest income on an FTE basis (non-GAAP) decreased $2.9 million, or 3.3 percent, and $12.6 million, or 4.7 percent, for the three and nine months ended September 30, 2024 compared to the same periods in 2023. The net interest margin, or NIM, on an FTE basis (non-GAAP) decreased 27 and 37 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023. The decreases in both net interest income and NIM on an FTE basis (non-GAAP) were primarily due to the impact of higher interest rates on total interest-bearing liabilities. While higher interest rates positively impacted interest income and rates on interest-earning assets, the increase in interest income was more than offset by higher interest expense and rates on interest-bearing liabilities. Our cost of interest-bearing liabilities benefited from strong customer deposit growth in 2024, which has helped to improve our overall funding mix by reducing wholesale funding sources of brokered deposits and borrowings.

Interest income on an FTE basis (non-GAAP) increased $8.5 million and $37.0 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023. The increase in interest income on an FTE basis (non-GAAP) was primarily due to higher interest rates on interest-earning assets. The average yield on loan balances increased 15 and 29 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023 due to higher interest rates. Average loan balances increased $260.0 million and $373.7 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023. Overall, the FTE rate (non-GAAP) on interest-earning assets increased 19 and 32 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023.

Interest expense increased $11.4 million and $49.6 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023. The increase in interest expense was primarily due to higher interest rates and a shift in our customer deposit mix to higher costing products. Average interest-bearing deposits increased $710.8 million and $710.1 million, of which $89.8 million and $173.2 million were brokered deposits, for the three and nine months ended September 30, 2024 compared to the same periods in 2023. Average borrowings decreased $383.0 million and $225.2 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023 primarily due to increased deposit balances. Overall, the cost of interest-bearing liabilities increased 64 and 95 basis points for the three and nine months ended September 30, 2024 compared to the same periods in 2023.

The following table sets forth for the periods presented a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:

(dollars in thousands)

(1) Tax-exempt income is on an FTE basis (non-GAAP) using the statutory federal corporate income tax rate of 21 percent.

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

(3) Nonaccruing loans are included in the daily average loan amounts outstanding.

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

Provision for Credit Losses

The provision for credit losses includes a provision for losses on loans and on unfunded commitments. The provision for credit losses fluctuates based on changes in loan balances, risk ratings, net loan charge-offs/recoveries, the macro environment and our Current Expected Credit Loss, or CECL, forecast.

The provision for credit losses decreased $6.0 million and $14.3 million to a negative $0.5 million and $2.6 million for the three and nine months ended September 30, 2024, compared to $5.5 million and $16.9 million for the same periods in 2023. The decrease in the provision for credit losses for the three and nine months ended September 30, 2024 compared to the same periods in 2023 was primarily due to a lower level of ACL and a decrease in loan charge-offs. The lower level of ACL was primarily related to a decrease in qualitative reserve as asset quality continues to improve. Additionally, the provision for credit losses included reductions of $0.8 million and $2.1 million in the reserve for unfunded commitments for the three and nine months ended September 30, 2024 compared to a reduction of $0.7 million and an increase of $1.1 million for the same periods in 2023. The decrease in the reserve for unfunded commitments for the three and nine months ended September 30, 2024 was primarily due to lower loss rates and fewer unused commitments in the construction portfolio.

For the three and nine months ended September 30, 2024, we had net loan charge-offs of $2.1 million and $8.3 million compared to net loan charge-offs of $3.7 million and $9.6 million for the same periods in 2023. Offsetting loan charge-offs of $20.8 million during the nine months ended September 30, 2023 was a $9.3 million recovery related to a 2020 customer fraud. Refer to the "Allowance for Credit Losses" section of this MD&A for further details.

