Company Quick10K Filing
Quick10K
First Commonwealth Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$14.26 98 $1,400
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-01-29 Earnings, Regulation FD, Exhibits
8-K 2018-10-23 Earnings, Regulation FD, Exhibits
8-K 2018-08-15 Accountant, Exhibits
8-K 2018-07-24 Earnings, Regulation FD, Exhibits
8-K 2018-05-21 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-16 Regulation FD, Exhibits
8-K 2018-05-11 Other Events, Exhibits
8-K 2018-05-01 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2018-04-24 Shareholder Vote
8-K 2018-02-22 Officers
8-K 2018-01-23 Earnings, Regulation FD, Exhibits
8-K 2018-01-10 Other Events, Exhibits
8-K 2018-01-03 Other Events
SNV Synovus Financial
FFBC First Financial Bancorp
LKFN Lakeland Financial
ABTX Allegiance Bancshares
TRST Trustco Bank N Y
CAC Camden National
FFIC Flushing Financial
BMRC Bank of Marin Bancorp
MRLN Marlin Business Services
MYFW First Western Financial
FCF 2018-09-30
Item 1. Financial Statements and Supplementary Data
Note 1 Basis of Presentation
Note 2 Acquisition
Item 1. Financial Statements and Supplementary Data
Note 3 Supplemental Comprehensive Income Disclosures
Note 4 Supplemental Cash Flow Disclosures
Note 5 Earnings per Share
Item 1. Financial Statements and Supplementary Data
Note 6 Commitments and Contingent Liabilities
Note 7 Investment Securities
Item 1. Financial Statements and Supplementary Data
Note 8 Impairment of Investment Securities
Note 9 Loans and Allowance for Credit Losses
Item 1. Financial Statements and Supplementary Data
Note 10 Income Taxes
Note 11 Fair Values of Assets and Liabilities
Item 1. Financial Statements and Supplementary Data
Note 12 Derivatives
Note 13 Goodwill
Item 1. Financial Statements and Supplementary Data
Note 14 Subordinated Debentures
Note 15 Revenue Recognition
Item 1. Financial Statements and Supplementary Data
Note 16 New Accounting Pronouncements
Note 17 Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Part II - Other Information
Item 6. Exhibits
EX-31.1 fcf-ex311_20180930x10q.htm
EX-31.2 fcf-ex312_20180930x10q.htm
EX-32.1 fcf-ex321_20180930x10q.htm
EX-32.2 fcf-ex322_20180930x10q.htm

First Commonwealth Financial Earnings 2018-09-30

FCF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fcf-20180930x10q.htm FORM 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number 001-11138
First Commonwealth Financial Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania
 
25-1428528
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
601 Philadelphia Street, Indiana, PA
 
15701
(Address of principal executive offices)
 
(Zip Code)
724-349-7220
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x    Accelerated filer  ¨    Smaller reporting company  ¨   Emerging growth company  ¨
Non-accelerated filer  ¨ (Do not check if a smaller reporting company) 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
The number of shares outstanding of issuer’s common stock, $1.00 par value, as of November 7, 2018, was 99,423,275.



FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
INDEX
 
 
 
PAGE
 
 
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
ITEM 5.
 
 
 
ITEM 6.
 
 
 
 

2



ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

 
September 30, 2018
 
December 31, 2017
 
(dollars in thousands,
except share data)
Assets
 
 
 
Cash and due from banks
$
93,162

 
$
98,624

Interest-bearing bank deposits
3,022

 
8,668

Securities available for sale, at fair value
889,056

 
731,358

Securities held to maturity, at amortized cost (Fair value of $373,933 and $418,249 at September 30, 2018 and December 31, 2017, respectively)
389,621

 
422,096

Other investments
25,029

 
29,837

Loans held for sale
8,287

 
14,850

Loans:
 
 
 
Portfolio loans
5,662,782

 
5,407,376

Allowance for credit losses
(50,746
)
 
(48,298
)
Net loans
5,612,036

 
5,359,078

Premises and equipment, net
80,426

 
81,339

Other real estate owned
3,874

 
2,765

Goodwill
274,202

 
255,353

Amortizing intangibles, net
13,826

 
15,007

Bank owned life insurance
214,322

 
212,099

Other assets
79,482

 
77,465

Total assets
$
7,686,345

 
$
7,308,539

Liabilities
 
 
 
Deposits (all domestic):
 
 
 
Noninterest-bearing
$
1,451,284

 
$
1,416,771

Interest-bearing
4,443,859

 
4,163,934

Total deposits
5,895,143

 
5,580,705

Short-term borrowings
587,806

 
707,466

Subordinated debentures
170,249

 
72,167

Other long-term debt
7,706

 
8,161

Capital lease obligation
7,311

 
7,590

Total long-term debt
185,266

 
87,918

Other liabilities
45,199

 
44,323

Total liabilities
6,713,414

 
6,420,412

Shareholders’ Equity
 
 
 
Preferred stock, $1 par value per share, 3,000,000 shares authorized, none issued

 

Common stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued at September 30, 2018 and December 31, 2017, and 100,361,434 and 97,456,478 shares outstanding at September 30, 2018 and December 31, 2017, respectively
113,915

 
113,915

Additional paid-in capital
492,262

 
470,123

Retained earnings
493,392

 
437,416

Accumulated other comprehensive loss, net
(20,657
)
 
(6,173
)
Treasury stock (13,553,468 and 16,458,424 shares at September 30, 2018 and December 31, 2017, respectively)
(105,981
)
 
