Edgar Filing: FIRST COMMONWEALTH FINANCIAL CORP /PA/

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 June 30, 2018



¨	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 August 7, 2018, was 100,364,567.

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	49

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	70

ITEM 4.	Controls and Procedures	70

PART II.	Other Information

ITEM 1.	Legal Proceedings	71

ITEM 1A.	Risk Factors	71

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

ITEM 3.	Defaults Upon Senior Securities	71

ITEM 4.	Mine Safety Disclosures	71

ITEM 5.	Other Information	71

ITEM 6.	Exhibits	72

	Signatures	73

Table of Contents

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)



	June 30, 2018			December 31, 2017
	(dollars in thousands, except share data)
Assets
Cash and due from banks	$	101,744		$	98,624
Interest-bearing bank deposits	2,237			8,668
Securities available for sale, at fair value	851,243			731,358
Securities held to maturity, at amortized cost (Fair value of $390,168 and $418,249 at June 30, 2018 and December 31, 2017, respectively)	403,019			422,096
Other investments	25,327			29,837
Loans held for sale	7,038			14,850
Loans:
Portfolio loans	5,640,106			5,407,376
Allowance for credit losses	(51,314		)	(48,298		)
Net loans	5,588,792			5,359,078
Premises and equipment, net	81,604			81,339
Other real estate owned	3,757			2,765
Goodwill	274,408			255,353
Amortizing intangibles, net	14,643			15,007
Bank owned life insurance	212,956			212,099
Other assets	81,987			77,465
Total assets	$	7,648,755		$	7,308,539
Liabilities
Deposits (all domestic):
Noninterest-bearing	$	1,489,058		$	1,416,771
Interest-bearing	4,424,516			4,163,934
Total deposits	5,913,574			5,580,705
Short-term borrowings	545,187			707,466
Subordinated debentures	170,304			72,167
Other long-term debt	7,859			8,161
Capital lease obligation	7,405			7,590
Total long-term debt	185,568			87,918
Other liabilities	43,641			44,323
Total liabilities	6,687,970			6,420,412
Shareholders’ Equity
Preferred stock, $1 par value per share, 3,000,000 shares authorized, none issued	—			—
Common stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued at June 30, 2018 and December 31, 2017, and 100,364,567 and 97,456,478 shares outstanding at June 30, 2018 and December 31, 2017, respectively	113,915			113,915
Additional paid-in capital	492,262			470,123
Retained earnings	477,276			437,416
Accumulated other comprehensive loss, net	(16,561		)	(6,173		)
Treasury stock (13,550,335 and 16,458,424 shares at June 30, 2018 and December 31, 2017, respectively)	(106,107		)	(127,154		)
Total shareholders’ equity	960,785			888,127
Total liabilities and shareholders’ equity	$	7,648,755		$	7,308,539

