FIRST COMMONWEALTH FINANCIAL CORP /PA/ - FORM 10-Q

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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, 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 August 7, 2015, was 88,961,268.

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	39

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	60

ITEM 4.	Controls and Procedures	60

PART II.	Other Information

ITEM 1.	Legal Proceedings	61

ITEM 1A.	Risk Factors	61

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

ITEM 3.	Defaults Upon Senior Securities	62

ITEM 4.	Mine Safety Disclosures	62

ITEM 5.	Other Information	62

ITEM 6.	Exhibits	63

	Signatures	64

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, 2015			December 31, 2014
	(dollars in thousands, except share data)
Assets
Cash and due from banks	$	64,321		$	72,276
Interest-bearing bank deposits	3,120			2,262
Securities available for sale, at fair value	1,089,725			1,309,819
Securities held to maturity, at amortized cost (Fair value of $130,454 at June 30, 2015)	131,780			—
Other investments	53,347			44,545
Loans held for sale	9,817			2,502
Loans:
Portfolio loans	4,490,854			4,457,308
Allowance for credit losses	(45,344		)	(52,051		)
Net loans	4,445,510			4,405,257
Premises and equipment, net	63,404			64,989
Other real estate owned	6,539			7,197
Goodwill	161,429			161,429
Amortizing intangibles, net	1,352			1,665
Bank owned life insurance	180,005			177,567
Other assets	106,379			110,777
Total assets	$	6,316,728		$	6,360,285
Liabilities
Deposits (all domestic):
Noninterest-bearing	$	1,068,230		$	989,027
Interest-bearing	3,141,877			3,326,484
Total deposits	4,210,107			4,315,511
Short-term borrowings	1,231,917			1,105,876
Subordinated debentures	72,167			72,167
Other long-term debt	39,189			89,459
Total long-term debt	111,356			161,626
Other liabilities	52,142			61,127
Total liabilities	5,605,522			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 June 30, 2015 and December 31, 2014, and 88,960,268 and 91,723,028 shares outstanding at June 30, 2015 and December 31, 2014, respectively	105,563			105,563
Additional paid-in capital	365,933			365,615
Retained earnings	368,060			353,027
Accumulated other comprehensive loss, net	(140		)	(4,499		)
Treasury stock (16,603,187 and 13,840,427 shares at June 30, 2015 and December 31, 2014, respectively)	(128,210		)	(103,561		)
Total shareholders’ equity	711,206			716,145
Total liabilities and shareholders’ equity	$	6,316,728		$	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				For the Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
	(dollars in thousands, except share data)
Interest Income
Interest and fees on loans	$	42,650	$	42,192	$	85,251	$	85,290
Interest and dividends on investments:
Taxable interest	6,735		7,334		13,552		14,514
Interest exempt from federal income taxes	210		64		385		68
Dividends	553		574		2,042		796
Interest on bank deposits	2		2		5		4
Total interest income	50,150		50,166		101,235		100,672
Interest Expense
Interest on deposits	1,880		3,416		4,030		6,923
Interest on short-term borrowings	1,116		477		2,074		946
Interest on subordinated debentures	579		571		1,148		1,137
Interest on other long-term debt	205		319		441		692
Total interest expense	3,780		4,783		7,693		9,698
Net Interest Income	46,370		45,383		93,542		90,974
Provision for credit losses	3,038		3,317		4,197		6,548
Net Interest Income after Provision for Credit Losses	43,332		42,066		89,345		84,426
Noninterest Income
Net securities gains	20		2		125		2
Trust income	1,476		1,474		2,897		2,909
Service charges on deposit accounts	3,872		4,141		7,190		7,933
Insurance and retail brokerage commissions	2,178		1,600		4,373		2,995
Income from bank owned life insurance	1,378		1,432		2,732		2,801
Gain on sale of loans	627		76		1,066		76
Gain on sale of other assets	354		2,089		578		3,670
Card related interchange income	3,729		3,655		7,147		7,021
Other income	2,713		2,533		4,430		4,515
Total noninterest income	16,347		17,002		30,538		31,922
Noninterest Expense
Salaries and employee benefits	22,001		21,897		43,893		42,941
Net occupancy expense	3,316		3,283		7,227		6,789
Furniture and equipment expense	2,630		5,249		5,310		10,579
Data processing expense	1,509		1,542		2,947		3,010
Pennsylvania shares tax expense	1,110		1,038		1,904		1,749
Intangible amortization	156		178		312		356
Collection and repossession expense	917		449		1,428		1,158
Other professional fees and services	945		691		1,875		1,715
FDIC insurance	1,025		1,051		2,084		2,100
Loss on sale or write-down of assets	1,635		745		1,897		1,180
Operational losses (recoveries)	323		229		1,323		(460		)
Conversion related expenses	—		539		—		893
Other operating expenses	5,067		5,505		10,288		10,273
Total noninterest expense	40,634		42,396		80,488		82,283
Income Before Income Taxes	19,045		16,672		39,395		34,065
Income tax provision	5,598		4,744		11,727		9,837
Net Income	$	13,447	$	11,928	$	27,668	$	24,228
Average Shares Outstanding	88,922,392		93,794,589		89,893,662		94,166,936
Average Shares Outstanding Assuming Dilution	88,939,003		93,811,543		89,903,550		94,177,831
Per Share Data:
Basic Earnings per Share	$	0.15	$	0.13	$	0.31	$	0.26
Diluted Earnings per Share	$	0.15	$	0.13	$	0.31	$	0.26
Cash Dividends Declared per Common Share	$	0.07	$	0.07	$	0.14	$	0.14

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,
	2015			2014			2015			2014
	(dollars in thousands)
Net Income	$	13,447		$	11,928		$	27,668		$	24,228
Other comprehensive (loss) income, before tax benefit (expense):
Unrealized holding (losses) gains on securities arising during the period	(3,814		)	9,950			6,166			22,407
Less: reclassification adjustment for gains on securities included in net income	(20		)	(2		)	(125		)	(2		)
Unrealized holding (losses) gains on derivatives arising during the period	(527		)	—			668			—
Less: reclassification adjustment for gains on derivatives included in net income	(11		)	—			(6		)	—
Total other comprehensive (loss) income, before tax benefit (expense)	(4,372		)	9,948			6,703			22,405
Income tax benefit (expense) related to items of other comprehensive (loss) income	1,530			(3,478		)	(2,344		)	(7,839		)
Total other comprehensive (loss) income	(2,842		)	6,470			4,359			14,566
Comprehensive Income	$	10,605		$	18,398		$	32,027		$	38,794

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							27,668									27,668
Other comprehensive income										4,359						4,359
Cash dividends declared ($0.14 per share)							(12,635		)							(12,635		)
Treasury stock acquired	(2,918,066	)											(25,383		)	(25,383		)
Treasury stock reissued	20,936				32		—						160			192
Restricted stock	134,370		—		286		—						574			860
Balance at June 30, 2015	88,960,268		$	105,563	$	365,933	$	368,060		$	(140	)	$	(128,210	)	$	711,206



	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								24,228									24,228
Other comprehensive income											14,566						14,566
Cash dividends declared ($0.14 per share)								(13,205		)							(13,205		)
Discount on dividend reinvestment plan purchases					(65		)										(65		)
Treasury stock acquired	(1,603,350	)												(13,407		)	(13,407		)
Treasury stock reissued	21,960				35			—						157			192
Restricted stock	88,987		—		247			—						251			498
Balance at June 30, 2014	93,752,812		$	105,563	$	365,550		$	345,771		$	(6,022	)	$	(86,358	)	$	724,504

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,
	2015			2014
Operating Activities	(dollars in thousands)
Net income	$	27,668		$	24,228
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses	4,197			6,548
Deferred tax expense	7,102			4,918
Depreciation and amortization	3,802			8,436
Net gains on securities and other assets	(235		)	(2,843		)
Net amortization of premiums and discounts on securities	1,151			1,000
Net accretion of premiums and discounts on long term debt	—			(37		)
Income from increase in cash surrender value of bank owned life insurance	(2,732		)	(2,576		)
Decrease in interest receivable	74			668
Mortgage loans originated for sale	(39,941		)	—
Proceeds from sale of mortgage loans	36,079			—
Decrease in interest payable	(200		)	(288		)
Increase in income taxes payable	503			998
Other-net	(14,817		)	5,685
Net cash provided by operating activities	22,651			46,737
Investing Activities
Transactions with securities held to maturity:
Proceeds from maturities and redemptions	1,115			—
Purchases	(131,145		)	—
Transactions with securities available for sale:
Proceeds from maturities and redemptions	235,971			152,846
Purchases	(10,800		)	(153,310		)
Purchases of FHLB stock	(29,251		)	(18,659		)
Proceeds from the redemption of FHLB stock	20,449			10,025
Proceeds from bank owned life insurance	294			939
Proceeds from sale of loans	102			3,112
Proceeds from sale of other assets	2,282			9,500
Net increase in loans	(48,785		)	(66,085		)
Purchases of premises and equipment	(2,521		)	(6,229		)
Net cash provided by (used in) investing activities	37,711			(67,861		)
Financing Activities
Net increase in federal funds purchased	15,000			13,000
Net increase in other short-term borrowings	111,041			206,259
Net decrease in deposits	(105,404		)	(143,441		)
Repayments of other long-term debt	(50,270		)	(7,675		)
Discount on dividend reinvestment plan purchases	—			(65		)
Dividends paid	(12,635		)	(13,205		)
Proceeds from reissuance of treasury stock	192			192
Purchase of treasury stock	(25,383		)	(13,369		)
Net cash (used in) provided by financing activities	(67,459		)	41,696
Net (decrease) increase in cash and cash equivalents	(7,097		)	20,572
Cash and cash equivalents at January 1	74,538			77,439
Cash and cash equivalents at June 30	$	67,441		$	98,011

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, 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 Six Months Ended June 30,
	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	$	6,166		$	(2,156	)	$	4,010		$	22,407		$	(7,840	)	$	14,567
Reclassification adjustment for gains on securities included in net income	(125		)	44			(81		)	(2		)	1			(1		)
Total unrealized gains on securities	6,041			(2,112		)	3,929			22,405			(7,839		)	14,566
Unrealized gains on derivatives:
Unrealized holding gains on derivatives arising during the period	668			(234		)	434			—			—			—
Reclassification adjustment for gains on derivatives included in net income	(6		)	2			(4		)	—			—			—
Total unrealized losses on derivatives	662			(232		)	430			—			—			—
Total other comprehensive income	$	6,703		$	(2,344	)	$	4,359		$	22,405		$	(7,839	)	$	14,566

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,
	2015								2014
	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	$	(3,814	)	$	1,335	$	(2,479	)	$	9,950		$	(3,479	)	$	6,471
Reclassification adjustment for gains on securities included in net income	(20		)	7		(13		)	(2		)	1			(1		)
Total unrealized (losses) gains on securities	(3,834		)	1,342		(2,492		)	9,948			(3,478		)	6,470
Unrealized losses on derivatives:
Unrealized holding losses on derivatives arising during the period	(527		)	184		(343		)	—			—			—
Reclassification adjustment for gains on derivatives included in net income	(11		)	4		(7		)	—			—			—
Total unrealized losses on derivatives	(538		)	188		(350		)	—			—			—
Total other comprehensive (loss) income	$	(4,372	)	$	1,530	$	(2,842	)	$	9,948		$	(3,478	)	$	6,470

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



	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	)	$	76	$	300		$	(4,499	)	$	(20,868	)	$	280	$	—	$	(20,588	)
Other comprehensive income before reclassification adjustment	4,010			—		434			4,444			14,567			—		—		14,567
Amounts reclassified from accumulated other comprehensive (loss) income	(81		)	—		(4		)	(85		)	(1		)	—		—		(1		)
Net other comprehensive income during the period	3,929			—		430			4,359			14,566			—		—		14,566
Balance at June 30	$	(946	)	$	76	$	730		$	(140	)	$	(6,302	)	$	280	$	—	$	(6,022	)

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 six months ended June 30:



	2015		2014
	(dollars in thousands)
Cash paid during the period for:
Interest	$	7,893	$	10,024
Income taxes	4,000		3,700
Non-cash investing and financing activities:
Loans transferred to other real estate owned and repossessed assets	2,315		2,726
Loans transferred from held to maturity to held for sale	3,071		3,035
Gross increase in market value adjustment to securities available for sale	6,036		22,397
Gross increase in market value adjustment to derivatives	662		—
Investments committed to purchase, not settled	1,817		2,732
Unsettled treasury stock repurchases	—		38
Proceeds from death benefit on bank-owned life insurance not received	—		1,062

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 June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
Weighted average common shares issued	105,563,455		105,563,455		105,563,455		105,563,455
Average treasury stock shares	(16,445,760	)	(11,584,636	)	(15,480,232	)	(11,232,622	)
Average unearned nonvested shares	(195,303	)	(184,230	)	(189,561	)	(163,897	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share	88,922,392		93,794,589		89,893,662		94,166,936
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share	16,611		16,954		9,888		10,895
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	88,939,003		93,811,543		89,903,550		94,177,831

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.



	2015					2014
		Price Range					Price Range
	Shares	From		To		Shares	From		To
Stock Options	—	$	—	$	—	15,000	$	14.55	$	14.55
Restricted Stock	146,933	5.26		9.26		93,268	5.96		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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, 2015		December 31, 2014
	(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	1,610,767	$	1,635,948
Financial standby letters of credit	26,287		36,075
Performance standby letters of credit	25,878		25,915
Commercial letters of credit	2,146		2,611

The notional amounts outstanding as of June 30, 2015 include amounts issued in 2015 of $7.8 million in financial standby letters of credit and $1.8 million in performance standby letters of credit. There have been no commercial letters of credit issued during 2015. A liability of $0.2 million has been recorded as of June 30, 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 $3.8 million as of June 30, 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:



	June 30, 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	$	21,846	$	2,516	$	(24	)	$	24,338	$	23,344	$	2,595	$	(3	)	$	25,936
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	860,816		10,799		(8,715		)	862,900		947,635		13,076		(9,830		)	950,881
Mortgage-Backed Securities – Commercial	58		1		—			59		72		2		—			74
Other Government-Sponsored Enterprises	135,852		5		(228		)	135,629		269,181		4		(1,308		)	267,877
Obligations of States and Political Subdivisions	27,062		176		(173		)	27,065		27,058		362		(43		)	27,377
Corporate Securities	1,892		401		—			2,293		6,682		573		—			7,255
Pooled Trust Preferred Collateralized Debt Obligations	41,745		1,055		(7,279		)	35,521		41,926		309		(13,236		)	28,999
Total Debt Securities	1,089,271		14,953		(16,419		)	1,087,805		1,315,898		16,921		(24,420		)	1,308,399
Equities	1,920		—		—			1,920		1,420		—		—			1,420
Total Securities Available for Sale	$	1,091,191	$	14,953	$	(16,419	)	$	1,089,725	$	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 June 30, 2015, by contractual maturity, are shown below.



	Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due within 1 year	$	3,000	$	2,999
Due after 1 but within 5 years	132,852		132,629
Due after 5 but within 10 years	25,655		25,676
Due after 10 years	45,044		39,204
	206,551		200,508
Mortgage-Backed Securities (a)	882,720		887,297
Total Debt Securities	$	1,089,271	$	1,087,805


(a)	Mortgage Backed Securities include an amortized cost of $21.8 million and a fair value of $24.3 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $860.9 million and a fair value of $863.0 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.

Proceeds from sales, gross gains (losses) realized on sales, maturities and other-than-temporary impairment charges related to securities available for sale were as follows for the six months ended June 30:



	2015		2014
	(dollars in thousands)
Proceeds from sales	$	—	$	—
Gross gains (losses) realized:
Sales Transactions:
Gross gains	$	105	$	—
Gross losses	—		—
	105		—
Maturities and impairment
Gross gains	20		2
Gross losses	—		—
Other-than-temporary impairment	—		—
	20		2
Net gains and impairment	$	125	$	2

Securities available for sale with an estimated fair value of $530.5 million and $563.2 million were pledged as of June 30, 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 June 30, 2015. There were no held to maturity securities at December 31, 2014.



	June 30, 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	$	118,762	$	—	$	(1,117	)	$	117,645
Obligations of States and Political Subdivisions	13,018		5		(214		)	12,809
Total Securities Held to Maturity	$	131,780	$	5	$	(1,331	)	$	130,454

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 June 30, 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	8,061		7,964
Due after 10 years	4,957		4,845
	13,018		12,809
Mortgage-Backed Securities (a)	118,762		117,645
Total Debt Securities	$	131,780	$	130,454


(a)	Mortgage Backed Securities include an amortized cost of $118.8 million and a fair value of $117.6 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 $11.2 million were pledged as of June 30, 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 six months ended June 30, 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 June 30, 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 Agencies:
Mortgage-Backed Securities – Residential	$	2,243	$	(24	)	$	—	$	—		$	2,243	$	(24	)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	225,033		(2,057		)	287,128		(7,775		)	512,161		(9,832		)
Other Government-Sponsored Enterprises	6,793		(7		)	119,429		(221		)	126,222		(228		)
Obligations of States and Political Subdivisions	21,116		(387		)	—		—			21,116		(387		)
Pooled Trust Preferred Collateralized Debt Obligations	—		—			29,859		(7,279		)	29,859		(7,279		)
Total Securities	$	255,185	$	(2,475	)	$	436,416	$	(15,275	)	$	691,601	$	(17,750	)

At June 30, 2015, fixed income securities issued by U.S. Government-sponsored enterprises comprised 57% of total unrealized losses due to changes in market interest rates. Pooled trust preferred collateralized debt obligations accounted for 41% of the unrealized losses primarily due to the illiquid market for this investment type. Obligations of U.S. Government agencies and obligations of state and political subdivisions account for the remaining 2% of total unrealized losses as a result of changes in market interest rates. At June 30, 2015, there are 70 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 June 30, 2015, our corporate securities had an amortized cost and an estimated fair value of $1.9 million and $2.3 million, respectively. As of December 31, 2014, our corporate securities had an amortized cost and estimated fair value of $6.7 million and $7.3 million, respectively. Corporate securities are 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 June 30, 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 June 30, 2015, the book value of our pooled trust preferred collateralized debt obligations totaled $41.7 million with an estimated fair value of $35.5 million, which includes securities comprised of 275 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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

consisted of a security issued by any one institution. As of June 30, 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 11% to 84% of the current performing collateral.

The following table provides information related to our pooled trust preferred collateralized debt obligations as of June 30, 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	$	1,331	$	(499	)	B1/BB	6	18.05	%	57.14	%
Pre TSL VII	Mezzanine	2,847		3,478		631			Ca/-	14	49.68		—
Pre TSL VIII	Mezzanine	1,982		1,791		(191		)	C/C	29	58.01		—
Pre TSL IX	Mezzanine	2,358		1,906		(452		)	B1/C	38	28.14		10.73
Pre TSL X	Mezzanine	1,553		1,889		336			Caa1/C	43	31.60		—
Pre TSL XII	Mezzanine	5,599		4,502		(1,097		)	B3/C	66	23.76		—
Pre TSL XIII	Mezzanine	12,585		10,638		(1,947		)	B3/C	56	25.64		37.87
Pre TSL XIV	Mezzanine	12,784		9,691		(3,093		)	Caa1/CC	56	23.17		47.33
MMCap I	Mezzanine	207		295		88			Ca/C	8	58.11		84.18
Total		$	41,745	$	35,521	$	(6,224	)

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 six months ended June 30, 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 June 30, 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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

•

Credit Analysis – A quarterly credit evaluation is performed for each of the 275 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 June 30, 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 that 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 June 30, 2015, indicates that no credit-related other-than-temporary impairment has occurred on our pooled trust preferred securities during the six months ended June 30, 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 16 with 0% “Excess Subordination as a Percentage of Current Performing Collateral.” For the remaining securities listed in that table, our analysis as of June 30, 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 June 30, 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 21% to 141% 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 is 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 June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
	(dollars in thousands)
Balance, beginning (a)	$	25,707		$	27,254		$	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)	(341		)	(412		)	(662		)	(701		)
Reduction for debt securities called during the period	—			—			(218		)	—
Balance, ending	$	25,366		$	26,842		$	25,366		$	26,842


(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 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 June 30, 2015 and 2014, there were no equity securities in an unrealized loss position.

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, 2015 and December 31, 2014, our FHLB stock totaled $53.3 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 six months ended June 30, 2015.

Note 8 Loans and Allowance for Credit Losses

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



	June 30, 2015		December 31, 2014
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,098,019	$	1,052,109
Real estate construction	125,010		120,785
Residential real estate	1,204,499		1,226,344
Commercial real estate	1,416,841		1,405,256
Loans to individuals	646,485		652,814
Total loans and leases net of unearned income	$	4,490,854	$	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 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:



	June 30, 2015
	Commercial, financial, agricultural and other		Real estate construction		Residential real estate		Commercial real estate		Loans to individuals		Total
	(dollars in thousands)
Pass	$	1,034,313	$	124,518	$	1,192,296	$	1,372,966	$	646,255	$	4,370,348
Non-Pass
OAEM	7,902		458		2,228		29,994		—		40,582
Substandard	55,804		34		9,975		13,881		230		79,924
Doubtful	—		—		—		—		—		—
Total Non-Pass	63,706		492		12,203		43,875		230		120,506
Total	$	1,098,019	$	125,010	$	1,204,499	$	1,416,841	$	646,485	$	4,490,854

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 June 30, 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 June 30, 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.



	June 30, 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	$	636	$	73	$	33	$	15,587	$	16,329	$	1,081,690	$	1,098,019
Real estate construction	—		—		—		34		34		124,976		125,010
Residential real estate	3,013		677		686		8,199		12,575		1,191,924		1,204,499
Commercial real estate	137		739		—		6,345		7,221		1,409,620		1,416,841
Loans to individuals	2,707		625		873		230		4,435		642,050		646,485
Total	$	6,493	$	2,114	$	1,592	$	30,395	$	40,594	$	4,450,260	$	4,490,854

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 becomes 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 in doubt.

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 also 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 $2.4 million of impaired loans held for sale at June 30, 2015. These loans were transferred to held for sale status in the first quarter of 2015 and were sold in July 2015, at which time a gain of $0.4 million was recognized. There were no impaired loans held for sale at December 31, 2014. During the six months ended June 30, 2014, $3.1 million of impaired loans were sold, resulting in the recognition of a gain of $0.1 million. No gains were recognized on the sale of impaired loans during the six months ended June 30, 2015.

Significant nonaccrual loans as of June 30, 2015, include the following:

•

$7.4 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. During the six months ended June 30, 2015, charge-offs of $2.3 million related to this relationship were recorded. A valuation of the collateral was completed during the first quarter of 2015.


•	$5.9 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. Two of these loans were modified resulting

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in TDR classification: one loan totaling $2.3 million was modified in 2012, and the other loan totaling $3.0 million was modified in 2014. During the six months ended June 30, 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 June 30, 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 their period-end allowance position.



	June 30, 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	$	16,809	$	24,267			$	9,439	$	10,937
Real estate construction	34		120				236		476
Residential real estate	11,277		12,861				10,773		12,470
Commercial real estate	8,534		9,402				8,768		10,178
Loans to individuals	302		360				288		337
Subtotal	36,956		47,010				29,504		34,398
With an allowance recorded:
Commercial, financial, agricultural and other	5,195		5,555		1,596		24,826		25,583		9,304
Real estate construction	—		—		—		—		—		—
Residential real estate	328		500		35		367		380		56
Commercial real estate	192		192		44		554		554		101
Loans to individuals	—		—		—		—		—		—
Subtotal	5,715		6,247		1,675		25,747		26,517		9,461
Total	$	42,671	$	53,257	$	1,675	$	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 Six Months Ended June 30,
	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	$	21,691	$	120	$	13,841	$	32
Real estate construction	137		—		2,112		18
Residential real estate	11,025		86		10,602		124
Commercial real estate	8,760		43		8,494		55
Loans to individuals	312		2		290		2
Subtotal	41,925		251		35,339		231
With an allowance recorded:
Commercial, financial, agricultural and other	5,337		72		14,333		76
Real estate construction	—		—		—		—
Residential real estate	319				1,738		15
Commercial real estate	194		3		670		2
Loans to individuals	—		—		—		—
Subtotal	5,850		75		16,741		93
Total	$	47,775	$	326	$	52,080	$	324



	For the Three Months Ended June 30,
	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	$	18,526	$	65	$	12,658	$	14
Real estate construction	36		—		1,148		6
Residential real estate	11,302		45		9,858		75
Commercial real estate	8,682		24		7,388		22
Loans to individuals	316		1		310		1
Subtotal	38,862		135		31,362		118
With an allowance recorded:
Commercial, financial, agricultural and other	5,237		42		15,086		32
Real estate construction	—		—		—		—
Residential real estate	329		—		1,836		7
Commercial real estate	193		1		1,136		1
Loans to individuals	—		—		—		—
Subtotal	5,759		43		18,058		40
Total	$	44,621	$	178	$	49,420	$	158

Unfunded commitments related to nonperforming loans were $0.6 million at June 30, 2015 and $46 thousand at December 31, 2014. After consideration of available collateral related to these commitments, a reserve of $13 thousand and $14 thousand was established for these off balance sheet exposures at June 30, 2015 and December 31, 2014, respectively.

Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the financial difficulties experienced by the borrower, who could not obtain comparable terms from alternate financing sources.

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 detail as to the total troubled debt restructured loans and total commitments outstanding on troubled debt restructured loans:



	June 30, 2015		December 31, 2014
	(dollars in thousands)
Troubled debt restructured loans
Accrual status	$	12,276	$	12,584
Nonaccrual status	8,619		16,952
Total	$	20,895	$	29,536
Commitments
Unused lines of credit	$	2,540	$	4,120

At June 30, 2015, $2.4 million of nonaccrual loans considered to be troubled debt restructured loans are excluded from the above table as they are classified as loans held for sale.

The following tables provide detail, including specific reserves and reasons for modification, related to loans identified as troubled debt restructurings:



	For the Six Months Ended June 30, 2015
		Type of Modification
	Number of Contracts	Extend Maturity		Modify Rate		Modify Payments		Total Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific Reserve
	(dollars in thousands)
Commercial, financial, agricultural and other	3	$	1,751	$	—	$	109	$	1,860	$	1,812	$	53
Residential real estate	16	—		296		503		799		723		7
Commercial real estate	1	—		—		463		463		428		—
Loans to individuals	6	—		61		18		79		66		—
Total	26	$	1,751	$	357	$	1,093	$	3,201	$	3,029	$	60



	For the Six Months Ended June 30, 2014
		Type of Modification
	Number of Contracts	Extend Maturity		Modify Rate		Modify Payments		Total Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific Reserve
	(dollars in thousands)
Commercial, financial, agricultural and other	2	$	1,480	$	—	$	—	$	1,480	$	1,463	$	20
Residential real estate	21	—		291		644		935		895		48
Commercial real estate	1	—		—		12		12		7		—
Loans to individuals	10	—		73		27		100		85		—
Total	34	$	1,480	$	364	$	683	$	2,527	$	2,450	$	68

The troubled debt restructurings included in the above tables are also included in the impaired loan tables provided earlier in this note. Loans defined as modified due to a change in rate may include loans that were modified for a change in rate as well as a reamortization of the principal and an extension of the maturity. For the six months ended June 30, 2015 and 2014, $0.4 million and $0.3 million, respectively, of total rate modifications represent loans with modifications to the rate as well as payment as a result of reamortization. For both 2015 and 2014 the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables provide detail, including specific reserves and reasons for modification, related to loans identified as troubled debt restructurings:



	For the Three Months Ended June 30, 2015
		Type of Modification
	Number of Contracts	Extend Maturity		Modify Rate		Modify Payments		Total Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific Reserve
	(dollars in thousands)
Commercial, financial, agricultural and other	2	$	252	$	—	$	109	$	361	$	317	$	53
Residential real estate	11	$	—	$	45	$	485	$	530	$	525	$	7
Loans to individuals	5	—		61		—		61		56		—
Total	18	$	252	$	106	$	594	$	952	$	898	$	60



	For the Three Months Ended, June 30, 2014
		Type of Modification
	Number of Contracts	Extend Maturity		Modify Rate		Modify Payments		Total Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Specific Reserve
	(dollars in thousands)
Commercial, financial, agricultural and other	1	$	1,420	$	—	$	—	$	1,420	$	1,433	$	—
Residential real estate	8	—		120		126		246		243		2
Loans to individuals	4	—		42		7		49		42		—
Total	13	$	1,420	$	162	$	133	$	1,715	$	1,718	$	2

The troubled debt restructurings included in the above tables are also included in the impaired loan tables provided earlier in this note. Loans defined as modified due to a change in rate may include loans that were modified for a change in rate as well as a reamortization of the principal and an extension of the maturity. For the three months ended June 30, 2015 and 2014, $0.1 million and $0.1 million, respectively, of total rate modifications represent loans with modifications to the rate as well as payment as a result of reamortization. For both 2015 and 2014 the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A troubled debt restructuring is considered to be in default when a restructured loan is 90 days or more past due. The following table provides information related to restructured loans that were considered to be in default during the six months ended June 30:



	2015			2014
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(dollars in thousands)
Residential real estate	2	$	56	2	$	51
Total	2	$	56	2	$	51

The following table provides information related to restructured loans that were considered to be in default during the three months ended June 30:



	2015			2014
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(dollars in thousands)
Residential real estate	2	$	56	1	$	6
Total	2	$	56	1	$	6

The following tables provide detail related to the allowance for credit losses:



	For the Six Months Ended June 30, 2015
	Commercial, financial, agricultural and other			Real estate construction			Residential real estate			Commercial real estate			Loans to individuals			Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	29,627		$	2,063		$	3,664		$	11,881		$	4,816		$	52,051
Charge-offs	(7,940		)	—			(1,050		)	(688		)	(2,383		)	(12,061		)
Recoveries	358			84			239			153			323			1,157
Provision (credit)	1,710			(629		)	70			881			2,165			4,197
Ending Balance	$	23,755		$	1,518		$	2,923		$	12,227		$	4,921		$	45,344
Ending balance: individually evaluated for impairment	$	1,596		$	—		$	35		$	44		$	—		$	1,675
Ending balance: collectively evaluated for impairment	22,159			1,518			2,888			12,183			4,921			43,669
Loans:
Ending balance	1,098,019			125,010			1,204,499			1,416,841			646,485			4,490,854
Ending balance: individually evaluated for impairment	21,419			—			7,700			7,625			—			36,744
Ending balance: collectively evaluated for impairment	1,076,600			125,010			1,196,799			1,409,216			646,485			4,454,110

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	For the Six Months Ended June 30, 2014
	Commercial, financial, agricultural and other			Real estate construction			Residential real estate			Commercial real estate			Loans to individuals			Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	22,663		$	6,600		$	7,727		$	11,778		$	5,457		$	54,225
Charge-offs	(7,859		)	(296		)	(1,735		)	(297		)	(1,562		)	(11,749		)
Recoveries	421			337			323			255			365			1,701
Provision (credit)	6,731			(742		)	(190		)	(75		)	824			6,548
Ending Balance	$	21,956		$	5,899		$	6,125		$	11,661		$	5,084		$	50,725
Ending balance: individually evaluated for impairment	$	4,995		$	—		$	546		$	531		$	—		$	6,072
Ending balance: collectively evaluated for impairment	16,961			5,899			5,579			11,130			5,084			44,653
Loans:
Ending balance	1,062,001			100,709			1,238,791			1,306,752			625,961			4,334,214
Ending balance: individually evaluated for impairment	24,573			486			7,624			6,965			—			39,648
Ending balance: collectively evaluated for impairment	1,037,428			100,223			1,231,167			1,299,787			625,961			4,294,566




	For the Three Months Ended June 30, 2015
	Commercial, financial, agricultural and other			Real estate construction			Residential real estate			Commercial real estate			Loans to individuals			Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	24,406		$	1,528		$	3,387		$	12,487		$	4,889		$	46,697
Charge-offs	(2,860		)	—			(484		)	(486		)	(1,122		)	(4,952		)
Recoveries	158			84			143			15			161			561
Provision (credit)	2,051			(94		)	(123		)	211			993			3,038
Ending Balance	$	23,755		$	1,518		$	2,923		$	12,227		$	4,921		$	45,344




	For the Three Months Ended, June 30, 2014
	Commercial, financial, agricultural and other			Real estate construction			Residential real estate			Commercial real estate			Loans to individuals			Total
	(dollars in thousands)
Allowance for credit losses:
Beginning Balance	$	26,125		$	6,214		$	6,026		$	11,119		$	5,022		$	54,506
Charge-offs	(6,258		)	(296		)	(640		)	(157		)	(752		)	(8,103		)
Recoveries	336			168			79			235			187			1,005
Provision (credit)	1,753			(187		)	660			464			627			3,317
Ending Balance	$	21,956		$	5,899		$	6,125		$	11,661		$	5,084		$	50,725

Note 9 Income Taxes

At June 30, 2015 and December 31, 2014, First Commonwealth had no material unrecognized tax benefits or accrued interest and penalties. If applicable, First Commonwealth will record interest and penalties as a component of noninterest expense. Federal and state tax years 2011 through 2013 were open for examination as of June 30, 2015.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10 Fair Values of Assets and Liabilities

FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, requires disclosures for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). All non-financial assets are included either as a separate line item on the Condensed Consolidated Statements of Financial Condition or in the “Other assets” category of the Condensed Consolidated Statements of Financial Condition. Currently, First Commonwealth does not have any non-financial liabilities to disclose.

FASB ASC Topic 825, “Financial Instruments”, permits entities to irrevocably elect to measure select financial instruments and certain other items at fair value. The unrealized gains and losses are required to be included in earnings each reporting period for the items that fair value measurement is elected. First Commonwealth has elected not to measure any existing financial instruments at fair value under FASB ASC Topic 825; however, in the future we may elect to adopt this guidance for select financial instruments.

In accordance with FASB ASC Topic 820, First Commonwealth groups financial assets and financial liabilities measured at fair value in three levels based on the principal markets in which the assets and liabilities are transacted and the observability of the data points used to determine fair value. These levels are:


•	Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange (“NYSE”). Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities. Level 1 securities include equity holdings comprised of publicly traded bank stocks which were priced using quoted market prices.

•

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained for identical or comparable assets or liabilities from alternative pricing sources with reasonable levels of price transparency. Level 2 includes Obligations of U.S. Government securities issued by Agencies and Sponsored Enterprises, Obligations of States and Political Subdivisions, corporate securities, FHLB stock, loans held for sale, interest rate derivatives (including interest rate caps, interest rate swaps and risk participation agreements), certain other real estate owned and certain impaired loans.

Level 2 investment securities are valued by a recognized third party pricing service using observable inputs. The model used by the pricing service varies by asset class and incorporates available market, trade and bid information as well as cash flow information when applicable. Because many fixed-income investment securities do not trade on a daily basis, the model uses available information such as benchmark yield curves, benchmarking of like investment securities, sector groupings and matrix pricing. The model will also use processes such as an option adjusted spread to assess the impact of interest rates and to develop prepayment estimates. Market inputs normally used in the pricing model include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications.

Management validates the market values provided by the third party service by having another recognized pricing service price 100% of the securities on an annual basis and a random sample of securities each quarter, monthly monitoring of variances from prior period pricing and, on a monthly basis, evaluating pricing changes compared to expectations based on changes in the financial markets.

Other investments recorded in the Condensed Consolidated Statements of Financial Condition are comprised of FHLB stock whose estimated fair value is based on its par value. Additional information on FHLB stock is provided in Note 7, “Impairment of Investment Securities.”

Loans held for sale include residential mortgage loans originated for sale in the secondary mortgage market as well as an impaired commercial loan for which sale was considered an appropriate exit strategy. The estimated fair value for the mortgage loans were determined on the basis of rates obtained in the respective secondary market and the estimated fair value of the commercial loan was determined by market bids obtained from potential buyers.

Interest rate derivatives are reported at an estimated fair value utilizing Level 2 inputs and are included in other assets and other liabilities, and consist of interest rate swaps where there is no significant deterioration in the counterparties' (loan customers') credit risk since origination of the interest rate swap as well as interest rate caps and risk participation agreements. First Commonwealth values its interest rate swap and cap positions using a yield curve by taking market prices/rates for an appropriate set of instruments. The set of instruments currently used to determine the U.S. Dollar yield curve includes cash LIBOR rates from overnight to three months, Eurodollar futures contracts and swap rates from three years to thirty years. These

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

yield curves determine the valuations of interest rate swaps. Interest rate derivatives are further described in Note 11, “Derivatives.”

For purposes of potential valuation adjustments to our derivative positions, First Commonwealth evaluates the credit risk of its counterparties as well as our own credit risk. Accordingly, we have considered factors such as the likelihood of default, expected loss given default, net exposures and remaining contractual life, among other things, in determining if any fair value adjustments related to credit risk are required. We review our counterparty exposure quarterly, and when necessary, appropriate adjustments are made to reflect the exposure.

We also utilize this approach to estimate our own credit risk on derivative liability positions. In 2015, we have not realized any losses due to a counterparty's inability to pay any uncollateralized positions.

The estimated fair value for other real estate owned included in Level 2 is determined by either an independent market-based appraisal less estimated costs to sell or an executed sales agreement.

•

Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. If the inputs used to provide the valuation are unobservable and/or there is very little, if any, market activity for the security or similar securities, the securities would be considered Level 3 securities. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The assets included in Level 3 are pooled trust preferred collateralized debt obligations, non-marketable equity investments, certain interest rate derivatives, certain other real estate owned and certain impaired loans.

Our pooled trust preferred collateralized debt obligations are collateralized by the trust preferred securities of individual banks, thrifts and bank holding companies in the United States. There has been little or no active trading in these securities since 2009; therefore, it is more appropriate to determine estimated fair value using a discounted cash flow analysis. Detail on our process for determining the appropriate cash flows for this analysis is provided in Note 7, “Impairment of Investment Securities.” The discount rate applied to the cash flows is determined by evaluating the current market yields for comparable corporate and structured credit products along with an evaluation of the risks associated with the cash flows of the comparable security. Due to the fact that there is no active market for the pooled trust preferred collateralized debt obligations, one key reference point is the market yield for the single issue trust preferred securities issued by banks and thrifts for which there is more activity than for the pooled securities. Adjustments are then made to reflect the credit and structural differences between these two security types.

Management validates the fair value of the pooled trust preferred collateralized debt obligations by monitoring the performance of the underlying collateral, discussing the discount rate, cash flow assumptions and general market trends with the specialized third party and confirming changes in the underlying collateral to the trustee reports. Management’s monitoring of the underlying collateral includes deferrals of interest payments, payment defaults, cures of previously deferred interest payments, any regulatory filings or actions and general news related to the underlying collateral. Management also evaluates fair value changes compared to expectations based on changes in the interest rates used in determining the discount rate and general financial markets.

The estimated fair value of the non-marketable equity investments included in Level 3 is based on par value.

For interest rate derivatives included in Level 3, the fair value incorporates credit risk by considering such factors as likelihood of default and expected loss given default based on the credit quality of the underlying counterparties (loan customers).

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In accordance with ASU 2011-4, the following table provides information related to quantitative inputs and assumptions used in Level 3 fair value measurements.



	Fair Value (dollars in thousands)			Valuation Technique	Unobservable Inputs	Range / (weighted average)
Pooled Trust Preferred Securities	$	35,521		Discounted Cash Flow	Probability of default	0% - 100% (16.47%)
					Prepayment rates	0% - 73.65% (5.10%)
					Discount rates	5.25% - 12.00% (a)
Equities	1,920			Par Value	N/A	N/A
Impaired Loans	3,215		(b)	Reserve study	Discount rate	10.00%
					Gas per MCF	$1.88 - $5.27 (c)
					Oil per BBL/d	$55.00 - $90.00 (c)
					NGL per barrel	$15.00 (c)
	520		(b)	Discounted Cash Flow	Discount Rate	1.90%
Other Real Estate Owned	18			Internal Valuation	N/A	N/A


(a)	incorporates spread over risk free rate related primarily to credit quality and illiquidity of securities.


(b)	the remainder of impaired loans valued using Level 3 inputs are not included in this disclosure as the values of those loans are based on bankruptcy agreement documentation.


(c)	unobservable inputs are defined as follows: MCF - million cubic feet; BBL/d - barrels per day; NGL - natural gas liquid.

The significant unobservable inputs used in the fair value measurement of pooled trust preferred securities are the probability of default, discount rates and prepayment rates. Significant increases in the probability of default or discount rate used would result in a decrease in the estimated fair value of these securities, while decreases in these variables would result in higher fair value measurements. In general, a change in the assumption of probability of default is accompanied by a directionally similar change in the discount rate. In most cases, increases in the prepayment rate assumptions would result in a higher estimated fair value for these securities while decreases would provide for a lower value. The direction of this change is somewhat dependent on the structure of the investment and the amount of the investment tranches senior to our position.

The discount rate is the significant unobservable input used in the fair value measurement of impaired loans. Significant increases in this rate would result in a decrease in the estimated fair value of the loans, while a decrease in this rate would result in a higher fair value measurement. Other unobservable inputs in the fair value measurement of impaired loans relate to gas, oil and natural gas prices. Increases in these prices would result in an increase in the estimated fair value of the loans, while a decrease in these prices would result in a lower fair value measurement.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis:



	June 30, 2015
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential	$	—	$	24,338	$	—	$	24,338
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential	—		862,900		—		862,900
Mortgage-Backed Securities - Commercial	—		59		—		59
Other Government-Sponsored Enterprises	—		135,629		—		135,629
Obligations of States and Political Subdivisions	—		27,065		—		27,065
Corporate Securities	—		2,293		—		2,293
Pooled Trust Preferred Collateralized Debt Obligations	—		—		35,521		35,521
Total Debt Securities	—		1,052,284		35,521		1,087,805
Equities	—		—		1,920		1,920
Total Securities Available for Sale	—		1,052,284		37,441		1,089,725
Other Investments	—		53,347		—		53,347
Loans held for sale	—		9,817		—		9,817
Other Assets(a)	—		10,563		—		10,563
Total Assets	$	—	$	1,126,011	$	37,441	$	1,163,452
Other Liabilities(a)	$	—	$	9,405	$	—	$	9,405
Total Liabilities	$	—	$	9,405	$	—	$	9,405


(a)	Hedging and non-hedging interest rate derivatives



	December 31, 2014
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential	$	—	$	25,936	$	—	$	25,936
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential	—		950,881		—		950,881
Mortgage-Backed Securities - Commercial	—		74		—		74
Other Government-Sponsored Enterprises	—		267,877		—		267,877
Obligations of States and Political Subdivisions	—		27,377		—		27,377
Corporate Securities	—		7,255		—		7,255
Pooled Trust Preferred Collateralized Debt Obligations	—		—		28,999		28,999
Total Debt Securities	—		1,279,400		28,999		1,308,399
Equities	—		—		1,420		1,420
Total Securities Available for Sale	—		1,279,400		30,419		1,309,819
Other Investments	—		44,545		—		44,545
Loans Held for Sale	—		2,502		—		2,502
Other Assets(a)	—		11,186		—		11,186
Total Assets	$	—	$	1,337,633	$	30,419	$	1,368,052
Other Liabilities(a)	$	—	$	10,671	$	—	$	10,671
Total Liabilities	$	—	$	10,671	$	—	$	10,671


(a)	Hedging and non-hedging interest rate derivatives

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

For the six months ended June 30, changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:



	2015
	Pooled Trust Preferred Collateralized Debt Obligations			Equities		Total
	(dollars in thousands)
Balance, beginning of period	$	28,999		$	1,420	$	30,419
Total gains or losses
Included in earnings	105			—		105
Included in other comprehensive income	7,471			—		7,471
Purchases, issuances, sales, and settlements
Purchases	—			500		500
Issuances	—			—		—
Sales	—			—		—
Settlements	(1,054		)	—		(1,054		)
Transfers into Level 3	—			—		—
Balance, end of period	$	35,521		$	1,920	$	37,441



	2014
	Pooled Trust Preferred Collateralized Debt Obligations			Equities		Loans Held for Sale			Total
	(dollars in thousands)
Balance, beginning of period	$	23,523		$	1,420	$	—		$	24,943
Total gains or losses
Included in earnings	—			—		77			77
Included in other comprehensive income	5,796			—		—			5,796
Purchases, issuances, sales, and settlements
Purchases	—			—		—			—
Issuances	—			—		—			—
Sales	—			—		(3,112		)	(3,112		)
Settlements	(1,165		)	—		—			(1,165		)
Transfers into Level 3	—			—		3,035			3,035
Balance, end of period	$	28,154		$	1,420	$	—		$	29,574

During the six months ended June 30, 2015 and 2014, there were no transfers between fair value Levels 1 and 2. During the six months ended June 30, 2015, there were no transfers between fair value Levels 2 and 3. However, $3.0 million of loans were transferred into Level 3 from Level 2 during the six months ended June 30, 2014 due to the loans being transferred to a held for sale status. The loans transferred and subsequently sold related to three nonperforming loan relationships for which this was determined to be the appropriate exit strategy. There were no gains or losses included in earnings for the periods presented that are attributable to the change in realized gains (losses) relating to assets held at June 30, 2015 and 2014.