(127,154
)
Total shareholders’ equity
972,931

 
888,127

Total liabilities and shareholders’ equity
$
7,686,345

 
$
7,308,539


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(dollars in thousands, except share data)
Interest Income
 
 
 
 
 
 
 
Interest and fees on loans
$
66,105

 
$
57,335

 
$
188,529

 
$
160,548

Interest and dividends on investments:
 
 
 
 
 
 
 
Taxable interest
7,899

 
7,219

 
23,031

 
21,577

Interest exempt from federal income taxes
410

 
410

 
1,231

 
1,212

Dividends
420

 
417

 
1,412

 
1,276

Interest on bank deposits
39

 
30

 
109

 
97

Total interest income
74,873

 
65,411

 
214,312

 
184,710

Interest Expense
 
 
 
 
 
 
 
Interest on deposits
6,006

 
2,491

 
14,639

 
6,511

Interest on short-term borrowings
2,603

 
2,427

 
7,387

 
6,373

Interest on subordinated debentures
2,302

 
772

 
4,664

 
2,215

Interest on other long-term debt
76

 
81

 
228

 
245

Interest on lease obligations
73

 
77

 
221

 
156

Total interest expense
11,060

 
5,848

 
27,139

 
15,500

Net Interest Income
63,813

 
59,563

 
187,173

 
169,210

Provision for credit losses
2,961

 
1,214

 
11,032

 
2,834

Net Interest Income after Provision for Credit Losses
60,852

 
58,349

 
176,141

 
166,376

Noninterest Income
 
 
 
 
 
 
 
Net securities gains

 
92

 
8,102

 
695

Trust income
2,206

 
2,147

 
6,014

 
5,275

Service charges on deposit accounts
4,589

 
4,803

 
13,418

 
13,858

Insurance and retail brokerage commissions
1,872

 
2,128

 
5,560

 
6,652

Income from bank owned life insurance
1,579

 
1,472

 
5,241

 
4,213

Gain on sale of mortgage loans
1,542

 
1,418

 
4,267

 
3,710

Gain on sale of other loans and assets
643

 
503

 
3,548

 
1,267

Card-related interchange income
5,044

 
4,780

 
14,929

 
13,873

Derivatives mark to market

 
(14
)
 
789

 
(49
)
Swap fee income
528

 
217

 
1,115

 
458

Other income
1,754

 
2,244

 
5,125

 
5,674

Total noninterest income
19,757

 
19,790

 
68,108

 
55,626

Noninterest Expense
 
 
 
 
 
 
 
Salaries and employee benefits
26,553

 
26,169

 
77,580

 
74,933

Net occupancy expense
4,341

 
3,715

 
12,932

 
11,597

Furniture and equipment expense
3,424

 
3,342

 
10,611

 
9,753

Data processing expense
2,853

 
2,229

 
7,764

 
6,659

Advertising and promotion expense
1,200

 
941

 
3,185

 
2,735

Pennsylvania shares tax expense
1,248

 
1,093

 
3,398

 
3,070

Intangible amortization
817

 
844

 
2,430

 
2,262

Collection and repossession expense
630

 
402

 
2,060

 
1,342

Other professional fees and services
962

 
1,300

 
3,000

 
3,355

FDIC insurance
217

 
696

 
1,590

 
2,466

Loss on sale or write-down of assets
181

 
167

 
875

 
1,486

Litigation and operational losses
435

 
598

 
811

 
1,107

Merger and acquisition related
24

 
(69
)
 
1,634

 
10,412

Other operating expenses
6,645

 
5,934

 
17,662

 
17,212

Total noninterest expense
49,530

 
47,361

 
145,532

 
148,389

Income Before Income Taxes
31,079

 
30,778

 
98,717

 
73,613

Income tax provision
5,930

 
9,495

 
18,217

 
22,429

Net Income
$
25,149

 
$
21,283

 
$
80,500

 
$
51,184

Average Shares Outstanding
100,226,647

 
97,402,816

 
98,998,497

 
94,536,472

Average Shares Outstanding Assuming Dilution
100,490,812

 
97,457,470

 
99,197,568

 
94,578,490

Per Share Data:
 
 
 
 
 
 
 
Basic Earnings per Share
$
0.25

 
$
0.22

 
$
0.81

 
$
0.54

Diluted Earnings per Share
$
0.25

 
$
0.22

 
$
0.81

 
$
0.54

Cash Dividends Declared per Common Share
$
0.09

 
$
0.08

 
$
0.26

 
$
0.24


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2018
 
2017
 
2018
 
2017
 
(dollars in thousands)
Net Income
$
25,149

 
$
21,283

 
$
80,500

 
$
51,184

Other comprehensive (loss) income, before tax benefit (expense):
 
 
 
 
 
 
 
Unrealized holding (losses) gains on securities arising during the period
(5,382
)
 
1,690

 
(8,704
)
 
5,935

Less: reclassification adjustment for gains on securities included in net income

 
(92
)
 
(8,102
)
 
(695
)
Unrealized holding gains (losses) on derivatives arising during the period
198

 
(49
)
 
165

 
(631
)
Less: reclassification adjustment for losses on derivatives included in net income

 
20

 
10

 
93

Total other comprehensive (loss) income, before tax benefit (expense)
(5,184
)
 
1,569

 
(16,631
)
 
4,702

Income tax benefit (expense) related to items of other comprehensive (loss) income
1,088

