First Commonwealth Financial ( FCF)

Q3 2010 Earnings Conference Call

October 28, 2010 2 PM ET


Rich Stimel – Communications Manager

John Dolan – President and CEO

Bob Rout – EVP and CFO

Mike Price – President, First Commonwealth Bank

Bob Emmerich – EVP and Chief Credit Officer

John Previte – SVP, Investments


Andy Stapp – B. Riley & Company

Mike Shafir – Stern, Agee

Damon DelMonte – KBW

Rick Weiss – Janney Montgomery Scott

Julienne Cassarino – Prospector Partners



Good afternoon and welcome to the First Commonwealth third quarter 2010 earnings conference call. All participants will be in a listen-only mode.

(Operator Instructions)

Please note this event is being recorded. At this time I would like to turn the conference over to Rich Stimel, Communications Manager at First Commonwealth. Please go ahead sir.

Rich Stimel

Thank you. 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’ll open the call for your questions. For that portion of the call we’ll be joined by Bob Emmerich, our Chief Credit officer and John Previte, our Senior Vice President of Investments.

Before we begin, I’d 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

Thank you and good afternoon everyone. Thanks for joining us on today’s call. This morning we released our financial results for the third quarter and we’re pleased to announce net income of $10.7 million compared to a loss of $5 million in the third quarter of 2009. The revenue growth we’ve generated year-to-date has been largely driven by a combination of fee income and net interest margin expansion. Net interest margin improved over both the last quarter and third quarter 2009. Our gains in net interest margin are products of more effective deposit mix and the deleveraging of our balance sheet.

Market share we’re continuing to win in consumer and small business segments has enhanced our low cost deposit base. Looking at the year-over-year comparison, our low cost savings and DDA deposits increased 13%, on-time deposits decreased 8%. Throughout 2010 we’ve continued to execute on the strategy to reduce our balance sheet leverage. We sold three quarters of our Municipal Investment Portfolio and sold or participated in eight of our 62 credit commercial relationships that were loan commitments of $15 million or over.

The common stock offering we completed in the third quarter helps us solidify our strong capital base. This will position us well as the economic recovery begins to gain traction and as we continue to build on the momentum of our organic growth. But all of this is taking place in an environment of tremendous economic and political uncertainty, which will require an ongoing focus on improving credit quality and prudent capital management.

We’ll continue our strategic focus of reducing problem assets and mitigating our exposure to large credits but I’ll say we expect more favorable asset quality trends going forward.

Mike Price will speak to the details around credit quality but overall our provision for credit losses was $4.5 million for the third quarter compared to $4 million last quarter and $23 million in the third quarter of last year.

Our nonperforming loans decreased 7% in the third quarter and they’re down 26% since their peak in the first quarter of this year. Again, Mike will delve into these details a little later.

In the third quarter we realized a $4.3 million OTTI charge compared to a $2.1 million charge in the previous quarter and $11.9 million charge in the third quarter of last year. Impairment charges in the third quarter of this year were partially offset by a $1.4 million in realized gains on the sale of the municipal securities. We reduced our exposure on our municipal securities portfolio from $209 million at the end of 2009 to $53 million at the end of the third quarter of 2010.

As 2011 rapidly approaches, we remain committed to growing our retail and small business market share and continuing to improve our funding mix. We also anticipate soft loan demand but believe that genuine opportunity exists as we build our middle market commercial lending infrastructure.

While all these things are taking place within an environment that I believe has fundamentally and permanently changed, and that means the way we do business must develop to reflect these changes. The new regulatory environment will infringe on our ability to generate revenue. At the same time, cost to comply with additional regulatory requirements will increase. With FDIC insurance premiums, credit cycle cost and added regulatory compliance, effectively managing our expenses takes on even greater significance.

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