Company Quick10K Filing
Quick10K
First Commonwealth Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$13.66 99 $1,350
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
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
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-23 Earnings, Regulation FD, Exhibits
8-K 2019-04-23 Shareholder Vote
8-K 2019-04-23 Earnings, Regulation FD, Exhibits
8-K 2019-04-22 Other Events, Exhibits
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
PLAN Anaplan 5,040
TRCO Tribune Media 4,090
NNI Nelnet 2,520
ARCH Arch Coal 1,610
WINA Winmark 668
EFR Energy Fuels 489
PDLB PDL Community Bancorp 266
MREO Mirenco 101
TGC Tengasco 11
BNON Baynon 0
FCF 2019-03-31
Item 1. Financial Statements and Supplementary Data
Note 1 Basis of Presentation
Note 2 Supplemental Comprehensive Income Disclosures
Item 1. Financial Statements and Supplementary Data
Note 3 Supplemental Cash Flow Disclosures
Note 4 Earnings per Share
Item 1. Financial Statements and Supplementary Data
Note 5 Commitments and Contingent Liabilities
Note 6 Investment Securities
Item 1. Financial Statements and Supplementary Data
Note 7 Impairment of Investment Securities
Note 8 Loans and Allowance for Credit Losses
Item 1. Financial Statements and Supplementary Data
Note 9 Leases
Note 10 Income Taxes
Item 1. Financial Statements and Supplementary Data
Note 11 Fair Values of Assets and Liabilities
Note 12 Derivatives
Item 1. Financial Statements and Supplementary Data
Note 13 Goodwill
Note 14 Subordinated Debentures
Item 1. Financial Statements and Supplementary Data
Note 15 Revenue Recognition
Note 16 New Accounting Pronouncements
Item 1. Financial Statements and Supplementary Data
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-10.1 fcf-ex101_2019annualincent.htm
EX-10.2 fcf-ex102_2019x2021longter.htm
EX-31.1 fcf-ex311_20190331x10q.htm
EX-31.2 fcf-ex312_20190331x10q.htm
EX-32.1 fcf-ex321_20190331x10q.htm
EX-32.2 fcf-ex322_20190331x10q.htm

First Commonwealth Financial Earnings 2019-03-31

FCF 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 fcf-20190331x10q.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 March 31, 2019
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 May 3, 2019, was 98,499,937.



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
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

 
March 31, 2019
 
December 31, 2018
 
(Unaudited)
 
 
 
(dollars in thousands, except share data)
Assets
 
 
 
Cash and due from banks
$
100,724

 
$
95,934

Interest-bearing bank deposits
23,168

 
3,013

Securities available for sale, at fair value
893,101

 
909,247

Securities held to maturity, at amortized cost (Fair value of $380,443 and $383,993 at March 31, 2019 and December 31, 2018, respectively)
384,909

 
393,855

Other investments
25,378

 
32,126

Loans held for sale
9,627

 
11,881

Loans:
 
 
 
Portfolio loans
5,871,070

 
5,774,139

Allowance for credit losses
(49,653
)
 
(47,764
)
Net loans
5,821,417

 
5,726,375

Premises and equipment, net
129,107

 
80,474

Other real estate owned
3,993

 
3,935

Goodwill
274,202

 
274,202

Amortizing intangibles, net
12,876

 
13,038

Bank owned life insurance
217,192

 
215,766

Other assets
76,979

 
68,409

Total assets
$
7,972,673

 
$
7,828,255

Liabilities
 
 
 
Deposits (all domestic):
 
 
 
Noninterest-bearing
$
1,510,566

 
$
1,466,213

Interest-bearing
4,620,194

 
4,431,779

Total deposits
6,130,760

 
5,897,992

Short-term borrowings
565,616

 
721,823

Subordinated debentures
170,328

 
170,288

Other long-term debt
7,395

 
7,551

Capital lease obligation
7,118

 
7,217

Total long-term debt
184,841

 
185,056

Other liabilities
93,437

 
47,995

Total liabilities
6,974,654

 
6,852,866

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 March 31, 2019 and December 31, 2018, and 98,625,806 and 98,518,668 shares outstanding at March 31, 2019 and December 31, 2018, respectively
113,915

 
113,915

Additional paid-in capital
493,664

 
492,273

Retained earnings
526,136

 
511,409

Accumulated other comprehensive loss, net
(4,102
)
 