 
(549
)
 
3,491

 
(1,646
)
Total other comprehensive (loss) income
(4,096
)
 
1,020

 
(13,140
)
 
3,056

Comprehensive Income
$
21,053

 
$
22,303

 
$
67,360

 
$
54,240



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
 
 
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in-
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss),
net
 
Treasury
Stock
 
Total
Shareholders’
Equity
 
(dollars in thousands, except share and per share data)
Balance at December 31, 2017
97,456,478

 
$
113,915

 
$
470,123

 
$
437,416

 
$
(6,173
)
 
$
(127,154
)
 
$
888,127

Cumulative effect of adoption of ASU 2018-02
 
 
 
 
 
 
1,344

 
(1,344
)
 
 
 

January 1, 2018
97,456,478

 
113,915

 
470,123

 
438,760

 
(7,517
)
 
(127,154
)
 
888,127

Net income
 
 
 
 
 
 
80,500

 
 
 
 
 
80,500

Other comprehensive loss
 
 
 
 
 
 
 
 
(13,140
)
 
 
 
(13,140
)
Cash dividends declared ($0.26 per share)
 
 
 
 
 
 
(25,868
)
 
 
 
 
 
(25,868
)
Treasury stock acquired
(75,778
)
 
 
 
 
 
 
 
 
 
(1,136
)
 
(1,136
)
Treasury stock reissued
2,908,234

 
 
 
21,579

 

 
 
 
22,447

 
44,026

Restricted stock
72,500

 

 
560

 

 
 
 
(138
)
 
422

Balance at September 30, 2018
100,361,434

 
$
113,915

 
$
492,262

 
$
493,392

 
$
(20,657
)
 
$
(105,981
)
 
$
972,931

 
Shares
Outstanding
 
Common
Stock
 
Additional
Paid-in-
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss),
net
 
Treasury
Stock
 
Total
Shareholders’
Equity
 
(dollars in thousands, except share and per share data)
Balance at December 31, 2016
89,007,077

 
$
105,563

 
$
366,426

 
$
412,764

 
$
(7,027
)
 
$
(127,797
)
 
$
749,929

Net income
 
 
 
 
 
 
51,184

 
 
 
 
 
51,184

Other comprehensive income
 
 
 
 
 
 
 
 
3,056

 
 
 
3,056

Cash dividends declared ($0.24 per share)
 
 
 
 
 
 
(22,717
)
 
 
 
 
 
(22,717
)
Treasury stock acquired
(85,160
)
 
 
 
 
 
 
 
 
 
(1,187
)
 
(1,187
)
Treasury stock reissued
181,211

 
 
 
1,170

 

 
 
 
1,387

 
2,557

Restricted stock
21,000

 

 
138

 

 
 
 
600

 
738

Common stock issuance
8,351,447

 
8,352

 
102,389

 
 
 
 
 


 
110,741

Balance at September 30, 2017
97,475,575

 
$
113,915

 
$
470,123

 
$
441,231

 
$
(3,971
)
 
$
(126,997
)
 
$
894,301



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
For the Nine Months Ended
 
September 30,
 
2018
 
2017
Operating Activities
(dollars in thousands)
Net income
$
80,500

 
$
51,184

Adjustment to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
11,032

 
2,834

Deferred tax expense
2,969

 
3,411

Depreciation and amortization
5,620

 
6,711

Net gains on securities and other assets
(15,816
)
 
(3,821
)
Net amortization of premiums and discounts on securities
2,343

 
2,685

Income from increase in cash surrender value of bank owned life insurance
(4,364
)
 
(4,213
)
Increase in interest receivable
(2,483
)
 
(588
)
Mortgage loans originated for sale
(129,552
)
 
(116,699
)
Proceeds from sale of mortgage loans
139,685

 
114,819

Increase in interest payable
1,672

 
678

(Decrease) increase in income taxes payable
(3,412
)
 
3,288

Distribution from unconsolidated subsidiary
9,000

 

Other-net
(3,655
)
 
2,963

Net cash provided by operating activities
93,539

 
63,252

Investing Activities
 
 
 
Transactions with securities held to maturity:
 
 
 
Proceeds from maturities and redemptions
37,007

 
36,620

Purchases
(5,506
)
 
(101,372
)
Transactions with securities available for sale:
 
 
 
Proceeds from sales
15,939

 
143,660

Proceeds from maturities and redemptions
111,800

 
100,620

Purchases
(292,249
)
 
(150,892
)
Purchases of FHLB stock
(38,947
)
 
(35,346
)
Proceeds from the redemption of FHLB stock
43,754

 
42,791

Proceeds from bank owned life insurance
2,140

 

Proceeds from sale of loans
32,745

 
9,986

Proceeds from sale of other assets
2,486

 
3,835

Acquisition, net of cash acquired
705

 
3,188

Net increase in loans
(109,060
)
 
(132,079
)
Purchases of premises and equipment and other assets
(6,862
)
 
(8,960
)
Net cash used in investing activities
(206,048
)
 
(87,949
)
Financing Activities
 
 
 
Net increase in federal funds purchased
6,500

 

Net decrease in other short-term borrowings
(126,160
)
 
(62,118
)
Net increase in deposits
173,553

 
123,455

Repayments of other long-term debt
(23,443
)
 
(440
)
Repayments of capital lease obligation
(279
)
 
(173
)
Proceeds from issuance of other long-term debt
98,026

 

