First Commonwealth Financial Corp. (FCF)

Q2 2010 Earnings Call

July 29, 2010 02:00 pm ET


Richard Stimel - Communications Manager

John Dolan - President and CEO

Mike Price - President, First Commonwealth Bank

Bob Rout - EVP and CFO

Bob Emmerich - CCO


Tom Alonso - Macquarie

Andy Stapp - J. Riley & Company

Rick Weiss - Janney Capital Markets

Timor Braziller - KBW

Mike Shafir - Stern, Agee & Leach

Matt Schultheis - Boenning & Scattergood

Mac Hodgson – SunTrust

Jay Daniel - Eagle Asset Management



Good afternoon. I would like to everyone to the First Commonwealth second quarter 2010 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions)

Please note that this conference is being recorded. At this time I would like to turn the call over to Richard Stimel, Communications Manager at First Commonwealth. Rich?

Richard Stimel

As a reminder a copy of today’s earnings release can be accessed by logging on to and selecting the Investor Relations link at the top of the page. And then selecting News on the left side of the page. We've also included slide presentations on our Investor Relations page with supplemental financial information that we will reference throughout today's call.

With me in the room today are John Dolan, President and CEO of First Commonwealth Financial Corporation. Mike Price, President of First Commonwealth Bank and Bob Rout, Executive Vice President and Chief Financial Officer. After brief comments from management we will open the call for your questions. For that portion of the call we will be joined by Bob Emmerich, our Chief Credit officer and John Previte, our Senior Vice President with Investments.

Before we begin I would like to caution listeners that this conference call will contain forward-looking statements about First Commonwealth, its business, strategies and prospects. Please refer to our forward-looking statements disclaimer on page 2 of the slide presentation for a description of risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements.

Now I would like to turn the call over to John Dolan.

John Dolan

Thanks Rich and good afternoon. Thank you all for joining us on today's call. With the release of our second quarter financial results this morning we were pleased to report solid overall performance and continuing progress and resolving the credit quality issues that has so dramatically affected our earnings over the past several quarters. While the credit issues we've been managing and working to clear up bids stabilized in the second quarter the continued economic uncertainties require that we remain cautious.

Mike will walk through the credit details, the credit quality details with you a little bit later but in general our second quarter provision for loan losses was significantly lower than both the previous quarters and the provision for the second quarter of last year.

An extensive amount of time and resource have been dedicated to reshaping our risk profile and addressing the exposures of our large credits. In the second quarter we did not experience any significant deterioration in the credits or the collateral evaluations. We did recover $3.6 million during the quarter from previously charged funds as well as releasing specific reserves for a troubled load that paid off.

Credit quality obviously continues to be our top priority and the changes we've made to the structure of our credit function the chart we brought in to lead team and the refinement of our credit policies and guidelines have allowed us to make consistent progress in this area. So while credit quality remains right delayed the focus of our attention, a solid performance to report in virtually every aspect of our community bank and operations.

Revenues continue to grow with net interest income up from the same quarter last year although down from the link quarter. Net interest margin was up 15 basis from the second quarter 2009 and is also up on a year-to-date basis as well. Our gains in net interest margin have been generated from a better deposit mix, improved low pricing and deleveraging our balance sheet. There was also greater moderation in our other than temporary impairment charges predominantly resulting from our pool of preferred securities throughout the quarter and on a year-over-year basis.

On the expense side we continue to contain costs and improve to link manage our expenditures. As I mentioned earlier our deposit mix is an important focus for us that help to enhance our net interest margin. Our deposit gathering efforts have generated a 16% increase in transaction and savings deposit from the second quarter of 2009 through the second quarter of 2010. And we continue to run off term deposits of single service households.

Our client household growth continues to exceed the market and a significant portion of this growth comes directly from our Pittsburgh operations. Our modest loan growth for the quarter was a product of light loan demand and our disciplined underwriting standards. We feel the flat loan growth between now and the end of the year is an optimistic. The uncertainty over exactly where the economy is headed is likely to continue to have an effect on loan demand as will the customers’ willingness to borrow but we see real opportunity to win the market share in the middle market similar lending area by building up this infrastructure.

Corporate finance will also be a point of focus. Both areas we believe will provide growth opportunities in 2011. From the big picture perspective, each uncertainties have only led us to place an even greater emphasis on delivering locally as a responsible community bank and our employees are seeing this through at every level of the organization. Consumer households are up as are small business households.

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