(11,341
)
Treasury stock (15,289,096 and 15,396,234 shares at March 31, 2019 and December 31, 2018, respectively)
(131,594
)
 
(130,867
)
Total shareholders’ equity
998,019

 
975,389

Total liabilities and shareholders’ equity
$
7,972,673

 
$
7,828,255


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


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 
For the Three Months Ended
 
March 31,
 
2019
 
2018
 
(dollars in thousands, except share data)
Interest Income
 
 
 
Interest and fees on loans
$
70,421

 
$
58,483

Interest and dividends on investments:
 
 
 
Taxable interest
8,164

 
7,056

Interest exempt from federal income taxes
418

 
410

Dividends
537

 
519

Interest on bank deposits
54

 
31

Total interest income
79,594

 
66,499

Interest Expense
 
 
 
Interest on deposits
8,175

 
3,541

Interest on short-term borrowings
3,438

 
2,295

Interest on subordinated debentures
2,354

 
827

Interest on other long-term debt
71

 
77

Interest on lease obligations
70

 
74

Total interest expense
14,108

 
6,814

Net Interest Income
65,486

 
59,685

Provision for credit losses
4,095

 
6,903

Net Interest Income after Provision for Credit Losses
61,391

 
52,782

Noninterest Income
 
 
 
Net securities gains

 
2,840

Trust income
1,926

 
1,928

Service charges on deposit accounts
4,245

 
4,406

Insurance and retail brokerage commissions
1,961

 
1,868

Income from bank owned life insurance
1,426

 
1,494

Gain on sale of mortgage loans
1,428

 
1,484

Gain on sale of other loans and assets
1,084

 
574

Card-related interchange income
4,730

 
4,742

Derivatives mark to market
(26
)
 
789

Swap fee income
393

 
290

Other income
1,705

 
1,628

Total noninterest income
18,872

 
22,043

Noninterest Expense
 
 
 
Salaries and employee benefits
27,220

 
24,873

Net occupancy
4,916

 
4,369

Furniture and equipment
3,668

 
3,540

Data processing
2,544

 
2,433

Advertising and promotion
1,240

 
809

Pennsylvania shares tax
916

 
903

Intangible amortization
754

 
784

Collection and repossession
547

 
823

Other professional fees and services
754

 
1,007

FDIC insurance
574

 
776

Loss on sale or write-down of assets
65

 
197

Litigation and operational losses
401

 
179

Merger and acquisition related

 
337

Other operating
6,131

 
5,843

Total noninterest expense
49,730

 
46,873

Income Before Income Taxes
30,533

 
27,952

Income tax provision
5,944

 
4,682

Net Income
$
24,589

 
$
23,270

Average Shares Outstanding
98,479,041

 
97,433,137

Average Shares Outstanding Assuming Dilution
98,706,827

 
97,601,162

Per Share Data:
 
 
 
Basic Earnings per Share
$
0.25

 
$
0.24

Diluted Earnings per Share
$
0.25

 
$
0.24

Cash Dividends Declared per Common Share
$
0.10

 
$
0.08


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


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
 
For the Three Months Ended
 
March 31,
 
2019
 
2018
 
(dollars in thousands)
Net Income
$
24,589

 
$
23,270

Other comprehensive income (loss), before tax (expense) benefit:
 
 
 
Unrealized holding gains (losses) on securities arising during the period
9,030

 
(3,982
)
Less: reclassification adjustment for gains on securities included in net income

 
(2,840
)
Unrealized holding gains (losses) on derivatives arising during the period
133

 
(130
)
Less: reclassification adjustment for losses on derivatives included in net income

 

Total other comprehensive income (loss), before tax (expense) benefit
9,163

 
(6,952
)
Income tax (expense) benefit related to items of other comprehensive income (loss)
(1,924
)
 
1,460

Total other comprehensive income (loss)
7,239

 
(5,492
)
Comprehensive Income
$
31,828

 
$
17,778



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


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
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, 2018
98,518,668

 
$
113,915

 
$
492,273

 
$
511,409

 
$
(11,341
)
 
$
(130,867
)
 
$
975,389

Net income
 
 
 
 
 
 
24,589

 
 
 
 
 
24,589

Other comprehensive income
 
 
 
 
 
 
 
 
7,239

 
 
 
7,239

Cash dividends declared ($0.10 per share)
 
 
 
 
 
 
(9,862
)
 
 
 
 
 
(9,862
)
Treasury stock acquired
(159,562
)
 
 
 
 
 
 
 
 
 