Noninterest Income

(dollars in thousands)

Noninterest income decreased $0.3 million and $1.5 million to $11.9 million and $38.0 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023. The decrease in noninterest income was primarily due to a loss on the sale of securities of $2.2 million and $5.3 million recognized during the three and nine months ended September 30, 2024 compared to the same periods in 2023 related to the repositioning of securities into longer duration higher-yielding securities. This decrease was partially offset by changes to other noninterest income, which increased $1.7 million for the three months ended September 30, 2024 compared to the same period in 2023 primarily due to a $0.9 million commercial loan swap valuation adjustment and a $0.3 million fair value adjustment of assets in a nonqualified benefit plan in the third quarter of 2023. Other noninterest income increased $3.9 million for the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to a fair value adjustment of $3.4 million from the Visa exchange offer for Visa Class B-1 common stock.

Noninterest Expense

(dollars in thousands)

37

Noninterest expense increased $2.6 million to $55.4 million for the three months ended September 30, 2024 and increased $9.4 million to $163.5 million for the nine months ended September 30, 2024 compared to the same periods in 2023. Salaries and employee benefits increased $3.8 million to $31.3 million for the three months ended September 30, 2024, and increased $10.7 million to $91.2 million for the nine months ended September 30, 2024 compared to the same periods in 2023 due to higher salary expense related to annual merit increases, inflationary wage pressure, the acquisition of new talent, higher incentives and medical costs. Data processing and information technology increased $0.5 million for the three months ended September 30, 2024 and increased $1.3 million for the nine months ended September 30, 2024 compared to the same periods in 2023 due to additional services provided through our third party vendor. Furniture, equipment and software increased $0.3 million for the three months ended September 30, 2024 and $1.1 million for the nine months ended September 30, 2024 compared to the same periods in 2023 due to investments in technology. Professional services and legal expense decreased $0.7 million for the three months ended September 30, 2024 and $1.5 million for the nine months ended September 30, 2024 compared to the same periods in 2023 due to expiring consulting engagements and a decrease in legal expenses. Other noninterest expense decreased $1.1 million and $2.3 million for the three and nine months ended September 30, 2024 compared to the same periods in 2023 primarily due to the adoption of PAM. As a result of this adoption, amortization expense of $1.4 million and $2.9 million related to tax credit equity investments is included in income tax expense for 2024, while $0.5 million and $1.6 million are included in noninterest expense for 2023.

Provision for Income Taxes

The provision for income taxes increased $1.1 million to $8.9 million for the three months ended September 30, 2024 and increased $0.3 million to $25.3 million for the nine months ended September 30, 2024 compared to $7.8 million and $25.0 million for the same periods in 2023. The increase in our income tax provision for the three and nine months ended September 30, 2024 was primarily due to the adoption of the PAM on January 1, 2024. The increase in our income tax provision for the nine months ended September 30,2024 was partially offset by a decrease in income before taxes compared to the same period in 2023.

The effective tax rate, which is total tax expense as a percentage of income before taxes, was 21.4 percent and 20.5 percent for the three and nine months ended September 30, 2024, compared to 18.9 percent for the three and nine months ended September 30,2023. The increase in the effective tax rate for the three and nine months ended September 30, 2024 compared to the same periods in 2023 was primarily due to the adoption of the PAM related to tax credit equity investments on January 1, 2024. Under the PAM, amortization expense related to tax credit equity investments is included in income tax expense for the three and nine months ended September 30, 2024, and was included in other noninterest expense for the same periods in 2023.

Financial Condition as of September 30, 2024

Total assets were $9.6 billion at both September 30, 2024 and December 31, 2023. Total portfolio loans remained relatively unchanged at $7.7 billion at September 30, 2024 and December 31, 2023. Loan growth has slowed due to higher interest rates and an uncertain macro environment along with elevated loan pay-offs. Securities remained unchanged at $1.0 billion at September 30, 2024 and December 31, 2023. The bond portfolio was in a net unrealized loss position of $52.3 million at September 30, 2024, compared to a net unrealized loss position of $82.0 million at December 31, 2023. The decrease in the net unrealized loss position of the bond portfolio of $29.7 million was primarily due to a decline in interest rates from December 31, 2023 to September 30, 2024, as well as the repositioning of our debt securities portfolio during 2024, resulting in a recognized loss of $5.3 million.