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					For the Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
	(dollars in thousands, except share data)
Interest Income
Interest and fees on loans	$	63,941	$	54,913		$	122,424	$	103,213
Interest and dividends on investments:
Taxable interest	8,076		7,364			15,132		14,358
Interest exempt from federal income taxes	411		405			821		802
Dividends	473		383			992		859
Interest on bank deposits	39		55			70		67
Total interest income	72,940		63,120			139,439		119,299
Interest Expense
Interest on deposits	5,092		2,208			8,633		4,020
Interest on short-term borrowings	2,489		2,197			4,784		3,946
Interest on subordinated debentures	1,535		738			2,362		1,443
Interest on other long-term debt	75		81			152		164
Interest on lease obligations	74		79			148		79
Total interest expense	9,265		5,303			16,079		9,652
Net Interest Income	63,675		57,817			123,360		109,647
Provision for credit losses	1,168		(1,609		)	8,071		1,620
Net Interest Income after Provision for Credit Losses	62,507		59,426			115,289		108,027
Noninterest Income
Net securities gains (losses)	5,262		(49		)	8,102		603
Trust income	1,880		1,711			3,808		3,128
Service charges on deposit accounts	4,423		4,736			8,829		9,055
Insurance and retail brokerage commissions	1,820		2,442			3,688		4,524
Income from bank owned life insurance	2,168		1,449			3,662		2,741
Gain on sale of mortgage loans	1,241		1,315			2,725		2,292
Gain on sale of other loans and assets	2,331		457			2,905		764
Card-related interchange income	5,143		4,842			9,885		9,093
Derivatives mark to market	—		(37		)	789		(35		)
Swap fee income	297		314			587		241
Other income	1,743		1,724			3,371		3,430
Total noninterest income	26,308		18,904			48,351		35,836
Noninterest Expense
Salaries and employee benefits	26,154		25,298			51,027		48,764
Net occupancy expense	4,222		4,121			8,591		7,882
Furniture and equipment expense	3,647		3,323			7,187		6,411
Data processing expense	2,478		2,345			4,911		4,430
Advertising and promotion expense	1,176		988			1,985		1,794
Pennsylvania shares tax expense	1,247		1,161			2,150		1,977
Intangible amortization	829		846			1,613		1,418
Collection and repossession expense	607		443			1,430		940
Other professional fees and services	1,031		1,096			2,038		2,055
FDIC insurance	597		977			1,373		1,770
Loss on sale or write-down of assets	497		1,220			694		1,319
Litigation and operational losses	197		277			376		509
Merger and acquisition related	1,273		9,870			1,610		10,481
Other operating expenses	5,174		6,298			11,017		11,278
Total noninterest expense	49,129		58,263			96,002		101,028
Income Before Income Taxes	39,686		20,067			67,638		42,835
Income tax provision	7,605		6,054			12,287		12,934
Net Income	$	32,081	$	14,013		$	55,351	$	29,901
Average Shares Outstanding	99,305,009		97,183,599			98,374,244		93,079,546
Average Shares Outstanding Assuming Dilution	99,504,409		97,232,288			98,529,160		93,125,939
Per Share Data:
Basic Earnings per Share	$	0.32	$	0.14		$	0.56	$	0.32
Diluted Earnings per Share	$	0.32	$	0.14		$	0.56	$	0.32
Cash Dividends Declared per Common Share	$	0.09	$	0.08		$	0.17	$	0.16

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						For the Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	(dollars in thousands)
Net Income	$	32,081		$	14,013		$	55,351		$	29,901
Other comprehensive (loss) income, before tax benefit (expense):
Unrealized holding gains (losses) on securities arising during the period	660			1,702			(3,322		)	4,245
Less: reclassification adjustment for gains on securities included in net income	(5,262		)	49			(8,102		)	(603		)
Unrealized holding gains (losses) on derivatives arising during the period	97			(66		)	(33		)	(582		)
Less: reclassification adjustment for losses (gains) on derivatives included in net income	10			(5		)	10			73
Total other comprehensive (loss) income, before tax benefit (expense)	(4,495		)	1,680			(11,447		)	3,133
Income tax benefit (expense) related to items of other comprehensive (loss) income	943			(588		)	2,403			(1,097		)
Total other comprehensive (loss) income	(3,552		)	1,092			(9,044		)	2,036
Comprehensive Income	$	28,529		$	15,105		$	46,307		$	31,937

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, 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							55,351									55,351
Other comprehensive loss										(9,044		)				(9,044		)
Cash dividends declared ($0.17 per share)							(16,835		)							(16,835		)
Treasury stock acquired	(72,645	)											(1,084		)	(1,084		)
Treasury stock reissued	2,908,234				21,579		—						22,447			44,026
Restricted stock	72,500		—		560		—						(316		)	244
Balance at June 30, 2018	100,364,567		$	113,915	$	492,262	$	477,276		$	(16,561	)	$	(106,107	)	$	960,785



	Shares Outstanding		Common Stock		Additional Paid-in- Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss), net			Treasury Stock			Total Shareholders’ Equity
	(dollars in thousands, except share and per share data)
Balance at December 31, 2016	89,007,077		$	105,563	$	366,426	$	412,764		$	(7,027	)	$	(127,797	)	$	749,929
Net income							29,901									29,901
Other comprehensive income										2,036						2,036
Cash dividends declared ($0.16 per share)							(14,917		)							(14,917		)
Treasury stock acquired	(81,696	)											(1,141		)	(1,141		)
Treasury stock reissued	181,211				1,170		—						1,387			2,557
Restricted stock	25,028		—		138		—						221			359
Common stock issuance	8,351,447		8,352		102,389											110,741
Balance at June 30, 2017	97,483,067		$	113,915	$	470,123	$	427,748		$	(4,991	)	$	(127,330	)	$	879,465