(2,074
)
 
(2,074
)
Treasury stock reissued
188,700

 
 
 
941

 

 
 
 
1,590

 
2,531

Restricted stock
78,000

 

 
450

 

 
 
 
(243
)
 
207

Balance at March 31, 2019
98,625,806

 
$
113,915

 
$
493,664

 
$
526,136

 
$
(4,102
)
 
$
(131,594
)
 
$
998,019

 
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
 
 
 
 
 
 
23,270

 
 
 
 
 
23,270

Other comprehensive loss
 
 
 
 
 
 
 
 
(5,492
)
 
 
 
(5,492
)
Cash dividends declared ($0.08 per share)
 
 
 
 
 
 
(7,803
)
 
 
 
 
 
(7,803
)
Treasury stock acquired
(72,307
)
 
 
 
 
 
 
 
 
 
(1,079
)
 
(1,079
)
Treasury stock reissued
149,480

 
 
 
1,108

 

 
 
 
1,149

 
2,257

Restricted stock
69,500

 

 
537

 

 
 
 
(468
)
 
69

Balance at March 31, 2018
97,603,151

 
$
113,915

 
$
471,768

 
$
454,227

 
$
(13,009
)
 
$
(127,552
)
 
$
899,349



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


ITEM 1. Financial Statements and Supplementary Data (Continued)
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
For the Three Months Ended
 
March 31,
 
2019
 
2018
Operating Activities
(dollars in thousands)
Net income
$
24,589

 
$
23,270

Adjustment to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for credit losses
4,095

 
6,903

Deferred tax expense
1,443

 
1,097

Depreciation and amortization
2,478

 
2,380

Net gains on securities and other assets
(2,218
)
 
(5,143
)
Net amortization of premiums and discounts on securities
784

 
775

Income from increase in cash surrender value of bank owned life insurance
(1,426
)
 
(1,494
)
Increase in interest receivable
(2,346
)
 
(620
)
Mortgage loans originated for sale
(34,985
)
 
(38,218
)
Proceeds from sale of mortgage loans
35,255

 
46,134

Increase (decrease) in interest payable
1,522

 
(235
)
Increase in income taxes payable
4,454

 
3,557

Other-net
(14,956
)
 
(17,004
)
Net cash provided by operating activities
18,689

 
21,402

Investing Activities
 
 
 
Transactions with securities held to maturity:
 
 
 
Proceeds from maturities and redemptions
8,641

 
11,335

Purchases

 

Transactions with securities available for sale:
 
 
 
Proceeds from sales

 

Proceeds from maturities and redemptions
31,099

 
44,067

Purchases
(6,401
)
 
(130,012
)
Purchases of FHLB stock
(10,293
)
 
(13,491
)
Proceeds from the redemption of FHLB stock
17,041

 
18,928

Proceeds from sale of loans
8,559

 
6,647

Proceeds from sale of other assets
1,144

 
1,141

Net (increase) decrease in loans
(104,189
)
 
16,012

Purchases of premises and equipment and other assets
(4,128
)
 
(1,974
)
Net cash used in investing activities
(58,527
)
 
(47,347
)
Financing Activities
 
 
 
Net (decrease) increase in federal funds purchased
(11,000
)
 
6,000

Net decrease in other short-term borrowings
(145,207
)
 
(125,450
)
Net increase in deposits
232,892

 
122,849

Repayments of other long-term debt
(156
)
 
(150
)
Repayments of capital lease obligation
(99
)
 
(92
)
Dividends paid
(9,862
)
 
(7,803
)
Purchase of treasury stock
(1,785
)
 
