Edgar Filing: FIRST COMMONWEALTH FINANCIAL CORP /PA/

FCF-2015.3.31-10Q

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, 2015



¨	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 ¨ Non-accelerated filer ¨

(Do not check if a smaller reporting company)

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 8, 2015, was 88,960,268.

Table of Contents

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

INDEX



		PAGE

PART I.	Financial Information

ITEM 1.	Financial Statements and Supplementary Data

	Included in Part I of this report:

	First Commonwealth Financial Corporation and Subsidiaries

	Condensed Consolidated Statements of Financial Condition (Unaudited)	3
	Condensed Consolidated Statements of Income (Unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income (Unaudited)	5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to the Unaudited Condensed Consolidated Financial Statements	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	50

ITEM 4.	Controls and Procedures	50

PART II.	Other Information

ITEM 1.	Legal Proceedings	51

ITEM 1A.	Risk Factors	51

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

ITEM 3.	Defaults Upon Senior Securities	52

ITEM 4.	Mine Safety Disclosures	52

ITEM 5.	Other Information	52

ITEM 6.	Exhibits	53

	Signatures	54

Table of Contents

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)



	March 31, 2015			December 31, 2014
	(dollars in thousands, except share data)
Assets
Cash and due from banks	$	62,161		$	72,276
Interest-bearing bank deposits	3,124			2,262
Securities available for sale, at fair value	1,269,285			1,309,819
Securities held to maturity, at amortized cost (Fair value of $30,174 at March 31, 2015)	30,253			—
Other investments	47,076			44,545
Loans held for sale	5,892			2,502
Loans:
Portfolio loans	4,437,601			4,457,308
Allowance for credit losses	(46,697		)	(52,051		)
Net loans	4,390,904			4,405,257
Premises and equipment, net	64,816			64,989
Other real estate owned	7,025			7,197
Goodwill	161,429			161,429
Amortizing intangibles, net	1,508			1,665
Bank owned life insurance	178,630			177,567
Other assets	109,739			110,777
Total assets	$	6,331,842		$	6,360,285
Liabilities
Deposits (all domestic):
Noninterest-bearing	$	1,039,929		$	989,027
Interest-bearing	3,253,820			3,326,484
Total deposits	4,293,749			4,315,511
Short-term borrowings	1,125,520			1,105,876
Subordinated debentures	72,167			72,167
Other long-term debt	64,324			89,459
Total long-term debt	136,491			161,626
Other liabilities	63,222			61,127
Total liabilities	5,618,982			5,644,140
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; 105,563,455 shares issued at March 31, 2015 and December 31, 2014, and 89,656,007 and 91,723,028 shares outstanding at March 31, 2015 and December 31, 2014, respectively	105,563			105,563
Additional paid-in capital	365,874			365,615
Retained earnings	360,841			353,027
Accumulated other comprehensive income (loss), net	2,702			(4,499		)
Treasury stock (15,907,448 and 13,840,427 shares at March 31, 2015 and December 31, 2014, respectively)	(122,120		)	(103,561		)
Total shareholders’ equity	712,860			716,145
Total liabilities and shareholders’ equity	$	6,331,842		$	6,360,285

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

Table of Contents

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
	March 31,
	2015		2014
	(dollars in thousands, except share data)
Interest Income
Interest and fees on loans	$	42,601	$	43,098
Interest and dividends on investments:
Taxable interest	6,817		7,180
Interest exempt from federal income taxes	175		4
Dividends	1,489		222
Interest on bank deposits	3		2
Total interest income	51,085		50,506
Interest Expense
Interest on deposits	2,150		3,507
Interest on short-term borrowings	958		469
Interest on subordinated debentures	569		566
Interest on other long-term debt	236		373
Total interest expense	3,913		4,915
Net Interest Income	47,172		45,591
Provision for credit losses	1,159		3,231
Net Interest Income after Provision for Credit Losses	46,013		42,360
Noninterest Income
Net securities gains	105		—
Trust income	1,421		1,435
Service charges on deposit accounts	3,318		3,792
Insurance and retail brokerage commissions	2,195		1,395
Income from bank owned life insurance	1,354		1,369
Gain on sale of assets	663		1,581
Card related interchange income	3,418		3,366
Other income	1,717		1,982
Total noninterest income	14,191		14,920
Noninterest Expense
Salaries and employee benefits	21,892		21,044
Net occupancy expense	3,911		3,506
Furniture and equipment expense	2,680		5,330
Data processing expense	1,438		1,468
Pennsylvania shares tax expense	794		711
Intangible amortization	156		178
Collection and repossession expense	511		709
Other professional fees and services	930		1,024
FDIC insurance	1,059		1,049
Loss on sale or write-down of assets	262		435
Litigation and operational losses (recoveries)	1,000		(689		)
Conversion related expenses	—		354
Other operating expenses	5,221		4,768
Total noninterest expense	39,854		39,887
Income Before Income Taxes	20,350		17,393
Income tax provision	6,129		5,093
Net Income	$	14,221	$	12,300
Average Shares Outstanding	90,875,724		94,543,420
Average Shares Outstanding Assuming Dilution	90,889,035		94,568,059
Per Share Data:
Basic Earnings per Share	$	0.16	$	0.13
Diluted Earnings per Share	$	0.16	$	0.13
Cash Dividends Declared per Common Share	$	0.07	$	0.07