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, changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:



	2015
	Pooled Trust Preferred Collateralized Debt Obligations			Equities		Total
	(dollars in thousands)
Balance, beginning of period	$	31,134		$	1,920	$	33,054
Total gains or losses
Included in earnings	—			—		—
Included in other comprehensive income	4,851			—		4,851
Purchases, issuances, sales, and settlements
Purchases	—			—		—
Issuances	—			—		—
Sales	—			—		—
Settlements	(464		)	—		(464		)
Transfers into Level 3	—			—		—
Balance, end of period	$	35,521		$	1,920	$	37,441



	2014
	Pooled Trust Preferred Collateralized Debt Obligations			Equities		Loans Held for Sale			Total
	(dollars in thousands)
Balance, beginning of period	$	27,876		$	1,420	$	—		29,296
Total gains or losses
Included in earnings	—			—		77			77
Included in other comprehensive income	1,053			—		—			1,053
Purchases, issuances, sales, and settlements
Purchases	—			—		—			—
Issuances	—			—		—			—
Sales	—			—		(2,396		)	(2,396		)
Settlements	(775		)	—		—			(775		)
Transfers into Level 3	—			—		2,319			2,319
Balance, end of period	$	28,154		$	1,420	$	—		$	29,574

During the three months ended June 30, 2015 and 2014, there were no transfers between fair value Levels 1 and 2. During the three months ended June 30, 2015, there were no transfers between fair value Levels 2 and 3. However, $2.3 million of loans were transferred into Level 3 from Level 2 during the three months ended June 30, 2014 due to the loans being transferred to a held for sale status. The loans transferred and subsequently sold related to three nonperforming loan relationships for which this was determined to be the appropriate exit strategy.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The tables below present the balances of assets measured at fair value on a non-recurring basis at:



	June 30, 2015
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Impaired loans	$	—	$	31,035	$	9,961	$	40,996
Other real estate owned	—		8,636		18		8,654
Total Assets	$	—	$	39,671	$	9,979	$	49,650



	December 31, 2014
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Impaired loans	$	—	$	34,864	$	10,926	$	45,790
Other real estate owned	—		7,828		153		7,981
Total Assets	$	—	$	42,692	$	11,079	$	53,771

The following losses were realized on the assets measured on a nonrecurring basis:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
	(dollars in thousands)
Impaired loans	$	(382	)	$	(3,020	)	$	(843	)	$	(2,739	)
Other real estate owned	(1,126		)	(728		)	(1,154		)	(1,078		)
Total losses	$	(1,508	)	$	(3,748	)	$	(1,997	)	$	(3,817	)

Impaired loans over $100 thousand are individually reviewed to determine the amount of each loan considered to be at risk of non-collection. The fair value for impaired loans that are collateral based is determined by reviewing real property appraisals, equipment valuations, accounts receivable listings and other financial information. A discounted cash flow analysis is performed to determine fair value for impaired loans when an observable market price or a current appraisal is not available. For real estate secured loans, First Commonwealth’s loan policy requires updated appraisals be obtained at least every twelve months on all impaired loans with balances of $250 thousand and over. For real estate secured loans with balances under $250 thousand, we rely on broker price opinions. For non-real estate secured assets, the Company normally relies on third party valuations specific to the collateral type.

The fair value for other real estate owned determined by either an independent market-based appraisal less estimated costs to sell or an executed sales agreement is classified as Level 2. The fair value for other real estate owned determined using an internal valuation is classified as Level 3. Other real estate owned has a book cost of $6.5 million as of June 30, 2015 and consisted primarily of commercial real estate properties in Pennsylvania. We review whether events and circumstances subsequent to a transfer to other real estate owned have occurred that indicate the balance of those assets may not be recoverable. If events and circumstances indicate further impairment we will record a charge to the extent that the carrying value of the assets exceed their fair values, less estimated cost to sell, as determined by valuation techniques appropriate in the circumstances.

Certain other assets and liabilities, including goodwill and core deposit intangibles, are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. Additional information related to goodwill is provided in Note 12, “Goodwill.” There were no other assets or liabilities measured at fair value on a non-recurring basis during the six months ended June 30, 2015.

FASB ASC 825-10, “Transition Related to FSP FAS 107-1” and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recurring or non-recurring basis are as discussed above. The methodologies for other financial assets and financial liabilities are discussed below.

Cash and due from banks and interest-bearing bank deposits: The carrying amounts for cash and due from banks and interest-bearing bank deposits approximate the estimated fair values of such assets.

Securities: Fair values for securities available for sale and held to maturity are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Pooled trust preferred collateralized debt obligations values are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. These valuations incorporate certain assumptions and projections in determining the fair value assigned to each instrument. The carrying value of other investments, which includes FHLB stock, is considered a reasonable estimate of fair value.

Loans: The fair values of all loans are estimated by discounting the estimated future cash flows using interest rates currently offered for loans with similar terms to borrowers of similar credit quality adjusted for past due and nonperforming loans, which is not an exit price under FASB ASC Topic 820, “Fair Value Measurements and Disclosures.”

Loans Held for Sale: The estimated fair value of loans held for sale is based on market bids obtained from potential buyers.

Off-balance sheet instruments: Many of First Commonwealth’s off-balance sheet instruments, primarily loan commitments and standby letters of credit, are expected to expire without being drawn upon; therefore, the commitment amounts do not necessarily represent future cash requirements. FASB ASC Topic 460, “Guarantees” clarified that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The carrying amount and fair value for standby letters of credit was $0.2 million at June 30, 2015 and December 31, 2014, respectively. See Note 5, “Commitments and Contingent Liabilities,” for additional information.

Deposit liabilities: The estimated fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date because of the customers’ ability to withdraw funds immediately. The carrying value of variable rate time deposit accounts and certificates of deposit approximate their fair values at the report date. Also, fair values of fixed rate time deposits for both periods are estimated by discounting the future cash flows using interest rates currently being offered and a schedule of aggregated expected maturities.

Short-term borrowings: The fair values of borrowings from the FHLB were estimated based on the estimated incremental borrowing rate for similar types of borrowings. The carrying amounts of other short-term borrowings such as federal funds purchased and securities sold under agreement to repurchase were used to approximate fair value due to the short-term nature of the borrowings.

Long-term debt and subordinated debt: The fair value of long-term debt and subordinated debt is estimated by discounting the future cash flows using First Commonwealth’s estimate of the current market rate for similar types of borrowing arrangements or an announced redemption price.

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 carrying amounts and fair values of First Commonwealth’s financial instruments:



	June 30, 2015
			Fair Value Measurements Using:
	Carrying Amount		Total		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	64,321	$	64,321	$	64,321	$	—	$	—
Interest-bearing deposits	3,120		3,120		3,120		—		—
Securities available for sale	1,089,725		1,089,725		—		1,052,284		37,441
Securities held to maturity	131,780		130,454		—		130,454		—
Other investments	53,347		53,347		—		53,347		—
Loans held for sale	9,817		9,817		—		9,817		—
Loans	4,490,854		4,509,268		—		31,035		4,478,233
Financial liabilities
Deposits	4,210,107		4,213,317		—		4,213,317		—
Short-term borrowings	1,231,917		1,231,945		—		1,231,945		—
Subordinated debt	72,167		63,303		—		—		63,303
Long-term debt	39,189		39,819		—		39,819		—



	December 31, 2014
			Fair Value Measurements Using:
	Carrying Amount		Total		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	72,276	$	72,276	$	72,276	$	—	$	—
Interest-bearing deposits	2,262		2,262		2,262		—		—
Securities available for sale	1,309,819		1,309,819		—		1,279,400		30,419
Other investments	44,545		44,545		—		44,545		—
Loans held for sale	2,502		2,502		—		2,502		—
Loans	4,457,308		4,439,766		—		34,864		4,404,902
Financial liabilities
Deposits	4,315,511		4,319,997		—		4,319,997		—
Short-term borrowings	1,105,876		1,105,867		—		1,105,867		—
Subordinated debt	72,167		62,815		—		—		62,815
Long-term debt	89,459		90,319		—		90,319		—

Note 11 Derivatives

Derivatives Not Designated as Hedging Instruments

First Commonwealth is a party to interest rate derivatives that are not designated as hedging instruments. These derivatives relate to interest rate swaps that First Commonwealth enters into with customers to allow customers to convert variable rate loans to a fixed rate. First Commonwealth pays interest to the customer at a floating rate on the notional amount and receives interest from the customer at a fixed rate for the same notional amount. At the same time the interest rate swap is entered into with the customer, an offsetting interest rate swap is entered into with another financial institution. First Commonwealth pays the other financial institution interest at the same fixed rate on the same notional amount as the swap entered into with the customer, and receives interest from the financial institution for the same floating rate on the same notional amount.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties.

We have fifteen risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. We have three risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are the lead bank. The risk participation agreement provides credit protection to us should the borrower fail to perform on its interest rate derivative contract with us.

First Commonwealth is also party to interest rate caps that are not designated as hedging instruments. These derivatives relate to contracts that First Commonwealth enters into with loan customers that provides a maximum interest rate on their variable rate loan. At the same time the interest rate cap is entered into with the customer, First Commonwealth enters into an offsetting interest rate cap with another financial institution. The notional amount and maximum interest rate on both interest cap contracts are identical.

The fee received, less the estimate of the loss for the credit exposure, was recognized in earnings at the time of the transaction.

Derivatives Designated as Hedging Instruments

The Company has entered into four interest rate swap contracts that were designated as cash flow hedges. The interest rate swaps have a total notional amount of $200.0 million, $85.0 million with an original maturity of three years and $115.0 million with and original maturity of four years. The Company's risk management objective for these hedges is to reduce its exposure to variability in expected future cash flows related to interest payments on commercial loans benchmarked to the 1-month LIBOR rate. Therefore, the interest rate swaps convert the interest payments on the first $200.0 million of 1-month LIBOR based commercial loans into fixed rate payments.

The periodic net settlement of interest rate swaps is recorded as an adjustment to Interest and fees on loans in the Condensed Consolidated Statements of Income. For the six months ended June 30, 2015, there was a $0.9 million impact on interest income as a result of these interest rate swaps. Changes in the fair value of the effective portion of cash flow hedges are reported in OCI. When the cash flows associated with the hedged item are realized, the gain or loss included in OCI is recognized in "Interest and fees on loans," the same line item in the Condensed Consolidated Statements of Income as the income on the hedged items. The cash flow hedges were highly effective at June 30, 2015, and December 31, 2014, and changes in the fair value attributed to hedge ineffectiveness were not material.

The following table depicts the credit value adjustment recorded related to the notional amount of derivatives outstanding as well as the notional amount of risk participation agreements participated to other banks:



	June 30, 2015			December 31, 2014
	(dollars in thousands)
Derivatives not Designated as Hedging Instruments
Credit value adjustment	$	95		$	(268	)
Notional Amount:
Interest rate derivatives	264,342			273,388
Interest rate caps	6,094			6,656
Risk participation agreements	123,990			113,624
Sold credit protection on risk participation agreements	(17,731		)	(17,296		)
Derivatives Designated as Hedging Instruments
Fair value adjustment	1,140			472
Notional Amount - Interest rate derivatives	200,000			100,000

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents the amount representing the change in the fair value of derivative assets and derivative liabilities attributable to credit risk included in Other income on the Condensed Consolidated Statements of Income:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2015		2014		2015		2014
	(dollars in thousands)
Non-hedging interest rate derivatives
Increase in other income	$	593	$	342	$	363	$	284
Hedging interest rate derivatives
Increase in interest and fees on loans	557		—		938		—
Increase in other expense	12		—		21		—

Note 12 Goodwill

FASB ASC Topic 350-20, “Intangibles – Goodwill and Other” requires an annual valuation of the fair value of a reporting unit that has goodwill and a comparison of the fair value to the book value of equity to determine whether the goodwill has been impaired. Goodwill is also required to be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. When triggering events or circumstances indicate that goodwill testing is required, an assessment of qualitative factors can be completed before performing the two step goodwill impairment test. ASU 2011-8 provides that if an assessment of qualitative factors determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then the two step goodwill impairment test is not required.

We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as of June 30, 2015 and December 31, 2014 was $161.4 million. No impairment charges on goodwill or other intangible assets were incurred in 2015 or 2014.

We test goodwill for impairment as of November 30th each year and again at any quarter-end if any material events occur during a quarter that may affect goodwill.

As of June 30, 2015, goodwill was not considered impaired; however, changing economic conditions that may adversely affect our performance, the fair value of our assets and liabilities, or our stock price could result in impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

Note 13 New Accounting Pronouncements

In January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items (Subtopic 225-20)," which finalizes Proposed ASU No. 2014-220, and eliminates the concept of extraordinary items from U.S. GAAP. Accordingly, this ASU eliminates FASB ASC Subtopic 225-20, "Income Statement - Extraordinary and Unusual Items", which, until now, required that an entity separately classify, present, and disclose extraordinary events and transactions. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The adoption of this ASU is not expected to have a material impact on First Commonwealth’s financial condition or results of operations.

Table of Contents

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

This discussion and the related financial data are presented to assist in the understanding and evaluation of the consolidated financial condition and the results of operations of First Commonwealth Financial Corporation including its subsidiaries (“First Commonwealth”) for the six months ended June 30, 2015 and 2014, and should be read in conjunction with the Condensed Consolidated Financial Statements and notes thereto included in this Form 10-Q.