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 Six Months Ended
	June 30,
	2018			2017
Operating Activities	(dollars in thousands)
Net income	$	55,351		$	29,901
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses	8,071			1,620
Deferred tax expense	1,468			3,968
Depreciation and amortization	3,262			4,414
Net gains on securities and other assets	(14,192		)	(2,209		)
Net amortization of premiums and discounts on securities	1,554			1,782
Income from increase in cash surrender value of bank owned life insurance	(2,941		)	(2,741		)
(Increase) decrease in interest receivable	(1,150		)	242
Mortgage loans originated for sale	(83,265		)	(70,521		)
Proceeds from sale of mortgage loans	93,518			71,464
Increase in interest payable	383			857
Decrease in income taxes payable	(92		)	(764		)
Distribution from unconsolidated subsidiary	9,000			—
Other-net	(10,362		)	3,729
Net cash provided by operating activities	60,605			41,742
Investing Activities
Transactions with securities held to maturity:
Proceeds from maturities and redemptions	23,926			22,227
Purchases	(5,506		)	(101,372		)
Transactions with securities available for sale:
Proceeds from sales	15,939			103,618
Proceeds from maturities and redemptions	78,842			66,189
Purchases	(218,885		)	(85,220		)
Purchases of FHLB stock	(25,110		)	(22,329		)
Proceeds from the redemption of FHLB stock	32,881			27,736
Proceeds from bank owned life insurance	772			—
Proceeds from sale of loans	27,985			8,501
Proceeds from sale of other assets	1,434			2,744
Acquisition, net of cash acquired	507			3,188
Net increase in loans	(78,435		)	(125,791		)
Purchases of premises and equipment and other assets	(4,703		)	(4,486		)
Net cash used in investing activities	(150,353		)	(104,995		)
Financing Activities
Net increase in federal funds purchased	16,000			—
Net decrease in other short-term borrowings	(178,279		)	(21,806		)
Net increase in deposits	191,782			101,501
Repayments of other long-term debt	(23,290		)	(291		)
Repayments of capital lease obligation	(185		)	(86		)
Proceeds from other long-term debt	98,120			—
Dividends paid	(16,835		)	(14,917		)
Proceeds from reissuance of treasury stock	208			228
Purchase of treasury stock	(1,084		)	(1,141		)
Net cash provided by financing activities	86,437			63,488
Net (decrease) increase in cash and cash equivalents	(3,311		)	235
Cash and cash equivalents at January 1	107,292			115,677
Cash and cash equivalents at June 30	$	103,981		$	115,912

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 six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the full year of 2018. These interim financial statements should be read in conjunction with First Commonwealth’s 2017 Annual Report on Form 10-K.

Adoption of New Accounting Standards

On January 1, 2018, First Commonwealth adopted ASU 2014-09, "Revenue from Contracts with Customers" ("ASC 606") and all subsequent amendments to the ASU, which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain(loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Company's revenues come from interest income and other sources, including loans and securities, that are outside the scope of ASC 606. The Company's services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include trust income, service charges on deposits, insurance and retail brokerage commissions, interchange fees and gain(loss) on other real estate owned ("OREO"). Refer to Note 15, "Revenue Recognition" for further discussion on the Company's accounting policies for revenue sources within the scope of ASC 606. The Company adopted ASC 606 using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy GAAP. The adoption of ASC 606 did not result in a significant change to the accounting for any of the in-scope revenue streams; as such, no cumulative effect adjustment was recorded.

On January 1, 2018, First Commonwealth elected to adopt ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." As part of this adoption, First Commonwealth has elected to reclassify the income tax effects resulting from tax reform from accumulated other comprehensive income to retained earnings on a portfolio basis. ASU 2018-02 provides for the reclassification of the stranded tax effects resulting from the Tax Cuts and Jobs Act. As of January 1, 2018, First Commonwealth reclassified $1.3 million from accumulated other comprehensive income to retained earnings in relation to the stranded tax effect which included accumulated other comprehensive income recognized on available-for-sale investment securities, interest rate swaps and other post-retirement benefits. This reclassification is shown as an adjustment to the beginning of the year balances and can be seen in the Condensed Consolidated Statements of Changes in Shareholders' Equity.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, and when that assessment indicates that impairment exists, requiring the entity to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The adoption of ASU No. 2016-01 on January 1, 2018 did not have a material impact on the Company’s Consolidated Financial Statements. In accordance with this ASU, and as reflected in Note 11, "Fair Values of Assets and Liabilities", the Company measured the fair value of its loan portfolio as of June 30, 2018 using an exit price notion.

