Investment Securities

Securities Available for Sale

Below is an analysis of the amortized cost and fair values of securities available for sale at December 31:



	2017									2016
	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	$	10,556	$	789	$	(7	)	$	11,338	$	15,143	$	1,481	$	(7	)	$	16,617
Mortgage-Backed Securities – Commercial	24,611		—		(462		)	24,149		—		—		—			—
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	632,422		2,622		(9,489		)	625,555		683,601		4,557		(11,305		)	676,853
Mortgage-Backed Securities – Commercial	—		—		—			—		1		—		—			1
Other Government-Sponsored Enterprises	1,098		—		(1		)	1,097		16,700		—		(69		)	16,631
Obligations of States and Political Subdivisions	27,083		327		—			27,410		27,075		195		(41		)	27,229
Corporate Securities	15,907		590		(4		)	16,493		5,903		416		—			6,319
Pooled Trust Preferred Collateralized Debt Obligations	27,499		526		(4,379		)	23,646		39,989		427		(7,124		)	33,292
Total Debt Securities	739,176		4,854		(14,342		)	729,688		788,412		7,076		(18,546		)	776,942
Equities	1,670		—		—			1,670		1,670		—		—			1,670
Total Securities Available for Sale	$	740,846	$	4,854	$	(14,342	)	$	731,358	$	790,082	$	7,076	$	(18,546	)	$	778,612

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.

The amortized cost and estimated fair value of debt securities available for sale at December 31, 2017, by contractual maturity, are shown below:



	Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due within 1 year	$	1,098	$	1,097
Due after 1 but within 5 years	13,989		14,020
Due after 5 but within 10 years	27,083		27,410
Due after 10 years	29,417		26,119
	71,587		68,646
Mortgage-Backed Securities (a)	667,589		661,042
Total Debt Securities	$	739,176	$	729,688


(a)	Mortgage Backed Securities include an amortized cost of $35.2 million and a fair value of $35.5 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $632.4 million and a fair value of $625.6 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 years ended December 31:



	2017			2016			2015
	(dollars in thousands)
Proceeds from sales	$	143,660		$	55,744		$	88,054
Gross (losses) gains realized:
Sales Transactions:
Gross gains	$	359		$	305		$	—
Gross losses	(316		)	(277		)	(284		)
	43			28			(284		)
Maturities and impairment
Gross gains	5,057			589			131
Gross losses	(60		)	—			—
Other-than-temporary impairment	—			—			—
	4,997			589			131
Net gains and impairment	$	5,040		$	617		$	(153	)

Proceeds from the sales of investments for the year ended December 31, 2017 includes the liquidation of the DCB investment portfolio and the sale of small positions in CMO and MBS investments. During 2017, gross gains from maturities and impairment resulted from the early redemption of two pooled trust preferred securities. The successful auction call of PreSTL XIII provided a gain of $4.3 million and the liquidation of PreSTL VII by senior note holders resulted in a gain of $0.7 million.

Proceeds from the sales of investments in 2016 were related to sales of small positions in CMO's and MBS's. During 2016, a gain of $0.6 million was recognized as a result of the early redemption of a pooled trust preferred security with a book value of $3.1 million. This security was redeemed due to an election by the senior note holders to liquidate the trust.

In 2015, a $0.3 million loss was recognized on the sale of approximately $75.0 million of low-yielding U.S. government agency securities. Proceeds from the sale of these securities were reinvested into higher yielding mortgage-backed securities.

Securities available for sale with an approximate fair value of $569.0 million and $445.8 million were pledged as of December 31, 2017 and 2016, 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 December 31:.



	2017									2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	3,925	$	—	$	(14	)	$	3,911	$	4,297	$	—	$	(4	)	$	4,293
Mortgage-Backed Securities – Commercial	58,249		—		(1,394		)	56,855		34,444		—		(561		)	33,883
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	305,126		10		(2,552		)	302,584		280,430		5		(2,527		)	277,908
Mortgage-Backed Securities – Commercial	14,056		—		(71		)	13,985		14,675		—		(142		)	14,533
Obligations of States and Political Subdivisions	40,540		335		(161		)	40,714		38,667		55		(721		)	38,001
Debt Securities Issued by Foreign Governments	200		—		—			200		—		—		—			—
Total Securities Held to Maturity	$	422,096	$	345	$	(4,192	)	$	418,249	$	372,513	$	60	$	(3,955	)	$	368,618

The amortized cost and estimated fair value of debt securities held to maturity at December 31, 2017, 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	$	87	$	87
Due after 1 but within 5 years	3,663		3,660
Due after 5 but within 10 years	35,361		35,534
Due after 10 years	1,629		1,633
	40,740		40,914
Mortgage-Backed Securities (a)	381,356		377,335
Total Debt Securities	$	422,096	$	418,249


(a)	Mortgage Backed Securities include an amortized cost of $62.2 million and a fair value of $60.8 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $319.2 million and a fair value of $316.6 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 $338.3 million and $119.2 million were pledged as of December 31, 2017 and 2016, respectively, to secure public deposits for other purposes required or permitted by law.