Notes to Financial Statements
Years ended December 31, 2018 and 2017
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1.
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Description of the Plan
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The following description of the Thrift Plan for Employees of S&T Bank (the Plan) provides only general information. For more complete information about the Plan, including participation, vesting and benefit provisions, refer to the Plan Document, which can be obtained from S&T Bank (the Plan Sponsor and Employer).
General
The Plan was adopted effective May 1, 1984 and made retroactive to January 1, 1984 by the Plan Sponsor. The Plan is a defined contribution plan that covers all employees of S&T Bank. Additionally, employees of S&T Evergreen Insurance were included in the Plan through December 1, 2017. The Plan is subject to the provisions of the Employee Retirement Income Security Act (ERISA). Effective January 1, 2018, S&T Insurance Group, LLC, sold a majority interest in its previously wholly-owned subsidiary S&T-Evergreen Insurance, LLC.
In December 2018, the Plan was amended to include a Roth provision for contributions, effective April 1, 2019.
In March 2015, the Plan Sponsor acquired Integrity Bank (Acquired Bank). Employees of the Acquired Bank who were retained by the Employer were immediately eligible to participate in the Plan at the time of acquisition, and received credit for prior service at the Acquired Bank at which they were formerly employed. The Acquired Bank had its own defined contribution plan, which the Acquired Bank’s board of directors approved for termination immediately prior to Acquired Bank’s acquisition date with the Plan Sponsor. However, these employees were not permitted to roll over balances from their existing retirement plan. The Internal Revenue Service approved the termination of the Integrity Bank 401(k) Plan in 2017, and active participants were permitted to roll over the balance that was not attributable to Roth contributions and approximated $279,000 during 2017.
Contributions
The Plan is a vehicle for accepting employee pre-tax and employer tax-deferred contributions. Participants determine the amount of their pre-tax cash contributions to the Plan up to 50% of their eligible compensation. Employer matching contributions are equal to 100% on the first 1% of eligible compensation and 50% on the next 5% of eligible compensation, not to exceed 3.5% of eligible compensation. Employer discretionary contributions are determined by the Board of Directors of the Plan Sponsor. There were no discretionary employer contributions during 2018 or 2017. The Plan does not allow employee after-tax contributions. Participants may also contribute amounts representing distributions from other qualified retirement plans (rollovers). Participants who have attained age 50 before the end of the plan year are eligible to make catch-up contributions.
The Plan provides for automatic enrollment of newly eligible employees. Automatic pre-tax contributions are 6% of eligible compensation. Additionally, unless the participant changes his or her deferral percentage, the withholding will increase by 1% annually, up to a maximum of 10%. These pre-tax contributions and the employer matching contributions are invested in the Dodge & Cox Balanced Fund. Automatically enrolled employees can decline to participate or modify participation in accordance with the requirements of the Pension Protection Act of 2006.
Participants may elect to invest their contributions in one or more of the 13 available investment options or in one of five risk-based portfolios. The risk-based portfolios are composed of varying allocations of the available investment options, which participants may select, based on their risk profile, ranging from conservative to aggressive. Employer matching contributions are invested in the same proportions. The Employer discretionary contributions are made to the investment option holding S&T Bancorp, Inc. common stock. Participants are permitted to transfer all balances in their accounts between investment options.
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1.
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Description of the Plan (continued)
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Participant Accounts
Individual accounts are maintained for each participant. Each participant’s account is credited with the participant’s contributions, employer matching contributions and allocations of other Employer contributions and fund earnings, which are allocated based on the participant’s compensation or fund balances, respectively. The Plan passes through quarterly administrative fees to those participants no longer employed by the Employer. Fees paid by participants and the Plan are further described under Administrative Fees in Note 2. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Participants are vested immediately in their contributions plus actual earnings thereon. For participants hired on or after January 1, 2008, 100% vesting in Employer matching contributions and Employer discretionary contributions and the earnings thereon will occur when the Participant completes two years of service with the Employer. Participants hired prior to January 1, 2008 are 100% vested in all employer contributions.
Notes Receivable from Participants
The Plan does not provide for notes receivable from participants.
Payment of Benefits
Upon termination of service from the Employer, a participant may elect to receive a lump sum amount equal to the value of the participant’s vested interest in their account.
Retired participants may take partial distributions as frequently as once a quarter, however, they are required to receive a lump sum distribution at age 70 1/2 under Section 401(a)(9) of the Internal Revenue Code of 1986, as amended (the “Code”).
Terminated participants whose vested account balance is at least $1,000 but not more than $5,000 are subject to a mandatory rollover if the participant fails to make an affirmative election to either receive a lump sum payment or directly roll over the balance to an eligible plan. The participant’s account will be transferred to an individual retirement plan selected by the Thrift Plan Committee. Terminated participants whose vested account balance is less than $1,000 are subject to a mandatory lump sum distribution if the participant fails to make an affirmative election to either receive a lump sum payment or directly roll over the balance to an eligible plan.