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

Table of Contents

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
	March 31,
	2015			2014
	(dollars in thousands)
Net Income	$	14,221		$	12,300
Other comprehensive income, before tax expense:
Unrealized holding gains on securities arising during the period	9,980			12,457
Less: reclassification adjustment for gains on securities included in net income	(105		)	—
Unrealized holding gains on derivatives arising during the period	1,195			—
Less: reclassification adjustment for losses on derivatives included in net income	5			—
Total other comprehensive income, before tax expense	11,075			12,457
Income tax expense related to items of other comprehensive income	(3,874		)	(4,361		)
Total other comprehensive income	7,201			8,096
Comprehensive Income	$	21,422		$	20,396

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

Table of Contents

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, 2014	91,723,028		$	105,563	$	365,615	$	353,027		$	(4,499	)	$	(103,561	)	$	716,145
Net income							14,221									14,221
Other comprehensive income										7,201						7,201
Cash dividends declared ($0.07 per share)							(6,407		)							(6,407		)
Treasury stock acquired	(2,201,391	)											(18,874		)	(18,874		)
Restricted stock	134,370		—		259		—						315			574
Balance at March 31, 2015	89,656,007		$	105,563	$	365,874	$	360,841		$	2,702		$	(122,120	)	$	712,860



	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, 2013	95,245,215		$	105,563	$	365,333		$	334,748		$	(20,588	)	$	(73,359	)	$	711,697
Net income								12,300									12,300
Other comprehensive income											8,096						8,096
Cash dividends declared ($0.07 per share)								(6,618		)							(6,618		)
Discount on dividend reinvestment plan purchases					(33		)										(33		)
Treasury stock acquired	(1,084,958	)												(8,941		)	(8,941		)
Restricted stock	63,626		—		169			—						113			282
Balance at March 31, 2014	94,223,883		$	105,563	$	365,469		$	340,430		$	(12,492	)	$	(82,187	)	$	716,783

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

Table of Contents

ITEM 1. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	For the Three Months Ended
	March 31,
	2015			2014
Operating Activities	(dollars in thousands)
Net income	$	14,221		$	12,300
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses	1,159			3,231
Deferred tax expense	4,219			2,646
Depreciation and amortization	1,899			4,310
Net gains on securities and other assets	(267		)	(1,086		)
Net amortization of premiums and discounts on securities	441			538
Net accretion of premiums and discounts on long term debt	—			(30		)
Income from increase in cash surrender value of bank owned life insurance	(1,354		)	(1,369		)
(Increase) decrease in interest receivable	(127		)	689
Mortgage loans originated for sale	(15,382		)	—
Proceeds from sale of mortgage loans	15,472			—
Decrease in interest payable	(92		)	(163		)
Increase in income taxes payable	290			2,231
Other-net	(4,748		)	(2,420		)
Net cash provided by operating activities	15,731			20,877
Investing Activities
Transactions with securities held to maturity:
Purchases	(29,616		)	—
Transactions with securities available for sale:
Proceeds from maturities and redemptions	50,568			101,125
Purchases	(500		)	(114,706		)
Purchases of FHLB stock	(13,801		)	(6,579		)
Proceeds from the redemption of FHLB stock	11,270			7,976
Proceeds from bank owned life insurance	291			939
Proceeds from sale of loans	—			716
Proceeds from sale of other assets	1,008			4,443
Net decrease in loans	9,540			26,564
Purchases of premises and equipment	(1,665		)	(2,240		)
Net cash provided by investing activities	27,095			18,238
Financing Activities
Net increase (decrease) in federal funds purchased	6,000			(500		)
Net increase (decrease) in other short-term borrowings	13,644			(53,149		)
Net (decrease) increase in deposits	(21,761		)	43,955
Repayments of other long-term debt	(25,134		)	(87		)
Discount on dividend reinvestment plan purchases	—			(33		)
Dividends paid	(6,407		)	(6,618		)
Purchase of treasury stock	(18,421		)	(8,708		)
Net cash used in financing activities	(52,079		)	(25,140		)
Net (decrease) increase in cash and cash equivalents	(9,253		)	13,975
Cash and cash equivalents at January 1	74,538			77,439
Cash and cash equivalents at March 31	$	65,285		$	91,414

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

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 three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year of 2015. These interim financial statements should be read in conjunction with First Commonwealth’s 2014 Annual Report on Form 10-K.