(1,079
)
Net cash provided by (used in) financing activities
64,783

 
(5,725
)
Net increase (decrease) in cash and cash equivalents
24,945

 
(31,670
)
Cash and cash equivalents at January 1
98,947

 
107,292

Cash and cash equivalents at March 31
$
123,892

 
$
75,622


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

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


ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED 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 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. Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.
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.
The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the full year of 2019. These interim financial statements should be read in conjunction with First Commonwealth’s 2018 Annual Report on Form 10-K.
Adoption of New Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Additionally, the FASB issued ASU No. 2018-01, "Leases (Topic 842)" in January 2018, ASU No. 2018-11, "Leases - Targeted Improvements" in July 2018 and ASU 2018-20, "Leases - Narrow-Scope Improvements for Lessors" in December 2018. These ASU's provide certain improvements and optional practical expedients to Topic 842. First Commonwealth adopted this guidance on January 1, 2019. Under this new guidance, all entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. First Commonwealth has elected the transition option provided in ASU No. 2018-11, which provides for the modified retrospective approach to be applied on January 1, 2019. Upon adoption of this standard on January 1, 2019, we recognized right-of-use ("ROU") assets and related lease liabilities totaling $38.5 million and $41.8 million, respectively. Additionally, during the first quarter of 2019, we recognized an additional right-of-use asset and related lease liability totaling $10.0 million in connection with the relocation of leased space that includes a corporate loan production office and some administrative offices. We have elected to apply certain practical expedients provided under the standard including (i) to not apply the requirements in the new standard to short-term leases (ii) to not reassess the lease classification for any expired or existing lease (iii) to account for lease and non-lease components separately (iv) to not reassess initial direct costs for any existing leases. The initial impact of this standard primarily relates to operating leases of certain real estate properties. First Commonwealth has no material leasing arrangements for which it is the lessor of property or equipment.
Note 2 Supplemental Comprehensive Income Disclosures
The following table identifies the related tax effects allocated to each component of other comprehensive income (“OCI”) in the 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 Consolidated Statements of Income.

8

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


 
For the Three Months Ended March 31,
 
2019
 
2018
 
Pretax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
Pretax Amount
 
Tax (Expense) Benefit
 
Net of Tax Amount
 
(dollars in thousands)
Unrealized gains (losses) on securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) on securities arising during the period
$
9,030

 
$
(1,896
)
 
$
7,134

 
$
(3,982
)
 
$
837

 
$
(3,145
)
Reclassification adjustment for gains on securities included in net income

 

 

 
(2,840
)
 
596

 
(2,244
)
Total unrealized gains (losses) on securities
9,030

 
(1,896
)
 
7,134

 
(6,822
)
 
1,433

 
(5,389
)
Unrealized gains (losses) on derivatives:
 
 
 
 
 
 
 
 
 
 
 
Unrealized holding gains (losses) on derivatives arising during the period
133

 
(28
)
 
105

 
(130
)
 
27

 
(103
)
Reclassification adjustment for losses on derivatives included in net income

 

 

 

 

 

Total unrealized gains (losses) on derivatives
133

 
(28
)
 
105

 
(130
)
 
27

 
(103
)
Total other comprehensive income (loss)
$
9,163

 
$
(1,924
)
 
$
7,239

 
$
(6,952
)
 
$
1,460

 
$
(5,492
)
 
 
 
 
 
 
 
 
 
 
 
 
The following table details the change in components of OCI for the three months ended March 31:
 
2019
 
2018
 
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
$
(11,697
)
$
461

$
(105
)
$
(11,341
)
 
$
(6,166
)
$
299

$
(306
)
$
(6,173
)
Cumulative effect of adoption of ASU 2018-02




 
(1,344
)


(1,344
)
Balance at January 1
(11,697
)
461

(105
)
(11,341
)
 
(7,510
)
299

(306
)
(7,517
)
Other comprehensive income (loss) before reclassification adjustment
7,134


105

7,239

 
(3,145
)

(103
)
(3,248
)
Amounts reclassified from accumulated other comprehensive (loss) income




 
(2,244
)


(2,244
)
Net other comprehensive income (loss) during the period
7,134


105

7,239

 
(5,389
)

(103
)
(5,492
)
Balance at March 31
$
(4,563
)
$
461

$

$
(4,102
)
 
$
(12,899
)
$
299

$
(409
)
$
(13,009
)


9

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


Note 3 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 three months ended March 31:
 
2019
 
2018
 
(dollars in thousands)
Cash paid during the period for:
 
 
 
Interest
$
12,660

 
$
7,072

Income taxes
61

 
28

Non-cash investing and financing activities:
 
 
 
Loans transferred to other real estate owned and repossessed assets
982

 
1,186

Loans transferred from held to maturity to held for sale
4,156

 
8,019

Gross increase (decrease) in market value adjustment to securities available for sale
9,030

 
(6,822
)
Gross increase (decrease) in market value adjustment to derivatives
133

 
(131
)
Noncash treasury stock reissuance
2,531

 
2,257

Unsettled treasury stock repurchases
289

 

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

 
2,306

Note 4 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 March 31,
 
2019
 
2018
Weighted average common shares issued
113,914,902

 
113,914,902

Average treasury stock shares
(15,291,253
)
 
(16,369,144
)
Average deferred compensation shares
(37,411
)
 
(37,411
)
Average unearned nonvested shares
(107,197
)
 
(75,210
)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share
98,479,041

 
97,433,137

Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share
190,375

 
130,614

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
98,706,827

 
97,601,162

Basic Earnings per Share
$
0.25

 
$
0.24

Diluted Earnings per Share
$
0.25

 
$
0.24

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 three months ended March 31 because to do so would have been antidilutive.
 