Forward-Looking Statements

Certain statements contained in this report that are not historical facts may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute “forward-looking statements” as well. These statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of words such as “may,” “will,” “should,” “could,” “would,” “plan,” “believe,” “expect,” “anticipate,” “intend,” “estimate” or words of similar meaning. These forward-looking statements are subject to significant risks, assumptions and uncertainties, and could be affected by many factors, including, but not limited to: (1) local, regional, national and international economic conditions and the impact they may have on First Commonwealth and its customers; (2) volatility and disruption in national and international financial markets; (3) the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; (4) inflation, interest rate, commodity price, securities market and monetary fluctuations; (5) the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which First Commonwealth or its customers must comply; (6) the soundness of other financial institutions; (7) political instability; (8) impairment of First Commonwealth’s goodwill or other intangible assets; (9) acts of God or of war or terrorism; (10) the timely development and acceptance of new products and services and perceived overall value of these products and services by users; (11) changes in consumer spending, borrowings and savings habits; (12) changes in the financial performance and/or condition of First Commonwealth’s borrowers; (13) technological changes; (14) acquisitions and integration of acquired businesses; (15) First Commonwealth’s ability to attract and retain qualified employees; (16) changes in the competitive environment in First Commonwealth’s markets and among banking organizations and other financial service providers; (17) the ability to increase market share and control expenses; (18) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (19) the reliability of First Commonwealth’s vendors, internal control systems or information systems; (20) the costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals; and (21) other risks and uncertainties described in this report and in the other reports that we file with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K.

In light of these risks, uncertainties and assumptions, you should not place undue reliance on any forward-looking statements in this report. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Explanation of Use of Non-GAAP Financial Measure

In addition to the results of operations presented in accordance with generally accepted accounting principles (“GAAP”), First Commonwealth management uses, and this quarterly report contains or references, certain non-GAAP financial measures, such as net interest income on a fully taxable equivalent basis. We believe this non-GAAP financial measure provides information useful to investors in understanding our underlying operational performance and our business and performance trends as it facilitates comparison with the performance of others in the financial services industry. Although we believe that this non-GAAP financial measure enhances investors’ understanding of our business and performance, this non-GAAP financial measure should not be considered an alternative to GAAP.

We believe the presentation of net interest income on a fully taxable equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income per the Condensed Consolidated Statements of Income is reconciled to net interest income adjusted to a fully taxable equivalent basis on pages 41 and 47 for the six and three months ended June 30, 2015 and 2014, respectively.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Selected Financial Data

The following selected financial data is not covered by the auditor’s report and should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which follows, and with the Condensed Consolidated Financial Statements and related notes.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2015			2014			2015			2014
	(dollars in thousands, except per share data)
Net Income	$	13,447		$	11,928		$	27,668		$	24,228
Per Share Data:
Basic Earnings per Share	$	0.15		$	0.13		$	0.31		$	0.26
Diluted Earnings per Share	0.15			0.13			0.31			0.26
Cash Dividends Declared per Common Share	0.07			0.07			0.14			0.14
Average Balance:
Total assets	$	6,361,156		$	6,231,265		$	6,359,781		$	6,227,145
Total equity	712,110			723,013			715,195			719,583
End of Period Balance:
Net loans							$	4,455,327		$	4,283,489
Total assets							6,316,728			6,300,222
Total deposits							4,210,107			4,460,421
Total equity							711,206			724,504
Key Ratios:
Return on average assets	0.85		%	0.77		%	0.88		%	0.78		%
Return on average equity	7.57		%	6.62		%	7.80		%	6.79		%
Dividends payout ratio	46.67		%	53.85		%	45.16		%	53.85		%
Average equity to average assets ratio	11.19		%	11.60		%	11.25		%	11.56		%
Net interest margin	3.26		%	3.26		%	3.30		%	3.30		%
Net loans to deposits ratio							105.82		%	96.03		%

Results of Operations

Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014

Net Income

For the six months ended June 30, 2015, First Commonwealth had net income of $27.7 million, or $0.31 diluted earnings per share, compared to net income of $24.2 million, or $0.26 diluted earnings per share, in the six months ended June 30, 2014. The increase in net income was primarily the result of an increase in net interest income, reduction in the provision for credit losses and declines in noninterest expense, offset by declines in noninterest income.

For the six months ended June 30, 2015, the Company’s return on average equity was 7.80% and its return on average assets was 0.88%, compared to 6.79% and 0.78%, respectively, for the six months ended June 30, 2014.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, was $95.2 million in the first six months of 2015, compared to $92.7 million for the same period in 2014. This increase was primarily due to growth in earning assets of $145.5 million, a 9 basis point, or $2.0 million, decrease in interest expense and a $1.0 million special dividend on FHLB stock received in 2015. Net interest income comprises a majority of our operating revenue (net interest income before provision expense plus noninterest income) at 75% and 74% for the six months ended June 30, 2015 and 2014, respectively. The net interest margin, on a fully taxable equivalent basis, was 3.30% for both the six months ended June 30, 2015 and June 30, 2014.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The taxable equivalent yield on interest-earning assets was 3.57% for the six months ended June 30, 2015, a decrease of 7 basis points compared to the 3.64% yield for the same period in 2014. Growth in earning assets has helped to offset the spread compression, as average earning assets for the six months ended June 30, 2015 increased $145.5 million, or 3%, compared to the same period in 2014. Average loans for the six months ended June 30, 2015 increased $185.4 million, or 4.3% compared to the same period in 2014. Investment portfolio purchases during the six months ended June 30, 2015 have been primarily in mortgage-related assets with approximate durations of 48-60 months and municipal securities with a duration of five years. The mortgage-related investments have monthly principal payments that will provide for reinvestment opportunities as interest rates rise.

Reductions in the cost of interest-bearing liabilities offset the impact of lower yields on interest-earning assets. The cost of interest-bearing liabilities was 0.34% for the six months ended June 30, 2015, compared to 0.43% for the same period in 2014. This decline is primarily due to a 29 basis point decrease in the cost of time deposits as maturities repriced to lower rates or were replaced with lower cost short-term borrowings.

For the six months ended June 30, 2015, changes in interest rates negatively impacted net interest income by $2.8 million when compared with the same period in 2014. The lower yield on interest-earning assets adversely impacted net interest income by $2.9 million, while the decline in the cost of interest-bearing liabilities had a positive impact of $0.1 million. We have been able to partially mitigate the impact of lower interest rates and the effect on net interest income through improving the mix of deposits and borrowed funds, growing the loan portfolio and increasing our investment volumes within established interest rate risk management guidelines.

While decreases in interest rates and yields compressed the net interest margin, increases in average interest-earning assets offset the effect on net interest income. Changes in the volumes of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $5.3 million in the six months ended June 30, 2015, as compared to the same period in 2014. Higher levels of interest-earning assets resulted in an increase of $3.5 million in interest income, while volume changes decreased interest expense by $1.9 million, primarily as the result of changes in time deposits, including brokered deposits.

Net interest income also benefited from a $104.4 million increase in average net free funds at June 30, 2015 as compared to June 30, 2014. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was an increase of $91.4 million, or 9.8%, in noninterest-bearing demand deposit average balances. Additionally, higher cost time deposits continue to mature and reprice into lower cost deposits or other funding alternatives. Average time deposits for the six months ended June 30, 2015 decreased by $380.2 million compared to the comparable period in 2014.

The following table reconciles interest income in the Condensed Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis for the six months ended June 30:



	2015		2014
	(dollars in thousands)
Interest income per Condensed Consolidated Statements of Income	$	101,235	$	100,672
Adjustment to fully taxable equivalent basis	1,653		1,691
Interest income adjusted to fully taxable equivalent basis (non-GAAP)	102,888		102,363
Interest expense	7,693		9,698
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)	$	95,195	$	92,665

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following is an analysis of the average balance sheets and net interest income on a fully taxable equivalent basis for the six months ended June 30:



	2015							2014
	Average Balance			Income / Expense (a)		Yield or Rate		Average Balance			Income / Expense (a)		Yield or Rate
	(dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits with banks	$	4,385		$	5	0.23	%	$	3,785		$	4	0.21	%
Tax-free investment securities	30,665			593		3.90		5,712			105		3.70
Taxable investment securities	1,288,712			15,594		2.44		1,354,113			15,310		2.28
Loans, net of unearned income (b)(c)	4,488,660			86,696		3.89		4,303,278			86,944		4.07
Total interest-earning assets	5,812,422			102,888		3.57		5,666,888			102,363		3.64
Noninterest-earning assets:
Cash	66,028							71,690
Allowance for credit losses	(50,870		)					(56,239		)
Other assets	532,201							544,806
Total noninterest-earning assets	547,359							560,257
Total Assets	$	6,359,781						$	6,227,145
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)	$	652,583		$	106	0.03	%	$	638,247		$	101	0.03	%
Savings deposits (d)	1,861,432			1,225		0.13		1,896,419			1,167		0.12
Time deposits	741,738			2,699		0.73		1,121,916			5,655		1.02
Short-term borrowings	1,172,957			2,074		0.36		652,243			946		0.29
Long-term debt	134,831			1,589		2.38		213,587			1,829		1.73
Total interest-bearing liabilities	4,563,541			7,693		0.34		4,522,412			9,698		0.43
Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits (d)	1,024,197							932,807
Other liabilities	56,848							52,343
Shareholders’ equity	715,195							719,583
Total Noninterest-Bearing Funding Sources	1,796,240							1,704,733
Total Liabilities and Shareholders’ Equity	$	6,359,781						$	6,227,145
Net Interest Income and Net Yield on Interest-Earning Assets				$	95,195	3.30	%				$	92,665	3.30	%


(a)	Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 35% federal income tax statutory rate.


(b)	Loan balances include held for sale and nonaccrual loans. Income on nonaccrual loans is accounted for on the cash basis.


(c)	Loan income includes loan fees earned.


(d)	Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits, which were made for regulatory purposes.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table shows the effect of changes in volumes and rates on interest income and interest expense for the six months ended June 30, 2015 compared with June 30, 2014:



	Analysis of Year-to-Year Changes in Net Interest Income
	Total Change			Change Due To Volume			Change Due To Rate (a)
	(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks	$	1		$	1		$	—
Tax-free investment securities	488			458			30
Taxable investment securities	284			(739		)	1,023
Loans	(248		)	3,742			(3,990		)
Total interest income (b)	525			3,462			(2,937		)
Interest-bearing liabilities:
Interest-bearing demand deposits	5			2			3
Savings deposits	58			(21		)	79
Time deposits	(2,956		)	(1,923		)	(1,033		)
Short-term borrowings	1,128			749			379
Long-term debt	(240		)	(676		)	436
Total interest expense	(2,005		)	(1,869		)	(136		)
Net interest income	$	2,530		$	5,331		$	(2,801	)


(a)	Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances.


(b)	Changes in interest income have been computed on a fully taxable equivalent basis using the 35% federal income tax statutory rate.

Provision for Credit Losses

The provision for credit losses is determined based on management’s estimates of the appropriate level of the allowance for credit losses needed for probable losses inherent in the loan portfolio, after giving consideration to charge-offs and recoveries for the period. The provision for credit losses is an amount added to the allowance, against which credit losses are charged.

The table below provides a breakout of the provision for credit losses by loan category for the six months ended June 30:



	2015					2014
	Dollars			Percentage		Dollars			Percentage
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,710		40	%	$	6,731		103	%
Real estate construction	(629		)	(15	)	(742		)	(11	)
Residential real estate	70			2		(190		)	(3	)
Commercial real estate	881			21		(75		)	(1	)
Loans to individuals	2,165			52		824			12
Total	$	4,197		100	%	$	6,548		100	%

The provision for credit losses for the six months ended June 30, 2015 decreased in comparison to the six months ended June 30, 2014 by $2.4 million, or 36%, as a result of overall improvement in loan portfolio credit metrics. The majority of the 2015 provision expense is attributable to loans to individuals as a result of charge-offs in the indirect automobile portfolio. The provision expense for commercial, financial, agricultural loans is primarily related to an increase in historical loss factors for this category. Partially offsetting the change in historical loss factors was the release of $1.1 million in specific reserves related to $4.2 million in loans transfered to held for sale in the first quarter of 2015. Real estate construction reflects a negative provision expense due to a decline in historical loss factors for this category.

The majority of the 2014 provision expense is attributable to specific reserves for an $8.0 million commercial industrial relationship which was transferred to nonaccrual status during the first quarter 2014.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The allowance for credit losses was $45.3 million, or 1.01%, of total loans outstanding at June 30, 2015, compared to $52.1 million, or 1.17%, at December 31, 2014 and $50.7 million, or 1.17%, at June 30, 2014. The change compared to December 31, 2014, can be attributed to a $19.6 million, or 14%, decrease in criticized loans, which includes a reduction of $12.6 million, or 23%, in nonperforming loans as well as a $7.8 million decrease in the level of specific reserves held on impaired loans. Nonperforming loans as a percentage of total loans decreased to 1.00% at June 30, 2015 from 1.24% at December 31, 2014 and 1.07% as of June 30, 2014. The allowance to nonperforming loan ratio was 106.26%, 94.21% and 109.59% as of June 30, 2015, December 31, 2014 and June 30, 2014, respectively.

Below is an analysis of the consolidated allowance for credit losses for the six months ended June 30, 2015 and 2014 and the year-ended December 31, 2014:



	June 30, 2015		June 30, 2014		December 31, 2014
	(dollars in thousands)
Balance, beginning of period	$	52,051	$	54,225	$	54,225
Loans charged off:
Commercial, financial, agricultural and other	7,940		7,859		8,911
Real estate construction	—		296		296
Residential real estate	1,050		1,735		3,153
Commercial real estate	688		297		1,148
Loans to individuals	2,383		1,562		3,964
Total loans charged off	12,061		11,749		17,472
Recoveries of loans previously charged off:
Commercial, financial, agricultural and other	358		421		734
Real estate construction	84		337		1,340
Residential real estate	239		323		650
Commercial real estate	153		255		612
Loans to individuals	323		365		766
Total recoveries	1,157		1,701		4,102
Net credit losses	10,904		10,048		13,370
Provision charged to expense	4,197		6,548		11,196
Balance, end of period	$	45,344	$	50,725	$	52,051

Noninterest Income

The following table presents the components of noninterest income for the six months ended June 30:



	2015		2014		$ Change			% Change
	(dollars in thousands)
Noninterest Income:
Trust income	$	2,897	$	2,909	$	(12	)	—	%
Service charges on deposit accounts	7,190		7,933		(743		)	(9	)
Insurance and retail brokerage commissions	4,373		2,995		1,378			46
Income from bank owned life insurance	2,732		2,801		(69		)	(2	)
Card related interchange income	7,147		7,021		126			2
Other income	4,430		4,515		(85		)	(2	)
Subtotal	28,769		28,174		595			2
Net securities gains	125		2		123			6,150
Gain on sale of loans	1,066		76		990			1,303
Gain on sale of other assets	578		3,670		(3,092		)	(84	)
Total noninterest income	$	30,538	$	31,922	$	(1,384	)	(4	)%

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Noninterest income, excluding net securities gains and gain on sale of loans and other assets, increased $0.6 million, or 2%, for the first six months of 2015 compared to 2014. Insurance and retail brokerage commissions increased $1.4 million as a result of increased production and an agency acquisition in the fourth quarter of 2014. Offsetting that increase is a $0.7 million decrease in service charges on deposit accounts and a $0.1 million decrease in the other income category. The decrease in other income can be attributed to $0.3 million in revenue recognized in 2014 from our registered investment advisory business, which was sold in the first quarter of 2014.