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 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 Three Months Ended March 31,
	2015									2014
	Pretax Amount			Tax (Expense) Benefit			Net of Tax Amount			Pretax Amount		Tax (Expense) Benefit			Net of Tax Amount
	(dollars in thousands)
Unrealized gains on securities:
Unrealized holding gains on securities arising during the period	$	9,980		$	(3,491	)	$	6,489		$	12,457	$	(4,361	)	$	8,096
Reclassification adjustment for gains on securities included in net income	(105		)	37			(68		)	—		—			—
Total unrealized gains on securities	9,875			(3,454		)	6,421			12,457		(4,361		)	8,096
Unrealized gains on derivatives:
Unrealized holding gains on derivatives arising during the period	1,195			(418		)	777			—		—			—
Reclassification adjustment for losses on derivatives included in net income	5			(2		)	3			—		—			—
Total unrealized gains on derivatives	1,200			(420		)	780			—		—			—
Total other comprehensive income	$	11,075		$	(3,874	)	$	7,201		$	12,457	$	(4,361	)	$	8,096

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 details the change in components of OCI for the three months ended March 31:



	2015										2014
	Securities Available for Sale			Post-Retirement Obligation		Derivatives		Accumulated Other Comprehensive Income			Securities Available for Sale			Post-Retirement Obligation		Derivatives		Accumulated Other Comprehensive Income
	(dollars in thousands)
Balance at December 31	$	(4,875	)	$	300	$	76	$	(4,499	)	$	(20,868	)	$	280	$	—	$	(20,588	)
Other comprehensive income before reclassification adjustment	6,489			—		777		7,266			8,096			—		—		8,096
Amounts reclassified from accumulated other comprehensive (loss) income	(68		)	—		3		(65		)	—			—		—		—
Net other comprehensive income during the period	6,421			—		780		7,201			8,096			—		—		8,096
Balance at March 31	$	1,546		$	300	$	856	$	2,702		$	(12,772	)	$	280	$	—	$	(12,492	)

Note 3 Supplemental Cash Flow Disclosures

The following table presents information related to cash paid during the period for interest, as well as detail on non-cash investing and financing activities for the three months ended March 31:



	2015		2014
	(dollars in thousands)
Cash paid during the period for:
Interest	$	4,004	$	5,108
Income taxes	1,500		—
Non-cash investing and financing activities:
Loans transferred to other real estate owned and repossessed assets	797		1,292
Loans transferred from held to maturity to held for sale	3,011		716
Gross increase in market value adjustment to securities available for sale	9,869		12,459
Gross increase in market value adjustment to derivatives	1,200		—
Investments committed to purchase, not settled	637		2,522
Unsettled treasury stock repurchases	453		233

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,
	2015		2014
Weighted average common shares issued	105,563,455		105,563,455
Average treasury stock shares	(14,503,976	)	(10,876,695	)
Average unearned nonvested shares	(183,755	)	(143,340	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share	90,875,724		94,543,420
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share	13,311		24,639
Additional common stock equivalents (stock options) used to calculate diluted earnings per share	—		—
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share	90,889,035		94,568,059

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 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.



	2015					2014
		Price Range					Price Range
	Shares	From		To		Shares	From		To
Stock Options	—	$	—	$	—	15,000	$	14.55	$	14.55
Restricted Stock	118,390	7.35		9.26		5,601	8.75		9.18

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, 2015		December 31, 2014
	(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	1,645,977	$	1,635,948
Financial standby letters of credit	27,858		36,075
Performance standby letters of credit	26,490		25,915
Commercial letters of credit	2,584		2,611

The notional amounts outstanding as of March 31, 2015 include amounts issued in 2015 of $1.5 million in performance standby letters of credit. There were no financial standby or commercial letters of credit issued during 2015. A liability of $0.2 million has been recorded as of March 31, 2015 and December 31, 2014, 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 $3.6 million as of March 31, 2015 and $3.1 million as of December 31, 2014. 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