Dividends paid
(25,868
)
 
(22,717
)
Proceeds from reissuance of treasury stock
208

 
228

Purchase of treasury stock
(1,136
)
 
(1,187
)
Net cash provided by financing activities
101,401

 
37,048

Net (decrease) increase in cash and cash equivalents
(11,108
)
 
12,351

Cash and cash equivalents at January 1
107,292

 
115,677

Cash and cash equivalents at September 30
$
96,184

 
$
128,028


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The accounting and reporting policies of First Commonwealth Financial Corporation and its subsidiaries (“First Commonwealth” or the “Company”) conform with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual realized amounts could differ from those estimates. In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of First Commonwealth’s financial position, results of operations, comprehensive income, cash flows and changes in shareholders’ equity as of and for the periods presented.
The results of operations for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the full year of 2018. These interim financial statements should be read in conjunction with First Commonwealth’s 2017 Annual Report on Form 10-K.
Adoption of New Accounting Standards
On January 1, 2018, First Commonwealth adopted ASU 2014-09, "Revenue from Contracts with Customers" ("ASC 606") and all subsequent amendments to the ASU, which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain(loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Company's revenues come from interest income and other sources, including loans and securities, that are outside the scope of ASC 606. The Company's services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include trust income, service charges on deposits, insurance and retail brokerage commissions, interchange fees and gain(loss) on other real estate owned ("OREO"). Refer to Note 15, "Revenue Recognition" for further discussion on the Company's accounting policies for revenue sources within the scope of ASC 606. The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy GAAP. The adoption of ASC 606 did not result in a significant change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustment was recorded.
On January 1, 2018, First Commonwealth elected to adopt ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." As part of this adoption, First Commonwealth has elected to reclassify the income tax effects resulting from tax reform from accumulated other comprehensive income to retained earnings on a portfolio basis. ASU 2018-02 provides for the reclassification of the stranded tax effects resulting from the Tax Cuts and Jobs Act. As of January 1, 2018, First Commonwealth reclassified $1.3 million from accumulated other comprehensive income to retained earnings in relation to the stranded tax effect which included accumulated other comprehensive income recognized on available-for-sale investment securities, interest rate swaps and other post-retirement benefits. This reclassification is shown as an adjustment to the beginning of the year balances and can be seen in the Condensed Consolidated Statements of Changes in Shareholders' Equity.
In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, and when that assessment indicates that impairment exists, requiring the entity to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a

8

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The adoption of ASU No. 2016-01 on January 1, 2018 did not have a material impact on the Company’s Consolidated Financial Statements. In accordance with this ASU, and as reflected in Note 11, "Fair Values of Assets and Liabilities," the Company measured the fair value of its loan portfolio as of September 30, 2018 using an exit price notion.
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and interest-bearing bank deposits. Generally, federal funds are sold for one-day periods.
Note 2 Acquisition

On May 1, 2018, the Company completed its acquisition of Garfield Acquisition Corporation ("Garfield") and its banking subsidiary, Foundation Bank, for consideration of $17.4 million in cash and 2.7 million shares of the Company's common stock. Through the acquisition, the Company obtained five full-service banking offices which are operating under the First Commonwealth name. This acquisition expands the Company's presence into the Cincinnati, Ohio market and added $184.5 million in loans and $141.3 million in deposits to the Company's balance sheet.

The table below summarizes the net assets acquired (at fair value) and consideration transferred in connection with the Garfield acquisition (dollars in thousands):
Consideration Paid
 
 
 
   Cash paid to shareholders
$
17,400

 
 
   Shares issued to shareholders (2,745,098 shares)
41,561

 
 
Total consideration paid
 
 
$
58,961

 
 
 
 
Fair Value of Assets Acquired
 
 
 
   Cash and cash equivalents
18,105

 
 
   FHLB Stock
3,261

 
 
   Loans
184,506

 
 
   Premises and other equipment
409

 
 
   Intangible assets
1,248

 
 
   Other assets
1,747

 
 
     Total assets acquired
209,276

 
 
 
 
 
 
Fair Value of Liabilities Assumed
 
 
 
   Deposits
141,281

 
 
   Federal Home Loan Bank borrowings
22,988

 
 
   Other liabilities
5,068

 
 
      Total liabilities assumed
169,337

 
 
 
 
 
 
Total Fair Value of Identifiable Net Assets
 
 
39,939

 
 
 
 
Goodwill
 
 
$
19,022

The goodwill of $19.0 million arising from the acquisition represents the value of synergies and economies of scale expected from combining the operations of the Company with Garfield Acquisition Corporation.
The Company determined that this acquisition constitutes a business combination as defined in FASB ASC Topic 805, “Business Combinations.” Accordingly, as of the date of the acquisition, the Company recorded the assets acquired and liabilities assumed at fair value. The Company determined fair values in accordance with the guidance provided in FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” Acquired loans were recorded at fair value with no carryover of the related allowance for loan losses. Fair value is established by discounting the expected future cash flows with a market discount