Customer deposit growth continues to be strong allowing for a reduction in higher costing borrowings and brokered deposits. Total deposits increased $133.1 million with customer deposits increasing $333.4 million, or 4.7 percent, at September 30, 2024 compared to December 31, 2023. Brokered deposits decreased $200.4 million, or 53.3 percent, at September 30, 2024 compared to December 31, 2023. The increase in customer deposits is the result of our continued focus on growing our deposit franchise.Total borrowings decreased $165.2 million, or 32.8 percent, to $338.4 million at September 30, 2024 compared to $503.6 million at December 31, 2023.

Total shareholders’ equity increased by $92.3 million to $1.4 billion at September 30, 2024, compared to December 31, 2023. The increase was primarily due to net income of $98.2 million and other comprehensive income of $30.4 million, offset by dividends of $38.0 million.

Securities Activity

(dollars in thousands)

We invest in various securities in order to maintain a source of liquidity, to satisfy various pledging requirements, to increase net interest income and as a tool of ALCO to reposition the balance sheet for interest rate risk purposes. Securities are subject to market risks that could negatively affect the level of liquidity available to us.

The securities portfolio increased by $40.9 million at September 30, 2024 to $1.0 billion, compared to $970.4 million at December 31, 2023. The increase in the debt securities portfolio was primarily related to a decrease in unrealized losses due to a decline in interest rates from December 31, 2023 to September 30, 2024. Additionally, we recognized losses as a result of repositioning $96.6 million of our securities portfolio during 2024 by selling shorter duration U.S. Treasury securities and commercial mortgage-backed securities and replacing them with a mix of collateralized mortgage obligations, U.S. Treasury securities and commercial mortgage-backed securities with a longer duration and higher yield. The increase in equity securities was due to a fair value adjustment of $3.4 million related to the Visa exchange offer for Visa Class B-1 Common Stock.

Our bond portfolio was in a net unrealized loss position of $52.3 million at September 30, 2024, compared to a net unrealized loss position of $82.0 million at December 31, 2023. At September 30, 2024, our bond portfolio had gross unrealized losses of $57.9 million offset by $5.6 million of gross unrealized gains, compared to gross unrealized losses of $83.8 million offset by gross unrealized gains of $1.8 million at December 31, 2023.

Loan Composition

The following table summarizes our loan portfolio as of the dates presented:

(dollars in thousands)

The loan portfolio represents the most significant source of interest income for us. The risk that borrowers will be unable to pay such obligations is inherent in the loan portfolio. Other conditions, such as downturns in the borrower’s industry or the overall economic climate, can significantly impact the borrower’s ability to pay.

Total portfolio loans were $7.7 billion at both September 30, 2024 and December 31, 2023. As of September 30, 2024, 38 percent of our total loans were floating rate, 25 percent were adjustable rate and 37 percent were fixed rate, compared to 40 percent floating rate, 24 percent adjustable rate and 35 percent fixed rate at December 31, 2023. Commercial loans, including CRE, C&I and commercial construction, comprised 68.4 percent of total portfolio loans at September 30, 2024 and 70.1 percent at December 31, 2023. The commercial loan portfolio decreased $100.4 million at September 30, 2024 compared to December 31, 2023, primarily due to decreases of $93.9 million in C&I and $29.7 million in CRE offset by an increase of $23.2 million in commercial construction. Loan growth has slowed primarily due to elevated loan pay-offs.

Our multifamily and office segments are the most significant CRE and commercial construction concentrations within our portfolio. Approximately 96 percent of multifamily and 90 percent of office CRE loans are located within our market area, which includes Pennsylvania and the contiguous states of Ohio, New York, West Virginia, New Jersey, Delaware and Maryland.

In the CRE segment, multifamily represented $586.2 million, or 7.6 percent of total portfolio loans, at September 30, 2024, compared to $569.4 million, or 7.4 percent, at December 31, 2023. The average loan size of multifamily CRE is $1.0 million with an average loan to value of 58 percent at September 30, 2024. There were only $0.3 million in special mention loans and $6.9 million of substandard loans in the multifamily CRE segment at September 30, 2024, compared to special mention loans of $3.8 million and substandard loans of $13.0 million at December 31, 2023. There were no nonperforming multi-family loans at September 30, 2024 and December 31, 2023.