There are no material legal proceedings to which First Commonwealth or its subsidiaries are a party, or of which their property is the subject, except proceedings which arise in the normal course of business and, in the opinion of management, will not have a material adverse effect on the consolidated operations, financial position, comprehensive income or cash flow of First Commonwealth or its subsidiaries.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED 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, 2015									December 31, 2014
	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	$	22,578	$	2,835	$	—		$	25,413	$	23,344	$	2,595	$	(3	)	$	25,936
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	905,895		15,759		(6,402		)	915,252		947,635		13,076		(9,830		)	950,881
Mortgage-Backed Securities – Commercial	65		1		—			66		72		2		—			74
Other Government-Sponsored Enterprises	260,849		180		(330		)	260,699		269,181		4		(1,308		)	267,877
Obligations of States and Political Subdivisions	27,060		494		(5		)	27,549		27,058		362		(43		)	27,377
Corporate Securities	6,680		572		—			7,252		6,682		573		—			7,255
Pooled Trust Preferred Collateralized Debt Obligations	41,868		503		(11,237		)	31,134		41,926		309		(13,236		)	28,999
Total Debt Securities	1,264,995		20,344		(17,974		)	1,267,365		1,315,898		16,921		(24,420		)	1,308,399
Equities	1,920		—		—			1,920		1,420		—		—			1,420
Total Securities Available for Sale	$	1,266,915	$	20,344	$	(17,974	)	$	1,269,285	$	1,317,318	$	16,921	$	(24,420	)	$	1,309,819

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.

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 March 31, 2015, by contractual maturity, are shown below.



	Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due within 1 year	$	6,800	$	6,798
Due after 1 but within 5 years	254,050		253,901
Due after 5 but within 10 years	24,420		24,869
Due after 10 years	51,187		41,066
	336,457		326,634
Mortgage-Backed Securities (a)	928,538		940,731
Total Debt Securities	$	1,264,995	$	1,267,365


(a)	Mortgage Backed Securities include an amortized cost of $22.6 million and a fair value of $25.4 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $906.0 million and a fair value of $915.3 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:



	2015		2014
	(dollars in thousands)
Proceeds from sales	$	—	$	—
Gross gains (losses) realized:
Sales Transactions:
Gross gains	$	—	$	—
Gross losses	—		—
	—		—
Maturities and impairment
Gross gains	105		—
Gross losses	—		—
Other-than-temporary impairment	—		—
	105		—
Net gains and impairment	$	105	$	—

Securities available for sale with an estimated fair value of $554.4 million and $563.2 million were pledged as of March 31, 2015 and December 31, 2014, respectively, to secure public deposits and for other purposes required or permitted by law.

Securities Held to Maturity

Below is an analysis of the amortized cost and fair values of debt securities held to maturity at March 31, 2015. There were no held to maturity securities at December 31, 2014.



	March 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(dollars in thousands)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	$	26,315	$	—	$	(98	)	$	26,217
Obligations of States and Political Subdivisions	3,938		19		—			3,957
Total Securities Held to Maturity	$	30,253	$	19	$	(98	)	$	30,174

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 held to maturity at March 31, 2015, 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	$	—	$	—
Due after 1 but within 5 years	—		—
Due after 5 but within 10 years	—		—
Due after 10 years	3,938		3,957
	3,938		3,957
Mortgage-Backed Securities (a)	26,315		26,217
Total Debt Securities	$	30,253	$	30,174


(a)	Mortgage Backed Securities include an amortized cost of $26.3 million and a fair value of $26.2 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 $3.3 million were pledged as of March 31, 2015 to secure public deposits and for other purposes required or permitted by law.

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, 2015 and 2014, 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 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 and 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 additional bank failures, weakness in the U.S. economy, changes in real estate values and additional interest deferrals in our pooled trust preferred collateralized debt obligations. Our pooled trust preferred collateralized debt obligations are beneficial interests in securitized financial assets within the scope of FASB ASC Topic 325, “Investments – Other,” and are therefore evaluated for other-than-temporary impairment using management’s best estimate of future cash flows. If these estimated cash flows indicate that it is probable that an adverse change in cash flows has occurred, then other-than-temporary impairment would be recognized in accordance with FASB ASC Topic 320. There is a risk that First Commonwealth will record other-than-temporary impairment charges in the future. See Note 10, “Fair Values of Assets and Liabilities,” for additional information.

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 March 31, 2015 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-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	84,160		(435		)	300,792		(6,065		)	384,952		(6,500		)
Other Government-Sponsored Enterprises	27,985		(15		)	122,833		(315		)	150,818		(330		)
Obligations of States and Political Subdivisions	878		(5		)	—		—			878		(5		)
Pooled Trust Preferred Collateralized Debt Obligations	—		—			26,318		(11,237		)	26,318		(11,237		)
Total Securities	$	113,023	$	(455	)	$	449,943	$	(17,617	)	$	562,966	$	(18,072	)

At March 31, 2015, fixed income securities issued by U.S. Government-sponsored enterprises comprised 38% of total unrealized losses due to changes in market interest rates. Pooled trust preferred collateralized debt obligations accounted for 62% of the unrealized losses due to changes in market interest rates and the illiquid market for this investment type. At March 31, 2015, there are 41 debt securities in an unrealized loss position.