9

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


rate for like maturities and risk instruments. At the date of acquisition, none of the loans were accounted for under the guidance of ASC Topic 310-30, “Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.” The $184.5 million fair value of acquired loans is the result of $183.7 million in net loans acquired from Garfield, the recognition of a net combined yield and credit mark adjustment of $4.3 million and the $5.1 million reversal of Garfield's allowance as well as prior fair value marks recorded by Garfield.
The fair value of the 2,745,098 common shares issued was determined based on the market price of the Company's common shares on the acquisition date.
Costs related to the acquisition totaled $1.6 million. These amounts were expensed as incurred and are recorded as a merger and acquisition related expense in the Condensed Consolidated Statements of Income.
As a result of the full integration of the operations of Garfield, it is not practicable to determine revenue or net income included in the Company's operating results relating to Garfield since the date of acquisition as Garfield’s results cannot be separately identified.
Note 3 Supplemental Comprehensive Income Disclosures
The following table identifies the related tax effects allocated to each component of other comprehensive income (“OCI”) in the Condensed Consolidated Statements of Comprehensive Income. Reclassification adjustments related to securities available for sale are included in the "Net securities gains" line and reclassification adjustments related to losses on derivatives are included in the "Other operating expenses" line in the Condensed Consolidated Statements of Income.
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
Pretax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Pretax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
(dollars in thousands)
Unrealized (losses) gains on securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains on securities arising during the period
$
(8,704
)
 
$
1,828

 
$
(6,876
)
 
$
5,935

 
$
(2,077
)
 
$
3,858

Reclassification adjustment for gains on securities included in net income
(8,102
)
 
1,701

 
(6,401
)
 
(695
)
 
243

 
(452
)
Total unrealized (losses) gains on securities
(16,806
)
 
3,529

 
(13,277
)
 
5,240

 
(1,834
)
 
3,406

Unrealized gains (losses) on derivatives:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period
165

 
(35
)
 
130

 
(631
)
 
221

 
(410
)
Reclassification adjustment for losses on derivatives included in net income
10

 
(3
)
 
7

 
93

 
(33
)
 
60

Total unrealized gains (losses) on derivatives
175

 
(38
)
 
137

 
(538
)
 
188

 
(350
)
Total other comprehensive (loss) income
$
(16,631
)
 
$
3,491

 
$
(13,140
)
 
$
4,702

 
$
(1,646
)
 
$
3,056


10

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


 
For the Three Months Ended September 30,
 
2018
 
2017
 
Pretax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Pretax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
(dollars in thousands)
Unrealized (losses) gains on securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding (losses) gains on securities arising during the period
$
(5,382
)
 
$
1,130

 
$
(4,252
)
 
$
1,690

 
$
(591
)
 
$
1,099

Reclassification adjustment for gains on securities included in net income

 

 

 
(92
)
 
32

 
(60
)
Total unrealized (losses) gains on securities
(5,382
)
 
1,130

 
(4,252
)
 
1,598

 
(559
)
 
1,039

Unrealized gains (losses) on derivatives:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period
198

 
(42
)
 
156

 
(49
)
 
17

 
(32
)
Reclassification adjustment for losses on derivatives included in net income

 

 

 
20

 
(7
)
 
13

Total unrealized gains (losses) on derivatives
198

 
(42
)
 
156

 
(29
)
 
10

 
(19
)
Total other comprehensive (loss) income
$
(5,184
)
 
$
1,088

 
$
(4,096
)
 
$
1,569

 
$
(549
)
 
$
1,020



The following table details the change in components of OCI for the nine months ended September 30:
 
2018
 
2017
 
Securities Available for Sale
Post-Retirement Obligation
Derivatives
Accumulated Other Comprehensive Income (Loss)
 
Securities Available for Sale
Post-Retirement Obligation
Derivatives
Accumulated Other Comprehensive Income (Loss)
 
(dollars in thousands)
Balance at December 31
$
(6,166
)
$
299

$
(306
)
$
(6,173
)
 
$
(7,455
)
$
225

$
203

$
(7,027
)
Cumulative effect of adoption of ASU 2018-02
(1,344
)


(1,344
)
 




Balance at January 1
(7,510
)
299

(306
)
(7,517
)
 
(7,455
)
225

203

(7,027
)
Other comprehensive (loss) income before reclassification adjustment
(6,876
)

130

(6,746
)
 
3,858


(410
)
3,448

Amounts reclassified from accumulated other comprehensive (loss) income
(6,401
)

7

(6,394
)
 
(452
)

60

(392
)
Net other comprehensive (loss) income during the period
(13,277
)

137

(13,140
)
 
3,406


(350
)
3,056

Balance at September 30
$
(20,787
)
$
299

$
(169
)
$
(20,657
)
 
$
(4,049
)
$
225

$
(147
)
$
(3,971
)


11

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 4 Supplemental Cash Flow Disclosures
The following table presents information related to cash paid during the period for interest and income taxes, as well as detail on non-cash investing and financing activities for the nine months ended September 30:
 
2018
 
2017
 
(dollars in thousands)
Cash paid during the period for:
 
 
 
Interest
$
25,780

 
$
14,995

Income taxes
18,750

 
17,394

Non-cash investing and financing activities:
 
 
 
Loans transferred to other real estate owned and repossessed assets
3,346

 
2,154

Loans transferred from held to maturity to held for sale
29,765

 
13,292

Gross (decrease) increase in market value adjustment to securities available for sale
(16,806
)
 
5,240

Gross increase (decrease) in market value adjustment to derivatives
175

 
(538
)
Noncash treasury stock reissuance
2,257

 
2,258

Net assets acquired through acquisition
21,834

 
36,926

Proceeds from death benefit on bank-owned life insurance not received

 
897

Note 5 Earnings per Share
The following table summarizes the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computations:
 
For the Three Months Ended September 30,
 
For the Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Weighted average common shares issued
113,914,902