Total noninterest income for the six months ended June 30, 2015 decreased $1.4 million in comparison to the six months ended June 30, 2014. The most significant change includes a $3.1 million decrease in gain on sale of other assets as a result of a $1.2 million gain recognized in 2014 from the sale of the Company's registered investment advisory business and the sale of three OREO properties that resulted in gains of $2.4 million. Offsetting that decrease is a $1.0 million increase in the gain on sale of loans due to the Company reentering the secondary mortgage loan sector.

Noninterest Expense

The following table presents the components of noninterest expense for the six months ended June 30:



	2015		2014			$ Change			% Change
	(dollars in thousands)
Noninterest Expense:
Salaries and employee benefits	$	43,893	$	42,941		$	952		2	%
Net occupancy expense	7,227		6,789			438			6
Furniture and equipment expense - excluding IT conversion	5,310		6,427			(1,117		)	(17	)
Data processing expense	2,947		3,010			(63		)	(2	)
Pennsylvania shares tax expense	1,904		1,749			155			9
Intangible amortization	312		356			(44		)	(12	)
Collection and repossession expense	1,428		1,158			270			23
Other professional fees and services	1,875		1,715			160			9
FDIC insurance	2,084		2,100			(16		)	(1	)
Other operating expenses	10,288		10,273			15			—
Subtotal	77,268		76,518			750			1
Loss on sale or write-down of assets	1,897		1,180			717			61
Furniture and equipment expense - related to IT conversion	—		4,152			(4,152		)	(100	)%
Conversion related expenses	—		893			(893		)	(100	)%
Operational losses (recoveries)	1,323		(460		)	1,783			388	%
Total noninterest expense	$	80,488	$	82,283		$	(1,795	)	(2	)%

Noninterest expense, excluding loss on sale or write-down of assets, furniture and equipment expense related to IT conversion, conversion related expenses and operational losses (recoveries), increased $0.8 million, or 1%, for the six months ended June 30, 2015 compared to the same period in 2014. Contributing to the 2015 increases are $1.0 million in salary and employee benefits expense as a result of normal merit increases as well as strategic initiatives such as the launch of the mortgage initiative and the acquisition of an insurance agency. Net occupancy increased $0.4 million due to higher property taxes and building repairs, and collection and repossession expense increased $0.3 million primarily due to costs related to one commercial relationship. Offsetting these increases is a $1.1 million decrease in furniture and equipment expense due to declines in equipment and software maintenance costs as a result of the IT system conversion which was completed in the third quarter of 2014.

Loss on sale or write-down of assets for the six months ended June 30, 2015 increased $0.7 million as compared to the same period in 2014. The loss in 2015 includes $1.1 million in write-downs on three OREO properties recognized as a result of updated appraisals as well as a $0.4 million write-down due to the anticipated sale of a bank building. The sale of this building and closing of the related branch office is estimated to provide $0.2 million in annual savings. The loss on sale or write-down of assets for the six months ended June 30, 2014 included a $0.7 million write-down on one OREO property.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Operational losses (recoveries) increased $1.8 million for the six months ended June 30, 2015. In the first six months of 2015, operational losses are largely due to fraud losses recognized in conjunction with several merchant debit card breaches. The negative expense recognized in the six months ended June 30, 2014 is a result of a $0.9 million insurance recovery related to a fraud loss recognized in 2012.

During the third quarter of 2014, First Commonwealth completed a system conversion to the Jack Henry and Associates SilverLake System core processing software and outsourced certain data processing services that had previously been performed in-house. Expenses related to the conversion included accelerated depreciation for data processing hardware and software, early termination charges on previous contracts, and staffing and employment-related charges. During the six months ended June 30, 2014, $4.2 million in accelerated depreciation and $0.9 million in other conversion related expenses were recognized.

Income Tax

The provision for income taxes increased $1.9 million for the six months ended June 30, 2015, compared to the corresponding period in 2014. The higher provision for income taxes was the result of a $5.3 million increase in the level of income before taxes.

We applied the “annual effective tax rate approach” to determine the provision for income taxes, which applies an annual forecast of tax expense as a percentage of expected full year income, for the six months ended June 30, 2015 and 2014.

We generate an annual effective tax rate that is less than the statutory rate of 35% due to benefits resulting from tax-exempt interest, income from bank-owned life insurance and tax benefits associated with low income housing tax credits, which are relatively consistent regardless of the level of pretax income. The level of tax benefits that reduced our tax rate below the 35% statutory rate produced an annual effective tax rate of 29.8% and 28.9% for the six months ended June 30, 2015 and 2014, respectively.

As of June 30, 2015, our deferred tax assets totaled $40.2 million. Based on our evaluation as of June 30, 2015, we determined that it is more likely than not that all of these assets will be realized. As a result, a valuation allowance against these assets was not needed. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved forecasts, evaluation of historical earning levels and consideration of potential tax strategies. If future events differ from our current forecasts, we may need to establish a valuation allowance, which could have a material impact on our financial condition and results of operations.

Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014

Net Income

For the three months ended June 30, 2015, First Commonwealth had net income of $13.4 million, or $0.15 per share, compared to net income of $11.9 million, or $0.13 per share, in the three months ended June 30, 2014. For the three months ended June 30, 2015, the Company’s return on average equity was 7.57% and its return on average assets was 0.85%, compared to 6.62% and 0.77%, respectively, for the three months ended June 30, 2014. The increase in net income was primarily the result of a reduction in the provision for credit losses, an increase in net interest income and declines in noninterest expense, offset by declines in noninterest income.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, was $47.2 million in the second quarter of 2015, compared to $46.2 million for the same period in 2014. This increase was primarily due a growth in interest-earning assets and a decline in the cost of interest-bearing liabilities. The net interest margin, on a fully taxable equivalent basis, was 3.26% for both the three months ended June 30, 2015 and June 30, 2014.

The taxable equivalent yield on interest-earning assets was 3.52% for the three months ended June 30, 2015, a decrease of 8 basis points compared to the 3.60% yield for the same period in 2014. Growth in earning assets has helped to offset the spread compression, as average interest-earning assets for the three months ended June 30, 2015 increased $131.6 million, or 2%, compared to the comparable period in 2014. Average loans increased $199.7 million, or 4.6%, comparing the three months ended June 30, 2015 to the same period in 2014. Investment portfolio purchases during the three months ended June 30, 2015 have been primarily in mortgage-related assets with approximate durations of 48-60 months and municipal securities with a

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

duration of five years. The mortgage-related investments have monthly principal payments that will provide for reinvestment opportunities as interest rates rise.

Reductions in the cost of interest-bearing liabilities offset the impact of lower yields on interest-earning assets. The cost of interest-bearing liabilities was 0.33% for the three months ended June 30, 2015, compared to 0.43% for the same period in 2014. This decline can be attributed to a 32 basis point decrease in the cost of time deposits, as maturities were repriced lower or replaced with lower cost short-term borrowings.

For the three months ended June 30, 2015, changes in interest rates negatively impacted net interest income by $1.7 million when compared with the same period in 2014. The lower yield on interest-earning assets adversely impacted net interest income by $1.7 million, while the decline in the cost of interest-bearing liabilities had a positive impact of $25 thousand.

While decreases in interest rates and yields compressed the net interest margin, increases in average interest-earning assets offset the effect on net interest income. Changes in the volumes of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $2.7 million in the three months ended June 30, 2015, as compared to the same period in 2014. Higher levels of interest-earning assets resulted in an increase of $1.7 million in interest income, while volume changes decreased interest expense by $1.0 million, primarily as the result of changes in short-term borrowings and time deposits, including brokered deposits.

Net interest income also benefited from a $71.4 million increase in average net free funds at June 30, 2015 as compared to June 30, 2014. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was an increase of $76.7 million, or 7.9%, in noninterest-bearing demand deposit average balances. Additionally, higher cost time deposits continue to mature and reprice into lower cost deposits or other funding alternatives. Average time deposits for the three months ended June 30, 2015 decreased by $419.1 million compared to the comparable period in 2014.

The following table reconciles interest income in the Condensed Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis for the three months ended June 30:



	2015		2014
	(dollars in thousands)
Interest income per Condensed Consolidated Statements of Income	$	50,150	$	50,166
Adjustment to fully taxable equivalent basis	835		814
Interest income adjusted to fully taxable equivalent basis (non-GAAP)	50,985		50,980
Interest expense	3,780		4,783
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)	$	47,205	$	46,197

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following is an analysis of the average balance sheets and net interest income on a fully taxable equivalent basis, for the three months ended June 30:



	2015							2014
	Average Balance			Income / Expense (a)		Yield or Rate		Average Balance			Income / Expense (a)		Yield or Rate
	(dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits with banks	$	3,573		$	2	0.22	%	$	4,184		$	2	0.19	%
Tax-free investment securities	33,553			324		3.87		10,626			98		3.70
Taxable investment securities	1,270,890			7,288		2.30		1,361,353			7,908		2.33
Loans, net of unearned income (b)(c)	4,498,965			43,371		3.87		4,299,228			42,972		4.01
Total interest-earning assets	5,806,981			50,985		3.52		5,675,391			50,980		3.60
Noninterest-earning assets:
Cash	68,974							72,830
Allowance for credit losses	(48,116		)					(56,151		)
Other assets	533,317							539,195
Total noninterest-earning assets	554,175							555,874
Total Assets	$	6,361,156						$	6,231,265
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)	$	665,196		$	62	0.04	%	$	639,313		$	50	0.03	%
Savings deposits (d)	1,861,548			624		0.13		1,872,863			570		0.12
Time deposits	694,725			1,194		0.69		1,113,859			2,796		1.01
Short-term borrowings	1,204,466			1,116		0.37		651,450			477		0.29
Long-term debt	122,410			784		2.57		210,703			890		1.69
Total interest-bearing liabilities	4,548,345			3,780		0.33		4,488,188			4,783		0.43
Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits (d)	1,045,659							968,926
Other liabilities	55,042							51,138
Shareholders’ equity	712,110							723,013
Total noninterest-bearing funding sources	1,812,811							1,743,077
Total Liabilities and Shareholders’ Equity	$	6,361,156						$	6,231,265
Net Interest Income and Net Yield on Interest-Earning Assets				$	47,205	3.26	%				$	46,197	3.26	%


(a)	Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 35% federal income tax statutory rate.


(b)	Loan balances include held for sale and nonaccrual loans. Income on nonaccrual loans is accounted for on the cash basis.


(c)	Loan income includes loan fees earned.


(d)	Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits, which were made for regulatory purposes.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table shows the effect of changes in volumes and rates on interest income and interest expense for the three months ended June 30, 2015 compared with June 30, 2014:



	Analysis of Year-to-Year Changes in Net Interest Income
	Total Change			Change Due To Volume			Change Due To Rate (a)
	(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks	$	—		$	—		$	—
Tax-free investment securities	226			211			15
Taxable investment securities	(620		)	(525		)	(95		)
Loans	399			1,997			(1,598		)
Total interest income (b)	5			1,683			(1,678		)
Interest-bearing liabilities:
Interest-bearing demand deposits	12			2			10
Savings deposits	54			(3		)	57
Time deposits	(1,602		)	(1,055		)	(547		)
Short-term borrowings	639			400			239
Long-term debt	(106		)	(372		)	266
Total interest expense	(1,003		)	(1,028		)	25
Net interest income	$	1,008		$	2,711		$	(1,703	)


(a)	Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances.


(b)	Changes in interest income have been computed on a fully taxable equivalent basis using the 35% federal income tax statutory rate.

Provision for Credit Losses

The table below provides a breakout of the provision for credit losses by loan category for the three months ended June 30:



	2015					2014
	Dollars			Percentage		Dollars			Percentage
	(dollars in thousands)
Commercial, financial, agricultural and other	$	2,051		67	%	$	1,753		53	%
Real estate construction	(94		)	(3	)	(187		)	(6	)
Residential real estate	(123		)	(4	)	660			20
Commercial real estate	211			7		464			14
Loans to individuals	993			33		627			19
Total	$	3,038		100	%	$	3,317		100	%

The provision for credit losses for the three months ended June 30, 2015 decreased slightly in comparison to the three months ended June 30, 2014 by $0.3 million, or 8%. The majority of the 2015 provision expense is attributable to loans to commercial, financial, agricultural and other loans primarily due to increases in historical loss factors, as well as loans to individuals as a result of charge-offs in the indirect automobile portfolio. The residential real estate and real estate construction categories reflect negative provision expense due to declines in the historical loss factor for these categories.

The majority of the 2014 provision expense is attributable to specific reserves for two commercial relationships, which were partially offset by the release of approximately $2.7 million in reserves related to another relationship.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Below is an analysis of the consolidated allowance for credit losses for three months ended June 30, 2015 and 2014 and the year-ended December 31, 2014:



	June 30, 2015		June 30, 2014		December 31, 2014
	(dollars in thousands)
Balance, beginning of period	$	46,697	$	54,506	$	54,225
Loans charged off:
Commercial, financial, agricultural and other	2,860		6,258		8,911
Real estate construction	—		296		296
Residential real estate	484		640		3,153
Commercial real estate	486		157		1,148
Loans to individuals	1,122		752		3,964
Total loans charged off	4,952		8,103		17,472
Recoveries of loans previously charged off:
Commercial, financial, agricultural and other	158		336		734
Real estate construction	84		168		1,340
Residential real estate	143		79		650
Commercial real estate	15		235		612
Loans to individuals	161		187		766
Total recoveries	561		1,005		4,102
Net credit losses	4,391		7,098		13,370
Provision charged to expense	3,038		3,317		11,196
Balance, end of period	$	45,344	$	50,725	$	52,051

Noninterest Income

The following table presents the components of noninterest income for the three months ended June 30:



	2015		2014		$ Change			% Change
	(dollars in thousands)
Noninterest Income:
Trust income	$	1,476	$	1,474	$	2		—	%
Service charges on deposit accounts	3,872		4,141		(269		)	(6	)
Insurance and retail brokerage commissions	2,178		1,600		578			36
Income from bank owned life insurance	1,378		1,432		(54		)	(4	)
Card related interchange income	3,729		3,655		74			2
Other income	2,713		2,533		180			7
Subtotal	15,346		14,835		511			3
Net securities gains	20		2		18			900
Gain on sale of loans	627		76		551			725
Gain on sale of other assets	354		2,089		(1,735		)	(83	)
Total noninterest income	$	16,347	$	17,002	$	(655	)	(4	)%

Noninterest income, excluding net securities gains and gain on sale of loans and other assets, increased $0.5 million, or 3%, for the second quarter of 2015 compared to 2014. Insurance and retail brokerage commissions increased $0.6 million as a result of increased production and an agency acquisition in the fourth quarter of 2014. Offsetting that increase is a $0.3 million decrease in service charges on deposit accounts.