The following table presents the gross unrealized losses and estimated fair values at December 31, 2014 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	$	2,318	$	(3	)	$	—	$	—		$	2,318	$	(3	)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	111,646		(419		)	368,706		(9,411		)	480,352		(9,830		)
Other Government-Sponsored Enterprises	112,473		(229		)	130,401		(1,079		)	242,874		(1,308		)
Obligation of States and Political Subdivisions	3,146		(43		)	—		—			3,146		(43		)
Pooled Trust Preferred Collateralized Debt Obligations	—		—			24,356		(13,236		)	24,356		(13,236		)
Total Securities	$	229,583	$	(694	)	$	523,463	$	(23,726	)	$	753,046	$	(24,420	)

As of March 31, 2015 and December 31, 2014, our corporate securities had an amortized cost and an estimated fair value of $6.7 million and $7.3 million, respectively, and were comprised of single issue trust preferred securities issued primarily by large regional banks. There were no corporate securities in an unrealized loss position as of March 31, 2015 and December 31, 2014. 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.

As of March 31, 2015, the book value of our pooled trust preferred collateralized debt obligations totaled $41.9 million with an estimated fair value of $31.1 million, which includes securities comprised of 278 banks and other financial institutions. All of our pooled securities are mezzanine tranches, three of which now have no senior class remaining in the issue. The credit rating on all of our issues are below investment grade. At the time of initial issue, the subordinated tranches ranged in size from approximately 7% to 35% of the total principal amount of the respective securities and no more than 5% of any pooled security consisted of a security issued by any one institution. As of March 31, 2015, after taking into account management’s best estimates of future interest deferrals and defaults, four of our securities had no excess subordination in the tranches we own and five of our securities had excess subordination which ranged from 7% to 56% of the current performing collateral.

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 provides information related to our pooled trust preferred collateralized debt obligations as of March 31, 2015:



Deal	Class	Book Value		Estimated Fair Value		Unrealized Gain (Loss)			Moody’s/ Fitch Ratings	Number of Banks	Deferrals and Defaults as a % of Current Collateral		Excess Subordination as a % of Current Performing Collateral
(dollars in thousands)
Pre TSL IV	Mezzanine	$	1,830	$	1,324	$	(506	)	B1/BB	6	18.05	%	56.00	%
Pre TSL VII	Mezzanine	2,789		3,147		358			Ca/-	14	49.68		—
Pre TSL VIII	Mezzanine	1,984		1,446		(538		)	C/C	29	58.01		—
Pre TSL IX	Mezzanine	2,349		1,597		(752		)	B3/C	40	28.91		6.61
Pre TSL X	Mezzanine	1,524		1,669		145			Caa1/C	43	31.60		—
Pre TSL XII	Mezzanine	5,559		3,969		(1,590		)	B3/C	66	25.23		—
Pre TSL XIII	Mezzanine	12,525		8,870		(3,655		)	B3/C	56	25.44		20.85
Pre TSL XIV	Mezzanine	12,876		8,702		(4,174		)	Caa1/C	56	25.46		38.55
MMCap I	Mezzanine	432		410		(22		)	Ca/C	10	56.11		24.92
Total		$	41,868	$	31,134	$	(10,734	)

Lack of liquidity in the market for trust preferred collateralized debt obligations, below investment grade credit ratings and market uncertainties related to the financial industry are factors contributing to the impairment on these securities.

All of the Company's pooled trust preferred securities are included in the non-exclusive list issued by the regulatory agencies and therefore are not considered covered funds under the Volcker Rule.

On a quarterly basis we evaluate our debt securities for other-than-temporary impairment. During the three months ended March 31, 2015 and 2014, there were no credit related other-than-temporary impairment charges recognized on our pooled trust preferred collateralized debt obligations. When evaluating these investments we determine a credit related portion and a non-credit related portion of other-than-temporary impairment. The credit related portion is recognized in earnings and represents the difference between book value and the present value of future cash flows. The non-credit related portion is recognized in OCI and represents the difference between the fair value of the security and the amount of credit related impairment. A discounted cash flow analysis provides the best estimate of credit related other-than-temporary impairment for these securities.

Additional information related to the discounted cash flow analysis follows:

Our pooled trust preferred collateralized debt obligations are measured for other-than-temporary impairment within the scope of FASB ASC Topic 325 by determining whether it is probable that an adverse change in estimated cash flows has occurred. Determining whether there has been an adverse change in estimated cash flows from the cash flows previously projected involves comparing the present value of remaining cash flows previously projected against the present value of the cash flows estimated at March 31, 2015. We consider the discounted cash flow analysis to be our primary evidence when determining whether credit related other-than-temporary impairment exists.