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and interest-bearing bank deposits. Generally, federal funds are sold for one-day periods.

Note 2 Acquisition

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

The table below summarizes the net assets acquired (at fair value) and consideration transferred in connection with the Garfield acquisition (dollars in thousands):



Consideration Paid
Cash paid to shareholders	$	17,400
Shares issued to shareholders (2,745,098 shares)	41,561
Total consideration paid			$	58,961

Fair Value of Assets Acquired
Cash and cash equivalents	17,907
FHLB Stock	3,261
Loans	184,506
Premises and other equipment	409
Core deposit intangible	1,248
Other assets	1,687
Total assets acquired	209,018

Fair Value of Liabilities Assumed
Deposits	141,281
Federal Home Loan Bank borrowings	22,988
Other liabilities	5,016
Total liabilities assumed	169,285

Total Fair Value of Identifiable Net Assets			39,733

Goodwill			$	19,228

The goodwill of $19.2 million arising from the acquisition represents the value of synergies and economies of scale expected from combining the operations of the Company with Garfield Acquisition Corporation.

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

rate for like maturities and risk instruments. At the date of acquisition, none of the loans were accounted for under the guidance of ASC Topic 310-30, “Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.” The $184.5 million fair value of acquired loans is the result of $183.7 million in net loans acquired from Garfield, the recognition of a net combined yield and credit mark adjustment of $4.3 million and the $5.1 million reversal of Garfield's allowance as well as prior fair value marks recorded by Garfield.

The fair value of the 2,745,098 common shares issued was determined based on the market price of the Company's common shares on the acquisition date. The fair value of the acquired loans, customer deposit intangible, other assets and assumed deposits may change during the provisional period, which may last up to twelve months subsequent to the acquisition date as we are in the process of finalizing our valuations. The Company may obtain additional information to refine the valuation of the aforementioned items and adjust the recorded fair value, although such adjustments are not expected to be significant. Adjustments recorded to the acquired assets and liabilities will be applied prospectively in accordance with ASU No. 2015-16, “Business Combinations.”

Costs related to the acquisition totaled $1.6 million. These amounts were expensed as incurred and are recorded as a merger and acquisition related expense in the Condensed Consolidated Statements of Income.

As a result of the full integration of the operations of Garfield, it is not practicable to determine revenue or net income included in the Company's operating results relating to Garfield since the date of acquisition as Garfield’s results cannot be separately identified.

Note 3 Supplemental Comprehensive Income Disclosures

The following table identifies the related tax effects allocated to each component of other comprehensive income (“OCI”) in the Condensed Consolidated Statements of Comprehensive Income. Reclassification adjustments related to securities available for sale are included in the "Net securities gains" line and reclassification adjustments related to losses on derivatives are included in the "Other operating expenses" line in the Condensed Consolidated Statements of Income.



	For the Six Months Ended June 30,
	2018									2017
	Pretax Amount			Tax (Expense) Benefit			Net of Tax Amount			Pretax Amount			Tax (Expense) Benefit			Net of Tax Amount
	(dollars in thousands)
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains on securities arising during the period	$	(3,322	)	$	698		$	(2,624	)	$	4,245		$	(1,486	)	$	2,759
Reclassification adjustment for gains on securities included in net income	(8,102		)	1,701			(6,401		)	(603		)	211			(392		)
Total unrealized (losses) gains on securities	(11,424		)	2,399			(9,025		)	3,642			(1,275		)	2,367
Unrealized losses on derivatives:
Unrealized holding losses on derivatives arising during the period	(33		)	7			(26		)	(582		)	204			(378		)
Reclassification adjustment for losses on derivatives included in net income	10			(3		)	7			73			(26		)	47
Total unrealized losses on derivatives	(23		)	4			(19		)	(509		)	178			(331		)
Total other comprehensive (loss) income	$	(11,447	)	$	2,403		$	(9,044	)	$	3,133		$	(1,097	)	$	2,036

