Impairment of Investment Securities

6 Months Ended

Jun. 30, 2020

Impairment of Investment Securities Disclosure [Abstract]

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, 2020 and 2019, 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, 2020 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	$	11,333	$	(18)	$	—	$	—	$	11,333	$	(18)








Total Securities	$	11,333	$	(18)	$	—	$	—	$	11,333	$	(18)

At June 30, 2020, fixed income securities issued by U.S. Government-sponsored enterprises comprised 100% of total unrealized losses due to changes in market interest rates. At June 30, 2020, there are two debt securities in an unrealized loss position.

The following table presents the gross unrealized losses and estimated fair values at December 31, 2019 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 - Commercial	$	54,501	$	(201)	$	16,365	$	(149)	$	70,866	$	(350)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	111,969		(436)		219,015		(2,801)		330,984		(3,237)





Total Securities	$	166,470	$	(637)	$	235,380	$	(2,950)	$	401,850	$	(3,587)

As of June 30, 2020, our corporate securities had an amortized cost and an estimated fair value of $22.9 million and $24.5 million, respectively. As of December 31, 2019, our corporate securities had an amortized cost and estimated fair value of $22.9 million and $24.0 million, respectively. Corporate securities are comprised of debt issued by large regional banks. There were no corporate securities in an unrealized loss position as of both June 30, 2020 and December 31, 2019. 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.

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, 2020 and December 31, 2019, our FHLB stock totaled $10.6 million and $15.1 million, respectively, and is included in “Other investments” on the unaudited 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, 2020.

As of both June 30, 2020 and December 31, 2019, "Other investments" also includes $1.7 million in equity securities. These securities do not have a readily determinable fair value and are carried at cost. During the six-months ended June 30, 2020 and 2019, there were no gains or losses recognized through earnings on equity securities. On a quarterly basis, management evaluates equity securities by reviewing the severity and duration of decline in estimated fair value, research reports, analysts’ recommendations, credit rating changes, news stories, annual reports, regulatory filings, impact of interest rate changes and other relevant information.