Results of a discounted cash flow test are significantly affected by other variables such as the estimate of future cash flows, credit worthiness of the underlying banks and determination of probability of default of the underlying collateral. The following provides additional information for each of these variables:

•

Estimate of Future Cash Flows – Cash flows are constructed in an INTEX cash flow model which includes each deal’s structural features. Projected cash flows include prepayment assumptions which are dependent on the issuer's asset size and coupon rate. For collateral issued by financial institutions over $15 billion in asset size with a coupon over 7%, a 100% prepayment rate is assumed. Financial institutions over $15 billion with a coupon of 7% or under are assigned a prepayment rate of 40% for two years and 2% thereafter. Financial institutions with assets between $2 billion and $15 billion with coupons over 7% are assigned a 5% prepayment rate. For financial institutions below $2 billion, if the coupon is over 10%, a prepayment rate of 5% is assumed and for all other issuers, there is no prepayment assumption incorporated into the cash flows. The modeled cash flows are then used to estimate if all the scheduled principal and interest payments of our investments will be returned.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

•

Credit Analysis – A quarterly credit evaluation is performed for each of the 278 banks comprising the collateral across the various pooled trust preferred securities. Our credit evaluation considers all evidence available to us and includes the nature of the issuer’s business, its years of operating history, corporate structure, loan composition, loan concentrations, deposit mix, asset growth rates, geographic footprint and local economic environment. Our analysis focuses on profitability, return on assets, shareholders’ equity, net interest margin, credit quality ratios, operating efficiency, capital adequacy and liquidity.

•

Probability of Default – A probability of default is determined for each bank and is used to calculate the expected impact of future deferrals and defaults on our expected cash flows. Each bank in the collateral pool is assigned a probability of default for each year until maturity. Currently, any bank that is in default is assigned a 100% probability of default and a 0% projected recovery rate. All other banks in the pool are assigned a probability of default based on their unique credit characteristics and market indicators with a 10% projected recovery rate. For the majority of banks currently in deferral we assume the bank continues to defer and will eventually default and, therefore, a 100% probability of default is assigned. However, for some deferring collateral there is the possibility that they become current on interest or principal payments at some point in the future and in those cases a probability that the deferral will ultimately cure is assigned. The probability of default is updated quarterly. As of March 31, 2015, default probabilities for performing collateral ranged from 0.33% to 75%.

Our credit evaluation provides a basis for determining deferral and default probabilities for each underlying piece of collateral. Using the results of the credit evaluation, the next step of the process is to look at pricing of senior debt or credit default swaps for the issuer (or where such information is unavailable, for companies having similar credit profiles as the issuer). The pricing of these market indicators provides the information necessary to determine appropriate default probabilities for each bank.

In addition to the above factors, our evaluation of impairment also includes a stress test analysis which provides an estimate of excess subordination for each tranche. We stress the cash flows of each pool by increasing current default assumptions to the level of defaults which results in an adverse change in estimated cash flows. This stressed breakpoint is then used to calculate excess subordination levels for each pooled trust preferred security. The results of the stress test allow management to identify those pools that are at a greater risk for a future break in cash flows so that we can monitor banks in those pools more closely for potential deterioration of credit quality.

Our cash flow analysis as of March 31, 2015, indicates that no credit related other-than-temporary impairment has occurred on our pooled trust preferred securities during the three months ended March 31, 2015. Based upon the analysis performed by management, it is probable that four of our pooled trust preferred securities will experience principal and interest shortfalls and therefore appropriate other-than-temporary charges were recorded in prior periods. These securities are identified in the table on page 15 with 0% “Excess Subordination as a Percentage of Current Performing Collateral.” For the remaining securities listed in that table, our analysis as of March 31, 2015 indicates it is probable that we will collect all contractual principal and interest payments. For four of those securities, PreTSL IX, PreTSL XIII, PreTSL XIV and MMCap I, other-than-temporary impairment charges were recorded in prior periods; however, due to improvement in the expected cash flows of these securities, it is now probable that all contractual payments will be received.

During 2008, 2009 and 2010, other-than-temporary impairment charges were recognized on all of our pooled trust preferred securities, except for PreTSL IV. Our cash flow analysis as of March 31, 2015, for all of these impaired securities indicates that it is now probable we will collect principal and interest in excess of what was estimated at the time other-than-temporary impairment charges were recorded. This change can be attributed to improvement in the underlying collateral for these securities and has resulted in the present value of estimated future principal and interest payments exceeding the securities current book value. The excess for each bond of the present value of future cash flows over our current book value ranges from 22% to 147% and will be recognized as an adjustment to yield over the remaining life of these securities. The excess subordination recognized as an adjustment to yield are reflected in the following table as increases in cash flows expected to be collected.