 
113,914,902

 
113,914,902

 
111,100,495

Average treasury stock shares
(13,550,710
)
 
(16,436,228
)
 
(14,783,078
)
 
(16,465,984
)
Average deferred compensation shares
(37,411
)
 

 
(37,411
)
 

Average unearned nonvested shares
(100,134
)
 
(75,858
)
 
(95,916
)
 
(98,039
)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share
100,226,647

 
97,402,816

 
98,998,497

 
94,536,472

Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share
226,754

 
54,654

 
161,660

 
42,018

Additional common stock equivalents (deferred compensation) used to calculate diluted earnings per share
37,411

 

 
37,411

 

Weighted average common shares and common stock equivalents used to calculate diluted earnings per share
100,490,812

 
97,457,470

 
99,197,568

 
94,578,490

The following table shows the number of shares and the price per share related to common stock equivalents that were not included in the computation of diluted earnings per share for the nine months ended September 30 because to do so would have been antidilutive.
 
2018
 
2017
 
 
 
Price Range
 
 
 
Price Range
 
Shares
 
From
 
To
 
Shares
 
From
 
To
Restricted Stock
66,332

 
$
8.84

 
$
14.49

 
22,802

 
$
8.55

 
$
13.96

Restricted Stock Units

 
$

 
$

 
22,750

 
$
15.09

 
$
15.09



12

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 6 Commitments and Contingent Liabilities
Commitments and Letters of Credit
Standby letters of credit and commercial letters of credit are conditional commitments issued by First Commonwealth to guarantee the performance of a customer to a third party. The contract or notional amount of these instruments reflects the maximum amount of future payments that First Commonwealth could be required to pay under the guarantees if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. In addition, many of these commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements.
The following table identifies the notional amount of those instruments at:
 
September 30, 2018
 
December 31, 2017
 
(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
 
 
 
Commitments to extend credit
$
1,846,575

 
$
1,840,180

Financial standby letters of credit
18,486

 
17,946

Performance standby letters of credit
21,460

 
20,472

Commercial letters of credit
927

 
1,149

 
The notional amounts outstanding as of September 30, 2018 include amounts issued in 2018 of $1.1 million in financial standby letters of credit and $0.7 million in performance standby letters of credit. There were no commercial letters of credit issued in 2018. A liability of $0.2 million has been recorded as of September 30, 2018 and December 31, 2017, which represents the estimated fair value of letters of credit issued. The fair value of letters of credit is estimated based on the unrecognized portion of fees received at the time the commitment was issued.
Unused commitments and letters of credit provide exposure to future credit loss in the event of nonperformance by the borrower or guaranteed parties. Management’s evaluation of the credit risk related to these commitments resulted in the recording of a liability of $5.2 million as of both September 30, 2018 and December 31, 2017. This liability is reflected in "Other liabilities" in the Condensed Consolidated Statements of Financial Condition. The credit risk evaluation incorporated probability of default, loss given default and estimated utilization for the next twelve months for each loan category and the letters of credit.
Legal Proceedings
First Commonwealth and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of September 30, 2018, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability (if any), is between $0 and $1 million. Although First Commonwealth does not believe that the outcome of pending litigation will be material to First Commonwealth’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations and cash flows for a particular reporting period in the future.
First Commonwealth Financial Corporation and First Commonwealth Bank were named defendants in an action commenced August 27, 2015 by eight named plaintiffs that filed in the Court of Common Pleas of Jefferson County, Pennsylvania.  The plaintiffs alleged that the Bank repossessed motor vehicles, sold the vehicles and sought to collect deficiency balances in a manner that did not comply with the notice requirements of the Pennsylvania Uniform Commercial Code (UCC), charged inappropriate costs and fees, including storage costs for dates that a repossessed vehicle was not in storage, and wrongly filed forms with the Department of Motor Vehicles asserting that the Bank had complied with applicable laws relating to the repossession of the vehicles. First Commonwealth Financial Corporation, First Commonwealth Bank, the plaintiffs, the plaintiffs’ counsel and First Commonwealth’s liability insurer entered into a Class Action Settlement Agreement and Release in

13

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


which, among other things, First Commonwealth and its insurer agreed to pay certain amounts into a settlement fund to be distributed among the class members and class counsel, First Commonwealth agreed to satisfy the remaining deficiency balances of the class members and request that credit reporting agencies delete the tradeline relating to the repossession from each class member’s credit report, and the class members released all claims against First Commonwealth and its insurer. At a hearing on July 23, 2018, the Court granted final approval of the settlement and dismissed all claims against First Commonwealth. In August 2018, this settlement was completed. The cost of the settlement to First Commonwealth was recorded as a liability in the second quarter of 2016.
Note 7 Investment Securities
Securities Available for Sale
Below is an analysis of the amortized cost and estimated fair values of securities available for sale at:
 
September 30, 2018
 
December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(dollars in thousands)
Obligations of U.S. Government Agencies:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
$
9,276

 
$
484

 
$
(132
)
 
$
9,628

 
$
10,556

 
$
789

 
$
(7
)
 
$
11,338

Mortgage-Backed Securities – Commercial
170,086

 

 
(2,675
)
 
167,411

 
24,611

 

 
(462
)
 
24,149

Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 

 
 
 
 
 
 
 

Mortgage-Backed Securities – Residential
685,721

 
987

 
(25,079
)
 
661,629

 
632,422

 
2,622

 
(9,489
)
 