Office CRE was $461.7 million, or 6.0 percent of total portfolio loans, at September 30, 2024, compared to $480.5 million, or 6.3 percent, at December 31, 2023. The average loan size of office CRE is $1.1 million with an average loan to value of 53 percent at September 30, 2024. Special mention loans in the office CRE segment were $10.2 million and substandard loans were $2.2 million at September 30, 2024, compared to special mention loans of $9.1 million and substandard loans of $2.5 million at December 31, 2023. There was $0.4 million of nonperforming office loans at September 30, 2024 and $0.5 million at December 31, 2023.

In addition, within the commercial construction segment, multifamily represented $99.0 million, or 1.3 percent of total portfolio loans, at September 30, 2024, compared to $119.0 million, or 1.6 percent, at December 31, 2023. Commercial construction office was $17.1 million, or 0.2 percent of total portfolio loans, at September 30, 2024, compared to $36.0 million, or 0.5 percent, at December 31, 2023. There were no special mention or substandard commercial construction loans within our multifamily or office segments for the periods presented.

Consumer loans represent 31.6 percent of our total portfolio loans at September 30, 2024 and 29.9 percent at December 31, 2023. The consumer loan portfolio increased $136.1 million at September 30, 2024 compared to December 31, 2023, primarily due to growth in our consumer real estate portfolio of $145.8 million. Consistent with 2023, we continue to retain consumer real estate loans on our balance sheet as portfolio loans, versus selling these loans due to the loan pricing in the secondary market.

Allowance for Credit Losses

We maintain an ACL at a level determined to be adequate to absorb estimated expected credit losses within the loan portfolio over the contractual life of an instrument that considers our historical loss experience, current conditions and forecasts of future economic conditions as of the balance sheet date. We develop and document a systematic ACL methodology based on the following portfolio segments: 1) CRE, 2) C&I, 3) Commercial Construction, 4) Business Banking, 5) Consumer Real Estate and 6) Other Consumer. Refer to Part 1. Financial Information, Note 5 Loans and Allowance for Credit Losses for details on our portfolio segments.

The following table presents activity in the ACL for the periods presented:

(dollars in thousands)

The following table presents key ACL ratios for the periods presented:

(1) Year-to-date net charge-offs annualized

Net loan charge-offs were $8.3 million, or 0.15 percent of average loans, for the nine months ended September 30, 2024. Refer to the "Provision for Credit Losses" section of this MD&A for further details.

The ACL decreased $3.7 million to $104.3 million, or 1.36 percent of total portfolio loans, at September 30, 2024, compared to $108.0 million, or 1.41 percent of total portfolio loans, at December 31, 2023. The decrease in the ACL is related to improvement in our overall asset quality resulting in a $5.0 million decrease in our qualitative reserve and a $1.8 million decrease in our quantitative reserve. The decrease in the qualitative reserve primarily related to improvement in our healthcare portfolio along with improvement in various other risk factors within our qualitative reserve. These decreases were offset by a $2.2 million specific reserve for loans individually evaluated related to a CRE relationship that was downgraded to nonaccrual during the three months ended March 31, 2024.

Substandard loans decreased $16.6 million to $156.7 million at September 30, 2024, compared to $173.3 million at December 31, 2023. The decrease in substandard loans was primarily due to loan payoffs and commercial charge-offs. Special mention loans decreased $39.5 million to $96.3 million at September 30, 2024, compared to $135.8 million at December 31, 2023. The decrease in special mention loans was primarily due to risk rating upgrades in our CRE healthcare portfolio which was partially offset by three C&I relationships totaling $18.5 million downgraded from special mention to substandard in the three months ended September 30, 2024.