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 provides a cumulative roll forward of credit losses recognized in earnings for debt securities held and not intended to be sold:



	For the Three Months Ended March 31,
	2015			2014
	(dollars in thousands)
Balance, beginning (a)	$	26,246		$	27,543
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)	(321		)	(289		)
Reduction for debt securities called during the period	(218		)	—
Balance, ending	$	25,707		$	27,254


(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.

In the first three months of 2015 and 2014, no other-than-temporary impairment charges were recorded on equity securities. On a quarterly basis, management evaluates equity securities for other-than-temporary impairment 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. As of March 31, 2015 and 2014, there are no equity securities in an unrealized loss position.

Other Investments

As a member of the 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, 2015 and December 31, 2014, our FHLB stock totaled $47.1 million and $44.5 million, respectively, and is included in “Other investments” on the Condensed Consolidated Statements of Financial Condition.

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, 2015.

Note 8 Loans and Allowance for Credit Losses

The following table provides outstanding balances related to each of our loan types:



	March 31, 2015		December 31, 2014
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,066,788	$	1,052,109
Real estate construction	107,882		120,785
Residential real estate	1,210,511		1,226,344
Commercial real estate	1,400,276		1,405,256
Loans to individuals	652,144		652,814
Total loans and leases net of unearned income	$	4,437,601	$	4,457,308

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 adversely 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.

The following tables represent our credit risk profile by creditworthiness:



	March 31, 2015
	Commercial, financial, agricultural and other		Real estate construction		Residential real estate		Commercial real estate		Loans to individuals		Total
	(dollars in thousands)
Pass	$	1,006,516	$	107,180	$	1,198,876	$	1,350,930	$	651,883	$	4,315,385
Non-Pass
OAEM	31,642		466		1,661		30,054		—		63,823
Substandard	28,630		236		9,974		19,292		261		58,393
Doubtful	—		—		—		—		—		—
Total Non-Pass	60,272		702		11,635		49,346		261		122,216
Total	$	1,066,788	$	107,882	$	1,210,511	$	1,400,276	$	652,144	$	4,437,601

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	December 31, 2014
	Commercial, financial, agricultural and other		Real estate construction		Residential real estate		Commercial real estate		Loans to individuals		Total
	(dollars in thousands)
Pass	$	983,357	$	112,536	$	1,214,920	$	1,353,773	$	652,596	$	4,317,182
Non-Pass
OAEM	32,563		8,013		2,315		29,479		—		72,370
Substandard	32,028		236		9,109		22,004		218		63,595
Doubtful	4,161		—		—		—		—		4,161
Total Non-Pass	68,752		8,249		11,424		51,483		218		140,126
Total	$	1,052,109	$	120,785	$	1,226,344	$	1,405,256	$	652,814	$	4,457,308

Portfolio Risks

The credit quality of our loan portfolio can potentially represent significant risk to our earnings, capital, regulatory agency relationships, investment community reputation and shareholder returns. First Commonwealth devotes a substantial amount of resources managing this risk primarily through our credit administration department that develops and administers policies and procedures for underwriting, maintaining, monitoring and collecting activities. Credit administration is independent of lending departments and oversight is provided by the credit committee of the First Commonwealth Board of Directors.

Criticized loans have been evaluated when determining the appropriateness of the allowance for credit losses, which we believe is adequate to absorb losses inherent to the portfolio as of March 31, 2015. However, changes in economic conditions, interest rates, borrower financial condition, delinquency trends or previously established fair values of collateral factors could significantly change those judgmental estimates.

Age Analysis of Past Due Loans by Segment

The following tables delineate the aging analysis of the recorded investments in past due loans as of March 31, 2015 and December 31, 2014. Also included in these tables are loans that are 90 days or more past due and still accruing because they are well-secured and in the process of collection.



	March 31, 2015
	30 - 59 days past due		60 - 89 days past due		90 days and greater and still accruing		Nonaccrual		Total past due and nonaccrual		Current		Total
	(dollars in thousands)
Commercial, financial, agricultural and other	$	292	$	320	$	149	$	18,654	$	19,415	$	1,047,373	$	1,066,788
Real estate construction	—		—		—		236		236		107,646		107,882
Residential real estate	3,815		1,054		2,438		7,583		14,890		1,195,621		1,210,511
Commercial real estate	1,283		124		382		6,831		8,620		1,391,656		1,400,276
Loans to individuals	2,692		612		1,276		261		4,841		647,303		652,144
Total	$	8,082	$	2,110	$	4,245	$	33,565	$	48,002	$	4,389,599	$	4,437,601