2019
 
2018
 
 
 
Price Range
 
 
 
Price Range
 
Shares
 
From
 
To
 
Shares
 
From
 
To
Restricted Stock
95,403

 
$
12.99

 
$
14.49

 
37,298

 
$
9.84

 
$
14.49

Restricted Stock Units
39,618

 
$
14.22

 
$
16.62

 
43,067

 
$
13.25

 
$
15.83



10

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


Note 5 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:
 
March 31, 2019
 
December 31, 2018
 
(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
 
 
 
Commitments to extend credit
$
1,881,445

 
$
1,883,914

Financial standby letters of credit
18,121

 
18,298

Performance standby letters of credit
28,520

 
22,027

Commercial letters of credit
887

 
887

 
The notional amounts outstanding as of March 31, 2019 include amounts issued in 2019 of $8.1 million in performance standby letters of credit. There were no financial standby or commercial letters of credit issued in 2019. A liability of $0.3 million and $0.2 million has been recorded as of March 31, 2019 and December 31, 2018, respectively, 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 $4.6 million and $5.0 million as of March 31, 2019 and December 31, 2018, respectively. This liability is reflected in "Other liabilities" in the 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 March 31, 2019, 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.

11

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


Note 6 Investment Securities
Securities Available for Sale
Below is an analysis of the amortized cost and estimated fair values of securities available for sale at:
 
March 31, 2019
 
December 31, 2018
 
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
$
8,731

 
$
539

 
$
(24
)
 
$
9,246

 
$
9,011

 
$
479

 
$
(84
)
 
$
9,406

Mortgage-Backed Securities – Commercial
169,153

 
457

 
(1,490
)
 
168,120

 
169,633

 
214

 
(2,103
)
 
167,744

Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 

 
 
 
 
 
 
 

Mortgage-Backed Securities – Residential
660,080

 
2,749

 
(8,863
)
 
653,966

 
686,906

 
1,846

 
(15,391
)
 
673,361

Other Government-Sponsored Enterprises
10,000

 
6

 

 
10,006

 
10,000

 
12

 

 
10,012

Obligations of States and Political Subdivisions
28,010

 
204

 

 
28,214

 
27,592

 
126

 
(6
)
 
27,712

Corporate Securities
22,903

 
665

 
(19
)
 
23,549

 
20,912

 
321

 
(221
)
 
21,012

Total Securities Available for Sale
$
898,877

 
$
4,620

 
$
(10,396
)
 
$
893,101

 
$
924,054

 
$
2,998

 
$
(17,805
)
 
$
909,247


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.

12

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


The amortized cost and estimated fair value of debt securities available for sale at March 31, 2019, by contractual maturity, are shown below.
 
Amortized
Cost
 
Estimated
Fair Value
 
(dollars in thousands)
Due within 1 year
$

 
$

Due after 1 but within 5 years
27,333

 
27,588

Due after 5 but within 10 years
33,580

 
34,181

Due after 10 years

 

 
60,913

 
61,769

Mortgage-Backed Securities (a)
837,964

 
831,332

Total Debt Securities
$
898,877

 
$
893,101

 
(a)
Mortgage-Backed Securities include an amortized cost of $177.9 million and a fair value of $177.4 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $660.1 million and a fair value of $654.0 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 three months ended March 31:
 
2019
 
2018
 
(dollars in thousands)
Proceeds from sales
$

 
$

Gross gains (losses) realized:
 
 
 
Sales Transactions:
 
 
 
Gross gains
$

 
$

Gross losses

 

 

 

Maturities and impairment
 
 
 
Gross gains

 
2,840

Gross losses

 

 

 
2,840

Net gains and impairment
$

 
$
2,840

Gross gains of $2.8 million were recognized in 2018 as a result of a successful auction call on PreSTL XIV, one of our pooled trust preferred securities. There were no gains or losses recognized in 2019.
Securities available for sale with an estimated fair value of $625.2 million and $636.3 million were pledged as of March 31, 2019 and December 31, 2018, respectively, to secure public deposits and for other purposes required or permitted by law.