Our allowance on unfunded loan commitments and letters of credit provides for the risk of expected loss in these arrangements. The allowance is computed using a methodology similar to that used to determine the ACL for loans, modified to take into account the probability of a draw-down on the commitment. The provision for credit losses on unfunded loan commitments is included in the provision for credit losses on the Condensed Consolidated Statements of Comprehensive Income. The allowance for unfunded loan commitments decreased $2.1 million to $4.7 million at September 30, 2024, compared to $6.8 million at December 31, 2023. The decrease was due to decreased loss rates and a reduction in unused commitments in our construction portfolio. The allowance for unfunded commitments is included in other liabilities in the Consolidated Balance Sheets.

Nonperforming assets, or NPAs, consist of nonaccrual loans and OREO. The following represents NPAs as of the dates presented:

(dollars in thousands)

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 the contractual due date. Nonaccrual loans increased $9.0 million to $31.9 million at September 30, 2024, compared to $22.9 million at December 31, 2023. The increase in nonaccrual loans primarily related to the addition of a $16.3 million CRE relationship, which had a $3.7 million partial charge-off during the nine months ended September 30, 2024. A specific reserve of $2.2 million was added for this relationship based on the uncertainty of timing surrounding the execution of the resolution strategy. Partially offsetting the increase in nonaccrual loans were payoffs in our CRE portfolio.

Deposits

Deposits are our primary source of funds. We have a well-diversified deposit base with a balance mix of 58.4 percent personal, 33.6 percent business, 5.7 percent public funds and 2.3 percent brokered at September 30, 2024.

(dollars in thousands)

The following table presents the composition of deposits for the periods presented:

(dollars in thousands)

Our total deposits increased $133.1 million at September 30, 2024, compared to December 31, 2023. Customer deposit growth continues to be strong allowing for a reduction in higher costing brokered deposits. Customer deposits increased $333.4 million, or 4.7 percent, compared to December 31, 2023, as a result of our focus on growing our deposit franchise.

As a member of the IntraFi network, we are able to offer our customers insurance coverage on interest-bearing demand, money market and certificates of deposit balances in excess of the FDIC insurance limits. IntraFi balances decreased $1.9 million to $275.8 million at September 30, 2024, compared to $277.7 million at December 31, 2023. We had total uninsured deposits of $2.6 billion, or 34 percent of our total deposit base, at September 30, 2024 compared to $2.3 billion, or 30 percent or our total deposit base, at December 31, 2023.

Borrowings

(dollars in thousands)

Borrowings are an additional source of funding for us. Total borrowings decreased $165.2 million to $338.4 million at September 30, 2024, compared to $503.6 million at December 31, 2023, primarily due to strong growth in customer deposits.

Information pertaining to short-term borrowings is summarized in the table below for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023.

(dollars in thousands)

Information pertaining to long-term borrowings and junior subordinated debt securities is summarized in the tables below for the three months ended September 30, 2024 and the twelve months ended December 31, 2023.

(dollars in thousands)

Liquidity and Capital Resources

Liquidity is defined as a financial institution’s ability to meet its cash and collateral obligations at a reasonable cost. Our primary future cash needs are centered on the ability to (i) satisfy the financial needs of depositors who may want to withdraw funds or of borrowers needing to access funds to meet their credit needs and (ii) to meet our future cash commitments under contractual obligations with third parties. In order to manage liquidity risk, our Board of Directors has delegated authority to ALCO for the formulation, implementation and oversight of liquidity risk management for S&T. The ALCO’s goal is to maintain adequate levels of liquidity at a reasonable cost to meet funding needs in both a normal operating environment and for potential liquidity stress events. The ALCO monitors and manages liquidity through various ratios, reviewing cash flow projections, performing stress tests and having a detailed contingency funding plan. The ALCO policy guidelines define graduated risk tolerance levels. If our liquidity position moves to a level that has been defined as high risk, specific actions are required, such as increased monitoring or the development of an action plan to reduce the risk position.