Total noninterest income for the three months ended June 30, 2015 decreased $0.7 million in comparison to the three months ended June 30, 2014. The most significant change includes a $1.7 million decrease in gain on sale of assets due to the sale of an

OREO property in the second quarter of 2014 which resulted in a gain of $2.0 million. This decrease was offset by a $0.6 million increase in gains on the sale of loans due to the Company reentering the secondary mortgage market.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Noninterest Expense

The following table presents the components of noninterest expense for the three months ended June 30:



	2015		2014		$ Change			% Change
	(dollars in thousands)
Noninterest Expense:
Salaries and employee benefits	$	22,001	$	21,897	$	104		—	%
Net occupancy expense	3,316		3,283		33			1
Furniture and equipment expense	2,630		3,158		(528		)	(17	)
Data processing expense	1,509		1,542		(33		)	(2	)
Pennsylvania shares tax expense	1,110		1,038		72			7
Intangible amortization	156		178		(22		)	(12	)
Collection and repossession expense	917		449		468			104
Other professional fees and services	945		691		254			37
FDIC insurance	1,025		1,051		(26		)	(2	)
Other operating expenses	5,067		5,505		(438		)	(8	)
Subtotal	38,676		38,792		(116		)	—
Loss on sale or write-down of assets	1,635		745		890			119
Furniture and equipment expense - related to IT conversion	—		2,091		(2,091		)	(100	)%
Conversion related expenses	—		539		(539		)	(100	)%
Operational losses (recoveries)	323		229		94			41	%
Total noninterest expense	$	40,634	$	42,396	$	(1,762	)	(4	)%

Noninterest expense, excluding loss on sale or write-down of assets, furniture and equipment expense related to IT conversion, conversion related expenses and operational losses (recoveries), decreased $0.1 million for the three months ended June 30, 2015 compared to the same period in 2014. Contributing to the 2015 decrease is $0.5 million in furniture and equipment expense due to lower maintenance costs resulting from the IT system conversion completed in the third quarter of 2014. Other expenses decreased $0.4 million largely due to declines in expense related to data lines and telephones. Offsetting these decreases is a $0.5 million increase in collection and repossession expense as well as a $0.3 million increase in other professional fees and services.

Loss on sale or write-down of assets for the three months ended June 30, 2015 includes $1.1 million in write-downs on three OREO properties recognized as a result of updated appraisals as well as a $0.4 million write-down due to the anticipated sale of a bank building. The loss on sale or write-down of assets for the three months ended June 30, 2014 included a $0.7 million write-down on one OREO property.

During the third quarter of 2014, First Commonwealth completed a system conversion to the Jack Henry and Associates SilverLake System core processing software and outsourced certain data processing services that had previously been performed in-house. Expenses related to the conversion included accelerated depreciation for data processing hardware and software, early termination charges on previous contracts, and staffing and employment-related charges. During the three months ended June 30, 2014, $2.1 million in accelerated depreciation and $0.5 million in other conversion related expenses were recognized.

Income Tax

The provision for income taxes increased $0.9 million for the three months ended June 30, 2015, compared to the corresponding period in 2014. The higher provision for income taxes was the result of a $2.4 million increase in the level of income before taxes.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

relatively consistent regardless of the level of pretax income. The level of tax benefits that reduced our tax rate below the 35% statutory rate produced an annual effective tax rate of 29.4% and 28.5% for the three months ended June 30, 2015 and 2014, respectively.

Liquidity

Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. We generate funds to meet these needs primarily through the core deposit base of First Commonwealth Bank and the maturity or repayment of loans and other interest-earning assets, including investments. During the first six months of 2015, liquidity provided from the net increase in short-term borrowings totaled $126.0 million, while the maturity and redemption of investment securities provided $237.2 million. This liquidity provided funds needed to originate loans, purchase investment securities and fund depositor withdrawals. We also have available unused wholesale sources of liquidity, including overnight federal funds and repurchase agreements, advances from the FHLB of Pittsburgh, borrowings through the discount window at the Federal Reserve Bank of Cleveland (“FRB”) and access to certificates of deposit through brokers.

In order to increase and diversify our funding sources, we participate in the Certificate of Deposit Account Registry Services (“CDARS”) program as part of an Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources. As of June 30, 2015, our maximum borrowing capacity under this program was $945.4 million and as of that date there was $15.0 million outstanding. Also included in this amount is a reciprocal program which allows our depositors to receive expanded FDIC coverage by placing multiple certificates of deposit at other CDARS member banks. As of June 30, 2015, our outstanding certificates of deposits from this program have an average weighted rate of 0.19% and an average original term of 55 days.

An additional source of liquidity is the FRB Borrower-in-Custody of Collateral program, which enables us to pledge certain loans that are not being used as collateral at the FHLB as collateral for borrowings at the FRB. At June 30, 2015, the borrowing capacity under this program totaled $683.8 million and there were no amounts outstanding.

As of June 30, 2015, our maximum borrowing capacity at the FHLB of Pittsburgh was $1.6 billion and as of that date amounts used against this capacity included $1.1 billion in outstanding borrowings and $28.2 million in letter of credit commitments used for pledging public funds and other non-deposit purposes.

We also have available unused federal funds lines with four correspondent banks. These lines have an aggregate commitment of $170.0 million with $24.0 million outstanding as of June 30, 2015.

First Commonwealth Financial Corporation has an unsecured $15.0 million line of credit with another financial institution. As of June 30, 2015, there are no amounts outstanding on this line.

First Commonwealth’s long-term liquidity source is its core deposit base. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. The level of deposits during any period is influenced by factors outside of management’s control, such as the level of short-term and long-term market interest rates and yields offered on competing investments, such as money market mutual funds. The following table shows a breakdown of the components of First Commonwealth’s deposits:



	June 30, 2015		December 31, 2014
	(dollars in thousands)
Noninterest-bearing demand deposits	$	1,068,230	$	989,027
Interest-bearing demand deposits	76,865		81,851
Savings deposits	2,441,888		2,402,288
Time deposits	623,124		842,345
Total	$	4,210,107	$	4,315,511

During the first six months of 2015, total deposits decreased $105.4 million due to a $219.2 million decrease in time deposits partially offset by increases of $34.6 million in interest-bearing demand and savings deposits and $79.2 million in noninterest-bearing deposits. The decrease in time deposits is due to a decline in wholesale certificates of deposit of $135.0 million coupled with a decline in core certificates of deposit of $84.3 million. Wholesale certificates can, at times, offer a more attractive source of incremental funding as they can, depending on market conditions, have a lower incremental cost of funds than traditional certificates of deposit funding.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Market Risk

The following gap analysis compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. The ratio of rate-sensitive assets to rate-sensitive liabilities repricing within a one-year period was 0.72 and 0.69 at June 30, 2015 and December 31, 2014, respectively. A ratio of less than one indicates a higher level of repricing liabilities over repricing assets over the next twelve months. The level of First Commonwealth's ratio is largely driven by the modeling of interest-bearing non-maturity deposits, which are included in the analysis as repricing within one year.

Gap analysis has limitations due to the static nature of the model that holds volumes and consumer behaviors constant in all economic and interest rate scenarios. A lower level of rate sensitive assets to rate sensitive liabilities repricing in one year could indicate reduced net interest income in a rising interest rate scenario, and conversely, increased net interest income in a declining interest rate scenario. However, the gap analysis incorporates only the level of interest-earning assets and interest-bearing liabilities and not the sensitivity each has to changes in interest rates. The impact of the sensitivity to changes in interest rates is provided in the table below the gap analysis.

The following is the gap analysis as of June 30, 2015 and December 31, 2014:



	June 30, 2015
	0-90 Days			91-180 Days			181-365 Days			Cumulative 0-365 Days			Over 1 Year Through 5 Years			Over 5 Years
	(dollars in thousands)
Loans	$	2,257,268		$	182,916		$	297,334		$	2,737,518		$	1,437,103		$	293,278
Investments	105,502			43,298			150,991			299,791			542,397			421,683
Other interest-earning assets	3,120			—			—			3,120			—			—
Total interest-sensitive assets (ISA)	2,365,890			226,214			448,325			3,040,429			1,979,500			714,961
Certificates of Deposit	138,833			106,649			146,017			391,499			227,413			4,212
Other deposits	2,518,753			—			—			2,518,753			—			—
Borrowings	1,304,220			29,738			280			1,334,238			2,440			6,595
Total interest-sensitive liabilities (ISL)	3,961,806			136,387			146,297			4,244,490			229,853			10,807
Gap	$	(1,595,916	)	$	89,827		$	302,028		$	(1,204,061	)	$	1,749,647		$	704,154
ISA/ISL	0.60			1.66			3.06			0.72			8.61			66.16
Gap/Total assets	25.26		%	1.42		%	4.78		%	19.06		%	27.70		%	11.15		%

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES



	December 31, 2014
	0-90 Days			91-180 Days			181-365 Days			Cumulative 0-365 Days			Over 1 Year Through 5 Years			Over 5 Years
	(dollars in thousands)
Loans	$	2,274,687		$	166,818		$	294,772		$	2,736,277		$	1,412,835		$	267,876
Investments	52,057			60,708			125,801			238,566			767,521			338,182
Other interest-earning assets	2,262			—			—			2,262			—			—
Total interest-sensitive assets (ISA)	2,329,006			227,526			420,573			2,977,105			2,180,356			606,058
Certificates of Deposit	278,659			114,932			193,346			586,937			251,153			4,255
Other deposits	2,484,139			—			—			2,484,139			—			—
Borrowings	1,203,176			25,135			29,873			1,258,184			2,385			6,931
Total interest-sensitive liabilities (ISL)	3,965,974			140,067			223,219			4,329,260			253,538			11,186
Gap	$	(1,636,968	)	$	87,459		$	197,354		$	(1,352,155	)	$	1,926,818		$	594,872
ISA/ISL	0.59			1.62			1.88			0.69			8.60			54.18
Gap/Total assets	25.74		%	1.38		%	3.10		%	21.26		%	30.29		%	9.35		%

The following table presents an analysis of the potential sensitivity of our annual net interest income to gradual changes in interest rates over a 12 month time frame as compared with net interest income if rates remained unchanged and there are no changes in balance sheet categories.



	Net interest income change (12 months)
	-200			-100			+100			+200
	(dollars in thousands)
June 30, 2015 ($)	$	(6,800	)	$	(2,251	)	$	(392	)	$	(432	)
June 30, 2015 (%)	(3.6		)%	(1.2		)%	(0.2		)%	(0.2		)%

December 31, 2014 ($)	$	(5,280	)	$	(1,414	)	$	211		$	869
December 31, 2014 (%)	(2.9		)%	(0.8		)%	0.1		%	0.5		%

The following table represents the potential sensitivity of our annual net interest income to immediate changes in interest rates versus if rates remained unchanged utilizing a flat balance sheet.



	Net interest income change (12 months)
	-200			-100			+100			+200
	(dollars in thousands)
June 30, 2015 ($)	$	(12,398	)	$	(6,411	)	$	(466	)	$	(340	)
June 30, 2015 (%)	(6.6		)%	(3.4		)%	(0.3		)%	(0.2		)%

December 31, 2014 ($)	$	(11,925	)	$	(6,532	)	$	577		$	1,511
December 31, 2014 (%)	(6.4		)%	(3.5		)%	0.3		%	0.8		%

The analysis and model used to quantify the sensitivity of our net interest income becomes less reliable in a decreasing 200 basis point scenario given the current low interest rate environment. Results of the 100 and 200 basis point interest rate decline scenario are affected by the fact that many of our interest-bearing liabilities are at rates below 1%, and therefore cannot decline 100 or 200 basis points, yet our interest-sensitive assets are able to decline by these amounts. In the six months ended June 30, 2015 and 2014, the cost of our interest-bearing liabilities averaged 0.34% and 0.43%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 3.57% and 3.64%, respectively.

During the second quarter of 2014, the Company analyzed the assumptions used when estimating the volatility of our non-maturity deposits. As a result of this analysis, the duration of our nonmaturity deposits was determined to be 1.4 years longer

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

than previously modeled and the repricing sensitivity was determined to be 26 basis points less in a 100 basis point increase in interest rates.

During the first quarter of 2015, the Company entered into cash flow interest rate swaps in which we extended the duration of $100.0 million of the $1.3 billion LIBOR based loans in our loan portfolio into fixed interest rates for a period of three or four years. These swaps add two basis points of protection to the net interest margin as a hedge against a prolonged low-rate environment. A similar cash flow interest rate swap, with a notional amount of $100.0 million, was entered into in 2014. Please refer to Note 11, "Derivatives," for additional information on interest rate swaps.

Asset/liability models require that certain assumptions be made, such as prepayment rates on earning assets and the impact of pricing on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon our experience, business plans and published industry experience. While management believes such assumptions to be reasonable, there can be no assurance that modeled results will approximate actual results.

Credit Risk

First Commonwealth maintains an allowance for credit losses at a level deemed sufficient for losses inherent in the loan portfolio at the date of each statement of financial condition. Management reviews the adequacy of the allowance on a quarterly basis to ensure that the provision for credit losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of probable estimated losses.

First Commonwealth’s methodology for assessing the appropriateness of the allowance for credit losses consists of several key elements. These elements include an assessment of individual impaired loans with a balance greater than $0.1 million, loss experience trends and other relevant factors.

First Commonwealth also maintains a reserve for unfunded loan commitments and letters of credit based upon credit risk and probability of funding. The reserve totaled $3.8 million at June 30, 2015 and is classified in "Other liabilities" on the Condensed Consolidated Statements of Financial Condition.

First Commonwealth defines exposure to the Oil and Gas Industry as any borrower who is involved in exploration and production, and any company in the industry supply chain that generates 40% or more of their sales revenue from exploration and production companies.

As of June 30, 2015, the Company had a total of $139.7 million in commitments to the Oil and Gas Industry, with $59.4 million in outstanding loan balances against those commitments. Of this total, commitments of $42.2 million with outstanding balances of $14.5 million are for exploration and production, while $97.5 million in commitments, with outstanding balances of $44.9 million, are related to ancillary businesses.

Two customers account for 82.9% of the loans related to exploration and production and both are pass rated credits. These credit facilities are primarily used to support letters of credit and have little or no usage. Two commercial relationships in this category, totaling $3.8 million, are on non-performing status and have been even before the oil price decline in the third quarter of 2014.

The ancillary businesses sector consist of well services, transportation, and providing equipment and materials to support the oil and gas industry. Two customers, which account for 41.0% of the ancillary business exposure, are bulk transporters of refined product and are not expected to be negatively impacted from lower oil prices. There are four pass rated credits, with total commitments of $42.5 million, in the ancillary business sector that will see some impact from reduced drilling activity due to lower oil and gas prices. The Company will continue to monitor their performance accordingly. One commercial relationship with $2.3 million in outstanding loans for an ancillary business has been on non-performing status since 2012.