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 June 30,
	2018									2017
	Pretax Amount			Tax (Expense) Benefit			Net of Tax Amount			Pretax Amount			Tax (Expense) Benefit			Net of Tax Amount
	(dollars in thousands)
Unrealized (losses) gains on securities:
Unrealized holding gains on securities arising during the period	$	660		$	(139	)	$	521		$	1,702		$	(596	)	$	1,106
Reclassification adjustment for (gains) losses on securities included in net income	(5,262		)	1,105			(4,157		)	49			(17		)	32
Total unrealized (losses) gains on securities	(4,602		)	966			(3,636		)	1,751			(613		)	1,138
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) on derivatives arising during the period	97			(20		)	77			(66		)	23			(43		)
Reclassification adjustment for losses (gains) on derivatives included in net income	10			(3		)	7			(5		)	2			(3		)
Total unrealized gains (losses) on derivatives	107			(23		)	84			(71		)	25			(46		)
Total other comprehensive (loss) income	$	(4,495	)	$	943		$	(3,552	)	$	1,680		$	(588	)	$	1,092

The following table details the change in components of OCI for the six months ended June 30:



	2018											2017
	Securities Available for Sale			Post-Retirement Obligation		Derivatives			Accumulated Other Comprehensive Income (Loss)			Securities Available for Sale			Post-Retirement Obligation		Derivatives			Accumulated Other Comprehensive Income (Loss)
	(dollars in thousands)
Balance at December 31	$	(6,166	)	$	299	$	(306	)	$	(6,173	)	$	(7,455	)	$	225	$	203		$	(7,027	)
Cumulative effect of adoption of ASU 2018-02	(1,344		)	—		—			(1,344		)	—			—		—			—
Balance at January 1	(7,510		)	299		(306		)	(7,517		)	(7,455		)	225		203			(7,027		)
Other comprehensive (loss) income before reclassification adjustment	(2,624		)	—		(26		)	(2,650		)	2,759			—		(378		)	2,381
Amounts reclassified from accumulated other comprehensive (loss) income	(6,401		)	—		7			(6,394		)	(392		)	—		47			(345		)
Net other comprehensive (loss) income during the period	(9,025		)	—		(19		)	(9,044		)	2,367			—		(331		)	2,036
Balance at June 30	$	(16,535	)	$	299	$	(325	)	$	(16,561	)	$	(5,088	)	$	225	$	(128	)	$	(4,991	)

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4 Supplemental Cash Flow Disclosures

The following table presents information related to cash paid during the period for interest and income taxes, as well as detail on non-cash investing and financing activities for the six months ended June 30:



	2018			2017
	(dollars in thousands)
Cash paid during the period for:
Interest	$	15,856		$	8,917
Income taxes	11,000			11,394
Non-cash investing and financing activities:
Loans transferred to other real estate owned and repossessed assets	2,532			1,519
Loans transferred from held to maturity to held for sale	25,397			9,053
Gross (decrease) increase in market value adjustment to securities available for sale	(11,424		)	3,642
Gross decrease in market value adjustment to derivatives	(23		)	(508		)
Noncash treasury stock reissuance	2,257			2,258
Net assets acquired through acquisition	21,826			37,087
Proceeds from death benefit on bank-owned life insurance not received	1,312			—

Note 5 Earnings per Share

The following table summarizes the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computations:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Weighted average common shares issued	113,914,902		113,731,354		113,914,902		109,669,968
Average treasury stock shares	(14,460,352	)	(16,435,520	)	(15,409,475	)	(16,481,109	)
Average deferred compensation shares	(37,411	)	—		(37,411	)	—
Average unearned nonvested shares	(112,130	)	(112,235	)	(93,772	)	(109,313	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share	99,305,009		97,183,599		98,374,244		93,079,546
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share	161,989		48,689		117,505		46,393
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	99,504,409		97,232,288		98,529,160		93,125,939

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 six months ended June 30 because to do so would have been antidilutive.



	2018					2017
		Price Range					Price Range
	Shares	From		To		Shares	From		To
Restricted Stock	55,607	$	13.96	$	14.49	26,022	$	9.26	$	13.96
Restricted Stock Units	61,065	$	14.17	$	15.83	24,375	$	15.09	$	15.09

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6 Commitments and Contingent Liabilities

Commitments and Letters of Credit

Standby letters of credit and commercial letters of credit are conditional commitments issued by First Commonwealth to guarantee the performance of a customer to a third party. The contract or notional amount of these instruments reflects the maximum amount of future payments that First Commonwealth could be required to pay under the guarantees if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. In addition, many of these commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements.