Our primary funding and liquidity source is a stable customer deposit base. We believe S&T has the ability to retain existing deposits and attract new deposits, mitigating any funding dependency on other more volatile funding sources. Refer to the "Financial Condition as of September 30, 2024 - Deposits" section of this MD&A, for additional discussion on deposits. Although deposits are the primary source of funds, we have identified various other funding sources that can be used as part of our normal funding program. Additional funding sources accessible to S&T include borrowing availability at the Federal Home Loan Bank of Pittsburgh, or FHLB, federal funds lines with other financial institutions and the brokered deposit market. We also have availability at the Federal Reserve Discount Window through the Borrower-in-Custody Program.

In response to the bank failures in March 2023, the Federal Reserve authorized additional funding availability to eligible depository institutions through the Federal Reserve Bank Term Funding Program, or BTFP. The temporary program was intended to help assure depositors that their institutions have an additional source of liquidity to meet their needs. Under the program, any collateral eligible for purchase by the Federal Reserve Banks in open market operations could be pledged, including U.S. Treasury securities, U.S. Agencies and U.S. Agency mortgage-backed securities. Collateral advances were equal to 100 percent of the par value of the collateral pledged with a term of up to one year. Interest was charged at a fixed rate equal to the one-year overnight index swap rate plus 10 basis points with no prepayment penalty. The BTFP ceased making new fundings on March 11, 2024.

Available borrowing capacity exceeds uninsured deposits of $2.6 billion at September 30, 2024. The following table summarizes funding sources available as of the dates presented:

(dollars in thousands)

We have contractual obligations representing required future payments on certificates of deposit, junior subordinated debt securities, short-term borrowings, long-term borrowings, operating and capital leases, funding commitments on tax credit equity investments and purchase obligations. See the Liquidity and Capital Resources portion of our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2023 Form 10-K for more information on these future cash outflows. Total certificates of deposit increased $188.7 million to $1.8 billion at September 30, 2024, compared to December 31, 2023 and short-term borrowings decreased $190.0 million to $225.0 million at September 30, 2024, compared to December 31, 2023. Other than these changes, there have been no material changes to the contractual obligations previously disclosed in our 2023 Form 10-K.

An important component of our ability to effectively respond to potential liquidity stress events is maintaining a cushion of highly liquid assets. Highly liquid assets are those that can be converted to cash quickly to meet financial obligations. ALCO policy guidelines define a ratio of highly liquid assets to total assets by graduated risk tolerance levels of minimal, moderate and high. At September 30, 2024, S&T Bank had $682.5 million in highly liquid assets, which consisted primarily of $139.2 million in interest-bearing deposits with banks and $543.0 million in unpledged securities. This resulted in a highly liquid assets to total assets ratio of 7.1 percent at September 30, 2024.

We continue to maintain a strong capital position with our leverage ratio at 11.70 percent at September 30, 2024, compared to 11.21 percent at December 31, 2023, both in excess of the well-capitalized regulatory guideline of 5.00 percent. We continue to be well-capitalized with a risk-based Common Equity Tier 1 ratio of 14.37 percent at September 30, 2024, compared to 13.37 percent at December 31, 2023, both in excess of the well-capitalized regulatory guideline of 6.50 percent.

The following table summarizes capital amounts and ratios for S&T and S&T Bank as of the dates presented:

(dollars in thousands)

We have filed a shelf registration statement on Form S-3 under the Securities Act of 1933, as amended, with the SEC, which allows for the issuance of a variety of securities including debt and capital securities, preferred and common stock and warrants. We may use the proceeds from the sale of securities for general corporate purposes, which could include investments at the holding company level, investing in, or extending credit to subsidiaries, possible acquisitions and stock repurchases. As of September 30, 2024, we had not issued any securities pursuant to this shelf registration statement.

Market risk is defined as the degree to which changes in interest rates, foreign exchange rates, commodity prices or equity prices can adversely affect a financial institution’s earnings or capital. For most financial institutions, including S&T, market risk primarily reflects exposures to changes in interest rates. Interest rate fluctuations affect earnings by changing net interest income and other interest-sensitive income and expense levels. Interest rate changes also affect capital by changing the net present value of a bank’s future cash flows, and the cash flows themselves, as rates change. Accepting this risk is a normal part of banking and can be an important source of profitability and enhancing shareholder value. However, excessive interest rate risk can threaten a bank’s earnings, capital, liquidity and solvency. Our sensitivity to changes in interest rate movements is continually monitored by the ALCO. The ALCO monitors and manages market risk through rate shock analyses, economic value of equity, or EVE, analyses and by performing stress tests and simulations to mitigate earnings and market value fluctuations due to changes in interest rates.