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	December 31, 2014
	30 - 59 days past due		60 - 89 days past due		90 days and greater and still accruing		Nonaccrual		Total past due and nonaccrual		Current		Total
	(dollars in thousands)
Commercial, financial, agricultural and other	$	2,816	$	213	$	264	$	27,007	$	30,300	$	1,021,809	$	1,052,109
Real estate construction	—		1		—		236		237		120,548		120,785
Residential real estate	5,162		1,295		1,077		7,900		15,434		1,210,910		1,226,344
Commercial real estate	1,797		122		—		7,306		9,225		1,396,031		1,405,256
Loans to individuals	3,698		1,059		1,278		218		6,253		646,561		652,814
Total	$	13,473	$	2,690	$	2,619	$	42,667	$	61,449	$	4,395,859	$	4,457,308

Nonaccrual Loans

The previous tables summarize nonaccrual loans by loan segment. The Company generally places loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain, when part of the principal balance has been charged off and no restructuring has occurred, or the loans reach a certain number of days past due. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans, which are placed in nonaccrual status at 150 days past due.

When a loan is placed on nonaccrual, the accrued unpaid interest receivable is reversed against interest income and all future payments received are applied as a reduction to the loan principal. Generally, the loan is returned to accrual status when (a) all delinquent interest and principal become current under the terms of the loan agreement or (b) the loan is both well-secured and in the process of collection and collectability is no longer doubtful.

Impaired Loans

Management considers loans to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Determination of impairment is treated the same across all loan categories. When management identifies a loan as impaired, the impairment is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole source for repayment of the loan is the operation or liquidation of collateral. When the loan is collateral dependent, the appraised value less estimated cost to sell is utilized. If management determines the value of the impaired loan is less than the recorded investment in the loan, impairment is recognized through an allowance estimate or a charge-off to the allowance. Troubled debt restructured loans on accrual status are considered to be impaired loans.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received, under the cash basis method.

There were $3.0 million of impaired loans held for sale at March 31, 2015. There were no impaired loans held for sale at December 31, 2014. During the three months ended March 31, 2014, $0.7 million of impaired loans were sold at carrying value. No gains were recognized on the sale of impaired loans during the three months ended March 31, 2015 and 2014.

Significant nonaccrual loans as of March 31, 2015, include the following:


•	$9.3 million relationship of commercial and real estate loans to a local water facility construction company. These loans were originated from 2009 to 2013 and were placed in nonaccrual status during the fourth quarter of 2014. A valuation of the collateral was completed during the first quarter of 2015.

•

$6.1 million relationship of commercial industrial loans to a local energy company. These loans were originated from 2008 to 2011 and were placed in nonaccrual status during the third quarter of 2013. One of these loans, totaling $2.4 million, was modified, resulting in TDR classification in the second quarter of 2012. A second of these loans was modified resulting in TDR classification in the first quarter of 2013 and paid in full during the first quarter of 2015. Another portion, totaling $3.1 million, was modified resulting in a TDR classification during the fourth quarter of 2014. During the three

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

months ended March 31, 2015, charge-offs of $3.3 million related to this relationship were recorded. A valuation of the collateral was updated during the first quarter of 2015.

The following tables include the recorded investment and unpaid principal balance for impaired loans with the associated allowance amount, if applicable, as of March 31, 2015 and December 31, 2014. Also presented are the average recorded investment in impaired loans and the related amount of interest recognized while the loan was considered impaired. Average balances are calculated using month-end balances of the loans for the period reported and are included in the table below based on its period-end allowance position.



	March 31, 2015						December 31, 2014
	Recorded investment		Unpaid principal balance		Related allowance		Recorded investment		Unpaid principal balance		Related allowance
	(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other	$	14,650	$	20,137			$	9,439	$	10,937
Real estate construction	236		479				236		476
Residential real estate	9,901		11,749				10,773		12,470
Commercial real estate	7,958		9,317				8,768		10,178
Loans to individuals	318		383				288		337
Subtotal	33,063		42,065				29,504		34,398
With an allowance recorded:
Commercial, financial, agricultural and other	10,829		10,942		3,397		24,826		25,583		9,304
Real estate construction	—		—		—		—		—		—
Residential real estate	992		1,105		165		367		380		56
Commercial real estate	1,311		1,341		267		554		554		101
Loans to individuals	—		—		—		—		—		—
Subtotal	13,132		13,388		3,829		25,747		26,517		9,461
Total	$	46,195	$	55,453	$	3,829	$	55,251	$	60,915	$	9,461

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 March 31,
	2015				2014
	Average recorded investment		Interest Income Recognized		Average recorded investment	Interest Income Recognized
	(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other	$	19,375	$	57