13

ITEM 1. Financial Statements and Supplementary Data
FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED 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:
 
March 31, 2019
 
December 31, 2018
 
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
$
3,606

 
$

 
$
(26
)
 
$
3,580

 
$
3,635

 
$

 
$
(97
)
 
$
3,538

Mortgage-Backed Securities- Commercial
54,898

 

 
(1,763
)
 
53,135

 
55,221

 

 
(2,327
)
 
52,894

Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
270,807

 
352

 
(3,303
)
 
267,856

 
279,109

 
212

 
(7,254
)
 
272,067

Mortgage-Backed Securities – Commercial
12,894

 

 
(95
)
 
12,799

 
13,159

 

 
(258
)
 
12,901

Obligations of States and Political Subdivisions
42,304

 
400

 
(31
)
 
42,673

 
42,331

 
175

 
(313
)
 
42,193

Debt Securities Issued by Foreign Governments
400

 

 

 
400

 
400

 

 

 
400

Total Securities Held to Maturity
$
384,909

 
$
752

 
$
(5,218
)
 
$
380,443

 
$
393,855

 
$
387

 
$
(10,249
)
 
$
383,993

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2019, 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
$
518

 
$
518

Due after 1 but within 5 years
7,922

 
7,965

Due after 5 but within 10 years
34,264

 
34,590

Due after 10 years

 

 
42,704

 
43,073

Mortgage-Backed Securities (a)
342,205

 
337,370

Total Debt Securities
$
384,909

 
$
380,443

(a)
Mortgage-Backed Securities include an amortized cost of $58.5 million and a fair value of $56.7 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $283.7 million and a fair value of $280.7 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 $324.7 million and $250.3 million were pledged as of March 31, 2019 and December 31, 2018, respectively, to secure public deposits and for other purposes required or permitted by law.

14

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


Note 7 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 three months ended March 31, 2019 and 2018, 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 March 31, 2019 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
$

 
$

 
$
7,336

 
$
(50
)
 
$
7,336

 
$
(50
)
Mortgage-Backed Securities – Commercial
48,274

 
(28
)
 
124,003

 
(3,225
)
 
172,277

 
(3,253
)
Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
4

 

 
710,446

 
(12,166
)
 
710,450

 
(12,166
)
Mortgage-Backed Securities – Commercial

 

 
12,799

 
(95
)
 
12,799

 
(95
)
Obligations of States and Political Subdivisions

 

 
5,925

 
(31
)
 
5,925

 
(31
)
Debt Securities Issued by Foreign Governments
200

 

 

 

 
200

 

Corporate Securities

 

 
4,976

 
(19
)
 
4,976

 
(19
)
Total Securities
$
48,478

 
$
(28
)
 
$
865,485

 
$
(15,586
)
 
$
913,963

 
$
(15,614
)
    
At March 31, 2019, fixed income securities issued by U.S. Government-sponsored enterprises and U.S. Government agencies comprised 79% and 21%, respectively, of total unrealized losses due to changes in market interest rates. At March 31, 2019, there are 98 debt securities in an unrealized loss position.

15

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


The following table presents the gross unrealized losses and estimated fair values at December 31, 2018 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
$
2,289

 
$
(41
)
 
$
5,028

 
$
(140
)
 
$
7,317

 
$
(181
)
Mortgage-Backed Securities - Commercial
95,826

 
(925
)
 
75,959

 
(3,505
)
 
171,785

 
(4,430
)
Obligations of U.S. Government-Sponsored Enterprises:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-Backed Securities – Residential
156,732

 
(1,856
)
 
626,003

 
(20,789
)
 
782,735

 
(22,645
)
Mortgage-Backed Securities – Commercial

 

 
12,901

 
(258
)
 
12,901

 
(258
)
Obligation of States and Political Subdivisions
8,591

 
(85
)
 
9,338

 
(234
)
 
17,929

 
(319
)
Corporate Securities
14,769

 
(214
)
 
3,993

 
(7
)
 
18,762

 
(221
)
Total Securities
$
278,207

 
$
(3,121
)
 
$
733,222

 
$
(24,933
)
 
$
1,011,429

 
$
(28,054
)
As of March 31, 2019, our corporate securities had an amortized cost and an estimated fair value of $22.9 million and $23.5 million, respectively. As of December 31, 2018, our corporate securities had an amortized cost and estimated fair value of $20.9 million and $21.0 million, respectively. Corporate securities are comprised of debt for large regional banks. There was one corporate security in an unrealized loss position as of March 31, 2019 and four corporate securities in an unrealized loss position as of December 31, 2018. 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 2018, all of our pooled trust preferred collateralized debt obligations were liquidated either through a successful auction call or sale. 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:
 