625,555

Other Government-Sponsored Enterprises
100

 

 

 
100

 
1,098

 

 
(1
)
 
1,097

Obligations of States and Political Subdivisions
27,590

 
56

 
(129
)
 
27,517

 
27,083

 
327

 

 
27,410

Corporate Securities
20,907

 
473

 
(279
)
 
21,101

 
15,907

 
590

 
(4
)
 
16,493

Pooled Trust Preferred Collateralized Debt Obligations

 

 

 

 
27,499

 
526

 
(4,379
)
 
23,646

Total Debt Securities
913,680

 
2,000

 
(28,294
)
 
887,386

 
739,176

 
4,854

 
(14,342
)
 
729,688

Equities
1,670

 

 

 
1,670

 
1,670

 

 

 
1,670

Total Securities Available for Sale
$
915,350

 
$
2,000

 
$
(28,294
)
 
$
889,056

 
$
740,846

 
$
4,854

 
$
(14,342
)
 
$
731,358


Mortgage-backed securities include mortgage-backed obligations of U.S. Government agencies and obligations of U.S. Government-sponsored enterprises. These obligations have contractual maturities ranging from less than one year to approximately 30 years with lower anticipated lives to maturity due to prepayments. All mortgage-backed securities contain a certain amount of risk related to the uncertainty of prepayments of the underlying mortgages. Interest rate changes have a direct impact upon prepayment speeds; therefore, First Commonwealth uses computer simulation models to test the average life and yield volatility of all mortgage-backed securities under various interest rate scenarios to monitor the potential impact on earnings and interest rate risk positions.

Expected maturities will differ from contractual maturities because issuers may have the right to call or repay obligations with or without call or prepayment penalties. Other fixed income securities within the portfolio also contain prepayment risk.

14

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The amortized cost and estimated fair value of debt securities available for sale at September 30, 2018, by contractual maturity, are shown below.
 
Amortized
Cost
 
Estimated
Fair Value
 
(dollars in thousands)
Due within 1 year
$
4,099

 
$
4,089

Due after 1 but within 5 years
15,730

 
15,464

Due after 5 but within 10 years
26,342

 
26,269

Due after 10 years
2,426

 
2,896

 
48,597

 
48,718

Mortgage-Backed Securities (a)
865,083

 
838,668

Total Debt Securities
$
913,680

 
$
887,386

 
(a)
Mortgage-Backed Securities include an amortized cost of $179.4 million and a fair value of $177.0 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $685.7 million and a fair value of $661.6 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.
 
Proceeds from sales, gross gains (losses) realized on sales, maturities and other-than-temporary impairment charges related to securities available for sale were as follows for the nine months ended September 30:
 
2018
 
2017
 
(dollars in thousands)
Proceeds from sales
$
15,939

 
$
143,660

Gross gains (losses) realized:
 
 
 
Sales Transactions:
 
 
 
Gross gains
$
4,719

 
$
359

Gross losses

 
(316
)
 
4,719

 
43

Maturities and impairment
 
 
 
Gross gains
3,383

 
712

Gross losses

 
(60
)
 
3,383

 
652

Net gains and impairment
$
8,102

 
$
695

Gross gains from sales transactions of $4.7 million were recognized in 2018 as a result of the sale of the remaining pooled trust preferred security portfolio. Gross gains from maturities and impairment of $3.4 million were recognized in 2018 as a result of successful auction calls on PreSTL XIV and PreSTL IX, two of our pooled trust preferred securities. Gross gains of $0.7 million were recognized in 2017 due to the early redemption of another of our trust preferred securities, PreSTL VII.
Securities available for sale with an estimated fair value of $680.9 million and $569.0 million were pledged as of September 30, 2018 and December 31, 2017, respectively, to secure public deposits and for other purposes required or permitted by law.

15

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Securities Held to Maturity
Below is an analysis of the amortized cost and fair values of debt securities held to maturity at:
 
September 30, 2018
 
December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
(dollars in thousands)
Obligations of U.S. Government Agencies:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
$
3,663

 
$

 
$
(156
)
 
$
3,507

 
$
3,925

 
$

 
$
(14
)
 
$
3,911

Mortgage-Backed Securities- Commercial
55,726

 

 
(2,742
)
 
52,984

 
58,249

 

 
(1,394
)
 
56,855

Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
273,972

 

 
(11,468
)
 
262,504

 
305,126

 
10

 
(2,552
)
 
302,584

Mortgage-Backed Securities – Commercial
13,413

 

 
(427
)
 
12,986

 
14,056

 

 
(71
)
 
13,985

Obligations of States and Political Subdivisions
42,447

 
5

 
(895
)
 
41,557

 
40,540

 
335

 
(161
)
 
40,714

Debt Securities Issued by Foreign Governments
400

 

 
(5
)
 
395

 
200

 

 

 
200

Total Securities Held to Maturity
$
389,621

 
$
5

 
$
(15,693
)
 
$
373,933

 
$
422,096

 
$
345

 
$
(4,192
)
 
$
418,249

The amortized cost and estimated fair value of debt securities held to maturity at September 30, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
 
Amortized
Cost
 
Estimated
Fair Value
 
(dollars in thousands)
Due within 1 year
$
85

 
$
85

Due after 1 but within 5 years
3,814

 
3,778

Due after 5 but within 10 years
37,329

 
36,491

Due after 10 years
1,619

 
1,598

 
42,847

 
41,952

Mortgage-Backed Securities (a)
346,774

 
331,981

Total Debt Securities
$
389,621

 
$
373,933

(a)
Mortgage-Backed Securities include an amortized cost of $59.4 million and a fair value of $56.5 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $287.4 million and a fair value of $275.5 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.
Securities held to maturity with an amortized cost of $298.9 million and $338.3 million were pledged as of September 30, 2018 and December 31, 2017, respectively, to secure public deposits and for other purposes required or permitted by law.