The following table identifies the notional amount of those instruments at:



	June 30, 2018		December 31, 2017
	(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	1,794,348	$	1,840,180
Financial standby letters of credit	17,907		17,946
Performance standby letters of credit	21,468		20,472
Commercial letters of credit	1,055		1,149

The notional amounts outstanding as of June 30, 2018 include amounts issued in 2018 of $1.0 million in financial standby letters of credit and $0.9 million in performance standby letters of credit. There were no commercial letters of credit issued in 2018 or 2017. A liability of $0.2 million has been recorded as of June 30, 2018 and December 31, 2017, which represents the estimated fair value of letters of credit issued. The fair value of letters of credit is estimated based on the unrecognized portion of fees received at the time the commitment was issued.

Unused commitments and letters of credit provide exposure to future credit loss in the event of nonperformance by the borrower or guaranteed parties. Management’s evaluation of the credit risk related to these commitments resulted in the recording of a liability of $5.1 million and $5.2 million as of June 30, 2018 and December 31, 2017, respectively. This liability is reflected in "Other liabilities" in the Condensed Consolidated Statements of Financial Condition. The credit risk evaluation incorporated probability of default, loss given default and estimated utilization for the next twelve months for each loan category and the letters of credit.

Legal Proceedings

First Commonwealth and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of June 30, 2018, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability (if any), is between $0 and $1 million. Although First Commonwealth does not believe that the outcome of pending litigation will be material to First Commonwealth’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations and cash flows for a particular reporting period in the future.

First Commonwealth Financial Corporation and First Commonwealth Bank were named defendants in an action commenced August 27, 2015 by eight named plaintiffs that filed in the Court of Common Pleas of Jefferson County, Pennsylvania. The plaintiffs alleged that the Bank repossessed motor vehicles, sold the vehicles and sought to collect deficiency balances in a manner that did not comply with the notice requirements of the Pennsylvania Uniform Commercial Code (UCC), charged inappropriate costs and fees, including storage costs for dates that a repossessed vehicle was not in storage, and wrongly filed forms with the Department of Motor Vehicles asserting that the Bank had complied with applicable laws relating to the repossession of the vehicles. First Commonwealth Financial Corporation, First Commonwealth Bank, the plaintiffs, the plaintiffs’ counsel and First Commonwealth’s liability insurer have entered into a Class Action Settlement Agreement and

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Release in which, among other things, First Commonwealth and its insurer have agreed to pay certain amounts into a settlement fund to be distributed among the class members and class counsel, First Commonwealth has agreed to satisfy the remaining deficiency balances of the class members and request that credit reporting agencies delete the tradeline relating to the repossession from each class member’s credit report, and the class members will release all claims against First Commonwealth and its insurer. At a hearing on July 23, 2018, the Court granted final approval of the settlement and dismissed all claims against First Commonwealth. First Commonwealth expects that the settlement will be completed during the third quarter of 2018. The estimated cost of the settlement to First Commonwealth was recorded as a liability in the second quarter of 2016. As set forth in the preceding paragraph, all current litigation matters, including this action, are believed to be within the range of reasonably possible losses set forth in the preceding paragraph.

Note 7 Investment Securities

Securities Available for Sale

Below is an analysis of the amortized cost and estimated fair values of securities available for sale at:



	June 30, 2018									December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	9,706	$	576	$	(103	)	$	10,179	$	10,556	$	789	$	(7	)	$	11,338
Mortgage-Backed Securities – Commercial	121,996		36		(1,747		)	120,285		24,611		—		(462		)	24,149
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	690,692		1,344		(21,284		)	670,752		632,422		2,622		(9,489		)	625,555
Other Government-Sponsored Enterprises	100		—		—			100		1,098		—		(1		)	1,097
Obligations of States and Political Subdivisions	27,087		120		(39		)	27,168		27,083		327		—			27,410
Corporate Securities	20,902		497		(310		)	21,089		15,907		590		(4		)	16,493
Pooled Trust Preferred Collateralized Debt Obligations	—		—		—			—		27,499		526		(4,379		)	23,646
Total Debt Securities	870,483		2,573		(23,483		)	849,573		739,176		4,854		(14,342		)	729,688
Equities	1,670		—		—			1,670		1,670		—		—			1,670
Total Securities Available for Sale	$	872,153	$	2,573	$	(23,483	)	$	851,243	$	740,846	$	4,854	$	(14,342	)	$	731,358

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

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

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 June 30, 2018, by contractual maturity, are shown below.



	Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due within 1 year	$	4,099	$	4,078
Due after 1 but within 5 years	15,728		15,443
Due after 5 but within 10 years	26,339		26,416
Due after 10 years	1,923		2,420
	48,089		48,357
Mortgage-Backed Securities (a)	822,394		801,216
Total Debt Securities	$	870,483	$	849,573


(a)	Mortgage-Backed Securities include an amortized cost of $131.7 million and a fair value of $130.4 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $690.7 million and a fair value of $670.8 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 six months ended June 30:



	2018		2017
	(dollars in thousands)
Proceeds from sales	$	15,939	$	103,618
Gross gains (losses) realized:
Sales Transactions:
Gross gains	$	4,719	$	—
Gross losses	—		(49		)
	4,719		(49		)
Maturities and impairment
Gross gains	3,383		712
Gross losses	—		(60		)
	3,383		652
Net gains and impairment	$	8,102	$	603

Gross gains from sales transactions of $4.7 million were recognized in 2018 as a result of the sale of the remaining pooled trust preferred security portfolio. Gross gains from maturities and impairment of $3.4 million were recognized in 2018 as a result of successful auction calls on PreSTL XIV and PreSTL IX, two of our pooled trust preferred securities. Gross gains of $0.7 million were recognized in 2017 due to the early redemption of another of our trust preferred securities, PreSTL VII.

Securities available for sale with an estimated fair value of $720.2 million and $569.0 million were pledged as of June 30, 2018 and December 31, 2017, respectively, to secure public deposits and for other purposes required or permitted by law.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Securities Held to Maturity

Below is an analysis of the amortized cost and fair values of debt securities held to maturity at:



	June 30, 2018									December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	3,867	$	—	$	(128	)	$	3,739	$	3,925	$	—	$	(14	)	$	3,911
Mortgage-Backed Securities- Commercial	56,991		—		(2,509		)	54,482		58,249		—		(1,394		)	56,855
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	285,624		—		(9,241		)	276,383		305,126		10		(2,552		)	302,584
Mortgage-Backed Securities – Commercial	13,659		—		(369		)	13,290		14,056		—		(71		)	13,985
Obligations of States and Political Subdivisions	42,478		60		(655		)	41,883		40,540		335		(161		)	40,714
Debt Securities Issued by Foreign Governments	400		—		(9		)	391		200		—		—			200
Total Securities Held to Maturity	$	403,019	$	60	$	(12,911	)	$	390,168	$	422,096	$	345	$	(4,192	)	$	418,249

The amortized cost and estimated fair value of debt securities held to maturity at June 30, 2018, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.



	Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due within 1 year	$	86	$	86
Due after 1 but within 5 years	3,830		3,807
Due after 5 but within 10 years	37,340		36,775
Due after 10 years	1,622		1,606
	42,878		42,274
Mortgage-Backed Securities (a)	360,141		347,894
Total Debt Securities	$	403,019	$	390,168


(a)	Mortgage-Backed Securities include an amortized cost of $60.9 million and a fair value of $58.2 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $299.2 million and a fair value of $289.7 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 $365.3 million and $338.3 million were pledged as of June 30, 2018 and December 31, 2017, respectively, to secure public deposits and for other purposes required or permitted by law.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 Impairment of Investment Securities

Securities Available for Sale and Held to Maturity

As required by FASB ASC Topic 320, “Investments – Debt and Equity Securities,” credit-related other-than-temporary impairment on debt securities is recognized in earnings, while non-credit related other-than-temporary impairment on debt securities not expected to be sold is recognized in OCI. During the six months ended June 30, 2018 and 2017, no other-than-temporary impairment charges were recognized.

First Commonwealth utilizes the specific identification method to determine the net gain or loss on debt securities and the average cost method to determine the net gain or loss on equity securities.

We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and whether we are more likely than not to sell, or be required to sell, the security. We evaluate whether we are more likely than not to sell debt securities based upon our investment strategy for the particular type of security, our cash flow needs, liquidity position, capital adequacy, tax position and interest rate risk position. In addition, the risk of future other-than-temporary impairment may be influenced by weakness in the U.S. economy or changes in real estate values.

