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Goodwill | 9 Months Ended
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Sep. 30, 2011
Goodwill [Abstract] |
Goodwill | Note 14 Goodwill FASB ASC Topic 350, "Intangibles – Other" requires that goodwill be reviewed annually, or more frequently if circumstances indicate that it might be impaired, by comparing the fair value of the goodwill to its recorded value, or carrying value. If the carrying value of goodwill exceeds its fair value, an impairment charge must be recorded. We consider First Commonwealth Financial Corporation to be one reporting unit. The carrying amount of goodwill as of September 30, 2011 and December 31, 2010 was $159.9 million. No impairment charges on goodwill or other intangible assets were incurred in 2011 or 2010. We test goodwill for impairment as of November 30 th each year and again at any quarter-end if any material events occur during a quarter that may affect goodwill. We have evaluated our goodwill for impairment on a quarterly basis since September 30, 2009 as a result of the negative impact other-than-temporary impairment charges and credit losses in our loan portfolio have had on our earnings and stock price. These losses along with ongoing uncertainty in the general economy and the financial markets, which may continue to negatively impact our performance and stock price, resulted in a need to evaluate our goodwill. There has been no change in our annual test date of November 30 th. Goodwill is tested for impairment using a two-step process that begins with an estimation of fair value as of September 30, 2011. The first step compares the estimated fair value of First Commonwealth with its carrying amount, including goodwill. If the estimated fair value exceeds its carrying amount, goodwill is not considered impaired. However, if the carrying amount exceeds its estimated fair value, a second step would be performed that would compare the implied fair value to the carrying amount of goodwill. An impairment loss would be recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. Fair value may be determined using market prices, comparison to similar assets, market multiples, discounted cash flow analysis and other variables. Our Step 1 test for potential goodwill impairment incorporates both income and market based analyses. The income analysis used in our Step 1 incorporates estimated cash flows which extend five years into the future and, by their nature, are difficult to estimate over such an extended time-frame. Factors that may significantly affect the estimates used in our Step 1 income analysis include, but are not limited to, balance sheet growth assumptions, credit losses in our investment and loan portfolios, competitive pressures in our market area, changes in customer base and customer product preferences, changes in revenue growth trends, cost structure, changes in discount rates, conditions in the banking sector and general economic variables. The market approach used in the Step 1 test calculates the change of control price a market participant would pay by adding a change of control premium to the current trading value of the Company. As of September 30, 2011, our Step 1 goodwill analysis indicated that our fair value was approximately 20% below book value. Therefore in accordance with ASC Topic 350-20-35-8, a Step 2 analysis was undertaken. The Step 2 test follows the purchase price allocation under the purchase method described in ASC 820-10, and fair value estimates as defined and prescribed by ASC 820-10-30. To determine the implied fair value of goodwill, the fair value of all assets other than goodwill, less the fair value of liabilities is subtracted from the fair value of the Company. Significant judgment and estimates are involved in estimating the fair value of the assets and liabilities of the Company. Key valuations used in the analysis were the mark-to-fair-value on the loan portfolio, assessment of core deposit intangibles and the mark-to-fair-value of outstanding debt and deposits. As a result of the Step 2 analysis, it was determined that the fair value of our goodwill exceeded its carrying value by approximately 17% and therefore no impairment charge was required. As of September 30, 2011, goodwill was not considered impaired; however, changing economic conditions that may adversely affect our performance, fair value of our assets and liabilities, or 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.

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