Forfeited Accounts
As of December 31, 2018 and 2017, participant forfeited accounts approximated $91,000 and $71,000, respectively. Forfeitures are used to reduce future Employer contributions. Forfeitures applied to Employer contributions in 2018 and 2017 approximated $103,000 and $66,000, respectively.
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2.
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Summary of Significant Accounting Policies
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A summary of significant accounting policies consistently applied by management in the preparation of the accompanying financial statements follows:
Basis of Accounting
The financial statements of the Plan have been prepared on the accrual basis of accounting.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein and disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Investments are reported at estimated fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Thrift Plan Committee is responsible for establishing an accounting and financial reporting process for fair value measurements. The Thrift Plan Committee may look to the investment manager, trustee, or other service provider to assist in the mechanics of the valuation. However, the Thrift Plan Committee is responsible for obtaining sufficient information to evaluate and independently challenge the valuation.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net (depreciation) appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
The Plan uses a fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:
Level 1
- Quoted prices for
identical
instruments in active markets.
Level 2
- Quoted prices for
similar
instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
- Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are
unobservable.
The Plan Sponsor generally uses quoted market prices to determine fair value, and classifies such items in Level 1.
The asset’s and liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in methodologies used at December 31, 2018 and 2017.
Mutual and money market funds - valued at the daily closing price as reported by the funds. Mutual and money market funds held by the Plan are open-ended funds that are registered within the Securities and Exchange Commission. The funds are required to publish their daily net asset value and to transact at that price. These funds held by the Plan are deemed to be actively traded.
Common stock - valued at the closing price reported on the active market on which the individual securities are traded.
The methods described above might produce a fair value calculation that might not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and
consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
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2.
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Summary of Significant Accounting Policies (continued)
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The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value:
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Assets at Fair Value as of December 31, 2017
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Level 1
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Level 2
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Level 3
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Total
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Money Market Fund
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6,131,215
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—
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—
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6,131,215
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Mutual Funds
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60,710,050
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—
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—
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60,710,050
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Common Stock
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19,561,947
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—
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—
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19,561,947
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Total Assets at Fair Value
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$
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86,403,212
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$
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—
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$
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—
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$
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86,403,212
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Assets at Fair Value as of December 31, 2016
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Level 1
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Level 2
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Level 3
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Total
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Money Market Fund
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5,700,507
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—
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—
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5,700,507
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Mutual Funds
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69,261,102
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—
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—
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69,261,102
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Common Stock
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20,661,605
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—
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—
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20,661,605
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Total Assets at Fair Value
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$
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95,623,214
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$
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—
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$
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—
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$
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95,623,214
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The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.
The Plan Sponsor evaluated the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total net assets available for benefits. For the years ended December 31, 2018 and 2017, there were no transfers in or out of Levels 1, 2, or 3.
Payment of Benefits
Benefits are recorded when paid.
Administrative Fees
Participants pay fees for distributions from their accounts, for commissions on purchases and sales of S&T Bancorp, Inc. common stock, and for qualifications of domestic relations orders. The Plan passes through quarterly administrative fees to those participants who are no longer employed by the Employer. As of December 31, 2018 and 2017, separated participants had approximately $0 and $3,600, respectively, payable in fees for balances in the Plan. The Participants pay these fees directly to the Plan’s third-party administrator and record keeper, Transamerica.
All other expenses of maintaining the Plan are paid by the Employer.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820). The updated guidance improves the disclosure requirements on fair value measurements. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. For the plan year ended December 31, 2018 the Plan has adopted this ASU. The adoption of this standard was determined to have no impact on the plan’s financials.
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3.
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Transactions with Parties-in-Interest
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Legal, accounting, and other administrative fees are paid by the Plan Sponsor. The Plan is administered by the Plan Sponsor. Transamerica is the third-party administrator and record keeper for the Plan; however, the Plan Sponsor retains primary responsibility for administration. State Street Bank and Trust Company (the Trustee) acts as trustee and custodian for the Plan. Effective June 1, 2017, Transamerica Retirement Solutions, LLC and State Street Bank and Trust Company have succeeded Mercer HR Services and Mercer Trust Company, respectively.
At December 31, 2018 and 2017, respectively, the Plan held an aggregate of 516,965 and 519,005 shares of S&T Bancorp, Inc. common stock valued at $19,561,947 and $20,661,605.
The Plan has received a determination letter from the Internal Revenue Service (IRS) dated May 2, 2017, stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Sponsor believes that the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified, and the related trust is tax-exempt.
Accounting principles generally accepted in the United States of America require plan management to evaluate tax positions taken by the plan and recognize a tax liability (or asset) if the plan has taken an uncertain tax position that more likely than not would not be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2018 and 2017, there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan Administrator believes it is no longer subject to income tax examinations for years prior to 2015.
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5.
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Risks and Uncertainties
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The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
Although it has not expressed any interest to do so, the Plan Sponsor reserves the right to amend or discontinue the Plan. In the event of a termination of the Plan, plan assets would be used for the benefit of participants and their beneficiaries, as prescribed by law.
Supplemental Schedule