Nonperforming loans include nonaccrual loans and loans classified as troubled debt restructurings. Nonaccrual loans represent loans on which interest accruals have been discontinued. Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of the borrower, who could not obtain comparable terms from alternative financing sources. In the first six months of 2015, twenty-six loans totaling $3.2 million were identified as troubled debt restructurings.

The balance of troubled debt restructured loans, including held for sale loans, decreased $6.2 million due primarily to a charge-off of $3.3 million related to a loan relationship with a local energy company, the payoff of a $1.4 million commercial industrial loan with a local lumber company and a $1.2 million charge-off on a loan transferred to held for sale. Please refer to Note 8, “Loans and Allowance for Credit Losses,” for additional information on troubled debt restructurings.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

We discontinue interest accruals on a loan when, based on current information and events, it is probable that we will be unable to fully collect principal or interest due according to the contractual terms of the loan. A loan is also placed on nonaccrual status when, based on regulatory definitions, the loan is maintained on a “cash basis” due to the weakened financial condition of the borrower. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans which are placed on nonaccrual status at 150 days past due.

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The probable risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses or a specifically assigned allowance for loan losses are recognized where appropriate.

Nonperforming loans, including loans held for sale, decreased $10.1 million to $45.1 million at June 30, 2015 compared to $55.3 million at December 31, 2014. This decrease is primarily due to a $3.3 million charge-off related to a commercial industrial loan relationship with a local energy company, a $2.3 million charge-off related to a commercial industrial loan relationship with a local water facility construction company and a $1.4 million payoff related to a commercial relationship with a local lumber company.

The allowance for credit losses as a percentage of nonperforming loans was 106.26% as of June 30, 2015 compared to 94.21% at December 31, 2014 and 109.59% at June 30, 2014. The amount of specific reserves included in the allowance for nonperforming loans was determined by using fair values obtained from current appraisals and updated discounted cash flow analyses. The allowance for credit losses includes specific reserves of $1.7 million and general reserves of $43.7 million as of June 30, 2015. Specific reserves decreased $7.8 million from December 31, 2014, and $4.4 million from June 30, 2014. The decrease in specific reserves in the first six months of 2015 is primarily due to charge-offs of loans which were provided for in prior periods. Management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at June 30, 2015.

Criticized loans totaled $120.5 million at June 30, 2015 and represented 2.7% of the loan portfolio. The level of criticized loans decreased as of June 30, 2015 when compared to December 31, 2014, by $19.6 million, or 14.0%. Classified loans totaled $79.9 million at June 30, 2015 compared to $67.8 million at December 31, 2014, an increase of $12.2 million, or 18.0%. Delinquency on accruing loans for the same period decreased $8.6 million, or 45.7%, the majority of which are commercial real estate and residential real estate loans.

The allowance for credit losses was $45.3 million at June 30, 2015 or 1.01% of total loans outstanding compared to 1.17% reported at December 31, 2014 and 1.17% at June 30, 2014. General reserves, or the portion of the allowance related to loans which were not specifically evaluated for impairment, as a percentage of non-impaired loans were 0.98% at June 30, 2015 compared to 0.97% at December 31, 2014 and 1.04% at June 30, 2014.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table provides information related to nonperforming assets, the allowance for credit losses and other credit-related measures:



	June 30,								December 31, 2014
	2015				2014				December 31, 2014
	(dollars in thousands)
Nonperforming Loans:
Loans on nonaccrual basis	$	21,776			$	28,928			$	25,715
Loans held for sale on a nonaccrual basis	2,432				—				—
Troubled debt restructured loans on nonaccrual basis	8,619				6,793				16,952
Troubled debt restructured loans on accrual basis	12,276				10,566				12,584
Total nonperforming loans	$	45,103			$	46,287			$	55,251
Loans past due 30 to 90 days and still accruing	$	8,607			$	15,499			$	16,163
Loans past due in excess of 90 days and still accruing	$	1,592			$	2,410			$	2,619
Other real estate owned	$	6,539			$	7,817			$	7,197
Loans held for sale at end of period	$	9,817			$	—			$	2,502
Loans outstanding at end of period	$	4,490,854			$	4,334,214			$	4,457,308
Average loans outstanding	$	4,488,660		(a)	$	4,303,278		(a)	$	4,356,566		(b)
Nonperforming loans as a percentage of total loans	1.00		%		1.07		%		1.24		%
Provision for credit losses	$	4,197		(a)	$	6,548		(a)	$	11,196		(b)
Allowance for credit losses	$	45,344			$	50,725			$	52,051
Net charge-offs	$	10,904		(a)	$	10,048		(a)	$	13,370		(b)
Net charge-offs as a percentage of average loans outstanding (annualized)	0.49		%		0.47		%		0.31		%
Provision for credit losses as a percentage of net charge-offs	38.49		%	(a)	65.17		%	(a)	83.74		%	(b)
Allowance for credit losses as a percentage of end-of-period loans outstanding	1.01		%		1.17		%		1.17		%
Allowance for credit losses as a percentage of nonperforming loans (c)	106.26		%		109.59		%		94.21		%


(a)	For the six-month period ended.


(b)	For the twelve-month period ended.


(c)	Does not include nonperforming loans held for sale.

The following tables show the outstanding balances of our loan portfolio and the breakdown of net charge-offs and nonperforming loans, excluding loans held for sale, by loan type as of and for the periods presented:



	June 30, 2015				December 31, 2014
	Amount		%		Amount		%
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,098,019	24	%	$	1,052,109	24	%
Real estate construction	125,010		3		120,785		3
Residential real estate	1,204,499		27		1,226,344		27
Commercial real estate	1,416,841		32		1,405,256		31
Loans to individuals	646,485		14		652,814		15
Total loans and leases net of unearned income	$	4,490,854	100	%	$	4,457,308	100	%

During the six months ended June 30, 2015, loans increased $33.5 million, or less than 1%, compared to balances outstanding at December 31, 2014. All categories of loans reflected growth during the first six months of 2015, except for residental real estate loans and loans to individuals. Declines in the loans to individuals category is primarily due to runoff in home equity installment loans. The decline in residential real estate loans is the result of continued runoff in our mortgage portfolio, as many of the loans originated by our mortgage banking area are sold in the secondary market.

Net charge-offs for the six months ended June 30, 2015 totaled $10.9 million compared to $10.0 million for the six months ended June 30, 2014. The most significant charge-offs during the six months ended June 30, 2015 include a $2.3 million partial

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

charge-off of two commercial industrial loans related to a local energy company and a $1.2 million charge-off of a commercial relationship that was transferred to loans held for sale. During the six months ended June 30, 2014, the most significant charge-offs included $1.9 million recognized on two commercial loans and 16 consumer loan relationships.



	For the Six Months Ended June 30, 2015							As of June 30, 2015
	Net Charge- offs			% of Total Net Charge-offs		Net Charge- offs as a % of Average Loans (annualized)		Nonperforming Loans		% of Total Nonperforming Loans		Nonperforming Loans as a % of Total Loans
	(dollars in thousands)
Commercial, financial, agricultural and other	$	7,582		69.53	%	0.34	%	$	22,004	51.56	%	0.49	%
Real estate construction	(84		)	(0.77	)	—		34		0.08		—
Residential real estate	811			7.44		0.04		11,605		27.20		0.26
Commercial real estate	535			4.91		0.02		8,726		20.45		0.19
Loans to individuals	2,060			18.89		0.09		302		0.71		0.01
Total loans, net of unearned income	$	10,904		100.00	%	0.49	%	$	42,671	100.00	%	0.95	%

As the above table illustrates, commercial, financial, agricultural and other, residential real estate and commercial real estate loans represented a significant portion of the nonperforming loans as of June 30, 2015. See discussions related to the provision for credit losses and loans for more information.

Capital Resources

At June 30, 2015, shareholders’ equity was $711.2 million, a decrease of $4.9 million from December 31, 2014. The decrease was primarily the result of $25.4 million of common stock repurchases and $12.6 million of dividends paid to shareholders, offset by $27.7 million in net income and increases of $4.4 million in the fair value of available for sale investments. Cash dividends declared per common share were $0.14 for the six months ended June 30, 2015 and 2014.

First Commonwealth and First Commonwealth Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on First Commonwealth’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Commonwealth and First Commonwealth Bank must meet specific capital guidelines that involve quantitative measures of First Commonwealth’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. First Commonwealth’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

First Commonwealth maintains capital to absorb unexpected losses. In order to provide assurance that our capital levels are adequate for our risk exposure we test our capital position under several stress scenarios on a bi-annual basis. This analysis is subject to Board of Director review and approval. Our most recent capital stress test was completed in December 2014.

Effective January 1, 2015, the Company is subject to the new regulatory risk-based capital rules adopted by the federal banking agencies implementing Basel III. The most significant changes include higher minimum capital requirements, as the minimum Tier I capital ratio increased from 4.0% to 6.0% and the establishment of a new common equity Tier I capital ratio with a minimum level of 4.5%. Additionally, the new rules improve the quality of capital by providing stricter eligibility criteria for regulatory capital instruments and provide for a phase-in, beginning January 1, 2016, of a capital conservation buffer of 2.5% of risk-weighted assets. This buffer provides a requirement to hold common equity Tier 1 capital above the minimum risk-based capital requirements, resulting in an effective common equity Tier I risk-weighted asset minimum ratio of 7% on a fully phased-in basis.

The Basel III Rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, the existing treatment for accumulated other comprehensive income, which currently does not affect regulatory capital. The Company elected to retain this treatment, which reduces the volatility of regulatory capital levels.

As of June 30, 2015, First Commonwealth and First Commonwealth Bank met all capital adequacy requirements to which they are subject and was considered well-capitalized under the regulatory rules all on a fully phased in basis. To be considered well

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

capitalized, the Company must maintain minimum Total risk-based capital, Tier I risk-based capital, Tier I leverage ratio and Common equity tier I as set forth in the table below:



	Actual				Minimum Capital Required - Basel III Phase-In Schedule				Minimum Capital Required - Basel III Fully Phased-In				Required to be Considered Well Capitalized
	Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio		Capital Amount		Ratio
	(dollars in thousands)
Total Capital to Risk Weighted Assets
First Commonwealth Financial Corporation	$	668,539	12.42	%	$	430,537	8.00	%	$	565,080	10.50	%	$	538,171	10.00	%
First Commonwealth Bank	640,907		11.90		430,728		8.00		565,330		10.50		538,410		10.00
Tier I Capital to Risk Weighted Assets
First Commonwealth Financial Corporation	$	619,374	11.51	%	$	322,903	6.00	%	$	457,446	8.50	%	$	430,537	8.00	%
First Commonwealth Bank	591,742		10.99		323,046		6.00		457,648		8.50		430,728		8.00
Tier I Capital to Average Assets
First Commonwealth Financial Corporation	$	619,374	9.99	%	$	247,967	4.00	%	$	247,967	4.00	%	$	309,959	5.00	%
First Commonwealth Bank	591,742		9.57		247,340		4.00		247,340		4.00		309,175		5.00
Common Equity Tier I to Risk Weighted Assets
First Commonwealth Financial Corporation	$	549,374	10.21	%	$	242,177	4.50	%	$	376,720	7.00	%	$	349,811	6.50	%
First Commonwealth Bank	525,385		9.76		242,284		4.50		376,887		7.00		349,966		6.50

On January 27, 2015, First Commonwealth's Board of Directors authorized a $25.0 million common stock repurchase program. As of June 30, 2015, First Commonwealth had repurchased 2,885,020 shares at an average price of $8.70 per share under this program. This program was completed in May of 2015.

On May 11, 2015, First Commonwealth Bank, the banking subsidiary of First Commonwealth Financial Corporation and Columbus, Ohio based First Community Bank announced the signing of a definitive merger agreement pursuant to which First Commonwealth Bank will acquire First Community Bank in an all-cash deal valued at $14.75 million. First Community Bank has assets of $100 million and operates four branch locations. Upon closing of the transaction, which is expected in October 2015, First Community Bank will merge into First Commonwealth Bank and operate under the First Commonwealth name. First Commonwealth estimates that it will achieve cost saves of approximately 40% of First Community’s operating expenses and that the transaction will be accretive to income in the first full year of operations. First Commonwealth has received all necessary regulatory approvals for completion of the merger.

On July 29, 2015, First Commonwealth Financial Corporation declared a quarterly dividend of $0.07 per share payable on August 21, 2015 to shareholders of record as of August 10, 2015. The timing and amount of future dividends are at the discretion of First Commonwealth's Board of Directors based upon, among other factors, capital levels, asset quality, liquidity and current and projected earnings.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Information appearing in Item 2 of this report under the caption “Market Risk” is incorporated by reference in response to this item.

ITEM 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms of the Securities and Exchange Commission.

In addition, our management, including our Chief Executive Officer and Chief Financial Officer, also conducted an evaluation of our internal controls over financial reporting to determine whether any changes occurred during the current fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. No such changes were identified in connection with this evaluation.

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


ITEM 1.	LEGAL PROCEEDINGS

First Commonwealth and certain of its subsidiaries have been named as defendants in various legal actions arising out of the normal course of business. In the opinion of management, the ultimate resolution of these lawsuits should not have a material adverse effect on First Commonwealth's business, consolidated financial position or results of operations. It is possible, however, that future developments could result in an unfavorable ultimate outcome for or resolution of any one or more of the lawsuits in which First Commonwealth or its subsidiaries are defendants, which may be material to First Commonwealth's results of operations for a particular quarterly reporting period. Litigation is inherently uncertain, and management cannot make assurances that First Commonwealth will prevail in any of these actions, nor can management reasonably estimate the amount of damages that First Commonwealth might incur.


ITEM 1A.	RISK FACTORS

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 27, 2015, an additional share repurchase program was authorized for up to $25.0 million in shares of the Company’s common stock. In May of 2015, the final shares available to be purchased under this plan were purchased. The following table details the amount of shares repurchased under this program during the second quarter of 2015:



Month Ending:	Total Number of Shares Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs*
April 30, 2015	611,813	$	9.08	608,755	105,095
May 31, 2015	104,862	9.07		104,862	—
June 30, 2015	0	0.00		0	—
Total	716,675	$	9.08	713,617

* Remaining number of shares approved under the Plan is based on the market value of the Company's common stock of $9.02 at April 30, 2015.


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable


ITEM 5.	OTHER INFORMATION

None

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 6. EXHIBITS



Exhibit Number	Description	Incorporated by Reference to

31.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith

101	The following materials from First Commonwealth Financial Corporation’s Quarterly Report on Form 10-Q, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income and Comprehensive Income, (iii) the Condensed Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.	Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST COMMONWEALTH FINANCIAL CORPORATION

(Registrant)



DATED: August 7, 2015		/s/ T. Michael Price
		T. Michael Price President and Chief Executive Officer

DATED: August 7, 2015		/s/ James R. Reske
		James R. Reske Executive Vice President and Chief Financial Officer

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FIRST COMMONWEALTH FINANCIAL CORP /PA/ Reports

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