Rate shock analyses results are compared to a base case to provide an estimate of the impact that market rate changes may have on 12 and 24 months of pretax net interest income. The base case and rate shock analyses are performed on a static balance sheet. A static balance sheet is a no growth balance sheet in which all maturing and/or repricing cash flows are reinvested in the same product at the existing product spread. Rate shock analyses assume an immediate parallel shift in market interest rates and 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. S&T policy guidelines limit the change in pretax net interest income over 12 and 24 month horizons using rate shocks in increments of +/- 100 basis points. Policy guidelines define the percentage change in pretax net interest income by graduated risk tolerance levels of minimal, moderate and high.

In order to monitor interest rate risk beyond the 24 month time horizon of rate shocks on pretax net interest income, we also perform EVE analyses. EVE represents the present value of all asset cash flows minus the present value of all liability cash flows. EVE change results are compared to a base case to determine the impact that market rate changes may have on our EVE. As with rate shock analyses on pretax net interest income, EVE analyses incorporate management assumptions regarding prepayment behavior of fixed rate loans and securities with optionality and the behavior and value of non-maturity deposit products. S&T policy guidelines limit the change in EVE using rate shocks in increments of +/- 100 basis points. Policy guidelines define the 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.

45

The results from the rate shock analyses on net interest income are generally consistent with having an asset sensitive balance sheet. Having an asset sensitive balance sheet means more assets than liabilities will reprice during the measured time frames. The implications of an asset sensitive balance sheet will differ depending upon the change in market interest rates. For example, with an asset sensitive balance sheet in a declining interest rate environment, more assets than liabilities will decrease in rate. This situation could result in a decrease in net interest income and operating income. Conversely, with an asset sensitive balance sheet in a rising interest rate environment, more assets than liabilities will increase in rate. This situation could result in an increase in net interest income and operating income.

Our rate shock analyses show less improvement in the percentage change in pretax net interest income in the rates up scenarios when comparing September 30, 2024 to December 31, 2023 primarily because of changes to our funding mix. The percentage change in pretax net interest income in the rates down scenarios show a decline when comparing September 30, 2024 to December 31, 2023 primarily due to changes in our bond portfolio mix and upcoming maturities within our receive-fixed balance sheet swap portfolio. Our EVE analyses show a slight decline in the rates up scenarios when comparing September 30, 2024 to December 31, 2023 primarily because of changes to our loan mix. The percentage change in our EVE declines in the rates down scenarios when comparing September 30, 2024 to December 31, 2023. These changes are mainly the result of earlier bond cash flows and changes to deposit mix.

In addition to rate shocks and EVE analyses, we perform a market risk stress test at least annually. The market risk stress test includes sensitivity analyses and simulations. Sensitivity analyses are performed to help us identify which model assumptions cause the greatest impact on pretax net interest income. Sensitivity analyses may include changing prepayment behavior of loans and securities with optionality and the impact of interest rate changes on non-maturity deposit products. Simulation analyses may include the potential impact of rate changes other than the policy guidelines, yield curve shape changes, significant balance mix changes and various growth scenarios.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of S&T’s Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO (its principal executive officer and principal financial officer, respectively), management has evaluated the effectiveness of the design and operation of S&T’s disclosure controls and procedures as of September 30, 2024. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods required by the Securities and Exchange Commission, or the SEC, and that such information is accumulated and communicated to S&T’s management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Based on and as of the date of such evaluation, our CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective in all material respects, as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2024, there were no changes made to S&T’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, S&T’s internal control over financial reporting.

PART II

OTHER INFORMATION

There have been no material changes to the risk factors that we have previously disclosed in Part I, Item 1A – “Risk Factors” in our 2023 Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 27, 2024.