For the Three Months Ended March 31,
 
2019
 
2018
 
(dollars in thousands)
Balance, beginning (a)
$

 
$
12,208

Credit losses on debt securities for which other-than-temporary impairment was not previously recognized

 

Additional credit losses on debt securities for which other-than-temporary impairment was previously recognized

 

Increases in cash flows expected to be collected, recognized over the remaining life of the security (b)

 
(147
)
Reduction for debt securities sold during the period

 

Reduction for debt securities called during the period

 
(2,302
)
Balance, ending
$

 
$
9,759

 
(a)
The beginning balance represents credit related losses included in other-than-temporary impairment charges recognized on debt securities in prior periods.
(b)
Represents the increase in cash flows recognized in interest income during the period.
Other Investments
As a member of the Federal Home Loan Bank ("FHLB"), First Commonwealth is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements. The level of stock required to be held is dependent on the amount of First Commonwealth's mortgage-related assets and outstanding borrowings with the FHLB. This stock is restricted in that it can only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, FHLB stock is unlike other investment securities insofar as there is no trading market for FHLB stock and the transfer price is determined by FHLB membership rules and not by market participants. As of March 31, 2019 and December 31, 2018, our FHLB stock totaled $23.7 million and $30.5 million, respectively, and is included in “Other investments” on the Consolidated Statements of Financial Condition.

16

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


FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. First Commonwealth evaluates impairment quarterly and has concluded that the par value of its investment in FHLB stock will be recovered. Accordingly, no impairment charge was recorded on these securities during the three months ended March 31, 2019.
As of both March 31, 2019 and 2018, "Other investments" also includes $1.7 million in equity securities. These securities do not have a readily determinable fair value and are carried at cost. During the three-months ended March 31, 2019 and 2018, there were no gains or losses recognized through earnings on equity securities. On a quarterly basis, management evaluates equity securities by reviewing the severity and duration of decline in estimated fair value, research reports, analysts’ recommendations, credit rating changes, news stories, annual reports, regulatory filings, impact of interest rate changes and other relevant information.
Note 8 Loans and Allowance for Credit Losses
The following table provides outstanding balances related to each of our loan types:
 
 
March 31, 2019
 
December 31, 2018
 
Originated
 
Acquired
 
Total
 
Originated
 
Acquired
 
Total
 
(dollars in thousands)
Commercial, financial, agricultural and other
$
1,143,885

 
$
36,435

 
$
1,180,320

 
$
1,100,947

 
$
37,526

 
$
1,138,473

Real estate construction
383,164

 
6,223

 
389,387

 
353,008

 
5,970

 
358,978

Residential real estate
1,325,740

 
239,609

 
1,565,349

 
1,313,645

 
248,760

 
1,562,405

Commercial real estate
1,946,482

 
191,894

 
2,138,376

 
1,922,349

 
201,195

 
2,123,544

Loans to individuals
593,481

 
4,157

 
597,638

 
585,347

 
5,392

 
590,739

Total loans
$
5,392,752

 
$
478,318

 
$
5,871,070

 
$
5,275,296

 
$
498,843

 
$
5,774,139

Credit Quality Information
As part of the on-going monitoring of credit quality within the loan portfolio, the following credit worthiness categories are used in grading our loans:
Pass
  
Acceptable levels of risk exist in the relationship. Includes all loans not classified as OAEM, substandard or doubtful.
Other Assets Especially Mentioned (OAEM)
  
Potential weaknesses that deserve management’s close attention. The potential weaknesses may result in deterioration of the repayment prospects or weaken the Company’s credit position at some future date. The credit risk may be relatively minor, yet constitute an undesirable risk in light of the circumstances surrounding the specific credit. No loss of principal or interest is expected.
Substandard
  
Well-defined weakness or a weakness that jeopardizes the repayment of the debt. A loan may be classified as substandard as a result of deterioration of the borrower’s financial condition and repayment capacity. Loans for which repayment plans have not been met or collateral equity margins do not protect the Company may also be classified as substandard.
Doubtful
  
Loans with the characteristics of substandard loans with the added characteristic that collection or liquidation in full, on the basis of presently existing facts and conditions, is highly improbable.
The use of creditworthiness categories to grade loans permits management’s use of migration analysis to estimate a portion of credit risk. The Company’s internal creditworthiness grading system provides a measurement of credit risk based primarily on an evaluation of the borrower’s cash flow and collateral. Movement between these rating categories provides a predictive measure of credit losses and therefore assists in determining the appropriate level for the loan loss reserves. Category ratings are reviewed each quarter, at which time management analyzes the results, as well as other external statistics and factors related to loan performance. Loans that migrate towards higher risk rating levels generally have an increased risk of default, whereas loans that migrate toward lower risk ratings generally will result in a lower risk factor being applied to those related loan balances.