The following table presents the gross unrealized losses and estimated fair values at June 30, 2018 for both available for sale and held to maturity securities by investment category and time frame for which securities have been in a continuous unrealized loss position:



	Less Than 12 Months					12 Months or More					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	7,106	$	(231	)	$	—	$	—		$	7,106	$	(231	)
Mortgage-Backed Securities – Commercial	71,408		(1,747		)	54,482		(2,509		)	125,890		(4,256		)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	523,619		(13,093		)	360,389		(17,432		)	884,008		(30,525		)
Mortgage-Backed Securities – Commercial	13,290		(369		)	—		—			13,290		(369		)
Other Government-Sponsored Enterprises	—		—			100		—			100		—
Obligations of States and Political Subdivisions	31,005		(413		)	3,499		(281		)	34,504		(694		)
Debt securities issued by foreign governments	391		(9		)	—		—			391		(9		)
Corporate Securities	18,669		(310		)	—		—			18,669		(310		)
Total Securities	$	665,488	$	(16,172	)	$	418,470	$	(20,222	)	$	1,083,958	$	(36,394	)

At June 30, 2018, fixed income securities issued by U.S. Government-sponsored enterprises and U.S. Government agencies comprised 85% and 12%, respectively, of total unrealized losses due to changes in market interest rates. At June 30, 2018, there are 157 debt securities in an unrealized loss position.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the gross unrealized losses and estimated fair values at December 31, 2017 by investment category and time frame for which securities have been in a continuous unrealized loss position:



	Less Than 12 Months					12 Months or More					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	5,584	$	(21	)	$	—	$	—		$	5,584	$	(21	)
Mortgage-Backed Securities - Commercial	48,322		(962		)	32,683		(894		)	81,005		(1,856		)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	351,222		(2,295		)	400,984		(9,746		)	752,206		(12,041		)
Mortgage-Backed Securities – Commercial	13,985		(71		)	—		—			13,985		(71		)
Other Government-Sponsored Enterprises	997		(1		)	99		—			1,096		(1		)
Obligation of States and Political Subdivisions	7,144		(32		)	3,653		(129		)	10,797		(161		)
Corporate Securities	3,993		(4		)	—		—			3,993		(4		)
Pooled Trust Preferred Collateralized Debt Obligations	—		—			19,120		(4,379		)	19,120		(4,379		)
Total Securities	$	431,247	$	(3,386	)	$	456,539	$	(15,148	)	$	887,786	$	(18,534	)

As of June 30, 2018, our corporate securities had an amortized cost and an estimated fair value of $20.9 million and $21.1 million, respectively. As of December 31, 2017, our corporate securities had an amortized cost and estimated fair value of $15.9 million and $16.5 million, respectively. Corporate securities are comprised of debt for large regional banks. There were four corporate securities in an unrealized loss position as of June 30, 2018 and one corporate security in an unrealized loss position as of December 31, 2017. When unrealized losses exist on these investments, management reviews each of the issuer’s asset quality, earnings trends and capital position, to determine whether issues in an unrealized loss position were other-than-temporarily impaired. All interest payments on the corporate securities are being made as contractually required.

During the six-months ended June 30, 2018, all of our pooled trust preferred collateralized debt obligations were liquidated either through a successful auction call or sale. At December 31, 2017, the pooled trust preferred securities had an amortized cost and estimated fair value of $27.5 million and $23.6 million, respectively. Other-than-temporary impairment charges were recognized on the pooled trust preferred securities in 2008, 2009 and 2010. The following table provides a cumulative roll forward of credit losses recognized in earnings for the trust preferred securities:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
	(dollars in thousands)
Balance, beginning (a)	$	9,759		$	16,828		$	12,208		$	17,056
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)	(76		)	(218		)	(223		)	(446		)
Reduction for debt securities sold during the period	(9,164		)	—			(9,164		)	—
Reduction for debt securities called during the period	(519		)	—			(2,821		)	—
Balance, ending	$	—		$	16,610		$	—		$	16,610


(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 six months of 2018 and 2017, 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 June 30, 2018 and 2017, there were no equity securities in an unrealized loss position.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 June 30, 2018 and December 31, 2017, our FHLB stock totaled $25.3 million and $29.8 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 and six months ended June 30, 2018.

Note 9 Loans and Allowance for Credit Losses

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

June 30, 2018

December 31, 2017

Originated

Acquired

Total