Other Investments

6 Months Ended

Jun. 30, 2011

Other Investments

Other Investments

Note 8 Other Investments

As a member of the Federal Home Loan Bank ("FHLB") of Pittsburgh, First Commonwealth is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements. 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, 2011 and December 31, 2010, our FHLB stock totaled $44.1 million and $48.9 million, respectively, and is included in "Other investments" on the Condensed Consolidated Statements of Financial Condition.

In December 2008, the FHLB voluntarily suspended dividend payments on its stock, as well as temporarily discontinued the repurchase of excess stock from members. The FHLB last paid a dividend in the third quarter of 2008. In October 2010, the FHLB resumed the repurchase of excess stock from its members by repurchasing the lesser of 5% of the members total capital stock outstanding or its total excess capital stock. As a result, $2.5 million, $2.5 million, and $2.3 million, of the Company's FHLB stock was repurchased in October 2010, February 2011 and April 2011, respectively. On July 27, 2011, the FHLB announced that it will repurchase additional stock. Accordingly, $2.2 million of the $44.1 million in stock owned by the Company at June 30, 2011 was repurchased by the FHLB. Decisions regarding any future repurchases of excess capital stock will be made by the FHLB on a quarterly basis.

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. The decision of whether impairment exists is a matter of judgment that reflects our view of the FHLB's long-term performance, which includes factors such as the following:

• its operating performance;

• the severity and duration of declines in the fair value of its net assets related to its capital stock amount;

• its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance;

• the impact of legislative and regulatory changes on the FHLB, and accordingly, on the members of the FHLB; and

• its liquidity and funding position.

Management reviewed the FHLB's Form 10-Q for the period ended March 31, 2011 filed with the SEC on May 10, 2011 in order to evaluate all of these considerations. First Commonwealth concluded that the par value of its investment in FHLB stock is recoverable. Accordingly, no impairment charge was recorded on these securities for the six months ended June 30, 2011. Our evaluation of the factors described above in future periods could result in the recognition of impairment charges on FHLB stock.

Although debt issued by the FHLB is not explicitly guaranteed by the US Government, the FHLB's AAA credit rating reflects the implicit support of the U.S. Government. A downgrade in the credit rating of the U.S. Government could likely increase the borrowing costs of the FHLB and possibly have a negative impact on its operations and long-term performance. It is possible this could have an adverse effect on the value of our investment in FHLB stock.