17

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


The following tables represent our credit risk profile by creditworthiness:
 
March 31, 2019
 
Commercial, financial, agricultural and other
 
Real estate construction
 
Residential real estate
 
Commercial real estate
 
Loans to individuals
 
Total
 
(dollars in thousands)
Originated loans
 
 
 
 
 
 
 
 
 
 
 
Pass
$
1,107,013

 
$
374,201

 
$
1,315,339

 
$
1,894,745

 
$
593,253

 
$
5,284,551

Non-Pass
 
 
 
 
 
 
 
 
 
 
 
OAEM
31,225

 
8,963

 
809

 
32,635

 

 
73,632

Substandard
5,647

 

 
9,592

 
19,102

 
228

 
34,569

Doubtful

 

 

 

 

 

Total Non-Pass
36,872

 
8,963

 
10,401

 
51,737

 
228

 
108,201

Total
$
1,143,885

 
$
383,164

 
$
1,325,740

 
$
1,946,482

 
$
593,481

 
$
5,392,752

 
 
 
 
 
 
 
 
 
 
 
 
Acquired loans
 
 
 
 
 
 
 
 
 
 
 
Pass
$
30,627

 
$
5,602

 
$
236,594

 
$
189,052

 
$
4,143

 
$
466,018

Non-Pass
 
 
 
 
 
 
 
 
 
 
 
OAEM
5,672

 
621

 
725

 
423

 

 
7,441

Substandard
136

 

 
2,290

 
2,419

 
14

 
4,859

Doubtful

 

 

 

 

 

Total Non-Pass
5,808

 
621

 
3,015

 
2,842

 
14

 
12,300

Total
$
36,435

 
$
6,223

 
$
239,609

 
$
191,894

 
$
4,157

 
$
478,318

 
 
December 31, 2018
 
Commercial, financial, agricultural and other
 
Real estate construction
 
Residential real estate
 
Commercial real estate
 
Loans to individuals
 
Total
 
(dollars in thousands)
Originated loans
 
 
 
 
 
 
 
 
 
 
 
Pass
$
1,055,394

 
$
337,367

 
$
1,302,912

 
$
1,880,139

 
$
585,141

 
$
5,160,953

Non-Pass
 
 
 
 
 
 
 
 
 
 
 
OAEM
33,723

 
15,641

 
1,026

 
28,904

 

 
79,294

Substandard
11,830

 

 
9,707

 
13,306

 
206

 
35,049

Doubtful

 

 

 

 

 

Total Non-Pass
45,553

 
15,641

 
10,733

 
42,210

 
206

 
114,343

Total
$
1,100,947

 
$
353,008

 
$
1,313,645

 
$
1,922,349

 
$
585,347

 
$
5,275,296

 
 
 
 
 
 
 
 
 
 
 
 
Acquired loans
 
 
 
 
 
 
 
 
 
 
 
Pass
$
31,399

 
$
5,337

 
$
245,637

 
$
198,201

 
$
5,377

 
$
485,951

Non-Pass
 
 
 
 
 
 
 
 
 
 
 
OAEM
5,890

 
633

 
736

 
441

 

 
7,700

Substandard
237

 

 
2,387

 
2,553

 
15

 
5,192

Doubtful

 

 

 

 

 

Total Non-Pass
6,127

 
633

 
3,123

 
2,994

 
15

 
12,892

Total
$
37,526

 
$
5,970

 
$
248,760

 
$
201,195

 
$
5,392

 
$
498,843


18

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


Portfolio Risks
The credit quality of our loan portfolio can potentially represent significant risk to our earnings, capital and liquidity. First Commonwealth devotes substantial resources to managing this risk primarily through our credit administration department that develops and administers policies and procedures for underwriting, maintaining, monitoring and collecting loans. Credit administration is independent of lending departme