16

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Note 8 Impairment of Investment Securities
Securities Available for Sale and Held to Maturity
As required by FASB ASC Topic 320, “Investments – Debt and Equity Securities,” credit-related other-than-temporary impairment on debt securities is recognized in earnings, while non-credit related other-than-temporary impairment on debt securities not expected to be sold is recognized in OCI. During the nine months ended September 30, 2018 and 2017, no other-than-temporary impairment charges were recognized.
First Commonwealth utilizes the specific identification method to determine the net gain or loss on debt securities and the average cost method to determine the net gain or loss on equity securities.
We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and whether we are more likely than not to sell, or be required to sell, the security. We evaluate whether we are more likely than not to sell debt securities based upon our investment strategy for the particular type of security, our cash flow needs, liquidity position, capital adequacy, tax position and interest rate risk position. In addition, the risk of future other-than-temporary impairment may be influenced by weakness in the U.S. economy or changes in real estate values.
The following table presents the gross unrealized losses and estimated fair values at September 30, 2018 for both available for sale and held to maturity securities by investment category and time frame for which securities have been in a continuous unrealized loss position:
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
(dollars in thousands)
Obligations of U.S. Government Agencies:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
$
7,267

 
$
(288
)
 
$

 
$

 
$
7,267

 
$
(288
)
Mortgage-Backed Securities – Commercial
144,211

 
(1,538
)
 
76,183

 
(3,879
)
 
220,394

 
(5,417
)
Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
399,505

 
(10,329
)
 
489,431

 
(26,218
)
 
888,936

 
(36,547
)
Mortgage-Backed Securities – Commercial
12,986

 
(427
)
 

 

 
12,986

 
(427
)
Other Government-Sponsored Enterprises

 

 
100

 

 
100

 

Obligations of States and Political Subdivisions
44,422

 
(635
)
 
5,781

 
(389
)
 
50,203

 
(1,024
)
Debt securities issued by foreign governments
395

 
(5
)
 

 

 
395

 
(5
)
Corporate Securities
18,702

 
(279
)
 

 

 
18,702

 
(279
)
Total Securities
$
627,488

 
$
(13,501
)
 
$
571,495

 
$
(30,486
)
 
$
1,198,983

 
$
(43,987
)
    
At September 30, 2018, fixed income securities issued by U.S. Government-sponsored enterprises and U.S. Government agencies comprised 84% and 13%, respectively, of total unrealized losses due to changes in market interest rates. At September 30, 2018, there are 183 debt securities in an unrealized loss position.

17

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table presents the gross unrealized losses and estimated fair values at December 31, 2017 by investment category and time frame for which securities have been in a continuous unrealized loss position:
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Gross
Unrealized
Losses
 
(dollars in thousands)
Obligations of U.S. Government Agencies:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
$
5,584

 
$
(21
)
 
$

 
$

 
$
5,584

 
$
(21
)
Mortgage-Backed Securities - Commercial
48,322

 
(962
)
 
32,683

 
(894
)
 
81,005

 
(1,856
)
Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
351,222

 
(2,295
)
 
400,984

 
(9,746
)
 
752,206

 
(12,041
)
Mortgage-Backed Securities – Commercial
13,985

 
(71
)
 

 

 
13,985

 
(71
)
Other Government-Sponsored Enterprises
997

 
(1
)
 
99

 

 
1,096

 
(1
)
Obligation of States and Political Subdivisions
7,144

 
(32
)
 
3,653

 
(129
)
 
10,797

 
(161
)
Corporate Securities
3,993

 
(4
)
 

 

 
3,993

 
(4
)
Pooled Trust Preferred Collateralized Debt Obligations

 

 
19,120

 
(4,379
)
 
19,120

 
(4,379
)
Total Securities
$
431,247

 
$
(3,386
)
 
$
456,539

 
$
(15,148
)
 
$
887,786

 
$
(18,534
)
As of September 30, 2018, our corporate securities had an amortized cost and an estimated fair value of $20.9 million and $21.1 million, respectively. As of December 31, 2017, our corporate securities had an amortized cost and estimated fair value of $15.9 million and $16.5 million, respectively. Corporate securities are comprised of debt for large regional banks. There were four corporate securities in an unrealized loss position as of September 30, 2018 and one corporate security in an unrealized loss position as of December 31, 2017. When unrealized losses exist on these investments, management reviews each of the issuer’s asset quality, earnings trends and capital position, to determine whether issues in an unrealized loss position were other-than-temporarily impaired. All interest payments on the corporate securities are being made as contractually required.
During the first six months of 2018, all of our pooled trust preferred collateralized debt obligations were liquidated either through a successful auction call or sale. At December 31, 2017, the pooled trust preferred securities had an amortized cost and estimated fair value of $27.5 million and $23.6 million, respectively. Other-than-temporary impairment charges were recognized on the pooled trust preferred securities in 2008, 2009 and 2010. The following table provides a cumulative roll forward of credit losses recognized in earnings for the trust preferred securities: